The wisdom of Charles Kindleberger

Brad DeLong and Barry Eichengreen have a really nice piece on the lessons today’s policy makers might usefully draw from the work of the great Charles Kindleberger.

It prompted the following two thoughts on my part, neither of which is perhaps relevant to Kindleberger.

The first is that the extremes are gaining in Europe because centrist parties are offering voters no meaningful choices. Pasok and ND are an egregious example, but the same is true in all the other programme countries, and to a lesser extent in other countries as well. So if you want to vote against the status quo policies, you have no alternative but to vote for Syriza, or whomever.
Second, right now in Europe, support for international institutions means, de facto, support for the current policy mix, just as being an internationalist in the interwar period, in too many cases, meant support for gold. And this is killing support for the very international institutions that, as Brad and Barry say, are in principle a solution to the crisis.
Update: Brad has a great response to this post here. Read it.

39 replies on “The wisdom of Charles Kindleberger”

They only appear extremist from a internationalist man of the world viewpoint…. for example I don’t think Crotty was a extremist whatever that means.

He merely understood elementary power dynamics or indeed primate dynamics.
The Meme is out there that bigger is always better – why , what has the post 1987 world done for us Europeans ?
We gave us a extra Grot ration from the slave factories of Asia and now even thats going.

The Irish are obviously a lost cause and always were I imagine.

The bankers and their credit money will reward us even more for our servitude I suppose………
As long as this naked shorting of national currencies is allowed to continue via the credit loan process they will aways have the upper hand I am afraid.

What is truely shocking about this period of purposeless discourse is the lack of Greenback like debates amongest offical academia which unfortunetly means they have been bought or silenced by the bankers.

I don’t think a clear chain of command is much to ask for – do you ?

“They gave us” or perhaps we took the posion ourselfs….. for the dream of more Grot.

thanks for the post Kevin. At last something worth reading on the Irish economy website!!

Germany should arrange a Marshall plan for Greece – – this proposal seems a little naive give the extent of corruption in Greece.

In 2010, the Greek prime minister said that “fewer than 5,000 Greeks declare incomes of €100,000 or more (in a developed country of 11m people.)”

When doctors strike to have the right to prescribe drugs that have gone off patent rather than generic drugs, it surely illustrates that pouring funds into the country absent reforms, would mean bonanzas for some but with little benefit.

The FT reported last Feb that in 2011 the Greek state and private healthcare sectors spent €4bn on medicines alone, amounting to 2.4% of GDP – the highest proportion in any industrialised country and more than twice that in the UK. Greece spends more per capita on drugs than any nation except the US and Canada.

Once patents have expired, the lack of any requirement for Greek doctors to prescribe cheaper, generic versions means patented drugs still represent nearly 80% of total prescriptions in Greece, compared with less than 30% in Germany. Yet generics were traditionally sold at relatively high prices, with very low discounts to patented drugs. Even after recent reforms, they are typically only a third cheaper, compared with lower rates of nearly 90% in the UK – – it will take a long time to change the fakellaki system [envelopes containing cash bribes].

This possibly seems petty to some but foreigners, including Americans, with good intentions abroad, is not a new phenomenon.

So would foreigners bringing gifts end the corruption of the elites?

Voters don’t like bitter truths and politicians are no different to economists and others in making choices they perceive to be to their own advantage.

Tweedledum and Tweedledee is often the choice in politics with no huge differences in policy prescriptions – – one party reversing policy moves of another after an election just to please party supporters hasn’t been always wise. Superficial issues count as well and it’s almost 60 years since the last bald man became president after an election.

Europe is dysfunctional place but so is the state of these two economists.

San José, the biggest city of the Silicon Valley area has had a decade of budget cuts. Pay cuts and pension cuts are the norm.

The New York Times reported earlier this month:

Nathan Brostrom, executive vice president of business operations for the University of California, said the system was now in the middle of the worst financial crisis since the Great Depression. In the last year, the state has cut $750 million from the system’s budget. This year, for the first time, the system receives more money from tuition than from state aid — but that only makes up for roughly a quarter of the cuts from the state. Over all, the budget is the same as it was in 1997, when there were 75,000 fewer students enrolled.


Centrist parties are pushing the TINA line. Ireland Inc. is a fine example of an Establishment recursively feeding itself the same line while reality is knocking on the doors of many with a very different message.

If the right politically palatable questions are asked, a fantastic amount of hand-washing can be accomplished, for example.

Moreover, the attempted professionalization of politics with flotillas of advisors, expert groups and a veritable quangocracy, I suspect, has an alienating effect on the broad mass of people whose views have to be suitably filtered, quantized ad parsed into the drawing room language of the Official Gentry (long hand for ‘ignored’). The latter Gentry of course shamefully dodge responsibility by whistling that old tune The Report by Committee X.

@Michael H

The President of Greece has an annual salary of 400K. The current incumbent decided to forego it some months back. The first bailout kicked off May 2010!


A very impressive article. However, the world is a very different place to the 1930s and the parallels can be exaggerated.

On your conclusions, the first is undoubtedly correct.

The second is open to question. The EFSF is an SPV based in Luxembourg and governed by private international law with a limited role for the European Court of Justice. The ESM is a treaty governed by international law with a somewhat wider role for the ECJ. In short, the institutions of the EU are being undermined not because they are being used incorrectly but because, on German insistence, they are hardly being used at all. The sole exception is the ECB and its capacity is being stretched to the limit.

This is what Barroso is saying must be corrected. The necessary legal bases exist already in the treaties to allow the necessary measures to be taken to halt the crisis notably by way of the adoption of the legal instrument of an EU Regulation which becomes part of the law of the EU and the domestic law of the Member States without need of transposition.

This is what Germany does not want to do because the various interests nationally cannot agree that this is what should be done, advancing various spurious constitutional arguments as a smokescreen.

Crunch time has now arrived. Also for the UK as it holds an effective veto.

“Syriza occupies the vacuum of representation left by power, showing how the neoliberal looting of Greece, Europe and the world is incompatible with democracy, and it opens, as in Latin America, a space for the protagonism of the multitudes, of the everyday citizens. We are therefore witnessing a milestone in the difficult “conquest of democracy”. For this reason, our Greek comrades smile and power puts on a face like a funeral.”

Solidarity Event with the Greeks enduring a reign of elite terror talk in Dublin on Saturday:


As a postscript to my earlier comment, one could add that the institution that has suffered the most is the IMF. Arguably, the right decision by the US at the time of the discussion as to whether or not the IMF should be involved – the much maligned Trichet was adamantly opposed – should have been “it’s your currency, you sort it out!”

Too late!

What has been exposed is not just the feet of clay of Germany but also those of the US.

P.S. Who cares what the Greeks get up to!

@Kevin O’Rourke

Thanks for posting. A very interesting article.
From the follow up, the comparison with the 1930s is more than a general comparison, with the following :

“Despite increasing pressure… Bruening stuck to his [Hooverite] course ”
“The party’s most important economic theoretician, Rudolf Hilferding… mounted a full-scale campaign against the plan. He began his attacks by stressing that the WTB plan was “un-Marxist” and threatened “the very foundations of our program.”

“The only solution to economic difficulties, he claimed, was to wait for the business cycle to run its course; an “offensive economic policy” had no place because the ultimate arbiter of developments was the “logic of capitalism.””

From Rudolf Hilferding to Wolfgang Schauble. Both 100% certain and both 100% wrong. One wonders what legacy Schauble will leave. The comparisons are beginning to mount up.

Good forbid that the public should find out the truth about welfare levels relative to wages. I hope Prof. Toll finds another route to inform us.

@ Tull

He just did!….on Morning Ireland on which he explained in full the background to the paper that has now been excised from the ESRI website. He stated clearly that he stood over its conclusions, while sensibly refusing to be drawn into any speculative argument as to why the paper had been removed.

Nobody else wants to get drawn into such speculation either as it is up to the ESRI to answer such questions itself. In light of Dr. Tol’s comments this morning, however, the ESRI rationale for removing this paper appears threadbare. A full explanation is required, including what contacts, if any , took place between government officials and the ESRI in respect of the conclusions of this paper since it first came to light in media reports. As things stand, it’s clear that there’s something not quite right here. Any possible inference that government, or its agents, might have any hand, act or part in seeking to suppress valid academic work is very worrying.

@ kor,

Your first observation echoes an article by George Monbiot in yesterday’s Guardian which arrives at much the same conclusion : that people in distressed societies in which democracy and its insitutions appear to be failing them are drawn to extremist parties of both right and left because the traditional left/right divide in party politics has long since become fudged and the main parties are no longer offering clear policy choices. According to this line of analysis the ideology of neoliberalism, with its devotion to free market economics, emasculated the principles of social democracy over the past thirtyyears or so and left the traditional left with no alternative but to embrace the neo-liberalist ethos or forego any prospect of political success.

I have some sympathy with this line of argument, but I think it is too superficial and fails to take sufficient account, for one thing, of variations in political culture (such as Ireland, where the traditional political division has been between variations of nationalist allegience and a left/right divide never really took root). For another, the charge against the neo-liberals is generally led by the neo-marxists. In putting them to run, the neo-marxists provide some useful tools to analyse what went wrong with the so-called neo-liberal utopia, but don’t really lead us anywhere else.

Observations relating to how stability is generally prized within mature democracies may thus carry more weight than the neo-liberal/neo marxist dichotomy. In such societies, over time all political factions will tend to gravitate towards the centre. Watch Sinn Fein! Also when the virtues of stability are paramount it is difficult for ‘new’ parties to gain space or traction in their own right. In Ireland we’ve had plenty of experience of small parties of left and right popping up from time to time but never really succeeding in challenging the main centrist parties of FF, FG and Labour and then discovering, at the point where they’re about to be consigned to political oblivion, that their ideas wardrobe was long since plundered for anything worth taking by their centrist opponents.


From my perusal of the Irish media from a distance, Richard Tol and his coauthors seem to have done no more than give credence to what many employers, especially in ISME, are saying privately. If a unskilled man (or woman) has four of more children, when everything is taken into account, he/she is extremely unlikely to find work that would pay what the whole social welfare package offers.

Moreover, if we look at the minimum wage and say a single person has to commute into Dublin from say the arc of 50km radius daily. With bus fares, work clothes, a sandwich at lunch time, etc, that person is not earning much more than the 190 a week on the dole.

The Tol et al paper spoke some truths to powerful vested interests, and that is something Ireland and its Gentry have been uncomfortable with for a very long time. To repeat a point I made on a previous thread to provide net pay of 1000 euros monthly to an Italian worker, the employer must come up with 2250 gross.

In terms of the Right/Left drifts, it is just drift in ireland. If one looks at Anglo Irish Bank, in reality the Irish taxpayer has been made responsible by the Cowen-Lenihan guarantee for tens of thousand of millions of debts run up by corporate entities which had at their heart barely two dozen people. It astonishes me that the vast bulk of taxpayers have taken this arrangement lying down.

The Troika I read today calls for more equity in taxation and austerity. Well they could begin with the bank guarantee and its shaping of fiscal policy.

Tollgate? Who did what, when & where? One presumes the report’s conclusions caused apoplexy in the Lab ranks.


Who knows? Speculation is pointless in this case. Presummably the media will put the question to the ESRI. If the answer is in the negative – no contact from officials, advisers or government politicians in relation to this paper since coverage first appeared in the Sunday Times – then the issue becomes one of self-censorship,i.e. paper withdrawn because it ‘might’ cause offence to the parties in government. And now that’s even more worrying!

Meanwhile, RTE reports that the Minister for Social Protection, Joan Burton has stated that no-one in her Department has had any contact with the ESRI since this paper was put up on the ESRI website on May 22nd last. Also, that teh data does not correspondent with data within her Department. Apparently, she was speaking at the launch of another ESRI paper this morning. The Taoiseach, Enda Kenny, has told the Dail that he would not countenance anyone in his government interfering with an independent organisation either.

So was it self-censorship? Reading through the paper, it seems straightforward enough. However, if the data in the ESRI paper conflicts with data available to the Department of Social Protection, then surely that raises other questions that need to be resolved? The question of incentives to work is hugely important to the management of resources within society. It might help our understanding of what choices we face if the Department’s data was published so that its provenance can be established.

I always find it dissapointing when serious academics use flippant comments such as “there is growing support for extremist parties of the far left and far right”.

The differences between these positions are huge. There is simply no comparison of the politics of Syriza and Golden Dawn. None what so ever. The latter party are fascists whilst the former include a variety of Euro-socialists, communists and various new social movements.

Language is crucial in describing political economic developments. Conflating Nazi like fascists with an emerging leftist social movement serves no purpose.

@Alchemist/ Veronica/TMcD

“If a unskilled man (or woman) has four of more children, when everything is taken into account, he/she is extremely unlikely to find work that would pay what the whole social welfare package offers.”

That may be true or not.

But it good to know that all those people single people with no childre and couples with from one to three children should have no problems getting work.

All they have to do is approach those ISME employers who have those jobs that were refused by people with foru or more children.
Unemployment problem solved.

@ DoD

thanks for the link

I note it is called “Working paper 436”

I expected something more like “Shirking Working paper 1”
Where are all the jobs anyway?

@Joseph Ryan

But it good to know that all those people single people with no childre and couples with from one to three children should have no problems getting work.

All they have to do is approach those ISME employers who have those jobs that were refused by people with foru or more children.

Unemployment problem solved.


A hit, a very palpable hit, though my immediate reaction was that the minimum wage needed to be raised to make work more attractive….

The Tol paper, which may well be technically accurate, has the whiff to me of another far right attack on the feckless and undeserving poor for shirking labour. Presumably the idea is that once we demonstrate our ruthless commitment to making life for the lower classes more difficult the pagan confidence gods of the market will be satisfied by the human misery tribute we have paid them and growth will return.

@joseph ryan

The point about a man/woman plus four children is based on my experience of trying to hire.

A man with eight children, before Judge Mary Flaherty’s court a year ago, was claiming weekly benefits of 850 (excluding house, etc).

Nice work if you can get it might be the response of many.

The point about the cost of employing an Italian worker (it costs 2250 for 1000 – and an average worker from a teacher to a low skilled worker is get between 1000 and 1200 net) is an uncomfortable mirror for the great and the good.

Social welfare thresholds in Ireland militate against some categories of claimant looking for work , and and probably persuade others that social welfare is the goal to aim for. Uncomfortable as it may be, but should welfare always be related to family size? Salaries aren’t.

BTW: if what happened to the Tol et al paper happened in the UK, US or elsewhere, Irish academics and media commentators would fill the void between the earth and the moon with statements of umbrage.

Is there an unspoken conflict of interest involving various parties and government contracts expectations? I am not inferring that there is but given the extraordinary circumstances, the question is not unreasonable.

Aren’t those in his area willing to kick up publicly and collectively about this – possibly the authors get the odd e-missive of sympathy – apologies if i prejudged matters and protests are already under way.

If ireland was less Orwellian many of its problems would have been trapped in the bend and dealt with.


Am I missing something or did you just describe large families on welfare as powerful vested interests ? I mean wtf!

I see where your coming from with family size and welfare rates, clearly this is a pretty popular position in England and I can imagine the same holds over here. However its seems like you’d be punishing the children who have the misfortune to be born into large families.

Like shay my initial response was that you should raise the minimum wage , provide childcare subsidies to make work more attractive.

I always though the social welfare system was partly compensation for the fact that job support and training post job loss are so crap in Ireland.
There is very little native institutional competence in this area.

I came across this video of the RTE programme “Youngline” which I remember watching as a nipper!v=3240534

And one of the more remarkable things about it is that it features a trip to an AnCo site somewhere in Dublin. AnCo was of course replaced by FÁS. And just like AIB collapses once every 30 years so too does the national training agency.

Martin Wolf is really on the ball these days

“Members need a chance of returning to health within a reasonable time period provided they adopt sensible policies. If members – particularly large members – are to adjust, they will need complementary adjustments elsewhere. More precisely, the necessary return to external and internal balance in crisis-hit countries cannot be achieved without higher spending and inflation in the core. The European Central Bank is astonishingly complacent in failing to react to yet another recession. ”

Plan A is the road to ruin.


re “Social welfare thresholds in Ireland militate against some categories of claimant looking for work , and and probably persuade others that social welfare is the goal to aim for. Uncomfortable as it may be, but should welfare always be related to family size? Salaries aren’t.”

Yes. Social welfare should of necessity be related to family size. Otherwise, as has been pointed out above (@Ciaran), one is discriminating against children in order to create an incentive to work for what is a small group of people that fit into the large family catagory.

My answer to employers is that there are thousands of people who would work for rates close to or at minimum wage.
Employers if concerned could do worse than to consider inhouse training for people who do not have the skills and who are in a position to work for lower wages as they do not have large families to support.

I am also very wary of the agendas of organizations such as ISME or SFA.
The unemployemt and emigrations problems that we have, with some small exceptions in the high tech/software area are demand led employment problems.

Even the job bridge program, which has its merits, can very quickly begin to be abused by all kinds of employers in order to boost profits.
A large UK multinational immediately comes to mind but I am also aware that manay desirable and indeed essential jobs in the PS are now being done with ‘Job-Bridge’ staff, while the state has seen fit to retire the people that were doing those jobs with bonanza payoffs and pensions.

@joseph ryan

I am sure you agree the Tiger is dead. There is no solution to Ireland’s difficulties outside of it becoming a lower wage economy. One inference from the Tol et al paper is that social welfare is blocking that trajectory at an unsustainable. I have never suggested that blanket wage cuts are the answer. Instead the public service should be redesigned with minimalism and efficiency in mind. An inefficient hospital with everyone earning 10 percent less will still be inefficient.

If every crew member on the Titanic received either a pay rise or pay cut it still wouldn’t have saved it. The problems need to be sorted out at the drawing board, but that is probably beyond the Smart Economy political elite.


Regarding penalizing children, I agree it is wrong to penalize the children of the self-employed and the private sector to bolster generous socil welfare largesse. If men and women choose to have large families, should every other taxpayer support them?

No one on social welfare should earn more than the average industrial wage, otherwise social welfare becomes an alternative to employment. The Tol paper’s great ideological transgression was in pointing this out.

If Tol had produced the same results for Greece, a lather of Irish self-righteousness would bridge the Aegean.

If the haranguers of the paper took as much interest in the destruction of private pensions, wealth and savings, I would have more respect for their position.


Haven’t had time to read the Tol working paper yet … but there are certainly anomalies in the welfare system: just a few off the top of me head …

rent allowowance to landlors while NAMA sits on various suitable properties
capital corporations get 87.5% of profits tax free while even the top PAYE earners, millionaires even, only get up to 80% depending on the quality of their tax advisers … plebian working serfs on minimum wage can only dream
substantial big farmers on income as distinct from millionaire asset status educate four childer for the state professions €100K welfare plus €20K black tax for the grinds … the fifth gets a bonus of the farm transfer and the poor parents qualify for either the dole or the penshin …. and the medical card
the legal eagles are supported on state welfare to the tune of half a Billion – the poor dears …
The Tribunal welfare system does not supply the medical card – but the Blackrock clinic, tax deductable is available for reducing stress and dragging the whole thing out a bit …. great way to get a few juniors padded onto the bill – to the state of course
Couple of billion tax free for the privatisers of commodifying the aging in the population, and building jails in the sky for the smarter serfs and providing gainful employement to solicitors, well connected local judges, poorer barristers of large farmers with no great connections, and taxi drivers – all billed to the state of course – oh and no land tax – the physiocrats in the IFA and minister’s brudder must be ‘taken care of’
all those poor higher civil servants, ministers, tds etc how simply cannot go home to bed and watch sky without a half million sweetener and a hunderd thou a year pension for the aldi groceries …. oh and tax free status for any book of autobiography which can be classifies as fiction [ask bertie’ .. but I’ve yet to see any of them shortlisted for the Booker …
Sers pay tax, stallions don’t … not sure about donkeys – this must be discrimination ….

I’m sure Prof Tol has mentioned all this in his WP …. and I have a bit of time for Dick Tol ….

Did I meniton all those poorly paid upper_echelon bankers …

I ‘m sure others will think up a few …. C’mon HOLLAND!



Paddypower dot.kom have ireland on a 7 point spread over spain’s ten year gov bond rate. Anyone fancy a flutter on Hibernia at 14/1 …. DON’T

… heard a rumour from a usually unreliable source that the 22 will all sit down in the centre circle and refuse to move unless the ECB prints a minimum of €5 TRILLION TO SORT OUT THE FANS!

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