3 July 2012
Each time the Eurozone puts together another bailout package the markets follow with a brief (sometimes very brief) rally, which collapses pretty much as soon as reality reasserts itself and it becomes obvious that most of the measures constitute creative ways of kicking the can down the road, while those more ambitious measures that are more than kicking the can down the road are probably overly ambitious and not likely to be practical policies in the midst of a financial crisis.
Simply from a practical point of view, it is difficult to imagine how anyone can believe that a more comprehensive fiscal and political union can be brought about in the midst of the crisis, although formulated with the best intentions of saving the Eurozone, since the original (and much more limited) Eurozone was negotiated, planned, and implemented over a period of many years, not over a period of few days as inter-bank loan rates are climbing by the hour. Apart from this practical problem, there are several issues of principle at stake in the Eurozone crisis and the attempts to rescue the European Monetary Union.
Mario Monti was quoted in a Reuter’s article, Monti says EU hinges on summit talks outcome: report, in defense of strengthening financial and political ties within the Eurozone as a way to save that Euro that:
“Europeans know where they’re going… the markets are convinced that having given birth to the euro, the will to make it indissoluble and irrevocable is there and will be strengthened by other steps towards integration.”
Can the Euro be made “indissoluble and irrevocable”? Can anything be made indissoluble and irrevocable? I think not, and this is a matter of principle to which I attach great importance.
I have several times quoted Edward Gibbon on the impossibility of present legislators binding the acts of future legislators:
“In earthly affairs, it is not easy to conceive how an assembly equal of legislators can bind their successors invested with powers equal to their own.”
Edward Gibbon, History of the Decline and Fall of the Roman Empire, Vol. VI, Chapter LXVI, “Union Of The Greek And Latin Churches.–Part III.
Since I have quoted this several times (in The Imperative of Regime Survival, The Institution of Language, and The Chilean Model, e.g.), implicitly maintaining that it states an important principle, I am now going give this principle a name: Gibbon’s Principle of Inalienable Autonomy for Political Entities, or, more briefly, Gibbon’s Principle.
As I have tried to make explicit, Gibbon’s Principle holds for political entities, but I have also quoted a passage from Sartre that presents essentially the same idea for individuals rather than for political entities:
“I cannot count upon men whom I do not know, I cannot base my confidence upon human goodness or upon man’s interest in the good of society, seeing that man is free and that there is no human nature which I can take as foundational. I do not know where the Russian revolution will lead. I can admire it and take it as an example in so far as it is evident, today, that the proletariat plays a part in Russia which it has attained in no other nation. But I cannot affirm that this will necessarily lead to the triumph of the proletariat: I must confine myself to what I can see. Nor can I be sure that comrades-in-arms will take up my work after my death and carry it to the maximum perfection, seeing that those men are free agents and will freely decide, tomorrow, what man is then to be. Tomorrow, after my death, some men may decide to establish Fascism, and the others may be so cowardly or so slack as to let them do so. If so, Fascism will then be the truth of man, and so much the worse for us. In reality, things will be such as men have decided they shall be. Does that mean that I should abandon myself to quietism? No. First I ought to commit myself and then act my commitment, according to the time-honoured formula that “one need not hope in order to undertake one’s work.” Nor does this mean that I should not belong to a party, but only that I should be without illusion and that I should do what I can. For instance, if I ask myself ‘Will the social ideal as such, ever become a reality?’ I cannot tell, I only know that whatever may be in my power to make it so, I shall do; beyond that, I can count upon nothing.”
Jean-Paul Sartre, “Existentialism is a Humanism” (lecture from 1946, translated by Philip Mairet)
This I will now also name with a principle: Sartre’s Principle of Inalienable Autonomy for Individuals, or, more briefly, Sartre’s Principle.
If that weren’t already enough principles for today, I going to formulate another principle, and although this is my own I’m not going to name it after myself after the fashion of the names I’ve given to Gibbon’s Principle or Sartre’s Principle. This additional principle is The Principle of the Political Primacy of the Individual (admittedly awkward — I will try to think of a better name for this): political autonomy is predicated upon individual autonomy. In other words, Gibbon’s Principle carries the force that it does because of Sartre’s Principle, and this makes Sartre’s Principle the more fundamental.
At present I am not going to argue for The Principle of the Political Primacy of the Individual, but I will simply assume that Gibbon’s Principle supervenes upon Sartre’s Principle, but I wanted to make clear that I understand that there are those who would reject this principle, and that there are arguments on both sides of the question. There is no establish literature on this principle so far as I know, as I am not aware that anyone has previously formulated it in an explicit form, but I can easily imagine arguments taken from classic sources that bear on both sides of the principle (i.e., its affirmation or its denial).
Because, as Sartre said, “men are free agents and will freely decide,” the Euro cannot be made “indissoluble and irrevocable” and the attempt to try to make it seem so is pure folly. For in order to maintain this appearance, we must be dishonest with ourselves; we must make claims and assertions that we know to be false. This cannot be a robust foundation for any political effort. If, tomorrow, a deeper economic and political union of the Eurozone becomes of the truth of Europe, this does not mean that the day after tomorrow that this will remain the truth of Europe.
And this brings us to yet another principle, and this principle is a negative formulation of a principle that I have formulated in the past, the principle of historical viability. According to the principle of historical viability, an existent must change as the world changes or it will be eliminated from history. This means that entities that remain in existence must be so malleable that they can change in their essence, for if they fail to change, they experience adverse selection.
A negative formulation of the principle of historical viability might be called the principle of historical calamity: any existent so constituted that it cannot change is doomed to extinction, and sooner rather than later. In other words, any effort that is made to make the Euro “indissoluble and irrevocable” not only will fail to make the Euro indissoluble and irrevocable, but will in fact make the Euro all the more vulnerable to historical forces that would destroy it.
When I previously discussed Gibbon’s Principle and Sartre’s Principle (before I had named these principles as such) in The Imperative of Regime Survival, I cited an effort in Cuba to incorporate Castro’s vision of Cuba’s socio-economic system into the constitution as a permanent feature of the government of Cuba that would presumably hold until the end of time. This would be laughable were it not the source of so much human suffering and misery.
Well, the Europeans aren’t imposing any misery on themselves on the level of that which has been imposed upon the Cuban people by their elites, but the folly in each class of elites is essentially the same: the belief that those in power today, at the present moment, are in a privileged position to dictate the only correct institutional model for all time and eternity. In other words, the End of History has arrived.
Why not make the Euro an open, flexible, and malleable institution that can respond to political, social, economic, and demographic changes? Sir Karl Popper famously wrote about The Open Society and its Enemies — ought not an open society to have open institutions? And would not open institutions be those that are formulated with an eye toward the continuous evolution in the light of further and future experience?
To deny Gibbon’s Principle and Sartre’s Principle is to count oneself among the enemies of open societies and open institutions.
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11 June 2012
Last week it was reported that Cristina Fernández de Kirchner would convert her savings from dollars to pesos, and urged her ministers to do likewise in order to provide an example and to give a concrete demonstration of faith in the Argentinian currency — and, by extension, the economy of Argentina (cf. Argentina’s President Fernandez stops saving in dollars). Then the Financial Times published Dollar curbs squeeze Argentine economy by Jude Webber in Buenos Aires. What’s going on with Argentina and dollars?
What’s going on is an illustration of Gresham’s law, commonly stated as “bad money drives out good money” (and also known as the “Copernicus-Gresham Law” because it was earlier formulated by Copernicus). While one often thinks of “bad” money as debased coinage, in cases of de facto currency pluralism, when more than one form of legal tender is employed in economic transactions, the distinct forms of currency might individually gain a reputation as “good” or “bad.” Argentine pesos are losing their value at an official inflation rate of almost 10 percent, but at an unofficial rate that may be several times higher. As a result, Argentina has been experiencing substantial capital flight as people look for safe places to put their money. In response to capital flight, the government has attempted to crack down with regulations on buying dollars.
The limitations placed on dollars is having an effect in the wider economy because, as the FT article cited above explains, real estate prices in Argentina are denominated in dollars. In other words, with big ticket items you have to come up with dollars because people don’t trust pesos when a lot of money is on the line. The FT article said, “Consequently the property market is paralysed, with a knock-on effect on construction.”
Another way to express the denomination of real estate transactions in dollars would be to say that the real estate market in Argentina has been dollarized — a de facto dollarization, to be sure, but still a dollarization. And with a substantial portion of the economy dollarized, but with the greater part of the economy still denominated in pesos, Argentina has de facto currency pluralism.
At present the situation is a mildly tense standoff between a people and its government; the people are trying to secure as much of their savings as they can, while the government is trying to clamp down on strategies of securing savings that exports them from the country or transforms them into dollars. Maybe it would be better to call this a cat-and-mouse game than a standoff. But the worry here is that a tipping point will be reached and instead of a slow-motion sequestering of good money, there will be a sudden loss of confidence that generates a run on the banks. People in Argentina know what it is like to go to the bank and not be able to withdraw their money, so they are with drawing it now and either sending it abroad or buying something with it that is relatively immune to inflation, financial panic, and economic collapse.
As I have said in many posts in the past, this kind of situation is potentially devastating to the middle class. The poor have no savings and live from day to day; the rich already have most of their money invested elsewhere in the world in financial instruments not directly connected to their country of origin. It is the middle class that has a little bit of money in the bank — saved for a home, saved to start a business, saved for an education, or what have you — that suddenly becomes unavailable in the financial panic, and in the aftermath of the panic may be devalued to some tiny portion of its former value. Again, it is the middle class who do not have the connections or the knowledge or the financial savvy and expertise to shelter their modest savings that are most at risk. And they know it.
Argentina’s economy is large, and therefore diverse and robust, but the level of mismanagement that is the case at present leaves one wondering how long the game of musical chairs can go one before the music stops. The recent re-nationalization of YPF is only a symbol of a much more pervasive government intervention in markets that is not serving the people of Argentina (though the move to re-nationalize YPF was widely popular — I have my Twitter account set to tell me what is “trending” in Argentina, and in the wake of the re-nationalization there were several trending topics related to YPF, all of them favorable to the re-nationalization). The economy is now hemmed in by restrictions and regulations that are choking off trade.
Argentina is turning its back on globalization both by regulations that are hampering international trade and by essentially opting out of global financial markets by failing to address the long term structural issues that led to its default. The FT article cited above quoted Martín Redrado (former governor of the Argentine central bank who was tossed out by Cristina Fernández) as follows:
“Argentina is not part of the international financial community so cannot access international credit markets and does not have [large] portfolio flows or investment flows. The trade surplus, which is decreasing, is the only source of dollars.”
It sounds a bit strange to say it, but what we have here is Juche South American style — an attempt to be economically self-sufficient which sounds good rhetorically but runs counter to everything we know about economics. Trade benefits everyone involved. That’s why people trade. If they did not see it in their interest to trade, they would not trade. The Argentine government is painting itself into a corner where its only remaining economic strategy is to keep ratcheting up the same regulations that are choking the life out of the economy.
Of course, there is always the possibility of reversing that strategy and deconstructing the artificial barriers to trade that choke economic growth, but when a government is politically and ideologically tied to a particular strategic economic policy, reversing that policy can create a lack of political confidence that is parallel to the lack of economic confidence that causes bank runs.
The de facto dollarization of some sectors of the Argentine economy puts definite limits on the extent to which the government can ratchet up further restrictions on the use of dollars, but as long as dollars are in use, the “good” dollars will be hoarded while the “bad” pesos will be used in exchange, in line with Gresham’s law. At the same time, a flourishing black market in dollars required for certain transactions (like real estate), with dollars trading at a premium well above the official exchange rate, fosters a sense of cynicism and a contempt for rule of law. When institutions force individuals into crime and dishonesty simply in order to go about the daily business of life (like buying a house), it is difficult to have any really genuine faith in these institutions.
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Mining is the paradigmatic resource-extraction industry. For the miners themselves, mining has always been dirty, dangerous, and difficult. Technological improvements have made mining slightly less dangerous than it was, but it is still a dangerous activity, as even today miners continue to be trapped underground in mining accidents that capture the world’s attention. Technology has also allowed mining to become a Brobdingnagian industry, scaled up to a seemingly inhuman enormity, leveling entire mountains and permanently altering landscapes.
Mining has often been the only industry to operate in relatively isolated areas — one must mine where the resources are, which means creating an industrial infrastructure in the middle of the wilderness, hiring locals as miners who may have never before worked in any industrial occupation, and transporting the extracted minerals to distant markets, which also means a transportation network. I tried to make this point in my post on Appalachia and American Civilization, where I wrote:
When the Industrial Revolution came to Appalachia, it came in the form of mining. The furnaces of the Industrial Revolution needed coal, and coal was there to be mined. So while earlier industries bypassed isolated Appalachia, the need for coal drove the industrial development of the region. And after a long history of poverty, the mining jobs were welcome.
What was true of isolated Appalachia has been true to many isolated regions of the world that have been discovered to possess mineral wealth. To all these regions, the Industrial Revolution arrived in the form of mining. Of Appalachian mining I also wrote:
Industrial scale mining requires a major capital investment, and this guaranteed that the industries involved in developing coal mining in the region would be very large companies with major capital resources. And the nature of mining guaranteed that the labor involved is difficult and dangerous in the extreme. Miners live an unenviable life. The harshness of the life of the average miner and the capital required by an industry to develop large scale coal mining virtually guaranteed a profound disconnect between management and labor in Appalachia’s coal mining industry.
The relative isolation of many mineral rich regions has meant that there was little in the way of local capital available to develop the resource extraction industries that could be supported by the minerals; this in turn means that the capital and the expertise must come from outside. When the investment and the expertise all comes from outside, that leaves only the most menial and difficult jobs for the local labor force, which, before the arrival of the mining industry, may never have been employed in any industrial occupation, never have punched a time clock, never have worked for wage labor, and never before have seen what industrialized civilization looks like.
In other words, the typical worker that gets recruited to be a miner goes more-or-less directly from subsistence farming in an agriculturally marginal area, probably will little or no formal education, into industrial wage labor. For these individuals, the industrial revolution is experienced personally as a personal revolution (a micro-temporal revolution). This change is so radical (and in most societies is played out over decades or more) one cannot be surprised that those who experience this radical change are themselves radicalized. The workers are first radicalized by their work, in so far as the change from isolated subsistence agriculturalism to industrialization constitutes a radical change in way of life; an individual open to one radical change is likely to be open to another radical change, and another after that. This is one course (inter alia) of political instability.
This process of radicalization through radical change in life — social change experienced directly as personal change — has a long history in Andean South America, and it began in Potosí, where the Spanish found a mountain literally made of silver. The system of colonial overlords overseeing vast numbers of peasant laborers — the model of development that the Spanish imposed throughout Spanish America — was iterated on an industrial scale in Potosí. The city is now a UNESCO Heritage site, which the organization describes as follows:
“Potosí is the one example par excellence of a major silver mine in modern times. The city and the region conserve spectacular traces of this activity: the industrial infrastructure comprised 22 lagunas or reservoirs, from which a forced flow of water produce the hydraulic power to activate the 140 ingenios or mills to grind silver ore. The ground ore was then amalgamated with mercury in refractory earthen kilns called huayras or guayras. It was then moulded into bars and stamped with the mark of the Royal Mint. From the mine to the Royal Mint, the whole production chain is conserved, along with dams, aqueducts, milling centres and kilns. Production continued until the 18th century, slowing down only after the country’s independence in 1825.”
It was primarily the silver from Potosí that filled the Spanish treasure ships that each year brought the wealth of the New World to the Old World, and it was the same massive influx of silver into the Spanish economy that caused one of the first ruinous episodes of hyperinflation in human history, more or less marginalizing the Spanish economy in Europe until the twentieth century.
Potosí is in what is now Bolivia, and Bolivia continues to have a remarkable history of miner-led strikes and social struggles. Moreover, since miners have access to dynamite, these struggles often become violent and deadly. One revolt by Bolivian miners has been called a revolution (cf. 60 years since the 1952 Bolivian revolution), and the Federación Sindical de Trabajadores Mineros de Bolivia (FSTMB) continues to be a force in Bolivian politics (cf., e.g., Bolivian miners reject foreign investors).
Before the miner-led 1952 revolution, radical leaders of the FSTMB in 1946 formulated the “Pulacayo Theses” (“Las Tesis de Pulacayo”), which is a remarkable document by any measure — radical in conception, sweeping in scope, and detailed in its provisions. The third of these theses is this:
Bolivia pese ha ser país atrasado sólo es un eslabón de la cadena capitalista mundial. Las particularidades nacionales representan en sí una combinación de los rasgos fundamentales de la economía mundial.
Bolivia despite being backward country has only one link in the global capitalist chain. National peculiarities represent an original combination of the fundamental features of the global economy.
This is precisely the point I have tried to make, and which is implicit in my book Political Economy of Globalization: resource extraction industries, and particularly those that visit upon their host countries the “resource curse,” are not the outgrowth of broadly-based economic development. In the words of the Pulacayo Theses, such extraction points are linked to the global economy at only one point. This is a fragile link to the main body of industrial-technological civilization, and a vulnerable link.
Many strikes by miners, not only in Bolivia but all over the world, have been epic in proportion, dragging on for years and involving thousands (even in the heart of the industrialized world, as in the UK miners’ strike of 1984–1985). Some of these strikes have been more like miniature civil wars than industrial actions. Recently Peru has seen violent and deadly conflicts over mining (c.f., Peru anti-mining protest leader arrested near Cusco). In Peru, as in Bolivia, mining is big business. It is, in fact, again like Bolivia, the most obvious way in which the global economy is connected to Peru.
Peru is the second largest producer of copper in the world and the sixth largest producer of gold. Global mining companies have invested billions in the extraction of these minerals, and are set to invest more. The Peruvian economy is among the most dynamically growing in Latin America at present, and it seems set to join Brazil and Chile as a stable democratic nation-state in which the quality of lives of the citizens gradually yet predictably improves. This is something like a miracle if we recall the state of affairs in Peru during the worst of the Sendero Luminoso years (though the group is still in existence and even regularly updates a website — and there is also the “Committee to Support the Revolution in Peru” based in well-heeled Berkeley, California).
Mining is a crucial component of the economic and industrial growth of Peru. Multinationals Xstrata and Newmont have enormous operations in the country, as does the Peruvian industrial concern Buenaventura. Newmont is considering an investment of nearly five billion USD in a copper and gold mining project. But as the investment grows and the industry grows, the tension grows with it. Whether or not the institutions of Peruvian society are now strong enough to contain these tensions and channel them constructively into political activity is yet to be see. It will not be easy.
Of course, Peru is not Bolivia, and vice versa. Bolivia never experienced anything like the level of violence and brutality of the Sendero Luminoso campaign in Peru, and Peru has not experienced the level of political instability that has characterized Bolivia’s history. Peru’s capital, Lima, was the City of Kings, and the center of Spanish administration in the New World. In contrast, even though Potosí was the source of legendary wealth, and once the largest city in the Western Hemisphere because of the silver mining, it was always on the periphery politically. Thus in Spanish America, Peru was related to Bolivia as center to periphery.
Nevertheless, there is something to be learned, and learning here is the crucial term. The resource extraction industries have made the same egregious mistakes with such predictable regularity, and resulting in the same predictable regularity of popular action in opposition, that I suspect that all parties to this wearisome political cycle are guilty of a near total absence of creative thinking on the problem. In circumstances like this, it can honestly be said that we need a revolution — but a revolution in the way of doing business, including the ordinary business of life.
Something needs to be done about the shallow industrial base of those places in the world where the global economy has a footprint of a single point. Local capital and local expertise need to join local labor, or the effort is manifestly unsustainable.
Local communities need to adjust their expectations and their way of life just as much as businesses need to adjust their way of doing business. Even if the way of life has not changed in thousands of years, it is changing now, and whether it is minerals or tourists or something else, the old ways are being crowded out as industrial-technological civilization continues its relentless expansion. Modernization isn’t just a good idea, it is the only way the these traditional communities will survive — admittedly, at some cost to tradition, but when the alternative is annihilation and extinction, change would seem to be preferable.
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24 May 2012
It continues to be a fascinating exercise to read the Financial Times each day to see the ongoing machinations and maneuvering around the fate and future of the Eurozone currency union. Some say it will be held together; others say Greece and a few others will leave the currency union and things will be fine; there are a few who insist that a Greek exit means that the currency union will collapse altogether. I have myself added to this lengthy debate with several posts, such as What would a rump Eurozone look like? and The Economic Future of Europe.
|Euro area Member States|
|Non-euro area Member States|
|Member States with an opt-out|
I have suggested that with the departure of marginal economies (nation-states that never were peer-competitors to the core Eurozone economies) will leave the Euro stronger than before, and with prospects for a distant futurity. The proof of this is that, while the Euro is down on international currency markets, it has not been aggressively bid down in a scenario such as would be the case if currency traders expected the Euro to be circling the drain. In comparison to other major world currencies, the Euro remains today in a stronger position than when it was first issued.
Which countries have adopted the euro - and when?
|1999||Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland|
|2002||Introduction of euro banknotes and coins|
However, some of the recent arguments I have read suggesting that the Eurozone cannot continue to exist in its current form post-Greek departure have in them a hard kernel of truth. Some of this is semantics: if we say that the Euro cannot continue in its current form, all we are saying is that it could continue in an altered form. Read a little deeper in the context, though, and it becomes apparent that there rather more pessimism about the Euro than is captured by a mere semantic shift from the Euro based in the current Eurozone and a Euro based in a Eurozone minus Greece, Portugal, Spain, Italy, and Ireland.
One of the reasons that the Euro is not being aggressively bid down on international currency markets is that the core Eurozone economies have strong fundamentals, and these fundamentals are not going to disappear in a puff of smoke even if the Euro evaporates. Germany and France will continue to do business in some currency or other, and while their economies would take a major hit from the demise of the currency union, their fundamentals will ensure that they will recover and eventually resume economic expansion.
What I would like to suggest is that the Eurozone adopt a policy of economic shock therapy and take the bad news all at once, on the principle that a ratcheting downward of the Eurozone would create economic chaos and uncertainly each time a nation-state departed the currency union (a consequence of European leaders’ failure to see far enough down the road to make institutional provisions for both entry into and exit from the Eurozone). Europe could conceivably perpetuate the crisis of the Eurozone for a decade if marginal member nation-states fell away once every year or two. This would be a worst-case scenario that would set back the whole of the European economy for more than a decade as ongoing adjustments are made in the wake of further departures.
However, such a radical shock therapy need not mean the abandonment of some kind of currency union in Europe. I have suggested previously that the nation-states of Northern Europe that are on a more-or-less equal economic footing, and with more-or-less comparable social institutions and expectations, can work together well within a currency union in which tough economic standards are expected, enforced, and adhered to. Such a currency union of Northern Europe would roughly correspond to the extent of the Hanseatic League, which was a medieval trading group that flourish in the later middle ages and the early modern period — an international trading corporation before there was any such legal entity as a corporation or any such political entity as a nation-state (and therefore no sense of “internationalism” as we think of it today).
A currency union in Northern Europe that roughly approximated the geographical region that once comprised the Hanseatic League would, I think, not only be sustainable, but would be a benefit to its members in the same way that being part of the Hanseatic League was a benefit to these late medieval and early modern merchants with their trading depots around the Baltic Sea. Rather than being dragged backward by non-compliant members, a union of economic peers would serve to pull each other forward. Strong provisions in any treaty governing such a union could ensure this not only by having a clearly defined legal process for departure from the union, but also, and as importantly, a clearly defined legal process to eject non-compliant members from the union.
In the map of Europe that I have colored below I have identified in a bright (Euro!) blue those nation-states that could probably cooperate in a strong Northern European currency union. This union could be “strong” in terms of its exclusivity and its willingness to exclude members that failed to maintain acceptable macro-economic targets. Membership would be a privilege, not a right; in the initial enthusiasm for the Euro, the sense of exclusivity was lost, which sentiment standing in for enforceable macro-economic standards. This Northern European currency union could be called, in deference to history, the Hansazone, and the currency could be called the “Hansa.” If the Swedes and the English could be persuaded to join too, all the better. This would work; the Eurozone as it is now constituted does not work.
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21 May 2012
OK. So the G-8 summit at Camp David has concluded with an official communique, a declaration laying out the agenda of member nation-states, with the top agenda item (nos. 2 through 9) being “The Global Economy.” There is scarcely a word in the document that is not hedged. Even in the title to this section we have an equivocation, since by “the global economy” the G-8 really means their concerns about the Eurozone — whether Greece will leave the currency union, what follow-on contagion effects such a Greek departure might have, whether there will be a run on European banks, how much the Eurozone economies will contract as a result of the financial crisis, and whether market pressures will also force Portugal, Spain, Ireland, and possibly even Italy out of the Eurozone.
The G-8 declaration talks the talk of growth. Indeed, it talks a lot about growth. The word “growth” appears ten times in sections 2 through 9. The G-8 has even seen fit to include such dispensably obvious nostrums as, “Our imperative is to promote growth and jobs.” If you have to say it, you’re probably already in trouble. And in fact we know that the Eurozone already is in trouble. The bill has come due for 67 years of welfare state largesse, which means that two or three generations of Europeans have been raised up in the belief that they are entitled to a cradle-to-grave social support network, regardless of consequences or conditions.
Here are some further unsurprising declarations from the G-8 declaration:
“…we commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us.”
“We welcome the ongoing discussion in Europe on how to generate growth, while maintaining a firm commitment to implement fiscal consolidation to be assessed on a structural basis.”
“We all have an interest in the success of specific measures to strengthen the resilience of the Eurozone and growth in Europe.”
There is a sense in which it is almost comical to engage in public rhetoric of growth while the Eurozone economies are shrinking because of the financial crisis and the greatest worry is stopping a run on the banks, but if it is comical it is black humor and no laughing matter.
What exactly does “growth” mean in this artfully vague declaration by the G-8? “Walking the walk” of growth might mean Keynesian-style financial stimulus, in which governments would undertake to spend money (perhaps on “shovel-ready” projects) in order to “kick-start” the economy by the influx of money, jobs, and economic activity. It might even mean the economically largest nation-states in the Eurozone — Germany and France — using their money for economic stimulus in Greece, Portugal, Ireland, Spain, and Italy. And how long would such a practice be expected to continue? Once you begin spending German money on Greek construction projects, where does it end? More likely, the talk of growth means Eurobonds mutually issued and mutually backed, with the proceeds ploughed into the ailing economies. These aren’t really “growth” measures; they are firewalls to contain a crisis, but they must be said to be about “growth” because the public does not want to hear about austerity.
Does anyone believe that this is really going to happen? The Eurobonds might happen, but the longer the crisis goes unresolved, the more those Eurozone nation-states with something to lose will hesitate to throw good money after bad. And since there is a tendency to kick the can down the road rather than to take decisive action, things can easily go from bad to worse, making it look like marginal Eurozone members are clearly not worth saving, and even more clearly not worth sacrifices on the part of another nation-states and their peoples.
So what is really going on here? Under pressure from vacuous protests from people who are angry but have no ideas that will move the debate forward, no constructive policy prescriptions, and no agenda beyond an economic cri de cœur, the heads of state of the largest and wealthiest nation-states in the world today have issued a vacuous declaration. This is, in short, a feel-good measure — tit-for-tat vacuity.
However, dangerous illusions are perpetrated by vacuous protests and vacuous declarations intended to mollify vacuous protests: the idea that government declarations can create jobs or grow the economy, the idea that government services can expand while tax revenues fall, the idea that no one need suffer in an economic downturn, the idea that someone or some institution is to blame for the business cycle, and that by punishing the malefactors that the body politic can be made whole again. This is not an exhaustive list.
The most obvious and most dangerous illusion is that talk can substitute for action. There is a very old phrase for those who will not be honest about their public pronouncements: crying wolf. What happens when you cry wolf too many times? No one pays attention when there really is a wolf at the door.
If you prefer a Biblical reference to a fairy tale, I can cite Jeremiah 6:14, where the prophet says, “They have healed also the hurt of the daughter of my people slightly, saying, Peace, peace; when there is no peace.” Our politicians today say growth, growth when there is no growth, and there is no prophet who is apparently willing to speak truth to power in this respect, despite the superficial currency of that slogan (i.e., “speaking truth to power”).
Finally, if you prefer classical antiquity to fairy tales or Bible prophets, I can cite the famous passage from Thucydides about corruption of language that came from radicalization during the Peloponnesian War:
“Words had to change their ordinary meaning and to take that which was now given them. Reckless audacity came to be considered the courage of a loyal ally; prudent hesitation, specious cowardice; moderation was held to be a cloak for unmanliness; ability to see all sides of a question, inaptness to act on any. Frantic violence became the attribute of manliness; cautious plotting, a justifiable means of self-defence. The advocate of extreme measures was always trustworthy; his opponent a man to be suspected.”
Though we face no war like the Peloponnesian War, we see that under the political pressure of the economic crisis in Europe that words are forced to change their ordinary meanings. Dishonesty and the degradation of language have follow-on effects every bit as severe as austerity measures: it becomes impossible to discuss the economy honestly, impossible to tell people what they need to hear, and difficult if not impossible to act decisively when decisive action might make a decisive difference.
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14 May 2012
There is no question that it is unwise to engage in speculation at a time when events are poised at a moment of decision, but is there any moment that is truly free of historical consequence, when speculation might be a safer and more certain undertaking? I think not. Another time I will attempt to explain why not, which involves a careful consideration of several points in the philosophy of history, but I will leave that particular justification for another time and boldly press forward on the prospects of the Euro and the Eurozone, even as the Greeks continue to have difficulties forming a government after their recent elections, and even as the new president-elect of France, Francois Hollande, has not yet revealed the precise policies that will be implemented in the attempt to make good on his campaign promises assuring growth instead of austerity.
I have several times discussed the nature and difficulties of the Eurozone, first in a trio of posts about the crisis in Greece as it first become evident — The Dubious Benefits of the Eurozone and Will the Eurozone Enact a Greek tragedy? and Can punitive fiscal policy work? — and then in further posts about the Eurozone periphery more generally, beyond Greece — A Return to the Good Old Days, Can collective economic security work? and Poor Cousins. My most frequently read post on the Euro, Shorting the Euro, while still accurate is no longer timely. Since then I wrote What would a rump Eurozone look like?.
The Eurozone is a great economic experiment in the way that the US is a great political experience: both have represented a revolutionary new order while building on past experience. This, if nothing else, makes the Eurozone fascinating. In the categories of my own thought the Eurozone is not quite an intelligent institution since it was constituted with mechanisms for nation-states to enter the Eurozone but no mechanisms for a nation-state to exit the Eurozone. Most culpably of all, the Eurozone was designed without a mechanism for either 1) forcing compliance of member states with its standards, or 2) forcing member states to collectively come to the aid of a failing member state (or, I could also observe, some combination of the two).
If the Eurozone had had either of these two mechanisms — compulsory and enforceable standards, or compulsory wealth transfer from richer to poorer states — the acute problem in Greece at the moment, and the possibly chronic problems in Italy, Spain, Portugal, and Ireland, would present definite options. Without a formal mechanism for resolving the crisis, the financial crisis becomes a political crisis that it did not have to become.
The consensus in the financial press at the present time is that the Franco-German core of the Euro will remain intact, and that Francois Hollande will not set out to enact any radically socialist policies (cf. President Hollande and the IMF) that would doom either France or the Euro to the kind of perpetual economic twilight experienced by the nationalizing likes of Hugo Chavez, Evo Morales, or Cristina Fernandez de Kirchner. Hollande knows well enough on which side France’s bread is buttered, and his campaign rhetoric must be understood as something entirely parallel to the “red meat” speeches given in the US by both Republicans and Democrats during the primary season, only to be dialed back drastically when it comes to the general election.
But matters are altogether different outside the Franco-German core of the Eurozone, as what was once merely whispered is now on the front pages of the newspapers: the likelihood that Greece will leave the Eurozone. (cf. Greece, France and the future of the euro and EU central bankers ponder Greece euro exit) Indeed, today’s Financial Times had Greece on the front page (Fear grows of Greece leaving euro) and the inside pages (Greek exit from eurozone ‘possible’) as well as a new week-long series, “If Greece goes…”
What will the Greeks do if they leave the Eurozone? Will they take to the printing presses and start printing Drachmas until everyone has a satisfying pocketful of money and the economy is driven into hyperinflation and the Greeks impose on themselves the austerity that they were unwilling to accept from the Germans? Since it seems to be universally believed that a bloated public sector and no expectation of paying taxes is a good thing, maybe they will suspend taxes altogether in Greece, and add anyone who likes to the public payroll dole. Not surprisingly, such steps aren’t going to revitalize the Greek economy, promote prosperity, or stoke economic growth.
What Greece does have to offer is an enormous tourist industry, whose beaches and islands and quaint hotels with tavernas around the corner will suddenly become attractive to northern Europeans when they once again because an inexpensive playground, which will happen if Greece exits that Euro and allows a fully floating Drachma that can be bid down on the international currency markets. Of course, tourists hate riots, and they would prefer not to see news stories about pensioners committing suicide in the capital as a protest. A single negative newspaper story can ruin an entire tourist season, and the hotels and restaurants wait and hope that next year will be better.
This may sound cynical, but it is realistic, and as close to true as I cam capable of getting. In actual fact, the reintroduction of the Drachma will necessarily be partial. The very wealthy already hold their assets in financial instruments not directly linked to Greece. Those not truly wealthy, but who have enough assets that they know to protect themselves, will already have their assets (other than real estate) moved out of Greece to the extent that this is possible. For the lower income bracket, the lower prices that will likely come (barring hyperinflation) from Greece re-adjusting its internal price mechanisms will make life slightly more affordable, but any assets held in Greece will essentially be ruined.
In practice, Greece will use both the Drachma and the Euro, because the Euro isn’t going away; the Euro will continue to be used in the rest of Europe, and will continue to be used as a secondary reserve currency around the world. The Euro will continued to be used in Greece, but Greece will no longer have any rights in determining administration of the Euro. I suggested once that the adoption of the Euro in peripheral European countries could be understood as a pre-emptive Euroization of the European periphery, with “Euroization” understood analogously to “Dollarization.” Greece will be related to the Euro as Ecuador is related to the US dollar. In fact, Greece will come close to approximating what I have called currency pluralism.
Under these conditions, the Greek economy will slowly and gradually improve its position, but no one will mistake the Greek economy as a peer competitor to the core states of the Eurozone. The Greeks will learn that if they riot, they will damage the one source of revenue that they can count on — tourism — and those who can accept this deal will reconcile themselves to life in the slow lane. The ambitious will leave for other parts of Europe or to America.
What will the rest of Europe do upon the exit of Greece from the Eurozone?
The Eurozone is a paradigmatically technocratic institution that presumes to organize and administrate the ordinary business of life without imposing any kind of ideological constraints on member states. Critics of the free market model of western capitalism linked to liberal democracy never tire of pointing out the ideological presuppositions of trans-national institutions like the Eurozone, the World Bank, and the IMF. I imagine that many of the Greek leftists now aspiring to form a government probably buy into much of this critique. But as they rail against the center and consciously enact policies intended to prove that they were right all along, they will only be guaranteeing the economic marginalization of Greece.
The implicit ideology of the Eurozone, however, is not that of the “Washington Consensus” with its deregulation and privatization, low tax rates and minimal government (otherwise known as Yanqui imperialism). Rather, the ideology of the Eurozone is that of the post-modern welfare state, with its cradle-to-grave social support system and a social consensus in which (in the words of the oft-disparaged Malthus), “each man’s share of labour would be light, and his portion of leisure ample.” You can call this the “Brussels Consensus” if you like.
In very small nation-states with ethnically homogeneous populations and a strong Protestant work ethic, the Brussels consensus works marvelously — in fact, it works better in such places than it works in Brussels itself. And that is why the Scandinavian nation-states regularly top all lists of the world’s stable democracies with the highest standards of living. But the rest of Europe, much less the rest of the world, cannot make itself over as Sweden or Norway, Denmark or Finland. However, those regions of Europe and the Eurozone that already approximate this social milieu, will continue to thrive in the economic context of the Eurozone.
As the Eurozone moves northward and begins to add stable and growing economies from the former Soviet periphery — chiefly Poland, but also the Baltic states — the geographical area of the Eurozone will come more and more to resemble that of the Hanseatic League, the great medieval trading network of Northern Europe (a trans-national corporation from before the age of nations and corporations). If you are unfamiliar with the Hanseatic Leagues, I urge you to watch Jonathan Meades’ wonderful documentary, Magnetic North, which offers a sketch of the trading bloc that is both erudite and amusing.
The Glory that was Greece and the Grandeur that was Rome may soon be severed from the industry and commerce that is Northern Europe, and Europe will continual to evolve regionally in ways that are consistent with regional economic cultures. Balkan Greece will have its own Orthodox tradition in the Balkans. Catholic Southern Europe (Italy, Spain, Portugal, and the Mediterranean islands) will eventually realize its own slower track version of the Eurozone, closer to the Eurozone than Greece, but not quite the same as the Franco-German core. Protestant Northern Europe will continue to optimize the currency union for those nation-states that are capable of maintaining the economic standards of the Eurozone.
If the Eurozone treaty can grow and evolve and change with the times, the Eurozone that will result will be more efficient and effective than the Eurozone as it is known today. If only those nation-states that are peer competitors can enter the currency union on terms of being true economic equals, this bond will grow and strengthen over time. The “Euroized” periphery will benefit from the trickle-down from a vibrantly economically competitive Northern European economic zone, but life will be different for them. It is silly to pretend otherwise.
There will be both opportunities and dangers in this changed and changing Europe. As has been the case from time out of mind, the clever and the ambitious will exploit the opportunities and will live well; the slow and the timid will will accept their lot.
Thus Europe will come to exemplify the maxim that Thucydides attributed to Athens at the height of Athenian hubris, though displaced from the political into the economic realm: the strong will do as they will, while the weak will suffer what they must.
Is this kind of economic hubris unsustainable? Not in the least. It was the model for Europe in antiquity, as we have seen in the case of Athens, and which was no less true of Rome, and it was the model for Europe again throughout the Middle Ages. This is the European way, however much they seek to deny it.
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1 May 2012
After having written, just a few days ago, about declensionism as the possibly now-dominant narrative in the US (in From American Exceptionalism to American Declensionism), it seems a bit odd to take up the topic of whether happy days are here again, but I have been noticing subtle rhetorical shifts in the media that suggest that, no matter the pessimism and cynicism of the moment, Americans are always willing (if not eager) to believe in a better tomorrow. Reinvention — personal, institutional, civic, national — is one of the central themes of the American narrative, and this includes the continual reinvention of a brighter tomorrow.
There is a certain elusive nostalgia in the predictions of plentiful natural gas from shale (has anyone yet called it “power too cheap to meter?”), the revitalization of Rust Belt-era cities, and the return of manufacturing jobs to the US. The fact that these strategic trends are all based in fact does not mean that they will come together to form a coherent future, but it is (or would be) easy to put these trends together and draw conclusions from them — it is (mostly) a pleasant scenario. However, for starters, these strategic trends — all of which, I will admit without hesitation, have a clear basis in contemporary events — are mutually incompatible.
Thomas P.M. Barnett of Wikistrat has been particular assiduous on reporting both the potential for shale gas and the return of manufacturing to US shores, and in fact combining the two by considering the industrial development that will follow from the large scale commercial exploitation of fracking to extract natural gas from shale. Dr. Barnett has posted a stream of loosely related items on this, such as The coming American industrial renaissance, States and localities fighting over hydrofracturing drilling
, The displacement effect of all that new US natural gas, and North American energy boom attracting Chinese investment, inter alia.
Dr. Barnett has not been alone in predicting a revitalization of American prospects based on a conventional outlook on economic prosperity. I recently listened to the book $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better by Christopher Steiner, and while parts of this book read like “peak oil” apocalypticism, as the subtitle indicates, the author believes much good will come out of increasing unaffordable fossil fuels. He predicts the revitalization of failing metropolitan areas like Detroit, as well as the return of manufacturing jobs to the US because of the expense of transported manufactured goods when transportation costs rise sharply.
One of the most difficult things about prediction and futurism (and futurism must here be understood as a coherent group of predictions definitive of a particular way of life) is that the world is complex and interconnected, while the human mind has difficulty keeping three or four things in its focus at the same time. Both because of the practical realities of thinking and writing, which are processes that take place in time and therefore are “strung out,” as it were, rather than found together simultaneously, our narratives of necessity give a sequential account of things. This comes through very clearly in $20 Per Gallon, which exemplifies this diachronic imperative in contrast to the synchronic reality of parallel and simultaneous development. The author treats in sequence consequences of high fuel prices that will happen across the board, simultaneously, and as these consequences occur simultaneously, then will influence each other, with the result being quite beyond our powers of prediction. Complex adaptive systems are continually adapting to each other, and, in the process of adapting, changing themselves and changing the context in which all other complex adaptive systems adapt.
As I attempted to show in Futurism Without Predictions, the approach to futurism that is likely to tell us what the future is going to be like, rather than picking and choosing particular items and there, but getting the whole completely wrong, is identifying the master strategic trend, and the master strategic trend is that which not only becomes the dominant strategic trend but also that strategic trend that is intrinsically capable of subordinating the greatest number of coherent and mutually compatible (i.e., in Leibnizean terms, compossible) strategic trends.
Traditional futurists have often defended their predictions (and the predictions of past futurists, thereby to shore up the credentials of the discipline generally speaking) by pointing to individual items that were predicted and which where eventually built — submarines, helicopters, the videophone, and so forth. The problem with this strategy of rationalizing predictions (a problem that we often feel but do not always know how to express) is that particular instances of technology predicted and then built do not add up to the feeling that futurists have given of the future. It is not only that we aren’t wearing unisex leotards, going to work in flying cars, and getting all our nutrition from a single pill we take in the morning, it is that our world does not look like and does not feel like the world of the Jetsons.
To get a proper feeling for what the world is like, and what it may be like in the future, we need to stop thinking in terms of individual predictions and start thinking in terms of dominant strategic trends that shape the overall character of life in a particular historical era. In other words, we need to look at the big picture. And in the big picture, some of the obvious trends of today will be in conflict, and will not come together (cannot come together) into any kind of synthesis that will define the future.
It is pretty obvious that at least some manufacturing jobs will return to the US. As poorer countries become wealthier, it will no longer be cheaper to make things overseas and ship them back to the US. That’s pretty simple; it’s not rocket science. But the danger of thinking in terms of a US manufacturing economy is the perverse fetishism of industry that one often finds in popular writings on economics. Manufacturing is no more an answer to the economic conundra of the present than is the idea that everyone will become a hedge fund manager and work in financial services. Any real and vital economy has many sectors, and the interaction of these sectors in the marketplace is what makes an economy thrive. So don’t expect to get a job at 18 making widgets at the local factory, planning to retire in 30 years on a full pension. Those days are over. Longevity killed that dream. Ironically, we have to work longer and harder because we are healthier and live longer. This is an example of unpredictable consequences of simultaneous developments.
It is also pretty obvious that new fracking techniques are going to allow for the extraction of natural gas from shale at a level that was not previously possible. But natural gas is a fossil fuel, and although it certainly burns cleaner than coal, if the world economy expands dramatically by cranking up natural gas, we will be digging ourselves deeper into a problem that may have truly radical unpredictable consequences — like having to abandon the world’s major coastal cities because they are all under water due to rising sea levels.
Furthermore, the rentention of an economy based on cheap and widely available fossil fuels will mean that the kind of forced urbanization imagined in Christopher Steiner’s book will not occur. It is a relatively simple matter to convert cars, trains, and planes to run on one fossil fuel or another, and LNG is only marginally less convenient that oil. If natural gas is cheap and plentiful, LNG will be cheap and plentiful, and travel by private car and by airline will continue to be routine. And if the problem of hypersonic engines can be practically tamed, the world may become more internationally knit together, not less.
Make no mistake, increasing urbanization is one of the central strategic trends of our time, and we can expect it to continue. But it is likely to continue along the model of what Joel Garreau called “edge cities,” as well as sprawling, car-enabled suburbs that many people claim to disdain but which continue to grow in population.
Whether or not the trend is your friend, it is certainly your future. And the tone and feeling of the future will be set by that strategic trend that drives, shapes, and influences all the other strategic trends — either by magnifying them or by rendering them irrelevant.
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Argentine President Cristina Fernández de Kirchner had a large color photograph on the cover of today’s Financial Times — not, like the last time, when she had just won a landslide reelection victory, but because she is initiating a process of nationalizing (or, rather, re-nationalizing) the largest oil company in Argentina, YPF. The Financial Times reported this as follows:
A visibly angry Ms Fernández made the announcement on live television to a cheering audience at the government palace. Rejecting recent criticism from Spain, Ms Fernández said she would not bow to foreign pressure. “I am a head of state and not a hoodlum,”’ she told business, union and political leaders in the audience.
The visible anger may have been due, according to another story in the FT (Fernández takes her revenge), to the Malvinas/Falkland Islands dispute not having been taken up by the Sixth Summit of the Americas which just concluded in Cartegena. President Fernández left the summit early, and, reportedly, disappointed. While it seems like stretch to me to attribute the re-nationalization of YPF to a desire for revenge over the Malvinas (since it is Spain that is being punished by this, rather than the UK), this FT piece is nevertheless well worth reading for its account of the economic and political vicissitudes experienced by YPF, which apparently had better arrangements with the president’s deceased spouse than with her.
Not surprisingly, the re-nationalization move has great popular appeal in Argentina, as evidenced by the cheering audience mentioned above. Since the global financial crisis, and indeed since before the crisis, it has become fashionable (especially in Latin America) to fix the blame for all problems on “neo-liberalism,” and it is understood that one of the key features of neo-liberalism is privatization. Thus re-nationalization is seen not only as an intrinsically good thing for the people of Argentina to have control over their resources (what President Cristina Fernández de Kirchner has called, “recovery of sovereignty and control”), but also as a blow for “economic justice” that will reverse the perceived errors and injustices of privatization and neo-liberalism.
Even while the president was being reelected by a landslide there were many articles in the media about the financial difficulties that the president was inheriting from her previous term, and not a little speculation on how exactly she would go about handling it. Well, now we know. After squeezing the country’s once-legendary agricultural industry and nationalizing pension funds in order to get state hands on more resources, the president will now turn to further nationalizations, and with oil prices rising YPF is a very tempting target. Because Argentina has been frozen out of international credit markets since its debt default ten years ago, the Argentinian economy has been forced to operate on a cash basis vis-à-vis the rest of the world. This absence of the irresponsible use of credit has resulted in the economy growing for the past decade, which has in turn resulted in some superficial economists learning the wrong lesson from Argentina’s default (cf. Incommensurable Defaults).
Nationalizing YPF has strong parallels with the policies pursued by Cristina Fernández de Kirchner and, before her, by her husband (since deceased) Néstor Kirchner in regard to agriculture. The FT’s front page article claimed:
Ms Fernández accused Repsol of “emptying” YPF. But analysts and industry executives said the real culprit for Argentina’s loss of energy self-sufficiency and ballooning imports bill was the government’s failed energy policy, which set domestic prices at well below international levels.
Simon Romero and Raphael Minder wrote in Argentina to Seize Control of Oil Company in the New York Times:
Seizing YPF appears to be a popular move in Argentina, where caps on residential energy prices and a growing economy have helped push energy demand to new highs. Argentina’s oil production has declined in the last decade as regulatory uncertainty persisted over price caps and the policies over profit remittances. Many Argentines still resent the privatization of state-owned companies in the 1990s, so taking on YPF gives Mrs. Kirchner the opportunity to go after a symbol of that time.
With Argentina’s formerly profitable agricultural industry, the Kirchner’s kept prices below market rates internally and created high export tariffs. Not surprisingly, agriculture become unprofitable in Argentina, and many Argentinian producers moved their operations to neighboring Uruguay. Now little Uruguay exports more beef than spacious Argentina. Like most populist economic measures, the short-term feel-good benefits come at a very high long-term cost.
President Cristina Fernández de Kirchner has continued populist policies with the oil industry, and with petrochemicals priced below market rates they are being used unsustainably. Now that Spain’s Repsol management has been ousted, and even banned from the YPF building, not merely the prices but the actual operations of YPF will be politicized. The model for this is the politicization of the administration of PDVSA after the failed coup against Hugo Chavez, which latter oil company has declined in efficiency continuously since the ouster of its experienced management.
Given how disastrous this move will likely be for Argentina and its economy in the longer term, and the negative diplomatic fallout that will result, one must ask why the president is doing this. The short answer is Peronist populism, which has been entrenched in the Argentine political system since the middle of the twentieth century. The longer answer would include many factors, including the fact that, while popularly elected (and by a wide margin), Cristina Fernández de Kirchner can appeal to David and Goliath themes. One need not be an unelected tyrant in order to make a show of one’s defiance and claim to represent the underdog.
Argentina’s century-long decline will not be arrested by populism or re-nationalizations. People may cheer in the short term, but the Argentine economy will stagnate in comparison to other economies in the region — especially in comparison to Brazil, Chile, and Peru, which are experiencing robust growth on sustainable foundations. And in this context I do not necessarily mean “stagnation” as a complete absence of growth, as it is more likely that Argentina will experience unsustainable growth followed by repeated crashes when reality catches up with the market. This has the effect not only of immiserating the people, but also of creating an unstable and unpredictable business climate.
Argentina’s decline will not be dramatically visible over a year or two, just as steady but small economic growth is not obvious over a year or two, but over a decade or two these things add up. And in addition to not being immediately evident, one must compare the reality with the counter-factual conditional of what the Argentinian economy might have been if more sustainable economic management had been practiced. Since human beings have short and imperfect memories, and cannot usually grasp what is counter-intuitive, there is very little penalty paid by a political regime for its foolishness, especially when a given regime is out of office by the time the consequences of its actions must be paid for. While all systems of popular sovereignty suffer from this weakness, the effect is exacerbated by irresponsibility.
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28 March 2012
Last January in Ica to Lima I quoted a famous line from Anatole France:
“The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
And last September on Twitter I wrote:
We shouldn’t say that anything is “banned,” only that it has been “denied to the poor.” The rich can always satisfy their wants and needs.
I don’t think that there has been a sufficient appreciation of the intimate relationship between law and poverty.
Our legislators like to pretend that they are making laws that are universally applicable to everyone within a given nation-state, and the mass media is complicit in this illusion by reporting on an egalitarian society that simply does not exist. Of course, our legislators have plenty of practice in this art, because every two or four years they must go out on the campaign stump and pretend as though they are “just plain folks” when they are not.
There is an old saying that, money can’t but you happiness, but it does allow you to choose your own kind of misery. So it is that the wealthy have choices denied to the rest of us, and among these choices are opportunities to avoid any law felt to be onerous or an inconvenience. The rich live in a libertarian anarchy in which all things are possible.
This I take to be F. Scott Fitzgerald’s point at the end of The Great Gatsby when the narrator says:
“Tom and Daisy — they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made…”
The same essential idea was expressed with less poetry and more viciousness when Leona Helmsley, the “Queen of Mean,” was quoted as saying, “We don’t pay taxes. Only the little people pay taxes.”
Despite the persistent idea of equality before the law in democratic societies, we all have known, even if we don’t much talk about, the fact that the rich are not subject to the same laws as everyone else. Back before abortion was legal in the US, if a girl from a privileged family got in “trouble,” she went to Sweden for a safe and legal abortion, or she was sent to have her child in Europe where such things carried less social stigma. Today, abortion is legal in the US, but the political climate in large swathes of the US means that an abortion is almost impossible to obtain in some states, but for those for whom travel out of state presents no difficulties it is not a problem, though it is a problem for the poor.
The middle classes don’t have the scope of free action that the wealthy possess, but they do posses some scope of action that the poor do not. For example, the middle classes have just enough money that, if they prioritize some particular interest or activity, they can choose one or two or maybe three areas where they will exercise their freedom — whether these areas might include private schools, exotic vacations, or boutique health care.
And to mention medical care brings us back to the topic of yesterday’s Three Alternatives to PPACA. It is important to understand that the debate over health care is really a debate over what health care the poor will have, and then this debate is really a debate over how the poor will be regulated (in ways that do not regulate other segments of society).
Regardless of what measures are imposed on the US population as a consequence of PPACA, the wealthy will continue to enjoy the best medical care that money can buy. They can afford to pay into whatever system they need to pay into, and then still buy themselves whatever they want outside the system (or above and beyond minimum requirements). It is those without options who will be stuck with the system and whose lives will be most profoundly affected by it. And, as I noted yesterday, most of those who have no health care or no health insurance at present do not have it because they cannot afford it. They will be the ones forced to face either unaffordable premiums or fines.
Neither the wealthy nor the middle class will have to make painful decisions about cutting back on food or cutting back on electricity or cutting back on heating in order to meet health insurance premiums (and thereby ensure that the insurance industry continues livin’ large), but these are issues as real to the poor as the monthly worry of making rent and having enough to eat.
Thus we can say in precise analogy with the earlier quote from Anatole France:
“The health care law, in its majestic equality, obligates the rich as well as the poor to purchase health insurance, to choose between paying bills and paying premiums, and to face fines if they cannot afford the premiums.”
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27 March 2012
Voltaire famously said of the Holy Roman Empire that it was neither holy, nor Roman, nor an empire. In a similar spirit we might say of the “Patient Protection and Affordable Care Act” (apparently named by the shade of Kafka) that it will not protect patients, that it will not make health care more affordable, that it is not about care, and it is not even an act — rather, it is an excuse for legislative inaction. It is as though someone proposed “solving” the problem of homelessness by passing a law that every homeless person must either buy a house or rent an apartment or face a fine. Great. Problem solved.
With the US Supreme Court hearing arguments on the constitutionality of the provisions of PPACA, political rhetoric is heating up and the news stories are flying thick and fast. I don’t have much confidence that the Supreme Court will decide the case on the constitutional merits — this is, after all, a political process, so the judgment will be a political judgment. That is unavoidable. But apart from the legal constitutional issues posed by PPACA, there are the larger questions of whether or not it is any good as legislation. After all, a law can be lousy and still pass constitutional muster.
One thing for sure that PPACA isn’t going to save anyone any money. It is not about affordability. If you really believe that funneling vast new sources of money into insurance companies is going to make the health care industry more frugal and more efficient, then if we met we probably wouldn’t have anything to say to each other because our perspectives are essentially incommensurable. And please be clear about the fact that this legislation is not about providing health care, it is about purchasing insurance, and, as anyone who has purchased health insurance knows, having health insurance is not the same thing as receiving health care.
Health care premiums will continue to ratchet upward, steadily and relentlessly, and the new pool of forced contributors to the system will mean that even more money will be dumped into the ever-hungry maw of the medical-industrial complex, as more and more of US GDP disappears into a rat hole without a shred of accountability. Everyone knows the dismal statistics: the US spends a greater part of its GDP on health care than almost any other country (and since the US has the largest economy in the world, this means that not only are the rates the worst, but the absolute numbers are the highest also), and the US population is far from being the healthiest for all the money that is spent on health care. The US population has been very poorly served by the health care industry. What are we going to do about it? We are going to reward the industry by giving it even more money and forcing everyone to participate in a deeply troubled industry.
PPACA is not an act, because it takes no action — it does not confront the vested interests of the health care industry (whether hospitals or doctors or labs or the manufacturers or medical technology), it does not confront the vested interests of the insurance industry, it does not confront the vested interests of the pharmaceutical manufacturers, it does not confront the vested interests of the US government itself, and it does nothing to change the way health care is managed or delivered. Rather than taking on the powerful, the PPACA targets the most vulnerable and least powerful elements of our society — people who do not already have health insurance and probably cannot afford it.
It will be obvious from the above that I have nothing good to say about PPACA, but there are three simple things that could be done that would cause me to drop my objections:
1. a universal single-payer system
2. an “opt out” clause
3. bring all employees of the government, from the president on down to the lowest bureaucrat, into the PPACA as individuals forced to purchase insurance under the individual mandate
Unfortunately, all three of my alternatives are politically “radioactive” to the point that they are not even on the agenda. We do not talk about the ways in which real reform could be brought to health care in the US; instead we take action against those least able to resist the intervention of the government into their lives. This reveals the rapacity of the welfare state in its most ugly aspect.
I would have no objection whatsoever to a universal single-payer health care system in the US. In fact, I think it would be a good idea. When it is mentioned how every other industrialized nation-state has universal health care, so we therefore need to have government-mandated health care in the US also, it curiously goes unmentioned that the vast majority of these universal health plans are single payer systems that eliminate private insurance in favor of a truly universal system. In the US we don’t discuss this — not because the older universal single payer systems in Europe are running into chronic problems not unlike over-promised legacy pension systems (which is true) — but rather because the insurance industry in the US is very big, very profitable, and employs a lot of very wealthy and influential people. A tough-minded administration would be willing to take on vested interests like the insurance industry, but nothing whatsoever is being done by the PPACA to reign in insurance companies, who stand to be flooded with a tsunami of new money unless the individual mandate is struck down by the Supreme Court.
An “opt out” clause would be equally fine with me. Since PPACA incorporates an individual mandate, which particularly targets individuals, why not give the individual a chance to opt out of the system? And I do mean opt out entirely. I would be perfectly willing to carry a card in my wallet, like an organ donor card, or even to wear a tag around my neck, explicitly stating that I have opted out of PPACA and that I am not to be taken to a hospital or an emergency room unless I have the money available to pay cash on the barrel head for my treatment. I can imagine the people who thought this through would think I am crazy, and if my opinion mattered it would be denounced as barbaric and inhuman. So be it. I have no problem with it. If I die as a result of injuries sustained from a car crash because no ambulance was called, I accept that risk. (As I have attempted to explain in Risk Management: A Personal View, I believe the management of risk to be illusory, and in fact a moral hazard.) If I came down with a chronic problem requiring medical care, I would seek medical help in a country where the prices of the health care industry have not been so distorted by non-market incentives. So I am perfectly willing (if not enthusiastic) to do without the entire US health care system.
Similarly, I would have no objection to the PPACA if I knew that those making the law had to live according to its dictates (or alternatively, if they provided the benefits that they receive under their plan to the American people generally — but then that truly is politically unthinkable, is it not?). As with the unspeakable alternative of a universal single payer health care system, which would take on the vested interests of the health care industry, the insurance industry, and the pharmaceutical industry, government employee inclusion in PPACA provisions would not only take on the vested interests of the US government, but would also ensure that something actually gets done. As I wrote above, the legislation in its present form does nothing except to target the disadvantaged and the powerless — not something that you would call courageous legislation. If the people who wrote this law had to live according to its provisions, they might actually do something and make some changes. At present, they have no incentive whatsoever to do anything.
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