Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

The new private state

by Carrie Tue May 3rd, 2011 at 07:26:24 AM EST

Last week, an interview with Spanish Prime Minister Zapatero was released by YouTube, in which ZP spoke mainly but not exclusively about economics. The headline chosen by El Pais says it all.

Zapatero: "Para que te presten dinero hay que hacer recortes" · ELPAÍS.comZapatero: "To be lent money one has to make cuts" - ElPais.com
"12 de octubre de 2008. París. Sede de la Presidencia de la República Francesa. Todos los líderes europeos viendo cómo se hundía el sistema financiero y la economía mundial". Esta es, para el presidente del Gobierno, José Luis Rodríguez Zapatero, la experiencia que hizo que cambiara su forma de ver el mundo, según ha revelado en una entrevista concedida a YouTube en la que las preguntas las han formulado internautas de todo el mundo. La crisis financiera y la economía han centrado el 50% de las cuestiones recibidas, aunque la educación, el futuro nuclear y el sistema democrático también han estado sobre la mesa."12 October 2008, Paris, site of the Presidency of the French Republic. All the European leaders watching the world financial and aconomic system founder". This is, for the [Spanish] Prime Minister, Jose Luis Rodriguez Zapatero, the experience that made him change his view of the world, as he has revealed in an interview given to YouTube in which netizens from around the worl have made the questions. The financial crisis and the economy have concentrated 50% of the questions, though education, the future of nukes, or the democratic system have also been on the table.
......
El jefe del Ejecutivo ha defendido también el fondo de rescate de la UE que ya ha sido concedido a Grecia, Irlanda y Portugal. El presidente ha asegurado que es un mecanismo solidario "con quien pasa momentos difíciles". Y ha recuperado uno de sus momentos más difíciles al frente del Gobierno: "Sé que es muy duro porque para que te presten dinero hay que hacer recortes", ha asegurado Zapatero, que en mayo del año pasado defendió en el Congreso las medidas de ajuste aprobadas por el Consejo de Ministros.The [Spanish] chief executive has also defended the EU's rescue fund which has already been awarded to Greece, Ireland and Portugal. The President assured that this is a mechanism of solidarity "with those goung through hard times". And has recalled one of his hardest moments at the Government's helm: "I know it is very tough because to be lent to one has to make cuts", assured Zapatero, who in may last year defended before the [Spanish] Congress the adjustment measures approved by the Council of Ministerd.

After recently announcing he would not run for reelection in 2012, Zapatero has gone on a media blitz, coinciding with the campaign for the upcoming local and regional elections in Spain, in which he intends to explain the decisions that have been taken by his government on the economy. The most important sitting Social Democratic leader in the EU becomes an evangelist for Aust[e]rian economics.

Bumped, essential discussions - afew

For at least the last 30 years, and definitely since the Reagan/Thatcher revolution got going, a frequent mantra of right wing politics has been that "the state must be run like a private firm". In the Europe in the 1990s the right wing, enabled by third-way social democrats, managed the spectacular feat of structuring the Eurozone around rules that make it all but impossible to run the state in any other way, to the point that Zapatero now freely admits and preaches that the state needs to fund itself in the capital markets (or borrowing from other states) and that in order to access credit it has to be thrifty. So the fourth largest Eurozone member state must run its financial affairs just like a private firm, or a local government, and this is the message coming from a Social-Democratic leader. How the mighty have fallen.

The main distinction between a State and a local/regional government used to be that the State had monetary sovereignty. This was especially true in the post-Bretton-Woods floating-exchange-rate fiat-currency regime. Monetary sovereignty means that the state can create money by spending it into its economy or, under financial convention, selling newly issued bonds to its central bank in exchange for newly created fiat money. In this way, the Treasury/Central Bank system enjoyed access to seigniorage income. Local and regional governments lacked this ability and depended on a combination of local taxes and central government funding. Similarly, private firms needed to rely on their operating income exceeding, on average, their expenses.

The Eurozone rules, enshrined in the Maastricht Treaty (now part of the Lisbon Treaty), explicitly bar the ECB from giving credit to public entities or buying their bonds. This, quite simply, means the Eurozone member states now operate as local/regional governments under them used to. Lacking funding from a supranational entity since the European Union does not have its own fiscal resources, all states can rely on is their own tax income and they must run balanced budgets like a private firm or a local government in order to retain access to private credit. In the Eurozone, therefore, the State must be run like a private firm. What used to be a political slogan is now the only way to function consistently with the institutional framework. Even the Social Democrats admit it and propagate it. Now let's look at the consequences.

The most important consequence of running the state like a private firm is that the state should not be in the business of providing free or implicit guarantees of any kind, as these are large "contingent liabilities" threatening to bankrupt the state. The threat of bankruptcy is real, as the state must fund itself by borrowing from private lenders, unable as it is to create money to fund necessary expenses deriving from the exercising of implicit guarantees. One alternative to bankruptcy is default, but this is considered unthinkable as defaulting on obligations to fellow EU member states is "uneuropean". In addition, countries with a large primary trade deficit may find it impossible even to default.

So, what kinds of implicit guarantees are Eurozone governments providing that they shouldn't be in the business of providing? I can think of half a dozen off the top of my head:

  • deposit insurance for banks
  • granting limited liability to businesses
  • disaster relief
  • access to health care
  • access to education
  • access to legal redress
  • public safety
All of these are implicit guarantees that every citizen in Europe expects to enjoy relatively free of charge. These are large contingent liabilities of the state. Any and all of them could not be undertaken by a private entity that didn't charge hefty fees up front and wasn't adequately capitalised in case a particularly large claim presented itself. Would you pay a savings deposit insurance premium to an inadequately capitalised insurance company? (not that "sophisticated investors" didn't do exactly that when they bought CDS "protection" over the past 10 years) Would you incur risks with a full-liability entity having less capital than your potential loss? Would you trust you can be rescued from a disaster by an entity without the capital and operating income to actually fund a rescue operation? How about health insurance from an entity without the resources to pay for the treatment? How about your right to file a complaint to an entity without the necessary money to operate a grievance handling system? How about contracting physical security or firefighting services from an entity without the operating income to actually deploy security or firefighters?

So, seriously, Mr. Zapatero, if "to be lent to you need to make cuts", how about cutting the €100,000-per-person-and-bank deposit guarantee, which is currently underfunded and undercapitalised? How about declaring that the government will no longer pay for damages caused by private firms over and above their capital according to limited liability laws? How about announcing that the government is undercapitalised and underfunded to carry out disaster relief? How about announcing that the government can no longer make good on the "right to health and education, access to the justice system, or public safety and security"?

If we're really going to run the state like a private firm, how do we fire the citizens so they no longer represent a net expense? I challenge you, Mr. Zapatero, to balance Spain's books by declaring the 5 million unemployed Spaniards "undocumented aliens" and deporting them. After all, that's the kind of personnel "cuts" that private firms make "in order to be lent to" by private lenders.

Display:
The new private state | 158 comments (158 topical, 0 editorial, 0 hidden)
Re: The new private state (4.00 / 12)
To sum up: if the state must run its finances like a private firm, it should get out of the business of providing implicit guarantees because it is underfunded and inadequately capitalised for the purpose.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Sat Apr 30th, 2011 at 09:21:50 AM EST
Re: The new private state (4.00 / 2)
Or it needs to become adequately capitalised. As every credit is created with a debit on the other side it means somewhere huge debts muss be amassed. Since companies go bust when they are insolvent (except those to big to fail), it would mean that private individuals must - on average - be deeply in debt in excess of their assets. Citizens being deeply in debt to their state makes sense as they are anyway the true asset of a government.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun May 1st, 2011 at 06:05:11 AM EST
[ Parent ]
Re: The new private state (4.00 / 2)
Well, either that, or we could develop a National Equity in respect of national productive assets, with the National Debt restricted to the rump of credit necessary for the circulation of goods and services and the creation of new productive assets.

Since Equity is an entirely different type of obligation to debt, we would see Equity on one side of the balance sheet, with assets on the other, and a dividend from the use value of the productive assets, rather than arbitrary compound interest on a credit object.

In fact, it could be said that the supply of modern money (notes and coin) has become a vestigial National Equity. This money (and QE is a virtual variant) is in fact - like Equity - a creditary instrument rather than a debt instrument.

The failure to understand the true polarity of our existing money's 'creditary' nature is what condemns Keynesian and Austerian economics to failure.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 1st, 2011 at 07:32:44 AM EST
[ Parent ]
Re: The new private state (4.00 / 3)
...it would mean that private individuals must - on average - be deeply in debt in excess of their assets. Citizens being deeply in debt to their state makes sense as they are anyway the true asset of a government.

That might be possible were we able to adopt a nonchalant attitude towards the necessity of paying off that debt. In fact, in the US, in the UK and, infamously, in Ireland, select portions of large private debts have been assumed by the public. The problem with the current version of the national debt is that fears are developing that we will be unable to service the interest on the debt. In the US Bernanke and Geithner, between themselves, have nearly tripled the monetary base and sent the Total Public Debt Outstanding, (that portion of all US debts the US Government is obliged to pay), from under $10 trillion to over $14 trillion between September, 2008 and the present. This debt is now very close to the size of the US annual GDP, the growth of which seems now headed for negative  territory.

The service of that debt is not too burdensome at current interest rates, (1% of $14 trillion is $140 billion), but could become crushing at higher rates, say 6%. The problem is that so much of the additional debt has been assumed for unproductive purposes -- saving TBTF which are almost certainly unsalvageable, and propping up the stock and commodities markets with QE money, which, come the next crash, will end up generating even more losses as that money is destroyed.

Absent any effective legal constraint, most new hiring that corporations do will be in low wage countries. This makes sense for them, but is a fallacy of composition in that it does not make sense for the country as a whole, as it fails to contribute much to domestic purchasing power and tax revenues. Perhaps that is the core problem with "Mainstream Economics". It has come, effectively, to view everything from the perspective of the individual firm and ideology blinds adherents to the reality that the collective needs of the state differ from those of the firm or individual. Thus they have created a false to fact map that makes it difficult to arrive at an intended destination.

The situation in the EU is likely very different in its particulars, as there is no real mechanism comparable to the US Treasury and Federal Reserve that is authorized to create and manage public debt on a scale comparable to the national debts of the countries comprising the EU.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 11:36:42 AM EST
[ Parent ]
well duh (none / 1)

 private individuals must - on average - be deeply in debt in excess of their assets

yes: it's called tax liability.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun May 1st, 2011 at 12:13:42 PM EST
[ Parent ]
Re: well duh (4.00 / 2)
But taxes tends to be less then individuals total assets.

My point is that we have three classes of balance sheets here (as long as todays credit money is used): Governmental, corporate and private. And if I understand things correctly all credit is created at the same time as debt.

Corporate balance sheets must be positive, or the company is dissolved. Private can be positive or negative, but tends towards positive. Governmental makes up the balance, thus is mostly negative.

If government is run as a company and then should have a positive balance sheet, it must set taxes to more then can be paid. I do not know how that would play out.

If my reasoning here is wrong, I am grateful for critique that points out where it is wrong.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun May 1st, 2011 at 03:14:46 PM EST
[ Parent ]
Re: well duh (none / 1)
Corporations are merely "fictitious legal entities' with most of the rights of individuals and several rights not held by individuals. They can go into debt as readily as can individuals. They are only dissolved when most agree that they cannot now and have little prospects of paying debt that they have contracted. They can be in a state of insolvency for quite some time if they can adequately disguise that fact, as can individuals.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 03:29:05 PM EST
[ Parent ]
Re: well duh (4.00 / 6)
More or less, yes.

There are actually six items of interest:

  • Individual and corporate balance sheets

  • Individual and corporate cash flows

  • The state balance sheet

  • The state's cash flow

  • The net foreign debt

  • The foreign balance

Usually, the state's balance sheet is highly incomplete, because a large number of items are either grossly undervalued (e.g. infrastructure), missing (e.g. unexploited natural resources) or impossible to value (e.g. governmental legitimacy or future tax revenues).

For a sovereign state, that is not a problem, because a sovereign state is solvent by definition as long as its jurisdiction as a whole is solvent. So for the sovereign state, the items of interest are the cash flows (because they are the ones that determine short-run macroeconomic stability, or lack thereof) and the solvency of the private sector (which tells you whether you're headed for a serious bust).

If the foreign balance is negative, the size of the foreign debt is also of interest. If it is positive, the foreign debt is not interesting unless it is to people who are in the habit of sending gunboats to collect.

For a member state in a federation where the federal level has abdicated its responsibility to pursue full employment, the public balance suddenly becomes interesting. Because then it becomes important to know whether the state is solvent: If the state is not solvent, it will have difficulty conducting macroeconomic stabilisation policy, because it will have difficulty borrowing during downturns.

The problem is that, when the federal level absconds from even its duty to function as lender of last resort, the valuation of all the missing bits of the public balance sheet is left to the wild mood swings of the money markets. With the results that we've all become drearily familiar with.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 12:42:08 AM EST
[ Parent ]
Re: well duh (4.00 / 2)
JakeS:
For a member state in a federation where the federal level has abdicated its responsibility to pursue full employment, the public balance suddenly becomes interesting. Because then it becomes important to know whether the state is solvent: If the state is not solvent, it will have difficulty conducting macroeconomic stabilisation policy, because it will have difficulty borrowing during downturns.

The problem is that, when the federal level absconds from even its duty to function as lender of last resort, the valuation of all the missing bits of the public balance sheet is left to the wild mood swings of the money markets. With the results that we've all become drearily familiar with.

Jeebus, Jake, if you continue making two-paragraph pithy summaries of the implied points of my longwinded rants you're going to put me out of business...

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:36:40 AM EST
[ Parent ]
Re: The new private state (none / 1)
On the Treasury/Central Bank system being adequately capitalised, see Can central banks go broke? by Willem Buiter on May 16, 2008.

A key component of the capitalization of central banks is seigniorage income.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Sun May 1st, 2011 at 03:45:36 PM EST
[ Parent ]
again (none / 0)
you can increase taxes.

Runaway debt has been the solution to the problem created by insufficient tax revenue. Now that door (debt) is closing, so the debate needs to be put back firmly where it belongs: on increasing taxes.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun May 1st, 2011 at 12:15:30 PM EST
Re: again (none / 0)
The Gadaffi Model ... the wealthy will allow themselves to be taxed when Gadaffi gives up power ... over his dead body.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Sun May 1st, 2011 at 12:40:45 PM EST
[ Parent ]
Indeed.... (4.00 / 3)
......but taxation should IMHO be dramatically increased on unearned income from privileged property rights and actually cut in respect of earned income.

The current position in the UK and the US at least is that taxation based on land value is less than 7% of the tax take. Whereas in that hot-bed of socialism - Hong Kong - it has historically been over 30%, with the result that the HK population do not have both the landlord and the government monkey on their shoulder.....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun May 1st, 2011 at 12:52:05 PM EST
[ Parent ]
Re: Indeed.... (none / 0)
When I was in Hong Kong earlier this year, one of the local scandals was that one of the local billionaires had scandalously been allocated a few hundred square meters of land in the not so dense part of the island, significantly increasing the size of this garden - than makes for a very small property for a very wealthy guy...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sun May 1st, 2011 at 02:53:22 PM EST
[ Parent ]
Re: again (none / 1)
The problem is that, with the great majority of financial assets in the hands of the wealthy the only way for the state to reassert solvency is to levy a tax on those assets. One way would be to assess an annual tax of up to a couple of percent on assets of individuals and corporations over the equivalent of a few million $US. Another way would be to increase and reform estate taxes and to make trusts taxable. The wealthy would see these as the equivalent of bringing back the guillotine and the mob, so perhaps a means of giving them the choice could be devised. But, unless the wealth of all who do business in a country is available to tax, there is not likely to be sufficient wealth to support and pay down excessive debts that are on the order of the GDP.

But of equal importance is restoring the rule of law and insuring that it applies to the wealthy as well as the poor and instituting fiscal policies that support higher wages and domestic production. High taxes must be levied on the wealthy to pay down a debt that was substantially incurred on their behalf. Such an experience would make them more concerned about the effects of spending and debt before the state incurs it in the future. The only alternative is defaulting on obligations to the retirees, and that only temporizes the situation. In the end there are no solution but to default on the debt held by the wealthy or to tax the wealthy to service that debt.

The revenge of TINA!

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 01:41:56 PM EST
[ Parent ]
Re: again (4.00 / 2)
Runaway debt has been the solution to the problem created by insufficient tax revenue.

That's a nice impression of a German dining room table you're doing there, Jerome.

We talk about the euro crisis. They say, "Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules." I say, No fiscal rule would have constrained the Spanish housing bubble and its consequences.

And they say, "Thank you for your contribution. Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules."

Runaway private debt has been the solution to the problem of entrenched trade imbalances and public deficit caps.

Then the state made good on the implicit guarantee of the solvency of the private sector.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Sun May 1st, 2011 at 02:45:48 PM EST
[ Parent ]
Re: again (none / 1)
I did mention tougher banking regulations as well.

Note that tax policy can be used in various ways that would work:

  • taxing high revenues will reduce the incentive for "casino" "investment" activity
  • taxing capital gains will also limit asset bubble prices
  • if the private sector is frothy, you can have budget surpluses and build public reserves


Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon May 2nd, 2011 at 06:44:00 AM EST
[ Parent ]
Re: again (4.00 / 4)
You focus on only one solution: raise taxes. Which, in a business depression, is quite likely going to just deepen the recession anyway.

In addition, Zapatero talks about needing to be lent to by the private sector. If you raise taxes on the wealthy, how likely do you think the market is to buy Spain's bonds?

Spain's problem is one of unemployment. Still to this day it has a debt-to-GDP ratio below 60% and lower than that of Germany or France. However, Brussels-consensus reliance on the market for funding means that Spain in being pummeled on the fiscal front and has no ability to carry out pro-cyclical fiscal policy. In addition, EU "state aid" rules prevent Spain from supporting any industrial sector outside the military industrial complex.

I mean, Spain has 5 million unemployed. You think taxing the rich is going to spur job creation when businesses are already penny-pinching in order to deleverage? Raising taxes on the private sector in the middle of a debt deleveraging cannot, will not, fail to speed up the deleveraging.

Considering that Spain also regulated and capitalised its banking sector better than Germany, and recapitalised its cajas more quickly and forcefully than Germany has done with the Landesbanken...

Maybe I'm being nationalistic, but basically I don't see any positives in Spain's EU membership at this point. The Spanish government is hamstrung by EU rules in so many ways that it simply cannot properly react to the ongoing business recession. And it's the EU rules, not the dominant ideology of the political leadership, that's at fault here.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 11:19:50 AM EST
[ Parent ]
Re: again (none / 0)
But the 'EU rules' were accepted by all who joined, and, with overall budgets decided over a 6 year period with all countries debating them, the goalposts were not suddenly moved. It seems that Spain's problem was NOT following the EU rules.

You can't be me, I'm taken
by Sven Triloqvist on Mon May 2nd, 2011 at 11:36:15 AM EST
[ Parent ]
Re: again (4.00 / 3)
Interestingly the goal posts have been moved in the past when in the convenience of some. I mean 3% deficit limits and 60% max debt are the rules...
by cagatacos on Mon May 2nd, 2011 at 12:12:54 PM EST
[ Parent ]
Re: again (4.00 / 3)
The EU rules were not designed to constrain runaway intra-EU trade deficits, in fact they were designed to encourage them as economies will generally create bubbles in unconstrained directions.

Spain's current inability to deal with the crisis is entirely the consequence of the EU rules hamstringing Keynesian government action.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:11:39 PM EST
[ Parent ]
Re: again (4.00 / 3)
I don't take the "why did these countries join the Euro" gambit. If anything, the political commitment to European integration and the feelings of inadequacy on the part of peripheral EU countries recently emerged from dictatorship about "not being sufficiently European" were used to the advantage of net exporters to shift the burden of depressing the exchange rate of the Mark onto the net importers. In addition, Austrian economics has intuitive appeal. Keynesian economics is counterintuitive. It's very easy to win a referendum against Keynesianism using facile talking points and metaphors about household finances.
The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present. Yet the theory has powerful emotional appeal. Usually that appeal is strongest for conservatives, who can't stand the thought that positive action by governments (let alone--horrors!--printing money) can ever be a good idea. Some libertarians extol the Austrian theory, not because they have really thought that theory through, but because they feel the need for some prestigious alternative to the perceived statist implications of Keynesianism. And some people probably are attracted to Austrianism because they imagine that it devalues the intellectual pretensions of economics professors. But moderates and liberals are not immune to the theory's seductive charms--especially when it gives them a chance to lecture others on their failings.
If I had known in 1990 what I think I now know about macroeconomics it would have been evident that the monetary union could not work as designed. I plead being 15 at the time as my defence.

At the end of the day, it all boils down to the same thing that happened at Bretton Woods: Keynes brought with him a system with built-in negative feedback on trade imbalances, but the Exporter of Last Resort at the time (the US) was adamant in its opposition and put itself at the center of a gold-standard system penalizing net importers and rewarding net exporters in their function as creditors since trade imbalances can only be sustained indefinitely if the exporters lend the importers the money to buy the exports. We have seen the same opposition from China at the G20 in the past 3 years, as well as from Germany within the EU.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:19:50 PM EST
[ Parent ]
Re: again (none / 1)
Accepted by all who joined and changed (twice!) when the violations of the rules by Germany and France became too big to hide.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:20:35 PM EST
[ Parent ]
Re: again (none / 1)
Raise tax rates in downturns in government income? Does not such pro-cyclical policies create rather big problems?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sun May 1st, 2011 at 03:16:59 PM EST
[ Parent ]
Re: again (none / 1)
Apparently Jerome agrees with the ECB that this downturn is the result of a fiscal crisis, not a private debt crisis.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Sun May 1st, 2011 at 03:47:48 PM EST
[ Parent ]
Re: again (4.00 / 6)
Ah well, Miguel, you are engaging in non sequitur.
It's perfectly possible to argue that there has been (yes, not in Spain or Ireland, though we also know how a nice real estate bubble helped in that matter) runaway public debts in much of the "developed" world since, say, 1980, without implying that the crisis we are going through comes from public debt.

Some countries, like France, didn't get so much private debt because the squeeze on wages wasn't so great and it was regulated. But there was a lot of public debt whenever RPR/UMP was in power.
Some countries, like the UK, had crazy private debt because they made sure that you would need it to even stay afloat, but for a while (Thatcher anyone) had so little public spending and North Sea oil windfall that public debt wasn't very big.

Other countries, like USA, made sure that there would be a salary freeze (on the upside only, salary decreases were welcome) AND reduced taxation AND stupid spending in imperial endeavours so that it got massive public AND private debt. But they got to lecture the world on how to run an economy, so it may have been worth it.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon May 2nd, 2011 at 01:06:30 AM EST
[ Parent ]
Re: again (4.00 / 2)
It's perfectly possible to argue that there has been (yes, not in Spain or Ireland, though we also know how a nice real estate bubble helped in that matter) runaway public debts in much of the "developed" world since, say, 1980, without implying that the crisis we are going through comes from public debt.

But since we're talking about the current crisis and how it impacts Spain, Jerome arguing in response to my top-level comment that there has been a lot of public debt since 1980 is either a distraction or a nonsequitur.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:32:06 AM EST
[ Parent ]
Re: again (4.00 / 2)
"But since we're talking about the current crisis and how it impacts Spain"

Were we? I read your (excellent as usual) post as being about the absurd implications of the mantra that States must be managed like private companies. Your fifth sentence mentions the Reagan/Thatcher revolution.

I think that you were talking about the current crisis in the comments, but Jérôme's reply was to the main text. And I had read it as something relevant whenever States are (stupidly) confused with small and medium companies. Which is probably made a lot worse when said States behave as SMC deliberately lowering their revenues.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon May 2nd, 2011 at 04:07:37 PM EST
[ Parent ]
Touche (none / 1)
Don't read what I write, read what I mean...

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 04:39:49 AM EST
[ Parent ]
Re: again (none / 1)
Cyrille:
Were we? I read your (excellent as usual) post as being about the absurd implications of the mantra that States must be managed like private companies. Your fifth sentence mentions the Reagan/Thatcher revolution.
My point is that in the European Monetary Union this, while still absurd, is no longer a mantra: it is institutional reality written into the constituent treaties.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 04:41:19 AM EST
[ Parent ]
Re: again (4.00 / 8)
But whatever public debt was amassed in the past has no bearing on what correct macroeconomic policy is today. If there was excess spending in the past, then whatever inflation it caused is also in the past. It makes as much sense to "correct" past inflation by imposing deflation as it does to shoot a man in the front after he has been shot in the back, on the theory that on average no bullet will have passed through him.

Now, given the declining marginal propensity to spend, it is entirely possible that you can tax the rich and spend on the poor in such a way as to claw back the handouts UMP have given their buddies, in a way that does not impair employment. But that's not quite the case you were making.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 03:36:50 AM EST
[ Parent ]
Re: again (none / 1)

But that's not quite the case you were making.

Yes it was.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 05:50:08 AM EST
[ Parent ]
Re: again (none / 0)
Problem is, of course, that in the current political environment "raising taxes" will not mean "raising taxes on idle savings". It means VAT hikes and income levies.
by Colman (colman at eurotrib.com) on Tue May 3rd, 2011 at 05:57:43 AM EST
[ Parent ]
Re: again (none / 0)
This seems exactly what the EU-ECB-IMF has in store for us (but we will soon know).
by cagatacos on Tue May 3rd, 2011 at 06:13:22 AM EST
[ Parent ]
agreed (none / 1)
but that's distributional policies driven by ideology, not something which is the inevitable result of current institutional frameworks.

If you vote for the right or the quasi-right for 30 years, it has consequences in terms of policies.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:16:04 AM EST
[ Parent ]
Re: agreed (4.00 / 2)
Jerome a Paris:
If you vote for the right or the quasi-right for 30 years, it has consequences in terms of policies.
It also has consequences in terms of constitutional law.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:19:13 AM EST
[ Parent ]
yes, that too (none / 1)


Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:37:13 AM EST
[ Parent ]
Re: yes, that too (4.00 / 3)
Which means any German professor of constitutional law can prevent any Eurozone government from conducting countercyclical fiscal policy.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:40:30 AM EST
[ Parent ]
Re: agreed (none / 1)
Sure. The government here downgraded their growth expectations for the economy over the weekend and the newspapers were warning us to expect more cuts. Because obviously the problem was that we hadn't had enough austerity. The serious can't entertain any other possibilities. And it appears that even when at least one of the coalition partners is quite clear that you can't cut your way out of austerity that we're going to try to do exactly that, I presume because they can't find any other option short of default in an EU that eschews government action.
by Colman (colman at eurotrib.com) on Tue May 3rd, 2011 at 06:37:11 AM EST
[ Parent ]
Re: agreed (none / 1)
But the EU also does not allow default. For two reasons: "good Europeans" don't default on each other; and Germany doesn't want any investor losses to be booked before 2013 if they can avoid it.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:39:31 AM EST
[ Parent ]
Re: again (4.00 / 4)
But that's not quite the case you were making.

Yes it was.

No it wasn't. You said "raise taxes" in reply to the problem that public debt and a funding constraint prevents states from pursuing investor of last resort functions. Raising taxes won't suddenly enable these countries to carry out investor of last resort functions, so it will not solve the problem discussed in the piece you were responding to.

If what you meant was to make a general recommendation that we tax the rich to prevent them from blowing up capitalism ten years down the line, then you need to be a little more explicit about it. Because while it is an excellent policy suggestion, it's a complete non sequitur in terms of what Mig was discussing in the diary. It's like saying "stop sending blood and treasure to fight in American colonial wars." An excellent policy that I can completely get behind, but not one that will get you out of a balance sheet recession.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 08:39:02 AM EST
[ Parent ]
Re: again (none / 1)

Raising taxes won't suddenly enable these countries to carry out investor of last resort functions

Why not? Or is it that you don't have enough imagination about how much taxes can be raised if necessary to pay for vital needs?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 09:40:39 AM EST
[ Parent ]
Re: again (none / 1)
I think the key word there is suddenly.

It takes time to design, legislate, and implement a tax reform. Whatever you decide to do today won't affect government revenue until at least the 2012 fiscal year. Except kicking off pre-emptive action by the moneyed classes right now.

So you would get an immediate worsening of the business depression and possibly a capital flight, in the hopes of increasing tax revenues next calendar year.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 09:47:23 AM EST
[ Parent ]
Re: again (4.00 / 2)
Why not?

Persistent primary foreign deficit in excess of sustainable growth rates.

You can't tax other people's citizens.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 09:52:11 AM EST
[ Parent ]
Re: again (4.00 / 2)
Where foreign means intra-EU.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:01:38 AM EST
[ Parent ]
Re: again (4.00 / 2)
In this case it does, yes. But as long as the problem is "sound money" ideology, it is a distinction without a difference. Since "sound money" ideology also precludes federal action to defend the real exchange rate against extra-EU mercantilist attacks.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 10:09:49 AM EST
[ Parent ]
Re: again (4.00 / 2)
Except in the EU, where the whole point of the exercise is to tax other people's citizens.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 3rd, 2011 at 10:09:59 AM EST
[ Parent ]
Re: again (4.00 / 2)
Only if you're Germany.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:14:10 AM EST
[ Parent ]
Re: again (none / 1)
Yeah, but it's the mercantilists doing the taxing.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 10:19:01 AM EST
[ Parent ]
Re: again (none / 0)
Sure.

But still.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 3rd, 2011 at 10:55:41 AM EST
[ Parent ]
yes, it's all black & white (none / 0)
I've said it's the result of several things. You only focus on one thing (ie that working only on budgetary policy does not work). I'm saying - having budgetary constraints does not prevent you from other policy measures, and the absence of these policy measures will likely prevent any solution, even if the more dubious bits of the GSP are abandoned.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon May 2nd, 2011 at 06:46:55 AM EST
[ Parent ]
Budgetary constraints are wrong (none / 1)
My point about budgetary constraints is two-fold:
  1. budgetary constraints are for private entities. A monetarily sovereign entity is only subject to a budgetary constraint in the presence of large liabilities in a foreign currency;
  2. implicit guarantees against both natural disasters and market failure that we associate with the State are incompatible with a budgetary constraint.

The thing that the ECB, German economists, the Austrian school, and you fail to take into account is that expansionary fiscal policy is inflationary only in the presence of full employment, which patently is not the case in large swathes of Europe at this time. Raising taxes as you advocate is a contractionary fiscal policy, and you have been banging on the inflation drum all through the crisis.

Of course, the continuation of current macroeconomic policies will destroy the productive fabric of peripheral EU economies to the point that the current level of activity may well end up being the one attainable under "full employment".

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 11:28:09 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 3)

you fail to take into account is that expansionary fiscal policy is inflationary only in the presence of full employment, which patently is not the case in large swathes of Europe at this time.

It creates asset inflation, which is also inflation (even if it's a kind that is usually ignored by the Serious People, because they like it) - something that the ECB is slightly less insensitive to than other central banks and Serious People, to its credit.

And asset inflation turns into crashes. So yes, I think fighting asset inflation is a good thing.


Raising taxes as you advocate is a contractionary fiscal policy, and you have been banging on the inflation drum all through the crisis.

No, it's not necessarily so, if it's a tax on lazy savings used to fund public spending on investment or transfers to the poor who consume it directly.


Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 05:54:14 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 2)
How direct spending by the government on the unemployed creates asset inflation is beyond me.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 05:57:15 AM EST
[ Parent ]
It doesn't (4.00 / 3)
Current public spending (and thus deficits) are used to prop up banks and failed asset classes, and financial assets in general (the Bernanke "put," etc).

More appropriate public spending would NOT be generating inflation.

But that's my whole point - we need to change public spending priorities, away from subsidising the rich and their assets to spending on common good like revenue support for the poor, and (productive) infrastructure investment.

Why do you keep on misunderstanding what I write?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:01:47 AM EST
[ Parent ]
Re: It doesn't (4.00 / 2)
I'm just saying that you're not speaking to my point, which is that when the government is supposed to fund itself in the capital markets it cannot set its own spending priorities differently from what the capital markets want. Please read the diary again, slowly, and reflect by yourself on Zapatero's words in the context of the ECB's refusal to act as market-maker of last resort in the sovereign debt market (a year after bailing out the market for German Pfandbriefe - now what were you saying about the ECB being sensitive to asset prive inflation?)

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:08:51 AM EST
[ Parent ]
well I agree with you (4.00 / 4)
my point is that it's thus prudent policy to not need to rely on capital markets to fund public spending, ie not to run persistent public deficits.

Taxation of things like assets and other bubble-prone activities is one of the ways to limit your deficit if you need to spend money.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:12:54 AM EST
[ Parent ]
Re: well I agree with you (none / 1)
Public deficits are the only tool that has been demonstrated to work against recessions. The stupid 3% rule is turning the recession into a depression, and austeiry is only delaying the return of deficits to within the 3% limit, paradoxically (if you're an Aust[e]rian - it's evident if you're a Keynesian).

The bottom line here is that the last 4 years have convinced me that sound money philosophies are bunk. As long as I believe this and you remain a sound money advocate, we'll be in fundamental disagreement and we'll talk past each other when talking about higher-level economic policy issues.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:17:57 AM EST
[ Parent ]
Re: well I agree with you (4.00 / 3)
my point is that it's thus prudent policy to not need to rely on capital markets to fund public spending, ie not to run persistent public deficits.

In the presence of an external deficit, this is inconsistent with full employment. There are only three ways in which this can be reliably resolved:

  1. Unrestricted investor of last resort actions by the federal level, which does not need to go to the capital markets for funding in any event.

  2. A federal policy that discourages internal trade imbalances. Or

  3. A federal policy of permitting unrestricted investor of last resort functions for the states.

In the EU as currently configured all three are unconstitutional. Which means that the EU as currently configured is broken and needs to be fixed at the constitutional level.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 09:02:15 AM EST
[ Parent ]
Re: well I agree with you (4.00 / 3)
  1. is not unconstitutional, it's just not politically desired
  2. is formally correct, but can be forced in indirect ways (regulation of the banking sector, taxation of bubble-prone asset classes, etc)
  3. again, is not unconstitutional, it's just not politically desired


Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 09:44:35 AM EST
[ Parent ]
Re: well I agree with you (4.00 / 2)
is not unconstitutional, it's just not politically desired

Yes, a federal European industrial and employment policy would solve the problem. And as a long-term solution it is obviously the most elegant. But solving the problem is a matter of no small urgency, and at present the federal level does not possess the depth and breath of skill and experience in employment and industrial policy that the states do.

That the federal European level does not possess the qualifications to formulate and execute industrial policy is, of course, a historical coincidence rather than a law of nature. We may change it in due course. But in order to change it, there needs to still be a Europe to make policy for when this present crisis has passed.

is formally correct, but can be forced in indirect ways (regulation of the banking sector, taxation of bubble-prone asset classes, etc)

Banking regulations regulate the deficit side of the imbalance. In a fixed-rate ForEx regime, trade imbalances are driven by the surplus side. Only in floating-rate regimes are they driven by the deficit side. So none of those policies will prevent trade imbalances. They will prevent trade imbalances from turning into a bubble, but that just means they'll turn into persistent unemployment instead.

You prevent trade imbalances within a fixed-rate ForEx regime by either (a) having a federal importer of last resort function or (b) punishing states that accumulate persistent internal trade surpluses.

again, is not unconstitutional, it's just not politically desired

False. Unrestricted state-level investor of last resort functions require the ability to bypass the money markets entirely. Which it is unconstitutional for member states of the European Union to do (Art. 123 of the Consolidated Treaties).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 10:06:55 AM EST
[ Parent ]
Re: well I agree with you (4.00 / 2)
JakeS:
Yes, a federal European industrial and employment policy would solve the problem. And as a long-term solution it is obviously the most elegant. But solving the problem is a matter of no small urgency, and at present the federal level does not possess the depth and breath of skill and experience in employment and industrial policy that the states do.
There's probably a case to be made for subsidiarity here, in which case the federal EU level may never need to develop the ability to conduct continent-wide industrial policy.
That the federal European level does not possess the qualifications to formulate and execute industrial policy is, of course, a historical coincidence rather than a law of nature. We may change it in due course. But in order to change it, there needs to still be a Europe to make policy for when this present crisis has passed.
An alternative solution might be to increase the EU budget from the current 1% of GDP so that the structural funds amount to something like 10 to 15% of EU GDP.

Now, when the rallying cry appears to be we don't want no stinkin' fiscal transfer union, this may be a bit difficult politically.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:12:12 AM EST
[ Parent ]
as to the ECB (4.00 / 4)
I only said that it was slightly less oblivious to asset inflation than others, not that it was a dedicated fighter. In 2007-8, it was the only one to occasionally fret about asset bubbles and the like - insistence on "occasionally" lest you accuse me again of being a starry-eyed admirer of the ECB because I add a touch of grey to the stygian blackness of your indictments.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:14:43 AM EST
[ Parent ]
Re: as to the ECB (4.00 / 2)
I like the stygian blackness of my indictments. The ECB deserves every bit of it.

By the way, did you catch what Germany has in store for us?

Eurointelligence Daily Briefing: Weidmann ascends to the throne
New Bundesbank president Jens Weidman was official enthroned yesterday; indicates his main focus would be to watch over, and comment on, German government's fiscal policy; says price stability must take precedence over financial stability
Oh, dear. And this a day after we're told "Merkel's quid-pro-quo on Draghi" (being the next President of the ECB) is to put a German in charge of the European Financial Stability Board.

Merkel's quid pro quo for Draghi

Der Spiegel has the story that Angela Merkel's silence on Mario Draghi's candidacy for the ECB presidency is explained by heavy horsetrading behind the scenes. The German chancellor wants ... Jens Weidmann, who is officially inaugurated as the Bundesbank president today, to succeed to Draghi as the chairman of the Financial Stability Board (FSB).
I think it's bear cavarly for the Eurozone at this point since the conventional wisdom is still that the Germans know best on economics.


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:25:39 AM EST
[ Parent ]
well, if you remember (4.00 / 3)
I've long said that since the 2008 crash was not large enough to bring about material changes to policies, and since these policies are unsustainable and destructive, we'll need to have a bigger crash/crisis to bring the change about.

and yes, there will be more pain to go through, especially as it is being currently focused on the people. I suspect that a resolution will happen only once the pain level on the people is such that there is pain inflicted on the elites, either because the carcass is so dead that even parasites can't feed off it, or because there is a violent revolution. Neither is appealing.

Current political trends in a number of countries suggest that the revolution could be of the brown kind, so not a very pleasant prospect either.

I think that the 2012 election in France will be quite important in that respect.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:41:20 AM EST
[ Parent ]
Re: well, if you remember (4.00 / 3)
Meanwhile, the 2012 election in Spain is likely (as of last weekend's polls) to result in a PP government with an absolute majority which will enact even more austerity policies out of conviction and with sadistic glee, as opposed to forced by circumstances.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:57:25 AM EST
[ Parent ]
That's a keeper (4.00 / 2)
"stygian blackness"

Instant 4.

by Nomad (Bjinse) on Wed May 4th, 2011 at 12:33:49 PM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 2)
Jerome a Paris:
And asset inflation turns into crashes. So yes, I think fighting asset inflation is a good thing.
You're fighting the last (lost) war. Yes, asset inflations turn into crashes. Now we're in the crash and we need to fight unemployment. You share the ECB's single-minded focus on inflation (and the ECB only cares about consumer price inflation even if it comes from supply prices as opposed to consumer demand).

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 05:59:15 AM EST
[ Parent ]
No (4.00 / 3)
I agree with you that fighting "inflation" (as currently defined by Serious People to essentially mean wage inflation) is wrong, especially today.

I disagree with you that fighting asset inflation (or - inflation in all its forms and not just the forms inconvenient to the monied class) shouldn't be pursued in general.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:03:22 AM EST
[ Parent ]
Re: No (none / 0)
Where have I advocated asset inflation?

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:04:24 AM EST
[ Parent ]
oh jeez (none / 1)
you did not, but you accused me of being an evil inflation-fighter when I was writing that I was against asset inflation.

I'm saying that unless you think asset inflation is good (which I did not say was your position), your accusation against me is unfair.

My assertion is that you wrongly accuse me of being against "inflation" (in the Serious People meaning of the word) when I made my nuanced position on inflation (the broader kind) explicit.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:09:39 AM EST
[ Parent ]
Re: oh jeez (none / 0)
Asset inflation is most definitely not the problem today, so why do you focus on it while the real economy continues to disintegrate around us?

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:13:31 AM EST
[ Parent ]
asset prices are definitely the problem (4.00 / 4)
The house bubbles have not crashed yet in most of Europe, bond prices are close to their highest ever, as are stock-markets, and financiers are again chasing yield in crazy ways.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:19:20 AM EST
[ Parent ]
Re: asset prices are definitely the problem (none / 1)
That's because in the last 46 months of crisis nothing has been done to solve the causes of the crisis so a new crash is more or less a given.

In the meantime, I would like to know that my government is presiding over 5 million unemployed and 1.4 million families with no employed adults because of incompetence. In fact, they've probably played the hand dealt to them by the ECB and the Ecofin and the EU Commission as well as could be expected.

Zapatero's statement about needing cuts in order to avoid bankruptcy is simply a capitulation to EU constiyutional reality and a warning to get used to it.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:29:30 AM EST
[ Parent ]
agreed. (none / 0)
(you probably mean: I want it "to be known" that...)

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:32:56 AM EST
[ Parent ]
Re: agreed. (none / 1)
No, actually.

I wish I "knew" the government has been incompetent over the past 3 years.

In fact, they haven't been. The EU killed them.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:38:13 AM EST
[ Parent ]
right. (4.00 / 2)
understood. And sadly correct. Spain definitely was not incompetent. But it was socialist

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:43:24 AM EST
[ Parent ]
Re: right. (4.00 / 2)
Well, there you go. My work is done.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:45:52 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 2)
[Expansionary fiscal policy] creates asset inflation, which is also inflation

That rather depends on what you spend it on. If you spend it on handouts to the banksters, then it creates asset inflation and no employment. If you spend it on a general upgrade of your rail and electrical net, then there is no reason to expect it to generate asset price inflation.

It may prevent asset price deflation. At least of assets used in productive businesses - you can quite easily structure an expansionary fiscal policy in a way that maintains full employment but allows speculative houses of cards to burn. But avoiding deflation is not quite the same thing as promoting inflation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 08:49:33 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 3)

That rather depends on what you spend it on

Exactly my point. I was talking about what happened in the past 3 years, and saying that THIS is one thing we should correct before all others.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 09:45:36 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 2)
You are putting the cart before the horse.

If you have to borrow money from the private sector, you cannot use it in ways that disfavour the money markets. So until and unless some European institutional level - federal, state or regional - is able to pursue determined full employment policies in a way that bypasses the money markets entirely, policy will serve the money markets.

At present, the states are the ones with experience and (some amount of) skill in employment policy. In due time, we may move that function to the federal level - I would support that - but we may well not have a federal level in due time unless we enable the states to bypass the money markets in the meantime.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 10:17:20 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 3)
If the EU is able to muddle through this, in due time the result may well be that the states will lose the know-how and ability to conduct employment policy, and the federal level will not acquire it.

I mean, currently already what passes for "active employment policies" is subsidizing training for jobs that may not be there, Hartz-IV-style institutionalised meanness, job market intermediation, and other ways to "enhance labour market access". There's no trace of "investor of last resort" functions in the concept (which, by the way, appears to have originated at the EU level in the 1980s).

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:26:24 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (none / 1)
See Integrated approaches to active welfare and employment policies (Report)
This report presents an analysis of initiatives in all 15 EU Member States that aim to achieve better coordination of employment activation measures. It describes the role of the different agencies and actors involved in the planning, implementation and delivery of services. It shows the approach taken in some countries and localities towards better coordination through a range of new institutions and mechanisms. The report identifies measures in both policy and practice for improving coordination, including strategic as well as operational measures, and underlines the effectiveness of a comprehensive evaluation strategy.
from Eurofound
the European Foundation for the Improvement of Living and Working Conditions, is a European Union body, one of the first to be established to work in specialised areas of EU policy. Specifically, it was set up by the European Council: Council Regulation (EEC) No. 1365/75 of 26 May 1975, to contribute to the planning and design of better living and working conditions in Europe


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:29:36 AM EST
[ Parent ]
More on Active Employment Policies (none / 1)
Eurofound: Commission employment report reviews active labour market policies
Most specifically, it looks at active labour market policies. This type of policy concentrates on encouraging people to return to the labour force and includes elements such as lifelong learning, investing in skills and training, and personal career coaching. The report stresses that Member States that have invested in active labour market policies have experienced shorter periods of unemployment, a more rapid filling of vacancies, higher and better targeted expenditure on training and pay that is more responsive to market conditions. Additionally, they have seen an increase in flexible working arrangements, such as part-time or fixed-term employment. The report states that successful active labour market policies, including youth placement and vocational training, have been effective in the Netherlands, Denmark, Ireland, Sweden and Belgium, where expenditure on such measures has increased and is better targeted towards those in need.


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:30:47 AM EST
[ Parent ]
Re: Budgetary constraints are wrong (4.00 / 2)
Great twenty minutes.
Thanks, Jake.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Thu May 5th, 2011 at 05:24:58 AM EST
[ Parent ]
Re: yes, it's all black & white (4.00 / 5)
I've said it's the result of several things.

This crisis is the result of precisely three things: An EU rule set that encourages trade imbalances by failing to punish mercantilist wage suppression, federally imposed constraints on state investor of last resort functions, and the total abdication of federal investor of last resort functions. In combination, these three mean that consistent full employment becomes a mathematical impossibility.

You can fiddle with the tax code until you go blue in the face, but as long as you do not either (a) create a federal investor of last resort function, (b) force Germany to reduce its intra-EU trade surplus or (c) force the ECBBundesbank to support state investor of last resort functions, you are simply playing musical chairs with the demand deficit created by encouraging mercantilist wage suppression.

Aggregate demand must be able to absorb aggregate production. If Germany suppresses demand below what its productivity justifies, then someone, somewhere becomes unemployed. And since countries outside the EMU can defend their real exchange rate against this mercantilist attack, "someone, somewhere" is likely to be someone somewhere in the EMU area.

That is not to say that there are not excellent reasons to tax the rich (in the present situation I would favour taxing them via sovereign defaults, if the Bundesbank is unwilling to tax them via seigniorage). Taxing the rich would solve a lot of otherwise intractable problems.

The problem presently under discussion just isn't one of them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 03:19:32 PM EST
[ Parent ]
We all agree (4.00 / 3)
on the fact that the crisis is a combination of several things. My point is that you guys are harping about one of these 3s only, and I'm saying that we should fight the other ones too - or even, in priority.

ie, we should focus on investor of last resort functions (ie public policies which include industrial policy, regulation of banks and other potentially toxic activities, and infrastructure design and investment), and how they need to be done at the national and/or federal level.

And as you point out, we also need to focus on German demand, ie on Germany's internal neo-lib wage stagnation policies.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 05:58:24 AM EST
[ Parent ]
Re: We all agree (none / 1)
You seem to have missed the point that the EU's institutional framework demonstrably prevents any European institution from acting as investor of last resort.

You can "focus on investor of last resort function" until you're blue in the face. The point is in the Eurozone you are not allowed to be it.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:02:57 AM EST
[ Parent ]
you're not allowed at the national level (4.00 / 2)
so we need to focus on the federal level. Which was the idea behind launching the euro without the relevant framework - make it obvious at some point that a federal budgetary framework is necessary.

The problem is that current ideology is against any state intervention, at any level, so the first task is to rehabilitate the role of the State, and then decide at which level it needs to be done.

As long as the dominant thought is that "anything done by the State is Bad" we cannot fight the current institutional framework. Once we can convince people that the State is necessary, then we can point out that the logicla consequence of not acting at the State level is to act at the federal level.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:06:46 AM EST
[ Parent ]
Re: you're not allowed at the national level (none / 1)
So this mess was your plan all along?

Look, the EU is constitutionally designed to prevent public action. Read the treaties.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:12:36 AM EST
[ Parent ]
Re: We all agree (4.00 / 2)
My point is that you guys are harping about one of these 3s only, and I'm saying that we should fight the other ones too - or even, in priority.

That's cute, but right now we have 20 % unemployment in Spain and a 30 % output gap in Greece and some of the Baltics.

We need a shovel-ready solution.

By the time you design and implement a federal fiscal and industrial policy for the EU periphery, there is a better than even chance that the EU periphery will have ceased to be in the European Union. The only short-term solution is federal support for state-level employment and industrial policy, because the federal level currently does not posses the institutional expertise required to conduct meaningful federal fiscal policy.

We may want to remedy that before the next crash rolls around. But in order to do that, we need to make sure that economic policy proposals from Bruxelles will not leave an ashen taste in the mouths of people from all over the European periphery for the next generation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 09:10:58 AM EST
[ Parent ]
Re: We all agree (4.00 / 4)
I note that in Greece, a lot of the frustration is coming from the fact that the rich are seen as not bearing their fair share of the burden. If there ever was a time for confiscatory tax policies, it is now. Instead of privatising public assets, how about reclaiming private assets for the common good?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 09:47:17 AM EST
[ Parent ]
Re: again (4.00 / 2)
That depends on the incidence of the tax. The wealthy spend a very small portion of their income and, in the current environment, are not very likely to invest in anything that would produce domestic jobs. So taxing them has little effect on the economy -- except, perhaps, to increase the editorials for hire in the main stream press.

Taxes on the bottom 60% of the population, on the other hand, will cut into their spending, as they spend everything they take home, typically. So, tax the very rich, and use the money for projects that produce domestic employment and add future benefits to society, such as renewable energy.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 04:00:59 PM EST
[ Parent ]
Re: again (none / 1)
Under finance capitalism the rich purchase political power.

Which is a damn good reason for a progressive income tax.

I hesitate to tax "wealth."  One fall-out would be the eliminate of structures like:

as private residences.

And how would society survive?

;-)


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sun May 1st, 2011 at 04:09:31 PM EST
[ Parent ]
raising taxes is not pro-cyclical (4.00 / 3)
It increases the income (and thus, in this case, directly) the spending power) of the government, which is a good thing in a downturn.

This is especially true if you tax things that are not directly linked to consumption (assets, income of the rich).

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon May 2nd, 2011 at 06:50:44 AM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (3.50 / 4)
No, raising taxes during a downturn is pro-cyclical.

What you are arguing is that, in the presence of a funding constraint, taxing the wealthy may well have a less procyclical effect than the countercyclical effect of the spending on the poor which it enables. If so, then taken together, taxing the rich and spending on the poor during a depression becomes a countercyclical policy package. But that is because the countercyclical components outweigh the procyclical ones.

It is important to keep this distinction clearly in mind, because in the present case the revenues from taxing the (domestic) rich would go towards repaying foreign debts rather than freeing resources for spending on the poor. So "raise taxes on the rich to pay off the bonds" is procyclical at the moment. Now, you may argue - and you may very well be correct - that the procyclical effect of this is negligible, in which case it would be a good idea to do it.

But it won't solve the problem, which is insufficient EMU-wide aggregate demand. Because that problem can only be solved by the investor of last resort, and a funding-constrained entity cannot be the investor of last resort.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 03:26:58 PM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (none / 0)
"No, raising taxes during a downturn is pro-cyclical."

I think that should be qualified somewhat.

I fail to see how raising taxes on most financial transactions, and in particular to international movements of capital, would be pro-cyclical.

Sharply raising taxes on annual incomes over 1M$ would likely be at least neutral, but probably countercyclical, as companies would be looking to substitute payments in kind to ridiculously high salaries.

Raising the estate tax on massive estates would similarly be at worst neutral, and probably trigger some increased consumption.

And, all things being equal (ie if you didn't need to get the money from somewhere), paying down debt (why foreign? Bonds are also held locally) would help somewhat, as it would free some interest money.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon May 2nd, 2011 at 04:15:41 PM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (4.00 / 2)
I fail to see how raising taxes on most financial transactions, and in particular to international movements of capital, would be pro-cyclical.

True, but in terms of revenue it would amount to, not to put too fine a point upon it, chickenshit. Even Tobin taxing the City of London at 5 BP, and even assuming that Tobin taxes don't reduce transaction volume, they'd barely pay the interest on outstanding British sovereign bonds.

You don't want Tobin taxes for their revenue - you want them precisely because they don't generate revenue. The point of financial transaction taxes is that they kill the ultra-liquid froth, without extracting any great revenue from legitimate long-term investments.

Taxing cross-border transactions would be very helpful. Unfortunately, it's not legal within the EU.

Sharply raising taxes on annual incomes over 1M$ would likely be at least neutral, but probably countercyclical, as companies would be looking to substitute payments in kind to ridiculously high salaries.

Raising the estate tax on massive estates would similarly be at worst neutral, and probably trigger some increased consumption.

OK, I can buy that. Again, however, I would question how much revenue you'd get out of it. We're not - quite - at US levels of kleptocracy yet, so fortunately the pretax income that goes to 100+ times median income households is unlikely to be a very significant tax base. This is the sort of taxes you have because you want to prevent people from buying politicians, not primarily because you want them to raise revenue.

And, all things being equal (ie if you didn't need to get the money from somewhere), paying down debt (why foreign? Bonds are also held locally)

Persistent foreign primary deficit.

Now, I'm not saying that taxing the rich is a bad idea. Because it's not. It's an excellent idea that will solve a variety of problems. The current business depression just isn't one of them - it's a decade late and a currency union short for that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 07:39:36 PM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (4.00 / 2)
In Ireland, at least, a good chunk of "the rich" aren't rich any more, or right now at least.: they'll be showing losses rather than income in most cases.

In the case of a lot of the developers and property tycoons they're just working their way through some sort of bankruptcy process.

by Colman (colman at eurotrib.com) on Tue May 3rd, 2011 at 06:07:16 AM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (4.00 / 3)
Which is why they're laying of people left right and center and cutting back on business.

Which is what "a deleveraging recession" or "business recession" means.

Which is why all this talk of "taxing the rich" is a load of hogwash. The state needs to issue money to pay for a job guarantee programme. Because, if nothing else, changes in tax policy enacted today will work their macroeconomic effects over a time scale of 18 months, just like interest rate tweaks. Direct spending would work now.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:11:28 AM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (4.00 / 5)
So "raise taxes on the rich to pay off the bonds" is procyclical at the moment.

No it isn't - because if the rich are (the horror...) paying off their own debts to each other, you no longer have a political excuse for destroying the rest of the economy by imposing austerity.

Your summary a few points above is incorrect because - like all official economic models - it neglects the fact that there are two private economies: one for the rich, which is calculated on mark to model lunacy and multiply leveraged chains of instruments, claims, and counterclaims on wealth which cannot possibly be redeemed in practice; and a real economy in which people do real work, produce real goods and services, and trade semi-rationally.

The rich economy is inherently procyclical. In fact, absent outside influences - plague, war, alien contact - it's the engine that drives all economic cycles.

When the numbers in the rich economy get too big, when mutual obligations exceed the boundaries of reason, when country club discussions boast of managed investment ROIs of 10-20% when the productivity of the real economy is shrinking - national economies implode so reliably you can set your watch by them.

Bubbles happen because people believe they own and can trade in assets that either don't exist or have nominal momentum values that only exist as custom and rhetoric.

You can make a bubble out of anything if your rhetoric and social engineering are good enough - real estate, tulips, crocheted toilet roll holders, derivatives, imaginary wealth in distant  countries, useless shiny rocks.

Intelligently targeted taxation deflates the bubble in two ways. Firstly the bubble activity becomes more risk averse, because claimed ROIs decrease back to levels that are more in line with reality-based activity.

Put simply, if you know you're going to be taxed on an investment, you're more likely to be choosy about selecting it.

Secondly, some of the nominal wealth rebounds back into the real economy where the investor of last resort can invest it - without borrowing.

This usually turns out to be a good thing.

What gave the Keynesians a bad name was the suggestion that governments should borrow, then invest. This had the disastrous precedent of persuading governments that they can only invest when they can borrow - which is nonsense.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 2nd, 2011 at 04:29:58 PM EST
[ Parent ]
Re: raising taxes is not pro-cyclical (4.00 / 3)
The following applies first and foremost to the US and UK, but to most of Europe as well, I suspect. Given the indifference with which the very rich, as a class, inflict grievous damage on all below them, I think returning the favor would be appropriate. If they had 90% of their assets over the equivalent of $10 million confiscated I fail to see what great harm would come to the rest of society. When a government has been reestablished that actually understands "equal justice under the law" those who have committed crimes can be investigated and prosecuted.

The very wealthy, as a class, are  doing very little to benefit those below them. They are not using their wealth to create high paying jobs in their own country, preferring to offshore to low wage countries all functions they can. The chief use of their wealth seems to be to maintain and exercise capture of all aspects of government important to them and to use the media to keep the population tranquilized while they complete their looting. The longer this continues the worse will be the results. The quicker and the more thoroughly they and their activities are curbed the better off all others will be.

If they are allowed to continue as at present, in another few years the destruction will be so great that no few would not feel justified in striking back by any means possible. After all, those are the rules that the current Masters of the Universe are using against the bottom 99.9%. With sufficient control of the government, nothing you do is illegal.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 2nd, 2011 at 07:25:42 PM EST
[ Parent ]
Yes, that's all true... (4.00 / 4)
... but it's also all about how to prevent the next bubble.

Which is important and all. But it won't help pull us out of the current depression.

The problem right now is that the debtor states in the EU have to run large sovereign deficits in order to create sufficient demand to absorb the excess capacity from a deleveraging private sector. Yes, you can default on the sovereign debt - that would be a good start. Yes, you can tax the rich - that would be a good idea. But at the end of the day, you really have only two options: Either have the sovereign be the investor of last resort, or throw a neutron bomb on the private credit market. Because as long as the private sector is deleveraging, you need to run sovereign deficits as a matter of simple mathematics. And even after you hold a Jubilee and reset all private balance sheets, you'd have to pump-prime with a bit of deficit spending.

And to make matters worse, these countries are looking at a foreign primary deficit and import dependencies on fuel, which means that there's a limit to how much they can fuck over their creditors before they can no longer heat their homes or move their population between home and workplace.

It's a double bind. Something will have to give, because under the current institutional rules there is no way out of it. And depression level unemployment is not politically sustainable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 07:51:29 PM EST
[ Parent ]
Re: Yes, that's all true... (4.00 / 5)
You can't solve a political problem with economics.

The political problem is that the the economies of both the US and EU are run by bankers for the benefit of those they consider in their own class. Every serious economic model denies democracy by putting pseudo-corporate accounting ahead of peasant experience.

As we've seen with Weber etc, this class makes the rules up as it goes along to suit itself. Economic arguments are used as rationalisations for political positions in an ad hoc way, so there's no point looking for self-consistent logic in the arguments, because it doesn't exist.

What will solve the depression is a political movement that calls out the current state of affairs and challenges it directly. Currently governments are on the back foot because they consider themselves bound by rules put in place by the ECB and the 'investors' for reasons that turn out to be largely arbitrary.

This will continue until this stops being a given and becomes a national and international debate about the role of banking in Western democracies - not in a 'Let's not pay them a bonus this year' way, but in a 'Why are these people setting policy at all?' kind of a way.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 3rd, 2011 at 04:46:01 AM EST
[ Parent ]
yes yes, that's the heart of it (none / 1)
exactly.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 3rd, 2011 at 06:17:10 AM EST
[ Parent ]
Re: Yes, that's all true... (none / 1)
ThatBritGuy:
this class makes the rules up as it goes along to suit itself. Economic arguments are used as rationalisations for political positions

i've said this for years, 'politics is the lipstick on the pig of economics'.

your last sentence of this post is totally spot on too.

when the people realise how the natural economy has been perverted for private consumption, they will put these grinning gambler-apes into the stocks where they belong, instead of awaiting their latest mosaic, lapidary pronouncements with unblinking puppy-like devotion.

they are the devils your mum warned you about...

racking us into ruin, from behind velvet curtains.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 3rd, 2011 at 06:22:59 AM EST
[ Parent ]
Re: Yes, that's all true... (none / 1)
Yes, that's a concise description of why we keep having these crises.

But as noted upthread, when you have 20 % unemployment, ensuring sufficient demand is a matter of no small urgency. Bluntly put, preventing the next crisis is not remotely as interesting as making sure that there will still be a Europe to have a crisis in next time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 09:29:25 AM EST
[ Parent ]
Re: again (3.78 / 9)
you can increase taxes.

But that will not help you when you are in a currency crisis. And this is a currency crisis, not a debt crisis. Always has been.

Runaway debt has been the solution to the problem created by insufficient tax revenue. Now that door (debt) is closing, so the debate needs to be put back firmly where it belongs: on increasing taxes.

If that were the case, then Belgium would have been attacked before Spain was.

The fundamental problem is that we have a federal European government that simultaneously sabotages the individual member states' ability to act as investors of last resort and refuses to act the part itself. In a money economy you have to have an investor of last resort, because there is no guarantee that private investment will match private savings. The investor of last resort has to be able to print its own money, because otherwise it cannot provide unrestricted demand balancing.

So a federation is crucially dependent on having a federal level that acts as either (in declining order of federal intervention) investor, importer or lender of last resort to the states.

If the federal level functions as investor of last resort, it has effectively taken over responsibility for industrial policy and macroeconomic stabilisation from the states. This is the relationship commonly found between states and municipalities and other local government levels.

Instead, the federal level can take on the role of importer of last resort. In this case, the federal level absorbs trade imbalances instead of directly absorbing unemployment. As long as the foreign account is balanced, it is possible to pursue full employment in a manner that is consistent with a sustainable debt growth.

Or the federal level can function as lender of last resort. This enables the states to conduct industrial and macroeconomic stabilisation policy as if they still had their own currency. That freedom is potentially a mixed blessing, though, because with the option of pursuing full employment and without the option of devaluing, nothing prevents them from building up some truly impressive (and unsustainable) trade imbalances.

The European federal level is currently AWOL from all three of these functions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 2nd, 2011 at 12:48:45 AM EST
[ Parent ]
Re: again (4.00 / 2)
The European Federal Level isn't AWOL - it has been co-opted by the ECB and bond holders, who have become the de facto deciders of federal fiscal policy.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 3rd, 2011 at 04:49:01 AM EST
[ Parent ]
Re: The new private state (4.00 / 2)
All that is lacking, if it is indeed lacking, is the ability of private entities, such as corporations, to print money.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 04:03:34 PM EST
Re: The new private state (none / 0)
But of course then they would be responsible for the value of that money.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 1st, 2011 at 04:04:20 PM EST
[ Parent ]
Re: The new private state (4.00 / 2)
No, no, they would enjoy an implicit state guarantee.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 04:15:54 AM EST
[ Parent ]
Re: The new private state (4.00 / 2)
In the spirit of article 123 of the Treaty on the Functioning of the EU, one could give private entities the ability to print money while barring states and public entities from doing so.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:39:56 AM EST
[ Parent ]
Portuguese bailout (4.00 / 6)
So it seems that the Portuguese bailout will be exactly this. Still speculation but see this:

http://translate.google.com/translate?js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf= 1&sl=pt&tl=en&u=http%3A%2F%2Farrastao.org%2F2246847.html

I also note that the disagreement between our "helpers" (the IMF and the EU/ECB) is about the time to bring the deficit down to 3%. The IMF wants MORE TIME than the EU. It seems that the EU wants blood on Portuguese streets in order to placate some Nazis up North.

When the IMF is the organization that is being "friendly" (compared to the EU), what more is there to be said?

by cagatacos on Mon May 2nd, 2011 at 07:13:35 AM EST
Re: Portuguese bailout (4.00 / 2)
The IMF seems to have drifted leftwards over the last decade.

I'm not sure when, how or why this happened, but they're not quite the attack dogs of rabid capitalism that they used to be; some awareness of reality appears to have seeped in at some point.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 3rd, 2011 at 04:56:54 AM EST
[ Parent ]
Re: Portuguese bailout (none / 1)
It is possible that Stiglitz' Globalization and its Discontents, published in 2002, may have played a role.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 05:07:23 AM EST
[ Parent ]
Re: Portuguese bailout (none / 1)
i've noticed this too, with some incredulity!

ThatBritGuy:

The IMF seems to have drifted leftwards

imagine that, the IMF actually being a force for good... there shall be signs and wonders

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 3rd, 2011 at 06:16:04 AM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 6)
The narrative around here seems to be: The IMF is protecting us from Europe (notice that I've written Europe, not just the EU/ECB). Even today there is a new piece (about banking bailouts) in this direction.

Now, can you imagine the psychological consequences of this? One way or the other, the view about Europe is taking a massive beating.

If this continues in this direction, we will be on each others throats soon.

by cagatacos on Tue May 3rd, 2011 at 06:27:08 AM EST
[ Parent ]
Re: Portuguese bailout (none / 1)
The mood in Croatia, the only current accession country, is not very different.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 06:30:23 AM EST
[ Parent ]
Re: Portuguese bailout (none / 1)
cagatacos:
The IMF is protecting us

'us' being europeans? earthlings?

cagatacos:

Now, can you imagine the psychological consequences of this? One way or the other, the view about Europe is taking a massive beating.

if europe was set up to stay a cash cow for the few, and that fact covered by noble blather about sociopolitical union so we wouldn't 'be on each others' throats (sic)' any more, then it seems the people themselves, ~especially the under 25's~ have embraced the blather and are still largely unaware of the dark machinations beneath the surface.

if europa is just a tool for the rich to get richer at the expense of the environment and the dispossessed, then what? will the people willingly give up their Schengen rights, their common currency, and their pride in being part of something greater than the sum of its sovereign parts, because the architects have run out of reasons to plunder, the system's tapped out, people don't want to borrow their way out of crises or live high on credit anymore, dreaming an uptick is guaranteed to raise their asset values.

so they save if they can, even though the rates tell them not to bother.

the thrill is gone, cheap consumerism is no longer more than the very short-termist of options. i think the IMF have seen the writing on the wall for capitalism as we knew it, and are bracing for the inevitable by leaning in a more humanistic direction, (covering their tracks?)

they know they have a ways to go before not being the first against the wall...

and the people....slowly... wake up to what happened to their wallets while their eyelids were closed.

if you remove the neolib/con  element from europe, what's left is really quite wonderful, a blend of many wisdoms, traditions, all intermingling so much more fluidly than before. it's easy to berate brussels bureaucrats, but many of them are conscientious and working in good faith that we are evolving a 'middle way' between the excess of asia and america. i still remain hopeful as to europe's social model, but it risks going down if we cannot accurately diagnose the rot that weakens it from the core, locate and dismiss it from the body politic, a promethean task, but one that if left to its own devices will make a wasteland of this fair continent.

the first step is to understand, especially history and context, which is why i come to ET. where else can you get such varied voices from all over the world, weighing in on such vitally misunderstood topics, and wading into subjects considered too arcane for most of us lowly plebs?

nowhere, that's where!


'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 3rd, 2011 at 10:11:44 AM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 2)
melo:
The IMF is protecting us
'us' being europeans? earthlings?
The Portuguese.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 10:13:10 AM EST
[ Parent ]
Re: Portuguese bailout (none / 0)
<quote>
if you remove the neolib/con  element from europe,
</quote>

This is the same as saying: If you remove all the governments of the Eurozone. Democratically elected governments, I might add.

I am not ready to do that.

by cagatacos on Tue May 3rd, 2011 at 03:04:53 PM EST
[ Parent ]
Re: Portuguese bailout (none / 0)
Yup, the problem is the Brussels Consensus, which is every bit as toxic today as the Washington Consensus was 15 years ago.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 03:11:39 PM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 2)
And the solution is? Sincere question.
by cagatacos on Tue May 3rd, 2011 at 03:15:12 PM EST
[ Parent ]
Re: Portuguese bailout (none / 0)
The Brussels Consensus didn't come out of nowhere and the policy consensus was markedly different in the 1945-1970 period.

How does the Zeitgeist change? How does one change the Zeitgeist? In what direction can one expect the Zeitgeist to change after this decade? How can one try to influence the system to choose among the possible futures?

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 03:24:14 PM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 3)
I will try to consume local (Iberian + Moroccan, in my case)

I will try to avoid consumption from structurally exporting nations (European or otherwise)

I will be anti-Ricardian (no to specialization, yes to local resiliency, no to globalization)

I will try to produce more than I consume (especially voluntary production)

I will turn to Latin America (especially Brasil - with an S, not with a Z!)

This is my answer.

by cagatacos on Tue May 3rd, 2011 at 04:13:37 PM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 2)
In one word, behave uneconomically.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 05:16:06 PM EST
[ Parent ]
Re: Portuguese bailout (none / 0)
the belgians are pointing the way!

cagatacos:

If you remove all the governments of the Eurozone. Democratically elected governments, I might add.



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue May 3rd, 2011 at 07:30:48 PM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 2)
The think-tank bit has. The operatives on the ground less so, from what I've heard from them here.
by Colman (colman at eurotrib.com) on Tue May 3rd, 2011 at 06:32:15 AM EST
[ Parent ]
Re: Portuguese bailout (4.00 / 4)
The IMF seems to have drifted leftwards over the last decade.

I'm not sure when, how or why this happened, but they're not quite the attack dogs of rabid capitalism that they used to be; some awareness of reality appears to have seeped in at some point.

I think it has to do with the fact that a number of East Asian countries have become sufficiently assertive that they simply listen politely to the market fundies and then go and do something that makes sense. The IMF studied and documented this development conscientiously - they are nothing if not good bureaucrats. And since the market fundies lack even a language in which to describe industrial policy, it meant that they had to recruit and promote people from the reality-based community.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 3rd, 2011 at 09:25:15 AM EST
[ Parent ]
Re: The new private state (none / 1)
Eurointelligence Daily Briefing: Merkel's quid pro quo for Draghi (02.05.2011)
Der Spiegel reports this morning that Angela Merkel wants Germans to run the Financial Stability Board and the Economic and Finance Committee in return for her support of Mario Draghi; she also wants to renegotiate some aspects of the ESM;European Commission opens an important investigation into the market for credit default swaps; the True Finns tone down their criticism of the EU bailout package for Portugal;the French government sees the 2011 deficit below the 5.7% target; more German officials have gone on the record in support of a Greek debt restructuring; Klaus Regling accuses banks of greed by advocated a Greek restructuring; the Irish government continues to forecast 3% GDP growth for 2013 onwards; the finance minister of Lower Saxony warns that the EBA's ruling on silent capital will undermine Germany's state banking sector; Daniel Gros says Ireland is solvent because of relatively low levels of external debt; Colm McCarthy, meanwhile, argues that the ECB's uncompromising stance on defaults is leading Europe to disaster.
(Google Link)

I say Merkel has demonstrated in spades she's a xenophobe and she should be told to stuff her quid pro quo. If Germany was not able to muster a worthy candidate for ECB president, what guarantee can we have that the candidates they nominate for the Financial Stability Board and the Economic and Finance Committee will be qualified?

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Mon May 2nd, 2011 at 02:34:59 PM EST
Re: The new private state (none / 0)
Eurointelligence Daily Briefing: Weidmann ascends to the throne (03.05.2011)
New Bundesbank president Jens Weidman was official enthroned yesterday; indicates his main focus would be to watch over, and comment on, German government's fiscal policy; says price stability must take precedence over financial stability
Oh, dear. And this a day after we're told "Merkel's quid-pro-quo on Draghi" (being the next President of the ECB) is to put a German in charge of the European Financial Stability Board.

Merkel's quid pro quo for Draghi

Der Spiegel has the story that Angela Merkel's silence on Mario Draghi's candidacy for the ECB presidency is explained by heavy horsetrading behind the scenes. The German chancellor wants to extract substantive concessions for supporting the Italian central bank governor. First she would like Jörg Asmussen, Wolfgang Schäuble's influential state secretary at the finance ministry to head the Economic and Finance Committee (EFC), the powerful steering committee for the Eurogroup and Ecofin meetings. Secondly she wants Jens Weidmann, who is officially inaugurated as the Bundesbank president today, to succeed to Draghi as the chairman of the Financial Stability Board (FSB). Thirdly she wants to impose a very restrictive line in the ongoing technical discussion surrounding practical matters at the ESM such as what majorities are required to take what kind of decisions and whether the ESM can create new rescue instruments for troubled Euro states in its own authority.
Jean-Claude  Trichet took a swipe at Axel Weber at the ceremony, saying that the ECB  followed Weber's advice to bail out the German Pfandbrief market;
For more, see here
the True Finns changed their mind again: they are now categorically ruling out the Portuguese rescue package; Vitor  Constancio says Portugal may be able to push back its targets for  deficit reduction, but EU officials say no deal has been reached on this  issue yet; Nout Wellink says he is open to a rescheduling, but not restructuring, of Greek debt; criticises ESM for moral hazard; the Greeks are asking once again for a cut on the interest rate on their EU/IMF loan; inflation expectations jump back to close to 2.5%; Jean-Marc Vittori, meanwhile, describes the decision to curtail the Schengen agreement as a "great leap backward".


Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 04:14:11 AM EST
[ Parent ]
Re: The new private state (4.00 / 3)
Now, assuming that the state is "private", tell me again why I should encourage my fellow citizens to pay taxes?

It seems to me that the private state is becoming a wealth transfer machine in the WRONG direction.

Maybe we need things to fall apart. What comes after might be even worse, but the current direction of things is way beyond an acceptable balance between all groups/classes.

Economic activity is where "The people" have power! Or should I say STILL has power: as things go, in a decade or so the middle classes simply face obliteration.

by cagatacos on Tue May 3rd, 2011 at 05:09:04 AM EST
Re: The new private state (4.00 / 4)
The state is not "private" any more than regional or local councils used to be "private". They're still "public" and are still charged with "guaranteeing" all the rights that citizens of a modern democracy have come to expect. Guaranteeing these rights constitutes a large implicit financial guarantee.

By your argument, why should you encourage your fellow citizens to pay municipal taxes? Local councils can and on occasion do go bankrupt and the state picks up the pieces. Except that now the state can no longer necessarily pick up the pieces without going bankrupt.

By a different route, the EU has reached the point that the US was chronically at: budget emergencies and government shutdowns. This has no bearing on whether one should pay taxes or not since the State, though now unable to guarantee rights, is still the only large and powerful institution with a mandate to care about the common good. Other large and powerful institutions only care about their own profit.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 05:28:03 AM EST
[ Parent ]
Re: The new private state (4.00 / 5)
My disagreement with you is in the idea that it has a mandate to care "about the common good". Maybe it had in the (recent) past. Currently?

BTW, There are many other organizations which care for the common good: cooperatives, charities, local associations. Good places to send "taxes" and effort.

Look, I see your point in abstract.

But in concrete: my mother will probably see a cut in her ~800€ pension. She will also have to pay more for prescription medicines, for transport, ... At the same time it seems that 10% of our "help" we be used to recapitalize the banks. How can I (and, especially, her) not be a cynic? My grandfather has a 300€ pension and is seeing raises in medicines. My father, with a good pension is seeing a massive delay in having his prostate checked (what can become a killing delay).

Trust in the system? It seems that it is being redesigned to hurt us.

by cagatacos on Tue May 3rd, 2011 at 06:22:13 AM EST
[ Parent ]
Re: The new private state (4.00 / 3)
cagatacos:
My disagreement with you is in the idea that it has a mandate to care "about the common good". Maybe it had in the (recent) past. Currently?
Well, in a way you could argue that the mandate of the Treasury is now to ensure its own profit, just like that of a private corporation.

The difference between a government and a private entity is that the government cannot lay off its citizens. Though it can, by reneging on its implicit guarantees, disenfranchise them. This is what the market wants, and who's the ECB to contradict the market?

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 07:01:41 AM EST
[ Parent ]
Re: The new private state (4.00 / 4)
cagatacos:
How can I (and, especially, her) not be a cynic?
All I can say is, be the change you want to see.

If we all become cynics and start behaving as if the state cannot be expected to provide any guarantees, then the political change necessary to restore a semblance of welfare state will simply not be there in the next 30-year cycle.

Economics is politics by other means

by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 07:22:58 AM EST
[ Parent ]
Re: The new private state (4.00 / 5)
I see your point. Indeed during many years I demanded receipts that forced tax collection. Last year (as a PhD student), I was entitled to bench fees of 12.500 Euros and asked for nothing. And so on...

I think there are many ways to address all things that have been happening. You seem to still believe in institutional change. I wish you the best of luck. Sincerely. I also sincerely hope you are right (and I am wrong). Obviously your perspective was one that I held in the past, so I see your point.

I am currently turning myself to the local "Transition Town" movement. Nice, smart people and quite a lot of them also. Granted it is an "informal" approach, but one with clearly good aims.

by cagatacos on Tue May 3rd, 2011 at 07:52:27 AM EST
[ Parent ]
Re: The new private state (4.00 / 2)
Hoping for institutional change and working with the transition town movement are not necessarily mutually exclusive.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Tue May 3rd, 2011 at 08:51:41 AM EST
[ Parent ]
Re: The new private state (none / 1)
Correct.

Networked community based action is the solution within the correct institutional framework. If you link and pool Micro you soon get Macro.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue May 3rd, 2011 at 12:39:40 PM EST
[ Parent ]
Your mother will see a cut in her pension... (4.00 / 2)
Eurointelligence Daily Briefing: Has Socrates misrepresented the agreement? The actual memorandum suggests harsh tax increases, and a two year economic contraction.
The FT has seen a copy of the rescue deal, which suggest that the adjustment is far bigger than what Socrates seemed to suggest; there will be special taxes on pensions, and welfare benefits, freezes on pensions and public sector pay, and dismissal reforms; includes a forecast of a contraction of 1.5%-2% for 2011 and 2012 each; Reuters writes that the final size of the package may be higher than €78bn, depending on the capitalisation needs of the banks;Portugal's opposition said it will accept the package; the ECB's governing board meets in Finland today, as observers are sharply divided over whether the next rate rise will come in June or July; euro/dollar shoots up; Enda Kenny says an announcement on Ireland's interest rate reduction will come after the agreement on the Portugal rescue package - without any concession on corporate taxes; Ireland's fiscal position improved during April; Ireland, Germany and the UK spent the most money on bank rescues in the EU; a sighting of DSK in a Porsche is making headline news in the French media; Merkel is reportedly hopping mad about the number of Italians running important EU-level economic jobs; Xavier Fidal Folch compares the euro rescue to the stone of Sisyphus - rolling down once it reach the top; Holger Stelzner said the rescue operations have been unsuccessful, and that only structural reforms will work; Thomas Hanke says the cut in interest rates on the Greek loan already constituted a form of restructuring; Wolfgang Proissl says Jens Weidmann could be the next ECB president - after Draghi.
(Google link)

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu May 5th, 2011 at 04:33:31 AM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 1)
which suggest that the adjustment is far bigger than what Socrates seemed to suggest; there will be special taxes on pensions, and welfare benefits, freezes on pensions and public sector pay, and dismissal reforms;

This is pure robbery. Exactly the same policies the same people had in Yeltsin's Russia. Oil resources to oligarchs for free and economic disaster afterwards. Same with Argentina.

There is a fiscal solution. Tax the rentiers. When parasite dies the host will get better.

by kjr63 on Thu May 5th, 2011 at 09:23:23 AM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 1)
From YLE (finland):

Portugalin pelastuspaketti on rakennettu kolmeksi vuodeksi. Tänä aikana Portugali saa EU:n ja IMF:n kokoamaa rahaa noin 80 miljardia euroa. Avun saamisen vaatimuksina Portugali sitoutuu 35 sivun mittaiseen ohjelmaan.

Talouden tervehdyttämisohjelmassa säästöjä haetaan esimerkiksi koulujärjestelmän uudelleen organisoimisella, terveydenhuollon säästöistä ja keskushallinnon virkojen vähentämisellä. Avun saamisen ehtona on myös korkeiden yli 1 500 euron eläkkeiden leikkauksia.

Portugalille esitetään laajaa yksityistämisohjelmaa. Portugalin on vapautettava mm. täysin energiamarkkinansa. Lisäksi maan on yksityistettävä lentokenttänsä sekä energia- ja vakuutusalaa.

Portugalin on sitouduttava vähentämään julkisen sektorin johtovirkoja 15 prosenttia. Lisäksi vuosittain keskushallinnosta on vähennettävä prosentin verran työntekijöitä ja paikallishallinnon työntekijöitä 2 prosenttia. Samalla julkisen sektorin palkat jäädytetään vuoteen 2013 saakka.

in English:

  • Portugal agreement is for 3 years. During this period Portugal gets money around 80 milliard euros. Portugal has an obligation to commit to 35 page program.
  • Savings are made from reorganising education system, health care cuts, cutting bureaucracy and over 1500e pensions.
  • Portugal will be presented a wide privatising program. It has to completely free it's energy market, privatise air fields and energy and insurance sectors.
  • Portugal will have to cut executive public positions by 15 percent and cut annually 1-2% of it's public sector workers. The salaries in public sector are frozen until 2013.

So, according to EU, the public sector in Portugal that has caused the crisis. But is it?
by kjr63 on Thu May 5th, 2011 at 09:47:01 AM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 0)
I fail to see how those policies are going to fix anything.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu May 5th, 2011 at 12:44:24 PM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 0)
Well it will fix the Portuguese foreign balance. When you kill the economy so dead it can't import stuff, you improve the balance of trade. And then they can pay back their foreign debts.

Simple IMF logic, really.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 6th, 2011 at 02:41:15 AM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 0)
I can't wait for the 2013 debt jubileebondholder bail-ins.

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Fri May 6th, 2011 at 04:01:23 AM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 0)
I'll celebrate in 2013 regardless of whether there's a bondholder bail-in, as long as we still have a European Union in which to celebrate by 2013.

The fact that the mafia and the military seem to be the only European institutions that conduct industrial policy is not something I find wholly reassuring. Both have a rather greater abundance of automatic firearms per member than am used to associating with postwar European civilisation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 6th, 2011 at 12:40:15 PM EST
[ Parent ]
Re: Your mother will see a cut in her pension... (none / 0)
Eurointelligence Daily Briefing: The consequences of a not so secret meeting
PSD reveals its supply side economic plan

Passos Coelho revealed his party's economic plan with the objective is to change the economic model for Portugal. The main feature is a reduction of businesses social taxes by 4pp from 23.75% to 19%, financed by structural cuts in government spending. These include cuts in the entitlement period for unemployment benefit; a cut in the number of state secretaries by 30%, and of advisers by half; reductions in public entities by at least 15%; an independent recruitment service for senior government positions and the end of prestigious infrastructure projects, such as high-speed rail services.  Jornal de Negocios has the details. President Cavaco Silva said that a tax cut for businesses is possible and in line with the troika agreement but that it should go hand in hand with a tax cut on labour, while VAT may rise.

(Google link)

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:37:58 AM EST
[ Parent ]
Re: The new private state (none / 0)
This might be representative of the next 30 to 40 years: Canada Tories to follow tax-cut, pro-business agenda (Reuters)
Canadian Prime Minister Stephen Harper, now backed by a powerful parliamentary majority, said on Tuesday the energy sector can rest easy that his government will not impede plans to vastly expand the country's oil sands output and ship some of the crude to Asia.

Harper, in his Western Canadian home base of Calgary on the morning after his Conservatives won big in the federal election, singled out the Western-based oil industry as being a beneficiary of his party's pro-business agenda, which will also include corporate tax cuts and deficit reduction. Investors greeted the result with relief.

...

The Conservatives won 167 of 308 seats in the House of Commons in Monday's vote, giving Harper a third mandate since 2006 and his first majority. Until now, the Conservatives' minority-government status has meant they had to compromise with other parties on many policies.



Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Wed May 4th, 2011 at 04:28:56 AM EST
Re: The new private state (none / 1)
Well, a renewal on the left appears to be well underway in Canada:

Canadian federal election, 2011 - Wikipedia, the free encyclopedia

The New Democratic Party won the largest number of seats in their history, including a large majority of seats in Quebec (where they had previously only ever elected two candidates[fn 1]) and will form the Official Opposition for the first time. This will be the strongest opposition in terms of share of opposition seats since the 1993 election. The Liberal Party won the fewest seats in their history and party leader Michael Ignatieff was defeated in his own riding.[fn 2] The Bloc Québécois, which had always won at least a majority of seats in Quebec in every election of their existence, lost nearly all their seats, including the seat of their leader Gilles Duceppe, who resigned as BQ leader following his defeat. The Green Party won their first elected seat, that of party leader Elizabeth May.[2]


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed May 4th, 2011 at 06:41:01 AM EST
[ Parent ]
My thanks to you all (4.00 / 4)
- Mig, Jake, Jerome, TBG, ARG et al. for a very interesting grind in what I take to be some kind of post-keynesian economics spiced with a dab of post marxist politics.  Sometimes you read a diary/discussion and really learn something, and this is one of those.  

The pity is we (ET) doesn't seem to have the collective capacity to produce a conference or book which encapsulates and popularises the important themes here.  In the absence of a coherent European socialist movement, someone has to stand up and come up with an intellectually coherent critique of EPP governing ideology and economic elite capture of the key European institutions.

Some questions:

  1. Most of the discussion here is about intra-eurozone economic and political imbalances and policy responses. What about the larger game on the world stage - is German policy driven less by it's impact on other Eurozone members and more by its desire to rival the USA and China on the world stage?  Or is German policy not even rational at that level?

  2. If states are to be run like private enterprises, MUST they then not also develop balance sheets which take productive investments and assets into account?  Otherwise social asset stripping and financialisation becomes the only game in town - even for a private enterprise.

  3. If member states are becoming increasingly like local/regional Governments in a federal structure - with the Federal structure refusing to take on the responsibilities it is preventing member states from discharging - will the EU project non fail even on its own current rather limited terms?  I.e. the policy is not rational at ANY level.

  4. If (say) the ECB refuses to provide adequate liquidity to Irish banks - as it threatened to do in the "bail-out" negotiations - what is to prevent the Irish Central Bank from either issuing its own Euros or borrowing from the FED instead? (If Germany/France insist on an increase in the Irish corporate tax rate as a precondition for sustainable interest rates, it becomes in the interest of US corporates to circumvent this by encouraging the FED to act as lender of last resort to the Irish Government rather than the ECB).                      


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 4th, 2011 at 08:17:06 AM EST
Re: My thanks to you all (4.00 / 3)
  1. No, as far as I can tell it's all ideology and domestic political gamesmanship from. It whatever the gains on the international stage from their tough-guy showmanship, it cannot credibly measure up against deliberately destroying half your closest allies' economic base.

  2. Yes, if they have to borrow, they have to produce proper balance sheets. But that is a non-trivial exercise. In practise, local governments should only borrow to the tune of the flexible and/or revenue-generating parts of their investment budget - operating budget and investments in things that incur an operating loss (daycare, some public transport, etc.) should be covered through a combination of tax revenue and central government contributions. This preserves the funding constraint - thus allowing the central government to perform unified macroeconomic stabilisation - while bypassing the money markets for those functions the money markets are ill suited to evaluate.

  3. Yes.

  4. Issuing its own Euros would be counterfeiting. Nothing prevents you from doing it in principle, but the ECB will not accept that money for purposes of intra-EU transfers.

  5. It may be possible to issue a scrip that is backed fractionally by Euro reserves. The Bundesbank might object, but I don't think they have any basis for such objection in the treaties.

  6. Since you have a foreign surplus, no power in Bruxelles can prevent you from dollarising your economy in response to a shortage of Euros. but it would probably not do to involve the Irish central bank too directly in the process. And if you're going to do something that radical anyway, you might as well just reissue your own currency and be done with it, instead of trading your current ECB overlords for only marginally less unpleasant American overlords.

- Jake

Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 4th, 2011 at 09:05:25 AM EST
[ Parent ]
Re: My thanks to you all (4.00 / 3)
Frank Schnittger:
Most of the discussion here is about intra-eurozone economic and political imbalances and policy responses. What about the larger game on the world stage - is German policy driven less by it's impact on other Eurozone members and more by its desire to rival the USA and China on the world stage?  Or is German policy not even rational at that level?

Rival them in what sense? The US and China appears to me to be acting very different from each other.

It could be noted that while Germany runs a 10-15 million euros trade surplus, the eurozone runs on average a balanced trade, under -+ 10 million euros (on a much larger economy). I think it can be safely concluded that the German mercantilistic strategy is mainly aimed at intra-eurozone trade.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed May 4th, 2011 at 09:06:01 AM EST
[ Parent ]
Re: My thanks to you all (none / 0)
I presume you mean Billions, and even then I don't understand the figures.  Ireland's trade surplus will be €50 Billion plus this year.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 4th, 2011 at 09:22:25 AM EST
[ Parent ]
Re: My thanks to you all (none / 0)
I think that's per month, not per year.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 4th, 2011 at 09:56:17 AM EST
[ Parent ]
Re: My thanks to you all (4.00 / 3)
Very tired reading there, good thing I linked the source.

Rechecking:
A swedish kind of death:

It could be noted that while Germany runs a 10-15 million euros billions per month trade surplus, the eurozone runs on average a balanced trade, under -+ 10 million euros 1 billion euros per month (on a much larger economy). I think it can be safely concluded that the German mercantilistic strategy is mainly aimed at intra-eurozone trade.

So it was even more striking when correct.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed May 4th, 2011 at 03:50:10 PM EST
[ Parent ]
Re: The new private state (4.00 / 2)
In the Eurozone, therefore, the State must be run like a private firm.

And private firms must be run like a state. Create their own credit.

by kjr63 on Wed May 4th, 2011 at 07:27:55 PM EST
Re: The new private state (none / 0)
Of course "running government like a business" has always been a crap statement.  At a minimum, government performs the services business can't or won't do, so at the core of governmental operation is a fundamental disconnect from business operation.
by rifek on Tue May 10th, 2011 at 07:56:40 PM EST
The new private state | 158 comments (158 topical, 0 editorial, 0 hidden)


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

Trmp and Energy Reality

by gmoke - May 16

No More Equality Under the Law, the End of Isonomy in...

by gmoke - Apr 22
5 comments

Generating a toxic discourse that's not really about ARINS

by Frank Schnittger - Apr 23
3 comments

Energy (and Other) Events Monthly - May 2025

by gmoke - Apr 30

Recent Diaries

America Supports Nakba 2, Transport to Hell

by Oui - May 17
7 comments

Trmp and Energy Reality

by gmoke - May 16

Preaching Policy Contra Russia @Atlantic Council

by Oui - May 15

Arab Side Letter :: Solve the Gaza Crisis Now

by Oui - May 15
12 comments

Ukraine Not Invited to June NATO Summit

by Oui - May 14

Stop Bloodshed, Invest In Peace

by Oui - May 14

Trump: Sanctions Are Self Defeating

by Oui - May 13
6 comments

City Agriculture - May 13, 2025

by gmoke - May 13

Major Shift Powers in Mena - West Asia

by Oui - May 13
21 comments

China Trade Deal: Repair 4 Years of Biden Neglect

by Oui - May 12

Trump: Zelensky Should Agree to Direct Talks w Putin

by Oui - May 11
9 comments

IDF Sniper Murderer of Shireen Abu Akleh Named

by Oui - May 11

Rift Trump w Netanyahu Deepens

by Oui - May 10
9 comments

MAGA Freaked Out on Election Leo XIV

by Oui - May 10

A Deal of the Century In the Making .. Again

by Oui - May 9
21 comments

Israel Aims a Political Ban on Dutch Institutions

by Oui - May 9

Nakim Terror: Taking the Holocaust to Palestinians

by Oui - May 8
4 comments

PMQ House of Commons and Israeli War Crimes

by Oui - May 7
3 comments

Bill Bradley on Russia and NATO

by Oui - May 7

Friedrich Merz Humiliated In 1st Vote

by Oui - May 6
3 comments

More Diaries...