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What the Economist hates about Europe in two sentences

by Jerome a Paris Mon Nov 17th, 2008 at 05:21:45 PM EST

from their Charlemagne colum, in this case about the eurozone's "gloating": The euro may not be quite as safe a haven as enthusiasts are claiming

Euro membership is certainly not a panacea. It can store up trouble by reducing pressure for structural reforms (...)

Calling the euro a haven from the storm is not just economic nonsense. It is political bad sense, since nobody is going to be sheltered from this deluge. Voters need to understand that, now.

In other words, they hate Europe and the euro because it works (and limits the potential for the shock doctrine kind of "reform"), and they are actively promoting the notion that there is no escaping the financial crisis: they will take us down with them (and keep us below them, which is all that matters).

"Let us rule or suffer." The pettiness of the neolib elites in a nutshell. I still expect it won't work this time.


Display:
The FT rates the Minister of economics of the EU. The criteria are as follows:


The economic rankings:

  • Test 1: Public sector balance as a percentage of gross domestic product, 2009 forecast, cyclically-adjusted. Ranked by size of surplus.
  • Test 2: Percentage point change in public sector balance since 2004.
  • Test 3: Overall tax burden as percentage of GDP, percentage point change 2002-2007
  • Test 4: Change in "tax wedge" or difference between labour costs to employer and net take home pay of employees, 2002-2007
  • Test 5: Percentage point change in overall tax rate on dividend income, 2003-2008

The political tests, based on voting by an eight-strong panel of economists and commentators, rank the ministers according to the following attributes: lucidity. (swiftness in realising the extent of the global banking crisis), leadership skills (including role played at a European level) and élan (effectiveness domestically).

So the best minister is the one that cut taxes a lot, and cut spending even more and then, with élan and swiftness, calls the crisis a big one. Sounds like a fun job!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Nov 17th, 2008 at 06:42:59 PM EST
I'm surprised they don't have "willingness to take it up the ass from the wealthy benefactors of their party after tea and crumpets, like Saint Tony did," up there.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Mon Nov 17th, 2008 at 07:21:02 PM EST
[ Parent ]
Like you, I suspect likewise. The English are terribly exposed right now without a reserve currency, which we have. I've been meaning to blog on this (unfortunately, work calls) but really, the UK are at a monetary crossroads every bit as fraught with risk as the fiscal crossroads at which the US found itself a decade ago and are paying for now. The US risked being a very large Argentina, and today we will see how that plays out. Not as extreme, perhaps, but size makes up for it. Which simply means it's, imho, likely to play out over a decade or so rather than a few years.

The UK looks like a very large Iceland.

Again, size matters. But, in this case, willingness of monetary authorities willing (and at what price) to bail out distressed sovereign banks in neighboring currency zones also matters.

Imho, it's time, strategically, to think about and discuss that price.

 

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Mon Nov 17th, 2008 at 07:19:04 PM EST
Perhaps ET should create an award.  Call it The Hoover, after Herbert.  It would be awarded to the individual or organization that, in any given year, does the most effective job of selling the public on suicidal public policies.  Those who are not still in positions of public influence will not be considered.

For the Inaugural Hoover Award I nominate The Economist.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 17th, 2008 at 09:35:18 PM EST
A great idea!
Wry, knowledgeable humor has a way of getting a laugh while making a point.
A bit of humility thrown in, like recognizing when we also got it really wrong, would be a good thing.

But then-- when did we really get it wrong?

Those who assume the mantle of infallibility lose all credibility.  

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Tue Nov 18th, 2008 at 02:02:01 AM EST
[ Parent ]
Sounds like a very appropriate title.  Hoovers make a lot of noise, use up a lot of energy, create a vacuum (think moral, intellectual), and pick up a lot of crap.  Most of it turns out to be fluff - never figured where it all comes from - but the Economist sure is full of it.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 18th, 2008 at 07:42:57 AM EST
[ Parent ]
Yeah, the "Giant Sucking Sound" aspect occurred to me, but I wanted to keep the proposal simple.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 18th, 2008 at 11:29:34 AM EST
[ Parent ]
The hatred of Europe I'll grant you, but I see fear of the decline of sterling, the need to join the euro, and the end of British pretention to superiority, profiled behind this column. Charlemagne is scared.

And see Willem Buiter's blog in the FT, where he explains (with charts) the current risks to sterling:

FT.com | Willem Buiter's Maverecon | Could the UK face a sterling crisis, or are we in one already?

But in these data there is nothing that cannot be explained as a (long overdue) correction of a persistent overvaluation of sterling - a misalignment that has biased the economic playing field against industries, both exporting and import competing, that would have had a fairer crack of the whip at a more reasonable exchange rate.

One interpretation of the drivers of this persistent overvaluation would be a Dutch disease story, where the role of the natural resource sector in the standard version of the Dutch disease is taking by the UK banking sector.  In this interpretation, a long financial industry bubble in the UK has driven up the real exchange rate in the whole economy and crowded out other sectors producing internationally tradable commodities.  The recent sharp depreciation of sterling corrects this long-standing anomaly.

Clearly, this conjecture requires further thought and research.

(My bold). That's very, very close to the Anglo Disease bone, close enough to wonder about a "lift"?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 18th, 2008 at 03:29:31 AM EST
I was going to blog his last one,Reykjavik-on-Thames:

With the pound sterling dropping like a stone against most other currencies and credit default swap rates on long-term UK sovereign debt beginning to edge up, this is a good time to revisit a suggestion I made earlier on a number of occasions (e.g. here, here and here), that there is a non-trivial risk of the UK becoming the next Iceland.

The risk of a triple crisis - a banking crisis, a currency crisis and a sovereign debt default crisis - is always there for countries that are afflicted with the inconsistent quartet identified by Anne Sibert and myself in our work on Iceland: (1) a small country with (2) a large internationally exposed banking sector, (3) a currency that is not a global reserve currency and (4) limited fiscal capacity.

Non-trivial risk of the UK becoming like Iceland. Very very much like Anglo Disease, terminal stage.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Tue Nov 18th, 2008 at 04:02:27 AM EST
[ Parent ]
Oh my, this is copyright!

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Tue Nov 18th, 2008 at 04:14:34 AM EST
[ Parent ]

Dear Mr Buiter,

I was very interested to read your comment about the UK suffering from a new form of "Dutch Disease" as this is a theory I have been working for the past year and a hlaf, and which I have dubbed "Anglo Disease"

You can read the whole genesis of the projet at this link (http://www.eurotrib.com/story/2008/10/17/62354/121) and an attempt at a summary, in Op-Ed form, at this link (http://www.eurotrib.com/story/2008/2/3/10253/66655) - this was written last February. I have already sent that text to your colleague Martin Wolf; he finds it too ideological - disagreeing that there was an intent behind the policies that brought this situation.

Kind Regards,

JG
Editor, European Tribune

We'll see if there is a reaction...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 04:18:24 AM EST
[ Parent ]
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:08:24 AM EST
[ Parent ]
My web filter at work won't let me read that website... (sigh)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 05:17:21 AM EST
[ Parent ]
The intro quotes some Buiter, but you've read that column, so I'll skip over it:

Tax Justice Network: British pound, Dutch Disease

Well, we've written a fair bit about the Dutch Disease in the context of tax havens. A recent blog of ours explained the essence of the problem like this:

"It is part of a wider phenomenon known as the Paradox of Plenty: more money can sometimes actually make you poorer. It goes something like this: large inflows of money (in the case of, say, Angola, it's oil money; in Jersey's case it's money owned by rich Angolan politicians and others from around the world who love Jersey's tax haven status) cause prices to rise - either through a shift in the exchange rate, or through inflation, or both. The effect is to make everything produced locally more expensive, and so these sectors -- like agriculture or tourism -- can't compete. They wither. The tourists stop coming because it's too expensive. And so on."

More research is certainly needed on this. And where better to look for the problems associated with a dominant financial industry than . . . tax havens? Last year TJN's John Christensen published a paper in the Annals of Tourism Research which explores this in more detail. Although it doesn't use the term "Dutch Disease" by name, the same analysis is involved.

Here are a few choice quotes from the report, which contains much hard data too:

"Financial capitalism appears to be able to out-compete other industries, particularly tourism, to gain dominance within the local political economy."

This is just what dominant oil industiries do in places like Nigeria and Angola. A couple of anecdotes illustrates the point: Nigeria's agriculture export sector fell by around half in just a few years during the 1970s oil boom, as the oil money started flooding in. More than 99.5% of Angola's exports are made up of oil, refined oil products, diamonds, and other minerals. There's almost nothing else - and this from a country with fabulously fertile soils and good rainfall, which in the pre-independence period was one of Africa's export powerhouses. Here are some more specific symptoms, from the article in the Annals of Tourism Research.

"The macroeconomic consequences of crowding-out in a small island economy include labour cost inflation, widening income disparity, chronic labor shortages, and severe pressure on the island's land and real estate markets."


Anyone familiar with oil-dependent nations in the developing world will recognise these symptoms immediately. TJN contains experts in both the tax haven world, and the oil-in-Africa world, and we have been astonished by the extraordinary similarities of these countries with such different backgrounds and experiences. Here is another important point from the article:

"Despite their remoteness and lack of comparative advantage, small islands exist simultaneously, and paradoxically, both at the margins of advanced captialism and at its very center."


What these secrecy jurisdictions have become is the crucibles of the deregulated global economy. And this is where they can differ a bit from the mineral-dependent nations. Because of the small scale of tax haven islands like Jersey, and the huge crowding-out that happens, they have become the most captive states of them all, in political terms. The politicians are extraordinarly vulnerable to the lobby groups. In Jersey's case we are talking about the banks, the Jersey Bankers' Association, the Society of Trust and Estate Practitioners (STEP,) a group made up largely of solicitors, who wine and dine these places' hapless politicians in the world's most expensive restaurants.

Dutch Disease effects can take many years to reverse: once you've killed off manufacturing, agriculture, tourism, and so on, it isn't easy to rebuild it, even once the exchange rate has changed again. Worrying times indeed. A full copy of the tourism research paper is here.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:48:40 AM EST
[ Parent ]
We should certainly post a link to the Anglo disease (ie a copy of my comment above) on their site. Can anyone do it, givne that I have no access?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 18th, 2008 at 06:05:06 AM EST
[ Parent ]
Done.
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 06:57:17 AM EST
[ Parent ]
The linked paper is also interesting:

ScienceDirect - Annals of Tourism Research : Competing industries in islands a new tourism approach

Competing industries in islands a new tourism approach



Mark P. Hamptona, and John Christensenb

aUniversity of Kent, UK

bTax Justice Network, UK
Submitted 27 March 2006. Resubmitted 19 December 2006. Resubmitted 9 March 2007. Final version 18 April 2007. Accepted 26 May 2007. Refereed anonymously. Coordinating Editor: David H. Harrison.  Available online 22 September 2007.
Abstract

Many islands host both tourism and offshore finance, but their coexistence has been little researched. This paper examines their relationship via a case study of the British Channel Island of Jersey. Both sectors require labor, land, and capital--all frequently scarce in small islands. The study considers the nature of the relationship and resource competition. In light of the unusual context of small polities and the political power of external actors, it also analyzes the dynamics of tourism, offshore finance, and the state in islands. The overall impact of the relationship between tourism and offshore finance is further examined, to suggest how this affects islands' economic development.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 07:00:38 AM EST
[ Parent ]
Name of the blog: Tax Justice Network

Subtitle: Why Tax Havens Cause Poverty

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 05:50:42 AM EST
[ Parent ]
This effect was clearly at work in California during the Gold Rush.  Gold was relatively one of the most abundant economic "goods" and transportation was expensive, not least because ships came to be abandoned in San Francisco Bay as crews jumped ship for the gold fields.  The long term beneficiaries were individuals such as Levi Strauss, Leland Stanford, Henry Huntington and William Crocker who used the opportunity to build railroads, banks and other economic infrastructure.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 18th, 2008 at 01:15:08 PM EST
[ Parent ]
I concur.. he is scared.. it shows in a kind of inconscious way, the notions, the justifications when there is no need, the construction of some sentences.. it show he is worried in a  very peculiar way... worried that a particualr world view will not be relevant any more to expalin with its narrative what is deepemd as a fundamental fact..

These kind of worries are the definition of being scare to death.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Nov 18th, 2008 at 07:15:24 AM EST
[ Parent ]
For those who believe that "reality" just is, as opposed to being an ongoing social construction, having your world view fall apart is the same as having your world fall apart.  If one believes that "reality" is created by God, fundamental changes can be seen as evil triumphant or as being a curse inflicted by God.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 18th, 2008 at 01:20:34 PM EST
[ Parent ]
Absolutely.. Dead on.

he is scared because his world is falling apart....the belief -system of a fundamentalist is more difficult to change...since evil triumphant and curse are very powerful explaining principles.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Tue Nov 18th, 2008 at 03:28:26 PM EST
[ Parent ]
The b*stards are reading the ET! ;-D

(Beyond us b*stards I mean.)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 18th, 2008 at 01:07:10 PM EST
[ Parent ]
Someone please take this subthread and make a diary out of it! :-)

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Dec 12th, 2008 at 05:00:24 AM EST
[ Parent ]
Its all the US Government's fault for not bailing out Lehman and being nasty to Fannie Mae shareholders - but Brown has a cunning plan.  Lets devalue our way out of this crisis - as we have always done...and pity those poor Europeans, stuck with their Euro - they're so rigid they can't devalue their currency, and so stupid not to realise that this is the way to go. Viva Brittania (as she sinks beneath the waves) and as the band Kaletsky is conducting plays on the desk regardless.  

Pound's fall may herald recovery not doom | Anatole Kaletsky: Economic view - Times Online

It's an ill wind that blows no good. The US Treasury's decision to bankrupt Lehman Brothers and expropriate the shareholders in Fannie Mae caused the worst financial crisis in history, but it also secured the presidency for Barack Obama and is now transforming the economic and political landscape of Britain. The dithering incompetence of Henry Paulson has, by force of contrast, restored the credibility of Gordon Brown, both as Prime Minister and as an international leader. The UK economy, which had previously looked more vulnerable to the global recession than any other G7 country, is now likely to suffer less than the rest of Europe, as a result of unprecedented policy stimulus from the lowest interest rates in history, a super-competitive currency and a big reduction in tax. Meanwhile, the Conservative Opposition in Britain has been confused, discredited and splintered by the financial crisis as badly as John McCain's campaign.


notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 18th, 2008 at 07:59:39 AM EST
As I noted elsewhere about Kaletsky's view:

As a UK resident, I hope Mr Kaletsky's optimistic outlook is correct. I worry however, that the chain of logic he outlines doesn't seem to take account of the banking crisis at all.

Yes, the Switzerland and Iceland models work well in normal times. The problem appears to be that these are no longer normal times. Iceland is the canonical example, but Switzerland's frantic attempts to shore up UBS in a way that doesn't attract the eyes of the press suggests that something is amiss even there.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 18th, 2008 at 08:19:11 AM EST
[ Parent ]
These are normal times Metatone.

This is the second recession I have been through this decade. I have lived through 4 recessions (and I am discounting the ones in the seventies because I was too young to know what was happening) and 2 property crashes.

My father was made redundant when I was 16. I have been made redundant twice. I would have been made redundant last week but for the saving grace of moving to a job in the Netherlands.

This is all I have ever known.

Money is a sign of Poverty - Culture Saying

by RogueTrooper on Wed Nov 19th, 2008 at 06:20:00 AM EST
[ Parent ]
Sobering comment. Make it a diary and I'll front-page it.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Dec 12th, 2008 at 05:02:49 AM EST
[ Parent ]
Just copy and past it with a link to here and a refernece to the discussion in yesterday's story.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Dec 12th, 2008 at 06:29:32 AM EST
[ Parent ]
Which yesterday's discussion? DE vs. UK?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Dec 12th, 2008 at 07:13:07 AM EST
[ Parent ]
Yes - Metatone's comment, again, about this not being normal times, pace Krugman.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Dec 12th, 2008 at 07:22:52 AM EST
[ Parent ]
Okay, I'll compose something.


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Dec 12th, 2008 at 07:28:10 AM EST
[ Parent ]


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