How Many Times Can One Driver Fall Asleep At The Same Wheel (And Live)?

“Break the thermometer, then you won’t have a fever.” – Former Polish President Lech Walesa

Watching the TV news here is Spain at the moment is often a rather discomforting and sad affair. The normal menu seems to consist of a constant stream of ministers who have to appear before the cameras and the public to explain something that they, in all fairness, don’t really understand themselves. And so it was on Saturday, as I tucked into my early morning breakast of sausage and beans (Catalan style) in the village near my mountain retreat, there in the background I could see the face of Spain’s Labour Minister Celestino Corbacho (photo above), giving details to the assembled press corps of the latest government decision to make another six month extension for the 426 euro monthly “exceptional” payment for those whose unemployment benefits have run out. Why there are so many unemployed in Spain, and why renewing this subsidy is now an almost permanent necessity (this is now the third time that this “temporary” means of support has been extended), or what the real prospects of creating enough jobs to start reducing the unemployment mountain any time in the foreseeable future, was not explained. Well, the future is not ours to see, so “que sera, sera”.

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The Shape of Bulgarian Things to Come

As the IMF say in their most recent staff report on the country, the aftermath of the recent severe economic crisis leaves us with the question as to whether potential output growth in Bulgaria in the years to come is going to be markedly lower than it was during the boom years. As the IMF point out, the current recession was preceded by an investment boom in construction, real estate and the associated financial sectors. Now that the boom (which was always unsustainable, Bulgaria’s current account deficit in 2007 hit almost 27% of GDP) is well and truly over in these sectors, the strong associated decline in investment could have large negative effects on output. Moreover, it will take considerable time before the excess labor and resources that are no longer needed in these sectors can be absorbed by other sectors, which suggests that the rate of unemployment may rise yet further and remain higher for some considerable time. Not a uniquely Bulgarian story, but none the less important for that.

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Controlling The Uncontrollable: Spain’s National Addiction To The Use Of “Dinero B”

Well, before we go any further, I would like to make clear that what I am going to talk about in this post is not anything illegal, or even irregular (things like this must be going on in almost all Euro Area countries even as I write). Bending of the rules? Perhaps. Taking them to their limit? Certainly. Continue reading

This is not about me, it’s about them. We are a team.

The BBC’s Today Programme interviewed Philip Green last Friday. Green, who whose foreign-domiciled spouse owns the Arcadia group of clothing retailers of which Green is the boss, has been appointed by the UK coalition government to advise on a review of government spending. It’s been reported that Green’s familial company ownership arrangements reduce his tax obligations under UK law; naturally, the Today Programme invited him to comment on this. Green then made use of an article in the Mail on Sunday to respond:

For whatever people may think, this is not about me, it’s about them. We are a team. I might be the strategist but I can’t do this on my own. There will always be people who will criticise. Since the announcement was made on Friday, I have received my fair share of backbiting. I was asked on to Radio 4’s Today programme to speak about our new role but such was the lack of focus, the interviewer seemed more interested in my friendship with Naomi Campbell. Perhaps when I finish this job, my next could be to review the strategy and costs of the BBC.

Apart from being appalling in itself, this sort of apparently casual threat making has consequences. One of those consequences is that if Green goes on to talk about ‘efficiency savings’ in any area of government spending, we’ll have to consider that it might be nothing more than bullying tit-for-tat. Maybe a decision on a particular saving will have been been carefully thought through. Or maybe it’ll just have been that a civil servant said something that offended Green. Thwack. In other words, the guy has disqualified himself from his own, uh, team.

Also, while on the topic of the coalition’s jaw-dropping, bullet-in-the-foot public appointments, what’s with the ‘social mobility tsar’? Which direction of social mobility are we talking about here?


Ireland: A recession of the banks, by the banks, and for the banks

Some stories heard in rural Ireland this summer.  A farmer  goes into an embattled tractor dealer and reaches an understanding on the purchase of an expensive tractor.  The farmer then goes to his local bank manager to get financing to purchase the tractor; as agriculture is not doing too badly despite the recession, there is some hope.  But the bank has an unexpected response: we can’t give you a loan to buy that tractor, but we can finance one very like it — that we recently reposessed.  So banks are in the farm machinery business, at the expense of actual farm machinery businesses.

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Rent-seeking, again

A bit more on rent-seeking, to see if I can draw out what I’ve been trying to get at. There’s the claim that any person who petitions government is acting, at least in part, out of self-interest. A tendency to rent-seek, it’s said, may simply be a fact about people generally; hence everyone who approaches government should be regarded as a would be rent-seeker. (Rob made this position clearer in comments on the last post on this.) A person holding this view may go on to say that if there’s a normative evaluation to be carried out, that evaluation should take into account not the petitioner’s motive but the petitioner’s situation.

Consistent with this is the view that any legislator may be party to a rent-seeking transaction. The way it goes is, a person petitions government, looking for some special benefit; the self-interested legislator replies (he’s only human): sure, but what are you going to do for me?

I think what’s missing here is an acknowledgement that some forms of petition are desirable and some aren’t. It’s not OK to offer a bribe; it’s not OK for a legislator to take a bribe. Naturally, we may have laws that forbid bribery.

Conversely, it’s not only OK to vote, it’s considered desirable; it’s also considered desirable for legislators to campaign for votes, to write manifestos, etc. Some countries even have laws that mandate voting.

Our designs for our institutions can only anticipate certain cases; any framework of laws will have a normative underpinning. We may think that it’s wrong for a legislator to accept favours from big business after he or she retires as a legislator, even though no law forbids it. We may also think that it’s wrong for an organisation to invent a new incentive along those lines. Conversely, we encourage people who want to go into politics to first acquire an education, experience in business, etc., even if no law requires it. We also like it when voters are well informed. There’s a gradient of desirability, from immoral graft to virtuous example-setting.

If you bundle up all of these activities into something called ‘rent-seeking’ – choosing from then on to look at the situation of petitioners to the exclusion of the character of their petition – you close the door on something important. There may be a difference between a defence contractor petitioner and a homeless person petitioner that isn’t to do with their relative advantages. Not all vote getting is vote grubbing. To approach government and ask for something isn’t to rent-seek.

You misuser, you

In my recent post on the WSJ’s review of Mokyr’s book about the industrial revolution, I said that I’d never come across the definition of ‘rent-seeking’ as “the use of political power to redistribute … wealth”. Of course, right now I’m seeing that definition everywhere. Josef Joffe, in his review of (the late) Tony Judt’s Ill Fares the Land, says:

… the more the state distributes and regulates, the more it tempts its citizens to outflank the market and manipulate public power for private gain.

And there it is again, more or less. Government: a force for bad.

Let’s consider some minimal state which is constituted only of its own citizens (as citizens) and which has authority to enforce only that which has been agreed on by citizens. Now let’s consider two statements:

(1) The citizens have grouped together to enact legislation to achieve what each of them considers to be a mutually advantageous settlement.

(2) The citizens have ‘outflanked the market and manipulated public power for private gain’.

You don’t have to widen the scopes of the constituent terms much to get to a point where these two statements are as good as indistinguishable. That is, to say one is to say the other. (I’d argue (1) is more precise, but not to the extent that it matters.)

Joffe says that the consequence of ‘outflanking’ is that even a good-intentioned government will go wrong. He adds:

The founding fathers grasped this hard truth, and hence they hemmed in government. Even the most moderate of social democrats tend to ignore this insight, and so does Tony Judt.

The problem is that beyond the platitude that power corrupts, no insight is available. Instead, Joffe’s rhetoric suggests, implicitly, that there might be some perfect end state where ‘the playing field is level’ and government … well, we’ll just not need to worry about that particular runaway monster any more. We’ll have ‘reined it in’ once and for all; it can no longer “weaken society” or “render … trust moot”. This is a hope, not an insight. And unless you are a bit more precise about what you mean by your terms – and Joffe isn’t – you’ll find that your call for an end to ‘manipulation of public power for private gain’ is a call for an end to government. Most people recognise, I think, that the inequality of power entailed by government (by definition, the government is always more powerful than any of its citizens, however grouped) is both motivated and justified by the existence of naturally arising inequalities. The spread of these is broad enough to include cases I think even Joffe would have to acknowledge, if pushed. Government is our response; the beast from the depths is the fact that circumstance and personal attributes vary, and hence some are already disadvantaged. There are and will be special interests from here on out. To acknowledge such an interest is not to automatically produce a state-corrupting ‘client’: good government is possible.

Update: It’s OK, everyone, I think I’ve discovered the source of the trouble:

The [author’s] extended methodological digression on the function of orthodox economic theory in application to the private economy is designed to provide some assistance in discussing the analogous role of theory as extended to the public economy, to the demand for and the supply of public as opposed to private goods. At base, the economist must begin from the same set of conditional hypotheses. He deals with the same individuals as decision-making units in both public and private choice, and, initially at least, he should proceed on the assumption that their fundamental laws of behavior are the same under the two sets of institutions.

– Buchanan, J., The Demand and Supply of Public Goods, 1968. (My emphasis.)

That sounds very scientific and cautious and all, but if you stop to think about it I think you’ll agree that it’s not.

Two random videos

This video is a satire — I want to emphasize this: a satire — done by the great American comic newspaper, The Onion. (The first 15 seconds is an ad. Sorry, that’s how they pay for this stuff.)

This video is an actual commercial that played on Greek televsion recently. (Scroll down for the English translation if you don’t speak Greek.) By pure random accident, I just happened to see them both on the same day.

And that’s all.

Merkel’s Little Ray of Sunshine

Remember the sunshine option? You might think it was getting some traction. Berthold Huber, the leader of IG Metall, has set some goals ahead of this year’s payround, which opens on the 27th and covers the steel industry. IG Metall is the German metalworkers’ union, which in practice represents most of the industrial economy – the wider importance of the steelworkers’ pay round is that it acts as a price-leader for the rest of the German collective bargaining year. Huber clearly reckons that Germany is recovering well enough that he can insist that the workers get a share of the benefit. Further, he wants to reintegrate some of the short-time or temporary workers, a sector that grew during the Lohnzurückhaltung years and then during the crisis.

Interestingly, someone has gone further and nailed a target to the wall. Peter Bofinger, a member of the German council of economic advisers, has named a figure of 3% earnings growth as necessary to achieve a broad-based recovery. Bofinger has appeared on this blog before; looking back, these remarks are highly telling

If the SGP is regarded as a framework that contributes to price stability, it suffers from the weak link between government deficits and inflation. This is due to the fact that a negative budgetary position can be caused by excessive government spending but also by a dismal growth performance….However, already in the 1990s it should have been obvious that the link between public debt or deficits and inflation is very weak, at least in OECD countries with relatively moderate inflation rates….Together with the depreciation of the dollar this insufficient macroeconomic stabilisation can be regarded as the main reason for the underperformance of the euro area in the last few years.

Bofinger’s words are here, in an interview with the Rheinische Post. Bofinger argues that German employees have seen no growth in their buying power in the last 10 years (the unions’ research group reckons no growth in real wages in 6 years), while exports grew by 70% at constant prices – to put it another way, there’s been a “massive redistribution at the expense of workers”. Of course, the flip side of holding down wages in a major export economy is that somebody has to buy the stuff. He further argues that the Lohnzurückhaltung has contributed to European economies drifting apart: in Der Spiegel, for example.

Anyone who sees this as a virtue must ask themselves whether Germany’s export successes would have been possible if other countries had behaved as “virtuously” as we have. It says a lot about the level of the debate that such simple and fundamental insights are apparently difficult to get across in Berlin.

(Die Zeit has an article about Bofinger and his predecessor on the council, Jürgen Kromphardt, which describes them as the last Keynesians. To read, as a period piece from the distant age of 2004.)

So what’s happening in the other superexporter? Even The Economist has not only noticed Chinese labour activism, but thinks it’s a good thing. Doug Saunders reckons that this is the only lasting gain from the boom.

That’s the theory; the practice is here.

The week-long strike at Honda supplier Atsumitec ended Thursday after workers and management agreed to a 45 percent increase in the basic wage from 980 yuan a month to 1,420 yuan.

The roughly 200 employees at the Foshan plant were, in addition, offered a 250 yuan monthly living allowance and a performance related bonus; a significant victory after management had earlier in the week threatened to fire striking workers and hire replacements if they did not return to work…. The fact that workers are asking for increases of around 50 percent, even higher in some cases, is a clear indication that wages in the Pearl River Delta have been kept far too low for far too long.

As the strikes continue, a high-level delegation from the Guangzhou Federation of Trade Unions arrived in San Francisco, the first leg of a four-city tour of the United States designed to improve relations with American trade unions and labour groups.

Delegation head Chen Weiguang was quoted by the Chinese media as saying American labour groups had already secured a commitment from Apple to improve payments to Foxconn so that wages at that company’s factories in China could be increased.

Even the People’s Daily thinks so, although I’m not sure what to make of this:

Nonetheless, even as these doubts remain over the ACFTU [the official unions, under pressure to demonstrate real representative power – not-ed], it’s not stopping in its “union-building” efforts. The Financial Times reports that it’s unionizing many large foreign investment banks, including Goldman Sachs, JPMorgan, Morgan Stanley and UBS. According to a foreign banker in Suzhou, “(t)hey are actually telling us [to establish union chapters], not asking us…the feeling from everyone was – we just got a 2 per cent tax.”

Are the Rand times here?

In 2006, the German architectural practice Gerkan, Marg & Partners (GMP) took a client to court. The client was the German national rail company, Deutsche Bahn. The architects argued that their design for the new central station in Berlin had been changed without their knowledge: Deutsche Bahn had hired new architects – Winkens Architekten – to substitute flat ceilings for vaulted ceilings over the lower level platforms. The change allowed Deutsche Bahn a cost saving; GMP took the position that cost shouldn’t come before design integrity. The Berlin District Court ruled in favour of GMP and ordered Deutsche Bahn to demolish what it had built and implement the vaulted ceilings instead. This decision surprised just about everybody.

It might even have surprised your typical Ayn Rand reader. Even the most heroic of architects isn’t supposed to win in court quite like that. In the Rand world, those who create will inevitably have their designs interfered with by those who don’t create. Creators aren’t expected to take it lying down, though, just like von Gerkan didn’t. In The Fountainhead (1943), the inner-directed and incorruptible Howard Roark is hired (on condition of anonymity) by the self-serving, wonkish and manipulative Ellsworth Toohey to design a public housing project: Cortlandt Homes. From the beginning, it’s Toohey’s intention to mess around with Roark, and so Toohey has it that architects with less integrity than Roark are secretly hired to make modifications. Roark moves to sue the client, but is rebuffed. With the help of Dominique Francon, he moves to physical intervention; he blows up the altered housing project. Only then does he get to go to court; he’s prosecuted. After making an inspired speech to the jury in his own defense, he gets off. Although the drama of the novel is more or less unaffected by this decision, Roark’s acquittal is still important for Rand’s purposes. She wanted everyone to know that the universe isn’t malevolent; by extension, neither are the people in it. Not all of them, at least. Continue reading