Thursday, July 2, 2015

Next Up in Greece: Regime Change

It was clear all along that Greece had no defense against the troika’s doomsday weapon, a credit cutoff by the ECB.  As “negotiations” dragged on, the dispenser of euros publicly warned of a Greek banking failure, actually provoking the sort of run that central banks normally do all they can to prevent.  Finally, in retribution for Tsipras’ final act of defiance, calling a referendum scheduled several days after the termination of the loan program, the ECB fired away in force, freezing support and essentially telling Greek depositors, pull your money out now or never see it again.  With capital controls in place, banks shuttered, and the government unable to find euros to fulfill its core obligations, Greece is prostrate.

That’s Act I, which has culminated with Tsipras folding and giving in to the same demands he rejected five months earlier.

Now begins Act II.  The creditors will offer Greece a further deal, with more loans (and indebtedness) and more austerity, but enough support to allow Greece to have a financial system again.  This offer will not be made to Syriza, however.  It will be presented on the condition that Tsipras resign, and that a new government, led by New Democracy, the center-right party that Syriza replaced, take over.  This appears to be the thinking behind the recent statements by Merkel and Dijsselbloem that no further discussions can be held until after Sunday’s referendum: the expectation is that “Yes” will win big, and that this will lead not only to a new government but athe collapse of Syriza as a coherent political entity.  That’s Plan A. If a Plan B is required, the obvious strategy for the creditors is to exact even more suffering on the Greeks—for instance, keeping the euro spigot closed even as food imports dry up and starvation sets in.  But that increases the likelihood of a violent regime change, presumably led by the military.  My assumption is that “liberal, reasonable” Europe would prefer to see Syriza deposed in a civilized manner, without tanks and prisons, but one way or another the political goal has to be fulfilled.

From where I sit, it was obvious from the outset that a Syriza government in Greece was viewed as unacceptable by the rest of the EU.  (I’m referring of course to member governments.)  It was always understood that resolving the dispute meant removing Syriza as a disputant.  It is likely that future releases of diplomatic communications will verify this.  In the meantime, I wonder whether this was recognized in Athens and, if so, what their strategy was to prevent it.

Wednesday, July 1, 2015

#MerkBeth


The Cover-up is Alway Worse Than the Crime

The crime:
Nobel laureate [Stiglitz] tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"
The cover-up:
"Greece is in a difficult situation, but purely because of the behaviour of the Greek government ... Seeking the blame outside Greece might be helpful in Greece, but it has nothing to do with reality," said Schäuble. "The Greek government is not doing its people any favours at all if it keeps making completely false statements. Nobody else is to blame for their situation. It’s all very sad. We’re in a much harder situation than before. It was always difficult. But it has just kept getting more and more difficult since January." 
Follow the money and it is clear that Schäuble is lying. He knows he's lying and he knows we know he's lying. The bluster is meant to paralyze criticism with its audacity.

Tuesday, June 30, 2015

Who Are The Very Serious People (Greece Edition)?

There has long been a meme in the econoblogosphere about Very Serious People (VSPs) in Washington who have been consistently hysterical without reason about budget deficits, with this group having a particularly strong and weird obsession with the US Social Security system, calling repeatedly for cuts in future benefits now because if this is not done, future benefits might have to be cut in the future (or, maybe, there might have to be a fica tax increase, but that is, of course, unacceptable to the VSPs, beyond the realm of possible Serious consideration).  Probably Paul Krugman has spread this term more widely than anybody else, whoever coined it, but many of us have used it a lot in regard to this group, especially about those running the editorial page of the Washington Post, led by its editor, Fred Hiatt, along with his columnists such as Robert J. Samuelson, Ruth Marcus, and others, with others scattered across various think tanks in Washington.

So somehow Tyler Cowen at Marginal Revolution has decided to use this term non-ironically in connection with the Syriza-led government in Greece, with him using the term "Not Very Serious People" in repeated posts starting from when they first began demanding changes in their agreements with the troika, even recently applying this when the "Greferendum" was announced (somehow this referendum is also not taken seriously by the VSPs of Washington, with Catherine Rampell on the WaPo ed page today referring to it as a "referendum," yes, in quotes, as if it will not be a real referendum). What is sort of weird about all this is that the usually cool-as-a-cucumber Tyler seems to be really upset about the Syriza bunch, not just thinking they are bad to be demanding to get out of paying debts or daring to question the authority of wheelchair-bound German Finance Minister, Wolfgang Schauble, who thinks he should be German Chancellor rather than Angela Merkel. No, from the beginning he seems to have been really rattled that self-proclaimed Trotskyists and Maoists are in the government, even though the actual domestic policy proposals by Syriza have been boringly center left.  These are dangerous people who must not be allowed to remain in power.  They seriously must be removed from power, possibly even by any means, with many of his commenters calling for a military coup with nary a whisper of questioning from Tyler of this argument.

Now it turns out that there is a curious link between the unhappiness over those Greek Not Very Serious People and the good old Washington VSPs, although I do not think Tyler Cowen has quite put this together, with his concerns apparently more  along Road to Serfdom grounds, not traditional VSP issues.  But in today's WaPo, good old Fred Hiatt weighed in on the Greek situation in an unsigned main editorial, "Say 'no' to defiance: Greece should try to reach agreement with its creditors."  Unsurprisingly, what Hiatt thinks they should do is simply accept the most recent troika offer, period, despite him recognizing that they have "already paid for austerity measures," although he does not spell out how severe those payments have been (25% decline of GDP with a 25% unemployment with a youth unemployment rate exceeding 50%). But, the bottom line is no criticism of the troika while "Mr. Tsirpas's defiant course is both unwarranted and unrealistic."  He does not say he is "Not Very Serious," but he is accused of "play[ing] games with the fate of Europe and the world economy."  Oooh, it is all his fault, none of that embittered old man's in the wheelchair or stuck-in-their-egos bureaucrats at the IMF who do not pay attention to their chief economist.

So, unsurprisingly, when it really gets down to it what has Hiatt worked up it is the refusal of the Greeks to cut their pension spending further.  As Matt O'Brien reported in yesterday's WaPo, there is in fact very little that separates the two sides at this point.  The Greeks have already substantially caved on austerity, basically agreeing to something very close to the primary surplus amount that the troika is demanding (ooops, they are now supposed to be called "the institutions").  The Greeks have proposed a number of further spending cuts, including for defense, and a bunch of increases in contributions to healthcare and pension funds and various taxes.  But this is not good enough.  Even though Greek pensions have been cut 40% since 2010 (something Hiatt fails to note, of course), they must cut pensions more, even though not doing this was an explicit campaign promise by Syriza and has been loudly announced as a "red line" by them, with precisely a threat to hold a referendum if they were pushed on this (but, hey, who would believe them, given that they are Not Very Serious People?).  Frankly, I do not see why the troika simply cannot go along with this to help Syriza save face given that they have already largely given away the store.  Maybe it is like Tyler Cowen, they really want to bring this government down because they just do not like them.

Of course, once he gets going on it, Hiatt just goes hog wild with his usual ranting and raving about the pensions.  He has failed to get his way on Social Security in the US, but, ah ha! here is his chance with Greece.  Make those Not Very Serious People cut their pension spending!  After all, it is "unsustainable," likely to be "unpaid" if they go forward with their demands, these being "extreme demands," (which might lead to a "state-run economy [with a]...geopolitical tilt toward Moscow").  On the other hand, the proposals coming from the troika are "financing on reasonable terms."  So, these worthless Greeks are just being Not Very Serious People.  Shame on them.  They need to get on with more cutting of pensions, and then they might become real VSPs, worthy of Hiatt's praise.

Barkley Rosser

Monday, June 29, 2015

JOE!

Guardian, Joseph Stiglitz: how I would vote in the Greek referendum

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

Sunday, June 28, 2015

M-I-Teee... Squeeze you next week! I-M-F... Why? Because we "F" you! M-O U-S-Eeee

To be plainer, sir, how to solder, how to stop a leak, how to keep the floating carcass of a crazy and diseased finance system, betwixt wind and water, swimming still upon her own dead lees, that now is the deep design of a chief economist!

Greece: A Referendum on What to Do Yesterday

I'm posting a response I've written to a private email that praises Tsipras' announcement of a referendum scheduled next Sunday (July 5).  The email also asks why the IMF has been so obstructive over the past several months (and years).  My response:

I think a referendum was appropriate, but perhaps a month ago, not now. (1) The creditors never negotiated; they never horse-traded compromises. That was obvious from the beginning, and glaringly obvious when they responded to Syriza's final offer, which tiptoed across some red lines, with even more demands. It was always take-it-or-leave-it. Tsipras and Varoufakis were not honest with the Greek people, in my opinion, by repeatedly making optimistic statements -- they should have said "we can't negotiate with these guys" and put it to a vote right away. (2) July 5 is past the critical deadlines. Default occurs on June 30, and the ECB is likely to terminate ELA as soon as that happens. They are also likely to impose their own financial solution on the Greek banks as they did with Cyprus. By the time the 5th rolls around, voting on whether to accept the final creditor "offer" from two weeks previously will be like refighting the battle of Waterloo.

Now everything is about how to manage the crisis. I hope, with months to prepare, that Syriza has a well-developed program for this. (And one that takes into account that they do not yet control the state apparatus.)

As for the IMF, it was no secret that there has been a lot of tension between the technical staff and the politicians at the top. They have a policy, established after the Argentine fiasco, of not lending to insolvent states, but instead requiring writedowns from the creditors. Ah, but the creditors in the Greek case are the banks and governments that installed the IMF directors, so the policy is being flagrantly violated. Personally, I'm disturbed there have been no high-profile resignations on the part of the IMF economists. It's not like Blanchard couldn't pick up another job somewhere, for instance. Years down the road there will be memoirs saying "I argued against this behind closed doors", but when has that ever really mattered?

At the moment, no one -- absolutely no one -- playing a role in this mess is looking good.

Pay No Attention to the Plunging Stock Market Behind the Curtain

Meanwhile, elsewhere:
SHANGHAI — Share prices in China plunged on Friday in one of the sharpest sell-offs in years, accelerating a downturn this last week in what has been, for much of this year, the world’s best-performing stock market.
China’s two major market indexes fell in tandem. The Shanghai composite fell 7.4 percent on Friday. The Shenzhen composite fell even more, dropping 7.9 percent. Share prices in Hong Kong, which is regulated separately, also fell, by 1.8 percent. 
Analysts had been warning for months about the risks of a stock market bubble in China, where giddy investors have driven up stock prices by purchasing shares on margin, or with money borrowed from brokers.
The Shanghai composite is down about 18 percent from its June high. But in Shenzhen, the so-called ChiNext, a kind of Nasdaq-style board on the Shenzhen Stock Exchange for growth stocks, has dropped about 30 percent in the last several weeks, meaning it is already technically in a bear market.
Not to worry, though. The fundamentals are sound. It's a "buying opportunity"!
“This is not a bad thing,” Said Mr. Chi Lo, a senior economist covering greater China for BNP Paribas Investment Partners. “This is an opportunity for long-term investors to go back in. Many investors weren’t comfortable with those sky-high valuations.”

Saturday, June 27, 2015

Tragedy of the Wages-Rut System

In a 2013 article, "Generalizing the core design principles for the efficacy of groups," David Wilson, Elinor Ostrom and Michael Cox recount Garrett Hardin's classic parable of the pasture overgrazed by farmers, each pursuing their own private interest by adding more cattle to their herd. Hardin's grim conclusion of a "tragedy of the commons" was shown to be avoidable  by Ostrom's Nobel Prize winning research, in that, "when certain conditions are met groups of people are capable of sustainably managing their common resources [emphasis in original]."

Wilson, Ostrom and Cox go on to discuss the evolutionary salience of those eight core design principles. Incidentally, Barkley Rosser was co-editor with Wilson and John Gowdy of the supplementary issue of Journal of Economic Behavior and Organization in which the article appeared and was co-author the editorial introduction to the issue, "Rethinking economics from an evolutionary perspective." I would welcome any thoughts Barkley might have on this post.

In generalizing Ostrom's core design principles from common-pool management groups to other kinds of groups, the article makes a puzzling omission: labor unions. They specify "governments, businesses, schools, neighborhoods, and volunteer organizations," but no mention  of organized labor. What makes this omission even more intriguing is that Garrett Hardin borrowed his analogy of the commons from the 19th century Oxford don, William Forster Lloyd who was using it to illustrate an argument about over-supply of the labor market and consequent unemployment and impoverishment of workers. Some Lloyd scholars have described his analysis as "proto-Marxist".

In 2010, when I was first drafting the Labor Commons Union idea, I sent a draft to Elinor Ostrom, who replied, "thanks -- had not thought about labor as a common pool that could be exhausted but now I see the similarity with resources." Paul Burkett had also seen the similarity and argued, in Marx and Nature: A Red Green Perspective, that Marx had treated labor power as a common-pool resource although he hadn't used that terminology.

So, if labor power is indeed a common-pool resource as Burkett and I argue and as Ostrom briefly acknowledged, it would seem that a common-pool resource management strategy would be more appropriate than a wages-rut system for establishing equitable compensation of labor. By the same token, the design principles identified by Ostrom and discussed in the paper by Wilson, Ostrom and Cox would be especially compelling.

Evil EuRobot and Abolition Implosion of the Wages-Rut System

Another evil of the robot is the ill-will it begets between the masters and the workmen: their whole lives seem to be a constant effort, on the one hand, to see how much can be pressed out of the reluctant peasant; and, on the other, how little can be done to satisfy the terms of agreement, and escape punishment. Mutual injury becomes a mutual profit; suspicion and ill-will are the natural results. -- John Paget. Hungary and Transylvania: with remarks on their condition, social, political and economical, Volume 1, 1839.
The "robot" referred to in the preceding paragraph was not a mechanical man or other device but a system of labor rent that existed under serfdom in central Europe.

Etymology of robota (from Wikipedia):
From Russian работа (rabóta), from Proto-Slavic *orbota (“hard work, slavery”) derived from *orbь (“slave”), ultimately from Proto-Indo-European *orbh- (“to change or evolve status”), the predecessor to *h₃órbʰos (“orphan”). Cognate with German Arbeit and Dutch arbeid.
Today, June 27, is the  150th anniversary of Karl Marx's declaration that workers "ought to inscribe on their banner the revolutionary watchword: 'Abolition of the wages system!'"

Sandwichman's effort to celebrate and revive this declaration has met with incomprehension in some quarters:
"How do you abolish the wages system by degrees?" 
"And how would that work?"  
"...there might be an interesting argument here, but I cannot understand what it is."
It is beginning to dawn on me that the euphemism "wages system" is a red herring that has been throwing people off the scent. Joan Robinson once famously wisecracked, "The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."

Sadly, Robinson neglected to clarify that the latter kind of misery was a prerequisite for the former. This was something Karl Marx had described long ago as comprising the "great beauty of capitalist production" -- "that it not only constantly reproduces the wage-worker as wage-worker, but produces always, in proportion to the accumulation of capital, a relative surplus population of wage-workers."

It is as a consequence of this relative surplus of wage workers that "the law of supply and demand of labour is kept in the right rut, the oscillation of wages is penned within limits satisfactory to capitalist exploitation." Thus it would be more accurate to call the wages system of capitalism the "wages-rut system."

Originally, I had intended to post today an updated exposition of  the Labor Commons Union as a practical proposal for the abolition of the wages system. Previously I outlined the proposal in a book chapter, "Time on the Ledger: Social Accounting for the Good Society" and had elaborated on aspects of the idea in "Hours of Labour and the Problem of Social Cost" and "Labour Power as a Common Pool Resource."

But I find it increasingly difficult to motivate such an exposition. However dissatisfied people may be with the effects of the wages-rut system, there seems to be a singular lack of interest in doing anything about the causes of those effects or perhaps a conviction that nothing can be done. I'm not here to exhort people to "do something!" or to persuade them that there is a possibility of doing something.

Part of my disdain for such cheerleading has to do with what used to be known as "the conjuncture". Observing current events, I am afraid that it is too late to speak of abolishing the wages-rut system. Capitalist production is no longer "beautiful" enough to produce a surplus population adequate to the exponentially-expanding accumulation needs of finance capital. A deeper rut must be imposed by fiat by the central authorities. In essence, this is a return to the labor rent system of feudalism -- the robot. The "euthanasia of the rentier" has been overtaken by the erection of a monstrous life-support system for finance capital.

Euthanasia Life Support System of the Rentier

...how to keep the floating carcass of a crazy and diseased finance capital, betwixt wind and water, swimming still upon her own dead lees, that now is the deep design of a central banker!

Friday, June 26, 2015

A People’s Economic Alternative: Lord, Won't You Buy Me A Mercedes-Benz?

I had a friend who wanted to drive a Mercedes-Benz. His reasoning was that rich people drove Mercedes, so if he drove one, people would think he was rich and would make deals with him to make him rich. I am sure there are examples of this strategy succeeding. And many, many more examples of it failing.

John Quiggin has posted a draft statement of principles for a People's Economic Alternative, endorsed by around 20 Australian unions and community groups. Principle number one is "Economic growth is not an end in itself, but is a means to better the lives of the Australian people, including future generations." Who could object to that?

Is economic growth a means to better the lives of people? Show me the evidence. And, no, I don't mean correlations. Correlation does not imply causality. Just because living standards have improved (from a particular perspective) in an era where there has been economic growth doesn't mean the growth has caused the improvement in living standards.

There appears to be a rule in economics that if you ignore a refutation long enough, it goes away. If that doesn't work, knock down a straw man caricature of the critique and that'll proves your point. A logical fallacy becomes a self-evident truth if repeated stubbornly enough.

Principle number one takes an imaginary step forward in acknowledging that economic growth ought not to be an end in itself. But you know what? NOBODY says economic growth is an end in itself. Nobody markets their beer on the promise that if you drink lots of it you'll get drunk. I've seen the ads. Growth puts smiles on the faces of young children. It makes the sun shine brighter.

In short, principle number one of the People's Economic Alternative affirms the conventional dogma as a self-evident truth. What is alternative about that?

Instead of the conservative slogan, “Economic growth is a means to better the lives of the Australian people, including future generations…” a people’s movement should inscribe on their banner the revolutionary watchword: “Abolition of the growth imperative!

Elder Foco

From today's New York Times:


Wednesday, June 24, 2015

A World Without Work and the Image of Limited Good

Derek Thompson has a feature (slathered with Shell ads) at the Atlantic Monthly this month, once again traversing the well-trodden territory of the alleged Luddite/lump-of-labor fallacy (see also Foreign Affairs "Will Humans Go the Way of Horses"):
The end-of-work argument has often been dismissed as the “Luddite fallacy,” an allusion to the 19th-century British brutes who smashed textile-making machines at the dawn of the industrial revolution, fearing the machines would put hand-weavers out of work.
Thompson's take on the "boy who cried robot" fable is that this time -- perhaps, after so many false alarms -- the wolfish robot really is at the door. Overall, aside from referring to rioting 19th century laborers as "brutes," it's not such a bad survey of views on the issue -- citing Sandwich-pals, Robert Skidelsky, Ben Hunnicutt and Peter Frase, among others.

But Thompson's excursion takes a weird detour when he asserts that Skidelsky's, Hunnicutt's and Frase's vision of a post-work society is "problematic" because "it doesn’t resemble the world as it is currently experienced by most jobless people." WTF? Proposals for change are invalidated by their lack of conformity to the status quo? Night cannot follow day because it is dark and day is light? Different is impossible because it is not the same?

Thompson then devotes several paragraphs to rounding up the usual suspects of what might be termed as post-work work: 3-D printing, maker spaces and the internet enabled "sharing" economy of Ubers and Task Rabbits. After rambling on discursively for a few thousand more words, Thompson winds up back in Youngstown, Ohio, where his essay started, with the story of Howard Jesko, a 60-year old graduate student:
If Jesko had taken a job in the steel industry, he might be preparing for retirement today. Instead, that industry collapsed and then, years later, another recession struck. The outcome of this cumulative grief is that Howard Jesko is not retiring at 60. He’s getting his master’s degree to become a teacher. It took the loss of so many jobs to force him to pursue the work he always wanted to do.
And they all lived happily ever after! I suppose that's how you sell a story to the Atlantic Monthly. 

Don't get me wrong. It's nice that Howard Jesko will get to pursue work he always wanted to do. I got to teach university at age 64 after working as a clerk in a grocery store for six years. My point though, is that Howard Jesko's happy ending is... not uh... statistically significant. I mean it is not even illustrative of any findings of any research, qualitative or quantitative. It is a weightless anecdote plucked out of thin air. Very thin air. A vacuum.

Besides, seeing all those Shell ads juxtaposed with the article kept depletion of cheap fossil fuel resources and climate change on my mind.

May I let you in on a secret? We're not hurtling inexorably toward a comedic denouement. That's fantasy. Wishful thinking. The Sandwichman offers abolition of the wages system and reduction of working time as harm reduction strategies, not as miracle cures. Got that? Harm reduction. Gonna be a world of hurt.


When the fossil interlude comes to an end, propping up the illusion of perpetual, exponentially-increasing prosperity won't be worth the bother. It will only annoy the pigs you are trying to teach to sing. It is not that there is "only so much work to go round." There are only so many cheap, readily-accessible material resources at hand to work with.  Working, it turns out is always working with.

Lionel Robbins famously defined economics as "the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses." One may quarrel with Robbins's ghost about whether that is what economics ought to study but it must be admitted that the concept of scarcity plays a minor role in contemporary economics discourse. Scarcity has become a side-show that is presumably always solvable by substitution. There is even a "built-in mechanism" that makes it so! In truth, though, there is no built-in mechanism to substitute happy endings for the exhaustion scarce means. When the junk is gone, the party is over. 

Ending? Yes. Happy? Not so much.

Back in the 1960s an anthropologist named George Foster studying the peasants of Tzintzuntzan, Mexico, wrote that those peasants had the foolish notion that there was only a limited amount of good in the world. If one person got more land or water or crop yield or conjugal bliss then somebody else would have to suffer with less. A zero-sum game. Foster thought this was an outmoded idea that had to be dispelled so people could enjoy the boundless booty of modern technology.

Foster's hypothesis was popular for a while in anthropology but also controversial. Eventually its prestige faded. In "Revisiting the Image of Limited Good: On Sustainability, Thermodynamics, and the Illusion of Creating Wealth," Paul Trawick and Alf Hornborg have revived the concept of the image of limited good but with a twist. The peasants were right and Foster was wrong. 

In their essay, Trawick and Hornborg contrasted real wealth and virtual wealth, arguing that what grows are claims on real wealth generated by the expansion of credit. Meeting those claims necessarily involves the destruction of natural resources in the course of converting them into commodities with exchange value. An increase in exchange value thus always entails an increase in entropy -- that is, a decrease in available energy. The amount (or intensity) of this increase in entropy can be modified by technological efficiency improvements but its direction remains unchanged. "Real wealth, unlike its virtual counterpart, is something that human beings do not and cannot create in godlike fashion the way they create ideas and symbolic phenomena such as value."

This strikes at the heart what seems to be an unshakeable article of faith among economists. The economy can grow because value doesn't have to consist of stuff. Well, yeah, value isn't stuff. So what? The creation of value is the creation of claims that may be redeemed for stuff. 

I give you a massage so I can buy a steak with the money you give me. The value of the service is only immaterial when viewed in isolation from my motivation for performing it. No beef, no rub. This is the distinction between real wealth and virtual wealth that economists seem incapable of grasping. Virtual wealth is indeed virtually immaterial -- until the claims that arise from that virtual wealth are redeemed. If those claims are not redeemable for real wealth, they are worthless.

The Wages-Fund Doctrine for Dummies

 Wages-fund doctrine simplified:
1. Wages increase when the wages-fund increases. 
2. The wages-fund increases when profits increase. 
3. Profits increase when wages are kept low.
Thus the way to increase wages is to lower them.
Wages-fund doctrine updated:
1. Full employment requires economic growth. 
2. Sustained economic growth requires low inflation. 
3. Controlling inflation requires limiting wage demands. 
4. Limiting wage demands requires a non-accelerating inflation rate of unemployment (NAIRU).
Thus the way to achieve full employment is to circumvent it.