It’s been a sweet and sour couple of days for Angela Merkel and the Frankfurt Group (and The Enlightenment, which mostly has sour news these daysdecades).
First, yesterday’s good news (well, ‘good’ for Merkel & Friends): The results came in on Thursday’s historic vote in Ireland to ratify Berlin’s ‘fiscal compact’ treaty and, as expected, the Irish voted 60–40 in favor of ratification. Yes, Ireland just outlawed Keynesian economics in exchange for the possibility of another bailout:
NYTimes
Ireland Approves Treaty to Set European Union Budget Controls
By DOUGLAS DALBY
Published: June 1, 2012DUBLIN — Ireland voted overwhelmingly to ratify a treaty intended to bind European Union member states to tighter budgetary controls in an effort to address the sovereign debt crisis that is threatening the euro.
But turnout was low, 50.3 percent; 60.3 percent of those who voted approved the new measures.
...
The result was also welcomed by the president of the European Commission, José Manuel Barroso, who described the treaty as “a key component of the E.U.’s response to the current economic crisis.”The Sinn Fein leader, Gerry Adams, who opposed the pact, said he was not disappointed by the result but accused the government of scaremongering, particularly in regard to access to future financing if the measure were rejected. Mr. Adams said he had met many people who had voted for the treaty “through gritted teeth.”
Much of the debate in the run-up to the vote had concentrated on whether Ireland would require another bailout on top of the current one, which is due to run out at the end of 2013, or whether it would regain access to the bond markets by then.
Although the government coalition of Fine Gael and the Labour Party remains adamant that Ireland will not require another bailout, financial experts say it is increasingly likely that it will, given the overall sluggishness of the domestic and European economies.
...
Yes, Ireland just outlawed Keynesian economics because of all those valuable lessons its learned about the dangers of Keynsianism. For instance, unless there’s a law banning ‘excessive’ deficit spending (even in a recession) and unless the a nation guts its public sector permanently, a country just might spend a decade embracing neo-liberal ‘reforms’, deregulate its economy and allow its unregulated banks to grow so large that the failure of a handful of financial institution could end up imploding the whole economy. Yes, at least at least one of the P.I.I.G.S. has clearly demonstrated that it learned its lessons about the profound dangers of ‘Big Government’.
But all of yesterday’s news wasn’t so positive for Merkel. The two biggest P.I.I.G.S., Italy and Spain, appear to be wavering in their commitments to an austere awesome future. And since Spain and Italy have been two of the more ‘well behaved’ little piggies up to this point, this is a most distressing development. It’s not all bad, though...Spain’s prime minister Mario Rajoy — a paragon of honesty and virtue — is still calling for the formation of a eurozone ‘fiscal authority’ that would oversee national spending and would limit membership of that authority to only those nations that meet strict budget conditions. AND he wants to see this authority put in place SOON. Now that doesn’t sound so bad.
Rajoy also wants a banking union, as does the European Commission, but Rajoy wants it all put in place as soon as possible. And why the rush? Well, one reason might be that the ‘expansionary austerity’ Rajoy has been imposing on Spain appears to be mostly good at expanding bank bailouts. On top of all that, at the same time Rajoy was calling for a new banking union and strong fiscal authority to impose ‘strict’ budget conditions on ailing eurozone members, Rajoy was also asking for an extra year to meet Spain’s own budget requirements (of a deficit under 3%). An extra year?! ?! Patience Angela, patience:
Spain calls for new euro fiscal authority
By Julien Toyer
MADRID | Sat Jun 2, 2012 5:34pm EDT
(Reuters) — Spain, the latest combat zone in Europe’s long-running debt wars, urged the euro zone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversible.
Prime Minister Mariano Rajoy said the authority would also go a long way to alleviating Spain’s woes which, along with the prospect of a Greek euro exit, have threatened to derail the single currency project.
It is not the first time a European leader has proposed creating such an authority but the problems and the size of Spain — a country deemed too big to fail — have prompted EU policymakers to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 28–29.
Germany, the paymaster of the euro zone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty.
Overspending in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an international bailout.
The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro — 548 basis points — on Friday.
The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, argues that there is little else it can do and the European Union should now act to ease the country’s liquidity concerns.
In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or through a direct intervention of the European Central Bank on the bond market.
They have also said the euro zone should quickly move towards a fiscal union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer.
“The European Union needs to reinforce its architecture,” Rajoy said at an event in Sitges, in the north-eastern province of Catalonia. “This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field.
“And this means a compromise to create a new European fiscal authority which would guide the fiscal policy in the euro zone, harmonies the fiscal policy of member states and enable a centralized control of (public) finances,” he added.
NO TABOOS
He also said the authority would be in charge of managing European debts and should be constituted by countries of the euro zone meeting strict conditions.
...
A spokesman for Olli Rehn, the EU commissioner in charge of economic and monetary affairs, said draft legislation designed to step up financial discipline in the euro zone, would create such a fiscal authority by granting new powers to the EU’s executive.
“This would grant enhanced powers to the European Commission on fiscal surveillance, including allowing the sanctioning of countries,” said Amadeu Altafaj.
“Even before a budget is drafted and reaches the national parliament, the Commission could ask for a revision of the budgetary plans if it considers this would not allow a country to meet its fiscal commitments, and thereby could endanger financial stability.”
...
A day after Berlin supported giving Spain an extra year to cut its deficit down to the 3 percent of GDP threshold, Chancellor Angela Merkel said it should be possible for countries that violate fiscal rules to be sued in the European Court of Justice.
...
Poor, poor Angela. At least her allies in the Frankfurt Group, like EU Commissioner Olli Rehn, is ahead of things. His new planned centralized authority gets to ‘revise’ national budgetary plans even before the budgets are drafted. Talk about being proactive! And Rajoy seems like his heart’s in the right place...he still wants to turn Spain into a privatized fiefdom. He’s just a little slow.
May 31, 2012, 8:47 a.m. ET
UPDATE: Italy’s Monti Urges Germany To Reconsider Austerity Push(Updates throughout with more quotes, details. Adds in Rehn comments)
– Monti warns that sooner or later there will be austerity backlash
– Monti says there should be no change to ECB mandate
– EU Rehn says lowering borrowing costs is matter of survival for euro bloc
By Matina Stevis
Of DOW JONES NEWSWIRES
BRUSSELS (Dow Jones)–Italian premier Mario Monti on Thursday urged Germany to reconsider its push for austerity, warning that Berlin’s approach is generating a popular backlash that could undercut the region’s chances of overcoming the crisis.
Speaking at a conference in Brussels, Monti said that there will “sooner or later be a backlash against the fiscal discipline” that European governments are imposing.
“Europe should accelerate its efforts in order to limit contagion not simply because a huge financial...crisis will be a frightful event but even more because this would dismantle the support for sustainable fiscal discipline,” he said. “Most notably, Germany should reflect quickly but deeply and act on these matters,” Monti said.
Monti has been one of the main proponents of a growth agenda to help the region’s economy get back on its feet. Last week, he also joined new French President Francois Hollande in calling for some form of common debt issuance for the euro zone. However Berlin has insisted that fiscal consolidation must be the centerpiece of the anti-crisis response.
...
The Italian premier also weighed in on the debate over the European Central Bank’s inflation-only mandate, following calls from some member states to expand it to include growth-promoting monetary policy.
Monti said he was against such ideas.
“Maybe I’m too German but I believe that the ECB has been really extraordinary in acquiring in a few years a very excellent reputation,” he said. He added that the mandate has not prevented the ECB devising “new modalities of intervention.”
He added that urging the ECB to implement bolder expansionist methods to support growth would be a disincentive to euro-zone governments to press on with implementing reforms and pursuing pro-growth investments.
However he signalled he would like to see the central bank become slightly more activist.
He said the ECB should look at the functioning of monetary-policy transmission mechanisms as they have become “increasingly...disconnected from the real policymaking in the different countries.”
That pesky Monti...how dare he question the austerity-only approach. Italy, why can’t you be more like Spain. Granted, Monti also appear to oppose any actual pro-growth actions by the ECB, like raising it’s inflation target above the already astronomical 2%, so it’s not really clear what part of the austerity agenda Monti opposes. But still...bad EU-installed technocrat!
And what’s this? Et tu Silvio?
Bloomberg
ECB Must Print Euros Or Italy May Say ‘Ciao:’ Berlusconi
By Lorenzo Totaro and Jeffrey Donovan — Jun 1, 2012 8:12 AM CTFormer Premier Silvio Berlusconi said Italy should say “ciao, euro” if the European Central Bank doesn’t start printing money to tackle the debt crisis and Germany should quit the single currency if it won’t back a bolder role for ECB.
“The economic crisis can’t be solved” in Italy, Berlusconi said in comments posted on his party’s website today. He called on Prime Minister Mario Monti to “change his political line” and lobby European leaders to back a money- printing campaign by the Frankfurt-based ECB. If the central bank doesn’t become a “lender of last resort,” Italy should say “ciao, euro,” the former premier said.
The media tycoon-turned-politician became the latest European leaders to step up pressure on German Chancellor Angela Merkel and the ECB to permit a more aggressive response to the region’s debt crisis. Monti yesterday called on Merkel to drop her opposition to allowing the euro region’s rescue mechanism to lend directly to banks.‘Our Currency’
Berlusconi, 75, who resigned as premier in November as Italian borrowing costs surged amid a worsening debt crisis, said Italy should remain in the European Union even if it exits the euro. He added that another of his proposals was that the “Bank of Italy prints euros or our own currency.”
“It’s a crazy idea of mine,” he said, without specifying if he meant reviving the lira.
On May 25 Berlusconi, who heads the party with the most seats in the Rome-based parliament and whose support is crucial for Monti’s government, called for an overhaul of the country’s constitution to strengthen the powers of the president. He also said he would seek the office if his party requested him to.
Oh wait, never mind!
Berlusconi says idea Italy should dump euro was “joke”
By Steve Scherer
ROME | Sat Jun 2, 2012 10:35am EDT
(Reuters) — Former Premier Silvio Berlusconi said on Saturday he was only joking when he suggested that Italy should dump the euro unless the European Central Bank agreed to inject more cash into the economy.
“We have to go to Europe and say forcefully that the ECB should start printing money. If it doesn’t, we should have the strength to say ‘ciao, ciao’ and leave the euro,” Berlusconi said on Friday in an entry on his Facebook page.
Less than 24 hours later, the former leader reversed his position, which clashed with that of Prime Minister Mario Monti and threatened to undermine the government almost a year ahead of the next national vote.
“That a joke ... could be mistaken for a proposal is certainly a serious mistake for whoever claims to provide political news,” Berlusconi wrote on Saturday on his Facebook page.
He said the press had taken seriously what he had said “with a smile and irony”.
...
Ahhhh....HA HA HA. Ok, that was a good one Silvio. I bet you had Angela really scared there for a second.
What a joke.
Uncle Sam and The Swastika
I find it remarkable that in the U.S., the following argument is not being made anywhere — not even by the astute Paul Krugman:
• Ratio of debt to GDP during Great Depression: 40% of GDP.
• Ratio of debt to GDP BEFORE the 2008 crash: 70% of GDP.
• Ratio of debt to GDP DURING 2008 crash: 102% of GDP.
• Ratio of debt to GDP in 1950s, paying-off WW2 Keynesian stimulus debt: 120% of GDP.
Source for statistics: see link at bottom of comment.
As you can see, debt was at its all-time-high in the 1950s.
But there were NO spending cuts.
IN FACT, taxes were RAISED to 91% on the top tax bracket.
And spending INCREASED.
The fact is: The United States SPENT its way out of WW2 debt.
How? The U.S. went on a massive print-run and spending spree that built the U.S. Interstate Freeway System (100% socialist in nature), public schools, municipal water systems, hydroelectric dam projects, rural electrification (much of the rural U.S. still did not have electricity), hospitals (which used to be non-profit), ports, bridges, airports, fire departments, and the G.I. Bill, which paid for veterans to go to college and become Middle Class taxpayers.
This spending-spree created a boom that created a new class of taxpayers that barely existed before the Great Depression: the Middle Class.
By 1974, the debt-to-GDP ratio fell to 32 PERCENT. (Source: See link at bottom of comment).
Because of deficit-spending on infrastructure, the U.S. “outgrew” and “absorbed” its own biggest-ever debt.
Accusations of “spending money we don’t have” need to explain how the U.S. spent its way out of WW2 debt.
Somebody please beg Paul Krugman to mention this.
http://www.usgovernmentspending.com/federal_debt_chart.html
I think we have a new record here: Spain’s financial crisis has gone from a bad joke to a $125 billion pathetic farce in 4:40. It’s good to see all the austerity “cred” that the eurozone has been building up with “the markets” finally pay off:
Spain right-wing president just “declared war” on the EU’s central bankers. Italy’s installed technocrat Preznit agrees, it’s time for battle. Them’s fightin’ words:
Yes, the ECB must now expect the much feared “please take us over” roll-over-and-play-dead attack. Its effectiveness lies in its ability to confound:
Mario’s possum-style kung fu is never to be underestimated.
One of the dangers of S&M play is the risk that the sadist forgets the “safe word”. So, umm, Mario, “the markets” might be trying to tell you something:
Greece newly formed government is about to make a push to get its austerity goals eased up a bit in order to give the country a little breathing room. The new government is also apparently taking a page from the “Mario Rajoy School of Austerity Negotiating”: The bold new measure being offered to the “troika” — in exchange for reducing the mandated tax hikes, layoffs, and wage cuts — is to speed up and expand the privatization of state assets:
*Gulp*
@Rob. That site has a good cross-section of comments from people trying to make sense of the economic system and suggest repairs within the framework of that system. They seem to have some background and not be stuck in ideological mudholes ( except for the guy who thinks gold backed money will cure the common cold ).
Capitalism can be so many different things and be practiced with such a bewildering variety of outcomes that people lose themselves in second tier discussions of theoretical matters and avoid confronting first principles. What is the purpose of an economic system? While I don’t advocate any kind of propertyless society or ‘flat’ outcome, it’s just obvious that presently too much wealth has accumulated in too few hands for anything but a few slightly varying disaster scenarios to unfold, unless the direct solution of forcible redistribution of property is applied soon. By this, I don’t mean a few tax increases, conceded after much wrangling. or some meager expansion of the welfare state. I mean forcible appropriation of any corporate and individual net worth over some reasonable limits and the permanent institutionalizing of those limits into the social and economic fabric. This can’t be done by negotiating with the people whose power we are removing.
The resulting gradient of production and wealth won’t be ‘equal’. but it could be livable, i.e., not requiring that a large portion of the populace live in misery and enslavement or simply die. That minimally good result is identical to what is promised by all the flavors of capitalism and socialist variants, so why not bypass theory and go directly there, especially since their own versions of the promised land recede further by the minute?
The reason we don’t is twofold, involving both shared economic delusions and physical fear. The current kings on the hill have deluded the populace into the idea that property is so sacred that many of us must be continually sacrificed on its altar. We have accepted the notion that the current distribution of wealth and the mechanisms for gaining it are identical to justice, morality and order. They have confused us over the difference between having some or enough and having it all. If that meme ever fails, as it seems to be failing now, we will see simple raw violence revealed as the force that props up their cartel world. Fascism or Nature ( as they see nature ), red in tooth and claw, has always been there behind the corporate glass and we cooperate in not seeing it, holding to our comfortable illusions of civilization.
So, is wishing to see less misery and death rather than more — and saying so — the new definition of terrorism? Yes.
The broader things occupy me more than the passing details, so it’s hard to get too intensely interested in modern money theory or in what convoluted mechanism the ECB will use to write off unpayable debt while not seeming to do so.
@Dwight: I think the main reason we unfortunately have to delve into all this monetary theory stuff is because ill-advised monetary (and fiscal) policy is one of the primary fascist/corporatist tools of choice. It’s an unavoidable task to attempt to counter or at least highlight the pervasive foolishness peddled as serious economic policy. Persuasive bad ideas: the most potent weapon ever imagined.
And regarding a wealth cap, I’ve often wondered why our income top tax rates kick in around $350,000 (at least in the US) when there are billions in annual income for the top earners. The top tax bracket hasn’t always been that low, especially during times of war. It’s like capping the tax rate at the %0.01 marker on the income scale.
Something that would be interesting to see from a game-theory perspective would be an income tax rate that is literally pegged to whoever makes the most in a given year. So if the top earner makes $1 billion that year, some progressive scale is applied to everyone with $1 billion as the top “tax bracket”, but if there’s $2 billion made by the top earner the next year, that same tax bracket gradient is applied, but scaled from a $0 — $2 billion scale. And make it REALLY progressive, so you really don’t want to be #1 or anywhere near the top tier. And then add the stipulation that top earners are free to use charitable donations as write offs to reduce their incomes. Suddenly, there’s still a race to get rich but not TOO rich relative to everyone else. Don’t like your rising income tax rates? Talk to Uncle Money Bags that made AND KEPT the most. Granted, there would probably be unintended consequences like widespread public support of the richest person in the nation using income-shelters and tax havens (because it would bring EVERYONE’s taxes down), but it’s a fun thought experiment. Hopefully it’s also not one of those destructive bad ideas. A sort of unintended weapon of mass destruction. We have enough those already.
@ PTERRAFRACTYL .. your game-theory inspired proposal about empirically targeting top earners ( ‘earn’ being a questionable term ) opens up the moral and psychological issues involved in the pursuit of obscene levels of wealth.
I involuntarily channel Ayn Rand. She would say that such a thing was a witchhunt by evil, jealous and mediocre people against the creative and innovative minority who are responsible for maintaining civilization in the face of demonic socialism.
I am grateful that Rand existed and wrote because she presents her twisted Nordic economic cosmology without nuance or apology. It’s all very raw and primal. You can clearly imagine the Entrepreneur, sword in hand, atop a rocky crag with a fierce storm blowing all around, raging at the elements, at God himself, and at the vile sexually-inferior Lilliputans whose only goal in life is to stop him from making a buck.
Such a tax structure as you suggest implies strongly that wealth is not proof of virtue. That’s downright UnAmerican.
@Rob: Well I was being somewhat facetious with my little tax proposal, but not entirely . It was a silly exercise in the kind of “thinking outside the box” re-imagining of our economic structure that we need. But you’re right that to really “think outside the box” we need better concepts of what constitutes “wealth”. Or better than “wealth”, what constitutes a “meaningful goal” for people doing what they do every day. Or “success”. People may not inherently all want to all be obscenely wealthy, but I do suspect nearly everyone wants to be “successful” by some definition. We just need to figure out a better way to channel that drive. Similarly, what about “power”? For some reason power is always “my power over something else”, but rarely “our power to get shit down we couldn’t do alone”. As mortal beings, the need for power/security probably is instilled in us pretty heavily...that need just seems to drive us sort of nuts. We’re a weird social species at this point in time. Public safety, pension/security, a viable future for our children, or world without suffering and, yes, even some personal possessions, should all fall into the category of “meaningful things I work for everyday because I really value that stuff”. As you point out, it’s simply all in the “personal possessions” category now and that’s really messed up.
But even if we can conceive of a better definition of wealth, goals, success or whatever it is that defines our envisioned shining city on the hill, one of the values of my fun little tax proposal is that, at the end of the day, the Randoid system of life has a HUGE advantage over almost all other forms of self-government: It’s a surprisingly robust “system”. Whatever happens in a free-for-all free-market is what is supposed to happen. Let the chips fall where they may. If we spiral into an austerity-induced decades-long depression, well, that’s just what should have happened. And if you and up with a billion dollars or nothing, well, that’s just a reflection of who you were as a person. And if the whole economy collapses in an speculative clusterfuck, well, the “system” can still rebuild...just with a lot more endemic poverty. At its core, the rules of the Randian word are remarkably simple to create and self-perpetuate: as long as you have a basic legal system to enforce property-rights and a force available to physically enforce those law, it’ll keep going forever. Or at least until we pollute ourselves into oblivion (barring the ‘Avatar’ scenario, where we get to pollute other worlds). The “peg our tax rates to the richest guy around” proposal was more just an attempt at thinking about self-correcting mechanism that prevent an over-concentration of private wealth within the context of a system that still promotes the accumulation of these widgets we call money.
So I think we have to rethink what it is that defines “wealth”, “success”, “power”, etc. But we also need to think “systemically” about how people can live their day to day lives “successfully” in as much of a self-automated way as possible. The world is too complicated for the Randian solution, but that doesn’t mean we can’t come up with some snazzy self-correcting/self-perpetuating systems too. And we don’t really have a choice. Building social cohesion is a tricky and getting everyone to voluntarily get done what needs to get done is a really tricky task. The best solutions tend to be elegantly, simple, but not necessarily obvious. It doesn’t have to be a strictly “economic” system...but we need something that we can pass down to our kids and they can pass down to their kids and it sort of works. And it has to work within the context of where we are now: a dying, overpopulated, over-polluted, psychologically disturbed world. That may seem like an exceptionally daunting task because it is. But it’s hard to imagine all the different ways in which a “democracy” and “self-governing” society can run itself. Humanity has barely scratched the surface of those possibilities. The more alternative systems we have, the easier it’s going to be in decriminalizing our societies and replacing our existing clusterfuck of a planetary system with something better. But those new systems have got to work.
And yes, there are a huge number of flaws with my proposal, hence the WMD warning at the end. Hehe.
@Rob:
No, I was being serious, but I probably should have clarified it better. There’s the pure “Randian” system with almost no government or anything. “Somalia”, as it’s often referred to. We haven’t really seen how “robust” that would be in too many other instances because few societies are yet crazy enough to completely “go there”. But there’s the Randian-lite system, sort of like what the US had for much of the 19th and early 20th century. As a “system”, that Randian-lite “free-market but not actually because we’ll bail out or protect the powerful” system is, to a large extent, accountability-free. There are no standards like providing adequate food, shelter, medicine, education, a better future, etc. That’s ALL up to the individual, family or maybe local community. And assuming people accept it as a just system or, more frequently, as the ONLY just system, it can keep chugging along regardless of how much it trashes the place. And yes, it’s shockingly fragile too, in that it, well, ends up trashing the place. But again, as long as people accept its outcomes as what should have happened or the ONLY viable option, the “system” can keep rebooting itself, rising from the ashes once again. There are no meaningful standards for performance.
And yes, the masses do get pissed and make attempts at reform, but that’s part of the system too...each “reboot” might include some reforms here and there, but then it’s just back to union-busting time until the reforms have been reversed. That’s part of what this whole boom/bust/austerity cycle is all about right now. The system is rebooting.
Whether it works or not remains to be seen, but the fact that it has such a simple solution for everything (impoverish almost everyone!) and that solution is being pretty successfully implemented across an entire continent right now (and is coming to a continent near you in the near future) strikes me as a form of systemic robustness. It can work in an “democracy”, a fascist state, a dictatorship, whatever. The form of government is irrelevant as long as it’s a form of government run by and for the powerful. That strikes me as a surprisingly robust “Randian-ish” system given what a train wreck it’s been.
And yes, once it destroys the resources of the world our current Randian-lite global system will show itself to lack any meaningful long-term robustness. Medium-term robustness perhaps?
@Rob: lol. Yep, it’s a bust alright.
@Dwight: Regarding our sense of what it is to be unamerican, is it just me, or have we become the Highlander society? THERE CAN BE ONLY ONE!
Mario, this isn’t easy to bring up...but you have a problem and need help. This can’t continue:
Mario, this is a disease. It’s not your fault but you have an illness. Can’t you see what you’re doing to your family? Your little brother has already starting copying your behavior:
Mario, your family needs you to pull it together.
@Dwight: You would have enjoyed the Thom Hartmann show today...the open question in the 3rd hour was “should we put a 100% tax on wealth over $1 billion?” It’s good to see these kinds of unspeakable ideas talked about on the airwaves. I’d just love to see a national dialogue that centered around justifying why we NEED to have multibillionaires (or else society would collapse, you see).
I missed that but I assume they were talking about hard individual net worth caps and not yearly income. A billion? I’m thinking 20 or 50 million as a starting point. There’s some number where an individual has everything they could possibly use or want and money over that is just greed or personal political power. The idea that wealth directly equals political power and that such power should be widely distributed should be a simple given for modern man, but somehow it isn’t. If such a redistributive mechanism were in place, after a few years the average person would wonder why it wasn’t there all along.
It’s a worthwhile concept, even if sophomoric and naive, but it’s hard to imagine it happening, whatever the amounts. For it to work it would have to happen simultaneously across several countries by UN treaty or bilateral agreements. Otherwise the capital and the people attached to it would just change residence to whatever country was most wealth friendly, further collapsing the home economies. Corporations would behave the same. And there is the familiar brick wall where even piecemeal workable solutions that threaten wealth don’t have a chance as long as wealth controls media, academia and legislatures.
Taking stuff from the rich and handing it to the poor isn’t really the point either. The wealth of a society is mostly what we all do and produce on an ongoing basis. It’s more of removing an society-wide, institutionalized encouragement to moral and spiritual illness. The lure of personal wealth and power without limit manifests as personal glory seeking and causes evil behavior and evil results.
@Dwight: I agree that proposing a $1 billion wealth cap (I think it was wealth and not annual income) it’s an unimplementable system. But it’s as great mental exercise in that it forces a number of questions that are rarely, if ever, asked. The $20 to $50 society would be fascinating to see. What’s fun about a $1 billion cap is that it’s such an obscenely high value that those in the “no cap”-camp have to come up with some pretty compelling arguments to justify that wealth accumulation. I’d love to hear what those arguments are because beyond systemic arguments (like what you brought up regarding the risk of flight capital and interwoven economies) I’m hard-pressed to think of strong moral arguments against such a cap. It’s just so much money. What exactly does one have to do to truly “earn” $1 billion over the course of their lifetime? Inquiring minds want to know. And if someone can come up with a strong moral case against a $1 billion cap, ok, let’s see how that stands up against a $10 billion, $100 billion, or $1 trillion cap, and so on. And the higher that theoretical cap, the more untenable the systemic arguments become. And both the moral or systemic arguments in the “no cap”-camp have to eventually scale all the way up to “all the money in the world”.
Another assumption that gets raised is “what’s the regulatory context of that $1 billion+ fortune”. We don’t have to have our crazy wealth distribution and kleptocratic history. If you cure cancer...maybe not all of it but a whole bunch of it...have a billion if somehow in the market reward system you earn a billion. AND there would need to be strong regulations on how wealth could be translated into political power. Have fun job creating or going on cruises billionaires. Just don’t corrupt stuff. We’ll just tax the shit out of it if it gets too high. Who knows where that is in the future. It sort of depends on how much profit from speculative investing one can make. Money is just of social cred widget (or should be) and you may not want something like a cap acting as a constant “wall”. I’d be fine with really friggin’ high progressive taxes for the people above some cap like $1 billion or something...who knows, just somewhere.
But after Citizens United, now it’s anything goes. Once again, nightmarish. Any ol’ billionaire (and mere multi-millionaires too) can hire the modern day Mighty Wurlitzer of mass media to swing a this or that election. And then they can all buy off the system with bribes, legal (political contributions, etc) and illegal (everything from whoops to OMGWTF?!). It’s a very different ballgame for the global billionaire class from where it should be. That’s the fun of fascist/far-right policies and a lot of looting for decades. We have a fucked up wealth distribution and corrupt system. But bur current “no caps” way might be just fine in under some other set of rules. Maybe caps would be awesome. Who knows. The critical thing is the “being just focused on getting money and not being focused on the planet careening off a cliff” part. Sigh.
Our current general system could probably be fixed well enough to chug along pretty easily. We just have to pass better laws and then investigate a bunch of stuff. That’s at least the path of least resistance. Making decent laws only seems as hard as it has in the past because of gobs of corruption. Any new system (one not in fascist clutches like ours) involves moving past all the existing inertia of the systems running the world, and if we could ever figure out how to “reboot” that whole thing, we’d could start finding and implementing solutions without even having to change THAT much of the wealth distribution. The $50 million cap sounds personally fine to me. Or a billion. Or more if it just made the system work better. Just don’t have mobster-style billionaires. Batmen are OK.
But here we are: money = political power like never before. This guy might become president. And he’s paying the bills. Sigh.
Ah, here we go...The American thing to do:
Mario’s microcosm in Merkel’s macrocosm: full spectrum awfulness:
Building a better future, one fire sale at a time:
Uh oh, interest rates on Spanish bonds just hit record highs again. I wonder why:
Spain’s most prominent banker was dodging taxes for years? Uh oh? Uh, no. It’s all good:
Well that’s fascinating that the Botin family’s tax-sheltering bank of choice was HSBC, the latest bank to admit to money-laundering for drug cartels. Especially since the both HSBC and Banco Santander were BOTH panned by the US Senate for lax controls on drug and terror money-laundering back in 2004. And then there was the drug plane that crashed on the private landing strip at Emilio Botin’s mansion in 2008. Oh well, I guess we’ll never know now that the investigation into the Botins’ finances was closed. We’ll just have to be content with how well all of Spain’s “structural reforms” — like tax reform- are working.
And Spain’s government continues its “dead cat bounce” strategy to economic recovery:
Well, at least the demolition of all those empty houses should create a few jobs once the market finally bottoms some time in the next decade...expansionary austerity forever! It just takes patience.
This “pain is gain in Spain” austerity fetish just keeps getting better and better. Stagflation forever!
Recall that Spain’s 3.6% inflation would not be a problem at all if it wasn’t for a certain meddling inflation-monster that perpetually assaults common sense.
Huh, so it turns out the post-housing bubble strategy of shoveling money into bust banks while simultaneously imposing austerity and further imploding the economy is a bad idea:
Fortunately, policy makers have a bold new solution to shore up the still-ailing Spanish banking sector: Public bailouts of the bad banks’ bondholders:
Pardon me, once again, for stating the obvious.
“...necessary winding down of banks, mergers of banks and then subsequent recapitalization...”, meaning, of course, that any and all means will be taken to preserve, as far as possible, the income stream arising from citizen to state to transnational bank debt. We are watching limited and negotiated tradeoffs, where some holders of debt foreswear a portion of repayment to insure the eventual repayment of the greater part. Euro-capitalism’s ongoing crises are inevitable and mechanical and are, despite a seeming conscious guidance by various avatars, beyond any nation’s control, except as that nation simply abandons all participation in the system. We can only watch as the European economy repeatedly approaches some precipice, is barely saved by patchwork solutions, only to flow towards a subsequent, different and worse disaster. Far from foreshadowing any collapse of free-market capitalism, this event stream has become, instead, its operating norm. Extant roving capital, operating as a natural force akin to gravity, insures the occurrence of whatever tragedies are needed to produce maximum return on investment.
Greece should leave the euro, if that’s still politically possible, suffer through the subsequent collapse and inflation, and then, while preserving the lives of her citizens, rebuild an economy much more independent of foreign loan capital. This is, in essence (but not appearance), what Germany embarked on in pre-Nazi years. Drastically devaluing her own currency was seen as a national disaster at the time but was, in retrospect, a very successful maneuver, which Germany does not want Greece to repeat and so escape Germany’s EU prison. In Germany the Nazis commandeered the final stages of the process of creating an autonomous currency disconnected from its foreign debt. The pain of this stratagem was assigned to the Weimar period and, from the beginning, was designed to reduce her burden of foreign debt and reestablish a sound internal investment climate. It was eventually successful and
the Nazis arrived in time to take credit for the German economic “miracle”. History mistakenly records that they reversed previous policies instead of simply completing the last stages of a project begun a decade earlier.
@Dwight: I’d agree with most of that but I don’t see the eurozone’s crises as being beyond any nation’s control, except to the extent that the Bundesbank is truly an “independent” entity. It’s the alpha dog in terms of what the policy options and the alpha dog is putting the minimization of the size of any ECB interventions and “internal devaluation” at the top of the priority list. A crisis of some sort was inevitable following the financial bubble that started bursting in 2008, but it didn’t have to be this bad. Concerns over the scale of “credit expansion” didn’t have to be elevated to a top concern. That was a choice made by avators like Jens Weidmann. And in the face of growing evidence that it was a bad choice we’re seeing no real indications that those avatars have changed their minds. And various avators for powerful interests *cough* *Merkel & Friends* *cough* ensured that we’re going to see a lot more crises like this in the future by demanding the EU sign on to the new “fiscal treaty” that limits budget deficits and guarantees that the counter-cyclical forces of government deficit spending during times of recession won’t happen. And if Merkel hadn’t decided to employ the political strategy of selling the German public on the notion that “lazy Southern European nations want to take your money but I will protect you and your euros” she and the CDU wouldn’t be the political bind that eliminates any possibility of real solution to the ongoing crises. Lot’s of bad choices that are making bad situations worse are being consistently made by very influential people in very influential nations. For example:
Congrats to Spain: with hints of an economic recovery underway and only 25% unemployment it’s become a shining example of austerity-onomics:
Yeah, comparing Spain, with nearly 25% unemployment, with France’s ~10% unemployment rate may not be the optimal comparison for the austerians. Then again, when it comes to the austerians and good news, beggars can’t be choosers:
Yes, as Mariano Rajoy says, “In less than two years we have gone from being an economy on the brink of a bailout to being one of the economies that is growing the most in Europe.” All that was required for that year of growth was sending the economy into a multi-year tailspin that created the second-highest jobless rate in the eurozone. Good job austerians!
And it’s also great to hear that rising domestic spending and the first quarter of rising property prices since 2008 are fueling the growth, although since much of the real estate boom is driven by foreign real estate investors (meet Goldman, your new landlord) it’s sort of like Spain is exporting itself at this point. Still, it’s progress.
But with exports falling 0.7%, you have to wonder if a recovery that’s been fueled by growth in domestically consumer spending will be able to gain any traction if the rest of the eurozone is still mired in deflation and those exports can’t keep growing (or worse, start falling). After all, it was Spain’s booming exports over the last couple of years that helped to compensate for the 25% unemployment rates and collapse in domestic demand and those exports are clearly going to have to continue booming for Spain’s real economy to recover. Even though every nation can’t simultaneously export its way to prosperity, export-driven growth is still widely viewed as the only “credible” growth in the new EU. And now, just as Spain’s domestic spending is rising the exports are falling and the trade deficit is spiking (albeit from last year’s record low trade deficit).
So can Spain’s economy create a domestically driven recovery when most of the rest of Europe is still falling into the doldrums? Let’s hope so, but either way, it’s all a reminder that there isn’t just a need to end the EU-wide austerity. There’s an urgent need to end the austerity. As Spain is demonstrating, the synchronized austerity isn’t just continuing to drag economies into the doldrums. It’s also threatening to stomp out the economic green shoots that inevitably take place even in depressed economies (stuff needs replacement at some point). And that ongoing austerity is one of the big questions going forward is what other growth drivers will be available to Spain if the exports market continue to lag? Hmmmm....
Well there we go: anti-austerity protests can now be channeled into a stimulus program, although it’s unclear how much of that riot gear was domestically produced. Still, it’s a start!
Might Spanish voters will reward the conservative Rajoy government in 2015 for this creatively bold ‘riot-gear stimulus’ plan? We’ll see!
From the department of corrections: the reports of Spain’s 1 billion euro purchase of riot gear in preparation for austerity protests was off be three orders of magnitude. It’s just 1 million euros in riot gear:
Well, there goes the billion euro riot gear stimulus package. Although don’t give up hope yet. Now that Spanish officials are jumping on board the “hey, deflation isn’t bad, that’s just a myth! No worries!”-crazy train, the kind of “social dynamic” that would justify a much bigger riot gear purchases are just a matter of time:
This is one of those “where does one begin” articles. For instance, that study by Andrew Atkeson of the University of California, Los Angeles, and Patrick J. Kehoe of the University of Minnesota basically concluded that the boom-bust Gilded Age was great so don’t worry about it:
Yes, from 1879–1914, technology and innovation led to “good” deflation, and therefore deflation caused by a collapse in Spain’s economy resulting in surging debt (which is made worse by deflation) is “good” too. And let’s also ignore the episodes of high deflation and inflation and banking panics that led to the creation of the Federal Reserve system). Isn’t defending deflation fun?
And then there are the statements by John H. Cochrane, professor of finance at the University of Chicago, that there’s no real need to be concerned about a period of extended deflation because, hey, the ECB said it would do “whatever it takes” to avoid it. That means we can apparently ignore all of the indicators that the ECB won’t actually be allowed to do “whatever it takes” since “whatever it takes” goes beyond monetary policy and requires that eurozone members actually engage in some stimulus spending which is why Draghi is telling governments to start spending. And then there’s the fact that John Cochrane doesn’t appear to believe monetary policy is useful when stuck in a “zero lower bound” liquidity trap anyways. Interestingly, that’s the same argument Paul Krugman has been making for years for why stimulative fiscal policies are required in addition to sane monetary policies:
So when Cochrane says “I don’t see how Europe, with current very large outstanding sovereign debts, and a central bank committed to ‘do what it takes’ can possibly have a sustained serious deflation spiral,” he’s basically saying, “don’t worry, deflation won’t be allowed to get all that bad because the ECB promised to step in and do something”, and yet in the above piece Paul Krugman highlights Cochrane arguing that monetary policy is of limited value alone when rates are neary zero, which is exactly the kind of situation Spain finds itself in right now.
So anyways, don’t worry, the billion euro riot gear stimulus package is just a matter of time.
“Spain continues to look quite healthy compared to other euro zone countries,” according to a banker quoted in the article below. The article also goes on to mention that Spain’s prices are falling, its unemployment is over 23% and expected to remain over 20% for years, lending remains subdued, and the “quite healthy” economic growth of 0.5% last quarter appears to be losing steam as a result of the rest of the Spain’s eurozone trading partners showing even worse growth. Good job Spain?
As we can see, the “soft bigotry of low expectations” doesn’t just apply to kids. An entire continent can apparently be the victim of it simultaneously (including the kids).
The Spanish government Necromonger conversion is complete:
“De Guindos, at times raising his voice, railed against Varoufakis in Friday’s meeting, telling him he has to win the trust of his euro-region counterparts and learn how politics is conducted at the European level.” Yes, when will Varoufakis learn that resistance is futile? Probably sooner or later. Folks like Luis de Guindos are extremely qualified to teach riff raff like the Greek Finance Minister “how politics is conducted at the European level”:
Yes, Spain’s currently finance minister, Luis de Guindos, is an ex-Lehman banker who held various positions in the governments of conservative Prime Minister José María Aznar during the 1996–2004 period when the foundations of the Spanish Housing bubble was established, including the position of deputy finance minister. And he’s now demanding that the EU turn the austerity screws on Greece.
So, with that in mind, here’s a quick look back at some of the news that was coming out of Spain back in 2004 when the new Socialist government was coming into power following the departure of the Aznar government that de Guindos worked for:
Just take a moment to soak that in:
That’s right, by the time Spain’s socialist government came into power in 2004, a housing bubble was already in place that was leading to 600,000 new homes being built in 2003 when there were already more than 3 million empty homes (close to the number of empty homes in 2013). At the same, it was also clear, even back in 2004, that the loss of control of its own central banking policies was leading to a Spanish housing bubble that Spain really couldn’t control and the European Central Bank had no interest in controlling. It’s a reminder of how the whole “profligate government spending caused the financial crisis” meme is largely nonsense. It’s also a reminder of why one of the most important paths to seeing an end to the eurozone crisis is seeing an end to how “politics is conducted at the European level”.