the man on the Clapham omnibus says bring death from the sky

Micah Zenko on the burgeoning US assassination programme. Here's the halfway point:

However, in mid-2008, President Bush authorized a vast expansion in the scope and intensity of the use of drones in Pakistan. Since then, there have been an additional 250 strikes. As David Sanger reported, Bush lowered the threshold for an attack to what one anonymous U.S. official described as the "reasonable man" standard: "If it seemed reasonable, you could hit it."

I'm not returning to the good old days of Bush bashing here. We've now reached the stage where people whose names are not known can be assassinated on the grounds that their "life patterns" as interpreted by targeters provide "operational support" to organisations that the US has decided are terrorist, and on the grounds that their deaths will "minimize threats to allies and partner states." Widely interpreted – and the trend is clearly towards wide interpretation – those parameters could end up including a lot of reasonable men.

human currency

The operation coincided exactly with Tony Blair's first visit to Libya. Two days after the fax was sent, Blair arrived to shake hands with Gaddafi, and said the two nations wanted to make "common cause" in counter-terrorism operations. It was also announced that Anglo-Dutch oil giant Shell had signed a £550m gas exploration deal. Three days later Saadi and his family were put aboard a private Egyptian-registered jet and flown to Tripoli.

Associates of Saadi cannot understand why his capture and interrogation would hold any great intelligence value for the British authorities, and are speculating that he may have been a "gift" from the British to the Gaddafi regime.

He came with fugitives in his chain, and the two leaders met in a tent. Interesting the extent of Beijing's co-operation, too.


This economic government is neither economic nor government

I don’t know why the FT Brussels blog thinks it’s surprising that the Portuguese economy is showing signs of life, or at least non-catastrophe, while the “German growth engine” is slowing down. This shouldn’t be complicated – a current account surplus increases GDP, a deficit reduces it, and globally, current accounts must sum to zero. If the Portuguese – or southern Europe in general – reduce their trade deficit, as the large majority of their trade is within the Eurozone, Germany has to reduce its surplus or else redirect it to extra-European trade. Because the EU is the wealthiest trading bloc on earth, such redirection implies that Euro-exporters need to cut prices. Whether they lose some aggregate demand by cutting volume or by cutting prices is a secondary question.

What is true, however, is that if the trade-deficit states in the Eurozone try to solve their problems by reducing their current accounts, their living standards will fall and so will the trade-surplus states’ GDP. This appears to be precisely what is happening.

So what about that “economic government”, eh? Even the title doesn’t fill me with confidence. It amounts to a cliché of European politics, an old tune favoured by the French foreign ministry (because it rivals the Bretton Woods institutions) and the EU Commission’s ECFIN and internal market directorates (because it offers them more power). This is, at least, the first time I’ve seen any detail about what it is and what it’s meant to do. And all it seems to have to offer is yet more deflation.

Let’s go through this one. The original Stability Pact demanded restrictions on government budgets. The Eurozone states did try hard to implement this and therefore got less of the late 90s boom than other countries did. In the early 2000s recession, France and Germany ran substantial budget deficits and eventually breached the pact. Some other countries, like Ireland, were enjoying a massive property boom and ran budget surpluses. The IMF, ECB, DG ECFIN, etc, couldn’t have been happier.

So, how’s that working out for you? It’s almost as if those eurosclerotic ol’ social democratic finance ministers from the early Bush age had had a point all along!

And the answer is apparently another Stability Pact, just bigger, badder, and more, with balanced budget clauses and a ban on wage settlements being indexed to inflation. To put it another way, you personally are being asked to trust the ECB to put you out of work if prices look like going up. That’s the only way to deal with inflation!

Things the economic government does not cover include – anything about intra-eurozone trade, anything about macro-prudential bank regulation, anything about unemployment, anything about growth. You might think these are some pretty big issues. But the Merkel-Sarkozy paper doesn’t even mention any of the problems that actually happened. There was a massive housing bubble (nothing) fuelled by spectacularly dodgy banking (nothing) recycling a massive trade surplus (nothing) that led to a huge recession (nothing).

Finally, it’s not actually true that southern Europeans don’t work as hard as Germans. Greeks actually put in more hours. It seems fair to say that the differences are not due to Germany’s vast resource wealth. If it’s not land or labour, it must be either capital – the Germans have more and better tools to work with – or entrepreneurship – German companies are better organised. (Look, this isn’t a controversial statement, is it?) It’s rare that you have to bring your own computer, tractor, machine-tool, or whatever to work. It’s rarer that anyone asks you how you think your workplace should be organised.

But for some reason, the only answer anyone is prepared to offer to the failure of half Europe’s management class is that everyone else should take a pay cut.

The continued embarrassment that is European monetary policy … economists?

In the summer 2008, when concerns were growing that a weaker economy was approaching, the ECB raised its rates – a step that had to be reversed pretty quickly as we know. Quite embarrassing.

And what happened this time? Another commodity boom “tricked” the ECB into raising rates at the worst possible time, even though there were no signs of a pass-through of the currently higher headline inflation to core inflation, and thus, to medium term headline inflation. Now, this step will probably be reversed quickly, too. Why? Because even Germany might be heading for a recession.

As Henry Kaspar has pointed out repeatedly on my (other) blog, I shouldn’t criticise the ECB for following its mandate. Even though we all know that the ECB broke its own rules in the past when there was a need to do so, there certainly is some truth to that. (Update: Karl Whelan points out in an email that the mandate of the ECB is “price stability”, so the ECB might actually have more discretion than is commonly assumed). So let me instead address those European economists that keep missing that monetary policy is a huge part of the problem, and potentially a big part of a shorter and longer term fix for the Eurozone.

First of all, what is monetary policy supposed to accomplish? Very broadly speaking: macroeconomic stability. An important aspect is to keep aggregate demand (AD) on a stable and predictable path. The reason is simple: prices and wages don’t adjust quickly enough to accommodate nominal changes that are caused by changes in the demand for the medium of exchange (aka money). So better keep the nominal values on a predictable and stable path, so that there is no need for across-the-board adjustments.

Usually, an inflation-based approach is sufficient, and it has stabilized inflation throughout a large part of the world, which is historically a big achievement. Whether it has contributed to the build-up of the current crisis is still an open question. In times of a severe crisis, however, this approach has clearly proved inadequate, as the focus on inflation has allowed AD to plummet 10% (!) below trend:

Such a drop in AD would be devastating for any economy, not only a currency union. It is time to realize that the policy of the ECB has been extremely tight since 2008, measured by the concept of macroeconomic stability and is therefore an important cause of the current mess.

Second, countries in a currency union experience asynchronous business cycles. This is a problem because monetary policy cannot be tailored to all different cycles. So even though there is some differentiation that the central bank can impose, a large part of the adjustment has to come through changes in prices and wages – a painful process as Germany learned during the first decade of the Euro. And as for anything else that is painful, there is one rule: get it over with quickly.

How can you overcome nominal rigidities quickly? Wages rarely decline nominally (see this Krugman post for some nice graphs), which means there is a(nother) zero lower bound. When some countries need to adjust wages and prices downwards, it is best to be further away from this threshold. The reason is simple: if the best you can do is to keep wages constant, the higher the general price increase, the more the decline in real wages. A higher nominal growth during normal times increases your room for manoeuvre during adjustment periods.

The essence of this: choose a higher inflation, or even better, nominal spending target the more diverse (read: suboptimal) your currency union is. For the Euro area, an inflation target of below 2% is inadequate. This seems so painstakingly obvious, and yet you will have a hard time finding European, let alone German!, economists who share this view – even though the evidence from the Gold standard era supports this argument, too.

Finally, economic historians like Kenneth Rogoff point out that we are currently in a situation of high debt and over-leverage that happens only rarely. When it does, the decline and adjustment usually takes many years – unless the central bank takes decisive action to prevent a severe drop in AD. This may entail temporarily higher inflation, as a period of deleveraging may hurt growth. But it is worth it, as Kenneth writes:

[In 2008] I argued that the only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, anyway, as Europe is painfully learning. … Some observers regard any suggestion of even modestly elevated inflation as a form of heresy. But Great Contractions, as opposed to recessions, are very infrequent events, occurring perhaps once every 70 or 80 years. These are times when central banks need to spend some of the credibility that they accumulate in normal times.

Higher nominal spending growth (or inflation) is therefore an important building block to solve the current, short term European crisis – even if you disagree with my argument above that monetary policy since 2008 is one of the major culprits for leading us into this mess. The ECB’s achievement to keep inflation at 2% is a Pyrrhic victory, as Ryan Avent ironically describes:

If the euro zone does fall apart, a fitting epitaph might read, “The ECB feared 3% inflation”.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

Collapsing Case Against Strauss-Kahn?

The New York Times talks to its sources in the NY Police Department and prosecutor’s office and reports:

The sexual assault case against Dominique Strauss-Kahn is on the verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper who charged that he attacked her in his Manhattan hotel suite in May, according to two well-placed law enforcement officials.

Although forensic tests found unambiguous evidence of a sexual encounter between Mr. Strauss-Kahn, a French politician, and the woman, prosecutors now do not believe much of what the accuser has told them about the circumstances or about herself.

More key phrases include “repeatedly lied” to investigators, “issues involving the asylum application,” and “possible links to people involved in criminal activities, including drug dealing and money laundering.”
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The War on Christmas comes early

Former European Union Commissioner Frits Bolkestein takes to the opinion pages of the Wall Street Journal Europe to decry “Europe’s Cultural Masochism.”  As an aside, and noting that this is indeed the Bolkestein of Frankenstein Directive fame, it now seems quaint to recall the time when the biggest threat to the European Union was seen as foreign plumbers offering cut price services, as opposed to the serial bailout crisis in which the Eurozone now finds itself.  But anyway, excerpting from his main theme of Europe’s cultural self-hatred, we are informed that:

If they have any doubt about the importance of Christianity in contemporary Western life, these non-European Christians need only look to locales such as England’s Oxford. There, in a land with an established Christian church, the municipality has decided to replace Christmas with a “Winter Light Festival.” According to a spokesman, this ensures that equal attention is paid to all religions.

Now if you’re worried that on your next trip to Oxford, the name of Christchurch College will have been blacked out in a wave of hypersensitivity, fear not.  A quick run through the Google reveals that this “Oxford bans Christmas” meme is one that played out 2 years ago, and it wasn’t Oxford council but a council-sponsored charity, and the move was roundly ridiculed by the town’s non-Christian faiths, and anyway everyone was still able to call the Christmas tree a Christmas tree etc etc.

Of course, the broader issues of immigration and European identity are up for grabs, and one suspects a link, though hard to prove, between Europe making the migration valve a little tighter over the last couple of years and a bottling up of tensions in North Africa culminating in the Arab Spring.   But it doesn’t contribute much to such debates to deploy some hoary old chestnuts of the conservative outrage! circuit in lieu of tackling those broader issues.

Ladies and gentlemen, we are floating in the Mediterranean

Now we know that between them, the British and French air forces have flown 2,500 sorties over Libya, compared to 2,000 for the US, can we perhaps have a little less of this stuff? As the Dougs say:

I haven’t seen a single one saying “France is short of precision munitions because they switched contractors last year, and the new guys are having production line issues.” Or “France decided to dramatically cut procurement of these systems because it didn’t fit their five-year strategic vision plan for 2010-15, which didn’t envision this kind of campaign.” Or “France has enough precision munitions, but honestly? Libya’s not actually that high a priority right now — the bombing is kinda half-hearted, because France thinks Qaddafi is going to cave soon anyway.” Or even “France has plenty of precision munitions, but they’re all with forces that got deployed to French Guyana last year as part of a diplomatic-strategic initiative to play carrot-and-stick with Hugo Chavez; they’re on a boat now and will arrive next week.”

No, it’s France lacks precision munitions because /they spend too much money on day care/.

The Guardian’s count up also tells us something about how the war has changed in the last few weeks. It’s also criticised by David Cenciotti on some details. The most interesting point is that the focus has moved to Misrata in a big way – almost as many air missions have been flown against targets around it as have been around Tripoli, and far more than between Benghazi and Sirte.

One of the consequences of this is laid out in this classic report from C.J. Chivers – since the mines were swept up from the port of Misrata, the siege has effectively been lifted and the rebels can use the sea. So can NATO – British and French ships have been firing on shore targets in support of the rebels around the port area, trying to keep it open and gradually expand the rebel zone. (Jean-Dominique Merchet’s blog reports that French observers were on the ground, adjusting the fire.) The latest news is the deployment of attack helicopters aboard the ships Ocean and Tonnerre.

The real problem, though, is that all this is tactics, or at the very best, operational art. It’s still very far from clear what happens if and when the rebels get to Tripoli, or if Gadhafi eventually gives up, or indeed if none of these look like happening within more months.

NATO is quite capable of providing a operational-level response to a military problem. Like the EU, it has a wider sense in which it is possible to use the infrastructure, operating procedures, and habits of cooperation without formally activating all the committees. (Gadhafi declared “Committees Everywhere!” as a principle in his Green Book. Surely no institution can have followed him more faithfully…) That worked, too. In comparison, the EU seems to be struggling to come up with more than day by day tactical responses to its economic problem. Of course, playing for time can help.

But neither of them have anything you could call a strategy. One of the things not having a strategy helps you avoid is thinking about the structural consequences of your tactics. Whatever the next plan-of-the-nanosecond to come out of the ECB, ECOFIN, the Eurogroup, or whatever will be, it’s fair to say that it will be deflationary and it will suit the interests of major exporters in the eurozone. Whatever NATO’s next move in Libya will be, it’s fair to say it will be violent, and it will probably also suit the interests of major exporters in the eurozone. Among others. After all, it appears we’re still training the Saudi National Guard, a force which exists only to repress the internal enemies of the House of Saud, although these days they lend it out.

An unholy alliance

Sonia Le Gouriellec at Alliance Géostrategique quotes Bernard Badie on the Ivory Coast and the fact that democracy is a lot more than just elections.

Prenons-la [la démocratie] comme un idéal, c’est-à-dire faisons-en une valeur partagée par tous, c’est-à-dire reconstruite par ceux-là même auxquels elle est censée s’adresser. Sa faiblesse se trouve dans sa dérive procédurale, dans son universalisme naïf, dans son formalisme, dans la volonté de plaquer et d’imposer de l’extérieur des modèles tout faits auxquels on ne cherche même pas à faire adhérer ceux auxquels on veut l’adresser. Peut-être que le fond du problème est là ; nous avons oublié chez nous que la démocratie était un idéal, nous n’en retenons plus que l’aspect facile de technique de gouvernement : on l’exporte telle quelle et on veut en faire en plus une technique d’action diplomatique ; on a alors tout faux.

This is, arguably, something the EU got right but the UN usually doesn’t. It’s never enough to put on an election, as you put on a play. In fact, it’s often the worst thing that could happen.

But at least it’s not the newly invigorated and enlarged Gulf Cooperation Council. Marc Lynch (he’s a serious these days so we can’t call him Abu Aardvark any more) covers this in some detail. Basically, what is emerging is a new reactionary international institution – a sort of NATO for dictators. In fact, it’s something like all the most radical criticisms of NATO, if they were all true, rolled into one. It doesn’t have nukes but it does want a nuclear industry.

Instead, it seems to be evolving into a club for Sunni Arab monarchs — the institutional home of the counter-revolution, directed against not only Iran but also against the forces for change in the region. Where the United States fits in that new conception remains distinctly unclear.

You bet, as they say. As it seems to be evolving into a police-military alliance, perhaps the closest parallel would be one of the reactionary alliances Europe tried out in the 19th century.

Who’s Next at the IMF?

Now that Strauss-Kahn has resigned, the IMF needs a new director. Traditionally, the job has gone to a European, but since quota weights were realigned last year, it’s possible that the new boss may come from outside Europe.

I will go ahead and take a flyer no Kemal Dervis, on account of being both European and non-European, and well regarded for his work in Turkey and the international arena. Other ideas?

UPDATE: Well, heck. He say’s he’s not in the running.

After Osama

Juan Cole sets the stage:

Usama Bin Laden was a violent product of the Cold War and the Age of Dictators in the Greater Middle East. He passed from the scene at a time when the dictators are falling or trying to avoid falling in the wake of a startling set of largely peaceful mass movements demanding greater democracy and greater social equity. Bin Laden dismissed parliamentary democracy, for which so many Tunisians and Egyptians yearn, as a man-made and fallible system of government, and advocated a return to the medieval Muslim caliphate (a combination of pope and emperor) instead. Only a tiny fringe of Muslims wants such a theocratic dictatorship. The masses who rose up this spring mainly spoke of “nation,” the “people,” “liberty” and “democracy,” all keywords toward which Bin Laden was utterly dismissive. The notorious terrorist turned to techniques of fear-mongering and mass murder to attain his goals in the belief that these methods were the only means by which the Secret Police States of the greater Middle East could be overturned.

I’ve got to think the European militaries will be done with Afghanistan about as fast as is practicable. How much civic and NGO engagement remains afterward is an open question. The Schröder government in Germany may have said that the country’s security began in the Hindu Kush, but surely there are ways to secure Germany without soldiers in Afghanistan.

European support for new democratic governments in the Arab world will not be simple, given troubled colonial histories in some places and populist worries about Islam in others. Nevertheless, Europe has much to offer in both managing transitions and models of pluralist democracies that remain true to their varied national and religious backgrounds.