Describing some events in the last months of 1989:
Meanwhile, an unknown KGB agent in Dresden, Vladimir Putin, had tried to pile so many documents into a burning stove that the thing exploded
In Europe, by Geert Mak, p.718
I’m nearing the end of the book, and it’s living up to my initial impression. More, perhaps, when I’m all the way through.
Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources…….
Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.
No, this is not Barack Obama speaking, nor is it (evidently) José Luis Rodriguez Zapatero. It is Franklin Roosevelt (FDR to his friends), speaking in his First Inaugural Address on assuming the Presidency of the United States of America in 1933. Ominous, isn’t it, the resemblence between what he said then and what is being said now? You can read or (better) listen to the speech here.
Of course, with the benefit of hindsight it is easy to pick holes in some of what he did, as Harold L. Cole and Lee E. Ohanian do here.
Ohanian and Cole ask us: “Why wasn’t the Depression followed by a vigorous recovery, like every other cycle”, and I think the answer, as we are seeing to our consternation now, is because the Great Depression was about more than a simple cyclical crisis. It was a complex problem, and required complex and bold responses, just as our present problems do now.
Certainly the details of the New Deal policy may well have been far from perfect, and could well fall short of what we are able to come up with today, but it would be simply ahistorical to judge the efforts of then by gazing through the looking glass of the tools we have to hand now. We will not, or at least we should not, simply repeat previous mistakes, we should not be the prisoners of our own history.
At the same time I cannot help feeling there is more than a spoonful of ideological contorsion in the Cole and Ohanian view (which everyone should read for themselves, since the underlying issues are important), and in particular these seem to come to the fore when they fast forward to our present travails and how to deal with them:
President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries — including autos and steel — are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn’t directly address the specific impediments that our economy faces is unlikely to achieve either the country’s short-term or long-term goals.
Especially the last sentence “a large fiscal stimulus plan that doesn’t directly address…..” would seem to get us to the heart of the matter. Reforms with very specific plans to update banking regulations or which confront an educational system that fails many of its constituents are surely badly needed, but they were as badly needed ten years ago as they are now. Investment in human capital and the stimulation of new technologies will definitely all be needed in any national recovery plans, but all of these will surely only work in the longer term, while what we badly need now are policies which will have immediate effect over the next twelve months. In the short term what we we need are very precise and specific forms of intervention, geered to our short term needs, to getting credit moving, to getting the US and Spain back to work, to restoring confidence among our populations, and to avoid the imminent danger of falling into ongoing price deflation. As I say have been saying in some of the comments sections lately, the most immediate first step in putting out a forest fire is not to start saving up for a new fire engine.
My argument here is addressed not to the United States, but rather towards the imminent danger of economic catastrophe in Spain, and towards those who shoulder some of the responsibility for trying to see that it does not happen. This year we will see between 4.5 and 5 million unemployed in Spain. Next year these numbers could rise to 6, or even 7 million. After two years standard unemployment insurance coverage runs out (in the best of cases) for Spanish workers, and there is no systematic system of social security in place as there is in the UK, France, or Germany. So if the worst gets to the worst, just how will these people live? How will they eat, let alone how will they pay their “oh so precious” mortgages. Here in Spain we need, desperately need, using Roosevelt’s words, political leaders who realise that now is “preeminently the time to speak the truth, the whole truth, frankly and boldly”, and we need them now. Otherwise we in Spain could drift off towards a climate where the only thing which is left is fear, the kind of fear which is itself nameless and unreasoning, an “unjustified terror which paralyzes needed efforts to convert retreat into advance”.
It’s interesting to look back at international financial surveillance in the run-up to the global economic crisis and look at which risks were foreseen and by whom. 2006 is highly relevant, because it was the last full year before the crisis (which blew up in late summer 2007). Below is a couple of paragraphs from the IMF’s surveillance report for the UK in 2006 relating to financial sector supervision. Remember this is the system that was created by, and ultimately overseen by, Gordon Brown.
The slow-motion Privacy Chernobyl at Deutsche Telekom goes on. Handelsblatt reports that investigators in the spying scandal there have discovered a document which proves that the company was spying on the members of its management board (Vorstand), as well as the members of the trade-union works council (Betriebsrat) and the supervisory board (Aufsichtsrat), and a whole gaggle of financial analysts and business and tech journalists.
Hilariously, it turns out that one of the targets of the illegal surveillance was none other than the current finance director; the company has been unconvincingly trying to deny that anyone in the current management was involved. Now it looks like they were involved both as participants and as targets. Surveillance cultures get like that. It was bad enough when they were just doing table joins across Lufthansa and Deutsche Bahn records and every expense account in Germany, but what I find specifically offensive about this story is that one of the human sources the snoopers used was…a journalist.
It will come as no surprise that the stool-pigeon was from the Bild Zeitung; I can’t wait to hear what the BildBlog has to say.
What to do in Afghanistan? It’s essentially impossible that there will ever be enough international troops available to mount a huge counter-insurgency effort to crush the Taliban; renewed big-scale civil war doesn’t bear thinking about. And at the moment, much of the international effort there is counterproductive and fairly immoral. Don’t ask me; ask hugely influential counter-insurgency expert David Kilcullen, who makes the obvious point that air strikes into the Hindu Kush probably aren’t helping win the support of the people.
Surely, what we need is a solution under which a reasonable Afghan government would be left in place, the intrusion of foreign forces, their road convoys, fortified camps, heavy weapons, and inflationary spending removed, and as many pieces of the diverse coalition of forces that make up the Taliban reconciled? Perhaps there is one; but first, it’s necessary to remove some of our preconceptions. Everyone knows about Afghanistan, right? Soviet invasion, daring resistance, Western secret aid, eventual withdrawal in 1989, mujahedin triumph, and then it all goes horribly wrong.
Well, this is actually quite misleading. The war began before the Soviet intervention, and in a sense even earlier, in the form of the bitter internal troubles inside the Afghan communist movement. More importantly, the mujahedin/future civil warriors/further future Taliban didn’t win in 1989. To considerable surprise, they failed to take even one town from the Afghan government until 1992. Many important mujahedin leaders were willing to be reconciled with the government as long as the Red Army was withdrawn and, of course, the government made it worth their while. The ones who fought on only succeeded because all assistance to the Afghan government was cut off at the end of the Soviet Union – which included things like wheat, diesel fuel, cash, and ammunition.
In fact, the withdrawal was about the best idea the Soviets had in Afghanistan. Having decided to go, they pursued a policy of building up the Afghan government, changing the military strategy to one based on defending the bulk of the population (to stop this happening) and leaving the mountain wilds to the enemy, pouring in aid of all kinds, negotiation with those who were willing, and leaving a strong advisory mission in place. Here is a US Army study of the withdrawal (pdf); I should hope we could avoid providing the Afghan police with their own ballistic missiles. Seriously – the Najibullah government insisted on having its own Scuds, and assigned them to a unit of the secret police. They eventually fired over 300 of the things.
But the principles apply quite well. Turn down the intensity of the war. Don’t state an explicit timetable, to retain bargaining power. Pursue population security. Build up Afghan authorities. Deliver aid and a strong advisory mission. Open all-party talks. And start removing foreign combat forces. Interestingly, polls of Afghan public opinion, for what they are worth, seem to suggest this may be a good idea.
According to the US Army study, the continuing assistance to the Afghan government cost the Soviet Union about $3-4bn annually – obviously those are 1989 dollars, but in the light of the huge cost of maintaining manoeuvre brigades in Afghanistan (twice as much as Iraq), that’s got to be better. The Soviet aid airlift consisted of 15 Il-76 aircraft a day; currently about 15 mixed Il-76 and AN-12 head to Afghanistan from the UAE a day from the private sector. You could call it a civilian surge if you like; you could also call it ending the Afghan war, if you’re a German Christian Democrat. Certainly, you’d have to involve Iran from the word go – after all, they have the only railhead near Afghanistan and plan to build the railway on into the country. It could be the shortest way from Europe.
It’s got to beat more wedding parties, with the twist that the Russians get to play politics with every transit shipment. Speaking of Russians, however, the man we want to hear from is Makhmut Gareev, who led the Soviet advisors after 1989. Call it the European option.
This is the 3003rd post at A Fistful of Euros. An odd number for an observance, but things are coming fast and furious these days, and I just missed MMM.
That is all.
Spain, Europe’s fifth-biggest economy, entered recession in the fourth quarter for the first time in 15 years official data from the National Statistics Office showed this week. Gross domestic product contracted by 1.0 percent during the last three months of 2008 over the level of the previous quarter and was down by 0.7 percent from the fourth quarter 12 months earlier. The statistics office also reported that the economy shrank by a revised 0.3 percent in the third quarter from the previous quarter. Really there is nothing especially new here when compared with the earlier Bank of Spain report.
Some Views
Morgan Stanley forecasts that the “sizeable” infrastructure spending announced by the government will become noticeable only at the end of 2009 with a “muted recovery” likely the following year.
Capital Economics is a bit more pessimistic. It predicts that it might not be until 2011 before the Spanish economy stages any meaningful recovery.
And Edward Hugh (that’s me) predicts that there is no recovery in sight, only a very painful correction in the current account deficit and downsizing on the construction sector as prices fall some 20% or so relative to the eurozone average, so that exports can take over as the growth driver (deleveraging and recovery in household balance sheets to be the tonic regulating internal demand from now to 2015). 2011 will be the hardest year as it becomes increasingly difficult for the government to borrow money externally and the deficit has to be capped, while a second credit crunch will take hold internally, as the walking dead builders and property developers finally find it impossible to keep rolling over their non-performing loans.
And if you think I am being to strong, just remember, apart from pumping in money to keep the property sector alive till 2011, no one (neither the PP nor the PSOE) is planning to embark on anything in the way of deep structural reform to transform the economy if the responses to Bank of Spain Governor Miguel Fernandez Ordoñez’s proposals (earlier this week) are anything to go by. Not even worth talking about, just no, no and no! So I guess we all now know what to expect.
Hungary’s gross domestic product fell by 2.1% year on year in the fourth quarter of 2008 following a 0.7% increase in Q3, according to the first estimate by the Central Statistics Office (KSH). Quarter on quarter GDP fell by 1.0% GDP, even more sharply than the 0.5% (revised) contraction in the third quarter. The Hungarian economy has now registered quarterly contractions four times in the past eight quarters. And the worst is yet to come. According to most economists’ estimates, GDP could contract by anything between 3% and 5% in 2009.
Former PM of Estonia Mart Laar has an interesting opinion piece in the Wall Street Journal today; incidentally his bio notes that besides his stints as PM, he was (is?) an economics advisor to the government of Georgia. Anyway, being an opinion piece, he’s pushing his view that bad government policy decisions have played an underestimated role in the economic crisis, and in an age when we’ve seen private sector leaders shown the door far more quickly than top government officials, he has a point. But his view of what constitutes good government policy seems to be amount to whether or not the country had a flat tax. So for instance, he gives his homeland a relatively good grade for its economic condition, compared to Latvia, but then we get the news from Edward today that Estonia turned in the 2nd worst EU growth performance in Q4 last year.  But glaring in its absence from his list of European liberalisers is Ireland, and there’s a reason for that.
Italian fourth-quarter gross domestic product declined at the fastest quarterly rate in nearly 30 years, sending Europe’s fourth-largest economy off into an even deeper recession. According to ISTAT preliminary estimates, Italian GDP fell 1.8% between Q3 and Q4 in seasonally and working day adjusted terms. If confirmed, this quarterly decline would be the sharpest recorded since 1980. GDP fell in the previous quarter by 0.6%. Year on year, overall output in the Italian economy dropped by 2.6% in Q4, down from both the 1.7% contraction expected and Q3’s annualized fall of 1.1%.
Across 2008 as a whole, the Italian economy fell 0.9%, ISTAT said, the most pronounced decline recorded since 1993.The Italian economy officially fell into recession in the third quarter of 2008. And one more interesting detail, Italian GDP is now back at the same level it was in Q4 2005, and falling. This is pretty worrying, and even more so given there are quite a lot more people in Italy then there were in 2005.
