Back in 2009, I made a bet with Bryan Caplan, with the winning condition for Caplan being that “the average Eurostat harmonised unemployment rate for the EU-15 over the period 2009-18 inclusive should exceed that for the US by at least 1.5 percentage points”, my interpretation being that the difference offsets the effects of the high US rate of incarceration. The EU-15 average rate was slightly below the US rate for 2009, and slightly above the US in 2010, so, for the first two years, the difference averages out to near zero.

If I were looking only at labor markets, I’d be grimly confident at this point. Although the eurozone encompasses some very different economies, overall, eurozone labor markets dealt with the immediate consequences of the global financial crisis relatively well. Meanwhile, the performance of the US labor market has been disastrous. The employment-population ratio has plummeted, back to the levels of 1970 before the large-scale entry of women into the labor market, while long-term unemployment is far above any previous level. Unsurprisingly, this is the time the Republicans have chosen to throw the long-term unemployed off benefits[1]. Meanwhile, the collapse of the housing market has greatly reduced labor mobility. The adverse effects of these developments are likely to persist for years, and the 2010 election outcome forecloses any hope of active policy response.
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I get nostalgic for old Rankin/Bass stop-motion holiday specials. I just watched Jack Frost with the kids. Somehow I never noticed this as a kid myself, but there is some interesting monetary policy involved. The evil Kublai Kraus has taxed away all the ‘real money’ – down to the last kaputnik – from the inhabitants of January Junction. But every winter Jack Frost is responsible for a massive helicopter drop of cash, in effect, in the form of icicles, which the townfolk saw into slices and use as ‘ice coins’. The economy then does ok until spring – not great, mind you. They aren’t rich. But there is a lot more buying and selling in the market. So the town loves Jack. He’s sort of a genius loci, not of a place, but of a part of the calendar: the holiday shopping season. (The story isn’t actually about this.)

Zombie economics is all well and good. But maybe we need a volume on the Economics of Elfland. ‘The Magic of Money’ is a standard theme. It’s mysterious stuff, how it grows and breeds and exerts strange power over the mind, charming whole populations. All gold, in an economic sense, is fairy gold. It lasts as long as the spell it casts lasts. So how has the general subject of economics – not just money and gold – been treated in fairy tales? There’s Midas, of course. Bit of a cautionary tale, that one. I can’t think of too many examples, but I expect they would tend to be along Jack Frost lines. The magical creation of money is an invitation to satire. Are there fairy tales about elves crashing the economy with fairy gold-induced hyper-inflation? Or saving the economy with a heroic helicopter drop? Stories about elves themselves fleeing Elfland for the human world, with its relatively stable currencies? Hedge fund managers practicing crude ‘hedge magic’, to get rich quick, only to call up dark forces beyond their control or comprehension?

UPDATE: The whole Jack Frost special is on YouTube. (Oddly enough, it’s in the Public Domain, its Wikipedia entry says. Can’t imagine why.) Economically speaking, it’s also nice for the scene in which everyone gives everyone else an empty package, in which they imagine they find the thing they want the most. Sort of a cross between a potlatch ceremony, Plato’s Form of the Good, and Wittgenstein’s beetle in a box.

Frank Field, the Joe Lieberman of British politics, “has been advising the ConDem government”:http://www.guardian.co.uk/politics/2010/dec/03/frank-field-welfare-sacred-cows on welfare reform. Here’s a sentence to contemplate:

bq. This goal of changing the distribution of income will be achieved by ensuring that poorer children in the future have the range of abilities necessary to secure better paid, higher skilled jobs.

Of course, I can see a way in which that might work. The newly educated poorer children, frustrated at the stultifying low-wage jobs on offer to them, rise up and change the income distribution by expropriating the expropriators. I doubt that’s the mechanism that Field has in mind though.

Some feel we should take a more active approach to managing comments. I think we do pretty well on the whole (although the Lord love you, you are a grumpy lot). Question of the day: is the unremitting, permanent badness of Matthew Yglesias’ comments the result of intentional sabotage, or can it be chalked up to his policy of utterly ignoring them at all times? I favor the former explanation, because he’s influential enough that I can imagine some testy Republican or two taking it on as a volunteer project to wreck it up constantly. There was never a time when they were good, either, even in the early days. He was assigned what I consider to be, in John Emerson’s formulation, an Al-bot; a rotating crew of people commenting as “Al” day and night there and at Kevin Drum’s and Ezra Klein’s with the result that every single thread was derailed. Final note: why has Digby never been promoted to the big leagues, despite her obvious rightness and acerbic wit? Sexism, or a lust for mindless contrarianism that she will never satisfy?
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“Live at Eurointelligence.”:http://www.eurointelligence.com/index.php?id=581&tx_ttnews[tt_news]=2973&tx_ttnews[backPid]=901&cHash=484db55c3a An extract.

bq. The reaction to the news that Irish taxpayers are to be squeezed while foreign bondholders escape scot-free has been one of outraged disbelief and anger. At the start of last week, it was possible to make the argument that ‘burning the bondholders’ was irresponsible, since it would inevitably lead to contagion, and the spread of the crisis to Iberia. That argument has at this stage lost all validity, since contagion has happened anyway. Besides, the correct response to the possibility of contagion was never to engage in make-believe, but to extend taxpayer protection to other Eurozone members as required. Swapping debt for equity in a coordinated fashion across Europe would show ordinary people that Europe is on their side; but like the PLO of old, the European Union never misses an opportunity to miss an opportunity. It could have provided a means of kick-starting a new post-crisis growth strategy based on investment in the infrastructures we will need in the future; instead it has transformed itself into a mechanism for forcing pro-cyclical adjustment onto countries that are already sinking. It could have led the way in reining in an out-of-control financial sector; instead it now embodies the discredited principle that banks must never, ever, default on their creditors, no matter how insolvent they may be.

Ireland’s recent €85bn bail-out package negotiated with the IMF and the EU is discussed in terms that verge on the apocalyptic. The rescue was supposed to serve as a break against the wildfire of market bondholder panic. And yet the upward trend in Portuguese bond rates has scarcely been slowed. Beyond Portugal  is the much larger Spanish economy. Portugal, like Greece and Ireland, could probably just about be rescued within the terms of the current emergency scheme. It is becoming increasingly possible that the bond markets may make it too difficult for the Spanish government to refinance its loans and to raise new money on government bonds. If this were to happen, the European Financial Stability Fund would come under extreme pressure. And worse, if it is not possible to restore confidence in the stability of the Euro, there seems little reason why other countries may not also be in trouble. Spain is now where the line in the sand must be drawn. But we have heard this before. If Spain is vulnerable, why not Italy; and if Italy, why not Belgium, perhaps even France. Little wonder that the imagery of contagion, of financial plague, is brought into play.

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As I mentioned a few days ago, the best paper I’ve read on Ireland and the economic crisis was “this one”:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1642791 by Sebastian Dellepiane Avellaneda and Niamh Hardiman. I’m happy to say that Niamh has agreed to do some guest-blogging for us over the next several days on the Irish crisis as it continues to unfold, and its implications for the EU. Niamh is a “senior lecturer”:http://www.ucd.ie/research/people/politicsintrelations/drniamhhardiman/ at University College Dublin’s School of Politics and International Relations. She has written extensively on political economy and public policy in Ireland and the EU. We’re grateful and lucky to have her. Her first post will be up shortly.

While the humanities are under siege (in the UK; possibly all over Europe; or perhaps even in the entire world if Nussbaum is right in her book Not For Profit: Why Democracy Needs the Humanities), the Dutch Research Council decided last year to fund two large programs which would add to a strenghtening of the humanities. That said, our new right-wing government immediately decided to cancel their future additional investment in the humanities (whereas under the last government there was some talk that the humanities would ‘catch up’ with the other sciences, since it was clearly demonstrated that they suffered from underfunding relative to the social&behavior and the natural sciences).
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In comments on my post 10 days ago canvassing the possibility of a pre-emptive capitulation by Obama and the Congressional Democrats, Marc asked

When this doesn’t happen, can I ask for a mea culpa on your part?

Somehow, I don’t think I’m going to have to deliver on this.
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I’m a bit surprised not to have seen anyone making this point, but one obvious consequence of the current situation in Ireland is that European integration (to the extent that it is driven by Treaty change) is dead for the foreseeable future. New Treaties – if they are to be passed, not only require unanimity, but have to pass through two veto points.

First, they have to get a majority vote in a referendum in Ireland. This is thanks to a legal ruling (the Crotty ruling) that Treaty texts which have constitutional implications (which any Treaty involving significant further integration obviously _would_ have) require popular assent in a referendum. Given popular anger at the way that the bailout has been structured, I imagine that the chances of Ireland voting ‘yes’ to any new European initiative are close to zero.

Yet even if somehow the Irish people could be persuaded to say yes to some initiative – perhaps because it put in place a more equitable system of fiscal transfers in the case of crisis – it would have to pass through the second veto point – the German Constitutional Court. The Court has made it clear in recent rulings that it is not prepared to countenance major new initiatives that might e.g. “shift responsibility for decisions over fiscal policy”:http://www.eurointelligence.com/index.php?id=581&L=&tx_ttnews%5Bpointer%5D=1&tx_ttnews%5Btt_news%5D=2507&tx_ttnews%5BbackPid%5D=898&cHash=9a95444282 to the EU level. In other words – any more equitable system of economic governance is likely to be vetoed.

It is extremely hard to envisage Treaty changes that could get a yes vote in Ireland. It is next to impossible to imagine any new Treaty that could _both_ get a yes vote in Ireland, _and_ survive scrutiny in Karlsruhe. Hence – the process of ‘ever closer union’ through Treaty change is effectively dead. One can imagine other mechanisms of change (drift, policy incrementalism, ECJ rulings) coming into play, but they are unlikely to result in any very obvious changes except over the very long run.

My apologies for not posting this earlier:  the Coalition on the Academic Workforce is trying to collect data on the working conditions of graduate students, postdocs, and contingent faculty in the United States.  To that end they’ve created a survey that you can fill out <a href=”http://www.surveymonkey.com/s/VNNNRVS”>on an Internet near you</a>.

The CAW <a href=”http://www.academicworkforce.org/survey.html”>explains</a>:

<blockquote>The Coalition on the Academic Workforce (CAW) invites all members of the contingent academic workforce in U.S. colleges and universities to participate in this survey. The survey inquires about course assignments, salaries, benefits, and general working conditions as members of the contingent academic workforce experience them at the institutional level. We invite participation from all instructional and research staff members employed off the tenure track, including faculty members employed either full- or part-time, graduate students remunerated as teaching assistants or employed in other roles, and researchers and post-doctoral fellows.</blockquote>

<blockquote>Most of the data on the working conditions of the contingent academic workforce—particularly data about salaries, benefits, and course assignments—exist in large data sets that have been aggregated and averaged at the national level. Consequently, the similarities and differences that contingent academic workers experience across different institutions and institutional sectors, geographic regions, and disciplines become obscured. This survey aims to examine salaries, benefits, course assignments, and general working conditions as contingent academic workers experience them at the institutional level. The survey will collect institution- and course-specific information to create a more textured and realistic picture of contingent academic workers’ working lives and working conditions.</blockquote>

<blockquote>It is our hope that sufficient numbers of respondents will complete this survey to permit developing a rich dataset that will help CAW and its member organizations advocate on behalf of professional compensation and working conditions for the contingent academic workforce.</blockquote>

The CAW asks you to fill out the survey by November 30, 2010.  Fie on me for leaving this to-do task til after <strike>Diwali</strike> Thanksgiving, but if you’re one of those instructional and research staff members employed off the tenure track in the U.S., please take a moment to help out with this important project.  Thanks.

One of the problems of a small country like Ireland is that the intelligentsia’s level of economic literacy tends to be pretty low. This “column”:http://www.irishtimes.com/newspaper/opinion/2010/1129/1224284371607.html by Stephen Collins (the Irish Times’ political correspondent, and an astute judge of electoral politics) is a good example of the problem.

bq. TAOISEACH BRIAN Cowen insisted last night that the debt burden on Ireland under the terms of the EU/International Monetary Fund bailout would not cripple the country as his political opponents are claiming but would instead put it on the road to recovery.

bq. He pointed out that the assumptions underlying the plan mean that, at its height, the burden of debt will be 102 per cent of gross national product, roughly where it was in 1992/1993 when Ireland was on the cusp of the Celtic Tiger period. Cowen recalled that, back in 1985, the debt burden on the shoulders of the Irish taxpayer was considerably worse than it would be under the EU-IMF programme for Ireland announced last night. Of course, his confident predictions are based on the assumption that the programme will work and that the targets set out in it will be met both in relation to the public finances and to the banks. Ultimately, it will all depend on whether the doom merchants are proved right and the European Union lurches into a crisis from which it will never recover or whether normal economic and political conditions are gradually restored.

bq. Back in 1987, few people believed the Bruton/MacSharry budget introduced at one of the lowest points in Irish history would within a few years have led to the Celtic Tiger economy. Good luck as well as courageous political decision-making underpinned that transformation and both elements will be required if the programme is to work as planned.

bq. … Another issue that did not get serious traction in the talks was the simplistic call to “burn the bondholders” for which German chancellor Angela Merkel has to take a lot of responsibility. The European Central Bank was adamantly opposed to the notion as any such move would threaten the financial stability of Europe. It is ironic that the zealots of the US Tea Party movement and many of those on the left in Ireland share a common belief in “burning bondholders” and damn the consequences. The lesson of the Great Depression of the 1930s was that taking that kind of approach leads to widespread bank failures and national economic collapse which, in turn, threatens the democratic foundations on which our society is built.

The problem is that this argument is based on soothing but quite nonsensical assumptions. It takes as a given that Ireland’s growth rate from the mid 1990’s through 2008 or so reflected “normal economic and political conditions.” They didn’t. Ireland was playing catch-up with the developed industrial democracies – and during catch-up, one can hope for very high growth rates thanks to under-utilized resources. Even if the world’s economic system were magically to restabilize overnight, one could not expect to see a return of the conditions under which Ireland was able to eliminate its earlier debt overhang. And anyone with a smattering of understanding of the basics of economic growth would know this.

Unfortunately, the more plausible outcome is the one presented by “Kevin O’Rourke”:http://www.irisheconomy.ie/index.php/2010/11/28/migration-the-limits-of-internal-devaluation-and-the-bailout/ in which emigration and fiscal burden lead to a vicious cycle.

bq. In the long run, migration sets a floor to Irish wages. It has been thus ever since the Famine of the 1840s, and I don’t believe that the Irish have become less mobile in the last 20 years. Now, a lot of Irish wages are still high by international standards, but eventually as ‘internal devaluation’ proceeds, and as peoples’ living standards are lowered as a result of tax hikes and cuts to public services, it seems inevitable that the ‘migration constraint’ will start to bind again. … If the left hand side of this equation falls too far below the right hand side, people will leave until equilibrium is re-established. … There are fixed costs to running a state, and the debts we are now being saddled with are not population-dependent. You don’t have to be Paul Krugman to see the potential for some pretty nasty feedback loops here.

Update: “More on Collins”:http://www.irisheconomy.ie/index.php/2010/11/29/beware-of-journalists-bearing-history-lessons/ from Kevin O’Rourke.

Via @leninology

Following up Henry’s post, let me do my part to not add much to the Wikileaks story. A while back I had an idea for a Wikileaks-extrapolated SF story … [click to continue…]