niamh

Further to Chris’s post, other recent losses merit a mention too – coincidentally, two legendary banjo players died within a couple of weeks of each other recently.

One is Barney McKenna, last surviving member of The Dubliners, whose quirky turns of phrase were almost as famous as his tenor banjo playing, the instrument which he introduced into Irish traditional music.

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The other is Earl Scruggs, champion of the three-finger banjo playing style in bluegrass music (born in North Carolina as it happens, not far from where I am at present).

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These two musical traditions are brought together every year in a festival in Ireland. And not coincidentally, for as Irish musician and broadcaster Philip King has documented in his TV series Bringing It All Back Home, they share common roots.

Do you know what the ECB does? It fights the Inflation Monster! Which used to rampage around in some indeterminate quasi-Dickensian era (evidently standing in for ‘the past’). Hilarious video is here.

Because ‘Lower interest rates generally spur economic activity, while higher interest rates slow inflation down’.

Now I know that these materials are produced for educational purposes and they aren’t going to get too complicated, and the mandate of the ECB is inflation-targeting. But reading them, you might be left wondering where this economic activity was to come from, what generated demand, how growth comes about. You wouldn’t easily pick up that interest rates are currently at extraordinarily low levels in the midst of a savage economic downturn (recession in Ireland, Greece, Spain, and Portugal), or that there are big debates about how monetary and fiscal policy link together. Nor would you get much insight into the problems entailed by having a currency union with a central bank that can’t pool lending risks or act as lender of last resort to governments, but which has taken on this role for the private sector through an extraordinary surge in liquidity provision, since keeping banks solvent is less politically controversial.

Furthermore this seems to me to play once again into the view that ‘economics’ is technical and has right answers, while ‘politics’ is emotive and contested, so students of the EU don’t have to talk about it.

Q: ‘What is the meaning of life, the universe and everything?’
A:  ‘<2%’.

It seems – it is – a very long time since Helmut Schmidt famously stated that ‘five percent inflation is easier to bear than five percent unemployment.’

John Lanchester has an interesting and thoughtful essay on the continuing relevance of many of Marx’s ideas in the current issue of the London Review of Books. He calls himself an ’empiricist’, meaning someone who takes seriously evidence about how the world as we know it works. He notes that Marx would consider his perspective ‘philosophically and politically entirely invalid’. But he argues that ‘Marx was extraordinarily prescient. He really did have the most astonishing insight into the nature and trajectory and direction of capitalism’. I’m with Lanchester on all these points. His novel Capital  (set in London) is one of the most enjoyable of the recent crop of crisis fiction, and his non-fiction Whoops! is genuinely informative. Here are some of his reflections – there is much  more in the essay itself:

Three aspects which particularly stand out here are the tribute he pays to the productive capacity of capitalism, which far exceeds that of any other political-economic system we’ve ever seen; the remaking of social order which accompanies that; and capitalism’s inherent tendency for crisis, for cycles of boom and bust…

We have at the moment this monstrous hybrid, state capitalism – a term which used to be a favourite of the Socialist Workers Party in describing the Soviet Union, and which only a few weeks ago was on the cover of the Economist to describe the current economic condition of most of the world. This is a parody of economic order, in which the general public bears all the risks and the financial sector takes all the rewards – an extraordinarily pure form of what used to be called ‘socialism for the rich’. But ‘socialism for the rich’ was supposed to be a joke. The truth is that it is now genuinely the way the global economy is working…

He foresaw the development of a proletariat who did most of the world’s work and a bourgeoisie who in effect owned the fruits of their labour. The fact of the proletariat being in the developing world, in effect shoved out of sight of the Western bourgeoisie, does nothing to disprove that picture – an ‘external proletariat’, it’s sometimes called…

The most obvious mistake in his version of the world is to do with class. There is something like a classic Marxian proletariat dispersed through the world. But Marx foresaw that this proletariat would be an increasingly centralised and organised force: indeed, this was one of the reasons it would prove so dangerous to capitalism…  But there is no organised global conflict between the classes; there is no organised global proletariat. There’s nothing even close. The proletariat is queuing to get into Foxconn, not to organise strikes there…

There are lots of different capitalisms and it’s not clear that a single analysis which embraces all of them as if they were a single phenomenon can be valid…Pretty much everyone lives longer and enjoys better health. If that is true, can it be true that capitalism consistently and reliably immiserates? Can it be true that the system is destructive, if people who live under it quite simply live longer?

He saw how capitalism would transform the surface of the planet and impact on the life of every single person alive. There is, however, a crack or flaw close to the heart of his analysis. Marx saw the two fundamental poles of economic, and social and political, life as labour and nature. He didn’t see these two things as static; he used the metaphor of a metabolism to describe the way our labour shapes the world and we in turn are shaped by the world we have made. So the two poles of labour and nature don’t stay fixed. But what Marx doesn’t allow for is the fact that nature’s resources are finite…

As Marx wrote, towards the end of the first volume of Capital, ‘man is distinguished from all other animals by the limitless and flexible nature of his needs.’ Limitless needs we see all around us and they’ve brought us to where we are, but we’re going to have to work on the flexible part.

I’m currently spending a great semester in the US (at the University of North Carolina at Chapel Hill, a terrific institution with a long and distinguished history – see this! – and excellent academic standing: the very model of the modern public research university; so please don’t cut any more university education spending, NC legislature).

And this has given me an opportunity, among many others that is, to see some US TV close-up…

One thing that is striking, compared with European TV, is what is advertised and how. In particular,  I don’t think you see ads for prescription medicines in Europe, certainly not in Ireland or the UK. They seem to be all over American TV.

I am particularly struck by the way these ads are made. The visuals  typically show someone having a happy and trouble-free life while using these drugs, overlaid with soothing music and a reassuringly bland voice-over. But clearly the US FDA requires advertisers to include all the small print in their ads as well.

Do you read all the known downsides of the medicines you take? Don’t. The list of potential side-effects is usually pretty hair-raising, and hopefully most people won’t encounter them most of the time. So the voice-over has to balance the putative benefits of taking these drugs with all these possible side-effects. But if you actually listened right through to the end, I imagine the last thing you’d want to do is to expose yourself to even a small risk of any of them. Especially when there is another stream of ads by lawyers offering to take up your case and get you compensation for a whole range of damages caused by taking prescription medicines.

So my question is this. Clearly the advertisers think it’s worth running these ads despite the scarifying spoken bits. How does this work? Do they believe that consumers are more impressed by soft-focus pastel visuals and mood-music than by the words? Are consumers more affected by positive visual associations than by the audio information about risk?

We can’t assess the risk rationally ourselves, and I don’t think decision-theory is very helpful here, which is why we rely on regulators and professionals. Yet it seems the advertisers mean us to lobby our doctors to prescribe their brand-name drug. There must be lots of literature on the psychology of advertising that I don’t know about…

I’m just back from a conference in Boston where there was a great deal of discussion about the idea of the ‘social investment welfare state’ which I found really fascinating. Many countries have moved in recent years to go beyond ‘passive’ social transfers and to ‘activate’ their labour force. But there are many different ways of doing this. The interesting thing is that the policies that are the most socially equitable are now turning out to be the most economically effective too. New books (1) by Nathalie Morel, Bruno Palier, and Joakim Palme and by Anton Hemerijck show that the countries that invest heavily in early childhood education, in continuous education opportunity, in high-quality training schemes, and in making it easier for women to take part in the workforce,  have both higher growth and productivity rates and less inequality and poverty. An important part of the package is to have high levels of secure benefits as transition measures when people are not in employment or in training. And it seems we don’t already have to be Sweden or the Netherlands before we can start to do relevant things at all.

However, one of the implications of work in this field is that our standard ways of doing national accounts work against adopting the right priorities. Relevant expenditures are counted as transfer or consumption spending rather than investment spending. So it’s all too easy for governments to cut them back in recessionary times.

Remember Sarkozy’s Commission on the on the Measurement of Economic Performance and Social Progress, prepared by Amartya Sen, Joseph Stiglitz, and others? It opened up the question of what growth is for anyway, and what we count when we measure GDP in ways that prioritized ‘societal well-being, as well as measures of economic, environmental, and social sustainability’. The Institute for New Economic Thinking sponsors lots of interesting initiatives in economic theory and comparative analysis.

In historical terms, we are still in a very early phase of response to the latest global crisis. We don’t yet know if it will prove to be a turning-point in the dominant economic paradigm. Lots of people are starting to do the necessary thinking. They need to get out into the wider political debate.

(1) The first of these book is expensive*, but it should be in paperback edition by summer; the second will be published in the autumn. *Update – the Policy Press website quotes what may be the best price to date.

This is a novel approach to getting the Greeks to do what the international lenders (aka the Troika) want: tell them that not only can they not choose their own prime minister, but if they don’t get their policies right, the eurozone will put their own commissioner in charge of making the decisions. Or else they won’t get the next tranche of their bail-out money.

What is this about? Naturally it’s caused Greek public opinion to explode in fury. The sober-minded middle classes can put up with with a bit of external intervention to break domestic political log-jams. And while the ‘technocratic’ government is trying hard to do what is asked of them, it’s found it difficult to fix the faulty revenue system and to make hard spending cut choices for an economy that is already contracting horribly sharply. But the historical and political insensitivity of the proposal leaves me astonished. Sebastian Dellepiane has reminded me that economists seem to find it all too easy to dispatch politics into the rubbish bin when they are convinced they have the right technical answers – see this amazing piece of finger-wagging to Argentina in 2002.

It seems so obvious both from economic theory and from empirical evidence that what Europe badly needs right now is a policy mix that will generate economic growth and facilitate job creation. The forthcoming EU summit is at least going to talk about this (though I’m not holding my breath). So why the heavy warnings?

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I’ve been thinking about the size of the gap that has opened up between human suffering and politics as usual, which I think makes this crisis unlike anything we’ve had for quite a long time.

Albert Hirschman, in his classic 1970 book, suggested that there are three responses to failure in states, firms, and other organizations: exit, voice, and loyalty. If you are alienated enough, you leave (if you can). You can protest. Or you can stay and put up with it. But these are not mutually exclusive options. You might, for example, use the possibility of exit to amplify the power of protest (he thinks this applies to marriages as well as to states – nothing if not theoretically ambitious). Similarly, you might increase the effectiveness of protest, and delay the need for the exit option, by professions of loyalty.

I’m looking around me at the damage to the Irish social fabric caused by austerity measures to date, and wondering how to think about it, using these categories. Ireland is still a developed economy. But unemployment is now over 14 per cent, half of it is long-term, and it’s worst for young people. The domestic economy is below water, and emigration rates have surged. There are many forms of personal misery – the special needs children who can’t keep up at school because the budget for their personal assistants has been axed, the mental hospital patients who are to be moved into a locked ward for five weeks over Christmas because of staffing shortages, the formerly comfortably-off families seeking help from charities to keep afloat. We can see all the signs that economic activity is faltering – the rash of ‘To Let’ signs on office space, the closing-down sales on high streets and in shopping centres. We listen to the myriad stories told by family and friends of families trapped by unrepayable mortgages; of desperate small businesses running at a loss, hoping their accumulated reserves will buffer them until there is a recovery. We witness the increase in suicide rates, devastating for all affected.

People can put up with austerity for quite some time, if they believe it is necessary and unavoidable, and if they think that there will eventually be some improvement. But it’s becoming clearer that things are more complicated this time round.

We need the loans the Troika disburses, so our government has no choice about the size and scale of the austerity. More fiscal oversight is now on the cards, and it may well be a good idea in its own right. But the ECB is wrongly treating a gathering financial crisis as if were solely due to fiscal imbalances – treating consequence as cause. And our government is chained to the enormous rock of failed bank debt, which the ECB insisted needs to be repaid in full ‘to save the Euro’. Well, we’re sinking fast and it still hasn’t saved the Euro.

So what can we say about Hirschman’s threefold response options?

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Singapore is evidently a great place for shopping, as this photo from a friend shows:

But it is surely a sign of deep recession that gives us bargains like this in Dublin:

The Irish government must be disappointed that the Presidential election, held on 27 October, is now over, with the election of the Labour Party’s candidate Michael D Higgins as the country’s ninth President. We will now start to notice once again that unemployment is over 14%, we are still in the grip of austerity, and a new and even nastier budget is on the way. But for weeks on end, news coverage was dominated by the race for this almost entirely ceremonial office, while the government’s standing in the polls stayed quite high.

Long ago we could depend on having a pretty boring Presidential election contest involving a largely tribal, party-political choice between two elderly men. But the last two Presidents, both women, both lawyers, both academics from Trinity College Dublin (TCD) and both strangely enough called Mary, transformed the office. Mary Robinson and Mary MacAleese adopted big, symbolic, non-party-political themes for their campaigns –women’s empowerment (‘Mná na hÉireann’), outreach to the diaspora, overcoming communal divisions, encouraging civil society organizations.

This year, the election attracted an unprecedented seven candidates. This colourful group included a prominent gay rights activist, a former Eurovision song contest winner, an ex-IRA leader, a poet-politician given to wearing floral ties, and a businessman best known for his role in the Irish version of the reality-TV programme Dragons’ Den (or Shark Tank in the USA).

What’s been especially striking is that several of the leading candidates embodied some issue that has been difficult or traumatic in recent Irish public life. And one after the other, what they had hoped to use as their main selling-point turned out to be their downfall. What follows is probably mostly for Irish political junkies, so I will put the rest below the fold…

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I was just planning to write about Greek prime minister George Papandreou’s announcement today that he plans to hold a referendum on the most recent EU bail-out agreement, when I read Henry’s post. If the referendum were to go ahead (and we can assume Merkel and Sarkozy will try to talk him out of it at the G20 dinner), it would probably be held in January, and who knows what the state of debate might be by then. As Henry notes, this is frightening the markets, as one would have predicted, and France and Germany will want to put this fire out as fast as they can.

But in the meantime, I am particularly struck by Papandreou’s explanation of his decision:

‘We have faith in our citizens, we believe in their judgment and therefore in their decision,’ Mr Papandreou said after rejecting a call for early elections by some socialist politicians. ‘All the country’s political forces should support the [bail-out] agreement. The citizens will do the same once they are fully informed.’

Papandreou has clearly had a pretty awful time of it recently, dealing with Greece’s EU-IMF paymasters against the backdrop of constant strikes and protests. Indeed, while the review group was inspecting the books inside the Finance Ministry recently, the Ministry’s own officials held a noisy protest outside. Papandreou’s parliamentary majority shrank from ten to three in recent months. He faces a leadership challenge from his own party. He clearly hopes to strengthen his own authority by forcing the protesters to back down. But will it work? And if it does, what does it tell us about democracy now?

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Denmark goes to the polls tomorrow, Thursday 14th. For those who incline to the view that elections don’t matter, this one may be particularly interesting, since the centre-left group of parties looks very likely to win. This will not only put the current right-wing government out of power, but will marginalize the far-right Danish People’s Party. The DPP has pulled the framework of debate well to the right in recent years on immigration, rights, welfare, because it’s been pivotal to government-making initiatives since the early 2000s. This time, the Social Democrats have managed to focus debate on economic issues:

Thorning-Schmidt has promised a new era of public investment in welfare, education and infrastructure. The government is preaching austerity and public spending cuts, the general trend across a Europe dominated by the centre-right.

Discourse really matters!

On a completely irrelevant note, but one that I find mildly interesting nonetheless, SD leader Helle Thorning-Schmidt, who’s been SD leader since 2005, is married to a son of Neil Kinnock.

I’ve been wondering when best to air some thoughts about the ongoing public protests in Spain and Greece. The moment never seems right, because there’s always some bigger crisis about to break in European politics. The markets have turned on Italy;  Ireland joins Portugal in the junk box, despite meeting all its targets; European leaders remain divided on what should happen; they may or may not hold yet another summit this week.

But as long as the countries that have been worst hit by crisis are required to impose continuous austerity policies in the present climate, something deeper may be happening to public opinion, to civil society, and to the framework of consent to be ruled in a particular way.

These are not fixed things of course. They shift and evolve in response to the balance of power, the dominant ideas, the credibility of pain- and gain-sharing plans, the institutionalization of compromises through particular policy commitments.

I was in Barcelona recently and saw some of the mass protests in the Plaça de Catalunya, which have been replicated this summer in cities across Spain. Not much was going on around the camp in the daytime, but the place came alive by night, with speeches, singing, dancing, lectures, films, and at the weekends, larger protests against the government’s policies.

This is not a trade union protest; these are not public sector employees. So who are the protesters, the ‘indignatos’ who have been occupying Spanish public spaces? The numbers out on the squares are going down a bit now, but their social networking links are expanding enormously. And in Greece, who are the people taking part in street protests, which now seem to take on an almost ritualized form, parallel to but not the same as public sector strikes? What does it all mean for our understanding of democracy in hard times?

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Portugal’s debt has just been downgraded to junk bond status. Ireland’s efforts to boost investor confidence are under threat; Italy is starting to look wobbly.

European politicians are openly expressing their anger at the three main ratings agencies’ oligopoly, accusing them of attempting to exercise improper influence over policy-making – the timing of their downgrades is ‘not a coincidence’, and they are ‘playing politics, not economics’.

Evidence from Ireland bears this out – there seems to be no consistency in the way the ratings agencies evaluate the decisions of governments in the Eurozone periphery. Governments are put under pressure to engage in ‘orthodox’ fiscal retrenchment, in line with the EU’s excessive deficit procedures, and as required of Greece, Ireland and Portugal in line with their IMF-EU loan programmes. But as soon as they take relevant action, they find their ratings downgraded on the ‘heterodox’ grounds that taking money out of the economy will damage growth potential. Two bodies of economic theory seem to be at work here: ‘expansionary fiscal contraction’ when the aim is to enforce cuts, Keynesian counter-cyclical policy when the objective is to punish excessive contraction. Damned if you do and damned if you don’t.

Take a look at this graph, from the IMF’s May report on Ireland.

Each of the vertical red lines I’ve added represents an ‘orthodox’ fiscal adjustment on the part of the Irish government between February 2009 and December 2010. The balance was about 65% spending cuts and 35% tax increases, entirely consistent with conventional thinking. The profile looks like this:

The overall adjustment between 2008 and2014 is €29.6bn. This would be equivalent to about 19% GDP and 22% GNP in 2010. Yet Ireland’s ratings have been consistently cut.

Very odd.

The recent British royal wedding left me wondering what it was all about. One million people were said to have gathered on the streets of London for the occasion, and media coverage is estimated to have reached some two billion worldwide. Normally I’d be happy with a bemused shrug: ‘has the whole world gone mad?’ (Especially when I realized the staff in my local optician’s in Dublin had come to work dressed as if going to a wedding, to watch the proceedings live online). But massive state-sponsored pageantry can’t be brushed aside so easily, and the impending state visit by Queen Elizabeth to Ireland prompts me to pay it some attention.

It seems to me that we might take four possible views, not all of which are entirely independent of one another. The monarchy and all it entails could be seen as a matter of abstract constitutionalism; as an offshoot of modern celebrity culture; as a focus of political legitimation within Britain; as an immediately recognizable global brand.

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