Krugman and Stiglitz on the Greek referendum

July 1st, 2015

FT columnist Martin Wolf is not sure how he would vote in the coming referendum, which in reality is a referendum on remaining in the euro (“yes”) or abandoning it (“no”). Two well-known American economists display no such hesitation. Paul Krugman comes down firmly in the “no” camp.

It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years.

This is, and presumably was intended to be, an offer Alexis Tsipras, the Greek prime minister, can’t accept, because it would destroy his political reason for being. The purpose must therefore be to drive him from office, which will probably happen if Greek voters fear confrontation with the troika enough to vote yes next week. ….

[I]t’s time to put an end to this unthinkability [by voting “no”]. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Paul Krugman, “Greece Over the Brink“, New York Times, 29 June 2015.

Joseph Stiglitz, in a telephone interview with a reporter from Time magazine, recommends a “yes” vote, but he combines this with increased aid and a write-off of Greece’s debt. This is the “third way” – a path of “endless bailouts and few conditions” – that Martin Wolf dismisses as delusional.

Interestingly, Stiglitz believes that a “no” vote – abandoning the euro – would be a disaster regardless of the economic consequences. If the Greek economy performs well without the euro, this would encourage other countries to leave the euro. If the economy collapses, Greece would become a failed state, allowing Russia and China to “undermine Greece’s allegiance to the E.U. and its foreign policy decisions”.

“They have criminal responsibility,” he [Stiglitz] says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview. ….

If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.” ….

“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University. “What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.

Simon Shuster, “Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout“, Time, 29 June 2015.


Greece’s referendum on the euro

June 30th, 2015

Supposedly this [the upcoming referendum] is going to be a vote on a “take-it-or-leave-it” proposal by Greece’s creditors — the EU, the European Central Bank and the International Monetary Fund.

But in fact this is going to be a referendum about whether Greece remains in the eurozone, the EU or even the west. …

A Yes vote will be a major defeat for Alexis Tsipras, the prime minister. He will have to resign and demand elections or a coalition government. ….

This [Mr Tsipras’ political group] is not a typical leftist party. It is a coalition of radicals, Maoists, former Stalinists and populists.

Their gut feelings are anti-European and anti-western. They feel more at home with their comrades in Caracas than in Brussels. They are thinking and deciding collectively, with a psychology which is a mix of delusion and fanaticism. [Emphasis added.]

Mr Tsipras is himself a product of this environment. He was raised and socialised in a climate of antiquated dogmatism, with no access to the real world.

Aristides Hatzis, “A ‘take-it-or-leave it’ vote is a recipe for disaster for Greece“, Financial Times, 29 June 2015 (metered paywall).

Professor Hatzis (born 1967) teaches law and economics at the University of Athens.

the Greek crisis and the coming referendum

June 30th, 2015

The intelligent, always sensible Martin Wolf sees no way out for Greece – at least no easy way out, given the choices available.

How would I vote in the referendum on the eurozone’s economic programme if I were Greek? The answer, alas, is that I am unsure. ….

In making my decision, I would bemoan both the idiotic leftism of my own government and the self-righteousness of the rest of the eurozone. Nobody comes out of this saga with credit. ….

The Syriza government has failed to put forward a credible programme of reform that might solve the multiple problems of the Greek economy and polity. It has instead made populist gestures. ….

Yet the eurozone, too, deserves substantial blame for the outcome. One would never guess from its rhetoric that Germany was a serial defaulter in the 20th century. Moreover, there is no democracy, including the UK, whose politics would survive such a huge depression unscathed. Remember, when Germany last suffered a depression of this magnitude, Hitler came to power. ….

So I, as a Greek voter, face a choice between the devil and the deep blue sea. The devil is familiar: the never-ending demands of the eurozone for further austerity against which my people voted in the last general election. The deep blue sea is sovereign default and monetary sovereignty. If I am Prime Minister Alexis Tsipras, I think there is a third way — endless bailouts and few conditions. But I am sure he is deluded. So which would I choose? Being cautious I would be tempted to stick with the devil I know. but I might well do better to risk the sea.

Martin Wolf, “The difficult choices facing the Greeks“, Financial Times, 1 July 2015 (metered paywall).

I would risk the deep blue sea, but this is a decision that Greeks themselves have to make. I agree with Martin; Greece realistically must choose between two paths: exit from the euro, or continued austerity.

our relationship with trees

June 29th, 2015

Most often, the best treatment for an infected wild forest is to leave it alone, writes beloved naturalist Richard Mabey.

An insidious anthropomorphism governs our relationships with trees, from beliefs about their conception to judgments on their health. We persist in regarding them as frail humanoids in need of intensive care, not as autonomous organisms. For at least two centuries trees have been rebranded as the products of human enterprise, and their existence predicated on our behaviour as surrogate parents. We must plant, stake, weed them, employ hygienic or cosmetic surgery if they are to survive, and put them out of their misery when they don’t pass our tests of worthiness. What we shut our eyes to is that this pattern of ubiquitous, regimented intervention is part of what makes them susceptible to trouble. ….

A wood without any diseases or parasites would be a lifeless cohort of leafy poles. No leaf-eating insects, therefore no insect-eating birds. No rot-holes for bats and owls. No timber recycled back into the soil. Trees are social organisms. They tend to live with other trees, in a complex network of mutual dependency. They are linked by chains of benign underground fungi that distribute nutrients and information about insect predation, and which one ecologist has nicknamed “the wood-wide web”. If one species of tree succumbs to stresses, other species take its place. In individual trees, reduced vitality prolongs life. What we regard as “diseases” are often just the intricate exchanges and workings of the forest food-chain.

Exotic diseases, to which these exquisite networks are not adapted, are the exception, and there is no conceivable argument against a total ban on imports of tree material from areas where non-native afflictions are rampant. But we should reflect on how the ways we manage trees and woods provides conditions as conducive to epidemics as an overcrowded hospital: battery-grown saplings with minimal genetic variety; dense block planting with single species, often in unsuitable sites; suppression of natural regeneration; ignorance of trees’ natural immune systems and survival mechanisms. At every point we are the cause and aggravator of malignant tree diseases, but it is natural woodland that is likely to be the remedy.

Richard Mabey, “Wildwoods don’t need our help to survive ‘apocalyptic’ diseases“, Financial Times, 27 June 2015 (metered paywall).

UK nature writer Richard Mabey (born 1941) is author of numerous books, including Weeds: In Defense of Nature’s Most Unloved Plants ( Ecco, 2011).

same sex marriage

June 29th, 2015

Gay marriage is now legal throughout the United States, thanks to a Supreme Court ruling. This was welcomed by a majority of Americans, but totally unexpected.

Sometimes change tiptoes up and surprises you. There could be no better illustration of America’s dramatic week than the White House lit up in rainbow colours as the confederate flag was lowered in the south. ….

The most durable changes usually come from below. That is the case with gay marriage. Opponents of last week’s Supreme Court ruling claim it amounted to “legislating from the bench”, much as in 1973 when the court legalised abortion in Roe v Wade. In fact, the Supreme Court was putting its seal on what has been a vertiginous shift in US society. A decade ago, more than two-thirds of Americans opposed same sex marriage. Now roughly 60 per cent support it. Even before last week’s ruling it was legal in 38 states. Only in 2012 did Mr Obama feel bold enough to add his own backing and then only because Joe Biden, the vice-president, let slip his support. Mr Obama has not played a big role in the gay rights revolution. But he has ridden the wave well.

Edward Luce, “Barack Obama’s presidential renaissance“, Financial Times, 29 June 2015.

Obama on history’s long shadow

June 27th, 2015

“In the midst of this terrible tragedy, God has visited grace upon us, because he has allowed us to see where we were blind,” the president said, to a rapturous reception [in Charleston, South Carolina]. “For too long we have been blind to how past injustices continue to shape the present.”

Demetri Sevastopulo and Megan Murphy, “Obama calls for end to blindness about race“, Financial Times, 27 June 2015 (metered paywall).


Thomas Piketty at lunch with the FT

June 26th, 2015

This is one of the best weekly “lunch with the FT” interviews that I have seen. French economist Thomas Piketty (born 1971) has achieved ‘rock-star’ status’ with the success of his 2013 bestseller Capital in the Twenty-First Century, so is a particularly appropriate choice for inclusion in this series.

“Too often, economists build very complex mathematical models to look scientific and impress people. I have nothing against mathematics — I initially trained as a mathematician — but it’s usually to hide a lack of ideas. What pleases me is that this book reaches ‘normal’ people, a rather wide public. My mother is one example,” he says, adding that she rarely reads big academic books yet understood everything in his. ….

Piketty says his interest in inequality crystallised after the collapse of the Berlin Wall and the first Gulf war. He recalls visiting Moscow in 1991 and being struck by “the lines in front of shops”. He came back vaccinated against communism — “I believe in capitalism, private property, the market” — but also with a question central to his work: “How come those people had been so afraid of inequality and capitalism in the 19th and 20th century that they created such a monstrosity? How can we tackle inequality without repeating this disaster?”

The first Gulf war, he believed, demonstrated the cynicism of the west: “We are told constantly that states can’t do anything, that it’s impossible to regulate the Cayman Islands and the other tax havens because they are too powerful, and all of a sudden we send a million soldiers 10,000km from home to allow the emir of Kuwait to keep his oil.”

Anne-Sylvaine Chassany, “Lunch with the FT: Thomas Piketty“, Financial Times, 27 June 2015 (metered paywall).

There is much, much more in the full interview.

Florida in Japan?

June 26th, 2015

Japan’s population is ageing rapidly, and so is the cost of caring for those unable to live independently. This cost is especially high in Tokyo. An influential think-tank has come up with a solution for the problem: move large numbers of Japanese pensioners to smaller cities, where costs of care are lower.

Many people dream of retiring to the countryside but the city of Tokyo has been told to help pensioners on their way by shipping 1m of them to the provinces to avoid a looming “care crisis”.

The controversial proposal from the Japan Policy Council … has prompted a fierce backlash from regions that already resent Tokyo for stealing their young, even without sending them its elderly in exchange. ….

[T]he number of care facilities in Tokyo is half the national average and building more would be difficult and costly ….

The JPC [report] identifies 41 regional cities with ample care facilities, from Asahikawa on the wintry northern island of Hokkaido to the subtropical paradise of Miyako island in the southern seas. ….

Faced with paying to look after Tokyo’s pensioners, Japan’s regional politicians have given the plan a frosty reception. ….

[Tai Takahashi, one of the authors of the report,] says there needs to be a way for Tokyo municipalities — which would save heavily by not having to build care facilities — to compensate cities that take its pensioners.

That would make it an opportunity for regional cities, first to enjoy the spending power of rich retirees, and then to create work taking care of them. “We need a Japanese equivalent of Florida,” says Mr Takahashi.

Robin Harding, “Tokyo told to send 1m elderly to provinces as ‘care crisis’ looms“, Financial Times, 25 June 2015.

The article is informative, but it is not clear to me what “care facilities in Tokyo” equal to “half the national average” means. Is this number of nursing home spots per capita? per pensioner? per pensioner older than age 75? I have submitted my query to the FT as a comment, and will report any response that I receive.

history’s long shadow

June 23rd, 2015

All my life I have believed that history affects social and economic relations in today’s societies. To me, this is self-evident, so does not require extensive research. In conversation with friends, however, I have discovered that this view is not widely shared. One long-time friend went so far as to say that the horrific events that concern me – European treatment of native Americans, enslavement of Africans, etc. – happened long ago. We should, he insists, remember the glories of European colonisation, and forget all that is shameful.

This, I insist, is impossible. The sins of the past affect all of us today. I have been unable, however, to express my views coherently and convincingly. To my delight, Paul Krugman, in a column published in yesterday’s New York Times, has done the job for me. He wrote a column that I wish that I could have authored. Actually, it is better that he authored it, for a similar essay written by me would not have attracted even a small percentage of the audience that Professor Krugman attracts. Here are excerpts from his column. I urge you to click on the link below – which is not gated – and read the full column.

America is a much less racist nation than it used to be …. The raw institutional racism that prevailed before the civil rights movement ended Jim Crow is gone, although subtler discrimination persists. ….

Yet racial hatred is still a potent force in our society, as we’ve just been reminded to our horror. And I’m sorry to say this, but the racial divide is still a defining feature of our political economy, the reason [for] America[‘s] … harsh treatment of the less fortunate and its willingness to tolerate unnecessary suffering among its citizens.

Of course, saying this brings angry denials from many conservatives, so let me try to be cool and careful here, and cite some of the overwhelming evidence for the continuing centrality of race in our national politics. ….

[Krugman summarizes evidence from two academic papers, one by political scientist Larry Bartels and a second by economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote.]

[Further evidence that things have not changed can be seen] by looking at how states are implementing — or refusing to implement — Obamacare.

For those who haven’t been following this issue, in 2012 the Supreme Court gave individual states the option, if they so chose, of blocking the Affordable Care Act’s expansion of Medicaid, a key part of the plan to provide health insurance to lower-income Americans. But why would any state choose to exercise that option? After all, states were being offered a federally-funded program that would provide major benefits to millions of their citizens, pour billions into their economies, and help support their health-care providers. Who would turn down such an offer?

The answer is, 22 states at this point, although some may eventually change their minds. And what do these states have in common? Mainly, a history of slaveholding ….

And it’s not just health reform: a history of slavery is a strong predictor of everything from gun control (or rather its absence), to low minimum wages and hostility to unions, to tax policy.

So will it always be thus? Is America doomed to live forever politically in the shadow of slavery?

I’d like to think not. For one thing, our country is growing more ethnically diverse, and the old black-white polarity is slowly becoming outdated. For another, as I said, we really have become much less racist, and in general a much more tolerant society on many fronts. Over time, we should expect to see the influence of dog-whistle politics decline.

But that hasn’t happened yet. Every once in a while you hear a chorus of voices declaring that race is no longer a problem in America. That’s wishful thinking; we are still haunted by our nation’s original sin.

Paul Krugman, “Slavery’s Long Shadow“, New York Times, 22 June 2015, p. A19.

Englisch Sprache über alles

June 23rd, 2015

Germans have much to contribute to debate on international affairs, yet tragically, writes FT columnist Simon Kuper, almost no-one uses German as a second language. English is very popular as a second language, so a practical solution is to disseminate the ideas of German writers in English translation. “Der Spiegel magazine already does [this]”, writes Mr Kuper, adding “Die Zeit — and every other serious publication from Chile to Japan — should follow suit.”

When I was at school in the 1980s, I had a blinding insight: German was going to oust English as Europe’s dominant language. So I took a university degree in history and German. …. But I bet on the wrong language. Today, German barely exists outside Europe’s 100-million-person Germansphere. It’s almost nobody’s second language. In fact, educated Germans in international settings now often insist on speaking English. ….

[G]lobal debate is conducted overwhelmingly in English, very often on British-owned platforms. …. The BBC and Britain’s Guardian and Mail newspapers run some of the world’s most-visited news sites. The global 1 per cent prefers The Economist. Germany, Russia, China and possibly even the US look on in envy.

Because Germans are seldom heard outside Germany, the German take on events often gets simplified and parodied. ….

The exclusion of Germans deprives us of unique German insights. Take the topic of migration: a sense of responsibility for Nazism makes Germans hesitant to demonise migrants. ….

How to rebalance the global debate towards Germans? The pious response is that anglophones in particular should learn foreign languages. However, that won’t happen ….

Even many Dutch people — whose own language is Germanic — now speak English to Germans. It doesn’t help that German has three genders and four cases.

Germans therefore need to enter the global debate in English.

Simon Kuper, “Why we need German thinking“, Financial Times, 20 June 2015.