The far right, political control and the crisis of authority

by niamh on September 26, 2013

A new report  from the British think-tank Demos (for the group of the Socialists and Democrats in the European Parliament) on the quality of democracy in European countries makes some interesting claims. It states that Hungary and Greece are ‘the most significant democratic backsliders, with Hungary in the bottom quartile for all measures of democracy’.

But while democratic values may be at risk in both countries, it seems to me that this is happening in different ways. In particular, the way government control is exercised in the presence of parties of the far right is quite different. In Hungary, the government has consolidated political control by moving further toward the positions adopted by the far right. In Greece, the state faces a crisis of authority that is worsened by the activities of the far right.

In Hungary, following the election of 2010, the government was formed by the conservative Fidesz party and its Christian Democrat allies, which together won 52% of the votes and 69% of the seats in parliament. The mainstream political opposition had already collapsed, since the Socialist Party (the former Communist party) had lost credibility over allegations of corruption and mismanagement of the economy. This allowed two smaller parties to gain seats, the far-right Movement for a Better Hungary, known as Jobbik, and the liberal-green Politics Can Be Different (LMP). The new government’s super-majority allowed it to introduce a new constitution in 2012, and to make further changes to it since then, without seeking or obtaining cross-party agreement. A series of amendments has changed the way important institutions work, such as the Constitutional Court, constituency boundary review processes, and press freedom. The government has gained wide discretionary powers on issues such as homelessness, family policy, and nationality regulations. Fidesz has increasingly been using these powers to move government policy further toward the right. This can make the government appear ambivalent in response to the rhetoric of intolerance and the rise of populist nationalism coming from the far right. Indeed, Human Rights Watch has termed Hungary’s new constitution ‘discriminatory’, saying that it has enabled ‘a raft of laws… (that) undermine the judiciary, media, and other checks and balances on the government’.

The European Commission has been slow to take a stand on these developments, partly because Prime Minister Viktor Orbán has offered assurances to the Commission and the European Parliament that he is serious about curtailing the extreme right. But in an interesting new article in the journal Governance, Kim Lane Scheppele, who is a law professor in Princeton, offers another interpretation of the significance of constitutional change in Hungary. She points out that each individual salami-slice of change that Fidesz undertakes has been defended as relatively unexceptional, taken on its own, compared with other countries’ practices. But cumulatively, she argues, they all push in the same direction and have mutually reinforcing effects. The EU focuses on the checklist, item by item. But the aggregation of changes to the constitution has created what she calls ‘a monster… a Frankenstate’ of consolidated powers that pull away from liberal and democratic values.

In Greece, the government formed after the June 2012 election is dominated by the conservative New Democracy party, and its majority in parliament, for which it depends on the Socialist Party (PASOK) and DIMAR, a smaller social democratic party, is fragile. PASOK, once a major party, has fragmented in recent years. Much of its previous support has gone to the more radical SYRIZA, which won more than twice the vote-share of PASOK and is now the second-largest party. The ND-PASOK government is committed to implementing the terms of the loan agreement that Greece entered in May 2010 and most recently renegotiated in February 2012. This has proven extremely difficult, particularly when GDP is now 23.4% below its pre-crisis peak. Many of the underlying problems of Greek society, such as the widespread uses of patronage and corruption to link politicians to their support base, and to keep inefficient institutions moving, have proven very difficult to alter. The social tensions caused by high unemployment and poor welfare provisions are intensified by Greece’s exposure to high levels of illegal immigration. These conditions are credited with boosting support for the far-right Golden Dawn party, which won 18 seats, or 6% of the total, in June last year. Golden Dawn has a highly visible street presence, and close connections with some sections of the police, some of which are said to have provided training for the party’s paramilitary groupings. Its activists have been accused of  ‘beating up and killing passers-by (mainly immigrants)’ - a man from Pakistan was stabbed and killed while on his way to work in January this year, and reports of attacks that appear to be racially motivated attacks are on the increase.

This month, the killing of prominent left-wing musician Pavlos Fyssas, for which a Golden Dawn activist has been arrested, caused a wave of public criticism. In a poll reported by Eurointelligence on 24 September, over three-quarters of respondents called the party either a ’fascist organization’ or a ‘criminal organization under the guise of a political party’. But until recently, the uncertainty of the government’s grip on power has meant that they have been unwilling to alienate an organization that, in spite of all that has happened, some 17% of people still hold to be a legitimate nationalist populist movement. Besides, banning political parties is problematic in a country with a history of political repression. But some have also suggested that the main government parties have been unwilling to challenge Golden Dawn on the extreme right because it made it easier for them to characterize it as equivalent to the challenge posed from the left by SYRIZA. This ‘theory of two poles’ results in ‘trivializing the extreme-right Golden Dawn and criminalizing left-wing SYRIZA (h/t Eurointelligence).

There are a number of implications for the role of the EU in supporting the stability and durability of democracy in Europe. One is that piecemeal constitutional change can corrode democratic freedoms, and that dangers of a pull toward the far right should be more clearly recognized. Another is that the presence of non-state quasi-militias on the streets should be a cause for serious concern. And a final implication must surely be that the political and social as well as the economic costs of financial adjustment strategies need to be taken a good deal more seriously than they have to date.

{ 108 comments }

1

between4walls 09.26.13 at 11:02 pm

The resignation of several police officials in Greece over the recent killing is a good sign in terms of breaking the nexus between the police and Golden Dawn. Pity it took bloodshed to get to that point.

Re: non-state quasi-militias, if I remember correctly, Jobbik also had one but it was shut down by the Supreme Court.

2

Anon. 09.26.13 at 11:12 pm

>ctrl+f union
>0 results

Surely a discussion of the deficiencies of the Greek political system must mention the absolutely pervasive control that unions have, on all levels of government. Not one public employee has been fired since the start of the crisis. Tens of thousands of new ones have been hired. PASOK, “technocratic”, ND, doesn’t matter who is “in charge”.

Hell, the government couldn’t even open up the taxi market because the taxi union was too strong! Do you understand what kind of situation we’re talking about here? On the one hand you have the EU, the IMF, and the ECB demanding reforms to improve growth, on the other hand is the TAXI UNION protecting their rents. And the taxi union wins.

Do you really believe that it matters who is elected in this environment?

The idea that some wannabe-nazis who can barely tie their own shoes are degrading democracy in a country that has been de facto ruled by unelected unionists for 30 years is completely absurd.

3

hix 09.27.13 at 4:18 am

“But cumulatively, she argues, they all push in the same direction and have mutually reinforcing effects. The EU focuses on the checklist, item by item. But the aggregation of changes to the constitution has created what she calls ‘a monster… “

This is pointless. The EU clearly does not like what is going on in Hungary at all. That the constitutional changes slip through some formal EU procedure does not change that – rather it shows that the EU still has some positive influence if they are designed that way. But what should the EU do? So far the brightest idea for punative action was to abuse the deficit procedure of all things, while other nations are alowed to do a 5 times higher deficit.

4

Mao Cheng Ji 09.27.13 at 7:24 am

I don’t think the traditional left-right axis is a good model these days. Hungary is a good example: their socialist (former communist) party is, in a significant way, to well the right of the Fidesz; it’s far more liberal/neo-liberal (whatever you call that). The left and right switched sides. I think Fidesz’ economic populism explains it’s success, not MSZP’s corruption. They are all corrupt, who cares.

5

Mao Cheng Ji 09.27.13 at 7:47 am

Sorry about the typos. …reading today’s issue of Hungary Around the Clock (I’m a subscriber):
Fidesz: “Fidesz may decide at its weekend congress to incorporate the lower utility prices in the Basic Law and may also pass a political declaration that the party will protect the rate cuts for the people, Magyar Nemzet learnt.”

MSZP (socialists): “…vowed to gradually reduce the special taxes imposed on banks and foreign companies to the EU average level in exchange for new investment, in a bid to stimulate the economy.”

Who’s on the left here? Who, do you think, is going to be more popular?

6

Murc 09.27.13 at 8:19 am

Not one public employee has been fired since the start of the crisis.

… good?

Greece’s unemployment rate is insanely high. The public sector should be expanding. Massively. The fact that nobody has been fired (and I’m pretty sure some people have been fired, and what you actually mean was ‘no positions have been eliminated’) means at least SOMETHING is being done right in Greece.

On the one hand you have the EU, the IMF, and the ECB demanding reforms to improve growth,

Assumed facts not in evidence. I’m just a layman, but as near as I can tell the EU, the IMF, and ECB only care about “growth” inasmuch as it would allow Greece to continue to service its German creditors. None of those organizations give a fuck about the fact that people got no jobs and no money.

Greece’s governments have done much wrong. Their systems of corruption and patronage (for which they had very good reasons for adopting; it was necessary to buy off various factions in order to prevent the country from continually imploding) were not and are not viable in the long term. Unlike Italy and Spain, which have ended up in dire straits through no fault of their own, Greece really does have structural problems that need fixing.

But the primary concern has to be for the Greeks who can’t find work, or for the people who have been doing the same government job for thirty years and would maybe get a bit indignant if they were told they need to re-enter the work force at the age of 55 when the social contract they had served for their entire lives said they’d be taken care of, in the service of “reducing expenditures.”

7

reason 09.27.13 at 8:22 am

“In Greece, the state faces a crisis of authority that is worsened by the activities of the far right.”

This sounds exactly like the US.

8

Random Lurker 09.27.13 at 10:22 am

@Anon 2
” Not one public employee has been fired since the start of the crisis.”
Citation needed.

In fact, I think a lot of public employees were fired (or worked/are working without wage), and this is one of the reasons of the Greek criris (since firing public employees is contractionary).
For example, they closed the ERT, which was public, which implies they fired ERT personnel.

9

Anon. 09.27.13 at 10:23 am

@6

You seem to have a very deontological view of the issue, which is quite weird when we’re talking about very real politics. What does it matter if the ECB cares (what does that even mean, dude?) about jobs or not? What does it matter if they want growth so that Greece can repay loans, or so that it can generate more jobs? Growth is growth.

Three successive Greek governments have been categorically opposed to growth and have done everything they can to keep paying off special interests at the expense of the country. And you want to reward the special interests with more members!

You must understand: Greece does not have an economic problem, it has a political problem. And you can’t solve it with economics. Even if Greece fully defaulted and then got more loans and ran a giant stimulative deficit and achieved good growth, it would still be a completely and utterly corrupt country. You’d just postpone the need for structural reforms until the next big recession, to the benefit of the special interests, and to the harm of the country as a whole and every Greek citizen who isn’t drinking at the trough.

Even if more government spending would help, it is not possible. The entire concept of big deficits to smooth out recessions is predicated on surpluses when growth is positive. Greek voters chose otherwise. So what you’re talking about isn’t even a hypothetical, it’s outside the realm of possibility.

10

Random Lurker 09.27.13 at 10:24 am

11

Random Lurker 09.27.13 at 10:25 am

Whoops – the article I linked to doesn’t at all say what I tought…

12

Random Lurker 09.27.13 at 11:01 am

However, some math with the article’s number:
Greek public sector accounts for 20% of the jobs of the greek economy (1/4 of the private sector).
Therefore, if we assume that public and private should shed jobs at the same rate, for each fired public worker there should be 4 fired private workers.
Thus those 25000 public layoffs should be matched to 100000 private layoffs.
The article says that Greece’s private sector is shedding jobs at the rate of 1000/month.
Since the crisis began in 2008, 60 months passed until 2013, for a total of 60000 layoffs.

This means that this singular layoff of 25000 public workers is, alone, proportionally 180% of what the layoffs of the public sector “should be” assuming the same rate of the private sector.

(25000 layoffs doesn’t sound that much for a whole country, but Greece is very small).

I strongly doubt that this mass layoff is the first layoff of public employees since the beginning of the crisis, since there were many news of closed hospitals etc., that implies that the people working in that facilities were fired.

13

Jesús Couto Fandiño 09.27.13 at 11:48 am

I fail to see how the deep rooted political problems in Greece are helped by not paying attention to a bunch of fascist thugs and murderers that are capitalizing the anger at those deep rooted problems to grow.

And somehow I get tired of the “structural reform” spiel when it is clear that the structure to be reformed is always and only the workers rights, compensation, pensions, etc. Nothing else. How would be different if the ones implementing the reforms are always the same corrupt incompetents that MAKE the current “structure”?

14

John Quiggin 09.27.13 at 11:49 am

Fifteen seconds with Google produces plenty of evidence that both wages and employment have been cut in the public sector

http://www.theaustralian.com.au/business/wall-street-journal/greece-cuts-15000-public-sector-jobs/story-fnay3ubk-1226264312590

http://www.greeceischanging.com/the-reality-to-date/

15

Markos Valaris 09.27.13 at 12:28 pm

Anon, although much of what you say is not wrong, there are still some amazing leaps of logic in your argument. Do you really think that, in the context of zombie banks, bankrupt households, and an economy-wide liquidity crunch, combined with Eurozone-wide austerity, firing more public employees and opening up the taxi market would somehow generate growth? How? By magic?

Also, just to be clear, outside of the public sector there are practically no unions in Greece, and the ones that do exist have no power. Professional and business lobbies, including engineers, doctors, lawyers, and yes, taxi owners are a different matter. And public sector unions are, of course, notorious patronage machines. But, again, although curtailing the privileges of such special interests would be good for long-run potential growth and perhaps even in a distributional sense, it is pure fantasy to think it would help with the present crisis.

And as to your initial response to niamh, I’m sorry but no, having a corrupt public service and tax-dodging doctors is not the same thing as having neo-nazi thugs running around in the streets, beating up and murdering people. Not by some distance.

16

Murc 09.27.13 at 1:13 pm

@9

What does it matter if the ECB cares (what does that even mean, dude?) about jobs or not?

Well, people kind of need jobs to feed their families, to afford basic goods and services, maybe a few luxuries. If the guys dictating economic policy don’t give a fuck about people having good, stable, well-paying jobs where they’re treated like human beings worthy of dignity and respect, that matters. A lot.

What does it matter if they want growth so that Greece can repay loans, or so that it can generate more jobs? Growth is growth.

No. It isn’t. Growth that isn’t evenly distributed, or even worse, growth that is siphoned off into a tiny slice of the elite or removed from the country, is significantly worse than growth where everybody gets a taste. “Growing” the economy so that it can be looted by foreign creditors is not a goal worth achieving.

hree successive Greek governments have been categorically opposed to growth and have done everything they can to keep paying off special interests at the expense of the country. And you want to reward the special interests with more members!

What special interests are we talking about here? Can you be specific? I mean, I could re-formulate your statement as “Three successive Greek governments have been categorically opposed to throwing people out of work” and it would be exactly as true.

You went off on a rant about unionism earlier. Unions are only “special interests” in the sense that they’re interested in having the workers who are members have jobs and get money. It is true that in Greece, specifically, there’s an entrenched problem wherein various political factions are bought off with guaranteed patronage. This system was originally established because none of the factions involved trusted the other factions to not have them drug out into the streets and shot when they took power, so it was a kind of de-facto power sharing.

Now, this is bad, undoubtedly. But I’m not sure how a good stiff round of austerity and union-busting will fix it. Do you have a way to ensure good benefits and robust bargaining power for public-sector employees in a way that doesn’t involve unions? Because I’d love to hear it.

Even if Greece fully defaulted and then got more loans and ran a giant stimulative deficit and achieved good growth, it would still be a completely and utterly corrupt country

Even supposing this is true, I don’t see what it has to do with your apparent desire to engage in union-busting and throw thousands of people out of work. You keep saying that Greece needs structural reforms. This is true, and I agree, but when I think “structural reforms” I think “a system for political buy-in that isn’t predicated on patronage and actually enforcing their tax laws.” Hell, simply collecting all taxes owed would probably be sufficient even with a massive system of patronage and graft out the wazoo.

I get the impression you mean something very, very different, and even if you don’t, you have an apparent hard-on for hurling people out of work at a time when thousands are already without jobs.

17

In the sky 09.27.13 at 1:54 pm

Greece’s unemployment rate is insanely high. The public sector should be expanding. Massively.

1. What/who would be funding their wages? Deficits, funded by foreign banks?
2. What would you have these new workers doing? Do you think it matters much?

18

Miketsaras 09.27.13 at 2:04 pm

‘Not one public employee has been fired since the start of the crisis. Tens of thousands of new ones have been hired.’

While the first part is technically true, at least up until September, the second part is a flat out lie. As you can see from the following links:

http://apografi.yap.gov.gr/apografi/Flows_2009_2012E.htm
http://apografi.yap.gov.gr/apografi/Flows_2013E.htm

employment in the public sector(general total) has dropped by 20% in the period 2009-2012 and the trend has been continuing all through 2013. The links i provide cannot be more official since they are published by the Greek government itself(i guess they have an English version so they can demonstrate proudly their results to the Troika).

19

Miketsaras 09.27.13 at 2:11 pm

‘While the first part is technically true…’
Actually it is not true at all, it is easy loosing track of what has happened these past few years. It only holds for the permanent stuff.
People with hourly, limited duration or project contracts(and i am talking about people who may have worked for several years under this status) have indeed been massively fired. From the first link:

Other Staff 2/ 183.444 140.771 82.577 71.361

20

Bruce Wilder 09.27.13 at 4:50 pm

In the sky @ 17

Greece could be keeping the tourist attractions open and the supporting public infrastructure in good order — since that’s the main source of international earnings for the country as a whole. And, instead of being mired in poverty, the rest of the country could be busy producing goods and services for Greeks, and consuming the goods and services produced. Kind of your basic economy with a cooperative division of labor.

The Euro and deficits funded by foreign banks don’t seem like they’ve worked out well to date, so maybe someone could consider an alternative? It matters to people’s lives.

21

Bruce Wilder 09.27.13 at 5:08 pm

I fail to see how the deep rooted political problems in Greece are helped . . . by the successive indulgence of the Euro’s German and American banksters, followed by punitive austerity?

You seem to have a very deontological view of the issue . . . Is this a correct use of “deontological” in a sentence? Is Anon. trying too hard?

22

mpower69 09.27.13 at 5:17 pm

To characterize Greece as anything but a spectacular and predictable failure of entrenched leftist policy and mismanagement is disingenuous at the least… a complete denial of reality.

Further, all of Europe is following Greece on the road to ruin – a road paved by decades of unsustainable & unfunded socialist promises.

And to think there are still plenty of American liberals who continue to hold Europe up as an example of socialism’s “success”. Europe is imploding under the weight of short-sighted nanny state policy. When the Dutch monarchy repudiates it’s socialist welfare state as a failed, unsustainable experiment (as it did last week) you can begin drafting modern socialism’s epitath. That americans have been duped into eight years of socialist “Hope and Change” is both ironic and tragic as it coincides perfectly with Europe’s demise…

“But I’m not sure how a good stiff round of austerity and union-busting will fix it.” Solvency & a sustainable economic model are prerequisites to any political/social goals. There is no other path, so get over it.

“Do you have a way to ensure good benefits and robust bargaining power for public-sector employees in a way that doesn’t involve unions?” How about multiple, competing unions… but first you would have to convince me that public employees deserve ‘robust bargaining power’ when TAXPAYERS are sitting on the other side of that bargaining table. It’s not like public employees are slaves is third-world sweatshops… they are free to choose any industry/career/trade they wish… nobody’s twisting their arms forcing them to be public employees.

“Hell, simply collecting all taxes owed would probably be sufficient even with a massive system of patronage and graft out the wazoo.”
Actually this is wrong, both in Greece and here in the USA. The greeks could seize 100% of taxes owed + 100% of private assets + 100% of private profit, and they STILL would not be able to balance their public ledger… the deficits, debts and promises (entitlements) are simply too great. This is a matter of mathematics, not politics. Unfortunately, the very same mathermatical equation holds true here in the USA… our benelovent government could seize all (100%) of private profit – both personal and corporate – and we still couldn’t balance our ledger. The american Right is correct when they state that we have a spending problem, not a revenue problem.

23

mpower69 09.27.13 at 5:22 pm

…misspelled ‘epitaph’ above… geez, where is my coffee?

24

mpower69 09.27.13 at 5:32 pm

Bruce @ 18

All the cooperative effort and tourism under the sun wouldn’t change the fact that Greece is chained to a collective currency and monetary system (the Euro) which makes all af the above impossible, as all goods & services are simply TOO EXPENSIVE for locals and tourists alike so long as greeks are forced to use the Euro. Greeks could ditch the Euro tomorrow and then your idea would have some chance of fulfillment… but w/ the Euro – no chance at all.

“…deficits funded by foreign banks…” Ah, yes – you’ve nailed it. Regardless of who does the funding (issues the credit), structural deficit spending will ALWAYS yield failure. Balancing the ledger (on an annual basis, ideally) is the only practical and moral route for collective goverance, period.

25

bourbaki 09.27.13 at 6:29 pm

” When the Dutch monarchy repudiates it’s socialist welfare state as a failed, unsustainable experiment (as it did last week) you can begin drafting modern socialism’s epitath.”

Poe’s Law!

26

Cody 09.27.13 at 6:47 pm

@20

Ah yes, Europe following austerity and your policy preferences means that socialism is dead!! DEAD I SAY!! After all, if enforcing massive austerity creates a giant crater of an economy, then the only answer is that socialism is awful.

Yet America – which had a (meager) stimulus has mostly held ground. Of course, we’re not doing great either. Interestingly enough, the further we got away from the stimulus the more we bogged down. I’m sure it’s unrelated, as proved by how awful Unions and Socialism is, obviously.

27

mpower69 09.27.13 at 7:58 pm

@Cody 24

Austerity? Surely you jest… Europe continues to spend more Y0Y. The rate of their deficit spending has slowed, but that is still more deficit spending, not less. Thus, Europe is not “austere” by a long shot… they are simply inept, and frankly, helpless against the the laws of physics.

“Stimulus” is a layaway program for free crap now, to be paid for by unborn generations of debt serfs. Please feel free to defend “stimulus” from your high horse… I’m sure your children and grand-children will feel much better about their bondage if they have your good intentions to soothe them…

28

Mao Cheng Ji 09.27.13 at 8:23 pm

Who is it exactly that my children are going to owe this huge debt? What methods this fabulously rich individual (or entity) is going to use to extract it from them? And how he (or it) is going to spend it?

29

Layman 09.27.13 at 8:28 pm

mpower69 @25

“they are simply inept, and frankly, helpless against the the laws of physics.”

I may be a layman, but when people use expressions like ‘laws of physics’ in a discussion about economics, government, or social organization, I generally conclude they’re out of their area of expertise. It has the same warning mechanism value as ‘second law of thermodynamics’ does in discussions about evolution…

30

Chaz 09.27.13 at 8:34 pm

I have found two possible sources for Anon’s claim that Greece has had zero public sector layoffs. They are the Heritage Foundation and Matt Yglesias. For supporting evidence, the Heritage Foundation cites Matt Yglesias. Matt Yglesias cites no one.

Heritage also makes the delightful claim that “Greece is the apotheosis of austerity.”

http://blog.heritage.org/2013/06/25/greece-austerity-doesnt-involve-public-sector-layoffs/

31

Luc 09.27.13 at 9:20 pm

More than 15 seconds of google time would find you that it is the consensus that Greece has had no government employees fired as of now.

The link @10 states:

“Though about 128,000 civil servants have sought retirement since the start of the crisis here, Wednesday’s late-night vote authorizes the first direct dismissal plan to hit the 700,000-strong public sector – a stark contrast to the 1,000 jobs lost daily in the private sector, according to state statistics.”

The plan in the first link @14 hasn’t been implemented afaik.

What conclusions to draw from this about unions is another thing.

32

Nine 09.27.13 at 10:29 pm

“When the Dutch monarchy repudiates it’s socialist welfare state as a failed, unsustainable experiment (as it did last week) you can begin drafting modern socialism’s epitath.”

Heh.
So is “When the Dutch monarchy” going to be the new “Even the Economist/Even the liberal NY Times” ? That would be awesome.

33

John Quiggin 09.27.13 at 10:48 pm

Coming back to the OP, a striking feature of the crisis has been the collapse of free-market liberalism, as represented by the FDP in Germany, LibDems (at least as represented by Clegg) in the UK and so on. The Netherlands is a potential counterexample, but it seems as if the nominally liberal party has gained office by dumping most of its liberalism, other than on economic issues.

Of course, social democratic parties have also lost plenty of ground

34

Tadhgin 09.27.13 at 11:08 pm

“When the Dutch monarchy repudiates it’s socialist welfare state as a failed, unsustainable experiment (as it did last week) you can begin drafting modern socialism’s epitath”

Just to be clear… The government wrote the kings speech, it was closer to the queen’s speech at the opening of parliament in the UK

35

Markos Valaris 09.27.13 at 11:13 pm

For the record, Anon, Luc etc. are correct that, although public sector wages have been cut by a lot, and lots of people have been pushed into retirement, no direct public sector lay-offs have happened in Greece yet (though they seem to be happening now). This has everything to do with the system of patronage that the OP mentions. PASOK, who negotiated the first bailout promising 150,000 fewer public sector jobs, went over the course of four years from 44% of the vote to around 5% in polls today.

Anon is not wrong that Greece is rife with chronic and institutionalized dysfunction. His/her mistake, IMHO, is to confuse these chronic conditions with the causes of the current crisis. These problems were present in Greece 10, 15, or 20 years ago. But Greece was growing then, and did not have 28% unemployment. Conversely, it is absurd on its face to think that, with 28% unemployment, firing a few government workers is what will finally bring the process of internal devaluation to fruition.

It is obviously comforting to many people, in Greece and elsewhere, to think that the crisis is punishment for our sins. But this is bullshit. And dangerous too, to the extent that it minimizes the moral significance of large amounts of avoidable suffering.

36

mpower69 09.27.13 at 11:37 pm

@Layman 29

those in “social science” always flinch when physics or applied mathematics are invoked, so I’m not surprised. both modern socialism & modern capitalism assume ‘unlimited resources’ as a baseline input, thus both are doomed when applied anyplace but a classroom chalkboard… the second law of thermodynamics is very relevant and in fact TRUMPS anything that social science may conjure… past, present or future.

There is no free lunch.

our world needs more poets, farmers & engineers and fewer economists, lawyers & bureaucrats.

37

Layman 09.27.13 at 11:51 pm

mpower69 @ 36

Do poets also flinch when you apply the laws of physics, or have they incorporated them into their method already? Do farmers lay down their plow & harness in despair when you tell them that the 2nd law of thermodynamics means their effort can only come to ruin in the long run? Is that why lunch isn’t free?

38

mpower69 09.28.13 at 12:03 am

@ Ji 28

Your questions imply that the creditor(s) may be “weaker” than the debtor, thus the debtor can just default w/ minimal consequences. My response to those hoisting such logic would be to read-up on the Roman Empire and it’s decline. Further, such logic is basically inviting armed conflict on a massive scale… is that the preferred endgame? Really?

Does it matter to whom such debts are owed? Not really. What matters is that social organization and productivity evaporate when there are exponentially more claims on resources than there are actual resources. IOW, the modern western world is inviting another Dark Ages by surrendering its system of global commerce to a mindless digital printing press in overdrive. We were better off with seashells & arrowheads, and we may be going back to that sort of tangible system of reckoning sooner than most could have ever imagined…

39

Luke 09.28.13 at 12:17 am

Did you just imply that the Roman Empire declined because of debt? Seriously? And the global economy rests on thermodynamics? What is this I don’t even.

40

Collin Street 09.28.13 at 1:33 am

our world needs more poets, farmers & engineers and fewer economists, lawyers & bureaucrats.

Suppose you have an australian barley board staff lawyer writing a pleading. What do they count as?

For added fun, imagine that the case involves impacts of predicted technological change on prices.

… this is just “life was better in the neo^mesolithic when we didn’t have that horrible division-of-labour thing and I didn’t have to care what other people thought to stay alive” wearing a funny hat, isn’t it. Probably a tricorne.

41

mpower69 09.28.13 at 1:51 am

Layman @ 37

Poets and farmers alike already understand that their efforts are futile against the laws of nature… but of course poets & farmers are not trying to impose their theories and unsustainable worldview upon their neighbors, so there is that little difference, yes?

Layman, my instincts tell me that you and I are not in opposition. Your discomfort w/ math and/or physics is not fatal, just as my discomfort with our (collective) slide toward economic & cultural contraction has not caused me to reach for the hemlock. We are still free to express our opinions and solicit judgement. The degree to which we justify our opinions with tangible proof and consequence is the only reasonable measure available to others who choose to join in the conversation, yes?

42

Daniel 09.28.13 at 2:07 am

@ 39

>>Did you just imply that the Roman Empire declined because of debt? Seriously? And the global economy rests on thermodynamics? What is this I don’t even.

Historical reference and metaphor. You know what he is talking about.

Greece should follow the USA’s lead. Leave the Euro and print, print, print, print. If there is nothing wrong with printing here, Greece will certainly not be harmed by doing the same.

43

Matt 09.28.13 at 2:22 am

I am perfectly comfortable with physics and mathematics. I am uncomfortable seeing a gloss of scientific terminology used to dress up mystical woo. If you’re not pulling a Deepak Chopra, make the contradiction between socialism and thermodynamics explicit with as much mathematical and scientific rigor as you please. Or link to same. A cursory search indicates that the most popular linkages of economics and thermodynamics are indeed on the same level as the popular creationist derp about the 2nd law. And for the same reasons. Earth is not an energetically closed system. Entropy is more narrowly defined than the popular notion of “disorder” captures.

44

Matt 09.28.13 at 3:09 am

I should add that the misapplication of mathematics is by no means limited to heterodox economics. Orthodox economics abounds with imposing mathematical models blanketing an invisible substrate of faulty assumptions.

45

Tony Lynch 09.28.13 at 3:35 am

I wonder if this Greek Bashing is an oedipal thing?

46

hix 09.28.13 at 3:59 am

Decline of free market liberalism due to the FDP losses ? Dont think so. They are offset by close to 5% for the new AFD and 2% for the Pirates.

47

John Quiggin 09.28.13 at 4:46 am

@hix The Pirates, at least in my experience, aren’t at all like the FDP. At least in Australia, and in the presentations of the European leaders I’ve heard, they align most closely with the Greens – their line is that they are the same kind of movement but focused in C21 issues.

As for the AfD, you’re closer to the action than I am, but from here they seem to be equivocal at best on immigration issues, and largely silent on civil liberties. The fact that they have largely replaced the FDP as the repository for rightwing protest votes seems to me to be an illustration of my point.

48

Darragh McCurragh 09.28.13 at 7:00 am

‘She points out that each individual salami-slice of change that Fidesz undertakes has been defended as relatively unexceptional, taken on its own’ – That is actually how it ALWAYS works. Boiling frogs is the correct metaphor. It happened, albeit at a faster pace and without having to watch out for outside interference such as the EU and OSCE now ‘threaten’, in Hitler Germany. And like in Germany, I wonder if there isn’t an overall plan behind it. In Germany it were the “Boxberger Dokumente” which accidentally leaked in the 1930 and spelt out the exact marching order for constitutional changes to be implemented once in power in great detail.

49

Mao Cheng Ji 09.28.13 at 7:45 am

“Does it matter to whom such debts are owed?”

It kinda does, though. In the US, the Fed owns about a half of the debt. Half of the rest is owed domestically, and that, if someone ends up too flush, can be easily rectified by taxation. The net foreign debt is about $4 trillion, 25% of GDP.

50

dbk 09.28.13 at 8:10 am

The Greek police today began arrests of members of the party mentioned in the OP, following advisement by the country’s Supreme Court. Apparently arrests are in progress at the moment, taking place throughout the country. I’m trying to figure out exactly what’s going down; special news bulletins are currently advising the entire populace of the country to remain as calm as possible.

51

dbk 09.28.13 at 8:31 am

Follow-up: the news is reporting 32 arrest warrants have been issued, as of 11.30 (Greek time) 15 arrests have been carried out; these include several (not sure how many; six, according to a report I just read) MPs including the head of the party, its spokesman, and party members from the Athens suburb where Pavlos Fyssas was killed (Nikaia).

52

niamh 09.28.13 at 10:00 am

dbk – from today’s Ekathimerini:
‘Greek police have arrested Nikos Michaloliakos, the leader of the far-right Golden Dawn Party, on charges of forming a criminal organization. Another 13 party MPs and members were also arrested on Saturday, including party spokesman Ilias Kasidiaris, Ilias Panagiotaros and Ioannis Lagos. The general secretary of Golden Dawn’s Nikea chapter Nikos Patelis has also been arrested, reports said.
Charges reportedly include money laundering, assault, assault with intent to do grievous bodily harm, murder and blackmail…’
‘A government spokesman refused to comment on the details of the operation. “Democracy can protect itself. Justice will do its job,” Simos Kedikoglou told reporters.
Dimitris Papadimoulis, parliamentary spokesman for leftist SYRIZA opposition, said that the country’s legal arsenal was enough to crack down on any criminal acts committed by members of Golden Dawn. “It is crucial to substantiate these charges,” he told Skai ahead of a party meeting to discuss the latest developments.
In a statement on Saturday, the European Commission expressed its “full confidence in the Greek justice to take all necessary actions, in respect of legal procedures.”
The police counter-terrorism squad is reportedly looking for more MPs including Christos Pappas and Nikos Michos.’

53

Peter T 09.28.13 at 10:29 am

That the Greek social system suffered from various crippling deficiencies is a repeated theme. These deficiencies seem to consist chiefly in that the Greeks chose to organise their life somewhat differently to Germans, British or Americans. I have no particular familiarity with Greece, but I do have with similar patronage-based societies elsewhere. They seem to work just fine (not perfect – but what is?), just so long as either local elites or outsiders are not forcing them into some other, more “modern” mould. Then they become truly dysfunctional, and there is a great deal of unhappiness, and usually the attempt is abandoned.

Surely we have learned from the Eastern Europe experience that one size does not fit all? or are we going to reform the notoriously inefficient and corrupt US system?

54

niamh 09.28.13 at 10:32 am

Mao Cheng Ji @ 4 and 5: Yes indeed, left and right mean something different in the politics of post-communist societies. Thank you for your update on Fidesz’s economic populism.
They might not actually constitutionalize utility prices, but it is indeed remarkable that it’s even discussed. The way politicians in Hungary are reported as talking about economic and social issues is quite fascinating to me as an outsider.

55

Layman 09.28.13 at 12:32 pm

mpower69 @ 41

Your instincts fail you. I have no discomfort with math or physics, and we do indeed disagree. My discomfort arises when I hear vague claims that a particular economic approach violates the laws if physics, as if the latter had any meaningful applicability to the former. As Matt says, if you think they do, show that they do.

56

Hector_St_Clare 09.28.13 at 1:48 pm

MPower,

Marx himself seemed to assume that natural resource shortages weren’t a big deal, but there are plenty of varieties of socialism that aren’t predicated on unending growth and consumption. In fact, if you do run into resource scarcity, a socialist system is better suited to deal with it than a capitalist one, since the socialists have the power to impose top down rationing, whereas the capitalists don’t.

57

Hector_St_Clare 09.28.13 at 1:53 pm

Also, if you think Obama is a socialist, I have a bridge to sell you.

58

mpower69 09.28.13 at 3:40 pm

@ Matt & Layman

Actually, the burden is on the two of you to demonstrate that the Earth is indeed an open system… as no exceptions to SLOT or entropy have yet been proven, ever.

@ Li & Hector

I’m disturbed by your willingness to simply tax (violently steal private property) or otherwise impose “top-down” rationing as a supposed solution to predictable systemic failure… so let’s all just consume as we wish and ignore the mathematical certainly of failure, because when the inevitable crisis arrives we can just steal from our rich neighbors… nice plan.

59

Hector_St_Clare 09.28.13 at 3:49 pm

MPower,

The entire existence of life is an apparent exception to the second law (life exists because the earth isn’t a closed system).

As for taxes and rationing, those are precisely means of a*preventing* people from consuming as they wish, and imposing some degree of central discipline on our resource allocation patterns. do you fools even read what you write?

60

Hector_St_Clare 09.28.13 at 3:51 pm

I’m not in social science, either, I’m a biologist.

61

Mao Cheng Ji 09.28.13 at 4:31 pm

“nice plan”

I don’t have a problem with your plan. But if it’s contrary to your petit-bourgeois values, what about this: once your rich neighbor dies, all his stuff goes to the treasury. This way you don’t have to steal anything from him, and the result is the same, more or less.

62

Bruce Wilder 09.28.13 at 4:50 pm

Hector_St_Clare: . . . the socialists have the power to impose top down rationing, whereas the capitalists don’t

While not taking mpower’s brief, it does seem to me that what we are witnessing could plausibly be interpreted as capitalists imposing top-down rationing. mpower wants to argue that the social welfare state is unsustainable, and its failure and collapse is, therefore, sui generis, its own cause. This narrative line attempts to hide the capitalist hand that wrecks havoc, while stoking resentments against the taxi union. Less ridiculously, though, it pokes a big hole in the confident Keynesian line, which preaches fiscal stimulus, while failing to acknowledge the implications of resource limits; Keynesians, of course, are not socialists.

Where I think the socialists have their real edge vis a vis capitalism isn’t the ability to ration — which ability is common to both — but in the commitment not to externalize costs and risks. Capitalism is all about externalizing costs and risks, putting them off on someone else, somewhere else, some other time. Socialism, by contrast, attempts to internalize all costs and benefits — nothing is entirely private. In a finite world of resource limits, with no frontiers to conquer and no virgin lands to till for the first time, capitalism’s impulses to externalize costs become not just destructive of their unfortunate dumping grounds, but destructive to the whole. Capitalist adaptation to global warming, for example, or peak oil, just accelerates the destructive tendencies. Turning up the air conditioning to cope with a heat wave just dumps more carbon into the atmosphere; fracking poisons the ground water, etc.

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Bruce Wilder 09.28.13 at 5:09 pm

mpower69 @ 58

And, when the rich dismantle the political economy for fun and profit, living as parasites on the rot, what then?

64

mpower69 09.28.13 at 6:12 pm

“what then?”

good question. I believe we are at that point now… which is why I feel compelled to post to these comment occasionally. I am thoroughly disgusted by the polar nature of our public political discourse… as if greater centralized top-down organization would somehow be more immune to human nature/corruption than our recent experiences with capitalism/socialism. How about voluntary organization/collectivism? How about anarchy? I for one want no part of compelled, involuntary collectivism as described by Li and others here. Can’t we even consider distributed/decentralized (local) governance? Perhaps technology has enabled (empowered) this possibility to a degree unknown in our past experience… if power corrupts, then perhaps we can try to structural distributution of power to the greatest degree possible, rather than centralizing it as so many are want to do – in a knee-jerk manner – as if benevolence and justice are somehow conceived within the inner party of a world government… good gracious.

65

Manta 09.28.13 at 6:21 pm

mpower69 @58

“Actually, the burden is on the two of you to demonstrate that the Earth is indeed an open system… “

Tomorrow morning, get out of your house, and look at the sky, and you will see the sun.

According to Wikipedia, “The Earth receives 174 petawatts (PW) of incoming solar radiation (insolation) at the upper atmosphere. Approximately 30% is reflected back to space while the rest is absorbed by clouds, oceans and land masses.”

66

Satan Mayo 09.28.13 at 8:08 pm

Mpower69 was already doing a pretty poor job of sounding in any way connected to the real world in which people live, even before the inevitable reference to how all taxation is a horrific moral evil.

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Mao Cheng Ji 09.28.13 at 11:10 pm

mpower69, 64, I actually agree that a huge centralized welfare state is not an attractive solution. All I was saying is that a large government debt is not necessarily the end of the world. Same as outside the government: people declare bankruptcy, start fresh, and prosper occasionally. Some even do it more than once.

68

Chaz 09.29.13 at 12:59 am

In decentralized local governance, the nation divides itself into poor towns and rich towns. The rich prosper behind their gates, controlling the resources. The poor line up to be searched as they enter and exit the communities where they work as servants. The rich share nothing and keep their tax revenue for themselves. The poor live in squalor. Above both reign the corporations. Each community, even the rich ones, is too small and weak to be self sufficient or to exert control over business. The corporations dictate the terms under which they will allow towns to receive goods and services. And the senior executives live in their own extra nice towns, which they own and control.

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Mao Cheng Ji 09.29.13 at 10:47 am

Well, there is a whole range of possibilities between a centralized government and gated cities. There are ways to deal with resources, and corporations, and corruption, and all the rest of it. Empirically: Switzerland, small as it is, is much less centralized than the US or France, and it’s doing okay.

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hix 09.29.13 at 2:48 pm

Switzerland is a fascinating place, which is doing many things in great ways. But if the Swiss political system (the formal part) would be implemented in the US, im inclined to think Chaz Szenario is the most plausible. And Switzerland minus tax evasion in all likelyhood would have about the same living standard as the neighbouring regions in Germany, Austria or Italy (which all have a gdp that far exceeds their homecountries average).

71

Manta 09.29.13 at 2:52 pm

Chaz#68:
One of the main causes of the crisis in Europe are precisely the central institutions (ECB and European Commission) and the single currency.

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hix 09.29.13 at 8:35 pm

Misleading. The financial regulation and current account crisis was made worse by asymetric integration. It would have happend without the Euro and financial market integration, just less severe. At the same time, it could have been avoided with both the Euro and financial market integration, as long as there would have been sufficient integration. Common financial regulation standards would have stoped Ireland from ruining the European financial system and serious fiscal rules would have prevent the current account crisis in the South. What we do have is a common curency and open financial markets, but no serious (positive) common rules, that avoid the two types of more (Ireland, Cyprus, Greece) or less (Portugal) intentional strategies to impose externalities on other members of the common economic zone. .

73

Bruce Wilder 09.29.13 at 8:47 pm

To circle back to the OP, the European Project was conceived in the post-war triumph of institutionalist liberalism — the original neoliberals, among them and proceeded along a path defined by liberal consensus compromising the opposed interests of the privileged and the masses. The central institutions have continued evolving along a path that seems to be dramatically or symbolically satisfying, but the respect for institutional mechanisms has faded away, and the residual liberalism, which guides the technocrats is the nihilistic, semi-anarchic variety, which is little more than a cover story for implementing neo-feudal plutocracy. But, no matter how bad it gets, it appears you cannot get even the nominal socialists to depart from a liberal consensus so far past its sell-by date that it threatens to poison whole countries. I cannot help, but wonder if the detached and clinical tone of the OP isn’t, itself, a symptom of this malaise, this reluctance to admit that consensus is dead, and politics is a barely contained civil war of the mega-rich against all, in which the goal of the left(s) must be to overthrow and contain a malevolent Power, not just adjust the rhetorical politesse, taking “more seriously” the political and social costs of so-called “economic reforms”.

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Chaz 09.29.13 at 11:31 pm

Hix, I agree with you except for the bit where you say, “serious fiscal rules would have prevent the current account crisis in the South.”

I assume by that you mean balanced budget rules by that? The EU had one even if no one followed it (I personally strongly oppose that rule by the way). Anyway, Spain and Ireland were both running *government* budget surpluses when the crisis was hit, while Germany, France, etc. were not. That didn’t help them at all because government debt wasn’t the source of the problem. The problem was that the inflation rate was much higher in southern Europe than in Germany. This was caused by an influx of loans and investment from Germany/France/Netherlands/etc. to southern Europe, by government-coordinated wage suppression in Germany, and surely by other causes.

People note that southern Europe had high inflation but forget that Germany had excessively low inflation; it was about zero for several years. The ECB’s target inflation rate was 2% and the only country to actually stay near that rate since the adoption of the euro was France. For the euro to work all countries needed to have the same inflation rate. I’m taking this from a Krugman post I read a couple years ago.

Now, how could national politicians have prevented that, with the euro and EU rules in place? Well first of all let me say it would have taken way more competence and foresight than we can ever rationally expect politicians to provide. The first and easiest part is that Germany should have pushed its inflation rate two (or more) points higher by dropping its wage suppression policy and by running bigger government deficits. If they really needed that wage suppression to keep their industry competitive with China then a better way to do it would be to devalue the euro. Second, those capital flows could have been restricted by law. Of course the EU would have called that protectionism in the banking industry. Third, the southern Europeans and Irish should have taken measures to dampen demand in their property markets. They didn’t control interest rates so that would require unconventional means which are basically unprecedented in capitalist countries. Fourth they could have suppressed domestic demand across all sectors by running an (also unprecedented) a contractionary program of very high government surpluses. If everyone had the foresight and if *every national government in the eurozone stimulated or suppressed their domestic demand in the exact right proportion* to achieve a trade balance and an agreed-upon inflation rate, then this could have worked out. That inflation rate would probably need to be higher than 2% to avoid high unemployment in southern Europe. If I had been in charge of any of these countries though I would have said there’s no way this will happen and preemptively abandoned the euro.

Anyway, this is all off topic. I just wanted to say it because I know the “deficits were the cause” explanation has become conventional wisdom in a lot of places and it needs to be resisted. Apologies if I misunderstood hix’s comment.

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Bruce Wilder 09.30.13 at 1:40 am

Chaz: . . . the southern Europeans and Irish should have taken measures to dampen demand in their property markets. They didn’t control interest rates so that would require unconventional means which are basically unprecedented in capitalist countries. . . .

Regulation of bank lending practice is hardly unprecedented.

Money is scorekeeping. The scorekeeping has integrity, or it doesn’t. It didn’t in the period leading to the GFC of 2007-8. This isn’t exactly rocket science and does require superhuman powers, just Sunday school morality, and a modicum of public responsibility.

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Hector_St_Clare 09.30.13 at 2:35 am

Re: Where I think the socialists have their real edge vis a vis capitalism isn’t the ability to ration — which ability is common to both — but in the commitment not to externalize costs and risks.

Well, yes, capitalism rations by price. (Or, when rich people manage to exert enough control over the state, by force as well). As you say, the choice isn’t between rationing resources and not rationing them, but between rationing them in a reasonably equal, fair manner, and rationing them in a a very different manner.

Re: . How about voluntary organization/collectivism

Voluntary collectivism (well, unless you were a religious Catholic, who they were happy to use force on) was last tried on a mass scale by the Spanish anarchists in the 1930s. It ended with them getting rolled over by the Communists, right before the Communists got rolled over by Franco. Which illustrates one of the problems with anarchism: without a state to protect the voluntarily collectivists from those who don’t believe in voluntary collectivism, voluntary collectivism isn’t the kind of thing that lasts long.

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hix 09.30.13 at 3:19 am

I was thinking of additional rules or maybe only rules for accumulated net foreign debt/and enduring high current account deficits , no matter if public or private. If it comes to the worst one could have allowed the implementation of tariffs or tradeable import/export certificates. Just to describe a rule only, federation kind of fix for the Euro.

Government debt is not entirely off the hook. In high inequality Greece the big fortunes are very mobile (shipping) and the government is very weak, which makes the high government debt in itsself a problem, no matter if the debt is owed to locals. It is rather hard to get to the shipping barons. The last time it got unfocmfortable for them, they ordered a coup. Then they let the military write a consitution that bans taxation of shipping before returning power to a democratic elected government.
Hungary is somewhat similar. They also have high government debt accumulated to avoid conflict resolution in the political system and a huge negative net international investment position.

78

Bruce Wilder 09.30.13 at 6:31 am

All the countries taking up the Euro were giving up some large measure of sovereignty. Sovereignty had been discredited, perhaps, by the inability to resolve internal conflict in a more respectable fashion. The crisis of authority was a pre-existing condition, when the periphery countries took out their Euro policy.

79

Mao Cheng Ji 09.30.13 at 7:16 am

I agree with much of what Bruce Wilder has been saying here, but in this environment if you want to oppose liberalism, you would have to ally with nationalists. And that’s a hard thing to do. Very counterintuitive.

80

Random Lurker 09.30.13 at 12:13 pm

@Chaz

“If they [Germany] really needed that wage suppression to keep their industry competitive with China then a better way to do it would be to devalue the euro.”

This sounds like a good idea, but you’re assuming that the germans were competing against China and not against other european countries.
If on the opposite you assume that the german were/are competing against Italy, Greece, or eastern Europe (that is not inside the euro but is very closely linked to it) their strategy makes perfect sense.

Obviously the fact that Germany is contemporaneously trying to outcompete european “periphery” and asking that same periphery to become more competitive causes a contradiction that can’t be solved.

81

Bruce Wilder 09.30.13 at 3:52 pm

And, maybe, the Euro has been hijacked by a malevolent interest, which has little identification with Germany, and which uses German fear of inflation as a convenient point of leverage, but is ultimately aiming at dismantling the German economic engine, in order to profit from cash shed by the process of disinvestment.

To frame as a matter of trade competitiveness any of the travails put into motion by the orgy of unregulated lending and asset inflation, which followed from institution of the Euro, seems to me to be deceptive at best. What are the “reforms” being forced on the periphery countries, while they are held financial hostage? The demolition of the parlous welfare states and labor rights? The harvesting of pensions? The sale of public properties and resources? Beyond the cargo-cult economics and its ritual recitations about “growth”, where is the argument that any of this benefits any mass polity?

And, to focus on the political question, where is democratic choice about any of it? Where are the levers that popular opinion and mass interest can reach?

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Tim Wilkinson 09.30.13 at 4:20 pm

Mao – but what you don’t need to do is allow mpower69’s jejune pronouncements, which others have been good enough to spend time refuting, to needle you into a reflex Freewheelin’ Franklin act. So you don’t like centralisation – who does, per se?

Of course we need more democracy (among other things), which means removing power from the ruling – capitalist – class inside and outside formal political institutions. The only available engine of effective, co-ordinated democratic action to that end (and to the ultimate end of a decent and adequately just society) – is some form of ‘centralised’ – co-ordinated – ‘state’ or res publica.

As for the Swiss model, I don’t know to what extent it embodies your decentralisation-first ideal, but I do know it’s a rather singular – freakish even – and not terribly admirable setup they have going on there. It has a massive gini coefficient, for one thing, and an unenviably conformist society (perhaps this would fit with having less formal centralisation, to the extent that it actually does. In general, your intermittent remarks about decentralisation follow this pattern: more power to localities and never mind the repression they can quietly mete out according to local taste – States’ rights, anyone? If you don’t like it, on yer bike – never mind that this weary old trope has long since been discredited by, e.g., Hume. that’s before we even get to the ghettoistic consequences of Nozickian utopianism, as accurately summarised by Chaz above).

Switzerland also displays a high degree of (‘nationalist’) isolationism where contributing to international co-operation is concerned. It also, not unrelatedly, enjoys a niche position as (1) supplier to the rich of a synergistic package of luxury goods such as watches, chocs, ski resorts, High Society institutions etc., (2) a centre for Big Pharma and biotech operations – with research subsidised by and exports consumed by the EU (Germany), btw; what’s going on there? Oh yes, nearly forgot (3) tax haven and provider of all manner of shady banking and financial transactions. On both scores, cf. hix’s remarks re: free riding and parasitism and the resultant prisoner’s dilemma/race to the bottom.

Both ‘centralisation’ and ‘nationalism’ are red herrings here – note that in the context of the EU, nationalism is localism. We have nation states, and if we’re to reduce the total quantity of unaccountable and unwarranted power, it’s much more likely to be achieved with strong – in particular, economically strong – democratic institutions (within which citizens can exercise their healthy cynicism, eternal vigilance etc. in the interests of maintaining proper checks and balances) than it is by hacking away at ‘the state’ indiscriminately, leaving politics to local fiefdoms, utterly unaccountable private profit-seeking organisations, and the upper economic strata which inevitably accrete under any market system unless actively opposed and the economic power of which inevitably bleeds into all spheres of society.

Chaz – “deficits were the cause” explanation has become conventional wisdom in a lot of places Yes, beyond the point I would have imagined possible (excuse slight hyperbole) 5 or 6 years ago.

The situation here in the UK is deeply depressing. I’ve just had the Labour conference in my town (mentioning no names) and spoke to a few delegates. The degree to which those I spoke to seemed to have internalised the ‘dealing with the deficit’ narrative was really shocking.

It’s creepy to hear labour politicians falsely confessing to having wrecked the economy by profligate spending, affirming their belief in the true doctrine of the confidence fairies etc.

Needless to say the VSPs in the media, along with the Sun, buy into the simple morality myth too – and it has great traction with the populace, combining as it does a kind of gleefully vindictive ‘the party’s over’ attitude, good old belt-tightening Blitz spirit, a wealth of scapegoats to feel superior to, and of course a real version of the ‘politics of envy’, whereby the generality of private sector workers react to being royally shafted by seeking to drag down those in the public sector or who have had the sense to join one of the hated unions. Grim. Grimmer still, the idea that the Labour party is not just making a Machiavellian decision to play along on the (debatable) assumption that that particular propaganda war was unwinnable, but actually accepts the new normal – like Nu Lab in the 90s, but a step further.

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mds 09.30.13 at 5:04 pm

It’s creepy to hear labour politicians falsely confessing to having wrecked the economy by profligate spending, affirming their belief in the true doctrine of the confidence fairies etc.

Yeah, and if anyone was hoping that the leadership would follow the rank-and-file in supporting renationalization of the Royal Mail, they were sorely disappointed yet again. Is there a formal term for this affliction, where the main party of the (Center) Left gets electorally spanked at least partly because they’ve too thoroughly abandoned their core constituencies in favor of the natural economic constituencies of the Right, and their primary take-home message is that they’re still too distinguishable from the Right? Because it seems to be a pretty widespread affliction amongst putative center-left parties around the world (US, Germany, the Netherlands, Denmark …). Perhaps Reverse Trumanism: Completely missing the point of “Give the voters a choice between a Republican and a Republican, and they’ll vote for the Republican every time.” Or maybe Being Tony Blair.

And, maybe, the Euro has been hijacked by a malevolent interest, which has little identification with Germany, and which uses German fear of inflation as a convenient point of leverage, but is ultimately aiming at dismantling the German economic engine, in order to profit from cash shed by the process of disinvestment.

Given that so many of these actions are wrecking the ability of other nations to be the net importers required to shore up Germany’s export-driven economic engine, I’d say there’s at least a kernel of truth in there. Because the alternative is that senior policymakers are sincere in declaring the solution to be everyone becoming a net exporter and running surpluses, which would make them too stupid to breathe, let alone craft policy.

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Mao Cheng Ji 09.30.13 at 5:32 pm

I don’t have the same reaction as everybody else here when I read “States rights”. Maybe I am a bad person. All kinds of concepts have been demagogued for various nefarious purposes; the word “socialism” is right there too. So what. Yes, States rights, why not.

Anyway. What do I know, I don’t really have a strong opinion or certainty, so you may be right about everything. I just have my doubts, serious doubts that these democratic institutions can work on the scale of hundreds of millions people living in different environments, under different conditions. At this scale they, democratic institutions, may just as easily lead to a backlash, resentment, paralysis and no accountability whatsoever.

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Manta 09.30.13 at 6:00 pm

The fact that the single currency would be a disaster was predictable and predicted (I write as somebody who was quite enthusiastic about it when it started: mea culpa).

Claiming that the Euro “has been hijacked by a malevolent interest” is quite naive; insofar as there are malevolent interests, they have been the main reason why the Euro was introduced in the first place: e.g., fear of inflation and preventing devaluations were one of the main selling points; free-market liberalism and competition between states are openly acknowledged goals.

The decision of several UK governments not to join the Euro has been fully vindicated.

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Chaz 09.30.13 at 8:30 pm

@Random Lurker

Yeah, Germany has been pursuing the same kind of policy with respect to the rest of Europe as Japan and China have with respect to the USA. Hold your own currency (wages) down, develop a huge persistent trade surplus, and enjoy the employment and prestige of a large manufacturing sector. The cost is artificially low wages and consumption at home but apparently no one notices. The other cost is that your trading partner gets Dutch disease and their productive capacity rots until they can’t afford your stuff anymore. Japan’s been playing the game a long time and knows exactly what it’s doing. When they started the U.S. was the preeminent economic superpower of the world and everyone was eager to hoard dollars, so the plan was sustainable for a long time. In comparison the German plan to do this to a collection of smaller, poorer countries is obviously shortsighted. Unfortunately the Germans who put their devious plan in place seem to have never explained it to the rest of the country, so now Germany has no idea that they are pursuing a destructive mercantilist policy. They think they’re just brilliant industrialists and Portugal and Greece could be too if they weren’t so darned lazy.

I left this out of my earlier post because framing it that way makes it such an obvious betrayal of European solidarity, but I hinted at it with the bit about Germany needing to stimulate demand. Their trade surplus needs to be eliminated. This will probably mean some shifting of industry from Germany to Portugal et al.

If they want to keep that industry then just devalue the euro, and all of Europe can join Japan and China in exporting massively to the USA! Americans can import everything, export dollars, and all buy Mercedes with the money we earn at German-owned McDonald’s franchises! These McDonald’s will all run at a loss, but the Germans will continue to invest in them because -3% is the best return they can find for their trillions in dollar savings.

Or maybe, just maybe, accept that the share of industry in your economy will shrink a bit and stimulate aggregate demand so the service sector picks up the slack.

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Mao Cheng Ji 10.01.13 at 8:01 am

“Hold your own currency (wages) down, develop a huge persistent trade surplus, and enjoy the employment and prestige of a large manufacturing sector.”

This doesn’t make sense to me; empirically incorrect. There’s a bunch of countries in the EU, some even bordering Germany, with the average wage of 3-4 Euro/hour – a fraction of the wage in Germany. They’ve been there for over a decade. According to your theory, they should’ve bankrupted Germany, and yet they are all circling the drain and Germany is fine. Clearly, something’s missing in your story.

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reason 10.01.13 at 8:21 am

Mao Cheng Ji @87
Trade surplus, trade surplus, trade surplus (and it is unit labour costs, not wages that matter).

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Mao Cheng Ji 10.01.13 at 9:08 am

“Poland still has fairly low labor costs compared to the rest of the European Union. In 2012, the average cost of one hour of work for employers was about €7.2, according to Eurostat data. In annual terms, the cost increased by 3.1 percent.

Polish labor costs are much lower than those in Belgium and Sweden (about €40), Germany, Finland and Austria (about €31), or Spain and the UK (about €21-€22). Only four countries have lower labor costs: Bulgaria, Romania, Lithuania and Latvia.”
http://www.wbj.pl/article-62241-poland-has-one-of-the-lowest-labor-costs-in-eu.html

Right. Obviously it’s Poland, Bulgaria, Romania, Lithuania and Latvia that are the REAL villains trying to dominate the EU, not Germany.

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Chaz 10.01.13 at 10:37 am

@Mao

Germany has higher productivity so they have a competitive advantage even with higher wages. For things to balance out properly they need to have way, way higher wages.

Also I’m mainly comparing Germany to Spain/Portugal/Greece. Those countries have had rising wages over the last ten years while German industrial wages have been stagnant. Bottom line is the ratio of German labor costs to Spanish labor costs has gone down and that coincided with a big increase in Germany’s trade surplus. Also on top of wages there’s the issue of consumption rates. Germany has a high savings rate so they import less than their wages would suggest–again very Japanese-like.

Regarding eastern Europe: they’re not in the eurozone so they’re not affected by these problems unless they held a peg; they were very recently communist dictatorships; they have screwed up politics and bad infrastructure and thus low productivity. Even so I believe they have been growing faster than the rest of Europe and have attracted a good bit of foreign industrial investment at western countries’ expense (such as Volkswagen factories) due to those low wages, so you could argue that they are indeed playing the game and winning. Not Latvia though. They basically followed the Irish/Spanish/Portuguese path with a euro peg and a property boom and had a bad crash.

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Chaz 10.01.13 at 10:50 am

Also if we’re talking about villains there is a big difference between poor ex-Communist countries trying to catch up to the western countries and an already dominant country trying to increase it’s lead. Americans don’t care that South Korea and Taiwan are mercantilist because they’re small and poorish, but when Japan kept holding the yen down even as they seemed to be passing the US by people got pissed (enter the Plaza Accord).

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Igor Belanov 10.01.13 at 11:26 am

@ 85

“fear of inflation and preventing devaluations were one of the main selling points; free-market liberalism and competition between states are openly acknowledged goals.

The decision of several UK governments not to join the Euro has been fully vindicated.”

Yes, the good old socialist pound sterling, preventing free-market liberalism and competition running wild in the UK.

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Mao Cheng Ji 10.01.13 at 11:57 am

Hi Chaz, thanks for your reply.
“Germany has higher productivity”

But surely the average Fritz is not superior to the average Janusz?
But sure, I understand, they have modern factories. In the Western part. Built there during the Cold War with the purpose, I suspect, to demonstrate the superiority of the capitalist system. Not much productivity in the Eastern part, though.

“For things to balance out properly they need to have way, way higher wages.”

It seems that the population there is satisfied with their wages. They have other good things: stability, job security. Work sharing programs – no layoffs, government-paid vocational training. If the labor force is satisfied, how can wages go up? And if they want to save (I hear houses are very expensive there), how can you force them to consume?

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lurker 10.01.13 at 12:27 pm

‘I hear houses are very expensive there’ (Mao)
Don’t they mostly rent?

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Random Lurker 10.01.13 at 12:50 pm

@Mao

First of all, I don’t think that there is a “villain” trying to dominate europe; in fact Italy (currently a debt country) tried more or less the same policies of Germany, the difference is just that Germany won the contest for “competitivity”.

The problem is that each european nation is too small to adopt single-handedly keynesian policies, because the leaks on other europen nations are too big; but since the EU as a whole isn’t really a state, it also doesn’t pusrsue paneuropean keynesianism.
As a consequence, each state tries to be a net exporter, and those who lose the competition become, so to speak, unwilling keynesians, or either have bubbles.

Thus the problem is not Germany or germans’ attitudes, but the fact that the EU as a whole is unable, for a lot of reason, to enact a “paneuropean new deal”. If tomorrow for whatever the reason Germany goes in deficit, while Italy has a boom and becomes a big net exporter, the problem doesn’t change.

Regarding eastern europe, I believe that the main reason that the german keep down wages is indeed that they fear competition from eastern europe; surprisingly, this is also a reason of their high apparent productivity. This is the theory of right-winger german economist Hans-Werner Sinn:

“Sinn has called the German economy a bazaar economy since the share of input from abroad in German industrial production is on the increase. At the same time he points out that this is not to be equated with a breaking off of value added in exports. Instead Germany has decimated its domestic sector via excessive wage increases and has driven excess amounts of capital and skilled labour into the labour and knowledge-intensive export sectors, where fewer less-skilled workers can be employed as have been set free in the domestic sectors. At the expense of the domestic sectors, Germany has inflated value added in exports too strongly and at the same time has placed too much emphasis on the final stages of production. As a result a pathological export boom occurred.”
(from Sinn’s wikipedia page:
http://en.wikipedia.org/wiki/Hans-Werner_Sinn
)
Obviously if the germans buy stuff from eastern europe at cheaper prices, but then sell final goods for the same price, their productivity (added value/time) skyrockets.

The particular location of Germany as the phisycal center of the industrialised part of europe explains why it (or more precisely, its industries) could take advantage of eastern europe: look at the so called “blue banana” and the pictures of population density in Europe:
http://en.wikipedia.org/wiki/Blue_banana

One last thing: while it’s true that eastern europe doesn’t have the euro, AFAIK in most of those states there were very big credit booms thanks to currency arbitrages of local currencies vs. the euro or the CHF (which also is partially pegged to the euro), so that those countries do not really have all that freedom in terms of monetary policy.

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Mao Cheng Ji 10.01.13 at 1:26 pm

“I believe that the main reason that the german keep down wages is indeed that they fear competition from eastern europe”

How does Germany “keep down wages”? Are the wages controlled by the Bundestag? And how does it do any of these other things: decimates its domestic sector, inflates value added in exports, etc.?

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Hector_St_Clare 10.01.13 at 1:31 pm

Re: Of course we need more democracy (among other things), which means removing power from the ruling – capitalist – class inside and outside formal political institutions.

The question is whether a semi-unified Europe makes it easier or harder to take away power from the capitalist class. Obviously, the capitalist class in a large political entity is going to try to pool its resources and defend itself more effectively, and the working class is going to do the same. I’m not sure whether a unified Europe tips the balance one way or another, but I do think the far left would have a better chance of taking power in Greece, for example, and overturning the capitalist class once and for all, if there was no European Union.

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Random Lurker 10.01.13 at 2:28 pm

@Mao
“How does Germany “keep down wages”? Are the wages controlled by the Bundestag?”
Actually, yes, though indirectly, by keeping a relatively low deficit and by preventing inflationary policy from the ECB.
However Germany also “liberalized” the labour market by lowering unemployment benefits and, as far as I know, by adopting “mini” contracts that give the worker much less security (something like this also happened in Italy, so maybe I’m projecting italian policies on Germany, of which I know few).
I would certainly welcome some

“And how does it do any of these other things: decimates its domestic sector, inflates value added in exports”
This is only one thing and in fact is caused by the natural evolution of eastern europe industry.
For example, Volkswagen is attracted by the lower labor costs in eastern Europe, and buy from there low tech parts, that are cheaper there. Then assemblates tose low tech parts in germany, creating high tech cars. The car is then sold somewhere else (say in Italy, or in Germany) where wages are higher.
Since the final price of the car doesn’t change, the slice of profit that goes into german Volkswagen offices is higer, and this is registered as “higer productivity”.
Eastern Europe producers cannot pocket this price differential because they are smaller, and they can’t replicate all of Vw technologies.
Low tech industries in germany, on the other hand, lose to the competition from eastern Europe.
Note that in this context “high tech” and “low tech” just mean “cannot be replicated by developing economies” and “can be replicated by developing economies”; in other words, it is precisely the fact that eastern Europe countries can produce a certain good for cheap that make that good a low added value, low tech one.

This is obviously a very advantageous situation for Germany, and herr Sinn is an ass when he says that this is a problem (apparently he is a right winger that just wants an excuse to adopt wage-busting laws).

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Bruce Wilder 10.01.13 at 2:45 pm

All the talk of mercantilism, exports and trade competitiveness mistakes the case completely. This Euro crisis isn’t about goods; this is about money. This isn’t about exports; this is about debt and risk. And, this isn’t about the prestige of a manufacturing sector; this is about destroying the institutions of a welfare state.

The whole Euro-area has swung into trade surplus as a result of the prolonged crisis, a surplus that more than rivals China’s, and it may well crash one or more of the unwary BRICs. But, the trade effects are the wagging tail, not the dog. It is not the needs of the manufacturing sectors, which have driven this catastrophe, it is the greed of the financial sector. The language of mercantilism — of such economic nonsense as “trade competitiveness” — is misleading and useless.

The core problem is financial, and it is critically important, if we are to understand what is going on, to focus our analysis on the financial: follow the money!

If I were to tell a simple story like the one Chaz has spun out, the core wouldn’t be wages, it would be money savings, the vast accumulation of which can, in turn, weigh down heavily on both trade and financial flows.

In the cargo cult economics of conservative libertarians, money is always scarce. Where is the money to come from for your Keynesian spending? they ask, plaintively. The root of all evil is the unfunded entitlement, the unsustainable socialist promise. Thus, we must have austerity; austerity must be good for us. And, the neoliberal confidence in trade flows and devaluation is just acquiescence.

Here’s the thing about money savings: they are not scarce. The perennial problem of a banking system is to contain them, and prevent their spilling out into negative-sum toxic “investments”. The Euro system did a really lousy job of coping with the accumulation of saving and preventing such bad investment, just as the American banking system had its barriers de-regulated away.

The “savings glut” became a global problem at the turn of the century, and the insistence of the policy authorities on continual floods of liquidity, while largely ignoring the need for financial regulation (and prosecutions!) means that it grinds down upon us without relief.

If you want to be fanciful about the technological opportunities of the so-called real economy for productive investment, you might notice that we are in a phase of disinvestment: the “real” capital required for a vast range of activities, driven by the advance of communication and commuting, has been diminishing, rapidly.

There’s nothing you can do with purely financial wealth — with money and financial claims, divorced from the ownership of productive capital assets, such as machinery or houses — but provide insurance. And, there’s no way to sell insurance without risk — in fact, if you want to sell a lot of insurance, you need to find schemes that multiply risks, and eliminate alternative sources of insurance — say, public or social insurance.

Make a lot of bad loans, and use complex schemes (derivatives!) to make sure you profit from disaster; grab control of governments, and make governments convert your toxic assets into full faith and credit instruments, funded by taxes.

This is the world we live in. This is the world of the Euro. (And, the dollar . . . and, the yen and yuan.) In some important ways, it is a world that makes the Austrians (the economists, not the people) look smarter than they’ve looked in a long time. It is a world of rampant and destructive financialization, in which everything is being transformed by creative usury runamok, and the distribution of income is concentrated into very few hands, and debt peonage becomes the new normal.

Democratic government and popular politics has to be dominated by the financial rentiers, and so it is. Crises must be fomented, both to drive the demand for financial insurance, and to process the inevitable collapse of toxic assets as they come due. It is a crazy way to run the world, except for the very few, who profit by it. We have to wake up, and see it for what it is, if we are to save ourselves.

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William Timberman 10.01.13 at 3:09 pm

Bruce Wilder @ 99

And yet here, via Brad BeLong, we have Alex Tabarrok attacking David Graeber for suggesting that we’re not getting our money’s worth. Economically speaking, Tabarrok may have the right of it, but he’s missing Graeber’s deeper point altogether. Which is, or so it seems to me, a corollary to the point you’re making here, i.e., that these vaunted financial innovation thingies the 1% is so proud of amount to little more than a half-dozen or so spiffy new ways to know the price of everything and the value of nothing.

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William Timberman 10.01.13 at 3:20 pm

DeLong. My apologies.

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Mao Cheng Ji 10.01.13 at 3:52 pm

“Actually, yes, though indirectly, by keeping a relatively low deficit and by preventing inflationary policy from the ECB.”

So, if only they run a higher deficit, everyone will get a raise? how?
Granted, if inflation gets higher, the wages will rise. But will the real, inflation-adjusted wages rise? Why?

It seems to me, real wages rise if either 1. you have full employment or 2. the labor demands higher wages (strikes, riots).

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Bruce Wilder 10.01.13 at 6:50 pm

Alex Tabarrok is not one of my favorite people, and the marginal revolution in economics — the intellectual development, not the blog — was a mind-numbing catastrophe. Tabarrok talks of diamonds and water and marginal value in markets, but what determines most people’s income is their position in a hierarchy.

Today, I took my pet dogs to the vet. A trip to the vet, in the last 10 or 15 years, has become a major financial hazard, and it isn’t because vet services have increased in marginal value; it is because of the impact of silly financial schemes for pet insurance and financing expensive surgeries and the like. Much the same thing happens at the dentist; he’s got a plan to allow you to finance that root canal or bridge or even cosmetic repair. And, the crazy thing is that vets and dentists are not notably richer.

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Chaz 10.01.13 at 8:27 pm

Mao,

Running a higher deficit stimulates domestic demand. More government purchases, more consumer purchasing power, I’m sure you know the drill. Higher domestic demand stimulates employment. Need more staff to serve all the customers. That gets you to/closer to full employment, at which point workers have more jobs open to them and less fear of unemployment. More security for workers means they’re free to demand higher wages with or without strikes. If businesses are really short on labor (to the point that they are missing good business opportunities) they’ll also bid against each other with higher wages to attract workers.

Specifically in Germany I read several years back that, when they had ~10% unemployment and were scared of low wage competition from eastern Europe, the big industrial unions “cooperated” with the manufacturers to hold down wages and increase working hours to “keep factories from moving abroad”. I read that in the Economist and I have appropriately scare-quoted it, but Germany does have very centralized sectoral wage agreements to facilitate that. That was under Schroeder.

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Mao Cheng Ji 10.02.13 at 7:19 am

Chaz,
I’m not an economist, but I see that in your first paragraph you’re describing the Keynesian mechanism. But in the classical model, by the time you’re approaching full employment you’d have already switched to taxation/surplus.
In any case, Germany is only a part of the European economy, an economy with free flow of capital, goods, and labor. It was mentioned above that Germany is export-oriented part, like, say, Detroit in the US. You will not affect much demand for the Buicks by municipal spending in Detroit. If you get close to full employment, workers will migrate from Chicago. And Germany does not print its own currency, so at some (and not too distant) point you’ll have to stop spending and start taxing.

Your second paragraph describes a garden variety collective bargaining. The labor wants to maximize wages (and other benefits), while avoiding being crushed by the competition. I don’t see any conspiratorial behavior in it. And still wages in Germany are much higher than eastern Europe. There are various reasons, I’m sure, including the fact that factories are already in Germany, which is a high entry barrier for Poland. And, for that matter, for the eastern part of Germany. Also, I think the German government is good at providing education and vocational training, maintaining order, etc. That matter, when you’re deciding where to open your business.

I’ll note that when their car companies need to expand, build a new factory, they do go to eastern Europe now. So there. Perhaps it’s just a matter of time.

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Peter T 10.02.13 at 11:11 am

I found that deLong posted – presumably approvingly – the Tabarrok nonsense interesting.

i mean, i the person approving of Tabarrok’s simplicities the same Brad deLong who advocates a higher degree of unionism (which must surely bend wages away from those decreed by supply and demand), the same person who notes that whole sectors of the US economy measurably fail to create value (citing finance and medical administration), the same person who is surely familiar with Joan Robinson’s argument (cogently made, usually ignored, but not actually refuted) that the ‘marginal value’ of labour in any complex production process is essentially unknowable, and that to use such notions to justify any given structure of compensation is simply circular reasoning in a vacuum?

I can accept that Tabarrok is unteachable on such matters, but maybe Brad deLong needs to sit quietly in a corner and let all sides of his head come to agreement.

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Chaz 10.02.13 at 7:17 pm

@Mao,

“by the time you’re approaching full employment you’d have already switched to taxation/surplus”

That’s simply not true. Think of the US during World War II: massive war spending caused full employment and huge deficits. Without the deficit spending unemployment would have been very high (Great Depression).

“In any case, Germany is only a part of the European economy, an economy with free flow of capital, goods, and labor.”

Right. Expansionary policy and increased consumption in Germany would not only push up German wages and standard of living, it would greatly increase their imports from southern Europe. This would go a long way to supporting southern European employment and balancing the trade disparities. If it kept more capital at home in Germany that would also be beneficial because southern Europe was oversaturated with capital.

“It was mentioned above that Germany is export-oriented part, like, say, Detroit in the US. You will not affect much demand for the Buicks by municipal spending in Detroit.”

You’re oversimplifying. Germany is most famous for cars and machinery, but they make tons of other stuff. They have sausage factories and bars and travel agents. Most Germans work in the domestic service sector just like any other modern country. A few people will buy Volkswagens and that’s fine too. But even better, when they go to consume more they can also buy olive oil and feta cheese and trips to the Parthenon, and that helps to close up the massive and destructive trade surplus with southern Europe.

“The labor wants to maximize wages (and other benefits), while avoiding being crushed by the competition.”

The labor is desperate to preserve 100% of their factory jobs and not have the slightest risk of losing them*, because there are no good alternative service sector jobs available because the government pursues contractionary policies. If other jobs were available most would still want to stay in the factories, but they would be less desperate and thus willing to demand higher wages even if that brought a bit more risk years down the road.

*There is no obvious wage level at which a factory will stay or close, even though management likes to pretend there is to intimidate workers. Management might have a cutoff number in mind but that would be secret and highly sensitive to estimates of lots of other factors and to the current CEO’s peculiar personal biases. The unions do not truly know that they’ll lose jobs above a certain wage level, they just feel that there is more risk of it. The risk is also many years down the road because it takes time to build factories and the existing factory is a sunk cost.

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Mao Cheng Ji 10.02.13 at 8:10 pm

Chaz,
I disagree, but all this is highly hypothetical and thus irrelevant. If I could oversimplify again: the unions do what the labor wants, and the government does what the middle-class and the rich want, and that is not going to change.

This, however: “it takes time to build factories and the existing factory is a sunk cost” is what I believe the crux of it. West Germany has industrial capacity. You don’t go to Portugal to build a factory when the capacity exists in Germany: too much investment. That’s the imbalance.

Or maybe I’m completely wrong about all this.

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