The Czech Economy That Didn’t Bounce?

The Czech republic has been making the news recently. On the one hand the country has been on the receiving end of massive, devastating floods, while on the other the country’s government was brought to the brink of collapse (and beyond)  by the resignation  of Prime Minister Petr Necas following the arrest of one of his most trusted aides on corruption charges. After the deluge I suppose.

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Why is this bank not like other banks?

From the Bank for International Settlements Annual Report, the topic is the difficulty that central banks might face in exiting from the current stance of ultra-low interest rates and massive balance sheet expansion —

Central banks also face various political economy challenges as they consider
exiting. History has shown that monetary policy decisions are best when insulated
from short-term political expediency considerations; hence the importance of
operational autonomy. This applies with particular force in extreme conditions such
as those prevailing today. On balance, political economy pressures could make exit
harder and work towards delaying it […] Second, central banks’ finances could easily come under strain, raising questions about their use of public money, reducing government revenues and possibly even undermining the institutions’ financial independence. The public’s tolerance for central bank losses may be quite low. (p73)

Thus, the so-called “central bank for central banks” believes that central banks are essentially just regular banks that have been given a specific mandate by the government. That may reflect a loose extrapolation from the history of central banking in the USA and UK, but it’s not correct. Karl Whelan explains here. It’s no wonder that central banking attracts so much conspiracy-theorizing when central banks themselves are so obtuse about what they do.

Massive Volumenreduzierung

The Guardian‘s scoop on GCHQ’s submarine cable tapping:

The processing centres apply a series of sophisticated computer programmes in order to filter the material through what is known as MVR – massive volume reduction. The first filter immediately rejects high-volume, low-value traffic, such as peer-to-peer downloads, which reduces the volume by about 30%. Others pull out packets of information relating to “selectors” – search terms including subjects, phone numbers and email addresses of interest. Some 40,000 of these were chosen by GCHQ and 31,000 by the NSA. Most of the information extracted is “content”, such as recordings of phone calls or the substance of email messages. The rest is metadata.

German politicians are horrified:

Sabine Leutheusser-Schnarrenberger, the German justice minister, said the report in the Guardian read like the plot of a film.

“If these accusations are correct, this would be a catastrophe,” Leutheusser-Schnarrenberger said in a statement to Reuters. “The accusations against Great Britain sound like a Hollywood nightmare. The European institutions should seek straight away to clarify the situation.”

The FAZ reports in some detail and talks to the German intelligence services:

Man arbeite ganz anders als die transatlantischen Partnerdienste, heißt es. Wenn Amerikaner oder Briten das große Schleppnetz auswerfen, dann sieht sich der deutsche Dienst als der Schwimmer, der mit einer technisch ausgefeilten Harpune darauf erpicht ist, den großen Fisch zu erlegen. Tatsächlich kann der BND mit seinen insgesamt rund 6500 Mitarbeitern den Abhördiensten der Amerikaner und Briten rein personell nicht das Wasser reichen. Anstatt große Datenmengen abzuspeichern, rastert und verdichtet der deutsche Dienst sie.

Dabei nimmt man in Anspruch, immer effektiver zu arbeiten. Hatte man 2010 noch 37 Millionen Kommunikationen, im wesentlichen E-Mails, gefiltert, so waren es im folgenden Jahr weniger als drei Millionen. Im Jahr 2012 liegt man bei weniger als einer Million Daten, weil die „Selektionsfähigkeit“ aufgrund bestimmter Suchbegriffe und Algorithmen verbessert wurde. Die Zahl der sicherheitsrelevanten Ergebnisse – es sind wenige hundert – ist gleich geblieben

I translate:

We work quite differently to our transatlantic partners, a source said. If the Americans or the British throw out a big trawl net, by contrast, the German service sees itself as the swimmer who sets out to catch the big fish with a harpoon honed on the cutting edge of technology. The BND, with around 6,500 staff, can’t keep up with the British or American SIGINT agencies in terms of personnel. Rather than storing huge volumes of data, the German service condenses and filters it.

This requires a constant effort to work more efficiently. 37 million communications, essentially e-mail messages, were caught in the filter in 2010, but less than 3 million the following year. For 2012, the figure is less than a million, because the system selectivity has improved with better algorithms and better search queries. The number of results that were relevant for national security, a few hundred, stayed the same.

Note the careful spin here. We don’t take all that traffic. No, only carefully selected nuggets out of it. The numbers are falling every year!

But it’s obviously impossible to filter the traffic, however selectively, without first pulling it in. And if the numbers are falling, it’s because the filtering process, and presumably the analytical capacity and computing infrastructure involved, has become more effective. You could even call it “massive Volumenreduzierung” or something. What a masterly piece of non-denial denial.

I note that Steffen Bockhahn of the Linkspartei has made this point at the foot of the piece.

The Second Battle Of Thermopylae

According to legend and some historians, by making a stand in the Thermopylae pass 300 brave Spartans valiantly saved the day for the entire Greek army in the face of a Persian force of overwhelming strength and manpower. More than 2,000 years later some 11 million Greeks might be considered to have carried out a rather similar operation by single handedly facing-off a massed horde of frantic global speculators on behalf of the entire Euro Area population – at no mean cost to themselves in terms of wealth, employment and general well-being. Or at least that is the conclusion which could be drawn from reading through the latest self-critical review issued by the IMF dedicated to the lessons which can be learned from the to-date handling of  the country’s deep economic and social crisis. Continue reading

Here’s something about Turkey, and everyone else

So, the urban development that kicked off all the protests in Turkey.

“This is the only place to hang out here,” says Yavuz Selim, 17. “And everything is very expensive. As students we cannot afford it.” His friends agree. “We are quite bored here. There is nothing to do for us.”…

While the municipality has increased local transport over the past year, the last buses leave at 10pm and many of the families living in Kaya?ehir cannot afford cars.

“We feel isolated from the city centre here,” Yusuf Sari, 16, points out. “A bit cut off, really.” Analysts say this kind of segregation changes the idea of a city – a space where different parts of society coexist – and will create long-term social and economic problems.

“It is very likely that these will end up like the banlieues in France,” said Adanal?. “Spatial isolation and the social concentration of certain segments of society will create discontent. This discontent, too, is isolated from the rest of society. People start to feel that they cannot escape this isolation, which makes matters worse.”

Actually, then, it’s not an urban development but a suburban development, or perhaps more to the point, an anti-urban development. As Jamie Kenny says:

Historically, the whole thing has a 19th century French feel to it, in the sense of government dominated by a pious, provincial bourgeoisie wanting to tame the big city antinomians. But reading about this stuff it’s amazing how well a certain type of – in this case – Islamic piety dovetails with neoliberal concepts of modernization. Maybe that shouldn’t be so surprising when you look at places like Dubai, but it’s remarkable how exact the comparisons are. The same basic suspicion of ‘urbanity’ in the widest sense of the word, the dislike for forms of life, commerce and culture perceived to be messy or low prestige, the way in which a form of commercial standardization seems to complement or substitute for a repressive moral code and the way in which the only unthreatening secular activity that the economic, political and in this case religious establishment can imagine is shopping.

Or, over here:

They started sinking their teeth into Taksim first by imposing a table ban two years ago: No tables on the streets. This deceptively simple move instantly drained much of the spirit of Taksim, since much of the charm was just walking around in seas of people who felt like your friend simply by virtue of being there, and probably were if you dug deep enough. That shattered the sense of community.

This reminded me of my review of The Spirit Level, and specifically this bit.

The states of the Deep South are reliably terrible. They are highly unequal, and they get the effects – but they are far off to the top right of the trendline. In a sense, their marginal productivity in terms of inequality is unusually high – for every extra point on the Gini coefficient, they manage to produce a sharply higher degree of suffering than the national average.

On the other hand, there’s the importance of being urban. The more metropolitan the state, the less it suffers from the impact of inequality – New York has the social problems of the average, despite being very unequal.

There are good reasons for this. Big cities tend to be unequal because they have some rich people. This does not preclude having a well-funded school system; in so far as the rich want to live there, it may be possible to squeeze some tax out of them. Further, there are limits to how far you can send the people off to the suburbs for the whole thing to work. It is hard to opt out completely in town. You may take a cab to the bank headquarters, but you’ll still curse in traffic.

Pulling this together, people fight over urbanity because it’s a sort of substitute for equality. In some ways, it’s real equality, as the institutions of the city are often open to all. In others, perhaps more important, it’s potential equality – we can all be the minority, we can all fall into the path of a tube train, the mob is out there.

This draws out different responses. One is an intense identification with the city, which turns out to be a latent coalition across all kinds of groups. Another is a deep horror of the mess of it all. Erdogan, like the mayors who went after Occupy, is constantly whining about needing to clean up and vandals and did you know some of them have dogs? Better to move out to somewhere on the motorway.

I met this response back in 2001, on the scene of a long-term occupation protest. Austrians, or possibly more importantly, Viennese who didn’t want Jörg Haider in government had set up a camp called the Concerned Citizens’ Embassy (BBB in German) outside the prime minister’s office in part of the old imperial citadel. Others held demonstrations marching there every Thursday. I remember vividly that on one of these, people carried a blank banner and pulled a projector on a supermarket trolley, throwing a documentary someone made about the campaign itself up on the banner so we could watch it.

Suddenly, the Fortress Captain – that was his title, the guy in charge of the Hofburg, a school friend of the prime minister – discovered that there was some rubbish lying about, it was ugly, there were rats, he had to clean it up, I quote. This completely circumvented the various legal protections of protest. The rubbish, of course, was us. There was stuff, nobody claimed to own it, and the imperial stormtroopers moved in.

We whined and sued and marched harder, but it was the finish. Anyway. We’ve established the motive. Here’s a piece about the characteristic protest style that goes with it. It doesn’t seem to work. Perhaps because the theory of victory for such a campaign is a flash revolution, like something from 19th century France?

And that reminds me of Pierre Mauroy, who died last week. As French prime minister, he insisted on sticking with European fixed exchange rates, but also on (as he said) holding out on the ridge line at 2 million unemployed. Looking back, it seems unsurprising given the first point that he lost the ridge and resigned. He then set about pulling money towards his home town and power base, Lille, specifically through the Euralille megaproject around the TGV station.

I have never seen a grimmer public space. It seemed to symbolise the combination of Euro-austerity macroeconomics and the effort to build shinier things on top of the city, as two halves of the same project. Similarly, the empty neon of Budapest’s EU-membership centre the last time I was there howled with blankness.


 Niall Ferguson in the Wall Street Journal ahead of his new book The Great Degeneration —

In only one category out of 22 (in World Economic Forum Global Competitiveness Report) is the U.S. ranked in the global top 20 (the strength of investor protection). In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by “organized crime (mafia-oriented racketeering, extortion).” In every single category, Hong Kong does better. 

The chart above is the actual responses from the WEF survey of US executives asked to rank the top 5 constraints on business (page 360). The weighted response is 1.1 percent for any kind of crime. That’s lower than the responses for “foreign currency regulations.” Apparently moving dollars around is somewhat difficult too. Somehow WEF is able to translate these country-specific responses into a global ranking that conveys American businessmen cowering in the executive suite as mobsters rampage on the factory floor. It’s a miracle the country has any growth at all!

Use your illusion

Q&A portion with Mario Draghi during the ECB news conference yesterday —

Q: […] Are you telling the Spanish, Portuguese, Irish or even Italian people that the ECB can’t do anything else with inflation actually lower than 2%?

Draghi: Well, I am not sure I get the point, but I think I get it. First, the fact that inflation is low is not, by itself, bad; with low inflation, you can buy more stuff.  

Advice to students of economics: don’t begin your essay on inflation with the claim “with low inflation, you can buy more stuff,” even if cited to Draghi, M, 2013.

UPDATE: More from Paul Krugman.

Growth is truth

From the IMF assessment of its 2010 program for Greece, the section dealing with relations within the Troika i.e. European Commission (EC) and ECB (p31) —

And from the Fund’s perspective, the EC, with the focus of its reforms more on compliance with EU norms than on growth impact, was not able to contribute much to identifying growth enhancing structural reforms. 

Two issues here. First, aren’t EU norms supposed to be growth enhancing? But second, does the Fund really think there is a definitive account somewhere of specific structural reforms that will surely result in growth within a couple of years? The back to reality reading list might want to start with Adam Smith.

Housing bubbles and capital controls

I picked up this OECD chart from Sigrun Davidsdottir on twitter:

House prices EO 93-500x424

This is something interesting, and possibly worth watching for the future. Obviously, wondering about the problems of Cyprus’s economic recovery is very much long-term thinking, but what is the betting that we won’t see more capital controls in the future?

In the event of recovery, and even more so, boom inside an economy under capital controls, there would be a substantial potential for a housing bubble, or a bubble in some asset. Depending on your preferences, as nominal incomes rose, or the money supply rose, or bank credit expanded, you could easily get a bubble as there would be a much restricted tendency for capital to get exported. That is after all the point.

On the other hand, the experiences of the European periphery, very much including the UK, suggest that inflows into an open capital account are also dangerous in this sense. My intuition is that they are more so because they can reverse quickly, and also that after all, if people whose wages go up can’t buy a house, who can? Thoughts are appreciated.