Categories Economic history EMU Fiscal Policy In which Barry Eichengreen and I are shocked Post author By Kevin O’Rourke Post date October 23, 2012 67 Comments on In which Barry Eichengreen and I are shocked Here. Related ← Kilkenomics 2012 → Benchmarking the US and UK economies post-2007 67 replies on “In which Barry Eichengreen and I are shocked” “We analyse the size of fiscal multipliers in several ways. First, we estimate panel vector regressions, relying on recursive ordering to identify shocks …”! Cause precedes effect in time. What is/are the cause/s? If you observe A and C and know that A = B + C. Finding B should be straight forward? Maybe not if your a quant. Are these multipliers real entities or merely mythical mathematical mumbojumbo? I have repeatedly asked this question and have never obtained any meaningful response. If the effect is real (observable and quantifiable) then the cause is also real. Yes? So what is it? KO’R In the cynical spirit of Cassablance you need to address the monolithic but unspoken belief at the heart of all of this: every single official in Brussels and Frankfurt and Berlin, without exception (including the Greek and Irish ones) believe that democratically elected governments in Europe’s periphery will never display fiscal responsibility and never indulge in obviously necessary structural reform. Ever. Given that belief, what would you do? @simpleton I agree with you, there is no doubt in my mind that the Irish Gov’t (and others) are quite incapable of taking the bull by the horns. This leaves us with the impersonal hand of high inflation as the only way out. The Gov’t then moans and groans about forces beyond our control causing prices for essentials to rise while the debt load is effectively reduced. Italy has used this tactic many times since 1945. Debasement of the currency is then a guaranteed benefit. No need to beat the teachers or public servants over the head the market will take care of it. Germany is the roadblock to a debased currency, and lets face it that stance is firmly embedded. This means an EZ without Germany is essential in that it ensures a devaluation of the Euro and temporary to medium term relief for the countries on the periphery. Note that virtually all of the coast of the Northern Mediterranean and the North East Atlantic from Donegal to Gibraltar encompasses the afflicted countries. I would characterise GB as a country on the North Sea. In my opinion a Euro Zone led by France is our only hope. The alternative is to go it alone which would be fine except we messed up royally for fifty years after 1922 and the likelihood of a repeat is high. Germany would be left high and dry and suffering from a terminal case of sound currency woes like Switzerland, Australia, Denmark, Canada and a few others. The vaunted export machine would be severely stressed to the point where Germany might be capable of gagging on their sound currency principles and swallowing a dose of stimulative medicine. I bear the Germans no ill will but over 200 million Europeans need relief urgently. Realising of course that a EZ with Germany even under loosening monetary conditions will not give the periphery the much needed immediate boost of a substantial devaluation. ‘..a terminal case of sound currency woes like Switzerland, Australia, Denmark, Canada.. We sure don’t want to wind up like those hell-holes. @ M Hickey A Eurozone led by France? That sounds interesting but the global market is quite a different kettle of fish from the times when it mainly consisted of the US, Western Europe, Japan, Canada and Australia. Countries like France, Spain and Ireland can only afford to allow some of their citizens to avail of the benefits of super welfare states. In the case of France, some day the reality will strike, if not the EU fiscal pact, that after 36 years of straight deficits, the end of the road will loom ahead. Debasing a currency and inflation seems like the armchair expert’s path to wealth. @ All Populations are much more urbanised today, which may raise a question about the 1930s multipliers. As regards the term ‘austerity,’ of course many wish to claim to be victims but in Ireland I would think that currently, a minority of the population are true victims. More than 40% of owner occupiers have no mortgage. There has been a scale back of earnings based on froth while tax levels are moving towards the European average. For the victims, in particular families with children, the fear of running out of money in the modern urban economy has to be experienced to appreciate it; people who still have a job in the SME sector live from month to month and even where there is new business there is the ever present risk of non-payment. @ Mickey Hickey You seem to wish for a French led Eurozone .Be careful of what you are wishing for : Hollande, even more than Sarkozy ,has an objective of fiscal convergence and sooner or later the Corporate tax rate will come under attack . The French are not too keen about a financial center in Dublin ,because for them a ‘light-touch’ financial regulation is anathema . Also, you seem to imply that the French would accept a higher inflation rate to accommodate the peripherals , I do not think that it is the case anymore. @Michael Hennigan Populations are much more urbanised today, which may raise a question about the 1930s multipliers. So lets get this clear, you think the historical evidence on fiscal multipliers does not apply because of a personal insight about the effect of population densities and the current IMF analysis does not apply because Ireland is a special case? In a normal conversation the proper response to someone who said this would be an obscenity laced dismissal of their seriousness, but of course the economic dialogue in the EU is not normal. The lunatics have been allowed to draft the new version of the Diagnostic and Statistical Manual of Mental Disorders. You are not alone here Mr Hennigan, but when there is no evidence that can change your mind on an issue it marks you as an ideologue rather than a hard headed pragmatist. A substantial portion of the Irish right, in common with their European brethren, want standard neoliberal medicine and currency hawkishness and damn the evidence. This has become unpleasantly surreal. It seems to me that there is a very serious implication here for both the IMF and ECB and the EC. Have they published growth projections for countries that they knew had no possible prospect of being achieved? And did they force or recommend countries into programs, quoting growth projections that they knew had no possible prospect of being achieved? If they did, at whose behest were they lying. If they did not know, their credibility and competence is open to question. I imagine the boards many market fundamentalists will try and deny Kevin O’Rourke’s excellent article the oxygen of publicity by not commenting, it says much about how current policy is shaped by political and social preferences and not evidence. This argument will not be won by reason, because it is not really an argument. It is a power struggle. @Michael Hennigan “people who still have a job in the SME sector live from month to month and even where there is new business there is the ever present risk of non-payment.” This is being exacerbated now that the banks are targeting borrowers’ cash-flow more aggressively. People living month to month have to prioritise banks to the detriment of their suppliers. Lenders are more than happy to force businesses to default on payment to those suppliers who have been keeping the businesses going through their forebearance and loyalty. This is poisonous to the real economy, but when did financial institutions care about the real economy? Most SME’s would have allowed a certain amount of credit to loyal customers in the past. People were willing to take a chance on other people with good reputations. However, that is no longer sustainable now that everybody is stressed and banks aren’t willing to put their oar in to. It becomes a zero sum game. Last one to insist on payment is left with the bad debt. Accrdingly, it is not only banks but all businesses that are tightening up on credit arrangements to the detriment of the real economy. @ Shay Begorrah How dare anyone question your world view! You are so right and so many others are wrong while you ladle from your tub of vitriol on any perceived view that is not in line with your ideological line! The web is a great instrument for giving low types like you ephemeral courage. I cannot tell what you may or not know about economics but since the 1930s period, life in developed countries is a little different today with reasonable social safety nets. As for urbanisation, I know that life and its nexus with family in rural areas that when I as part of a family of 9 experienced in West Cork, has also changed. That is all time I’m going to give to a type like you. Take your ignorance elsewhere. @Kevin O’Rourke The Krugmanator gave Barry Eichgenreen and your Vox post a nod. Can your escape from the dreaming spires into the bright lights of television fame be far away now? @Michael Hennigan You are so right and so many others are wrong while you ladle from your tub of vitriol on any perceived view that is not in line with your ideological line! The web is a great instrument for giving low types like you ephemeral courage. The facts Mr Hennigan. They are your business and your passion so why not embrace them all – even the ones that are do not fit well with your particular narrative about the crisis in the Eurozone and Ireland’s part of it? You can come up with a new synthesis, you do not have to be stuck in the same trap as an academic economist whose career is invested in applying a discredited analysis. Join the reality based community. It could do with your command of the figures. ‘… awareness into action.’ +1 meanwhile, on the Germanic tack; http://ftalphaville.ft.com/2012/10/23/1224511/counting-das-gold-at-fort-knox/#respond IMHO the David S comment at 10.53 is a must read. @ MH-ff: Michael, that’s a fairly hefty rocket-propelled grenade you launched at SB. Just put aside any dislike you may have regarding his commentaries and focus (as I know you are capable of doing) on the Substantive Issue of the original posting above (Fiscal Multipliers). Both I and SB (I hope I am correct – but he can articulate his own view) may have formed the opinion that the economists who orchestrated the current economic mess are incompetent experts and should be appropriately corraled to avoid any further societal damage. As an experimental scientist I regard the above economists with the same disdain and contempt as Galbraith pere. Let me provide you with a practical example from my own area of expertise (Intermediary Metabolism). If I loaded the appropriate levels of inorganic atoms into a viable culture and after some time observed significant growth then I might be justified in concluding that some Chemical Multipliers were at work. I could leave it at that and speculate and model to my heart’s content. However as an experimental scientist I might be a tad curious about those mysterious Chemical Multipliers and I would set a research team to work to extract, isolate, characterize and identify them and the factors that affected them. Now I can model their behaviour: but not before. Any economist who uses the term Fiscal Multuiplier (without providing a concrete example and some causal mechanism for their effects) is a charlatan. Please, no one, assert that I am mistaken. Please provide some statistically reliable empirical evidence about the nature of these mysterious Fiscal Multipliers. Then I shall have to withdraw my charge. @Brian Woods Senior @ MH-ff: Michael, that’s a fairly hefty rocket-propelled grenade you launched at SB. While it is probably best to assume that every anonymous poster has an unhappy and difficult life due to severe emotional and physical problems and that blogging is their only release from the misery of their existence (their single pleasure, their only validation) this particular dog at a keyboard has only mild psychiatric issues and Michael Hennigan (or anyone else) is free to vent. Sometimes it helps to know you are upsetting someone. @ MH “The web is a great instrument for giving low types like you ephemeral courage” Maybe he got your back up but surely you can do better than that. No comment on the multipliers from DOCM. Nothing to counter the argument from the Bild Zeitung or anything. @seafóid Says: No comment on the multipliers from DOCM. Nothing to counter the argument from the Bild Zeitung or anything. Public Relations 101. If you can not counter it, do not acknowledge it. Who is this Barry Eichengreen fellow anyway? Is he serious? Probably a Marxist holdover. It would be more informative to hear John McHale or Philip Lane talk about it (even though their primary focus is obviously on other topics), particularly if they could do so without using the words confidence, Baltic Republic or “return to markets”. Part of the problem is that there are many multipliers ; capital spending, current spending and tax changes probably all have different effects. These effects in turn are likely to be quite different when the economy is in depression, recession, ok, booming and OMFGing. Presumably the fact that the EZ as a whole is undergoing the same treatment has an impact on the multipliers as well. I wonder how long this Europe wide austerity lark will go on for before they give up and change tack. It has been interesting to follow the Qe3 story in the US. It was started because things were bad enough to warrant it and now the mood is super positive and that will last for a number of weeks before the realisation dawns that risk assets are overvalued and the economic situation hasn’t improved. How many years of this counterproductive crap should one expect ? @ Brian Woods Senior / seafóid I only raised a point about the applicability of applying results from the 1930s to today’s experience. I’m not linked to any group, ideology or status quo and when this individual who has form with vitriol makes an allusion to mental disorders, it should be called what it is: crass ignorance. I have no problem with anonymous contributors but a percentage everywhere take advantage of it and pollute the web. The European Central Bank should have the powers to intervene in any euro area bank, European Commission president Jose Manuel Barroso insisted today. ‘Mr Barroso said the “negative link” between bank debt and sovereign debt still needed to be “definitively” broken. http://www.irishtimes.com/newspaper/breaking/2012/1023/breaking28.html Congress to boycott the Troika? http://www.irishtimes.com/newspaper/breaking/2012/1023/breaking45.html @ SB All he is saying is that it may be a possibility that the fact that we now have a more urban society than in the 1930’s may make comparisons less valid. Its a fair question. And he only asked. @ Kevin O’Rourke Do all of your examples from the 1930’s come from war related stimulous? If so doesnt that matter? or is stimulous amoral? A genuinely interested non macroeconomist. @ brian lucy: That’s the first straight answer to my question. Thanks. “…capital spending, current spending and tax changes…” Credit inflation maybe? 2 + 2 should equal 4. But if the evidence says its 5, then you really do need to explain the discrepency. And this has not been done? But if it has, then has anyone a reference? Is there any chance that the measurement metrics themselves may be a tad dodgy? The process is so complex and intertwined that maybe artifacts are being mistaken for facts? Happens in the best of families. Thanks again. @eamon moran Do all of your examples from the 1930’s come from war related stimulus? I thought defence spending was used as a proxy for the varying degree of fiscal stimulus since it is assumed to more discretionary in nature (and usefully varied more widely between countries allowing the smaller variances in other parts of the budget to be ironed out?) From the Vox article: The idea is that levels of defence spending are typically chosen for reasons unrelated to the current state of the economy, so defence spending can thus be placed before output in the recursive ordering. As a layperson I would love to read a more “coloured diagram with small words” description of the process used to isolate defence spending as the control variable. I wonder when the full paper will be released. @ MH I see that our resident purveyor of bile has made you his target for the moment. Never mind! With every post, he confirms the view that I imagine most contributors have of him. Irony is one of the many concepts that seem to escape him cf. this contribution on another thread. “It would be nice if posts had to sport a little badge that said “Vested interest in the Financial Sector not paying for the the Global Financial Crisis.” or “Agent of Foreign Power.” but at least Brian Woods is using his own name.” @DOCM Irony is one of the many concepts that seem to escape him cf. this contribution on another thread. Irony is the use of language to express other than its obvious meaning, some people find it helpful to think of it as a superset of sarcasm when deciding on when to use it. For instance when I say “The ECB has does a terrific job over the last ten years.” I am being sarcastic but when I say “My trust in EMU remains as strong as ever.” I am being ironic. The word you might be looking for is “hypocrisy” but I am not sure it quite fits, after all I am not representing anyone other than myself. Biliously, SG @ MH There is another point that needs to be mentioned with regard to the contributors in question; they tend to be a bit pedantic and to walk easily into walls. However, the rule of netiquette is simple; anyone who indulges constantly in ad hominem remarks is by definition a troll. There is a well-known equation in the blogosphere to deal with the phenomenon; DNFTT(s). However, when trolls start talking to one another, there is little to be done other than to quit the infected thread. Which is what I am now Of course, when trolls get t @ MH Oops! Which is what I am now about to do. Anyone care to comment on this “multiplier” “In this country, we have taken €25 billion, the equivalent of 16 per cent of GDP, out of the economy over the past four and a half years only to reduce the deficit by a mere €5 billion while inflicting misery on tens of thousands of people in the process,” Jack O’Connor said.” So in order to eliminate the deficit of say 15b. Do we destroy the economy..a la Greece. @ DOCM: I note your comments. Do you honestly believe I am trollish? That’s a serious question. I may be, but I fail to see it. Observing one’s own behaviour is not a spectator sport! I have no vested interest whatsoever (other than being a very irate Irish taxpayer). Am I Left or Right? I’m neither, but I’m both. And I have no use for ad homs: they’re entirely negative. A single, straight rebuke should suffice. But free speech? You have to defend it – no matter how distasteful the circumstance. But there is a real economic problem and our economists have shown themselves (mostly) to be incapable of handling it. Mind you our politicians would make the Keystone Kops look positively competent. I view economics through the prism of quantitative science and I do not like what I see. @ Brian Woods Snr As you do not, to my knowledge, indulge in ad hominem remarks, you are by definition excluded from my comment. Putting the matter in another way, one would not, in polite debate, call into question the bona fides of any other participant and the same rules apply in the blogosphere. There is an added onus on those, such as myself, that choose to contribute under a pseudonym, to behave correctly. Having been the target of sustained abuse by the individual in question, I have considerable sympathy for the reaction of MH in the most recent instance. But by having these exchanges we are fulfilling the main objective of those in the kingdom of trolldom; to disrupt the normal debate. This has nothing whatsoever to do with free speech. In a moderated blog, contributions with ad hominem comments would simply be deleted. @ DOCM: Thanks for you considered reply. I was unaware of the previous in respect of SB. I do not follow all the threads – just those which either interest, or annoy me! “In a moderated blog, contributions with ad hominem comments would simply be deleted.” Agreed! If anyone would like to return to the matter at hand, it is here: http://www.voxeu.org/article/gauging-multiplier-lessons-history and it is nice and short. Krugman’s post about it is worth reading too (the phrase “well-deserved victory lap” sets the tone). The upshot is that there is now a yawning chasm between those in the reality based community (which now includes some, but not all, of the IMF) and those responsible for the economic policy response in the EU to the European component of the global financial crisis (generally right wing ideologues and opportunistic financial sector types). The Germans and the ECB got their opportunity to try and annex economic policy for neoliberalism across the EU and took it but the economic damage caused by the crudeness of the power grab is becoming too extreme even for capital friendly institutions like the IMF. The economics are no longer in serious question, this is now a political struggle and it will need to be fought with different tools. what is the relevance of this topic to the Irish economy? I would suggest the first thing to do is decide whether you want to go down route A which is that public sector spending should be increased rather than decreased if you believe there is more cyclical than structural problem in the Irish economy. If so you have to be able to cite a credible source of funds. Can we have some sensible suggestions on this please? I f you want to go down route B which the current Euro denominated bailout requires, ie spending cuts and tax rises, then surely the sensible thing to consider is the granularity of the multipliers so as to come up with a strategy for balancing social justice considerations with bias towards the smaller of the set of multipliers that comprise the overall average multiplier. For example you might expect that the multiplier for reducing the fees to state employed lawyers or the pay of PS workers on 120k would be smaller than for those on 30k – or maybe you wouldn’t? How do you quantify the multiplier effects of reductions of quantity and quality of valuable public services? How do you balance that against multipliers for cutting pay where there are choices to be made about protecting PS pay rather than services? This type of work really is something economists could usefully focus on in my view. How far out of line does competitiveness have to be before it becomes sensible to cut spending even though you know the short run multiplier effects make recession inevitable? If the answer to this is “never” then you presumably have no choice but to engineer a soft currency – is that a cultural choice which when applied to the Euro area makes the Euro a practical impossibility? @ grumpy. The principle must be agreed before there can be a meaningful intellectual engagement on the specifics. This has not yet occured. The principle is whether or not your economic Model-in-Use (which drives your behaviours and choices) is conducive (or not) to a geometric growth trend. Its not (in my opinion). I have not observed (yet) any effort whatsoever in attempting to interrogate these models. Instead what we are witnessing is adult males asserting the opposite whilst using the same dataset. So why is that? How is it that different folk are coming to opposite conclusions? Its maddening. The state gets its income from taxation. Now if the government decides to ‘spend’ more than it extracts in taxation it needs to ‘borrow’. But as the man (Ed Janzen) said, “Today’s debt => to-morrow’s taxes + interest”. And we have arrived at to-morrow to-day. Competitiveness will not save us. Chindia can undercut us by a wide margin. We’re up s**tcreek! Its Jubillee time! re- Mickey Hickey: ‘In my opinion a Euro Zone led by France is our only hope. The alternative is to go it alone which would be fine except we messed up royally for fifty years after 1922 and the likelihood of a repeat is high.’ A eurozone ‘led’ by anyone is a serious political danger. There are genuine calls – and not from the cranks – in europe today talking about how desirable the removal or at least neutering of national parliaments would be. A ‘power-grab’ was mentioned above; a few months ago there was enough implied in Barrosso’s speeches and in what is publicly visible of the subterranean writhings of the eur.commission to suggest that there were at least factions prepared to countenance such a move – ie; a suspension or removal of normal competences outside of any agreed/understood ‘due process’. Surely a solution lies in the ‘interrim’ period ? Much as it was a surprise to the likes of me several years ago to come to the understanding that it had been long ago determined that national democracies were to be superceded progressively [though, in terms of social democracy, regressively] and irresistibly, the ‘transition’ phase (as the ignorant ‘we’ among whom I’m numbered have since leared it was) looks like the only time when europe actually worked. Can there not be a solution sought among the intricacies of a defined balance, where internal economies are to a large extent and political democracies almost entirely seperate to the workings of a ‘europe’ that has a competence solely over the conduits of the co-operation of parts ? The underlying premise of [LIVING IN THE END TIMES] is a simple one: the global capitalist system is approaching an apocalyptic end point. Its “four riders of the apocalypse” are comprised by the ecological crisis, the consequences of the biogenetic revolution, imbalances within the system itself (problems with intellectual property; forthcoming struggles over raw materials, food, and water.), and the explosive growth of social divisions and exclusions. (p. x, 2011) Slavoj Zizek Interesting and provocative reading … fyi 10/23/2012 Euro Crisis Lull Schäuble Warns Worst Is Yet to Come Europe’s debt crisis seems to have entered a calm phase, but that’s only an illusion, German Finance Minister Wolfgang Schäuble said on Tuesday. The worst is probably still to come, he warned. http://www.spiegel.de/international/europe/german-finance-minister-says-worst-is-yet-to-come-in-euro-crisis-a-862994.html @David O’Donnell re: Schaeuble in Der Spiegel. “”We are determined to do everything necessary to preserve the euro as a trustworthy currency,” he said. But reform, he added, must continue to be the priority. “We can’t get around the need for a mid-term reduction in sovereign debt,” he said. As for Greece, Schäuble tread more lightly on Tuesday than he did last week. In the knowledge that “we are all sinners,” he said, it seems likely “that we can come to agreement on a policy that makes sense for Greece.”” How does one preserve trustworthiness in any currency where the economy of that currency is in permanent recession? The determination ‘to do everything necessary’ does not appear to envision any more that debt reduction. Or does it? In the next sentence the translation of ‘mid-term’ may be giving a hint that the some of the life has been flogged out of ‘one trick debt reduction pony’. And in the sentence following that Schaeuble is becoming almost statesmanlike; “In the knowledge that “we are all sinners,” he said, it seems likely “that we can come to agreement on a policy that makes sense for Greece.”” A strange mix in this article. … probably the mushroom soup! Or a welcome outbreak of irony within the aesthetic turn in irish political economics …. @David O’Donnell Europe’s debt crisis seems to have entered a calm phase, but that’s only an illusion, German Finance Minister Wolfgang Schäuble said on Tuesday. The worst is probably still to come, he warned. In the spirit of Churchill’s “History will be kind to me for I intend to write it. Schäuble has warned us that the Euro crisis will get much worse as Germany intends to make it so. Of course “debt crisis” is intentionally misleading, Europe no more has a debt crisis than a poisoning victim has a poor diet. This is depressing. How much time and effort is being wasted analyzing and convulsing about a system that has failed. The simple point here is that public sector spending can only be financed through taxes raised. It is this simple folks. It is this simple. It is this simple. You can forget everything else ever said – this is the solution. No sovereign debt markets, no sovereign debt. Total sovereign defaults and a simple starting again. How long more must we waste time on this. There are jobs to be done. We need to build a future for our kids. Financialism has failed. Don’t call this austerity when Goldmann posts billions in profits and bankers get 500,000 in pay. This is financialism. Austerity has a connotation of worthiness to it. Financialism is pure and utter unadulterated parasitic crap. The solution is so simple. It is so annoying when people spend so long looking at how wrong the wrong answer is @Shay Begorrah Worthwhile keeping an eye on Schäuble. Coping with austerity HOW ARE people coping with austerity? With great difficulty, according to the latest quarterly income survey commissioned by the Irish League of Credit Unions. More individuals and households are struggling to manage falling incomes and rising costs. Half of those interviewed in this national survey are scrambling to pay household bills on time, and almost as many have borrowed from others – mainly family and friends – to do so. The survey results under most headings highlight a deteriorating trend: more people are finding it harder to balance their budgets than before, and they worry about how to cope with imminent energy price rises and tax increases in December’s budget. The International Monetary Fund in its recent report on the economy presented a somewhat more encouraging picture, at least at a macro level. It found that Ireland had avoided an increase in poverty rates relative to Europe despite experiencing a greater economic slump. However, this will scarcely console those who are experiencing real hardship as the gap between their income and their spending widens. For some, as was illustrated by an article in this newspaper last week, the challenge is more one of relative poverty: where a change of financial circumstance makes it harder to live within their means, but according to their expectations. http://www.irishtimes.com/newspaper/opinion/2012/1024/1224325625343.html It is primarily a political matter. Sir Mervyn King, governor of the Bank of England, gave a speech last night in which he said: “Such is the scale of the global adjustment required that the generation we hope to inspire may live under its shadow for a long time to come.” Many look to Brussels, Frankfurt or Berlin for solutions and the ‘more qualified’ (as used by a contributor on another thread or what David Begg might term ‘people of standing’ – – Jim Larkin had a point: “The great are only great because the rest of us are on our knees”) tend to eschew radical solutions for what is under our control, while young people are targeted to bear the adjustments. The recent report on food deprivation highlighted an issue I alluded to yesterday. Ireland does not have the English allotment tradition and what is striking are the current very high subsidies for farming for even watching the grass grow, which has resulted in a big change from the 1970s when most farmers grew vegetables. Ireland produces 5% of the Dutch output of potatoes. Today, staples are likely to be imported and pricy while the tradition of the country cousins bringing produce to their urban relatives no longer applies. On a bigger scale, the fact that 5% of Americans are responsible for almost 40% of consumer outlays (including consumer spending, interest payments on installment debt and transfer payments) while the bottom 80% by income account for another 40%, shows the level of dependence on a small number in an economy where consumer spending accounts for almost 70% of GDP. In his 1776 book, ‘An Inquiry into the Nature and Causes of the Wealth of Nations,’ Adam Smith, a social democrat of his times, noted: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” It’s strange that a plutocrat has an excellent chance of becoming the next president. The heartland used be radical and the death this week of George McGovern, former US senator of South Dakota, highlights this change which Thomas Frank discussed in his 2004 book, ‘What’s the Matter with Kansas?’ – – why relatively poor folk vote against their economic interests. In 1896, the 36-year old William Jennings Bryan of Nebraska captured the Democratic Party’s presidential nomination with his ‘Cross of Gold’ speech arguing for a bimetallic currency standard to help rural residents who had endured 3 decades of deflation [in 1925, Bryan made a fool of himself when he was the prosecutor in the trial of a Tennessee teacher, for teaching evolution. See the impressive Spencer Tracy as the defending lawyer in ‘Inherit the Wind’ (1960)] Finally on austerity again, this is from the latest Irish Stability Programme Update: While taxation receipts in 2012 are projected to be just above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at an estimated €56 billon, is projected to be 37% above the level it was in 2004, despite the very significant adjustments to both revenues and expenditure since mid-2008. While the gap between the State’s revenues and expenditure is clearly on a downward trajectory, it remains at an elevated level and it will need to continue to be addressed by economic and fiscal policy over the coming years. @overseas commentator I have benefited enormously from tight financial regulation. It is unlikely that corporate tax rate can continue to be set by individual countries. An EZ wide band with automatic stabilisers related to a few indices is the most likely outcome. Low corporate taxes was our one trick pony, our holy grail and easily copied leading to a race to the bottom. @MH-FF Anyone who lives to escape West Cork is made of stern stuff, now that you are out life must be one long holiday. I have relatives in Schull, I saw the scraw bogs, the tiny fields, the denuded rocks. In Kerry a major threat was to be deported to West Cork. I might add some good beaches and great bars as well as magnificent scenery. I am advocating debasement of the currency as a last resort that is infinitely better than civil wars or wars between countries. We are only 33 years away from a century of peace in Europe, a bloody miracle. @Mark You put that very well The EU/EZ is well on its way to becoming a confederation. One could say a confederation of confederations. I would look at the USA, Canada, Australia, Germany to see how power is divided between the National and regional governments. Iran had its Stans, the Ottomans continued with leaving the prior national gov’ts intact while levying taxes, Russia is another good example particularly in the USSR phase. I have great hope that Europe will muddle its way through the present troubles and emerge largely intact. @ Shay Begorrah I imagine the boards many market fundamentalists will try and deny Kevin O’Rourke’s excellent article the oxygen of publicity by not commenting, it says much about how current policy is shaped by political and social preferences and not evidence. This argument will not be won by reason, because it is not really an argument. It is a power struggle. This is it, neatly encapsulated in two paragraphs. The crisis is being using as leverage to achieve long-held right wing dreams of dismantling the social democratic progress of the past eighty years, whether in the US, the UK or here. @Mickey Hickey I mostly agree with you (except for the debasement of the currency as being a way out) but I am afraid that 99% of your countrymen cling to the belief that being a tax heaven is the only industrial policy that ever worked in Ireland (besides real-estate bubbles) . @EWI This is it, neatly encapsulated in two paragraphs. The crisis is being using as leverage to achieve long-held right wing dreams of dismantling the social democratic progress of the past eighty years, whether in the US, the UK or here. Ezra Klein, as doctrinaire an American liberal as you could find, had a series of articles on how Germany just wanted to administer tough love to everyone who had not drunk the neoliberal kool-aid but this one captured it best for me. Germany’s high-stakes bet In America, we keep asking why they don’t join with the European Central Bank to end the run on the European periphery. The answer is simple: they don’t want to end the run on the European periphery. To them, the run on Italy and Greece and Portugal and Spain is a feature, not a bug. It’s leverage, and they want to use it. From an American centrists perspective this enthusiasm for German economic imperialism as mediated by the ECB is not as crazy as it might seem, by comparison to the US Germany is after all a workers paradise. So, to recap, the European component of the global financial crisis has been intentionally extended by Germany as a means to shaping Europe to their preferences and advantage, helped along by many in the financial sector as they have essentially the same class interests. Kevin O’Rourke’s and collaborators work is important because it puts the lie to the idea that the current German driven and ECB enforced austerity process is about economic growth, fairness or sustainability. Instead it is a shameless and immoral push by the right to permanently gerrymander economic policy making in Europe to their preferences. Sad to say there are many in Ireland more concerned with ensuring permanent right wing political hegemony in Europe than social justice or Ireland’s survival as a sovereign and democratic state. Shay Begorrah for Taoiseach! Well, we now have outlawed Keynesianism altogether, after all. Argentina’s government will require insurance companies to investment in public infrastructure projects and other “productive investments,” a move that aims to boost the funding of such projects by more than more than ARS7 billion ($1.47 billion) through mid 2013. The imposition on the insurance industry, unveiled by President Cristina Kirchner in a speech late Monday, comes as the government looks for ways to boost economic growth through “counter-cyclical” policies. Earlier this year, the government started requiring banks to boost lending and do it at below-market rates as part of another program aimed at spurring growth. Now the government is requiring direct investment. Read more: http://www.foxbusiness.com/news/2012/10/22/argentina-to-require-insurance-companies-to-invest-in-public-works/#ixzz2AEY54FAO @Ernie Ball Shay Begorrah for Taoiseach! Anonymous troll trumps Enda Kenny in credibility poll. Reaction is muted. No, I feel sorry for Enda. Fine Gael or any European Peoples Party affiliate was going to be too trapped by dogma to fight the wishes of the mother party in Germany and Ireland’s political class as a whole has Dr Pangloss tendencies when it come to analysing changes in the EU (We are for every treaty! Whatever it is!). They are committed to being pro Europe without any real influence as to what Europe means or does. We should long ago have realized that a Danish distance from the EU was safer for us. So Ireland needs a new political framework, principle guided and evidence based and the three largest Irish political parties are too invested in maintaining the current system to risk forging a new one. They all, to a man and woman, need to go. Enda to get German award…wow http://www.independent.ie/national-news/enda-kenny-to-get-award-from-germans-3271721.html And Wolfgang is coming to see us. I’m sorry this is off topic but you have got to see it. It brings a whole new slant to that well known saying, “I’ve got a bridge I would like to sell to you.” http://ekathimerini.com/4dcgi/_w_articles_wsite1_1_24/10/2012_467184 Things are clearly getting bad in Greece. @PR Guy That’s the understatement of the year..getting bad! Jurgen stark said today they are insolvent but what’s new. Still it seems they are going to get an extension. Their finance minister also said there are more ways to skin a cat ( debt reduction). Maybe our lot should take heed. … methinks I recall a comment, could be by Wolfgang, that it was time to dismantle the European Welfare State. This regression to realpolitik and nationalism, with no EU leadership capable of transcending to the next level and integration, allowed the crew who got us into this mess to continue with the same ideology, if deeper, in the ruse of a so-called ‘correction’. Time to cop ourselves on. @David O’Donnell … methinks I recall a comment, could be by Wolfgang, that it was time to dismantle the European Welfare State. You may be thinking of this interview with good guy purely by default and ex Vampire Squid banker Mario Draghi: http://blogs.wsj.com/eurocrisis/2012/02/23/qa-ecb-president-mario-draghi/ WSJ: Do you think Europe will become less of the social model that has defined it? Draghi: The European social model has already gone when we see the youth unemployment rates prevailing in some countries. These reforms are necessary to increase employment, especially youth employment, and therefore expenditure and consumption. WSJ: Job for life… Draghi: You know there was a time when (economist) Rudi Dornbusch used to say that the Europeans are so rich they can afford to pay everybody for not working. That’s gone. Schauble makes Draghi seem like Castro. @Shay Begorrah Ta. I remember that one. Sure someone will come up with a comment from Wofgang on same, even in passing. @all Bit off Thread Of what benefit is this scapegoating of the leading experts in the Irish health service – the consultants? As I have noted before, I believe that we need many more of them – and a more progressive set of career paths for all areas of real expertise within the service. http://www.irishtimes.com/newspaper/opinion/2012/1025/1224325681654.html Worth a read. Press Release: Statement by the EC, ECB, and IMF on the Review Mission to Ireland http://www.imf.org/external/np/sec/pr/2012/pr12398.htm 10/25/2012 25.10.2012 The World from Berlin ‘Euro-Zone Plans to Fix Greece Have Failed’ Greece says it has been granted an extra two years to meet austerity targets. The EU and IMF deny it. According to press reports, Athens needs an extra 20 billion euros in aid. It is difficult to determine exactly what might come next for the country, but commentators say it is clear that Europe is at a crossroads. http://www.spiegel.de/international/europe/mixed-messages-from-greece-and-eu-on-two-year-austerity-delay-a-863353.html Every time I take a peek at the IE, I get the same dull ache in the pit of my stomach. Shay B. “Instead it is a shameless and immoral push by the right to permanently gerrymander economic policy making in Europe to their preferences. Sad to say there are many in Ireland more concerned with ensuring permanent right wing political hegemony in Europe than social justice or Ireland’s survival as a sovereign and democratic state.” The right. The right. Where is the right? It is not there at all. The hegemony you speak of is of the left. It is the State that is the monster. And the state is socialistic. It is the social welfare state. If the right was in any way strong we would have economic freedom. Economic freedom cannot coexist with socialism. The social welfare state does not invest society with justice. The system we live under is vicious and predatory of its own citizens. The social welfare state is by definition an assault on personal freedoms and the greatest injustice. The socialist state detests and will destroy the citizen who seeks a better life, unless it is a betterment granted by the state. Our sovereignty is being sold away but that was always the likely outcome. Our political class runs a cleptocracy and will stop at nothing in order to keep their noses in the trough. The scandal is within the intelligentsia however. Here we find the cheerleaders and the consultants that guarantee the permanence of the state. They are of course on the states payroll. It serves them well to devise a curriculum that provides an unending line of unthinking drones. Ready made recruits available to perpetuate the system of control. It is to be expected that they will favour an intellectually disgraced “General Theory” of economics over the truth because this theory permits governments to be profligate. After all a government can always steal more money at will, which sustains the apparatchik. re- ‘The right. The right. Where is the right? It is not there at all. The hegemony you speak of is of the left. It is the State that is the monster. And the state is socialistic. It is the social welfare state.’ Getting close to the problem, there, but not quite. When the ideology becomes the abstract, the right & left State – as a machine – become the obverse of each other. …Once this ‘thing-for-it’s-own-sake’ has come into existence – the apparatus of political & economic competences to which the peoples-as-community-&-as-individuals are merely are enlisted and subsidiarised – the question of whether the thing is apparently more right or left-wing is merely one of the prevailing humour of the ‘thing..’ The mooted ‘federation’ will exaggerate further this tendency – it already exists, of course; but as things stand the national government still has to pay a greater degree of lip-service to the notion of government-as-organ-of-representation-of-the-people, foremost, than will be the case under the european machine. I certainly will never denounce the social protection/inclusion premise that has grown in our civilisations, but look at the european ‘left’ today – it is merely an appearance, a humour, as I said, of the runaway golem of abstracted power, capital… whatever you want to call it, and it’s servants. Comments are closed.