Just wanted to link to this post about meeting Radovan Karadzic in prison. The writer comes across as a bit naive — gosh, the ICTY cell block is dingy! Karadzic, a former politician turned New Age guru, comes across as charming and at ease with himself! — but it’s interesting nonetheless.
Key point for me: his claim that Karadzic won’t try to turn his trial into a circus as Seselj and Milosevic did. Color me skeptical on that one. We’ll see soon enough.
“Art has a function of teaching about the human condition. We live in hope, hope is fundamental” – Manoel de Oliveira
Manoel de Oliveira (photo and quote above) is a living example for the Portuguese people of how to force their way out of the low growth/low per capita income trap into which they have steadily stuck their neck. Oliveira celebrated his 100th birthday last December – and how did he celebrate it: by starting work on a new film. Traditional productivity theory suggests most people slow down with age, but Oliveira seems to have done just the opposite – and since 1990, he has made at least one film a year. His secret for longevity, work much and rest little (oh yes, and also remember that living in hope is fundamental, it’s funny, but my father who lived to be 84 and worked to 80 gave me the same sort of message). Indeed far from implementing a 35 hour week he seems to only stop on Saturdays – “This is the only day of the week that I rest,” he told journalists back in December when he interrupted shooting on his latest film to give them a rare press conference. So in a country where the average age of leaving the labour force is currently 63, and where raising employment participation rates is a national priority, what better example of a “local hero” than Manoel. What follows will be an attempt to reveal just what it was he was so meticulously trying to capture with his camera in the photo above. Just call me an inveterate “peeping tom”, lookout Portugal all is now going to be revealed! Continue reading
Paul Krugman had a short post recently drawing attention to a rather foolish and ill-thought-outstatement originating in the mouth of German Finance Minister Peer Steinbrueck.
Germany’s finance minister told AFP in an interview that cutting interest rates too low in an effort to counter the global recession could create what he called a dangerous “growth bubble.†– “On the one hand we need to boost the economy, on the other hand we must make sure that a policy of cheap money does not lead to a new growth bubble founded on credit, as happened after September 11, 2001,” Steinbrueck said.”It is therefore important that the focus, at least in Germany, be on sustainable investments in infrastructure and less on consumer spending financed by debt,”
Apart from the point Krugman wants to implicitly make about interest rates, the point about consumer debt in a current account surplus economy like Germany is extraordinarily misplaced. You have about as much chance of fuelling up a property boom in Germany as you have of setting up a ski slope in hell (that is, there is a “ski slope in hells” chance of getting this outcome – or put another way the likelihood is infinitely small). In Spain on the other hand, even while the possibilities of fuelling a further property boom right now are about as close to zero as you can get, the country’s leaders waste not a moment in trying to convince people to go out, borrow and buy, even though with a 10% current account deficit to correct, and corporate and household debts which run to over 220% of GDP, what they need to do is start saving, and not borrow more. This very ineptness (and basically I would argue lack of understanding of what monetary policy is all about) was also highlighed recently by statements from the European Union’s Economic and Monetary Affairs Commissioner Joaquin Almunia, who said (in an online chat for the Spanish newspaper El Pais) that whille getting financing costs down was necessary and important, interest rates should not be allowed to fall to negative levels in real terms.
“At this moment, it would be good for the cost of financing to go down……..We shouldn’t go back to a situation in which real interest rates are negative, as we know from experience that this leads to excess indebtedness, low perception of risk and new bubbles which always end by blowing up in our faces.”
Essentially two things are being confused here. Negative interest rates (such as those Spain had between 2002 and 2006 – you know, the ones that lead to the current Spanish crisis, see chart below) are highly undesireable during the upswing in a business cycle, when an economy is “overheating”, since you are simply giving more stimulus to economies which are already stretched to capacity – and negative rates may thus produce “bubbles”, as they obviously did in both Ireland and Spain – but these very same negative rates are obviously highly desireable during a downturn, and especially during recessions of the kind we are seeing at the moment, since they are one of the tools policymakers can use to stimulate slumping economies – all basic Econ 101 really. And of course, we are all currently heading into one of the most important recessions since WWII, or hadn’t our “machine-reader” commissioner noticed?
While I’m on this sort of topic, Krugman has a lot of useful and interesting material on the proposed US stimulus plans. The numbers are truly impressive and awe inspiring, with the fiscal deficit set to rise to close to (or even over) 10 per cent of GDP in 2009 according to initial estimates from the Congressional Budget Office.
But even this kind of aggressive fiscal assault may, as Krugman indicates, fall woefully short of what could be needed to stop the US labour market turning really sour, at least in the short term.
The new CBO budget and economic outlook is out. Above is its forecast for the GDP gap — the hole stimulus has to fill. I’d guess that the CBO estimate, which has unemployment averaging 8.3 percent in 2009 and 9 percent in 2010, is actually too optimistic (see 3, below), but even so it puts the Obama plan in perspective: a 3% of GDP plan, with a significant share going to ineffective tax cuts, to fill an 8% or more gap.
A comment which set me thinking about what is actually happening in Spain right now. Unemployment went over the 3 million mark in December, and is now running at something over 13.5% of the economically active population (according to Eurostat estimates). During 2009 this figure is certain to rise further, possibly to 4.5 million, or 20% of the economically active population (my guess, though it is a guess, since there are so many “unknowns” at this point – but we will surely be over the 4 million mark come next December).
Yet Spain’s Labour Minister Celestino Corbacho proudly points to a 10 billion euro public works and infrastructure programme which is intended to create 300,000 jobs during 2009 – 300,000 new jobs in an economy losing jobs at the rate over over a million a year, again is like trying to light a damp match during Noah’s flood. And obviously Spain’s resources are seriously limited in terms of fiscal resources to fight a problem on this scale. My back of the envelope calculations suggest that a capital injection – Japan style – of between 40% and 50% of GDP may be needed to sort out the accumulating pile of non performing corporate loans and grossly over-valued mortgage backed securities. Evidently Spain cannot handle a problem of this magnitude alone. So would those whose monetary policy helped light this bonfire, now like to step forward with the fiscal policy hose to try to help extinguish it? Are you listening Joaquin Almunia?
For some months now there’s a being a bit of amnesia about how we got to this point in the global banking crisis. Does anyone remember 4 months ago when the Swedish model of banking crisis resolution was hotter than the Ikea catalog? Everyone said that they were reading up on the “bad bank” approach in which the government took over the banking system, the dodgy loans therein were dumped into a separate management entity and a slimmed down recapitalized system was returned to the private sector. But a funny thing happened on the way to the 2008 version of that bailout: no one did the bad bank part (to be fair, Belgium and Switzerland have done bits of it on a selective basis).
The fact that Hungary’s National Bank did not decide to make an unexpected interest rate cut at its meeting earlier this week seems to have surprised some, but it really should not have done. According to James Morsink, head of the IMF delegation to Budapest, Hungary only has room to cut its benchmark interest rate at a “gradual and cautious†pace. The reasoning behind this view is simple, any more rapid reduction in the bank’s benchmark rate risks being accompanied by a devaluation of the forint, and and any such devaluation would inevitably lead to a rise in mortgage defaults and problems for the banking system as holders of Swiss Franc forex loans find themselves unable to maintain their payments as unemployment rises and wages and salaries fall.
Thus it is that even though the Hungarian economy is now in its worst recession in over a decade the IMF representative finds the decision to cut the key policy rate for the second time in two weeks just before Christmas (by 50 basis points to 10.00%) “appropriateâ€. Such “snails pace reductions mean that over the last two months the central bank has now clawed-back only half of the 3% hike made back in October, a hike which was rapidly put in place in an attempt to mount a firewall defence around a Hungarian banking system faced with the imminent threat of financial meltdown at the end of October. The problem is, having put the firewall in place it is proving very hard to remove it, and Hungarian monetary is now well and truly trapped between the proverbial rock and a hard place.
The difficulty of this situation is implicitly recognised by András Simor, Governor of Hungary’s central bank, who told Reuters this week that the 10.00% base rate needed to be lowered as fast as possible. Yes, indeed, but how? Continue reading
Yesterday we learnt that German unemployment was, unfortunately, back on the rise, while today we get to see one of the principal reasons for the uptick. German exports fell back at a record rate in November – in fact seasonally and working day adjusted current-price sales exports fell back 10.6 percent from October (when they declined 0.6 percent), according to the latest data from the Federal Statistics Office. This is the biggest monthly drop since records for a reunified Germany began. November exports dropped 12 percent year on year, while imports fell 5.6 percent on the month and 0.9 percent from a year earlier. The trade surplus (which is the key consideration when it comes to GDP growth) narrowed to 9.7 billion euros from 16.4 billion euros in October, and almost half the April rate of 18.8 billion euros. The current account surplus was down to 8.6 billion euros.
And the immediate outlook seems to be even worse, with the latest data from the Technology Ministry showing new orders fell 27.2% (on aggregate) in November (as compared with November 2007) following a 17.5% annual reduction in October, while export orders fell back 30% year on year. Continue reading
Unemployment in Germany rose last month for the first time since February 2006, thus bringing inauspiciously to an end an unprecedented 34 month labour-market recovery. Figures released by the Federal Labour Agency today show that the number of those seeking employment in Germany rose by a seasonally-adjusted 18,000 in December. The change is small, but the significance is great, since this is obviously but the first month of many when unemployment will rise in Germany, and this rising unemployment will now, in its turn, feed back into the industrial slowdown which is already underway. The seasonally adjusted unemployment rate remained unchanged (following data revisions for previous months) at 7.6 percent.
Not a surprise. But not good news.
Spain’s inflation (as measured by the EU HICP methodology) was around 1.5% (year on year) in December 2008, according to the flash estimate issued by the stats office (INE) earlier this week. This number only offers us an initial glimpse of the final HICP reading, but, if confirmed, it will mean Spain’s annual rate of inflation has dropped 0.9% (nearly one full percentage point) in the space 0f just one month – since in November the annual rate was 2.4%.
It will also mean that Spain’s inflation for 2007 dropped its the lowest rate in a decade, down sharply from the 2007 rate of 4.2 percent. This is remarkable since Spanish inflation has generally been over the EU average for more than a decade now, and 1998 was the last year in which prices for goods and services rose as slowly as they did in 2008. And the big question is, just how much more disinflation is there now in the pipeline? Where, indeed, will this process end? Continue reading
The doctrine of double effect has bugged me for some time. It probably doesn’t help that double effect is usually tagged as Catholic, and in that connection we have Blair’s Catholicism … and Iraq … and the self-exculpatory speechifying, and now the middle east peace envoy business. Double effect: it’s all mixed up in there somehow. Obviously I’m not going to like it.
But what’s going on with double effect anyway? Roughly, it’s a doctrine that says we can make a distinction between actual effects on the basis that not all effects were intended, even if all effects were correctly predicted. Hence, someone who in a single act brought about both a good effect and a bad effect may be excused if:
(1) He or she intended the good effect and not the bad effect, and;
(2) The resultant good effect did in some way compensate for the bad effect.
A double effect advocate who wants to finesse things might add that the bad effect mustn’t precede the good effect in a causal chain. There’s potential for fuzziness here, but what makes double effect unattractive isn’t some difficulty with causation. If the doctrine of double effect is going to be your guide in deciding whether or not to do something, you’re first going to have to work out who will judge what, and when. On condition (1) above, seemingly the actor carries a special burden of judgement: he or she must single out and focus on a good effect, so as to intend it. Whatever ‘intending’ involves, surely no one else can do it but the intender. But on condition (2) above, it’s not at all clear how the judgement of the good compensating for the bad is to be made. Is it the actor who gets to make this judgement, or his or her peers? A government agency? A court of law? And when do they get to judge? The doctrine doesn’t give us criteria for deciding this. It’s not interested.
Of course, other people (neighbours, end users, professionals) do tend to take an interest, depending on what’s proposed. To take Chris Bertram’s example from the recent thread about this on Unspeak: let’s say that you, as an adherent of the doctrine of double effect, propose a bridge-building project. You expect some people will die, but to have a connection from here to there will be good, and it’s the connection you intend, so you proceed. Except that you don’t, because most places with governments exercise oversight of anything larger than the construction of a hen house. You say: ten people will (likely) die building my bridge. The government, in response, says: this bridge (a revised design) is better because although there’ll be one successful and two attempted suicides over the next fifty years, no one will die during construction. Build this bridge instead. The burden for deciding (2) has been taken on by the state, on behalf of interested parties. Additionally, even though the burden for acting in accordance with (1) officially remains with the actor, his or her options are more likely than not shaped by the presence of an outside interest. After all, society, insofar as it can be said to want something, wants us to think of good effects, not bad ones. The upshot? An agent who invites the views of others in an effort to satisfy (2) limits the agency implied by (1).
In short, the doctrine of double effect tends to offer itself as a doctrine for moral lone rangers. My personal finding is that in most cases where heavy moving is planned, there’s a happier result when advice of parties with an interest is actually followed. Just ask; it might even be the law. Even if it’s not the law, it’s likely that someone cares. For bridge-building, seek advice from engineers (and the neighbours). For bombing, seek advice from air force generals (and the bombed).
Even though AFOE is not really a business blog, our recent and extensive coverage of the financial crisis seems to have earned us a nomination for Best Business Blog at the 2008 Weblog Awards. If you, like Paul Krugman among others, appreciate the hard work done by our authors, I invite you to cast your vote for us by clicking on the pic or by going here.
You can also cast your vote for a few other great European weblogs, like Kosmopolito and good old Nosemonkey.
PS: A big thank you to the reader(s) who nominated us!