Greece, more Lies and still more Clues

It is surprising that those who are “managing” the economy are still sticking to the same formulas even though it has been shown that they are failures.  They are tightening their seat belts as they drive the bus off the edge of a cliff.  Much better plan would be to get of the bus!

May 6, 2010, 6:11 am <!– — Updated: 3:52 pm –>

It’s Not About Greece Anymore

By PETER BOONE AND SIMON JOHNSON

The Greek “rescue” package announced last weekend is dramatic, unprecedented and far from enough to stabilize the euro zone.

The Greek government and the European Union leadership, prodded by the International Monetary Fund, are finally becoming realistic about the dire economic situation in Greece. They have abandoned previous rounds of optimistic forecasts and have now admitted to a profoundly worse situation. This new program calls for “fiscal adjustments” — cuts to the fiscal deficit, mostly through spending cuts — totaling 11 percent of gross domestic product in 2010, 4.3 percent in 2011, and 2 percent in 2012 and 2013. The total debt-to-G.D.P. ratio peaks at 149 percent in 2012-13 before starting a gentle glide path back down to sanity.

This new program is honest enough to show why it is unlikely to succeed.

Daniel Gros, an eminent economist on euro zone issues who is based in Brussels, has argued that for each 1 percent of G.D.P. decline in Greek government spending, total demand in the country falls by 2.5 percent of G.D.P. If the government reduces spending by 15 percent of G.D.P. — the initial shock to demand could be well over 30 percent of G.D.P.

ITS NOT ABOUT GREECE ANYMORE. Well, duh was it ever? The riots in Greece were all about the oppression of people by an unjust economic system, and if you don’t believe these words of mine, just look at the pictures in this post from 16 December 2008:  Greece, Clues and Lies

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Greece, more Lies and still more Clues

The Libertarian Twilight Zone

Tim Lee falls into the libertarian twilight zone, when he starts commenting on the death of the newspapers and then inserts a sideways adjective re: regulatory agencies, calling them ‘cathedral-style:’

The Regulatory Cathedral and the Bazaar

Yochai Benkler ponders the death of the newspaper:

Critics of online media raise concerns about the ease with which gossip and unsubstantiated claims can be propagated on the Net. However, on the Net we have all learned to read with a grain of salt between our teeth, like Russians drinking tea through a sugar cube. The traditional media, to the contrary, commanded respect and imposed authority. It was precisely this respect and authority that made The New York Times’ reporting on weapons of mass destruction in Iraq so instrumental in legitimating the lies that the Bush administration used to lead this country to war.

This is a fantastic insight, and indeed, it’s precisely the insight that we libertarians apply to the regulatory state. That is, just as a decentralized media and a skeptical public is better than the cathedral style of news gathering, so too are decentralized certification schemes and a skeptical public better than a single, cathedral-style regulatory agency “guaranteeing” that businesses are serving consumers well. Most of the time the regulators will protect the public, just as most of the time newspapers get their stories right. The problem is that no institution is perfect, and the consequences of failure are much more serious if you’ve got a population that’s gotten used to blindly trusting the authority figure rather than exercising healthy skepticism. Regulatory agencies are single points of failure, and in a complex economy single points of failure are a recipe for disaster.

Tim wishes regulatory schemes were ‘cathedral-like,’ as that is his attempt to co-opt open source methodologies into his libertarian “government is bad” agenda. But it won’t wash because, in fact, most regulatory agencies are not cathedral-like at all. They arise because of the actions of the free press, discussing an issue of importance which then creates the impetus for legislation which is debated, modified, debated, modified again and again. That sounds pretty bazaar-like to me.  Lots of communication, trial and error and networking with information kept in public view, not top-down, directed and secret at all.  If it doesn’t work it gets changed.  Rarely, good legislation gets thrown out, and not surprisingly, bad things happen. *

So I respond to Tim:

This is revisionism.

The reality is: for the better part of 65 years, the Glass-Steagall Act protected the banking system from the collapse we now see. The act was abandoned, and the unregulated baking systemically failed because of massive instability.

Furthermore, it is wrong to say that regulatory efforts are all Cathedral-like. They are not.  Many are more bazaar like–arising after a specific failure, and becoming legislation only after a full and public debate.

My own experience is with building codes, seeing how any specific failure such as the Lakeview Elementary School Fire (see: http://en.wikipedia.org/wiki/Collinwood_School_Fire) or the Triangle Shirtwaist Factory Fire (see: http://en.wikipedia.org/wiki/Triangle_Shirtwais…) each lead–incrementally–to specific changes in building codes.

This is why I have such an issue with libertarianism–by denying the validity of the regulatory process you condemn countless millions to unnecessary suffering. Of course, that can only happen if: someone in power drinks that libertarian kool-aid, as happened when the Glass-Steagall Act was gutted. Fortunately, it will be at least 65 more years before anyone in power dreams of thinking like a libertarian again.**

There exists no libertarian answer as to how public safety could be provided, through a “decentralized certification scheme” equivalent to what is provided by modern building codes.

Of course, doubtless you can point to an example that proves that building codes are not presently perfect. That, however, does not detract from their demonstrated utility, any more than pointing out that many people die in Emergency Rooms would be an argument for their closure.

Banking and Finance admittedly are not my area of expertise, but even Clinton noted recently that he regretted loosening the Glass-Steagall restrictions, and now there are millions who will experience what deregulation has brought them: destitution and hopelessness.

*I will admit, though, that in a country that doesn’t have free speech and multi-party politics, a cathedral-like regulatory scheme could come into existence. That’s one of the reason communism failed–their regulatory schemes were cathedral-like. But, since the context is regulatory schemes in a multi-party democracy, I am talking about regulatory schemes only in that context here.

** ‘thinking’ being used very loosely.

The Libertarian Twilight Zone

E_F Prediction from Sept 2006

Here’s something from my predictions for the year 2007, which I had posted on September 9th, 2006.   It took the business cycle dating committee until November of 2008 to acknowledge that the recession had actually started in December 2007.  So I had beaten them by about 26 months.

My prediction:

6. The economy will (barely) muddle through 2007, ending the year with a slightly negative or at very best, zero growth in GDP. This is based on the infectious disease outbreak predicted above being of rather minor nature. If the outbreak is major, there will strong negative GDP growth.

Verdict: This happened almost exactly as predicted, with the recession beginning in December of 2007.  Note that it took the Business Cycle Dating Committee until November 28, 2008 to announce that a recession had been occurring since December 2007.  Woops!

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

link: http://www.nber.org/cycles/dec2008.html


E_F Prediction from Sept 2006

Ministry of Truth at the TLF

At the Technology Liberation Front, where I sometimes comment, rude behavior has become the norm for two posters. Adam Thierer descends into silly name calling, which is fine (to a point) but Jerry Brito really takes the cake in that he has decided to (generally) delete my comments. I would draw the distinction between Adam and Jerry and others such as Tim Lee, who has been overwhelmingly well-behaved and thoughtful in his posts and follow-ups to my comments. Jerry, or someone managing his posts, had been deleting my comments to his posts in the past, as I have noted here.

Deletions of my comments are not happening on a global basis at TLF (my comments to Tim Lee or most of the others don’t get deleted) and my comments to Jerry’s posts don’t always go into the moderated queue, they actually show up on the website but get deleted later. Why would this happen unless my comments are being deleted by someone managing Jerry Brito’s posts? I had sent an email to Jerry at his George Mason University email address, to give him an opportunity to respond, and if he does I’ll certainly post it here.

The interesting question for me is: why do my comments aggravate Jerry so much that they he feels he has to delete them? If he disagrees with my comments, wouldn’t it be more in keeping with the TLF’s professed goals of a high quality debate to respond to them? The answer, I believe, is that they show the internal contradictions in “libertarian” philosophy, and thus can’t be responded to, and therefore get sent to the ‘memory hole’ as George Orwell called it.

It is especially ironic that there is a post at TLF complaining about the uses of “Big Brother” metaphor when describing non-governmental spying or censorship, and here they are exercising the ‘memory hole’ that would do the Ministry of Truth proud. Let’s see if my comments to that post stay or if they get deleted.

Continue reading “Ministry of Truth at the TLF”

Ministry of Truth at the TLF

The Self-Regulating Market requires state intervention

Tim Lee makes a couple of points about what he sees as the puzzling connections between free trade and protectionism, and he stumbles across the point I’d made earlier to one of Jerry Brito’s comments, (yes, the comment that Jerry can’t respond to, and therefore must censor) It’s a simple point that Karl Polanyi made in his excellent book The Great Transformation: that the self-regulating market requires state intervention, both for it’s creation and for its maintenance . So the creation of a self regulating market in copyrighted goods requires state intervention to create and maintain that market. But Tim, being a libertarian, can’t read or understand Polanyi, so he’s confused about why those who support free trade also support certain market interventions:

This is a fascinating question. One of the things I find really interesting about the 19th century political debate is that the opposing political coalitions were more sensibly aligned, perhaps because people had a slightly clearer sense of what was at stake. My impression (which may be wrong in its details) is that the free traders tended to be liberals and economic populists. They clearly understood that protectionism brought about a transfer of wealth from relatively poor consumers to relatively wealthy business interests. In the opposing coalition were a coalition of business interests and xenophobes making fundamentally mercantilist arguments about economic nationalism.

 

Karl Polanyi covers this period in his book The Great Transformation. His perspective is a little different.

First, Polanyi notes that those opposing the liberal agenda there were the defenders of the old order, ultimately derived from the feudal social structure, as well the working urban proletariat. Their interests never coincided and their visions of an alternative to the dominant liberal creed were so very different, it is not surprising that they never formed a united opposition. It is true that once the middle class realized that free trade meant cheaper food they were temporarily won over to its cause. But there were a few others who realized how disastrous free trade would be in the long run.

Second, Tim Lee, as all libertarians do, makes a whole series of informational exclusions about what comes along with liberalism. For example, it cannot be an accident that Great Britain, during the time of the ascendancy of liberal ideals, also maintained a very large colonial empire. Ultimately, adherence to the dogma of the self-regulating market requires state intervention to ensure that the prices of labor, land, and money are all controlled only by economic factors internal to that self-regulating market. When social, environmental, religious or national policies interfere with the operating of that self regulating market, state intervention is required. Case in point: US invasion of Iraq. When political ideals interfere with the functioning of the self-regulating market, state intervention is also called for by supporters of the market. Case in point: the DMCA. From this view, the fact that those who support the self-regulating market also support strong imposed patent, copyright and trademark laws is entirely consistent and unsurprising.

 

The bottom line is: you cannot separate the economic functioning of society from its broader social, political, environmental, national and social contexts, as liberals are wont to do. Human society just cannot be distilled into neatly separate fungible categories. They are all connected. Failure to come to grips with this reality is why libertarianism can only be maintained by making excluding whole categories of information.

Thus the following confusion on Tim’s part:

Today’s free trade debate is much weirder, because there are enough businesses who want to export things that significant parts of the business community are for freer trade. On the other hand, the liberals who fancy themselves defenders of relatively poor consumers find themselves in bed with predatory industries like sugar and stell that have been using trade barriers to gouge consumers. And the “trade” debate has increasingly come to be focused on issues that don’t actually have much to do with trade, whether it’s labor and environmental “standards,” copyright and patent requirements, working retraining programs, cross-border subsidies, etc.

Continue reading “The Self-Regulating Market requires state intervention”

The Self-Regulating Market requires state intervention

Drawing Boundaries Around Democracy (Tax Free Internet Edition)

Corporations have a long history of drawing lines around democracy, so they can escape the effects of the popular mandate. One of the most egregious examples of this was the creation of a town near East Saint Louis [present day Sauget] which was created by just one vote (the night watchman of the factory) in order to prevent the town of East Saint Louis from annexing and then taxing that same factory. The factory was thus enclosed by a boundary around democracy. That particular example is behind us, and I rather doubt that would happen today. It just wouldn’t fly.

That past event sheds light on a pattern of behavior, and it’s important to reverse that trend, to prevent future enclosures that steal from the larger society, without giving back. Today, there are plenty of ways that corporations use the internet to enclose their company, and seal it off from democratic institutions which might tax them. Of course, the anti-democratic reality of this enclosure is obscured by the language of freedom that is used to make the case for a “tax free” internet.

But there is one simple question that we can ask the libertarians that exposes the bankruptcy and anti-freedom agenda of the tax free world that they are trying to create. It is a question that libertarians cannot acknowledge, let alone answer.

Continue reading “Drawing Boundaries Around Democracy (Tax Free Internet Edition)”

Drawing Boundaries Around Democracy (Tax Free Internet Edition)

The Great Transformation

Reading The Great Transformation by Karl Polanyi. It is certainly one of the great cross-disciplinary conceptual efforts of our time, and is the best book about economics I’ve read since Amartya Sen‘s Development as Freedom. Essential to Polanyi’s views is that our economic structures are embedded in a wider social and political context, and he makes the great point that men can not be reduced to economic automatons, as so many economists were (and still are) apt to do.

One of the insights he has is that there are some inherent conflicts within the dominant neo-classical liberal creed, specifically between the idea of laissez-faire policies and the institution of the self-regulating market:

“Strictly economic liberalism is the organizing principle of a society in which industry is based on the institution of the self-regulating market…For as long as such a system is not established economic liberals will call for the intervention of the state in order to establish it, and once established, in order to maintain it.” (page 149)

And I found a great example of this contradiction right over at that libertarian website, TLF:
Continue reading “The Great Transformation”

The Great Transformation