Like PIIGS to the slaughter

http://mpettis.com/2010/05/are-you-ready-for-the-united-states-of-germany/

“Spain will almost certainly have to choose. Either it gives up fiscal sovereignty – including, most importantly, taxation authority – to Brussels, or it gives up the euro. The alternative, several years of difficult adjustment borne mostly by workers, is politically unlikely.”

Hardly an endorsement of dictatorship but its the first mention (in light of recent evens) I’ve heard of the idea of a country being forced by economic contingency to surrender aspects of democratic mandate.

When terrorists hold hostages, everybody thinks it is obvious to avoid rewarding that behaviour. But when speculation drives whole countries into poverty, the set opinion, promoted by most of the press, is that we should beg the speculators for forgiveness if they do not get their just reward.

It’s as unthinkable nowadays that one would be able to escape the wrath of the market without sacrifices as it was unthinkable one would escape the wrath of Gods.

Unfortunately, what I said is simply true.

That sounds right about Owen. I’m sorry I missed him sitting next to Steel. A dwarf who thought he was a giant beside a giant who pretended to be a dwarf (that’s how it seemed when they worked together, and Spitting Image played beautifully into Steel’s hands).

9: No, the Baltic states and Greece are what is dramatic.

I think the New Model of neo-liberal hegemony presumes enough corruption and co-option of elites, with slightly more inclusion and broadening, that the illusion pf democracy will be maintained. The masses will be distracted with identity politics.

I wouldn’t be terribly surprised either.

I don’t see why authoritarian solutions are going to even be suggested – except by nutters who long for the breakdown of social order, of which there are some both right and left. In Greece, and elsewhere no doubt, payments to individuals that are unsustainable will be cut. If they’re not, lending will dry up, and that way lies ruin. It’s not like said individuals will be able to break into the national bank and take more money. Misery will be widely shared, come what protest may. If such protest actually turns really violent, it will be met with escalating force – but that is always and everywhere the case, unless a state has already collapsed and lost its Weberian monopoly. And if that happens, public-sector pensioners, for example, will have a lot more to worry about than a delayed retirement-date.

Utisz @1: Nobody’s mentioned it that I noticed, but opening the bond markets at 1am struck me as a pretty blatant attempt to put a thumb on the scales in the event of a hung parliament.

Alex, re Greece: “Misery will be widely shared, come what protest may.”

That’s actually true – misery will be *widely* shared – but not *deeply*; the elites will be safely above the squeeze zone.

I’m expecting a lot of this in the US press. It’ll go nicely with the mythology of ACORN as national election stealer – Democratic failure to stop Republican crimes will become evidence that we must give up this or that to stop those dangerous Dems. Actual Democratic culpability when it comes to financial unaccountability will just make it an easier sell.

@20: it’s rather likely that the Greek ‘elite’ of tax-evading mansion-owners will have to be squeezed, if a practical solution to the long-term problems of the country is to be found. But first, of course, the nation’s public servants will have to be persuaded to stop taking bribes from them to ignore their legal responsibilities. Let’s not forget that Greece wouldn’t be anywhere near this situation if politicians, some of whom claimed to be socialists, had not lied through their teeth for years on end about the state of their public finances.

And bob, what’s this “liberal passivity and fear” thing? I mean, bring on the total collapse of the existing order, if you want. I’ve got my shotgun and 6 months’ stockpile of canned food, have you? Or do you expect the Supreme Soviet to be able to restore imports before we’re eating dogs and cats? This island has over 60 million people on it; most of them have no independent resources, or skills at doing anything except playing the part in the capitalist machine they play now. Nearly half of them are children, pensioners, people with various disabilities, etc, who one way or the other are dependants. The transition to ANY other kind of social and political order would be traumatic even if done slowly and consensually. You may ‘bravely’ embrace the idea of a conflagration to bring on the new order, but I think you just haven’t thought it through. Or maybe I’m overestimating your implications, and you just mean that we should embrace a more rigorous regime of regulation of international banking?

“If I am not mistaken, this is the only recession in the 20 century in the US in during which the top 1% has increased its income share. ”

This is an interesting statistic. Do you have a reference?

I would be surprised to read The Economist saying such things. A few years ago it backed Prodi over Berlusconi exactly because it thought Berlusconi would have too much power being both PM and head of his conglomerate, despite Berlusconi being nominally center-right.

Without for a minute supporting authoritarianism, the following seems to me plausible: democracies, for all their other virtues, aren’t that good at accepting short-term sacrifices for long-term gains. Democratic governments depend on voters who, being human, tend to be myopic, or to care more about benefits and harms in the present or near future than ones farther away. So the governments also tend to be myopic in their policy choices. (Look at the great job they’re doing on climate change.)

Debt reduction is a policy that, when it’s justified, involves short-term pain for long-term gain, so democratic governments may have difficulty implementing it even when it’s the right thing to do. That’s not to say authoritarian governments are better here; generals too can be myopic. But I don’t think the FT, Economist, or whoever is being irresponsible in pointing to a specific worry about whether democratic governments can make tough choices.

For my British friends about to enjoy a minority government: my reading of the Canadian experience, where we’ve had lots of minority governments — and some have been terrific — is that they can be very suspect on this point. Both the governing party and its junior partner tend to think there will be another election soon and gear themselves to that, which often involves turning on the spigots of short-term spending and avoiding anything unpopular. Certainly the government that eliminated Canada’s federal deficit and significantly reduced the national debt in the 1990s — which has helped the country come through the current recession better than any other in the OECD — was one with a huge parliamentary majority and no need to call another election for five years.

To repeat, though, this isn’t an argument for authoritarianism. The other virtues of democracy may far outweigh its tendency to myopia. It’s just that there is, I think, that tendency.

31.2:Good effing grief

Michael Hudson

“MH: That’s right. Their assumption is all the debts have to be paid. And they have to be paid by labor and industry. The financial class will use these payments to lend out even more credit to labor and industry, making them even more indebted, causing yet further collapse, requiring larger bailouts, requiring yet further taxes to carry the “socialization” (I should say, feudalization) of bad financial-sector debts.

So the basic modus operandi is self-destructive and will shrink economies. You’re seeing this happening in Latvia and Iceland. Icelandic mothers are telling their kids, “You’d better emigrate because there aren’t going to be more jobs here for the next generation.” Latvian labor has been leaving for the last five years.”

More Hudson from 54. The interview is long and covers the terroitory comprehensively

“It used to take an army of occupation to do this, but the dream today is to do this financially, by promoting a neoliberal junk economics that countries adopt voluntarily, and indeed even by democratic vote. And that is where the seeds of a looming geopolitical problem are developing. It is much harder to wipe out official government debts than private ones. Debts to private banks are wiped out when their debtors default.

Fortunately, an excellent argument is open to debtor countries: “Tell us how solving the problem in your way will enable us to achieve economic balance, without sacrificing our countries to foreign ownership and control, without forcing our labor to emigrate, without shortening our life spans and destroying civil society.”

Europe has a killing reply. “We don’t care.”

dsquared at 31 says:”I don’t care.”

The EU has no monopoly on democratic deficits: the low political participation rate in American elections is a pretty good indication of the alienation of the population from the government. It isn’t just the teabaggers who don’t feel that it is their government. The normal bitch about genuine democracy is that the people will raid the treasury, but over the last several decades we’ve seen that the real pattern is quite different. Oligarchs are quite willing to run up huge deficits in order to bribe the population into passivity: the nearest thing we’ve had to a democratic government in the last few decades was also the last one to embrace something like responsibility and it wasn’t that much like responsibility.

A genuinely popular government can legitimately ask for sacrifices from the people at large; but it’s hard to imagine such a thing today , especially since there is no credible organized opposition to the entrenched combine of pluto- and technocrats—who knows what to do after you’ve seized the acropolis? At this point the very idea of an alternative is apparently beyond our powers of imagination as witness the flaccid rhetoric of academic lefties. Things are not necessarily better for the elites, though. The Reagan solution, i.e. running up the national credit card balance, is no longer available and the talented political monsters necessary for an authoritarian response aren’t obviously available. Ought to be interesting as standards of living decline in many countries.

41:Doesn’t quite work. Capital flight. The elites are playing the arbitrage between the mobility of capital (nearly infinite and instantaneous) and the relative immobility of labor and the social institutions that protect and empower labor.

What is really needed is for Greece to determine German (countercyclical) fiscal policy.

41- Wow, that sounds awfully … German.

42- Indeed which is why the first to be done is slow down the movement of capital e.g. by correlating it with movement of capital owners; including the cutting it up bit ;-)

Well, the Pinochet coup happened a good ten years before I was born, so I might lack some familiarity with the bad old days, but I’d bet quite a bit the Economist doesn’t do any such thing. As Josh Holmes above points out, they have been regularly anti-Berlusconi, and they were also one of the few right-wing types to oppose Uribe’s attempts to amend Colombia’s constitution and go for another term. Unless “‘temporary’ authoritarian solutions” just means “something unpopular,” there is no way today’s Economist comes out in favor. Other right-wing commentators? Different story.

democracies, for all their other virtues, aren’t that good at accepting short-term sacrifices for long-term gains.

I don’t think there’s much evidence that this is the case in practice. Democracies make the most extraordinary sacrifices. The USA sent millions of its people to die in a war in Europe that couldn’t possibly have threatened its short term interests. Israel has all sorts of flaws, but it’s the one state in the Middle East that doesn’t sacrifice long term interests for short term gains.

I think I’d even argue that this is the wrong way round. Dictatorships, because they lack legitimacy, are more worried about being overthrown and more inclined to take short termist measures. Certainly if you pick your favourite out of a wide variety of economic indicators, it’s not obvious that military dictatorships in general have a good track record of paying their external debts and executing noninflationary monetary policy. Pinochet was very unusual in this regard.

I make you a deal: Germany won’t pay for anybody else’s mess anymore and in return they will cease to demand a say over anybody else’s fiscal policy.

Well thanks for that, but the deal has actually been done via the treaty of Rome, the formation of the EU and the creation of the EMU, and the position taken was diametrically opposite to the one you suggest.

@28 Berlusconi and the Italian right in general is very close to the rich family clans which stand in opposition to the Anglo American finance industry. When the Italian left wins and starts to break the power of the family clans through better minority shareholder protection and the like, which i think they did to some extend when they were in power, the fund managers in London will profit a lot.

Whoopsy doodle, I forgot the link:
http://www.economist.com/displaystory.cfm?story_id=11674052

It’s very gratifying to see all these lectures about the contrast between German fiscal rectitude and other euro members’ spendthrift ways, in light of the BBC’s story on regional elections in North Rhine-Westphalia:

The campaign has been overshadowed by the government’s decision to contribute to a huge rescue package for Greece.

Meanwhile many cities in NRW are on the brink of bankruptcy.
…
Our correspondent says local councils in NRW are sinking into debt, with rising kindergarten fees, and libraries and swimming-pools closing. She adds that in Wuppertal, even the theatre is under threat.

So opposition to the bailout is in part rooted in the fact that the German government is letting places like North Rhine-Westphalia swirl down the drain, all while posturing about how much more responsible their deflationary anti-Keynesian policies are than all those nations with “red ink.” Meanwhile, international creditors must be rescued on the backs of poor Germans and Greeks. Good look with that Tory-LibDem coalition, UK. You’re going to need it. (And no, given the likely electoral results in November, and the existing fevered zombie economics rhetoric about “deficit reduction” a la 1937, those of us in the US have no room to be smug. Consider it schadenfreude, which seems especially appropriate.)

ajay@27 I’m perfectly well aware of when Murdoch purchased the Times. Perhaps you think that, post-acquisition, it became a more reliable backer of democracy.

Well, you obviously weren’t aware, otherwise you wouldn’t have cited it as an example of the Murdoch press opposing democracy in 1973, at a time when it was not, in fact, a Murdoch paper. If you have an example of a Murdoch paper backing the Pinochet coup in 1973, you should have cited it.

I’m with 46. There will be no editorial in the Economist, the Financial Times, the Times, or any UK broadsheet calling for the overthrow of a democratic European government and its replacement by a dictatorship, on the basis that a dictatorship will be better at assuring financial or economic stability, not in Italy, Greece, Portugal or anywhere else, not soon, not this month, not this year.
If you’d like to bet, you can pay £50 to Cancer Research UK on `31 December 2010, when you lose.

“Certainly if you pick your favourite out of a wide variety of economic indicators, it’s not obvious that military dictatorships in general have a good track record of paying their external debts and executing noninflationary monetary policy. Pinochet was very unusual in this regard.”

IIRC Pinochet wasn’t successful at all with overall economic growth – he’s had Chicago rooting for him, and doing his PR, and they tend to have the economics professoriate kissing their *sses.

I’d second the notion that dictatorships have a lousy track record in economics, for obvious reasons. And if they’re reasonably secure in local power, they might decide to ‘renegotiate’ the agreements, secure in the knowledge that they won’t be overthrown in a coup, since they control the only forces able to do that.

You don’t read The Economist, do you?
Did you know they backed Obama’s recent Health Care Bill?
They are generally positive towards markets (of course) and couple this with an intelligent balanced social and political outlook. They are a million miles from the ignorant American right wing.

the deal has actually been done via the treaty of Rome, the formation of the EU and the creation of the EMU, and the position taken was diametrically opposite to the one you suggest.

Well, it should be beyond obvious that I wasn’t seriously suggesting Germany shouldn’t live up to its treaty obligations. I’m just tired of people painting those countries that foot the bill as bullies, while the one’s that caused this whole mess are exonerated by default. If you want to hold banks to account, why go easy on governments. As for the poor Greeks, yes they will be having a hard time, but so will the citizens of countries that bail them out, who are dependent on the funds that will get diverted to sort out this thing – no free lunch.

And where exactly does the Treaty of Rome or any other such document provide us with clear instructions on how to deal with such crisis or forbid Germany to throw its weight around – oh, right, nowhere.

64: so “here” didn’t mean “the Economist and the Murdoch press giving up on democracy”, it meant… something else. OK then.

Still confident that, say, Dan Hannan, won’t write something like that?

For all I know, he has already. But not in the Economist or any UK broadsheet. What Dan Hannan writes on his blog, or his newsletter, or his letters to Santa is not relevant.

If you like, I’ll amend the bet: there will be no op-ed published this year in any UK broadsheet, of whatever ownership, or in the Economist (which doesn’t run op-eds anyway) which advocates a “temporary authoritarian solution” (or indeed a permanent one) as a response to a purported failure of democracy with regard to fiscal or economic problems in any democratic European state.
£50. Cancer Research UK.

Writing as someone I’m sure you guys would consider “right-wing” I’m sure some moron or other will call for suspension of democracy.

The next time I see somebody talking about “Greek improvidence” without referring to the improvidence of the financial institutions that turned it into a crisis, I shall make like Violet Elizabeth Bott.

Talking about the Greeks, as in just the Greeks, is an easy and not particularly honest way of avoiding various important issues, these being that there would be no Greek crisis without the general economic crisis, that there is no entity called “the Greeks” who caused even their local crisis, and that the crisis is going to be paid for, in very painful manner, not by “the Greeks” but, by and large, by those Greeks who are least able to afford to pay for it.

The next time I see somebody talking about “Greek improvidence” without referring to the improvidence of the financial institutions that turned it into a crisis, I shall make like Violet Elizabeth Bott.

Indeed. In the US, the comparable version was to blame the Community Reinvestment Act for forcing banks to lend money to unqualified minority borrowers, to blame Fannie Mae and Freddie Mac for causing the meltdown by belatedly adopting the profliglate practices of other lenders, etc, etc. Never mind that all of this is objectively false; the important thing is to make it the responsibility of low-income people who have had their homes foreclosed on, rather than the financial institutions who kept blowing more gas into the real estate bubble while taking their clients’ money to the CDO / CDS casino.

Whatever …

Dr. Bertram:

Sorry to be annoying, but you clearly included The Economist (“and” being conjunctive and all that) as one of those who will give up on democracy. This seems, in their current incarnation, to be pretty implausible. Are you walking back from that claim (and just discussing other British papers)? Is it now that either the Economist or the Murdoch press or similar rags that will do so? It seems your (quite plausible for all I know, I’m quite ignorant of other British publications) claim that someone will go in for “firm government” could be right, but the bit about the Economist seems a like a slur.

67: so your new position is now, basically, that some time, maybe this year or maybe later, someone will write a letter to the Times or a Comment is Free post speculating – without necessarily advocating it – that an authoritarian approach of some sort might have some fiscal advantages in some unspecified country, maybe in Europe or maybe elsewhere.

And now the Spectator and the Sun are in there as well! This prediction just goes on evolving, doesn’t it?

The Economist and, no, wait, not “and”, or the Murdoch press, oh, or maybe some publication owned by the Barclay brothers, or a website associated with one of them, will publish op-eds, or maybe just one op-ed, or maybe a website article, or a blog post, this year, or soon, or next year anyway, completely giving up on democracy, no, wait, calling for an authoritarian takeover, no, wait, maybe not calling for one as much as raising the possibility more in sorrow, or just speculating about it, or pointing out that it might have some fiscal advantages, in a European country, or maybe elsewhere.

Chris Bertram:

“I can’t see how you reasonably object the blog posts in the case where the blog is hosted by the [publication]”

I second this; any publication which doesn’t allow random people to blog on their site is treating bloggers as columnists (albeit second-class, and probably less-paid).
The comments I’ve seen from Bloomberg and other places about somebody just being a blogger on their site are trying to have their cake and eat it too.

That’s what I’d mean; things which the publication endorses.

OT, but I feel obliged to express my happiness with the recent direction of CT in general

You may enjoy Bryan Caplan’s Libertarian Purity Test which I found at Roy Edroso’s place.

http://www.bcaplan.com/cgi-bin/purity.cgi

Lemuel — SORRY THAT I MISSED YOUR COMMENT.

Even assuming that Dani Rodrik is correct (without reading in full, I’m going to take a wild guess that the main argument is based on cross-border regulatory arbitrage and capital flight), isn’t it obvious that the institution that gave us World War I is the one to scrap? Nation-states exist in order to justify discrimination against people born on the wrong side of a border — and that’s the relatively benign ones that aren’t actively exalting one ethnic group within their nation over others.

Although you could make an argument that a return to capital controls and moderate trade barriers (i.e. enough to prevent sweatshops from outcompeting domestic industry on price) would be preferable, I guess. At least it would have less drastic upheaval costs.

But even if you accept the trilemma argument, IMO it’s clear that democracy is one of the least, if not *the* least expendable of the three allegedly inconsistent concepts. (What profit all the wealth of globalization if you’re living in a high-tech dictatorship, etc.)