Regulating the Poor

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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Grand Strategy Annex

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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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Grand Strategy Annex

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If you ever had it in mind to see the pristine northern coast of Kenya, and especially Lamu island with its UNESCO world heritage site old town and the Lamu archipelago, you had better get there soon. Africa is changing. Industrialization and development is coming to East Africa on a scale heretofore unprecedented. Now the project has officially gotten underway (Lamu port project launched for South Sudan and Ethiopia) and it is likely that the way of life in the region will be changed forever.

It would be difficult to name all the ways in which the planned port and its associated infrastructure will impact East African economic development. You can see on a map of Kenya’s road network that Lamu has been off the beaten track. The main A109 road of Mombasa to Nairobi follows pretty much the same path as existing rail infrastructure. The Lamu Port and Lamu Southern Sudan-Ethiopia Transport Corridor (LAPSSET) will involve road, rail, and oil pipeline connections to Lamu (as well as a port at Manda Bay, an oil refinery at Bargoni, three airports, and three resort cities). The map above shows some existing infrastructure as well as regions of Kenya slated for petroleum exploration. You can read a fairly detailed sketch of the petroleum geology of the region at the Africa Oil Corporation website. The company appears to be based in Vancouver B.C. In the map below you can see the proposed development, with the road, rail, and pipeline network passing through the area to be explored and connecting South Sudan and Ethiopia to Africa’s newest Port.

While many of the businesses in Lamu no doubt welcome the development, many in Lamu are concerned for their future, and rightly so. (Cf. Audio slideshow: Kenya dhow captain fears new port, Kenyan town awaits port with trepidation, and Save Lamu) It is likely that nothing will ever be the same again. Even if the governments involved in the project are good their word in attempting to retain the character of Lamu’s tourist area and in protecting the environment, economic development on this scale cannot fail to alter the way of life in the region. Construction crews will arrive, and they will need places to eat and sleep. They will also take time off, and they will have money to spend. All the familiar camp followers and profiteers will seek to relieve these construction workers of their paychecks, and in so doing they will make their own contribution to the economy of the area.

After the facilities are built and operational, different economic forces will come into play. There will be regular jobs with regular salaries, and their will be foreign experts and consultants who come. The burgeoning economies of India and China, and indeed many growing economies around the Indian Ocean, will have a growing appetite for oil, and as oil both increases in cost and begins to flow from South Sudan through Kenya and from Lamu’s port into ships that will sail the world’s oceans, the sheer volume of money involved in such transactions will influence life in the region as well. With money come bankers and financial services industries. With trade connections through the region come international relations and the need to be involved in the affairs of other nation-states.

LAPSSET is being billed as the largest infrastructure project ever undertaken in Africa. It is not likely to be the last. Africa’s infrastructure has lagged substantially behind that of the industrialized world. This has retarded economic development. As Saudi oil money in the later twentieth century was re-lent out for infrastructure projects through the developing world, now in the twentieth century China’s capital generated from its rapid industrialization needs to find investment opportunities. Many of these are likely to be in Africa. There has been a steady stream of stories in the financial press of Chinese money and Chinese expertise employed in large development projects in Africa. I wrote about this in Unintended Consequences in Africa, and more recently the Chinese financed and Chinese built African Union Headquarters in Addis Ababa was inaugurated by Chinese President Hu Jintao.

It is easy to read sinister implications into China’s involvement in Africa, as it was easy to read sinister implications in the disposition of Saudi oil money during the 1970s (think of what the term “petrodollars” means to most people). Money, like industrial development, takes on a life of its own. Both can be controlled (to a limited extent) and regulated (with more or less success), but neither can be wished away. Africa and China are today becoming locked into a “special relationship” because of historical contingencies that cannot be changed and must find some form of expression. It is in the interest of those nation-states that are already industrialized to contribute constructively to the development of Asia and Africa, rather than to respond with fear and apprehension.

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Note added 17 March 2012: There is an interesting article in the East African Standard, Lamu port deal leaves Khartoum feeling put out, describing Khartoum’s growing sense of isolation as a result of being denied membership in the East Africa Community (EAC) and the initiation of the Lamu port project, which includes a pipeline from Juba (in South Sudan) to Lamu. The Sudanese are even pursuing a case of “economic sabotage” at the African Union. Apparently, Sudanese officials haven’t read Hume’s argument about jealously of trade, or they would know that have a thriving East African Community on their border could only be good for the Sudanese economy.

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Grand Strategy Annex

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In yesterday’s Addendum on Neo-Agriculturalism I made a distinction between political ideas (with which, to use Sartre’s formulation, essence precedes existence) and historical ideas (with which existence precedes essence). Political ideas are formulated as ideas and are packaged and promoted as ideologies to be politically implemented. Historical ideas are driving forces of historical change that are only recognized and explicitly formulated as ideas ex post facto. At least, that was my general idea, though I recognize that a more subtle and sophisticated account is necessary that will take account of shadings of each into the other, and acknowledging all manner of exceptions. But I start out (being the theoretician of history that I am) in the abstract, with the idea of the distinction to be further elaborated in the light of evidence and experience.

Also in yesterday’s post I suggested that this distinction between political and historical ideas can be applied to communism, extraterrestrialization, pastoralization, singularization, and neo-agriculturalism. Thinking about this further as I was drifting off to sleep last night (actually, this morning as I was drifting off to sleep after staying awake all night, as is my habit) I realized that this distinction can shed some light on the diverse ways that the term “globalization” is used. In short, globalization can be a political idea or an historical idea.

I have primarily used “globalization” as an historical idea. I have argued from many different perspectives and in regard to different sets of facts and details, that globalization is nothing other than the unfolding of the Industrial Revolution in those parts of the world where the Industrial Revolution had not yet transformed the life of the people, many of whom until recently, and many of whom still today, live in an essentially agricultural civilization and according to the institutions of agricultural civilization. While is the true that industrialization is sometimes consciously pursued as a political policy (though the earliest appearances of industrialization was completely innocent of any design), politicized industrialization is almost always a failure. Or, the least we can say is that politicized industrialization usually results in unintended consequences outrunning intended consequences. Industrialization happens when it happens when a people is historically prepared to make the transition from agricultural civilization to industrialized civilization. This is not a policy that has been implemented, but a response both to internal social pressures and external influences.

In this sense of globalization as the industrialization of the global economies and all the peoples of the world, globalization is not and cannot be planned, is not the result of a policy, and in fact almost any attempt to implement globalization is likely to be counter-productive and result in the antithesis of the intended result (with the same dreary inevitability that utopian dreams issue in dystopian nightmares).

However, this is not the only sense in which “globalization” is used, and in fact I suspect that “globalization” is invoked more often in the popular media as a name for a political idea, not an historical idea. Globalization as a political idea is globalization consciously and intentionally pursued as a matter of policy. It is this sense of globalization that is protested in the streets, found wanting in a thousand newspaper editorials, and occasionally touted by think tanks.

Considering the distinction between political ideas and historical ideas in relation to globalization, I was reminded of something I wrote a few months back in 100 Year Starship Study Symposium Day 2:

If you hold that history can be accurately predicted (at least reasonably accurately) a very different conception of the scope of human moral action must be accepted as compared to a conception of history that assumes (as I do) what we are mostly blindsided by history.

A conception of history dominated by the idea that things mostly happen to us that we cannot prevent (and mostly can’t change) is what I have previously called the cataclysmic conception of history. The antithetical position is that in which the future can be predicted because agents are able to realize their projects. This is different in a subtle and an important way from either fatalism or determinism since this conception of predictability assumes human agency. This is what I have elsewhere called the political conception of history.

What I have observed here in relation to futurist prediction holds also in the case of commentary on current events: if one supposes that everything, or almost everything, happens according to a grand design, then it follows that someone or some institution is responsible for current events. Therefore there is someone to blame.

Of course, the world is more complicated and subtle than this, but we only need acknowledge one exception to an unrealistically picayune political conception of history in order to provide a counter-example that demonstrates not all things happen according to a grand design. Any sophisticated political conception of history will recognize that some things happen according to plan, other things just happen and are not part of any plan, while the vast majority of human action is an attempt, only partly successful, to steer the things that happen into courses preferred by conscious agents. If, then, this is the sophisticated political conception of history, what I just called the “unrealistically picayune political conception of history” may be understood as the vulgar political conception of history (analogous to “vulgar Marxism.” Vulgar politicism is political determinism.

This analysis in turn suggests a distinction between vulgar catastrophism, which maintains dogmatically that everything “merely happens,” that chance and accident rules the world without exception, and that there is no rhyme or reason, no planning or design whatsoever, in the world. From this it follows that human agency is illusory. A sophisticated catastrophism would recognize that things largely happen out of our control, but that we do possess authentic agency and are sometimes able to affect historical outcomes — sometimes, but not always or dependably or inevitably.

In so far as globalization is global industrialization, it is and has been happening to the world and began as a completely unplanned development. Since the advent of industrialization, its global extrapolation has mostly followed from the same principles as its unplanned beginnings, but has occasionally been pursued as a matter of policy. On the whole, the industrialization of the world’s economy today is a development that proceeds apace, and which we can sometimes (although not always) influence in small and subtle ways even while the main contours are beyond direct control. Thus globalization begins as a purely historical idea, and as it develops gradually takes on some features of a political idea. This pattern of development, too, is probably repeated in regard to other historical phenomena.

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Grand Strategy Annex

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The Evolution of Europe

4 January 2012


Detail from an early modern map of Europe; Europe has always been both one and many, divided into kingdoms or nation-states, and yet pictured as one on a map.

The idea of Europe will not go away.

Even as European economic and political institutions are undergoing paroxysms due to a financial crisis (which is largely a debt crisis), the idea of Europe is as strong as ever, and still exhibits its ability to exercise profound influence merely through its spiritual presence in the world.

Thirteen former dissidents in Hungary have issued a manifesto — The Decline of Democracy – The Rise of Dictatorship — that explicitly calls on Europe and European institutions to intervene in Hungary:

“The advocates of democracy and the rule of law within and outside Hungary must not acquiesce in having the government of a member state of the European Union crush these universal values. Nor should the European Union just sit back and watch as it is being held hostage by an outdated, provincial tyrant. It is in the interest of both Hungary and the European Union to make a stand against the prime minister of Hungary. The leaders of the European Union are right in their decision to tighten integration, but this step should be taken not only to combat the financial crisis but also to challenge political crises and risks. The European Union may disintegrate not only for economic reasons but for reasons of pursuing disparate and antidemocratic policies as well.”

The manifesto ends with this paragraph:

“Europe is at a crossroads too. Hungary is a sad example of what may happen wherever there is a concentration of crisis tendencies, aggravated by attempts to resolve problems caused by an economic and social crisis with authoritarian means and a policy of nationalistic isolation. Instead of prosperity and stability, such a policy can only lead to suppression, conflict and turmoil. The desperate situation of present-day Hungary should be a warning for all of us: if Europe is prepared to help Hungary, it will also help itself.”

It would be difficult to find a more strongly worded brief on behalf of internationalism and the European idea as an ideal to which the dissidents appeal, and for the maintenance of which ideal they explicitly urge intervention on the part of other Europeans. The Hungarian dissidents regard themselves as Europeans, and they are urging other Europeans to intercede in Hungarian affairs in order for Hungary to exemplify common European ideals.

Thus the idea and the ideal of Europe continues to inspire political change and inform political action, even at a time when Europe is a beleaguered political entity. But the idea and the ideal also change, however gradually, so that to be European means different things at different times.

Another recent news item is that the “technocratic” government of Mario Monti in Italy has passed a law effective with the new year that allows service industries in Italy to be open for business twenty-four hours per day, seven days per week, Sundays and public holidays included. While there is already some push back on this law, and other proposed economic liberalization in Italy, from a free market stand point these laws are welcome and long overdue.

However, it could also be argued that these new trade liberalization laws represent a threat to European traditions and European culture, and if this argument has not be made already, I’m sure that it eventually will be made. “Blue laws” have a long history in Europe, and anyone who has traveled in certain European countries and tried to find an open store on Sunday can attest, they are effective in changing the character of commercial society and economic activity.

Such changes in the law are enacted under financial pressure. Europe is experiencing what yesterday’s Financial Times called “the worst economic crisis since 1945” — and it might be added the the years immediately prior to 1945 were no picnic either. Financial stimulus is needed, so measures that might not be considered under other conditions are enacted now in extremis. Once enacted, it is difficult to imagine that Europe would return to its traditional blue laws; once repealed, they are likely repealed forever.

This is one way in which the pressures of industrial-technological society and the finance capital typical of the Western nation-states implacably if gradually pushes culturally unique regions toward a common model of socioeconomic organization. None of this comes about as a result of a “grand plan” — it just happens because this is the most rational way to organize a large industrial economy, and inefficiencies will inevitably be targeted during financial crisis because making the change is less terrible than experiencing a financial collapse. To continue with the development of free market capitalism is less radical at this point than attempting to turn back the clock and reconstruct the institutions of a past civilization in which these financial pressures did not force the hand of political entities in cultural change.

It is precisely such developments that are often dismissed and criticized in Europe as “Americanization,” and dismissed and criticized in the rest of the world as “Westernization,” when it is in fact neither. Industrial-technological civilization reveals a natural teleology in its development toward particular institutions, especially financial and economic institutions. The pressures that force such changes are utterly blind to any plan to model themselves after America or the West, as I have argued many times. We can expected criticisms based on the resemblance of these institutions to American or Western institutions, but this appearance is based on deep structural forces that have already played out first in America since America had the fewest traditions with which to contend.

Europe plus free market capitalism will be something different from Europe simpliciter. Europe will still be Europe, but it will change. That is the way of the world, and more particularly it is the way of Western civilization that Europe itself defined.

The saga of Europe is far from over.

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Grand Strategy Annex

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What was once in the recent past spoken only in a hushed whisper is now openly discussed and debated: the break up of the Eurozone. But what exactly does “break up” mean in this context? The term implies a catastrophic failure that is not likely to come about, however painful a Greek exit from the Euro would prove to all the Eurozone economies. The Economist Intelligence Unit is calling the Eurozone crisis “€urogeddon,” which seems a bit dramatic for the financial press. With dire news following day upon day it would be easy to be very pessimistic about the Eurozone at the present time, but I am not pessimistic, although the short term outlook is not good. Being able to distinguish the short term prospects of an institution from its long term prospects is crucial in this context.

What exactly would a “break up” of the Eurozone look like? Here is what the Economist Intelligence Unit says in their report, “After €urogeddon? Frequently asked questions about the break-up of the euro zone”:

Firm predictions are tricky, but broadly a fracture between a strong northern “core” and the weaker “periphery” looks most likely. The process would, in our view, probably entail periphery countries breaking off individually to leave a “rump” of northern countries still within a currency union. Once one peripheral country (say, Greece) left, all the other vulnerable countries would probably follow. This means that Portugal, Ireland, Italy and Spain would leave the euro, although not necessarily immediately. Malta would probably leave, and Cyprus would have little choice but to exit as its banking system would be nearly wiped out by a Greek collapse. Up to ten countries could remain members of the euro: Germany, France, Austria, Belgium, Finland, Luxembourg, the Netherlands, Slovakia, Slovenia and Estonia (the last three all being small, open economies like Malta and Cyprus, but with healthier fundamentals).

It is interesting to me to see how this analysis — which I believe to be entirely reasonable and defensible — follows the principle of distinguishing center and periphery, which is something that I have been thinking about recently, and which I wrote about in The Farther Reaches of Civilization and The Second Law of Geopolitical Thought.

Thus a “break up” of the Eurozone would likely involve recession, riots, civil unrest, and bank failures (all these are also discussed in the Economist Intelligence Unit paper quoted above), but it would not be a catastrophic failure. We are not likely to see the dissolution of the Eurozone. The Euro currency will not only survive, but will eventually strengthen as the weaker and underperforming economies of the Eurozone leave the currency union and pursue a different — and marginal — economic path. The underperforming economies will devalue their labor, eventually attracting a little investment on the basis of this devaluation, and will more or less be relegated to a permanent twilight of an economy based almost entirely on tourism. (This is the obvious fate of Greece, and is likely the fate of Greece even if it remains within the Eurozone.)

A rump Eurozone would in fact be a healthier and more sustainable Eurozone than the current Eurozone, which attempts to treat underperforming economies the same as nearly optimal economies. The current Eurozone, with its peripheral members included, is like a cart pulled by two horses — a plough horse and a race horse yoked together. The financial markets are already anticipating this longer-term strengthening of the Euro. If the markets were expecting a catastrophic failure in which the Euro entirely disappeared and all the Eurozone member nation-states reverted to a national currency, we would see the Euro driven down dramatically. The Euro has fallen, but it still remains well within a ten year horizon of trading values. Nothing truly dramatic has happened to its value. If a catastrophic failure was expected, the Euro wouldn’t be trading ten or twenty percent down from its highest value, it would be trading at ten percent of its highest value.

Euro exchange rate with the US dollar in the second half of 2011.

The Eurozone still remains one of the great socioeconomic experiments of human history — an experiment on a grand scale, like the Constitution of the US, which attempted to put Enlightenment-era values into actual practice as a political institution. We recall that the US, in the course of working through its experiment, has encountered some major obstacles, such as the Civil War. As it happened, the US did not break up, or even shed its underperforming regions; however, it maintained its unity only through force of arms. This is significant.

One of the radical and novel aspects of the Eurozone is that it has been voluntary; no military power was been employed either to establish the currency or to further the expansion of the Euro or to secure its ongoing unity. We cannot place too much importance upon this unique historical fact. The very existence of the Eurozone is a living and vital rejection of the Stalin Doctrine. This is not only historically unusual in global terms, it is remarkably at variance with European history itself, which has been unparalleled in its violence and bloodshed.

Because the Eurozone is voluntary, it can afford to be flexible over the long term. It may not have been initially conceived as a flexible institution that could grow or shrink as political and economic conditions change over time, but I think that it could become something like this. Even while the peripheral economies may fall away, several nation-states continue with their accession process to join the Euro. From the experience of the Euro so far, we can more or less predict which economies will be able to successfully join the Euro, deriving a benefit thereby, and those economies which cannot successfully function as a part of the Eurozone.

The voluntary and egalitarian nature of the Eurozone will not vanish with a Greek default and exit from the currency union, even if the exit of Greece takes another member states out of the currency union at the same time. In fact, it could be argued that the experience will make the Eurozone more voluntary and more egalitarian. If the Eurozone comes to include formal protocols both for entering and for exiting the Eurozone, the voluntary nature of the association will have taken a step toward rationalization, and the Europeans will have accomplished something that the US was not able to accomplish: peaceful succession.

I am optimistic that the Eurozone (under the security umbrella provided by overwhelming US military force) may become one of human history’s first truly intelligent institutions. In some earlier posts I made a distinction between the grades of flexibility in institutions, and suggested that humanity might someday be capable of living under intelligent institutions which can take account of their own need to change over time, and the effect this change intelligently and peacefully, rather than being dragged kicking and screaming into the future. The Europeans have proved that they can learn from history, and have demonstrated this by peacefully creating and living within the Eurozone. If they can learn to live without solving problems through force of arms, there is hope that they can also learn to live with truly egalitarian, flexible, and intelligent institutions that can learn from past mistakes and incorporate change into the very structure of that institution. Time will tell.

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Note Added 04 July 2015: While the above was written years ago, the analysis is still more-or-less accurate, and I can stand by most of the claims I have made. I have further elaborated on the past difficulties and future economic possibilities for Europe in the following posts:

Poor Cousins

The Economic Future of Europe

An Alternative to the Euro

The Dubious Benefits of the Eurozone

Shorting the Euro

Will the Eurozone enact a Greek tragedy?

A Return to the Good Old Days

Can collective economic security work?

What would a rump Eurozone look like?

The Old World in Turmoil

Gibbon, Sartre, and the Eurozone

Europe and its Radicals

Default in the Eurozone

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Grand Strategy Annex

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Market Composition

14 December 2011


We can represent the particular market composition of an entity or region by showing the relative proportion of black, gray, white, pink, and red markets in a given economic system.

Yesterday in What color is your market? I introduced the idea, in addition to familiar ideas of black markets and gray markets, of red markets and pink markets — that is to say, sectors of the economy that exist only in virtue of state subsidies, direct (red markets) or indirect (pink markets). A completely nationalized economy is a red market; crony capitalism at its furthest reach is a pink market.

In so far as the ideal of political economy is that all transactions should be fully legal, a representation of an economic system predominated by the white market illustrates this ideal.

One of the greatest difficulties of producing a coherent economic theory is a function of what gets left out of conventional econometrics, and what gets left out is the black market and the gray market. Now that I have formulated the ideas of red markets and pink markets, I would also point out that, while statistics on these markets could be had with a bit of research, they are not the kind of things that governments put prominently on exhibition when publishing their economic statistics to the world.

In a classic Soviet-syle state-controlled economy, the red market would predominate. Nation-states undertaking nationalization measures approximate this representation.

It is nearly impossible to get accurate black market and gray market statistics because people are not about to be truthful about their illegal and quasi-legal financial dealings, and, similarly, nation-states and institutions are not going to be forthcoming about their red markets and pink markets.

Crony capitalist regimes, in which state favor of particular industries is primarily indirect mean a nation-state dominated by a pink market.

Nation-states have a vested interest in misrepresenting their red markets, because a population that was well informed about how the public money is being spent to support certain industries and certain jobs would likely create a backlash. No one wants to know that their tax dollars are being spent to prop up a decrepit industry, unless they themselves are employed in that industry.

Where the informal sectors of the economy dominate, black markets and gray markets flourish.

And while nation-states have a greater degree of plausible deniability when it comes to their pink markets, there is perhaps an even stronger incentive not to divulge the details of the pink market, as compared to the red market. When a government goes so far as to nationalize an industry, the case must be made explicitly that this is a good thing. In the case of pink markets, to case need not ever be made, if all can be done quietly, on the side, and no journalists take an interest in it.

The nightmare for every regulator and bureaucrat is an economy in which the black market predominates: the black market not only resists control, but also defeats attempts at measurement.

We can intuitively represent the overall structure of an economy by representing each of the five markets I have been discussing — black, gray, white, pink, and red — each by its eponymous color, showing the relative preponderance of a particular market in a particular economy by the relative preponderance of the associated color. If we could get good statistics, we could be quantitatively precise about this, but the above sketch is simply to present the idea and for this I claim no quantitative precision.

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Grand Strategy Annex

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Just a few days ago in Axioms and Postulates of Strategy I wrote the following:

“Emphatically, facts do not speak for themselves. Perhaps it would be better for formulate it like this: facts cannot be counted upon to consistently and univocally speak for themselves. In some contexts and situations, facts sometimes speak for themselves, but this is a function of the conditions under which the facts are manifested. All other things being equal — i.e., when the conditions under which a fact is manifested cannot be controlled or limited — facts do no speak for themselves. This is what Nietzsche meant when he wrote that there are no facts, only interpretations. The modern quest to attain insight through accumulation of and immersion in a mass of detail is more likely to overwhelm than to enlighten.”

It follows from the fact that facts do not speak for themselves, and many (or at least several) different constructions can be erected on the same set of facts. This is the source of incommensurability. Two incommensurable bodies of knowledge — two incommensurable sciences, or even two incommensurable economies — can be raised on a single set of facts.

In the complex world of the social sciences, which involve not only the ambiguities of the world and its facts, but also the ambivalence of human agents whose motivations and purposes are present throughout every claim and counter-claim, the possibilities of incommensurability are raised to a higher order of magnitude. And so it is with economics, which is perhaps the most mathematized of the social sciences, or I could say that it is the most social of the “hard” sciences. Incommensurable economic doctrines flourish, and so the intellectual world is awash with economic claims and counter-claims, both of which seem to be supported by “hard data” (as the contemporary idiom has it), but which also seem to be mutually inconsistent, if not to describe entirely different worlds.

This incommunsurability, the ability to raise plausible but mutually incompatible constructions upon what would appear to be a single state of affairs, was on display in a page-long article by Jude Webber on Argentina’s debt default in the Financial Times for Tuesday 19 July 2011. The article was billed on the front page as “Wise or Lucky: Argentina’s model default,” while on the inside page it was called “Argentina: A high-risk recovery.”

The subject of default is uppermost in the minds of those in the financial community because of the looming default of Greece, a member of the Eurozone, and the shaky condition of Ireland and Portugal. The financial contagion is spreading through the Eurozone and now is affecting Italy and Spain also, whose borrowing costs have risen dramatically just in the past few days. Comparing Argentina in 2001 to Greece in 2011 is of course a lot like comparing apples and oranges. Nevertheless, comparisons are made, and this FT article made a number of comparisons of this order, both implicit and explicit.

I was surprised at the extent to which the author went easy on the Argentine default, and although the article hedged on any kind of outright declaration that Argentina was a “model” for other insolvent nation-state, given its current economic growth some ten years on after the default, this was clearly the picture that emerged. Part of this is to be put to the fact that a Greek default is now considered inevitable, and no one expects the debt to be paid off in full (investors are said to received a “haircut”), the Europeans are looking to a silver lining to the clouds, trying to convince themselves that default is not disaster and that there is a future after default within the Eurozone.

There was, in the article, no explicit recognition of the fact that, since Argentina’s default, that country has been cut off from international credit markets, and as a result of this has had to budget within its means for the past ten years. At least part of the present performance of Argentina’s economy is due to this forced budgetary discipline. This is not, of course, the only reason for Argentina’s superficially good economic statistics. The article chooses to focus on the ways in which international market conditions have, for the past ten years, converged to Argentina’s benefit, which the explicit proviso made that conditions could change at any time and, which them, the relative fortunes of the country. I do not disagree with this, but it is far short of an adequate picture.

I wrote above of Argentina’s “superficially good” economic statistics, and it is important to look beyond the surface in order to get the fuller picture. It is also important to consider the history of Argentina’s economy. History is always relevant to the interpretation of the present, but in the case of Argentina it is more than relevant, it is poignant, because Argentina was once a wealthy country. While Argentina has recently been admitted to the G20, and seems on the path to recovery, and perhaps even eventual wealth, it seems questionable whether the combination of sovereign debt default and a political balancing act within the Argentinian economy can produce lasting results, or whether the country will slip into a prolonged economic twilight of the sort that most pundits now predict for Greece.

Argentina is a large country, geographically extensive with a temperate climate that favors agricultural production. During the nineteenth century Argentina was among the wealthiest countries in the world due to its agricultural exports. That is to say, Argentina relatively early in its history moved to industrial-scale agricultural and an export-based economy. We all know, from recent financial reportage from east Asia, and especially from China, of the vulnerabilities of an export-driven economy, and the need to build an internal market in order to increase resiliency and decrease vulnerability.

Agriculture has continued to be a mainstay of the Argentine economy throughout the twentieth century up to the present, and it is still synonymous with the production of beef. But the agricultural economy is not the whole story. Set in the midst of Argentina’s vast spaces are many surprisingly large cities. I have previously wrote about how Sarmiento urged the urbanization of Argentina because he considered cities to be a civilizing force. This is one of Sarmiento’s intellectual legacies, and comes across clearly in his Facundo.

In a recent BBC piece, Rise of the Asian megacity, the focus of the article is Asian cities, but I was interested to note that for the statistics in 1990, when only ten megacities were named, while half were in Asia, the other interesting fact, not expressed in the BBC story, was that the other half of the ten cities were all in the western hemisphere, and Buenos Aires was one of these ten largest cities in the world. According to current statistics, Buenos Aires is now larger than Los Angeles, and the only larger cities in the western hemisphere are Sao Paulo, Mexico City, and New York.

When I visited Argentina last year I didn’t travel to Buenos Aires, but I did fly in and out of Cordoba, which is Argentina’s second city, with just over a million in population. I was quite surprised by the size of the cities in the Argentina. On every map a city just looks like a small dot, and the unfamiliar traveler often doesn’t know what to expect. Thus when I arrived in Santiago del Estero, San Miguel de Tucuman, and San Salvador de Jujuy, I was taken aback by the shear size of these cities of which I had no previous knowledge. All were big, bustling urban centers.

To get to these cities, however, one had to pass through mile after mile of open country, and as one passes through the small towns along the highway one sees the legacy of Argentina’s agriculturally-based economy: almost every small town had a John Deere dealership, and the greater part of the heavy truck traffic on the highway consisted of agricultural shipping.

Like many places in the world, Argentina has a divided soul: it is both rural and urban, and both rural and urban traditions have contributed substantially to its cultural heritage. I suggest that Argentina is as profoundly affected by The Rural-Urban Divide as is the US, if not more so. Apart from Sarmiento, the literature of the southern cone is rich in stories of inter-generational alienation between the gaucho tradition and the emergent urbanism the transformed the gaucho from a vital part of the landscape to a romantic literary motif. (This is especially the theme of Uruguayan playwright Florencio Sánchez.)

Argentina’s divided soul (no less than that of the US) has led to divided policies, but whereas the divided souls and policies of the US has resulted in less that optimal economic polices, the increasing marginalization of agricultural as an economic force has limited the impact of these policies. In Argentina, where agriculture is still a major force in the economy, policies that have sought to placate urban populations through the politics of subsidy have been devastating for agriculture, and therefore devastating to the economy on the whole.

The Kirchner-Fernández administration has been actively interventionist in the economy, and has been interventionist in the Peronist populist tradition. But this has been an urban populism that treated the agricultural sector as a producer of wealth that can be expropriated and redistributed. The result has been a series of policy interventions that have penalized the traditional agricultural export model, and has even forced agricultural producers to sell at a loss to the domestic market.

Not surprisingly, some major Argentinian agri-businesses have been moving assets to neighboring Uruguay, and indeed the Financial Times article mentions in passing the problem of capital flight. There can be perhaps no more dramatic illustration of this than the fact that Uruguay has now bypassed Argentina as an exporter of beef. I urge the reader to look at a map and compare the relative geographic sizes of Argentina and Uruguay. Even the reader who is unfamiliar with Argentina’s tradition of producing beef for export will immediately see that something is a little strange when diminutive Uruguay can export more beef than Argentina. (Take a look at Uruguay forecasts beef exports will total 1.4 billion USD in 2011.)

In other sectors of agriculture, Uruguay’s exports of fruit have increased sharply. For example, blueberry exports have doubled (mostly going to the European Union), while overall fruit exports have exceeded US$100 million for the first time in its history. Uruguay’s fruit exports are still dwarfed by those of Argentina, but we see a broadly based increase in Uruguay’s agricultural production and export. Thus while Argentina’s economy has been growing at 6 percent per year since the initial contraction following the default, its agricultural industry has been lagging while neighbors pick up the slack. The traditional engine of industrial development and national wealth in Argentina has been marginalized by political intervention, and this puts the sustainability of Argentina’s present financial model in question.

While it is easy to say that policies can be changed and the agricultural industry can resume its role, there will be an inevitable loss of market share and perhaps lost decades of national wealth. Unlike, for example, the mineral wealth of the DPRK or the petroleum reserves of the US held in ANWR, which are essentially resources banked in the ground, and which can be extracted more efficiently and more profitably in the future with improved industrial technologies, the loss from missed agricultural opportunities is a loss that cannot be made up at a later date. If you don’t sell fruit or beef this year, someone else will sell it, and the purchaser will likely consume it this year. You may sell to them next year, but you missed your chance to profit from this year.

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Grand Strategy Annex

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Poor Cousins

9 July 2011


The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

A Parable

Once upon a time there was a large family, which either because of or in spite of their long intimacy and shared history, was a fractious and disputatious bunch, with old fights and old grudges that were never forgotten, even though the principals to these disputes were long dead. Over time the fortunes of the family had diverged, and some that had been rich in the remote past had become quite poor, while others who had started with nearly nothing had done very well for themselves.

The wealthy members of the family, who owned many industries, employed many people, and had large, modern, comfortable houses for themselves and their immediate family, were fully aware of their improved status in their world, while those members of the family who had fallen on hard times were equally well aware of their fallen status.

The poor cousins nurse a sense of resentment over the lower living standards and their perceived lower social status, while the well-to-do cousins nurse a sense of resentment over contributing to the support of their ne’erdowell cousins. The former never lose sight of the fact that every penny given has been given begrudgingly; the latter never lose sight of the fact that every penny spent on the poor cousins is a penny they are not spending on themselves or their children.

The wealthy cousins were constantly faced with the question of what to do with the poor cousins. Say you put the poor cousins on the dole. They become lazy, drink too much, pick fights, and cultivate a sense of entitlement. Do you help the poor cousins find work? Do you make work for them in your own industries? The same problems reappear: the poor cousins show up drunk and do shoddy work.

Say that the wealthy cousins attempt to observe the old maxim that if you give someone a fish they eat for a day, but if you teach them how to fish, they can feed themselves in perpetuity. In this spirit, the wealthy cousins help the poor cousins to start businesses. But the business doesn’t go well. Do the wealthy cousins continue to support the failing business, just so the poor cousins have something constructive to do? And, if they do, for how long?

In the fullness of time, the wealthy cousins decide to pool their resources and create a bigger business enterprise than ever before. The poor cousins want to be part of this, so the wealthy cousins tell them that if they maintain certain standards, stop drinking, and promise to work very hard, that they can be part of the new business enterprise and share in the wealth that will be produced.

Alas! the present plan works no better than previous plans. The poor cousins join in the new business, but they can’t quite make it work, and worse, they threaten to pull the whole industry down with them. What’s a wealthy cousin to do? Cut the poor cousins loose? Keep giving them money so they can continue with their end of the business, even though it is obvious that they can never turn it around?

The Lesson

Europe has not an essence, but a history. Like the individuals who jointly constitute Europe, there is no metaphysical center to the continent any more than there is a metaphysical center of the individual person. It is the shared history that constitutes Europe that makes Europe what it is. But in addition to being a shared history, it is also a disputed history. Every part of Europe has its own perspective on European history, and therefore its own sense of its place within Europe.

The shared history of the European nation-states makes the Eurozone seem like an obvious idea, so much so that it would only seem to be a matter of financial engineering in order to get things right. It would seem to be a mere matter of details to be cleaned up and the whole scheme put into practice, but, as is often said, the devil is in the details. The disputed history makes the obviousness of the Eurozone not quite so obvious in practice.

The crafting of the Eurozone turned out to be more political than financial engineering. As a political creation, the Eurozone was more diplomatic than a strictly business deal would ever be. Businesses deal with hard and unpleasant facts; if they fail to do so, they will go bankrupt. Diplomacy, however, avoids hard facts because hard facts are the rocks upon which ships of state come to grief. In diplomacy, nothing that can be stated indirectly is stated in direct and unforgiving terms.

This diplomatic behavior is fine for cautious nation-states who always keep an eye on neighbors, even when they have signed a peace treaty with them, but when it comes to unifying economies, it is no longer an acceptable practice. To make the Eurozone work for all members of the Eurozone would have required internal mechanisms that would, quite without sentiment, transfer wealth from where it was abundant to where it was needed. But rich cousins don’t want to support poor cousins, and poor cousins have no incentive to go to work if rich cousins are there to foot the bill.

It was widely reported not long after Greece joined the Eurozone that it had cooked the books to show itself as having met the Eurozone standards for entry into the monetary union. This was no secret once it came out. Greece was not summarily dismissed. Once made part of the family firm, how do you fire your poor cousin? Now the Eurozone is paying the price both for its diplomacy and its family sentiment.

Every large extended family has at least one drunk, one lunatic, one pervert, one criminal, one womanizer, one ne’erdowell, and one layabout — at least one, and more likely several of each. Europe is a family, it has its share of misfits, and some of these misfits are the most successful among the European nation-states. Family sentiment can paper over the strained relations withing families in the limited and controlled context of a family reunion, but when it comes to sharing the family purse, family sentiment is not enough.

It has been a fascination and an education for me to open up the Financial Times over the past few weeks, since every day has brought a new round of stories and opinion pieces on the looming Greek debt problem, possibly leading to default. Every possible opinion has been presented and argued for and against. I suspect that what is happening in the pages of the Financial Times is often more important than what is happening in government bureaucracies and boardrooms around the continent, since everyone in the bureaucracies and boardrooms reads the FT before they attend their meetings, and they probably all take their arguments from those already presented in the press.

I have the luxury of being intellectually fascinated by the process; those in the Eurozone must be experiencing that sinking feeling and so cannot really fully engage in the question as an intellectual exercise. For the Europeans, this is about family. And so the question remains: what is to be done with the poor cousins?

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Grand Strategy Annex

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Western Europe has brought itself to such a high pitch of development in recent decades following the combined devastating effects of the Great Depression, the Spanish Civil War, the Second World War, and the looming presence of Soviet communism, that we scarcely remember the time when Portugal was the Bolivia of Europe: perpetually poor, politically unstable, and subject to a seemingly endless series of coups d’état.

Portugal’s torpor was more or less the result of the one-two punch of an early modern “resource curse” followed by the 1755 earthquake and tsunami at Lisbon. What I mean by an “early modern ‘resource curse'” was that the Portuguese economy became dependent upon income from colonies in the New World, which in the case of Portugal meant Brazil. Industry declined precipitously in Portugal itself, and the people cultivated a sense of entitlement for generations until they were largely incapable of practical effort in ordinary pursuits. (A situation much like the Persian Gulf oil sheikdoms of today.)

As I noted above, Europe has done rather well for itself, bringing along with it not only the core continental economies of France and Germany, but also economies that had historically been quite marginal: to the west — the Iberian Peninsula — and to the east — the Balkans and Central Europe. The world became so quickly accustomed to this success that the idea of a European economic union, ultimately cemented by the currency union of the Euro, seemed to have about it a certain air of inevitability, as though its success were guaranteed.

Now it seems that Portugal is about to slip again into a kind of economic torpor, consigned to a marginal position, along with Greece, in the Balkans, which had its riots and crisis some months ago. In today’s Financial Times, Portugal and Greece were both described as peripheral Eurozone countries. In The Dubious Benebits of the Eurozone I suggested that it was remarkable that there was no built-in mechanism in the formulation of the currency union to address such crises. I still find this remarkable, and it is perhaps the most telling sign of the presumption of the inevitably success of the union that no plans, or insufficient plans, were made for troubled times.

However, I also argued in Shorting the Euro that the value of the Euro is quite high, and even if the currency takes a hit, the Europeans will still be quite well off, and their economies will ultimately be sound. Except, perhaps, for the “periphery.” Marginal Europe is likely to return to its historically marginal status, so that those countries not traditionally part of the core of successful European economies will find that they have not “hitched their wagon to a star” by joining the Eurozone. Those nation-state that have traditionally been part of the core of successful European economies have demonstrated that they will not intervene in a robust manner to keep these marginal and peripheral economies on an equal footing to their own.

At this point in the recovery of the world economy, following the housing crash and the consequent financial meltdown, world economists were no doubt optimistic that growth would be hitting its stride about now. Instead, we have the earthquake and tsunami in Japan, with is attendant nuclear crisis, and social unrest throughout the Arab world, and between these natural and social disturbances expectations of slow, steadily, predictable growth must fall by the wayside.

In Portugal, austerity measures were voted down in a move that may result in an international bailout package — imagine the IMF coming to the rescue of a Eurozone nation-state, while the rest of the Eurozone looks on in complacency. But Portugal is far from isolated in this respect. Attempted austerity measures for the long-term good of the economy are notoriously unpopular, and routinely are the cause of riots and social unrest. The telos of this development is a situation like that in Argentina, when a popularly elected government attempts to practice the politics of mass subsidy — disastrously.

Indeed, the social unrest in the Arab nation-states that has been dominating the news lately has often been triggered by economic grievances. These economies have been moribund not least due to the cronyism of entrenched autocracy, and the legitimate hope is that, with the end of such autocracy and its inevitable cronyism, that there will be a democratizing effect and a spreading of the wealth. Such hopes are justified in the long term, but in the short term — and this is the scale of time represented by triggers for social unrest and revolution — they are unrealistic in the extreme. Russia now, some twenty years after the dissolution of its command economy, is doing well, but it went through some rather difficult times in its transition. The same is to be expected, at least to some degree, in regard to North Africa and the Arabian Peninsula, though greatly complicated by the oil wealth in the region.

In terms of sheer weirdness, perhaps recent moves by Utah to make gold and silver alternative currencies represent a movement of ideologically driven economic policy that, if the idea spreads, could do significant mischief. There is dissatisfaction and unrest among the wealthiest in the world, who may choose to cut off their collective noses to spite their collective faces. There is also dissatisfaction and unrest among the poorest in the world, and with the efforts to remove Muhammad Yunus from the Grameen Bank in Bangladesh that he created, it seems that economic policy is becoming politicized and polarized in ways that may give immediate emotional satisfaction at the expense of long term growth and economic viability.

I am not projecting or predicting worldwide financial disaster — I find apocalyptic scenarios distasteful in the extreme, not least when expressed in the secular terms of economics — but it does seem at the moment that the world economy is teetering on a knife edge, at which point it could fall backward into retrograde and politicized policies of the sort that exacerbated the Great Depression, and from which it might regain its sanity and move forward again by placing rationality and pragmatism of the emotional satisfaction of economic revenge.

In the grumbling hive of Mandeville’s Fable of the Bees, “every Part was full of Vice, Yet the whole Mass a Paradice,” and, “Their Crimes conspired to make ’em Great.” Great economies comprise great crimes; and great wealth means wealth often in undeserving hands. But the alternative — making everyone poor, something Mao pioneered with the Great Leap Forward and the Cultural Revolution — would leave a mark on world history from which we would not soon recover if practiced on a global scale. And this is the danger: the global economy is global, and with potentially global problems. Global efforts are needed to prevent moralistic folly from ruining what hopes we may rationally entertain.

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Note added 29 March 2011: Today on the BBC, in the story Portugal and Greece downgraded on debt worries, it was reported that Standard & Poor’s has downgraded Portuguese and Greek bonds: “The downgrades left Portugal one notch above junk rating and Greece’s creditworthiness below that of Egypt.” It seems we are well on the way to a two-tier Eurozone in which there will be a core of healthy, growing economies that more or less approximate the originally intended policy limits of Euro participation, as well as a periphery of poor cousins that use the Euro but which do not hew to Euro budgetary targets nor uphold Eurozone policies. One can see the participation of the Eurozone periphery as a kind of preemptive Euroization of marginal economies that might have needed rescue (and perhaps Euroization) by the core Eurozone nation-states at some point in time anyway. Why not put them on the Euro now instead of later? This makes northern European tourism to Greece and Portugal all that much easier by avoiding the inconvenience of currency conversion.

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Note added 05 April 2011: A new story today, Portugal downgraded by Moody’s on further debt concerns, notes that Portugal’s bonds have been downgraded again. The above-referenced story said that the previous downgrading, “left Portugal one notch above junk rating,” which means that the current downgrading puts Portuguese bonds firmly in junk bond territory. The Portuguese have receive so little in terms of support from the Eurozone that it invites the counter-factual speculation as to what would have been done in respect to Portugal had the Portuguese not been part of the Eurozone.

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