Have just finished writing two papers with hard deadlines – now in the throes of grading – so two quick points, which either sort-of-resonate-with or half-contradict each other in ways that I don’t have time to think or write about.
First: ungovernability. Or, rather, “ungovernability.” Chris got a lot of flak in comments for suggesting that centrists and center-right people in the media were going to come out with suggestions that a bit of dictatorship might not be a bad idea. As he pointed out, there used to be a lot of people on the right and center-right who made these arguments – and not just about countries in the developing world. Crouch and Pizzorno’s _The Resurgence of Class Conflict in Western Europe_ is particularly good on this, as I recall. That said, unlike Chris, I don’t have strong expectations that this set of rhetorical tropes is going to emerge in the very near future (although it may in the medium term). The old crop of center-right dictator-fanciers were fans of dictatorships not because they were opposed to democracy _tout court_, but because they were opposed to certain parts of the economy being subject to political control. This is not so much of an issue these days. From a certain point of view, the European Central Bank is a more-than-acceptable functional substitute for General Augusto Pinochet. Indeed, being less publicly embarrassing, it is arguably superior. One of these days soon, by the way, I’m going to write my post on the editorial policy of the _Economist_ during the Irish Famine – it wasn’t one of its finer moments.
There are certainly “mutterings”:http://www.ft.com/cms/s/0/eedbe85c-5d2a-11df-8373-00144feab49a.html from the right about how central banks are losing their “credibility” and “independence” by trying to stop markets from collapsing – but as long as central banks’ market interventions are plausibly short-term, and aimed at restoring stability to the existing order, I don’t think we’ll be seeing calls for stronger measures. The system as it is is more or less doing as it is supposed to.
Second – Germany, Greece and Europe. In fairness to myself, I think I called this “pretty”:https://crookedtimber.org/2010/02/13/et-dona-ferentes/ “well”:https://crookedtimber.org/2010/03/10/the-emf-as-camels-nose/ (n.b. though that my ability to “predict Italian politics”:https://crookedtimber.org/2009/07/01/burlesquoni-rides-again/ is less than impressive). This said, I think that the triumphalism among “French politicians”:http://www.ft.com/cms/s/0/684ddc0a-5d2f-11df-8373-00144feab49a.html about how they have snookered Germany into some form of EU level economic government is premature. The package that we’re hearing about – massive though it might be if it is ever invoked – is an emergency measure. We’re likely to see some longer term institutional innovations that are likely to cement a back-up arrangement. What we are _not_ likely to see is the institutionalization of large scale fiscal transfers. Instead, we’re plausibly going to see moderate fiscal transfers that are aimed at boosting the competitiveness of Southern European economies, combined with more extensive oversight of national fiscal policy.
Germany would _like_ to see an economic government which mostly consisted of other countries adopting harsh fiscal retrenchment combined with extensive oversight.
This isn’t going to happen, much as some “German economists”:http://www.voxeu.org/index.php?q=node/5029 might like it to. Germany simply doesn’t have the bargaining power to pull it off. Its threats to expel recalcitrant countries from EMU are now very obviously non-credible. Furthermore, Germany has just demonstrated that it _is_ willing, however reluctantly, to bail others out if the crisis hits. So Germany is left with the unenviable realization that (a) its future economic and political fortunes are linked to EMU, but (b) it doesn’t have the leverage to force others to take measures that it sees as necessary to avoid crisis. This means that it needs carrots as well as sticks to persuade other countries to become less profligate. The only policy tool that I think Germany has is more money – and more specifically, spending money along with other rich member states in countries like Italy and Greece as a quid-pro-quo for reform of taxes, revenue-raising, labour markets and educational systems, which would make these countries more economically prosperous over the longer run, and less likely to pull Germany along with them into further crises. I wouldn’t want to be the politician telling German tax payers that this is necessary. But I’m not seeing that Germany has many other plausible choices.
{ 92 comments }
Hidari 05.12.10 at 8:06 pm
I think another reason that calls for dictatorship are unlikely (at least in the short term) is the decline of certain forms of racism or ethnocentrism. While anti-Arabic racism and anti African-American racism are still de acceptable in some circles (although the language used is much less overt), racism against ‘our’ fellow White people is much less common. By which I mean in the 1920s and 1930s the racist statement ‘Africa begins at the Pyrenees’ was still quite commonly used. In other words, Europe was firmly split between the ‘North’ (rational, clean, Protestant, Good) and the South (greasy untrustworthy foreign types, Catholics or even Greek Orthodox, irrational, not ‘worthy’ of democracy). Partly this has to do with the decline of anti-Catholic ‘racism’ (if you want to call it that). Partly it is just due to the decline of (overt) racism generally or at least of this kind (one still encounters racism against other White people obviously but this is very strongly tied in with immigration: e.g. against Poles or Albanians in the UK). Partly it has to do with the growth of European feeling, and the increasing propensity for (e.g.) British people to go on holiday in Greece or Spain. But the fact is that to the Right’s love of dictatorship is almost always tied in with some form of racism and there just isn’t the anti-Greek or anti-Spanish feeling at the moment to ‘justify’ it, so to speak (compare and contrast the continued British/American support for the various Arab dictatorships).
Keith 05.12.10 at 8:33 pm
One of these days soon, by the way, I’m going to write my post on the editorial policy of the Economist during the Irish Famine – it wasn’t one of its finer moments.
Were they one of the papers that took Swift up on his Modest Proposal?
BJN 05.12.10 at 8:54 pm
Well, I’m not sure how much it has to do with dictatorship, but I think there is definitely something, lets call it culturally stereotypical, about the idea out there of Greeks as profligate, unwilling to really participate in the difficult parts of capitalism, etc. being the main cause of the crisis as opposed to German and French banks being bad at their job, and the effect of capital flows from a much richer to much poorer country. There was less of a fear of talking about dictatorship of the right when they were claiming that it was in order to prevent dictatorship of the left (no matter how dubiously) but I think the racism is still there.
Tim Wilkinson 05.12.10 at 8:55 pm
Yes, the thing about ominous mutterings in the press is that they are rarely the medium by which plans for covert action are developed. Actual coups, even minor ones like the Sunsteinian nudge of Operation Piano Solo (silent, bloodless and with no more dramatic effect than was needed), are not advertised quite so explicitly in advance.
The only real purpose for anyone with serious influence to use public media for that kind of talk is really to send a message to the target government, basically a minor speech-act version of O.P.S. It’s not as if public opinion (even among the semi-elite readers of the Economist or FT – or more plausibly the even less esoteric Telegraph) needs to be won over before any coup can be mounted – nor as if an editorial in a foreign newspaper is likely to constitute a sufficiently clear and credible message of support to encourage an authoritarian takeover. (We are talking about some kind of regime change, aren’t we – the existing government in e.g. Greece is I assume unlikely to be persuaded that martial law etc is a good idea.)
The seditious talk in 70s Britain (the Royalist plutocrats responsible of course saw themselves not as seditionaries but, according to their own self-serving logic, as patriotic defenders against an ‘alien’ ideology) was getting close to being such a message – its overtness a deliberately bold show of strength intended as warning or threat to the government, similar in some ways to the unscheduled and unannounced military manoeuvres at Heathrow. (And can’t resist mentioning that the Blair govt or allies used the same method on the eve of the Iraq war to send a more inchoate message to backbench MPs and the public.)
But even those deliberately noisy mutterings didn’t make it into the newspapers. Not at the time, anyway – Peregrine Worsthorne’s ‘When Treason Can Be Right’ Sunday Telegraph editorial wasn’t published until 4 Nov 79, once Thatcher was in (though no-one had any idea at the time how long-delayed or how unrecognisable would be the returning Labour govt.)
GB75 etc, with private armies raised and openly trained and various plots of differing levels of seriousness discussed, were in the end rather amateurish affairs – and those responsible couldn’t make up their minds if they were serious (in which case keep it out of the papers) or just sabre-rattling (in which case better be a bit circumspect, as uniform coppers couldn’t be relied on to overlook actual sedition).
The point (apart from laying out a few parapolitical morsels in the hope of whetting the odd appetite) being that such editorials are only likely to appear in the host country’s media, and are only likely to be very explicit when the climate is already ripe for a power transfer.
geo 05.12.10 at 9:13 pm
the editorial policy of the Economist during the Irish Famine – it wasn’t one of its finer moments
Ah, there are so many such disgraceful moments in the history of the Economist and its partner in trans-Atlantic political rectitude and editorial responsibility, the New York Times, aren’t there? Wouldn’t it be gratifying to read a (long) book about them?
Alice de Tocqueville 05.12.10 at 11:58 pm
I’m with you, George. In my opinion it would be a long, and long-overdue, book.
robin 05.13.10 at 12:02 am
Re Keith’s question, the Economist was founded almost a century after Swift’s death.
Gene O'Grady 05.13.10 at 12:06 am
I don’t know where Hidari is from, but I might note that the California statehood centennial, within my lifetime if barely, occasioned a lot of the kind of anti-white/anti-Catholic racism that he is talking about. What I suspect basically happened shortly thereafter is that lots of bright Catholics and Jews (I’m partly thinking of my father and his law partners) came back from the war, worked hard, advanced, and shut those people up.
Henry 05.13.10 at 12:55 am
There is an official history of the _Economist_ written by Ruth Dudley Edwards, and it’s a complete whitewash (at least on this: I haven’t checked out the other stuff). I feel some mild degree of guilt by association – Ireland is a small place, and I probably have met her at some stage in my youth (certainly, people in my extended family know her). She has since moved on to writing frenzied newspaper columns about the sinister domination that the Council on American Islamic Relations exercises over Washington DC. I “shit you not”:http://www.independent.ie/opinion/analysis/a-nation-in-fear-of-being-seen-as-antimuslim-1943905.html.
engels 05.13.10 at 1:11 am
In the meantime, Mark Ames’ column on them was pretty good iirc.
geo 05.13.10 at 1:14 am
Parenthetically, to Alice: In view of your sobriquet, this may interest you:
http://www.georgescialabba.net/mtgs/2010/04/tocquevilles-discovery-of-amer.html
y81 05.13.10 at 1:16 am
Wow, I thought the part about the policy of the Economist during the Irish Famine was a joke, but maybe not. What next? A post on the policy of the Democratic Party during the Civil War? The policy of Oxford during the (other) Civil War? The policy of Ireland during World War II? Definitely not the finest moments of these institutions, but in each case, rather a long time ago.
Clod Levi-Strauss 05.13.10 at 1:36 am
Matt McIrvin 05.13.10 at 2:07 am
Hmm. If humans aren’t clever enough to handle climate change, and democracy needs to be put on hold, that means the humans have to be ruled by… who?
Robots? Aliens? DAMN DIRTY APES??
Clod Levi-Strauss 05.13.10 at 2:56 am
“..that means the humans have to be ruled by… who?”
An unelected elite of scientists and technocrats; a “reality based” community of experts.
It’s not a new argument from “liberals” and it’s become more common over the past few years.
geo 05.13.10 at 4:08 am
My dear Clod,
We are now being and have long been ruled by an unelected corporate and financial elite. There is little prospect of any change. The only question is whether they will find it most advantageous to rule us by means of elected politicians or of unelected techno- and bureaucrats. The idea that scientists and technocrats can rule independently of, and conceivably in opposition to, Big Business is as absurd now as it was when the idea of a “New Class” was first proposed in the ’60s by the proto-neoconservatives.
geo 05.13.10 at 4:14 am
Definitely not the finest moments of these institutions, but in each case, rather a long time ago.
Yes, but my point (and Henry’s, I suspect) is that the smug, callous, “responsible” tone adopted by the Economist in that case, and by the Times in the case of free trade, the New Left, and innumerable American military interventions during the 20th century, are entirely characteristic, and that the mindset that produced it still operates (particularly in the Economist) to this day.
Clod Levi-Strauss 05.13.10 at 4:34 am
George do you think I’m defending it?
I never have and never will.
Believe me I’m no fan of John Stewart Mill.
Guido Nius 05.13.10 at 7:09 am
What geo-16 says + let’s see what they prefer when the streets are burning because the unfair bias towards them becomes too great to bear. I think Chris was spot on – “face it we must or erish by it eternally” as Yoda would say.
The second point I don’t get: if Germany succeeds in forcing the rest of Europe to be a bit more like them – socially – this would surely be for the better of the rest of Europe?
alex 05.13.10 at 7:33 am
“An unelected elite of scientists and technocrats; a “reality based†community of experts.”
Hmm… Leninism, anyone?
Alex 05.13.10 at 9:21 am
Unfortunately, the Germans don’t want to force everyone else to be more like them socially. They want everyone else to retrench while also continuing to buy German industrial exports and borrow from German banks. Obviously, a German trade surplus with the rest of the eurozone in a context of continuous fiscal retrenchment implies deflation everywhere else. It’s your classic currency system n+1 problem.
Arguably, this whole story has shown the German political class at its worst – arrogant, sanctimonious, and so very very smug.
otto 05.13.10 at 10:17 am
I don’t think I agree that the Germans bargaining position is so poor. They can, for example, demand that the existing amount of money that they provide the EU is now a quid-pro-quo for reform of taxes, revenue-raising, labour markets and educational systems and insist on the latter regardless of howls from many others. This thought seems to neglect the fundamental position that stability-orientated national governments and creditor governments have much more leverage than the disorderly and debtor governments, and can set the terms of their conditionality much more strongly.
Guido Nius 05.13.10 at 10:57 am
21- with such an insight in the collective German psychology you might try to rally the French into taking back some land! It’s só cool that everybody outside the continental Europe is so happy to blame one part of continental Europe for all the woes of another part of continental Europe when the root cause of all these problems is an invention of people outside of continental Europe.
Walt 05.13.10 at 11:04 am
otto: Not really. The debtor countries can always default.
Matt McIrvin 05.13.10 at 11:35 am
I’m not sure Lovelock is a typical liberal or a typical global-warming prognosticator. His doom predictions are way out there compared to those of most climate scientists; he thinks the human species will be mostly extinct within a century or so.
kid bitzer 05.13.10 at 1:05 pm
“the root cause of all these problems is an invention of people outside of continental Europe”
uhhh—what, exactly? sex? drugs? rock and roll?
ajay 05.13.10 at 1:21 pm
It’s só cool that everybody outside the continental Europe is so happy to blame one part of continental Europe for all the woes of another part of continental Europe when the root cause of all these problems is an invention of people outside of continental Europe.
You mean money? Damn those Babylonians! Or the mortgage? Damn those Anglo-Saxons! Though the banking industry, I’m afraid, is on you guys, as is the subprime loan (Augsburg, Florence, Fuggers, Medicis, etc.) I have no idea who invented the concept of “lying through your teeth about the state of your national accounts” but I’d hazard a guess at the ancient Greeks.
Earnest O'Nest 05.13.10 at 1:42 pm
I mean: “Read my lips, no new taxes.” – but I gladly take your praise of this old continent as the origin of all ideas, even the bad ones. Luckily – we are not so stupid to go overboard in applying all of them ;-)
Current 05.13.10 at 4:01 pm
ajay makes a great point.
The Greek crisis has little to do with high finance. If the loans had been private non-transferable loans to private individuals then it wouldn’t change very much. The foolishness of the Greek government is what is wrecking their country, not the interational markets. If they default on their debt then they will find the rate they can borrow at from the international markets in years to come will be penal.
The response to the Greek crisis is a different matter. It’s an example of high finance lobbying for privileges by lobbying for the EU to prevent Greek default. As other have said it’s a European version of TARP.
It should be noted that the bailout won’t necessarily help lower long run interest rates. If normal bond-buyers think that the Greek bailout was a special confluence of political circumstances that won’t happen again then future interest rates on greek debt will be just as high as they would have been had there being a default.
Henry 05.13.10 at 5:18 pm
y81 – if the official history of the Economist (1993: its author seems furthermore to have been the Economist’s Company Historian up to 2000) is depicting the stance as a noble expression of free market principle, it is reasonable to suggest that this is still a live ‘un.
Guido Nius 05.13.10 at 5:32 pm
If the loans had been private non-transferable loans to private individuals then it wouldn’t change very much.. Wouldn’t it now? Is the magic of high finance more transferable than anything? Some people are really, really disappointed that we succeed to survive, despite our inability to follow the leaders.
chris 05.13.10 at 7:08 pm
The foolishness of the Greek government
What foolishness? The leaders of the then government benefited, and the Greek people are now left holding the bag. That sounds not very much like foolishness and an awful lot like a con game, to me.
So why the eagerness to literally blame the victims (the Greek people) and insist that they have to clean up the mess?
chris 05.13.10 at 7:09 pm
Oh, I forgot to mention, the lenders also benefited (that’s what interest is all about) — or at least they will if there is no default.
Someone who offers to loan you money for interest is not doing you a favor, no matter how hard he tries to convince you otherwise.
Current 05.13.10 at 7:24 pm
Guido Nius,
How would it change anything to do with the Greek crisis itself? If the Greek’s defaulted on the private loans to them then in the future debtors would be more wary and charge higher interest.
Chris,
I agree that the Greek government will have benefited themselves. They have ripped the people off. It was the Greek people however who elected that government. They should have been more careful. The people have got what they deserved by trusting in bureaucratic big government.
Tim Worstall 05.13.10 at 8:07 pm
“What foolishness? The leaders of the then government benefited, and the Greek people are now left holding the bag. That sounds not very much like foolishness and an awful lot like a con game, to me.”
Sounds a lot like James Buchanan actually. So do we now accept public choice finance as being a description of the real world? You know, politicians do what benefits polticians in the time scales that politicians face?
Leading to the conclusion that perhaps politics and politicians isn’t the way to deal with the long term?
geo 05.13.10 at 8:50 pm
politicians do what benefits polticians in the time scales that politicians face?
Of course they do, Tim. But what usually benefits politicians is to follow orders from those who own the economy. Politicians get few benefits, and lots of grief, for acting in fundamental opposition to the interests of a significant fraction of the financial/industrial leadership.
Henry 05.13.10 at 8:58 pm
There is some resemblance between left critiques of government and public choice – both see the intersection between government and business as a dangerous one. The difference is that public choice accounts usually suggest that things would be _better_ if governments got out of the way of markets. Leftists are usually not optimistic about the disciplining magic of the market on private interests (and suspect, with good reason, that matters would often be much, much worse).
chris 05.13.10 at 9:04 pm
Leading to the conclusion that perhaps politics and politicians isn’t the way to deal with the long term?
Compared to what? I’d love to hear your plan for the abolition of politics.
I agree that the Greek government will have benefited themselves. They have ripped the people off. It was the Greek people however who elected that government. They should have been more careful.
You can make the same argument about every crime victim, and some people do. I won’t bother spelling out the really ugly examples, but just think of all those people who should have been more careful than to invest in Bernard Madoff’s company.
Guido Nius 05.13.10 at 9:10 pm
Current, you really dó mean you can talk about the Greek situation as if Greece wasn’t actually a country?
Luke 05.13.10 at 9:11 pm
“It was the Greek people however who elected that government. They should have been more careful. The people have got what they deserved by trusting in bureaucratic big government.”
This is an enormously flawed argument under any circumstances, but especially applied to a country where people were dying in protest against a military regime within living memory.
Current 05.13.10 at 9:18 pm
geo: “But what usually benefits politicians is to follow orders from those who own the economy. Politicians get few benefits, and lots of grief, for acting in fundamental opposition to the interests of a significant fraction of the financial/industrial leadership.”
Of course there are incentives in both directions.
What interests politicians is votes, they are driven by the “vote motive”. By getting elected they are able to access wealth and power. Certainly that means they will do corrupt deals with the private sector once elected, but it doesn’t meant that they will act in the interest of finance and industry as a whole.
Look at the modern western world. We have extremely generous welfare provisions that provide for a large class of people who produce nothing even though they could do. Is that in the interest of the financial and industrial leadership? Of course not. What about progressive taxation?
The challenge of corrupt government is to appear to be serving the interests of the masses while also serving particular special interests.
What has happened in Greece is a great example of the risks of statism. The Greeks have gambled on statism staying honest, and they have lost.
Luke 05.13.10 at 9:26 pm
“The Greeks have gambled on statism staying honest, and they have lost.”
As opposed to their other option, which was what?
A remarkable number of Greeks would dearly love to stop gambling on statism, only to find that the state and its instruments of force are keen to continue the gamble. Or should they have voted for a ‘free-market’ party that would be equally corrupt and would avoid the current need for austerity measures by imposing the equivalent measures from the get-go?
If the Greek state was an opt-in mechanism, this argument would begin to make sense.
Geoffrey 05.13.10 at 10:08 pm
on “ungovernability” – see Mark Lilla’s “Tea Party Jacobins” in NYRB as an example of this emerging theme.
Antoni Jaume 05.13.10 at 10:42 pm
“It was the Greek people however who elected that government. They should have been more careful. The people have got what they deserved by trusting in bureaucratic big government.”
Inasmuch I’m well informed the government that got the Greek people in trouble was partisan of small government.
Current 05.14.10 at 1:21 am
Luke, Antoni Jaume,
I agree entirely. You are on the verge of rediscovering some very important theories of political science. Democracy is a very weak mechanism of control over government. Government is necessarily corrupt, and can’t be otherwise.
See Jeffrey Friedman’s paper on Popper, Weber and Hayek:
http://www.criticalreview.com/crf/jf/17%201_2%20Popper.pdf
Glen Tomkins 05.14.10 at 2:47 am
Cui bono?
I’m not sure I get the motive for the feared right wing coup. Ungovernability is the condition the right wing wants. In the absence of government, the malefactors of great wealth run things unhindered. Cunning rightists, those who had a clear head, knew what they wanted, and had no qualms about means, would, after that running start towards a Macchiavellian abyss — end up leaving things just as they are. Why would they want public affairs conducted in any way other than they are at present, entirely to their satisfaction, but without their having any public responsibility?
Not to say that the Right is unlikely to foment radical change in our governance. In fact, if we are to see any such radical change, it will come only from the Right. But if we get any radical action from the Right, it will be a genuine, idealistic, revolution with banners flying, and not some backroom coup.
And they will provoke this revolution, if such is in our future, precisely because they are not cunning, clear-headed, or have any idea how society operates outside the narrow path to the trough that they have carved out in our crony capitalist system. They will start a revolution because they will be convinced that they have the God-given right to even more, the right to take in perpetuity and untrammeled by any of the shibboleths that now hinder their path to that trough. Savonarolas, not Macchiavellis, they will make the revolution that will destroy them out of an utterly sincere and pure idealism.
Luke 05.14.10 at 3:48 am
Current:
“You are on the verge of rediscovering some very important theories of political science. Democracy is a very weak mechanism of control over government. Government is necessarily corrupt, and can’t be otherwise.”
In which case, it makes no sense to blame the Greek population for the actions of a Greek government beyond their control, does it? And, as I pointed out, those in Greece who are most hostile to government are those who are fighting hardest against the austerity measures, not saying “it’s what we deserve”.
Lemuel Pitkin 05.14.10 at 4:50 am
If the Greek’s defaulted on the private loans to them then in the future debtors would be more wary and charge higher interest.
Well, this is an empirical claim. And it can be evaluated empirically: Have countries that have defaulted on loans paid higher interest rates on subsequent borrowing? The answer, it seems, is no.
IM 05.14.10 at 8:16 am
The economist was hardly alone with its “decrease the surplus population” position. Manchester capitalism was the dominant ideology all over europe and everybody thought the irish were a bunch of lazy drunks. I’m pretty sure the position of the Manchester Guardian was exactly the same.
Now I don’t know if to explain everything is to excuse everything, but we should see the things in context.
IM 05.14.10 at 8:24 am
Regarding Germany right now: The german politics of the last months were not a master plan to move Europe or even Greece in this or that direction. German politicans were obsessed with the politics of NRW (admittedly larger than Greece). Their policies were determined by denial, cowardice and vacillation.
So right now, we shouldn’t overthink matters: There is not much of a german position right now.
What will develop once the most important country in Europe once again has something like a policy on european matters, I don’t know. I guess austerity at all costs.
dsquared 05.14.10 at 9:31 am
Re the Manchester Guardian, You are correct!. Although today’s Guardian is very different from the Manchester Guardian of the 19th century (roughly to the extent that a modern “liberal” is different from a “classical liberal”), while the Economist has been ideologically much more stable.
ajay 05.14.10 at 9:43 am
48: good point, well made. Current actually contradicts himself here by arguing a) that a default would be seen as a sign of poor creditworthiness and so would harm Greek borrowing by raising rates and b) that a bailout would be dismissed as a one-off event and so would not help Greek borrowing by lowering rates.
In reality, as you note, the reverse is true: sovereign defaults are seen as one-off events, but a bailout is seen as a sign of an enduring guarantee. Hence the moral hazard trade which so many large banks have been enjoying recently.
The leaders of the then government benefited, and the Greek people are now left holding the bag.
Not a useful description of events. The Greek people also benefitted, because they had a government that was therefore able to provide them with more services and higher-paid jobs than it would otherwise have been able to afford. The cutbacks basically represent the difference between what the Greek government was providing up to now, and what it can provide while not actually lying to its lenders.
IM 05.14.10 at 9:45 am
It wasn’t called Manchester Liberalism for nothing. And the first parts of the british welfare and regulatory state were build by the tories.
The economist did oppose the first world war though,until 1916 or so.
IM 05.14.10 at 9:57 am
Page 300: The Guardian dismissed the Irish as exploiters of english generosity, hinting that starvation was a poor excuse for dependency.
Page 300: Significantly, the Manchester Guardian made no moral distinction between the Irish landlord and the Irish beggar.
Sounds familiar
chris y 05.14.10 at 11:11 am
And the first parts of the british welfare and regulatory state were build by the tories.
To the extent that that’s true, the key player was Joe Chamberlain (Birmingham rather than Manchester), who was a Tory in later life to the extent that he was a Liberal Unionist, but had a background as a Radical Liberal. Bismark he was not.
IM 05.14.10 at 11:20 am
I don’t want to argue that. Joe Chamberlain has been described as an radical on domestic politics and an imperialist abroad. And his younger son was quite the reformer until he blundered late in life into foreign politics.
But hadn’t Disraeli already made a somewhat genuine play for working class votes? And I think the first factory acts had a lot of tory input.
But then I am hardly a social historian of 19th century Britain.
chris y 05.14.10 at 11:40 am
But hadn’t Disraeli already made a somewhat genuine play for working class votes?
Well sure, he gave some of them votes (1867). But that wasn’t actually a welfare provision.
If you want to go all the way back to the Factory Acts, I’m not sure that the distinction is helpful. We’re looking at Whigs and Tories, not Liberals and Conservatives, and political parties were very different things in those days. The first Factory Act was, IIRC, passed in the reign of Pitt the Younger, who is regarded in hindsight as a proto-Tory, but certainly thought of himself as a Whig.
The first factory acts were largely about regulating child labour. Important stuff, but
IM 05.14.10 at 11:57 am
Child labour in factories, by the way. Not domestic child labour or farm child labour. A party still based on squires and the anglican church was quite happy to regulate a bunch of ironmasters, who were not only newly rich, but dissenters anyway.
But I always thought extension of the franchise – even to some workers – necessity to get their votes – pro worker regulation – first beginnings of the welfare state – did go hand in hand.
Barry 05.14.10 at 12:41 pm
ajay: “Not a useful description of events. The Greek people also benefitted, because they had a government that was therefore able to provide them with more services and higher-paid jobs than it would otherwise have been able to afford. The cutbacks basically represent the difference between what the Greek government was providing up to now, and what it can provide while not actually lying to its lenders.”
There’s an unspoken assumption, that the benefits previously provided, and the cutbacks to come, affect everybody equally. If, just proposing a crazy idea, the benefits went largely to the well-connected, while the cutbacks are mainly from the non-connected, things are rather different.
ajay 05.14.10 at 1:23 pm
59: I don’t think that question can be answered very easily. You can’t really single out the bit of Greek government spending 1999-2009 that would not have existed without deceptive government borrowing, or the tax that would otherwise have had to be imposed.
The austerity measures, on the other hand, can be identified, and they don’t fall on the poor and non-connected exclusively. See here:
http://news.bbc.co.uk/1/hi/business/10099143.stm
I don’t think that cutting tax evasion and taxing illegal construction are targeting the non-connected; quite the opposite. Pension cuts – yes. Public sector pay freeze – arguable. Bonus caps or zero bonuses for better paid public sector workers – no. Higher pension age – not really.
chris 05.14.10 at 2:02 pm
The Greek people also benefitted, because they had a government that was therefore able to provide them with more services and higher-paid jobs than it would otherwise have been able to afford.
Well, I was sort of assuming that people dishonest enough to run a government that defrauded the government’s creditors would also be looting the state for their own personal benefit at the same time, so the benefits wouldn’t all (or even mostly) reach the Greek people in general.
If you have reliable evidence that they weren’t doing that, but were patriotically cheating foreigners to benefit Greeks (or something along those lines), I’d like to see it — it would be pretty remarkable, IMO.
In any case, even if the Greek government (whichever one we are actually talking about) knew that it was committing fraud, it’s pretty clear that the Greek people didn’t, or the secret would have spilled long ago. (Similarly, if it should have been obvious to the Greek people that this deal was unsustainable and something about it smelled fishy, why doesn’t the same reasoning apply to the creditors? They can’t possibly have had *less* knowledge than the average man on the street in Athens.)
engels 05.14.10 at 2:26 pm
Heur 05.14.10 at 2:31 pm
Lemuel Pitkin @48: “Well, this is an empirical claim. And it can be evaluated empirically: Have countries that have defaulted on loans paid higher interest rates on subsequent borrowing? The answer, it seems, is no.” [citing a 1988 paper by Jorgenson and Sachs on the effects of defaults by Latin American countries during the 1930s on their ability to borrow afterwards]
It’s an interesting paper, but I’m not sure that it actually supports a negative answer to the empirical question. The paper finds that defaulting Latin American countries paid no greater premium for debt than the sole non-defaulting Latin American country (Argentina) in the decades following a wave of defaults in the 1930s.
But the paper also finds that all developing countries suffered diminished access to capital as a result of the defaults. In other words, defaulting countries did pay a higher risk premium following their defaults–but the sole non-defaulting Latin American country fared no better.
I’m dubious as to how precise an analogy can be drawn between this sequence of events, and the likely effect of a default by a sovereign state today, given the numerous significant differences that exist politically, legally, and financially.
engels 05.14.10 at 2:56 pm
We have extremely generous welfare provisions that provide for a large class of people who produce nothing even though they could do. Is that in the interest of the financial and industrial leadership?
Ummm, the ‘large class of people who produce nothing even though they could do’ is the ‘financial and industrial leadership’. Stephen Hester seems to be living rather better on government welfare than most people you’ll run into at your local Job Centre Plus.
ajay 05.14.10 at 3:45 pm
I was sort of assuming that people dishonest enough to run a government that defrauded the government’s creditors would also be looting the state for their own personal benefit at the same time, so the benefits wouldn’t all (or even mostly) reach the Greek people in general.
Well, they themselves probably didn’t think of it like that. The original objective was to use clever accounting tricks that were deceptive but arguably permitted at the time to bring Greece in to line with the entrance criteria for the single currency. No one in other countries’ governments looked at this too hard because getting as many countries as possible into the euro was seen as making the euro a “success”. And then governments of both left and right just kept doing it as their real deficit kept rising – the alternative, after all, was to admit what they’d done, which would have meant more difficult borrowing and/or higher taxes and/or lower public spending.
So, yes, in a sense, “patriotically cheating foreigners to benefit Greeks” was exactly what they were doing.
ajay 05.14.10 at 3:46 pm
the ‘large class of people who produce nothing even though they could do’ is the ‘financial and industrial leadership’
Look, if you think that senior management are generally overpaid, then say that – I’d agree – but if you argue that they are useless and unnecessary then you just look a bit silly.
Lemuel Pitkin 05.14.10 at 3:47 pm
The paper finds that defaulting Latin American countries paid no greater premium for debt than the sole non-defaulting Latin American country (Argentina) in the decades following a wave of defaults in the 1930s.
I agree, it’s not definitive, but it is an attempt to measure empirically the cost of default, and finds that it was zero. In other words, Argentina’s debt service payments in the 30s were a pure loss, they did nothing to improve its later access to external credit. Seems relevant enough.
And speaking of Argentina, here’s a more recent — and perhaps more directly relevant — example. As we know, Argentina did default on its external debt in 2001, something that’s often brought up in discussions of Greece, usually with phrases like “catastrophe,” “unthinkable” or “worst case”. Well, it was a catastrophe for the lenders, of course, but for Argentina-the-country as opposed to Argentina-the-asset-class, not so much. Between 2002 and 2008, Argentina had its strongest real GDP growth in decades — aggregate growth of 50%, as much in 6 years as in the 35 years prior to the default.
Creditors (and their apologists) would like you to think that there is never a conflict between their interests and those of the borrowing country, but it just ain’t so. The fallback position is that ok, interests can conflict, but in that case the borrowing government has a moral duty to put the interests of its foreign bondholders ahead of the interest of its own citizens. Perhaps we’ll get that in this thread next.
engels 05.14.10 at 3:48 pm
No, Ajay, if you make judgments that certain positions are ‘silly’ without providing any argument whatsoever then you just look a bit thick.
engels 05.14.10 at 3:54 pm
(Fwiw I didn’t say they were ‘unecessary’ but that they ‘produce nothing’. Many activites are ‘necessary’ (armed soldiers, policeman, overseers in a slave economy, perhaps) while not being productive. Whether the activities that fill the majority of Mr Hester’s days are either necessary or productive is an interesting question.)
ajay 05.14.10 at 3:56 pm
68: all right, my argument is this: any large organisation of people with a common purpose, be it an infantry brigade, a ballet company, a famine relief charity, a political party, or a major bank, needs to have a few people who take decisions affecting the behaviour of the entire organisation. These people are, in companies, called “senior management”. If they weren’t there, the organisation would not function well, or at all. That some of them have made bad decisions, or are venal, or corrupt, or incompetent, or stupid, does not mean that everyone in the category of “senior management” is useless.
ajay 05.14.10 at 3:57 pm
69: you’re not helping yourself here if your new argument is “managers are not productive”. I don’t think the definition of “productive” that you’re using here is a very helpful one.
engels 05.14.10 at 5:14 pm
If they weren’t there, the organisation would not function well, or at all.
If there were no unemployed people, capitalism would not function well, or at all. So by this logic logic, unemployed people are productive.
Current 05.14.10 at 5:18 pm
#47 Luke,
> In which case, it makes no sense to blame the Greek population
> for the actions of a Greek government beyond their control,
> does it? And, as I pointed out, those in Greece who are most
> hostile to government are those who are fighting hardest
> against the austerity measures, not saying “it’s what we
> deserve”.
It’s a complicated question. In the short term the government ripped off the people. In the long term the people allowed the government the powers that enabled that to occur. It’s this later factor where the
#48 Lemuel Pitkin,
> Well, this is an empirical claim. And it can be evaluated
> empirically: Have countries that have defaulted on loans paid
> higher interest rates on subsequent borrowing? The answer, it
> seems, is no.
The question here is, “do investors mind when they are ripped off and do they take it into consideration in future investments”. I fail to see how they can’t. Certainly there is the case when the entity they are lender to – the government – has completely changed. Also, rather than changing the interest rate the lender or borrower may implement other changes that improve prospects for payback on future loans. I think that to claim investors don’t look at past performance is claiming that investors aren’t self-intersted.
I’m not saying here that default is always a bad policy, it may be much better than the alternatives. This is why the paper you quote doesn’t really prove the case that the cost of default are “negative”. What the paper does really is to compare the costs of default against the alternatives, where it finds that default is the best option. But, in case like this all of the options have costs.
In the Greek case there’s quite a lot to be said for default.
#52 ajay,
> Current actually contradicts himself here by arguing a) that a
> default would be seen as a sign of poor creditworthiness and so
> would harm Greek borrowing by raising rates and b) that a
> bailout would be dismissed as a one-off event and so would not
> help Greek borrowing by lowering rates. In reality, as you
> note, the reverse is true: sovereign defaults are seen as
> one-off events, but a bailout is seen as a sign of an enduring
> guarantee. Hence the moral hazard trade which so many large
> banks have been enjoying recently.
The issue is that either can be seen as one off events or permanent policies.
My point was that a bailout may not be seen as demonstrating a permanent commitment so it may not change future interest rates. Look at it like this, can the EU bailout Spain or Italy? I doubt it. So, I think that in this case bailout won’t buy the Greek government much in the long run.
>> The leaders of the then government benefited, and the Greek
>> people are now left holding the bag.
> Not a useful description of events. The Greek people also
> benefitted, because they had a government that was therefore
> able to provide them with more services and higher-paid jobs
> than it would otherwise have been able to afford. The cutbacks
> basically represent the difference between what the Greek
> government was providing up to now, and what it can provide
> while not actually lying to its lenders.
Yes, you’re quite right about that, I should have mentioned it.
As Barry points out later the benefits and cutbacks will not affect the same people.
#64 engels,
> Ummm, the ‘large class of people who produce nothing even
> though they could do’ is the ‘financial and industrial
> leadership’. Stephen Hester seems to be living rather better on
> government welfare than most people you’ll run into at your
> local Job Centre Plus.
Certainly there are rent-seekers in finance that nothing. That doesn’t demonstrate the leadership of industry doesn’t provide great benefits to society, of course it does. And, the sins of the parasites at the top don’t excuse the sins of the parasites at the bottom.
My point anyway, was that we live in democracies, the masses really do decide the government. The rich have no financial interest in redistribution, but the state force them into it.
#71 ajay,
> 69: you’re not helping yourself here if your new argument is
> “managers are not productiveâ€. I don’t think the definition
> of “productive†that you’re using here is a very helpful
> one.
He’s using the Marxist definition of “productive”, which is very restricted.
Combining the factors of production in different ways can produce products and services with different use-value. It is in this sense that entrepreneurs are productive.
piglet 05.14.10 at 5:40 pm
ajay: the financial industry, while not unnecessary or unproductive per se, has grown in recent decades to absorb a share of the economy that far exceeds its economic usefulness and a whole class of middle and senior managers of that industry has become fabulously rich to the detriment of the rest of us. I’m not sure whether that is engels’ intention but it is a clear-cut case that is by now well understood by most of us.
geo 05.14.10 at 5:54 pm
Current: we live in democracies, the masses really do decide the government
To quote you a few paragraphs earlier: “It’s a complicated question.” Obviously the government can’t wholly disregard the wishes of the masses, eg, enslave them or restore the twelve-hour working day or outlaw liquor or ban football or abolish trade unions, public health services, unemployment benefits, etc. On the other hand, the masses may very well (and probably do) want more progressive taxation, more stringent financial, environmental, and public-health regulation, more generous unemployment, health, and pension benefits and other things which no national government would dare propose for fear of capital flight. And even before the masses can formulate and express such wants, there is an enormous apparatus in place to manufacture a climate of business-friendly opinion: the corporate public-relations and lobbying industries, business funding of scientific and economic research, business influence on universities and foundations, advertiser pressure on media, concentrated ownership of media, and of course, business funding of election campaigns and future employment of legislators and staff members.
It’s a fluctuating boundary, of course, but it’s no good flatly asserting that “we have a democracy, ergo government policy pretty much corresponds to what the people want.”
engels 05.14.10 at 5:56 pm
And, the sins of the parasites at the top don’t excuse the sins of the parasites at the bottom.
Thank you and Sieg Heil!.
Current 05.14.10 at 6:00 pm
#72 engels,
> If there were no unemployed people, capitalism would not function well, or at all.
> So by this logic logic, unemployed people are productive.
Firstly, in a capitalist economy people are employed if some business believes it can profit by doing employing them. There will always be unemployment because it will not always be profitable to employ particular people in particular times and place. Frictional unemployment is inevitable because employment is a local marginal decision.
However, if the number of unemployed people reduced that doesn’t mean that capitalism “wouldn’t work”. In fact countries with thriving capitalist economies often have low unemployment rates. That relies on Marx’s ideas of “exploitation” and the “reserve army of the unemployed”. But, Marx didn’t account for entrepreneurship, as I mentioned above.
Current 05.14.10 at 6:12 pm
#75 geo,
I mostly agree with what you’ve said. But, just business have many agencies promoting their agenda, so does the state. In Britain before the state is the largest advertiser. Unions promote their agendas too similarly. In Britain at least, the statists are clearly winning.
#76 engels,
I’m shocked, a Marxist with a sense of humour!
chris 05.14.10 at 7:45 pm
#73: Combining the factors of production in different ways can produce products and services with different use-value. It is in this sense that entrepreneurs are productive.
Surely you’ve just proved that some are productive, others are anti-productive?
Management is subject to an exclusion principle: one manager, by occupying his position, keeps others out of it. The position then gives him the ability to affect the fortunes of the collective enterprise — for good or ill. If the other potential managers would have been more qualified than the current officeholder, then the current officeholder has *negative* productivity. He is effectively gumming up the works rather than facilitating them. Heckuva job!
So doesn’t it make more sense to evaluate the productivity of managers in relation to what the same enterprise would produce with someone else in the manager slot? And the mean value over replacement manager must be zero, by the definition of the metric.
Current 05.14.10 at 8:26 pm
#79 Chris,
Yes, I agree with you.
On this subject Ludvig Von Mises wrote:
“If all people were to anticipate correctly the future state of the market, the entrepreneurs would neither earn any profits nor suffer any losses. They would have to buy the complementary factors of production at prices which would, already at the instant of the purchase, fully reflect the future prices of the products. No room would be left either for profit or for loss. What makes profit emerge is the fact that the entrepreneur who judges the future prices of the products more correctly than other people do buys some or all of the factors of production at prices which, seen from the point of view of the future state of the market, are too low. Thus the total costs of production — including interest on the capital invested — lag behind the prices which the entrepreneur receives for the product. This difference is entrepreneurial profit.
On the other hand, the entrepreneur who misjudges the future prices of the products allows for the factors of production prices which, seen from the point of view of the future state of the market, are too high. His total costs of production exceed the prices at which he can sell the product. This difference is entrepreneurial loss.”
chris 05.14.10 at 9:22 pm
@80: But when they both go out in the marketplace and do what they do, the positive-value entrepreneur keeps his positive value, and the negative-value one goes bankrupt and leaves his creditors, employees, suppliers, etc. to take a haircut. That’s lemon socialism.
To put it another way, limited liability is a license to externalize part of your losses (the part that exceeds the capitalization of the company), which is a subsidy to corporate activity, which results in the creation of activity with negative expected value (because the payoff for success outweighs the part of the potential loss that is actually borne by the entrepreneur).
Anyway, I think that “judges more correctly” is unreasonably loaded language. Much, if not most, of what the entrepreneur is “judging” at time T is conditions at time T+dT, which means that his success or failure is largely the result of luck. Therefore, the desirability of rewarding this behavior is dubious. The desirability of subsidizing it with lemon socialism to the point that even entrepreneurship with negative EV gets tried anyway is even more dubious.
Current 05.14.10 at 9:52 pm
chris,
The criticism you give of limited liability is quite common in libertarian circles. I don’t agree though, everybody know that a business can go bankrupt. When engaging with a particular business as a worker, creditor or supplier that risk is taken into account.
For example, I recently started as a small businessman myself. I looked into limited liability, but I’m not going to take up limited liability currently. That’s because others would treat my business differently, in particular my bank would charge me fees.
There are real problems with corporate law though, in particular liability for injuries, death and crimes, and insider trading law.
> Much, if not most, of what the entrepreneur is “judging†at time T is conditions at
> time T+dT, which means that his success or failure is largely the result of luck.
> Therefore, the desirability of rewarding this behavior is dubious.
I don’t agree. In a particular local situation judging the future is a skill, though certainly one that involves a lot of luck. An entrepreneur can bring together all of the important data and devise strategies to interpret it. How can you establish that picking the strategy is luck?
Lemuel Pitkin 05.14.10 at 9:53 pm
The question here is, “do investors mind when they are ripped off and do they take it into consideration in future investmentsâ€. I fail to see how they can’t. Certainly there is the case when the entity they are lender to – the government – has completely changed. Also, rather than changing the interest rate the lender or borrower may implement other changes that improve prospects for payback on future loans. I think that to claim investors don’t look at past performance is claiming that investors aren’t self-intersted.
No, it’s not.
Investors hurt feelings about being “ripped off” (I love the moralism of these discussions) have nothing to do with their willingness to lend in the future. Self-interested investors must, if they are really self-interested, let bygones be bygones. (There is not much honor among bondholders.) Of course past defaults carry information about the prospects for future default — which self-interested investors do care about — but that can go both ways. A government carrying massive foreign debt that requires unsustainable domestic policies to service is much more likely to default than one that has defaulted recently, and therefore carries a more manageable debt. So the defaulter may well end up getting future credit on more favorable terms than the borrower that makes its payments. There are plenty of examples in real life.
In general, the argument from incredulity (“I fail to see…”) is a weak one.
Current 05.14.10 at 9:59 pm
Lemuel Pitkin,
If that’s all your arguing then I agree. I wasn’t intending to claim that the only thing investors would take into account was past performance.
bert 05.15.10 at 2:36 pm
Isn’t Ruth Dudley Edwards pretty much a down-the-line Unionist? Albeit of a genteel and anglican sort. She was very matey with Brian Mawhinney during the Major years, I remember. You might need to separate out a discussion of the Economist’s record from a discussion of her treatment of the Economist’s record.
Money that’s currently funding the ECB’s direct purchases of Greek debt in the bond markets. Here’s a thought: the eurozone governments are currently paying private holders of Greek debt to cash out without loss. Plausible alternative buyers of new Greek debt are, shall we say, thin on the ground. The longer this continues, the greater the possibilities for restructuring/default without Lehman-style contagion spreading through European banks to the financial sector at large. It’s the now-familiar pattern of privatised profits and socialised losses. The attraction for the Germans, aside from sparing the vulnerable balance sheets of their banks, is the opportunity it presents for a quid pro quo of the type you suggest above in your original post.
The obvious possibility: debt relief on the one hand; fiscal and supply side reforms on the other. The nuclear option: default on the one hand; removal from the eurozone on the other.
If you’re looking for policy tools, becoming Greece’s principal creditors may provide a bit of traction.
bert 05.15.10 at 10:16 pm
Ramin Toloui, a senior portfolio manager at Pimco, said the European Central Bank’s decision to buy government debt could be backfiring. Instead of encouraging private investors to keep their government debt, the programme might be leading to more sales, he said.
“The risk is that investors are using the ECB as a vehicle to exit their positions,†he said.
engels 05.16.10 at 2:21 am
What I find surprising, to be honest, is that anyone would seriously believe that just because somebody is prepared to pay me money for my time then I must be doing something ‘productive’ with it (or ‘contributing’ to society, or whatever) and if nobody is then I am not. I can’t see that that belief stands up to thirty seconds reflection.
Also pretty remarkable is the approach to English comprehension that enables someone to read
the ‘large class of people who produce nothing even though they could do’ is the ‘financial and industrial leadership’
as
senior management are… useless and unnecessary
(The first statement is admittedly rhetorical and over-simplified but it bears no resemblence to the second.)
Tim Wilkinson 05.16.10 at 10:48 am
engels,
If it’s any comfort, the OECD and ONS are similarly perplexed, though they conclude that such the data need to be changed rather than allowing the possibility of taking a view like yours. The fact is, you are obviously mired in paradox, and the way out of it is to introduce such concepts as FISIM: financial intermediation services indirectly measured. They used to be called ‘imputed’ rather than ‘indirectly measured’, but that had nasty nominalist overtones. The Office of National Statistics can explain:
The concept of FISIM:
[or, how I learned to stop worrying and love bank bonuses]
The UK National Accounts are compiled according to international rules and guidelines set out in the United Nations System of National Accounts that were updated in 1993. Under legislation, European Union Member States are obliged to comply with these rules as set out in the European System of National and Regional Accounts (ESA 95).
The activity of financial services in general and of banks in particular has long been a challenging area for those who develop international standards. Market economic activity can be measured as cash values of sales and purchases of identifiable units such as cars or haircuts; these cash values can then be deflated by stripping out inflation effects to enable real growth to be derived. However the activity of banks is not so easily captured.
For some services explicit charges are made, such as commission on foreign exchange, account charges and flat rate fees for overdrafts. But the amount of these charges is significantly below the costs paid by the banking industry on wages and bonuses, and intermediate costs such as rental, electricity and stationery purchases. So under the conventional treatment there was the threat of what the OECD described as “the paradox of a prosperous industry showing a negligibly positive, or even negative, contribution to the national productâ€.
This discrepancy arises because the banking sector relies extensively on revenues accruing from interest flows. According to standard national accounting conventions, earnings from interest are not defined as part of corporations’ output, value added or gross operating surplus. They do not contribute to GDP or to economic growth. The concept of ‘financial intermediation services indirectly measured’ (FISIM) is a consequence of longstanding international discussions aimed at resolving this paradox.
I trust that has gone some way to resolving your understandable but ultimately misguided perplexity.
Lemuel Pitkin 05.16.10 at 1:56 pm
Wow, Tim, that is beautiful.
Current 05.16.10 at 5:38 pm
Regarding the GDP contribution of banks….
This is a known problem. GDP is a Ricardian aggregate, but modern economics is Marginalist. Some Neo-classical economists and some Keynesians thought that these measures could be made to fit together, but their solutions are very unsatisfactory.
The position of interest is a major problem, is it “added value” or is it not? A proper answer can’t really be given because in marginalist terms there is no objective concept of what “added value” is in general terms. There is just what each economic actor considers benefits them.
There have been long debates over the “pure time preference”, “pure productivity” and hybrid interest rate theories with no clear winners (at least in my view).
Nur al-Cubicle 05.16.10 at 5:41 pm
RR: Rescuing the Rentiers. Agree with Monsieur Piglet, the cochonnet.
chris 05.18.10 at 5:45 pm
I can’t see that that belief stands up to thirty seconds reflection.
Yes, but you’re not reflecting based on the axiom that all participants in the economy are perfectly informed and rational.
A vast amount of modern economics is implicitly based on a premise that when confronted with it directly, almost everyone in the field would admit is obviously false in practice. Attempts to produce a “non-Euclidean” economics that throws out some of the more questionable assumptions and goes from there do exist, but their conclusions are so different from received dogma (of the rationalist school) that they’re often not taken seriously even though everyone at some level *knows* that the magnificent citadel of rational expectations is built on sand.
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