A letter to Paul Krugman

Reinhart, Rogoff Strike Back At "Hyperbolic" Krugman

Dear Paul

Back in the late 1980s, you helped shape the concept of an emerging market debt overhang.  The financial crisis has laid bare the fact that the dividing line between emerging markets and advanced countries is not as crisp as once thought.  Indeed, this is a recurring theme of our 2009 book, This Time is Different:  Eight Centuries of Financial Folly.  Today, the growth bind of advanced countries in the periphery of the eurozone has a great deal in common with that of emerging market economies of the 1980s.

We admire your past scholarly work, which influences us to this day.  So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks.  You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts.  Now you have doubled down in the New York Review of Books, adding the accusation we didn't share our data.  Your characterization of our work and of our policy impact is selective and shallow.  It is deeply misleading about where we stand on the issues.  And we would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply.

You particularly take aim at our 2010 paper on the long-term secular association between high debt and slow growth. That you disagree with our interpretation of the results is your prerogative.  Your thoroughly ignoring the subsequent literature, however, including the International Monetary Fund's work as well as our own deeper and more complete 2012 paper with Vincent Reinhart, is troubling.   Perhaps, acknowledging the updated literature-not to mention decades of theoretical, empirical, and historical contributions on drawbacks to high debt-would inconveniently undermine your attempt to make us a scapegoat for austerity.  You write 
"Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics."

Setting aside this wild hyperbole, you never seem to mention our other line of work that has surely been far more influential when it comes to responding to the financial crisis.  Specifically, our 2009 book (released before our growth and debt work) showed that recoveries from deep systemic financial crises are long, slow and painful.  This was not the common wisdom at all before us, as you yourself have acknowledged  on more than one occasion.  Over the course of the crisis, and certainly by 2010, policymakers around the world were using our research, alongside their assessments, to help justify sustained macroeconomic easing of both monetary and fiscal policy fronts. 

We have to talk about the bystanders

We must discuss the chilling fact that people casually watched and photographed the aftermath of a brutal murder

by Brendan O’Neill 

In the miles of commentary about last week’s horrific stabbing to death of a soldier in Woolwich, few have commented on one of the most chilling sights of that bloody day: the audience of 60 to 70 bystanders, voyeurs even, who watched or filmed the attack or its aftermath. There has been much discussion of the three women who did, very bravely and at great personal risk, intervene in events to try to calm the knifemen down. But far less is being said about the others, the impromptu photographers and tweeters, whose instinct seemed to be to record and comment on what they were seeing, rather than try to do something about it.

No doubt part of the reason we’re uncomfortable with commenting on the almost nonchalant manner in which people raised their phones to film what they were witnessing is because none of us knows how we would have reacted if we’d been there. Would we also have watched? Or would some of us have been brave enough to remonstrate with the knifemen, perhaps even charge them with makeshift weaponry: a bin, a piece of masonry, a knife from a nearby cafe? We don’t know. We like to think we’d have done something heroic, but all sorts of strange emotions and considerations can kick in in the heat of a terrible moment.

However, there’s no denying that there was something deeply troubling about the way a large group of inactive voyeurs observed the attack or its immediate aftermath. While some of the people caught up in this chaotic act will have been understandably confused or scared, it simply can’t be the case that the reason the crowd stood watching is because they were frozen with fear or shock. After all, some provided a live commentary on the bloody events via their Twitterfeeds, the most famous (or infamous) tweet being: ‘I just see a man with his head chopped off in front of my eyes!’ The fact is that a fairly substantial group of people watched a very unusual and very violent event as if they were watching a cricket match. And that is worrying; it matters and should be talked about.

Some have noted and tried to explain the strange voyeurism in Woolwich. The best known of the three heroic women – French-born former teacher Ingrid Loyau-Kennett – has expressed shock that during the eight minutes she was talking to the killers, a large crowd formed, and none of them did anything. She says she is disturbed that lots of people seemed only to want ‘to watch and record the unhappiness of others… watching like it’s on TV’. She thinks this reflects a lack of caring, a dearth of social bonding in modern society. ‘I prefer the values of the past [over] the non-values of today’, she says, ‘where most people don’t seem to give a damn about others’.

The real roots of homegrown terrorism

Blaming shadowy Islamist groomers for ‘radicalising’ young Muslims ignores problems closer to home

by Frank Furedi 

In recent years, the process through which individuals come to embrace violent terrorism has increasingly been understood in terms of the idea of radicalisation. Last week’s brutal knife attack in Woolwich is no exception, with many claiming that the two attackers, Michael Adebowale and Michael Adebolajo, were radicalised Islamic militants. And now UK home secretary Theresa May has warned that thousands more young people are at risk of a similar radicalisation.

The idea of radicalisation, in this telling, resembles an infectious pathogen that can mysteriously infect a multitude of angry young people. The antidote to the radicalisation disease therefore seems obvious: block extremist messages on the internet, regulate the media and ban radical groups from expressing their views.

A new type of ideological threat

Official anxiety about the spectre of radicalisation represents a radical departure from the way in which terrorism was conceptualised in the past. Until recently, terrorism was represented as a form of politically motivated violence, whose sole purpose was to foment fear in the target society. Today, terrorism is no longer understood as merely a physical threat, a capacity to wreak mass destruction. It is also endowed with moral and ideological power over significant sections of the domestic population. As the response to the Woolwich killing shows, terrorism can apparently incite others to copycat behaviour. In short, terrorism can radicalise people.

The idea that modern terrorists exercise a great influence over the minds of sections of the public, invests the terrorist threat with an unprecedented power. Sir David Omand, the former UK security and intelligence coordinator, went so far as to claim that ‘the most effective weapon of the contemporary terrorist is their ideology’ (1). The notion of the terrorist as a purveyor of ideas marks a shift from previous conceptions of terrorism. Indeed, the idea that the terrorist does not just scare people but potentially appeals to their hearts and minds is completely at odds with traditional definitions of the terrorist threat. It is only recently that terrorism has been conceptualised as an effective vehicle for ideas.

This is why, increasingly, the battle for moral authority has become an important part of the war against terrorism. Yet it is difficult to avoid the conclusion that the political and cultural elites of Western societies feel less than confident about conducting a successful campaign on the battlefield of ideas. Their apprehension about the powerful attraction of radical ideas on sections of the domestic population often betrays a deeper problem: namely, that they cannot convince others of the superiority of their own way of life.

A “New Deal” for Europe’s youth?

Awesome

BY ERIKA JOHNSEN

The youth unemployment situation across much of Europe is bleak, to say the least; young people in Greece are unemployed at a rate that just shot past 60 percent, while more than half of Spain’s young people are jobless and more than 40 percent are jobless in both Ireland and Portugal. These kinds of numbers mean that young people are being increasingly thwarted in trying to start their careers and develop the skills they’ll need to survive and thrive for the rest of their lives, which in turn stunts the European economies’ prospects for getting back to a healthy long-term outlook. It’s quickly turning into a vicious and self-perpetuating cycle, and the problem has not gone unnoticed by Europe’s oh-so-august financial ministers — who have lately been cooking up a plan to try and get young people back in the game.

The “New Deal for Europe” will free up EU resources to pay for language courses and fund jobseekers’ flights around the continent in search of work. …

Carsten Brzeski, senior economist at ING Group in Brussels, said: “Merkel and Schaeuble know very well that the future of the euro is not just decided in Brussels or Berlin, but on the streets of Madrid, Athens and so on.”

“High youth unemployment combined with hatred for Germany can turn into populism and nationalism quite quickly and, in the extreme case, lead to an end of the currency union.”

Under the plans, finance from the European Investment Bank will be made available to encourage job creation at small and medium sized businesses. …

Said German Chancellor Merkel on the matter:

Brave New World

Once you sacrifice the first innocent man then the rest are an inevitable consequence

By Richard Fernandez 

A survey in Australia ^[1] found that “close to 50 per cent across all age groups disagreed with the statement that marriage is an outdated institution.” What is remarkable is that anyone should think it would be. For much of human history, individuals relied on themselves, pairings, families, extended kin (or tribes) and the broader cultural and linguistic context of the nation to provide them with stability and safety. Families of some sort have formed the basis of social organization from the beginning of the species. And so too did Home; the hearth at which could be found the “ashes of their fathers and temples of their gods”. Only in the last hundred years has dependence consciously been shifted to the institutional state.

But the institutional state is now bankrupt. It is bust. Living on borrowed money, unable to sustain itself with shrunken birth rates. As a result, whole populations are finding the “safety nets” on which they counted on shot through. Ripped to uselessness even while the institutions which used to shelter humankind for eons are no longer in evidence. The Japanese have coined the term parasaito shinguru ^[2](“parasite single”) to denote a person who has made no family plans of his own, confident in the belief that the state would support him in his old age.

They fought arithmetic at the behest of the welfare state, and arithmetic won.

The result over time in Japan has been a “super-aging” ^[3] society unprecedented in history. “By 2030, one in every three people will be 65+ years and one in five people 75+ years.”  And the economic implications of that collapse mean that the “universal coverage in public pension and health insurance [achieved] in 1961″ will be without any means of support.  Japan has been living on deficit spending for decades. Today it spends 25% of its state budget on meeting interest payments on bonds alone. And now for the first time the interest on those bonds is rising. The game is up, or nearly so.

A Deadlier Disaster for the Third World: Unemployment

Economic freedom is the road that the wealth of nations travels

by George Reisman

The recent collapse of a garment factory building in Bangladesh, resulting in the death, at latest count, of more than 1,100 workers who were employed there, has led to international outrage not only against the building’s owner but also against the various retailers in the United States and Europe, many of them prominent, that have sold clothing produced in that building. It is demanded that they assume responsibility for working conditions in the factories that supply them and not deal with factories that do not provide safe and humane conditions and pay fair wages.

Such demands rest on the belief that, if left free of government interference, the profit motive of businessmen or capitalists leads them to pay subsistence wages to workers compelled to work intolerable hours in sub-human conditions. And, more, that the profits wrung from the workers in this way exist in the hands of the capitalists as a kind of disposable slush fund as it were, at least some more or less substantial portion of which can be given back to the workers from whom they were taken, or used on behalf of those workers, with no negative effect except to deprive the capitalists of some of their ill-gotten gains. It is generally taken for granted that the reason the kind of conditions that prevail in Bangladesh and the rest of the Third World do not exist in the United States and Western Europe is the enactment of labor and social legislation, and that what is needed is to extend such legislation to the countries that do not yet have it.

Every aspect of this set of beliefs is wrong and its consequences are highly destructive, above all to the masses of workers in the Third World who already live close to starvation and who are in danger of being driven into it by needlessly increasing the cost of employing them either by arbitrarily raising their wages or by requiring that they be provided with improved working conditions that must be at their expense and which they cannot afford.

America Is Turning Into ‘Blade Runner With Food Stamps’

It doesn’t have to be that way

By James Pethokoukis

Walter Russell Mead outlines two possible futures for middle-class Americans: one where most of us lose “the race against the machine,”the other where smart government policies enable an eventual successful transition to an economy where IT and robots do a shockingly large percentage of the jobs humans do today — but the carbon-based life forms still have plenty of meaningful work to do.

Mead calls that first scenario, “Blade-runner with food stamps.” Mead:

It’s likely that an information age welfare state would consist of two components: straight out welfare and “social inclusion” payments for some, subsidized make-work jobs (like Postal Service employment in an age of email) for others. …

If the information economy works like this, the whole country would start looking more like California and New York City: unbridgeable class divides, huge inequality, fountains of innovation, and tiny islands of great wealth and privilege surrounded by proles on the dole. Inside the glittering bubble, the digirati and their courtiers would live lives of intense purpose and excitement.

Outside the bubble, meaning would be the good in scarcest supply. . … Bellies will be full, but lives will be empty, and with that emptiness will come ills of every kind: addiction, brutality, ugly, and stunted sexual and emotional lives for many, neglect of the young and the old.

But it doesn’t have to be that way, Mead writes. We can have a future of rising wages, plentiful middle-class jobs in the IT age. His suggestions:

1. “First, make hiring easy and cheap.” Get rid of employer-based social insurance and pension programs. Let government pay for the employer’s share of social insurance out of general tax revenues.

2. “Put the service economy and especially small business and entrepreneurship front and center.”  Barriers to entry must fall. Regulation that make it difficult to start a business or enter a profession must be reformed.  ”Zoning and housing policy should look for ways to encourage homes to be used as workplaces as well as living spaces.”

Lenin was right

And now the WWI Allied role in the Middle East is unraveling

by Patrick J. Buchanan

The thrice-promised land it has been called.

It is that land north of Mecca and Medina and south of Anatolia, between the Mediterranean Sea and the Persian Gulf.

In 1915 – that year of Gallipoli, which forced the resignation of First Lord of the Admiralty Winston Churchill – Britain, to win Arab support for its war against the Ottoman Turks, committed, in the McMahon Agreement, to the independence of these lands under Arab rule.

It was for this that Lawrence of Arabia and the Arabs fought.

In November 1917, however, one month before Gen. Allenby led his army into Jerusalem, Lord Balfour, in a letter to Baron Rothschild, declared that His Majesty's government now looked with favor upon the creation on these same lands of a national homeland for the Jewish people.

Between these clashing commitments there had been struck in 1916 a secret deal between Britain's Mark Sykes and France's Francois Georges-Picot. With the silent approval of czarist Russia, which had been promised Istanbul, these lands were subdivided and placed under British and French rule.

France got Syria and Lebanon. Britain took Transjordan, Palestine and Iraq, and carved out Kuwait.

Vladimir Lenin discovered the Sykes-Picot treaty in the czar's archives and published it, so the world might see what the Great War was truly all about. Sykes-Picot proved impossible to reconcile with Woodrow Wilson's declaration that he and the allies – the British, French, Italian, Russian and Japanese empires – were all fighting "to make the world safe for democracy."

Imperial hypocrisy stood naked and exposed.

Wilson's idealistic Fourteen Points, announced early in 1918, were crafted to recapture the moral high ground. Yet it was out of the implementation of Sykes-Picot that so much Arab hostility and hatred would come – and from which today's Middle East emerged.

Nine decades on, the Sykes-Picot map of the Middle East seems about to undergo revision, and a new map, its borders drawn in blood, emerge, along the lines of what H.G. Wells called the "natural borders" of mankind.

My Father and Berlin

There are dreams that after so much time are not worth ruining

By Yoani Sánchez

The rumble of a train comes through the window. In Berlin there is always the sound of a train somewhere. I look out and see a very different reality from what my father saw in 1984 when he first came to this city. A train engineer, he had won — based on volunteer hours and a great deal of work — a trip to the future. Yes, because in that era the GDR was the horizon many Cubans aspired to visit someday. So, this man of locomotives and greasy hands was also given a bonus to buy some clothes before he left for Europe. He chose a jacket and pants combo, along with an immense suitcase in which my sister and I played at hiding ourselves. He arrived in East Germany in the middle of winter and stayed only two weeks on a guided tour, whose main purpose was to demonstrate to the lucky travelers the advantages of that model. And my father came back convinced.

At the airport on his return he arrived smiling from ear to ear and with a bag in hand. Inside was a pair of shoes for each of his daughters, which turned out to be the greatest achievement of the trip. That and the memories. For decades he has been telling us about his stay in the GDR. Adding details each time, until it has become almost a family legend that we listen to when we gather for any commemoration. In the light of today the wonder of that engineer is captured in the fact that in Berlin he was able to sit in a café and ask for something to drink without having to stand in a long line, that he had bought some small gifts for his kids without showing a ration book, and that he had taken a shower in hot water at the hotel where he stayed. I was surprised at every little thing.

Now I am the one in Berlin. Thinking that my father would not recognize this city, that he would not be able to reconcile it with that other one that he visited in a year as Orwellian as its date indicated. Of the wall that divided it in two all that is left is a museum piece painted by various artists; the hotel where he stayed was probably demolished, and the name of the woman who translated for him, and watched him — so that he wouldn’t escape to the West — is not in the phone book. The suitcase also no longer exists, the shoes lasted us just a single school year and the reddish tinted photos that he took in Alexanderplatz have been handled so much you can’t see them. However, I’m sure that when I return my father will try to explain Berlin to me, to tell me how he entered a bakery and was able to eat a turnover without presenting a ration card. I will laugh and tell him he’s right, there are dreams that after so much time are not worth ruining. 

Assad talks, Russia walks

The EU oil-for-al-Qaeda scheme

By Pepe Escobar 

So Bashar al-Assad has spoken - exclusively, to Argentine daily El Clarin (there's a huge Syrian diaspora in Argentina, as well as in neighboring Brazil).

Cutting through the fog of Western hysteria, he made some valuable points. The record shows that, yes, the regime has agreed several times to talk to the opposition; but myriad "rebel" groups with no credible, unified leadership have always refuted. So there's no way a ceasefire, eventually agreed on a summit - such as the upcoming US/Russia Geneva conference - can be implemented. Assad makes some sense when he says, "We can't discuss a timetable with a party if we don't know who they are." 

Well, by now everyone following the Syrian tragedy knows who most of them are. One knows that the Un-Free Syrian Cannibals, sorry, Army (FSA) is a ragged collection of warlords, gangsters and opportunists of every possible brand, intersecting with hardcore jihadis of the Jabhat al-Nusra kind (but also other al-Qaeda-linked or inspired outfits). 

It took Reuters months to finally admit that jihadis are running the show on the ground. [1] A "rebel" commander even complained to Reuters, "Nusra is now two Nusras. One that is pursuing al Qaeda's agenda of a greater Islamic nation, and another that is Syrian with a national agenda to help us fight Assad." What he didn't say is that the real effective outfit is al-Qaeda-linked. 

Syria is now Militia Hell; much like Iraq in the mid-2000s, much like the Western-imposed, "liberated" Libyan failed state. This Afghanization/Somalization is a direct consequence of NATO-GCC-Israel axis interference. [2] So Assad is also right when he says the West is adding fuel to the fire, and is only interested in regime change, whatever the cost. 

What Assad didn't say 

Assad is not exactly a brilliant politician - so he wasted a golden opportunity to explain to Western public opinion, even briefly, why GCC petro-monarchies Saudi Arabia and Qatar, plus Turkey, have the hots for setting Syria on fire. He could have talked about Qatar wanting to hand over Syria to the Muslim Brotherhood, and Saudi Arabia dreaming of a crypto-emirate colony. He could have talked about them both being terrified of Shi'ites in the Persian Gulf harboring legitimate Arab Spring ideals.

Learning From Mistakes

On being painfully wrong

by James E. Miller

The old idiom “you can lead a horse to water, but not make him drink” has proven itself true in the course of human learning. Or rather, it would be more accurate to label it man’s inability to learn from mistakes. You can hold a mirror up to grotesque instances of hypocrisy, but most men will remain mules – stubborn in their prejudice and beliefs. The ability to heed lessons from blunders is, often times, a skill unable to be mastered by the mass populace. A child might learn to not touch a searingly hot stove, but adults are apt to accept their condition of intellectual stupor – even when it proves painful.

It’s said the market process accounts for mistakes through the imposition of cost. This is true inasmuch as hemorrhaging income will inevitably result in bankruptcy. The problem is, man was not gifted with the same incentive to disregard plainly untrue, and even destructive, ideas. Like an abusive lover or a fond memory, the draw of allurement can be too intoxicating to let go. The innate learning process becomes corrupted in favor of emotional succor that accompanies comforting beliefs.

Take frail womanizer and disgraced Congressman Anthony Weiner. His announcement to seek the Mayor’s office in New York City brought about plenty of jokes at the expense of his anatomy-sounding name. Rumours have swirled about his possible run for months. At first, they were dismissed due to the sexual exploits that forced him from office. Now he is pulling an about face à la Bill Clinton and attempting to lift his public perception back from the toilet. Seeing as how Weiner’s wife (that just rolls off the tongue, doesn’t it?) is a former aide to Hillary “no shame” Clinton, the crushing ignominy of her husband’s pathetic attempt to woo over girls will be suppressed. There is little doubt Weiner will be crowned king of the Big Apple considering the city’s affinity for sleazebag politicians. After the Stalin-esque reign of tyrant Bloomberg, a philanderer who never made a dime in honest cash will seem like the second coming. The lies, theft, and heap of unscrupulous behavior that defines the state will continue under Weiner’s watch. Except this time, New Yorkers will feel warm and fuzzy over giving someone a second chance; even as Weiner deserves as much forgiveness as former Governor and escort-lover Eliot Spitzer. Which means the charade of being a reformed “family man” will go uncontested.

Weiner’s second coming (it is impossible to reference the guy without inadvertently writing a mind-gutter pun), touched by cognitive amnesia as it is, is mild relative to fellow political events.

In the sociopath abode known as Congress, the gears of war are slowly turning for military intervention in Syria. The usual cabal of blood-dining war worshippers is sniffing out their next feast, all the while pressuring President Obama into interposing democracy in heart of the Middle East with the barrel of an M16. The Senate Foreign Relations Committee, in a 15-3 vote, passed a bill that would arm rebels who are fighting to overthrow Bashar al-Assad. The alliance of Syrian dissidents with radical Islamic elements, including Al-Qaeda and Jabhat al-Nusra, does not weigh on the brains of elected imperialists. Supremacy is their target and whatever crazed, lunatic faction wishes to assist is given support.

'Austerity' To Blame?

But Where's The Austerity?

By Paul Roderick Gregory

Die-hard Keynesians bemoan that, with a few exceptions, the world’s economies are drowning in the quicksand of austerity. They preach we need more government spending and stimulus, not less. Northern Europe should bail out its less-fortunate neighbors to the South so they can pay their teachers, public employees and continue generous transfers to the poor and unemployed. If not, Europe’s South will remain mired in recession. In America, Keynesians entreat the skinflint Republicans to loosen the purse strings so we can escape sub par growth. They advise Japan to spend itself out of permanent stagnation and welcome recent steps in this direction.

The stimulationists complain that they have been overwhelmed by the defeatist austerity crowd, lead by the un-neighborly Germans and the obstructionist Republicans.  If only Germany would shift its economy into high gear while transferring its tax revenues to ailing Southern Europe, and the rascally Republicans drop the sequester cuts, we would be sailing along to a healthy worldwide recovery. We don’t need spending restraint. Instead, we need stimulus, stimulus, and more stimulus to revive economic growth. We’ll deal with the growing deficits later, the stimulation crowd tells us, but we must first get our economies growing again.

The Keynesian stimulus crowd blames austerity for the world’s economic woes without bothering to examine facts. I advise them first to consult my colleague at the German Institute for Economic Research (Georg Erber, I See Austerity Everywhere But in the Statistics), who, unlike them,  has actually taken the time to examine the European Union’s statistics as compiled by its statistical agency, Eurostat.

The official Keynesian story is that the PIIGS of Europe (Portugal, Italy, Ireland, Greece and Spain) have been devastated by cutbacks in public spending. Austerity has made things worse rather than better – clear proof that Keynesian stimulus is the answer. Keynesians claim the lack of stimulus (of course paid for by someone else) has spawned costly recessions which threaten to spread.  In other words, watch out Germany and Scandinavia: If you don’t pony up, you’ll be next.

Erber finds fault with this Keynesian narrative. The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion – a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show.

Then in 2008, the financial crisis hit. No one wanted to lend to the insolvent PIIGS, and, according to the Keynesian narrative, the PIIGS were forced into extreme austerity by their miserly neighbors to the north. Instead of the stimulus they desperately needed, the PIIGS economies were wrecked by austerity.

Not so according to the official European statistics. Between the onset of the crisis in 2008 and 2011, PIIGS government spending increased by six percent from an already high plateau.  Eurostat’s projections (which make the unlikely assumption that the PIIGS will honor the fiscal discipline promised their creditors) still show the PIIGS spending more in 2014 than at the end of their spending binge in 2008.

What All Classical Economic Thinkers Can Agree About

A gold standard monetary system and stable-value monetary policy

By Nathan Lewis

There are a lot of Classical-flavored economists in the U.S., and they all have their quirks. However, they can all agree on a few things.

First: that a Classical stable-value monetary policy is superior to a Mercantilist funny-money policy.

Second: that the best practical, real-life way of achieving the Classical goal of stable money (which is really an extension of standardized weights and measures) is a gold standard system.

You can actually devise a lot of different kinds of gold standard systems. But, one thing that I think virtually all the serious Classical thinkers agree on today is that the pre-1913 world gold standard system worked exceptionally well. I call it the Most Perfect Monetary System the World Has Ever Seen. Some contemporary variant of that would also work – very well, in fact.

In the pre-1913 period, every country had its own sort of gold standard system. Probably no two were exactly alike. But, they shared certain characteristics.

First: they were gold standard systems. This means that the policy goal was to maintain the value of the currency at a specified gold parity. In the U.S., the parity was $20.67 per ounce of gold. In other words, the value of the dollar was to be managed such that it was exactly equivalent to 1/20.67 of an ounce of gold, or 23.2 troy grains.

In Britain, the parity was three pounds, seventeen shillings and ten pence per ounce of gold.

Second: there was a fully-functional operating mechanism designed to achieve this policy goal. This involved managing the monetary base, on a daily basis. When the supply of currency was in excess of demand, causing the value of the currency to sag beneath its gold parity value, the base money supply would be contracted in some way. When the supply of currency was in relative shortage, compared to demand, causing the value of the currency to rise above its parity value, the base money supply of currency would be expanded in some way.

There were a great many methods in use for expanding or contracting the base money supply. These included: transactions in gold bullion (known as “redemption” and “monetization”), transactions in government debt, corporate debt, or debt in foreign gold-based currencies; transactions in foreign currencies directly; changes in the quantity of direct lending; allowing base money supply to contract as a result of interest payments on assets; and allowing base money supply to contract as a result of the maturation of either bond holdings or direct lending.

I know this sounds complicated. But, these were all ways of achieving the same goal — to adjust the supply of base money, as a way to keep the value of the currency at its gold parity.

The great classical economists, such as David Ricardo and John Stuart Mill, understood that it was not strictly necessary to have gold bullion redemption (or “convertibility”) to manage a gold standard system. However, it was a political necessity: without this element, currency managers would soon start to play games with the currency, and the gold standard system would be abandoned.

Darkness envelops Pakistan

Our Man in Islamabad

By Mahboob A Khawaja

Contemporary Pakistani is divided. Its leaderless population is being exploited by neo-colonial feudal lords looting the people of their socio-economic, moral and political values. 

This year's elections didn't change a status-quo symbolized by foreign-dictated governance. Nawaz Sharif is the replacement to Asif Ali Zardari, but Sharif was an integral part of Zardari's regime. 

The nation will pay with torment and suffer the insane rages of egomaniac rulers - the political gangsters that show the "right man" syndrome in its most naked form. 

In my book Pakistan: Enigma of Change, in the late 1990s, I envisaged a new beginning led by educated and intelligent leaders from a new generation. Change can only come through men of new ideas, a new visionary leadership of integrity and a public movement for change. 

For almost two decades, Pakistan's capacity for change has been badly fractured as its moral, intellectual and political consciousness were derailed and undermined by the few. 

For several decades, military coups and interventions have eroded the moral and intellectual thread of society. Pakistan and its people are the victim of this prolonged, cruel and unending tragedy. 

The generals and their accomplices, the so-called feudal politicians live in different worlds - not able to see the urgency for change. 

The global community views them with mistrust and discord, not viable entities of the international system. The irrational system of governance propelled by the few does not offer any rational context to political change and reformation unless there is another bloody outburst challenging the insanity with more vigorous form of tragic insanity.

Nobody thinks of Pakistan, its national interests or the interests of the people. More than 40 years have been stolen from the precious lifeline of the nation of Muslim Pakistan; yet, nobody was ever charged with a crime nor punished for their treachery and monstrous actions against the freedom and integrity of the country. 

East Pakistan now Bangladesh, was lost and surrendered to India because of the plan by the then military-political rulers of the nation in 1971. But since the military took over the reins, unthinking people will come to occupy the highest offices. 

Power politics in Pakistan have become an outcome of institutionalized corruption, conspiracies, killings, and treachery to the national interests. The generals, politicians and assemblies are all the outcome of this flourishing industry. 

An Irish Tale of Austerity

A crisis of a corporatist polity than of a laissez-faire one

by Theodore Dalrymple    

Thanks to the vast increase in human productivity over the last few decades economic crises are less easy to discern than they once were. Spain, for example, has rates of unemployment that equal or exceed those of the great Depression in the United States, yet there are none of the distressing scenes, at least so far, which the photographers caught for all time.

It is all too easy to be deceived, however. I have just come back from Madrid and Dublin (I am soon to leave for Lisbon) of which my view is essentially that of a visiting official delegation, driven from the airport to the center of the city and back again, having spent the intervening interval in the pleasant company of prosperous and cultivated people. And the fact is that anyone driving from Barajas Airport to the centre of Madrid would conclude that it was a much richer and better kept city than New York, Paris or London. Such signs of the downturn as I saw in Dublin were subtle and comparative. Going twice to the theatre, for example, I noticed that a third of the seats were not taken, which would certainly not have been the case at the height of the boom when I would have been lucky to get seats at all. (One of the plays was Mrs Warren’s Profession, by Bernard Shaw. What a frightful old windbag he was! That the crisis prevented some hundreds of people from being exposed to his theatrical rodomontade demonstrates that there really is a silver lining to every cloud.)

Other signs of the crisis were a few closed restaurants and the increasing neglect of a few of the magnificent Georgian terraced buildings of Merrion Square, now predominantly in use as commercial rather than residential properties: but since I recall quite vividly Dublin of the late 1960s, when I first visited it, these little signs of decline, decay and dilapidation did not impress me greatly. In those days, Dublin resembled a dark and dismal city almost of ruins, inhabited by people with little recollection or awareness of its former grandeur. Of course, the conversation in the pubs seemed better, more witty and spirited than now; the pub was then a refuge from life in a way that it no longer is, for post-crisis Dublin remains incomparably richer, materially, than it was then. Even now, several years into so-called austerity, the Irish live at a higher standard than the Germans.

The Bible tells us that of the making of many books there is no end, and that much study is a weariness of the flesh. Certainly the Irish crisis has acted as a kind of Keynesian stimulus to writers, for the bibliography of the subject is now immense, beyond the capacity of any but an obsessive to have read; but for me it is not a weariness of the flesh, but rather a refreshment of the mind, to read about this story of hubris and nemesis, greed and come-uppance, illusion and reality, especially on the plane home. On my latest visit, I bought another such book, The Big Lie: Who Profits from Ireland’s Austerity? By Gene Kerrigan, a journalist and author well-known for his exposure of the political corruption that has long been a feature, some would say the predominant feature, of Irish public life.

And The Band Played On...

The band will play on as the ship of state descends into the abyss

by Jim Quinn

A confluence of events last week has me reminiscing about the days gone by and apprehensive about the future. I’ve spent a substantial portion of my adulthood rushing to baseball fields, hockey rinks, gymnasiums, and school auditoriums after a long day at work. I’d be lying if I said I enjoyed every moment. Watching eight year olds trying to throw a strike for two hours can become excruciatingly mind-numbing. But, the years of baseball, hockey, basketball, and band taught my boys life lessons about teamwork, sportsmanship, winning, losing, hard work, and having fun. There were championship teams, awful teams and of course trophies for finishing in 7^th place. As my boys have gotten older and no longer participate in organized sports, the time commitment has dropped considerably. Last week was one of those few occasions where I had to rush home from work, wolf down a slice of pizza and head out to a school function. It was the annual 8^th grade Spring concert.

My youngest son was one of a hundred kids in the 8^th grade choir. I think it was mandatory, since none of my kids like to sing. As my wife and I found a seat in the back of the auditorium where we could make a quick escape at the conclusion of the show, neither of us were enthused with the prospect of spending the next ninety minutes listening to off-key music and lame songs. I’ve been jaded by sitting through these ordeals since pre-school. But a funny thing happened during my 30^thband concert. I began to feel sentimental about the past and sorrowful about the future for these Millennials.

The Millennial generation was born between 1982 and 2004. Therefore, they range in age from 9 years old to 31 years old. There are approximately 87 million of them, or 27.5% of the U.S. population. In comparison, the much ballyhooed Boomer generation only has 65 million cohorts remaining on this earth. The Millennials will have a much greater influence on the direction of this country over the next fifteen years than the currently in control Boomers. There has been abundant scorn heaped upon this young generation by their elders. In a fit of irrationality befit the arrogant, hubristic, delusional elder generations, they somehow blame a cohort in which 54 million of them are still younger than 21 years old for many of the ills afflicting our society. This disgusting display of hubris is par for the course among these delusional elders.

In the euro zone, desperately in need of a boost, no news is bad news

The Sleepwalkers

The Economist

YOU may have missed it, but the European Union held a summit this week. Taking in a nutritious working lunch, Europe’s prime ministers, presidents and chancellors devoted half of Wednesday to weighty issues of energy and taxation. Gone are the panic-stricken sessions of last year, dogged by talk of the euro’s imminent failure. Today, Europe’s leaders note, reform is under way across most of the euro zone and some southern European countries are regaining their competitiveness. The government-debt market is back in its box, where it belongs. And over the past year share prices are up by a quarter. Nobody could pretend that life is easy; Europeans understand that hard work and sacrifices lie ahead. But the worst of the crisis is now safely in the past.

It is a reassuring tale, and those worn down by the Wagnerian proportions of the euro saga (who isn’t?) are eager to believe it. Unfortunately, the idea that the euro is yesterday’s problem is a dangerous figment. In reality, Europe’s leaders are sleepwalking through an economic wasteland.

Someone call a somnambulance, quick.

The euro-zone economy has just endured a sixth successive quarter of shrinking GDP. The malaise is spreading to core countries including Finland and the Netherlands, which both contracted in the first quarter. Retail sales are falling. Unemployment, above 12%, is a record—with more than one in four Spaniards out of work. In spite of savage spending cuts, government deficits are persistent and high. The sum of government, household and company debt is still excessive. Banks are undercapitalised and international lenders worry about their as-yet-unrecognised losses. Although official interest rates are low, firms in southern Europe are suffering a cruel credit crunch. All this is causing economic hardship today and eating away at the prospects for growth tomorrow. The euro zone may not be about to collapse, but the calm in Brussels is not so much a sign of convalescence as of decay.