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DUCY? I mean, OECD?
May. 25th, 2011 01:41 pmPolitics, as I believe Rab Butler and several other politicians (and not a few political philosophers) said, is the Art of the Possible. It's an old saw that the economists in the world today seem to find difficult to grasp.
The OECD today, in the middle of revising downwards yet again its estimate of how the world is going, muttered something about "unblocking political stalemates" that are preventing countries from getting serious about reducing their budget deficit.
The OECD is suffering from a serious miscomprehension here. It seems to think that if political parties in a country can all get together and agree on running a balanced budget, the people will come along for the ride in a sheep-like fashion. Nothing, of course, could be further from the truth. In the developing world it might be a matter of subsidizing wheat, while in the developed world it might be to do with subsidizing medical care or retired people's pensions, but the effect is the same. They are easy things to introduce and very difficult things to remove. Cross-party agreement won't work because you either get new parties appearing that represent the public view (i.e., 'populists') or the system gets overthrown in an army coup, or something like that,
Here the politicians have the edge over the economists. While there are many politicians out there who really don't have a clue about economics and are therefore spouting total nonsense through a lack of understanding of such simple concepts as supply and demand, or by maintaining in the economics world the principle of holding two opposing and mutually contradictory views simultaneously without seeing any contradiction* (see below), there are also, I suspect, not a few politicians who know precisely what is going on, and also know that they can't say it. Because if enough of them DID say it, the system (political as well as economic) would fall apart.
The net result of this is that everyone talks about cuts, but the cuts don't happen; or, rather, any of the cuts that do happen are mere window-dressing. The details differ from country to country, but the general principle remains solid. The West can no longer afford the level of benefits and the level of subsidized medical care that it has become used to. The implications of that statement are so unpalatable that (a) no politician can say it and (b) even if he did, he couldn't get elected. "Lower taxes" is one thing, but "screw the disadvantaged, stop treating the sick unless they have money, and don't keep the elderly alive tyhrough medical intervention" is not going to garner that many votes.
But, sadly, our levels of support for the disadvantaged cannot be sustained, and the innocent (e.g., the babies of single mothers) are going to get screwed. It will happen eventually whether we want it to or not (and, obviously, I would ratehr it didn't). It's no use saying simple stuff like "stop spending money on weapons" or "tax the rich more". Because that, once again, brings us back to what Rab Butler said about "The Art of the Possible". For a start, notwithstanding the long-term implications for foreign takeover, what would you do with all of the out-of-work soldiers? Thoughts of Germany in 1919 spring to mind.
A rather interesting programme on the BBC a few weeks ago covered a small community (actually, I think it was just a street) where all "outside" control of cross-subsidy was ended, and the money was given to this small community to dole out as they thought fit. Initially it fell apart because no-one wanted to take leadership responsibility for spending the cash -- so the rubbish wasn't collected for a few weeks. But that could be defined as a teething troubles ("leaders emerge" as the saying goes). More interesting was that, although the community was willing to put money in to help the elderly, it didn't want to subsidize a single mother. That single mother eventually quit the scheme (I don't think it had occurred to her that her own income might be stopped) and called the other people "judgemental". That's a nice insulting word, but the sad fact is that people ARE judgemental. The elevation of the word "non-judgemental" to equal "a jolly good person" is a piece of linguistic chicanery thought up by various lobbyists and pressure groups over the years who want our money. Yes, everyone else on the street was judgemental. They judged that paying the single mother part of the comunal pot was not something they wanted to be a part of. That's how democracy should work.
Except, once we get to the national level, it doesn't work that way. There are several reasons for this, none of which bear going into here, but it's self-evident that any attempt to be "judgemental" on a national scale would generate firm responses from a number of influential pressure groups within the established parties.
Anyhoo, returning to the economics/politics dichotomy, I view the forthcoming coronation of Christine Lagarde as head of the IMF with some trepidation. Nothing I have heard her say on the subject of the current eurozone crisis has made any sense whatsoever. If she's an expert economist, she's a very French expert economist, and we all know that the French view economics in a very different way from the rest of the known universe. Indeed the entire French economic system looks to me to be like something out of Catch-22. If Lagarde brings her current public attitude to the IMF, one could see the Fund actually disintegrating when, like Springfield after Homer Simpson was elected on a "lack of common sense" ticket, the money runs out at the end of February, two months into the financial year.
But the chances are that she won't. I would have been equally concerned about Strauss-Kahn (had I been paying attention to the IMF at the time, which I confess I wasn't), but he ended up playing a blinder as head of the IMF (sadly spoilt by his own personal failings). The IMF does have one fundamental fault at the moment -- it seems to think that everyone can be like Germany -- which in a zero-sum game they can't. But in the main it's got a fair handle on how to go about things -- certainly more of a handle than the EU or the ECB at the moment, who have quite clearly lost the plot when it comes to Greece and we are now watching a car crash in slow motion. Top marks to the ECB for stomping on the EU's linguistic contortionism, by the way. The EU seemed to think that, if I borrow a hundred quid from you with an agreement that I will pay you back £101 in a month, and then I hold a gun to your head and say that I will need to have you sign this piece of paper that says I can pay you back £101 in a year, then that doesn't qualify as a "credit event" (i.e., a default). It's merely a reprofiling, the EU tried to claim. Trichet stomped on that good and hard (this was an example of politicians not understanding the market, rather than economists not understanding politics), but that leaves the EU with no plan B. The so-called privatization of Greek assets is just a sticking plaster. It won't raise more than €16bn or so (forget the headline figure of €50bn) and it might struggle to raise even 16bn. As one commentator observed this morning, it's hard to see why institutions that don't want to lend money to Greece would be interested in taking an equity stake in the country.
++++++++++++
* Two recent examples of "mutually contradictory concepts held at the same time":
(1) The crucifixion of Kenneth Clarke for saying that some rapes are less serious than others. The politically correct thing to say is that all rapes are equally serious, but some of them are more serious than others. However, the fact that some rapes are more serious does not imply (the current thinking goes) that the others are less serious.
(2) Banks. Banks have to hold more capital (which means that they lend less). They also have to lend more to small businesses (which means they have less capital). Politicians maintain that banks can somehow both lend more and have greater capital reserves. This is the equivalent of inventing the economic perpetual motion machine.
The OECD today, in the middle of revising downwards yet again its estimate of how the world is going, muttered something about "unblocking political stalemates" that are preventing countries from getting serious about reducing their budget deficit.
The OECD is suffering from a serious miscomprehension here. It seems to think that if political parties in a country can all get together and agree on running a balanced budget, the people will come along for the ride in a sheep-like fashion. Nothing, of course, could be further from the truth. In the developing world it might be a matter of subsidizing wheat, while in the developed world it might be to do with subsidizing medical care or retired people's pensions, but the effect is the same. They are easy things to introduce and very difficult things to remove. Cross-party agreement won't work because you either get new parties appearing that represent the public view (i.e., 'populists') or the system gets overthrown in an army coup, or something like that,
Here the politicians have the edge over the economists. While there are many politicians out there who really don't have a clue about economics and are therefore spouting total nonsense through a lack of understanding of such simple concepts as supply and demand, or by maintaining in the economics world the principle of holding two opposing and mutually contradictory views simultaneously without seeing any contradiction* (see below), there are also, I suspect, not a few politicians who know precisely what is going on, and also know that they can't say it. Because if enough of them DID say it, the system (political as well as economic) would fall apart.
The net result of this is that everyone talks about cuts, but the cuts don't happen; or, rather, any of the cuts that do happen are mere window-dressing. The details differ from country to country, but the general principle remains solid. The West can no longer afford the level of benefits and the level of subsidized medical care that it has become used to. The implications of that statement are so unpalatable that (a) no politician can say it and (b) even if he did, he couldn't get elected. "Lower taxes" is one thing, but "screw the disadvantaged, stop treating the sick unless they have money, and don't keep the elderly alive tyhrough medical intervention" is not going to garner that many votes.
But, sadly, our levels of support for the disadvantaged cannot be sustained, and the innocent (e.g., the babies of single mothers) are going to get screwed. It will happen eventually whether we want it to or not (and, obviously, I would ratehr it didn't). It's no use saying simple stuff like "stop spending money on weapons" or "tax the rich more". Because that, once again, brings us back to what Rab Butler said about "The Art of the Possible". For a start, notwithstanding the long-term implications for foreign takeover, what would you do with all of the out-of-work soldiers? Thoughts of Germany in 1919 spring to mind.
A rather interesting programme on the BBC a few weeks ago covered a small community (actually, I think it was just a street) where all "outside" control of cross-subsidy was ended, and the money was given to this small community to dole out as they thought fit. Initially it fell apart because no-one wanted to take leadership responsibility for spending the cash -- so the rubbish wasn't collected for a few weeks. But that could be defined as a teething troubles ("leaders emerge" as the saying goes). More interesting was that, although the community was willing to put money in to help the elderly, it didn't want to subsidize a single mother. That single mother eventually quit the scheme (I don't think it had occurred to her that her own income might be stopped) and called the other people "judgemental". That's a nice insulting word, but the sad fact is that people ARE judgemental. The elevation of the word "non-judgemental" to equal "a jolly good person" is a piece of linguistic chicanery thought up by various lobbyists and pressure groups over the years who want our money. Yes, everyone else on the street was judgemental. They judged that paying the single mother part of the comunal pot was not something they wanted to be a part of. That's how democracy should work.
Except, once we get to the national level, it doesn't work that way. There are several reasons for this, none of which bear going into here, but it's self-evident that any attempt to be "judgemental" on a national scale would generate firm responses from a number of influential pressure groups within the established parties.
Anyhoo, returning to the economics/politics dichotomy, I view the forthcoming coronation of Christine Lagarde as head of the IMF with some trepidation. Nothing I have heard her say on the subject of the current eurozone crisis has made any sense whatsoever. If she's an expert economist, she's a very French expert economist, and we all know that the French view economics in a very different way from the rest of the known universe. Indeed the entire French economic system looks to me to be like something out of Catch-22. If Lagarde brings her current public attitude to the IMF, one could see the Fund actually disintegrating when, like Springfield after Homer Simpson was elected on a "lack of common sense" ticket, the money runs out at the end of February, two months into the financial year.
But the chances are that she won't. I would have been equally concerned about Strauss-Kahn (had I been paying attention to the IMF at the time, which I confess I wasn't), but he ended up playing a blinder as head of the IMF (sadly spoilt by his own personal failings). The IMF does have one fundamental fault at the moment -- it seems to think that everyone can be like Germany -- which in a zero-sum game they can't. But in the main it's got a fair handle on how to go about things -- certainly more of a handle than the EU or the ECB at the moment, who have quite clearly lost the plot when it comes to Greece and we are now watching a car crash in slow motion. Top marks to the ECB for stomping on the EU's linguistic contortionism, by the way. The EU seemed to think that, if I borrow a hundred quid from you with an agreement that I will pay you back £101 in a month, and then I hold a gun to your head and say that I will need to have you sign this piece of paper that says I can pay you back £101 in a year, then that doesn't qualify as a "credit event" (i.e., a default). It's merely a reprofiling, the EU tried to claim. Trichet stomped on that good and hard (this was an example of politicians not understanding the market, rather than economists not understanding politics), but that leaves the EU with no plan B. The so-called privatization of Greek assets is just a sticking plaster. It won't raise more than €16bn or so (forget the headline figure of €50bn) and it might struggle to raise even 16bn. As one commentator observed this morning, it's hard to see why institutions that don't want to lend money to Greece would be interested in taking an equity stake in the country.
++++++++++++
* Two recent examples of "mutually contradictory concepts held at the same time":
(1) The crucifixion of Kenneth Clarke for saying that some rapes are less serious than others. The politically correct thing to say is that all rapes are equally serious, but some of them are more serious than others. However, the fact that some rapes are more serious does not imply (the current thinking goes) that the others are less serious.
(2) Banks. Banks have to hold more capital (which means that they lend less). They also have to lend more to small businesses (which means they have less capital). Politicians maintain that banks can somehow both lend more and have greater capital reserves. This is the equivalent of inventing the economic perpetual motion machine.
