tag:blogger.com,1999:blog-1764942688677286212024-03-05T02:57:57.627-08:00Pieria ViewTomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-176494268867728621.post-73807217187354583772024-01-10T16:47:00.000-08:002024-01-10T16:47:55.386-08:00Night Out in Boston<div style="text-align: left;"> <span style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The first of the sleet slid by<br /></span><span style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">On the other side of the glass</span></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px; text-align: left;">Bouncing off windscreens with a</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px; text-align: left;">Satisfying thud before burying</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Themselves into the pavement </div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">We remember too slowly and forget</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Too quick to keep the moment</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">From slipping us into the early</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Hours, growing harder to parse</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Time at the last place we were</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Conscious that this isn’t the end</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Of an evening but the dregs of an</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Overactive mind running on fumes</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Still catching in the light, to keep</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">A dim glow behind the eyes</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The only light left in case</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Fellow travellers seek harbour</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">In the face of gathering dust</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The winds whipped into life</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Where all else is artifice</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Lost souls at the feet of Isis</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Only to be raised again</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">When the last of us finally</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Gives up on last orders</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">To make way for the rites</div>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-74871845732081870802023-09-19T13:11:00.000-07:002023-09-19T13:11:38.242-07:00Do you remember his name?<div style="text-align: left;"><span style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody;"><span style="font-size: medium;">Do you remember his name?</span></span></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody;"><span style="font-size: medium;">Time on time he’d drop it</span></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Over the years and yet</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">No-one bent to pick it up </div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Funny that. Used to joke he had</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">A better head for names than</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Faces, but guess they both fit</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Through the neck of a bottle</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Can somebody not leave a mark?</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">There are scratches under the seat</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Where he’d pick anxiously waiting</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">On the bell to ring last rites</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">And the memory of a seat that’s</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Always taken so you don’t even</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Look to see if it’s empty though</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The room’s buzzing with thirst</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Not much to show for a life</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Even one travelled so lightly </div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Still you might imagine a footprint</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Somewhere behind in the dirt</div>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-48480127111682404872023-09-02T09:34:00.007-07:002023-09-03T04:22:02.538-07:00Another Autumn<div style="text-align: left;"><span style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">It was as if leaves suddenly started to turn </span></div><div style="text-align: left;"><span style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>The singing broke a morning’s stillness</i></span></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Green faded into yellow; yellow to red</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>Sound cascading down the walls</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The heat pressing through the clouds</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Not much of note to mark the moment</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>We didn’t recognise the tune itself</i> </div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Jasmine climbed away from its frame</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>But the key changes resonated</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">The flowers having fallen weeks back</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Time, then, is counted in shortening hours</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>Notes dropping above and below</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Between what was and what’s to come</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>A bit flat, now a little sharp, always earnest</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Taking pleasure in the not knowing</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">You never notice till the season’s past</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>A last chorus drifted through glass</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">How that smell of blooms covers all sins</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>Was it a hallelujah or just the mind’s echo?</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Its absence returns sticky-sweet rot</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><br /></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Better to have spent the time distracted</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>Silence carries a new weight now</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Than fall from vines in trying to capture</div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;"><i>Ears peeled as if expecting the encore</i></div><div style="caret-color: rgb(69, 69, 69); color: #454545; font-family: UICTFontTextStyleBody; font-size: 17px;">Another autumn</div>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-9168028271813433622022-08-19T03:41:00.001-07:002022-08-19T03:41:38.511-07:00The 17<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFiR7XNAew0-x99gPhJK94tMQoNpgL_1npwdUKyImS1U4k9O-NIm8rsp69DN1Iv1wiTlje2rx0fUwgfeuFRMqCcBwRU3aRrFB2G1xPcFrBp11V5UL7DhQsuvAO9hWVByhvSr6fUKDdGM0TpZnqTBkypPFWl2zvEzIC48NCdlKJYM9mlVqkrcoKfXIhkw/s735/The_Kremlin,_Moscow.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="548" data-original-width="735" height="239" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFiR7XNAew0-x99gPhJK94tMQoNpgL_1npwdUKyImS1U4k9O-NIm8rsp69DN1Iv1wiTlje2rx0fUwgfeuFRMqCcBwRU3aRrFB2G1xPcFrBp11V5UL7DhQsuvAO9hWVByhvSr6fUKDdGM0TpZnqTBkypPFWl2zvEzIC48NCdlKJYM9mlVqkrcoKfXIhkw/s320/The_Kremlin,_Moscow.png" width="320" /></a></div><p>Below is a draft of a play I wrote back in 2012, but never finished. I have finally got round to finishing it and thought I might share given its theme is the rise of nationalism amid the collapse of the Russian hyper-capitalist experiment in the late 1990s.</p><p>The 17 references the number of votes by which then Russian President Boris Yeltsin was spared impeachment, a moment at which the country could well have taken another course.</p><p><a href="https://drive.google.com/file/d/1O23o5JI0Tx4hFvHfCJPoBQtq-uMc3-9M/view?usp=sharing" target="_blank">The 17 - Final Draft</a><br /></p>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-62574302205031380632022-08-12T06:31:00.009-07:002022-08-15T16:28:10.386-07:00“Getting its history wrong is part of being a nation”*<p>I came across the (mis-)quote above from the 19<sup>th</sup>
Century French orientalist Ernest Renan in the most recent Julian Barnes novel
Elizabeth Finch. Barnes notes the import of “being” and not “becoming”. Getting
history wrong is not just part of the foundation of a nation on these terms but
an ongoing process that reinvigorates, replenishes and sustains the thread of
nationhood and shared identity. The fact that the collective history is largely
myth is not incidental, but part of the initiation into the community – getting
history wrong is a condition of entry.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">In Renan’s essay, the actual quote centres not on the “historical
error” though, which is an extension of the thought, but on the importance of forgetting. “It is good,” he goes on to say, “for everyone to
know how to forget” such that we don’t fall into an endless spiral of chasing
historical grievances that would tear at the delicate fabric of a nation. Yet the
frame of forgetting is interesting in its distinctness from the quote above
since, unlike wilful error that might remain robust to historical enquiry as it doesn’t lay claim to any basis in fact, the risk with forgotten things
is that they might one day be remembered. History is continually being rewritten,
after all, and inconvenient facts rediscovered.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Back in June 2020 <a href="https://www.newyorker.com/books/page-turner/the-history-that-james-baldwin-wanted-america-to-see" target="_blank">the New Yorker took up the topic</a> in a discussion
of James Baldwin’s writings on history. It focuses on his desire that America shake
off a version of its history that seeks only to provide “comfort, nostalgia, or
a fixed arc of progress” and instead face a full, clear-eyed reckoning with the
past. As Baldwin wrote, channelling Faulkner: “All that can save you now is
your confrontation with your own history . . . which is not your past, but your
present.”<o:p></o:p></p>
<p class="MsoNormal">Time and history is, of course, perhaps the central
motivating force in much of Faulkner. From Thomas Sutpen’s doomed obsession with
escaping his impoverished past and building an accepted and acceptable dynasty
in Absalom, Absalom! to the weight of familial legacy that ultimately consumes
Quentin Compson in The Sound and the Fury. In the more macro sense, Yoknapatawpha
County as a whole is steeped in the broader context of the Civil War and the South’s
begrudging attempt to reconcile itself to its defeat (and, through that, to itself). Faulkner, not
unproblematically, places a significant part of the responsibility for the repeated
failure of the South to face its own history on the imposition of values by the North, the impatience
of the victors to bring its defeated foe to heel.<o:p></o:p></p>
<p class="MsoNormal">Baldwin pulled no punches in his own response to Faulkner: “It
is only the American Southerner who seems to be fighting, in his own entrails,
a peculiar, ghastly, and perpetual war with all the rest of the country.” Where
Faulkner called for patience and for the North to “go slow” in attempting to compel
a reckoning with history whether through the courts (e.g. the Supreme Court outlawing
segregation) or through culture, Baldwin saw only further myth-making to allow
the South to avoid the confrontation with its past and its present. For him there is
never a time in future where these things can be suddenly resolved, but rather
the challenge is always in the present and the time for its resolution must be now.<o:p></o:p></p>
<p class="MsoNormal">The South, for Baldwin, was clinging to two conflicting
histories, and therefore two realities that could never reconcile feeding a
perpetual state of cognitive dissonance. On the one hand, it wanted to place
itself as a central force in the American foundational myth, even in defeat. Indeed,
the defeat itself could be cast as a necessary hurdle to achieving a coherent
concept of the nation – both sides leaving their blood in the soil. On the
other, it wanted to wallow in the myth of the Lost Cause as an assertion of its
ongoing links to a distinct cultural identity to maintain that thread to its
own past, and in the process recast and rescue the cause itself.<o:p></o:p></p>
<p class="MsoNormal">The internal tension stemmed from an apparent desire to
reconcile themselves to the reality of defeat, but doing so in a way that
does not require the dissolution of its shared history. Even one that had become inexorably
intertwined with the institution of slavery. The loss may even have hardened that process and trapped it in time as the South came to define itself by the set of behaviours and values that had differentiated it from the North. As the Bundren family in As I Lay Dying find for themselves, “the future seems arrested, as if the war has fixed it in place”. For many of his characters, the South remains hopelessly tethered to the worst of its past. “In sum,” Baldwin writes, “the North,
by freeing the slaves of their masters, robbed the masters of any possibility
of freeing themselves of the slaves.”</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Why bring any of this up now? I have noted a central
tendency in contemporary discourse between (over-broadly grouped) progressives
and the reactionary right is the insistence by the former of problematising
history and the equally forceful refusal by the latter to countenance the re-remembering.
Or, perhaps that is a little unfair. Instead, it’s maybe fairer to say the
former would like an acknowledgement that different people/groups can have a relationship
to the same history that differs dramatically from each other. And that that
difference requires not merely respect but some representation in mainstream discourse
– getting our history a little less wrong is part of increasing the scope of a
nation.<o:p></o:p></p>
<p class="MsoNormal">In ceding this ground, however, we may be forced to reopen
some of the foundational myths of the nation that form the basis not only of whatever
coherence there can be in the disparate masses of a country but also people’s
places within it. The inevitable bending towards justice of the arc of the
moral universe operates as a vindication of the status quo, and underwrites the
hierarchy. Not only is it the case that it could not have been otherwise, but
more it <b>should</b> not be otherwise because society has progressed in line with
its moral destiny (albeit with the odd wobble or two along the way).<o:p></o:p></p><p class="MsoNormal">Here I would bring in Jez Butterworth's Jerusalem. On its face, the play focuses on the layers of myths and community. In placing the action around a caravan surrounded by bored kids and detritus it reveals the gap between the imagined "green and pleasant land" and the reality of drinks, drugs, prejudice and planning permission that is every bit as much the lived culture. Fitting, of course, that it takes its inspiration from Blake's poem takes as its subject an apocryphal visit by Jesus to Glastonbury where the clear consensus among historians is that the answer to the question "And did those feet in ancient times/Walk upon England's mountains green[?]" is a resounding "no". While it's unclear whether the poet accepted the story as truth his work has nevertheless become a national anthem of sorts, sung on the terraces at Twickenham. We too indulge the myth.</p><p class="MsoNormal">Unlike Faulkner, Butterworth does not suggest reconciliation of the myth and the lived reality is inevitable. Rather, it ends with another version of the foundation myth that offers little by way of comfort in the concept of the nation but invites us to see the damage of the world as it is. A world of folklore, closer to the primal. A badly beaten Rooster Byron banging the drums to call forth the ancient giants to retake possession of their land. It may even be read as a broader call to action to wipe away what has gone before in the hope of a better world.</p><p class="MsoNormal">Beneath Blake's poem he added the biblical quote "Would to God that all the Lords people were Prophets", which has been interpreted as a call for people to bear witness to a deeply imperfect world and each seek in their own way to help (re)build a new Jerusalem.</p>
<p class="MsoNormal">By contrast, Faulkner’s determination that reactionary communities must be
allowed to reconcile themselves to their circumstance without interference from
the outside finds a close contemporary resonance in the work of people like
J.D. Vance and other members of the post-liberalism movement. The concept still
clings to the notion of the inexorable arc of progress, but is twisted until inversion. It is often those who are challenging the conventional wisdom that are asked to reconcile themselves
to existing norms insisted upon by the reactionaries; that the principle of mutual
respect requires the preservation of national myths (including their symbols
such as statuary) even where they are themselves the subject of the dispute.<o:p></o:p></p>
<p class="MsoNormal">Increasingly, the import of symbolism is finding its form in
legislation (see, for example, the UK government’s efforts to curtail the
influence of the European Court of Human Rights on domestic policy, limit the
right to protest or even Brexit itself as an expression of cultural and
economic exceptionalism; or, in the US, the Supreme Court’s decision to overturn
Roe v. Wade). In his <a href="https://www.newyorker.com/news/daily-comment/the-self-fulfilling-prophecies-of-clarence-thomas" target="_blank">recent New Yorker essay</a>, Corey Robin casts the latter decision
explicitly in terms a resistance by conservative members of the Supreme Court to
an expansive interpretation of the Constitution.<o:p></o:p></p>
<p class="MsoNormal">In particular, Justices including Clarence Thomas reject the
notion of “substantive due process” that allowed the SC to become involved with
issues such as abortion in the first place. Robin writes: “In his concurrence
in Dobbs v. Jackson Women’s Health Organization, which overturned Roe v. Wade,
Thomas calls substantive due process an “oxymoron” and a “legal fiction.” The
due-process clause “guarantees process” only.”<o:p></o:p></p>
<p class="MsoNormal">Of course, originalism is by definition a reactionary
position in that it asserts that there can be no change to meaning over time
and that different cultural context have no bearing on the contemporary interpretation
of a text. That is not just a statement of the persistence of history, but its
ossification.<o:p></o:p></p>
<p class="MsoNormal">In case there was any doubt over Thomas’ reactionary intent Robin
continues (emphasis mine): “Thomas linked a broad reading of the due-process
clause, with its ever-expanding list of “unenumerated” rights, to a liberal
“rights revolution” that has undermined traditional authority and generated a
culture of permissiveness and passivity… <b>To reverse the downward spiral of
social decadence and patriarchal decay, conservatives must undo the liberal
culture of rights</b>, starting with the unenumerated rights of substantive due
process.”<o:p></o:p></p>
<p class="MsoNormal">It might appear that there are also two mutually incompatible
histories presented here too, producing much the same cognitive dissonance
Baldwin noted in the South. Conservatives want to portray their reactionary tilt
as a defence of core liberal virtues on which the nation is built, and
yet it is also explicitly trying to stymie the pace of social change or even
reverse it. So a restriction of abortion rights is framed instead as a constitutionally-required
expansion of states’ rights and the loss of the right for UK citizens to
live/work in the EU is portrayed as an expansion of domestic policy scope.<o:p></o:p></p><p class="MsoNormal">Ironically, the impact of these moves has been to raise the level of insecurity and precarity experienced by the wider population even as they are shrouded in comforting mistruths. When fundamental rights are in flux it threatens to reopen what had seemed like settled positions across the political spectrum. The very fuel of the reactionary movement can be said to be its anti-conservatism; a fervent radicalism of programme and process that is willing to upend convention as it claims to defend the status quo. That is why they call it a culture "war".</p><p class="MsoNormal">There is a tendency in such situations to argue that the internal contradictions of reactionary politics makes it difficult to maintain a stable coalition and means that politics ultimately reverts in favour of moderation. But that is precisely why reactionaries are playing a destabilising role. By appearing to reduce the nation state's ability or willingness to enforce and defend rights, reactionaries make technocratic arguments that rely on claims of state capacity for expanding rights and opportunities less credible, encouraging clientelism and zero-sum thinking among the base.</p>
<p class="MsoNormal">All of this is underpinned by appeals to exceptionalism built
on a wilful misremembering of history or, as Du Bois put it, a desire to remain
in comforting “lies agreed upon”. As Baldwin noted, it is deeply unwise (and itself
a form of delusion) to appeal for patience in the hope that the reactionaries eventually
find a way to reconcile the cognitive dissonance for themselves. There is never
time in the future in which we will work out our salvation. The challenge is in
the moment, the time is always now.<o:p></o:p></p><p class="MsoNormal">*<span face="Calibri, sans-serif" style="font-size: 11pt;">This
is, fittingly, itself a misquote as the quote is actually “Forgetting, I would
even go so far as to say historical error, is a crucial factor in the creation
of a nation” </span><a href="https://archive.globalpolicy.org/nations/nation/1882/renan.htm" style="font-family: Calibri, sans-serif; font-size: 11pt;">https://archive.globalpolicy.org/nations/nation/1882/renan.htm</a></p>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-61237546027447637902022-08-05T04:24:00.000-07:002022-08-05T04:24:13.319-07:00Quality of Summer<div style="text-align: left;">The quality of summer is its silence<br />Humidity forcing the world to slow</div><div style="text-align: left;">So even the flies seem lethargic</div><div style="text-align: left;">In their bids to escape</div><div style="text-align: left;"><br /></div><div style="text-align: left;">Hanging in the air with words, if spoken</div><div style="text-align: left;">At all. The quality of summer is that</div><div style="text-align: left;">Burnt salinity of an evening where</div><div style="text-align: left;">The bricks hold their heat</div><div style="text-align: left;"><br /></div><div style="text-align: left;">Hold us close till we don't want to</div><div style="text-align: left;">Eat and can't face to ask if we've</div><div style="text-align: left;">Played this all out before under the watch</div><div style="text-align: left;">Of an unblinking sun.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">If spoken at all, I'd tell you it doesn't</div><div style="text-align: left;">Matter that we know the form, as the</div><div style="text-align: left;">Quality of summer is that it can't tell</div><div style="text-align: left;">If all happiness is alike</div><div style="text-align: left;"><br /></div><div style="text-align: left;">Your fingers pressed into my palms</div><div style="text-align: left;">To draw out a shiver of recognition</div><div style="text-align: left;">I would know you in the silence,</div><div style="text-align: left;">In the heat, in the light.</div>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-7201474937597969462021-12-23T03:39:00.001-08:002021-12-27T13:13:24.758-08:00Lockdown Poems<h2 style="text-align: left;">Planting</h2><div><p class="MsoNormal">I planted the seeds<o:p></o:p></p>
<p class="MsoNormal">Into the dirt around the tree stump <o:p></o:p></p>
<p class="MsoNormal">Still sap-bleeding out its last<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Where in a few hours <o:p></o:p></p>
<p class="MsoNormal">Children will linger to play, as anxious parents<o:p></o:p></p>
<p class="MsoNormal">Try in vain to hurry them past<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Leaning heavy on the railings -<o:p></o:p></p>
<p class="MsoNormal">Already exhausting the dry last dregs<o:p></o:p></p>
<p class="MsoNormal">Of a morning’s first caffeine<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">As rows of parked cars<o:p></o:p></p>
<p class="MsoNormal">Let the engines choke their low murmur<o:p></o:p></p>
<p class="MsoNormal">Though it might wake you.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">But I didn’t come in<o:p></o:p></p>
<p class="MsoNormal">Past the gate hanging slightly away<o:p></o:p></p>
<p class="MsoNormal">From its post, and swung open<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">In the crisp early wind<o:p></o:p></p>
<p class="MsoNormal">That must have blown the leaves down<o:p></o:p></p>
<p class="MsoNormal">Treading the season underfoot<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">I planted the seeds<o:p></o:p></p>
<p class="MsoNormal">Beneath the moss and the pebbled soil<o:p></o:p></p>
<p class="MsoNormal">Kicked up by foxes<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Scratching for a meal<o:p></o:p></p>
<p class="MsoNormal">In all that we leave behind, still<o:p></o:p></p>
<p class="MsoNormal">Perhaps they’ll leave<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">These just where they are<o:p></o:p></p>
<p class="MsoNormal">Since they’re no good for them really<o:p></o:p></p>
<p class="MsoNormal">Or even for us, yet,<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">You not knowing<o:p></o:p></p>
<p class="MsoNormal">And I not willing to tell what the earth<o:p></o:p></p>
<p class="MsoNormal">Conceals in its silence.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">If the frost comes<o:p></o:p></p>
<p class="MsoNormal">It could all have been for nothing, of course,<o:p></o:p></p>
<p class="MsoNormal">And you’d never see<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The saplings take root<o:p></o:p></p>
<p class="MsoNormal">Bursting their confines and driving upwards<o:p></o:p></p>
<p class="MsoNormal">To light, and heat, and life<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">I planted the seeds<o:p></o:p></p>
<p class="MsoNormal">Asking nothing of them, and holding no expectation<o:p></o:p></p>
<p class="MsoNormal">Of what might grow<o:p></o:p></p><p class="MsoNormal"><br /></p><h2 style="text-align: left;">It's Quieter Now</h2></div><div><p class="MsoNormal">It’s quieter now than it was<o:p></o:p></p>
<p class="MsoNormal">Days folding into evenings<o:p></o:p></p>
<p class="MsoNormal">Drifting into nights without<o:p></o:p></p>
<p class="MsoNormal">Marking time<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Your old Roberts radio still<o:p></o:p></p>
<p class="MsoNormal">Hugs the wall, sky blue and gold,<o:p></o:p></p>
<p class="MsoNormal">Part-submerged in discarded papers<o:p></o:p></p>
<p class="MsoNormal">Stacked around<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">But I only turn it on now<o:p></o:p></p>
<p class="MsoNormal">For the dog, when we leave<o:p></o:p></p>
<p class="MsoNormal">Her to Classic FM and dreams<o:p></o:p></p>
<p class="MsoNormal">Of the chase<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">& when it rains (and how it rains)<o:p></o:p></p>
<p class="MsoNormal">We often forget on return<o:p></o:p></p>
<p class="MsoNormal">Till we hear Turandot broken<o:p></o:p></p>
<p class="MsoNormal">By whimpers.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">You won’t be surprised at my<o:p></o:p></p>
<p class="MsoNormal">Absentmindedness - I forget<o:p></o:p></p>
<p class="MsoNormal">More than I recall these days<o:p></o:p></p>
<p class="MsoNormal">Or feel so<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Dragging muddy footsteps across<o:p></o:p></p>
<p class="MsoNormal">The off-white carpet we chose<o:p></o:p></p>
<p class="MsoNormal">When we moved here, all those<o:p></o:p></p>
<p class="MsoNormal">Years ago,<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">But safe knowing it’ll come out<o:p></o:p></p>
<p class="MsoNormal">With a bit of heat and effort<o:p></o:p></p>
<p class="MsoNormal">So long as we leave it to dry<o:p></o:p></p>
<p class="MsoNormal">For a while<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Elsewhere we’ve made bigger changes<o:p></o:p></p>
<p class="MsoNormal">It doesn’t look as it did, I’m sure,<o:p></o:p></p>
<p class="MsoNormal">Walls have moved and there are brass<o:p></o:p></p>
<p class="MsoNormal">Kitchen taps<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">(I didn’t resent the taps, really.<o:p></o:p></p>
<p class="MsoNormal">I’m just not sure I understood<o:p></o:p></p>
<p class="MsoNormal">What it meant to have a vision<o:p></o:p></p>
<p class="MsoNormal">Of a place)<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">And in the end it’s the taps, not<o:p></o:p></p>
<p class="MsoNormal">The footprints or the echoes of<o:p></o:p></p>
<p class="MsoNormal">Familiar sounds of a house when it<o:p></o:p></p>
<p class="MsoNormal">Was a home <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">That will last and speak to who<o:p></o:p></p>
<p class="MsoNormal">We were that lived here once. But<o:p></o:p></p>
<p class="MsoNormal">It’s quieter now so I can try to imagine</p><p class="MsoNormal">Who that was</p><p class="MsoNormal"><br /></p><h2 style="text-align: left;">Father's Day</h2></div><p style="text-align: left;">The sharp click-clack of keys<br /></p><p style="text-align: left;">Echoes from behind a door</p><p style="text-align: left;">The sound of work, as I imagined,</p><p style="text-align: left;">Of industry, of imagination</p><p style="text-align: left;">Made form into delicate stacks</p><p style="text-align: left;">Perched around</p><p style="text-align: left;"><br /></p><p style="text-align: left;">But that was thirty years since</p><p style="text-align: left;">Maybe more, though my memory</p><p style="text-align: left;">Gets a little hazy as we rewind</p><p style="text-align: left;">The tape from rich technicolour</p><p style="text-align: left;">Decaying into faded sepia and finally</p><p style="text-align: left;">Black and white</p><p style="text-align: left;"><br />Like watching one’s moral education</p><p style="text-align: left;">Forced backwards till everything</p><p style="text-align: left;">Is neat binaries again: right and wrong;</p><p style="text-align: left;">Good and bad; with no soft padding</p><p style="text-align: left;">In between to buffer ourselves from</p><p style="text-align: left;">Our conscience.<br /><br /></p><p style="text-align: left;">All these steps taken in learning to walk,</p><p style="text-align: left;">I have trodden with you, leaning</p><p style="text-align: left;">At times to borrow of your strength</p><p style="text-align: left;">And at others offering a hand to</p><p style="text-align: left;">Keep us both on this path headed</p><p style="text-align: left;">Nowhere but forwards<br /><br /></p><p style="text-align: left;">Still the click-clack of keys resounds</p><p style="text-align: left;">Although its source is long since</p><p style="text-align: left;">Abandoned by the wayside, it yet</p><p style="text-align: left;">Marks the time of our lockstep</p><p style="text-align: left;">Reminding us that the past is never dead.</p><p style="text-align: left;">It’s not even past.</p><p></p>Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-1349744096505293072017-09-29T06:49:00.001-07:002017-10-02T05:05:03.031-07:00My Last Word: The Status Anxiety of Post-Liberalism<div dir="ltr" style="text-align: left;" trbidi="on">
Some weeks ago I wrote a thread outlining why, in my opinion, far too much focus has been given to (admittedly self-described) amateur sociologists’ theories (in particular the work of Chris Arnade and David Goodhart) to explain the emergence of a disaffected electoral block responsible for the rise of Trump and the UK’s decision to leave the European Union. I promised to write up these thoughts into a blog post - so here it is. This is intended to be my very last word on the subject and my apologies to everyone already exhausted by the debate to date.<br />
<br />
The full thread can be <a href="https://storify.com/tomashirstecon/goodhart">found here</a>, but below is a short summary of the main points:<br />
<br />
1)<span class="Apple-tab-span" style="white-space: pre;"> </span>There is a genuine problem of inequality of access to the public sphere and consequent marginalisation of people and groups whose problems are therefore de-prioritised in policy circles. This, however, does not mean that all barriers to the public sphere are illegitimate (e.g. those that protect others from harm).<br />
<br />
2)<span class="Apple-tab-span" style="white-space: pre;"> </span>The authors in question tend to see themselves as conduits into the public sphere for some of those marginalised groups, but the imposition of their own grand narrative serves to make these voices secondary to their own.<br />
<br />
3)<span class="Apple-tab-span" style="white-space: pre;"> </span>There’s a bait-and-switch going on where we are invited to condemn the clear inequity of access but in doing so are pushed also to access the much more spurious Front Row/Back Row or Somewheres/Anywheres sociological categories, for which there appears to be very little evidence. Moreover, the entire debate obscures the evident weakness of the policy proposals that come out of said distinctions.<br />
<br />
4)<span class="Apple-tab-span" style="white-space: pre;"> </span>Both Arnade and Goodhart reject data-based approaches to their subject – even where the data might offer some useful support or counterpoints to their theses. In particular, voting patterns by income bracket, education and age cohort paint a much more complex picture of these evolving phenomena that the authors seem to allow for.<br />
<br />
So, what evidence can I offer in support of the above. I think both Arnade and Goodhart are right in identifying the self-reinforcing barriers to entry into the public sphere as a form of cultural elitism that is designed to prevent certain groups from voicing their concerns except through the intermediation of other members of the elite. Those barriers are educational, geographical, racial and cultural in nature and, though they might manifest themselves somewhat more subtly than they did in the past, the difference in life experience of being in the in-group or one of the many out-groups remains stark.<br />
<br />
I should caveat here that I am not a sociologist. These are merely observations garnered in (I imagine) much the same way as Arnade and Goodhart have garnered theirs, through idle conversations on and offline and trying to read as widely as possible on the subject. Where I think they overstep is in extrapolating from this ad hoc approach to the grand theory.<br />
<br />
Let me explain what I mean by example. Here is a <a href="https://medium.com/@Chris_arnade/divided-by-meaning-1ab510759ee7">passage from Arnade’s blog</a>:<br />
<blockquote class="tr_bq">
<br />
“We are a divided country, split along race and class. We are also divided by education. Front row kids, many with post graduate degrees, versus the rest.<br />
The front row kids and minorities overwhelmingly support Hillary Clinton. A large percentage of everyone else supports Trump. The front row kids can’t understand why anyone would support Trump, often saying anyone who does is just dumb.<br />
…<br />
The divide between the two is huge. It is beyond just living in different places, and voting for different people.”</blockquote>
<br />
As I said, I don’t think much of the above should be all that controversial and there certainly are parallels between groups that have seen significant declines in their relative status in the US and the UK. But the observations don’t end there. Arnade continues (emphasis mine):<br />
<br />
<blockquote class="tr_bq">
“The front row kids (who live in big cities and university towns) <b>primarily find meaning through their careers, and hence through their education</b>. It defines who they are. Their community, and their neighborhoods, are global. They moved towns often for their careers. </blockquote>
<blockquote class="tr_bq">
The back row <b>primarily finds meaning through their local community, and its institutions like church and sports</b>. They live in places they have long lived in, and their families have lived in. They didn’t leave for education, didn’t leave for jobs.”</blockquote>
<br />
Given the breadth of the political coalition necessary for affecting the type of electoral results we are discussing the above seems rather reductive. It also seems to me to confuse identifying some of the superficial manifestations of cultural and economic divides in the US and reads through it into a fundamental, all-encompassing psychosocial phenomenon about how individuals “find meaning”.<br />
<br />
Worse, when this quest to find meaning in “community, church and sport” doesn’t find representation in the public sphere this particular out-group are seemingly uniquely vulnerable to being taken in by conmen.<br />
<br />
<blockquote class="tr_bq">
“Here is the thing I want to hammer on. When the front row (me, you, pundits, politicians) call Trumps voters, the back row, stupid. Or dumb. Or idiots. When we scold them for supporting such an awful man (he is!). That plays right into everything they have been told all of their lives. </blockquote>
<blockquote class="tr_bq">
Being called stupid, being told they can’t keep up, is why many of them feel and are stuck in their towns. Why many of them are humiliated and angry. Why many want revenge. <b>Why many are ripe to follow a racist like Trump</b>.”</blockquote>
<br />
For me, this intellectual overstretch is precisely a function of the weakness of the anecdata approach. If you don’t have a defined academic mandate, and you don’t have any controls, and you don’t weigh what you’re hearing in a rigorous way imposing any sort of coherent thesis over the top of years worth of even carefully recorded conversations can only be done by riding roughshod over nuance and complexity.<br />
<br />
At least one of the unfortunate results of the above is to attribute Trump’s rise to a single out-group – the disaffected, predominantly white working class – rather than the whole coalition that included huge swathes of what Arnade would classify as “front row”. As evidence of this, note the elision of Trump voters/back row in the first paragraph above.<br />
<br />
Goodhart’s post-liberalism is based on a similarly flawed approach. In response to then-NIESR director Jonathan Portes’ discovery of a series of factual errors in a book Goodhart had written on immigration he responded: “I do check facts but I also go out and listen to what people are saying.”<br />
<br />
Yet while there may at least (theoretically) be some value to the many interviews Arnade has carried out over the past few years in themselves, I'm afraid there seems to be little to commend Goodhart's approach to his subject. He seems mostly to rely on a series of half-remembered statistics cobbled together in a loose thread of narrative to conclude, somewhat half-heartedly, that "lower-income whites sometimes lack the mutual support that minority communities often enjoy — this can translate into a sense of loss and insecurity. This, too, should be recognised and factored into the policy calculus". In other words, we should skew policy to crudely privilege one small sub-group for a decline in their relative status rather than addressing more tangible problems of poverty, prejudice and inequality of opportunity.<br />
<br />
If you think that too harsh a summary, the full piece inexplicably published by the FT can be <a href="https://www.ft.com/content/220090e0-efc1-11e6-ba01-119a44939bb6">found here</a>.<br />
<div>
<br /></div>
Indeed, a broad dismissal of the data-based approach to their subject matters in evident in both Arnade and Goodhart. Below is another exchange between Portes and Goodhart on Twitter:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0QGfOmLjuRnXV76JNesGhFmhwAHhr4IAcwpxn_mSdD36Mb_zEpQk9uz34FFl09V7KECU-xUmMeVpwIsCo6FXARDmECQfLrpqlnPIMuwWNqN4TD9NcDF2iBXevp-Nk-3XORH5bdv2fsbtZ/s1600/Portes+Goodhart.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="712" data-original-width="301" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0QGfOmLjuRnXV76JNesGhFmhwAHhr4IAcwpxn_mSdD36Mb_zEpQk9uz34FFl09V7KECU-xUmMeVpwIsCo6FXARDmECQfLrpqlnPIMuwWNqN4TD9NcDF2iBXevp-Nk-3XORH5bdv2fsbtZ/s320/Portes+Goodhart.PNG" width="135" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: inherit;">And here’s a quote from a recent profile of Arnade from the
Wall Street Journal: “I’ve come to understand the value of thinking emotionally.
Thinking about things rationally through numbers is very confining.”<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: inherit;">Arnade is right. Thinking through numbers is confining. But
that’s the point. The data do not allow of grand interpretations without
statistical significance and can surprise and even delight us by confounding
our preconceptions. Sticking to the standards of academic rigour doesn’t impose
an undue burden on the subject matter, but in fact gives it a respect that the
authors both seem to want to give to those they speak to.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: inherit;"><br /></span></div>
<div class="separator" style="clear: both; text-align: left;">
<span style="line-height: 115%;"><span style="font-family: inherit;">At any rate, the thing that has latterly worried
me most is that the victim status that both Arnade and Goodhart give their
out-groups seems to be creeping towards the authors themselves (see the latest
pieces <a href="https://medium.com/@Chris_arnade/on-leaving-twitter-for-now-74263ddbcfa3">here</a>,
<a href="https://medium.com/@Chris_arnade/twitter-journalism-and-trump-aeb0813a8757">here</a>
and <a href="https://www.ft.com/content/39a0867a-0974-11e7-ac5a-903b21361b43">here</a>).
That, for me, is the biggest warning sign that the group status these authors
are most concerned about may be their own.</span></span></div>
<br />
<div>
<br /></div>
</div>
Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com1tag:blogger.com,1999:blog-176494268867728621.post-55248174104471307022017-01-09T07:46:00.003-08:002017-01-10T04:50:11.137-08:00Where we are on the Brexit continuum<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: left;">
Now the many horrors of 2016 are behind us, the world is
waking up to the horrors that await in 2017. In particular, the UK is bracing
itself for the triggering of Article 50 of the Lisbon Treaty marking the formal
notification of Britain’s intention to leave the European Union.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: left;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
In and of itself, there is no great significance attached
to the event. It marks the start of the two year mandated negotiation period,
after which either both sides will have reached some sort of agreement, there
is a unanimous vote to extend negotiations or Britain is unceremoniously dumped
out of the EU and into WTO rules.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: left;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
Well, that’s a 2019 problem which we’ll have to deal with
when we get there. In 2017, the problem facing the UK government is twofold:
How to come up with a negotiating platform that leaves open the possibility of
a non-disastrous settlement for the UK and how to keep those who voted to Leave
onside as the inevitable compromises get struck.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: left;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
Ah, you’ll hear some say, Prime Minister Theresa May has
made clear what her platform is – it’s only desperate Europhile commentators
and analysts who are unwilling to listen. She has, these wise heads claim,
already stated that she will prioritise control over immigration above
membership of Europe’s Single Market and won’t accept anything less than full
sovereignty over UK law and regulations.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal" style="text-align: left;">
As she <a href="http://news.sky.com/video/brexit-trump-and-the-nhs-prime-minister-sets-out-her-plans-for-2017-10722101">told Sky News</a> over the weekend:<o:p></o:p></div>
<blockquote class="tr_bq" style="text-align: left;">
<br />
“Often people talk in terms as if somehow we’re leaving the
EU but we still want to keep bits of membership of the EU. We’re leaving, we’re
coming out, we’re not going to be a member of the EU…We will be able to have
control of our borders, control of our laws. This is what people were voting
for on June 23<sup>rd</sup>.”</blockquote>
<div class="MsoNormal" style="text-align: left;">
<o:p></o:p></div>
<div class="MsoNormal" style="text-align: left;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
Given the rest of the EU’s implacable opposition to
compromising on the four principle freedoms of capital, goods, services and
people it appears the two sides have reached an impasse even before discussions
have begun. So is a so-called “hard Brexit” inevitable?<o:p></o:p></div>
<div class="MsoNormal" style="text-align: left;">
<br /></div>
<div style="text-align: left;">
</div>
<div class="MsoNormal" style="text-align: left;">
There are a couple of important points worth raising at this
juncture that should educate our thinking on the likely stance of UK in Brexit
negotiations:</div>
<div class="MsoNormal" style="text-align: left;">
</div>
<ul style="text-align: left;">
<li>Firstly,
I think it’s abundantly clear at this point that May’s public discussion of her
“red lines”– at least since her speech to the Conservative Party conference
last October – are aimed at maintaining the support of the Leave voting
constituencies in both the country and her party. This is in no small part to
correct the impression that, as a (lukewarm) supporter of the Remain campaign,
she was somehow a cuckoo in the nest just waiting for her opportunity to
undermine the referendum result. That doesn’t mean she’s not serious, only that
it’s an exercise in <a href="http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/01/brexit-as-identity-politics.html">demonstrating
adherence to the principle that says little, if anything, about the process</a>.</li>
<li>More
importantly, the negotiations are *at a minimum* going to take her up to the end
of March 2019 with an election legally required to be called in May 2020 –
giving her little time to sell the deal before facing the voters. As such, dressing
up awkward compromises – the possible economic hit from losing Single Market
membership – as part of her tough negotiating stance rather than the inevitable
consequence of the internal inconsistencies of the government’s position (that the
“best deal for Britain” may be significantly worse than the one we’re giving
up) is a trick worth preparing her audience for.</li>
<li>At
any rate, whatever “plan” May is putting forward it’s more than likely to be
almost entirely irrelevant to the final deal since the UK can’t set the terms
of a compromise position. And actually we should make a stronger point here –
if the aims are to ensure full control of Britain’s border and the laws and
regulations to which the country is subject, then the position is pure fantasy.
Sovereignty here would be more accurately defined not by the ability of the UK
to set terms of trade and movement of peoples, but as the ability to choose the
degree to which it is willing to compromise on those things in order to achieve
the Leave camp’s much promised Free Trade Agreements.</li>
<li>The
reason that Remain voters tend to favour remaining a member of the Single
Market is not that they’re naïve to the political costs, nor that most would
seek to use it as a backdoor route to return to the EU fold, but simply that it
offers the type of already existing off-the-shelf framework for a
transitional deal. May is correct to say we need to stop discussing Brexit in
terms of binary “soft” vs “hard” outcomes – it is a spectrum on which these are
simply two points (and neither necessarily the most likely). And we know that
the UK is almost certain to require some sort of transitional deal, which a
qualified majority of EU member states would have to agree to. It would be a
huge ask to begin substantive negotiations on both the long term future of
UK-EU relations and complete a bespoke transitional arrangement within the two
year timeframe provided by Article 50.</li>
<li>Where
the Leave camp favouring “hard Brexit” may be right is that it remains entirely
unclear whether any deal that seeks to atomise UK-EU relations on a
point-by-point basis is even possible. A carve out of freedom of movement for
the UK would almost certainly invite similar requests from other member states,
with the threat of further withdrawals as the bargaining chip. That is the very
last thing EU institutions want to be throwing into the mix with populist
nationalism springing up across the region.</li>
</ul>
<br />
<div class="MsoNormal">
So back to the original dilemma – is it conceivable that the
Prime Minister could simultaneously maintain the support of her party and voter
base as well as providing sufficient compromises to make a non-disastrous deal
with the EU?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div>
<div class="MsoNormal">
Sure it is. However, that says nothing of its likelihood.
While it is a fair (even necessary) inference of May’s announced position to date that control
of EU migration is a “red line” and that the EU would never accept such a
demand from any member of the Single Market, it is significant that she would
not explicitly state this – despite numerous invitations from Sky’s Sophy Ridge
to do just that.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I tend to <a href="http://blogs.ft.com/david-allen-green/2017/01/09/why-will-theresa-may-not-admit-the-uk-will-leave-the-single-market/">agree
with David Allen Green here</a>; the reason May is reticent in formally
declaring willingness to sacrifice Single Market membership is that it is simply
not in her gift to make that call (absent not triggering Article 50). Rather,
as with most of the key decisions during the negotiations, it is solely a
matter of EU discretion. Yet soon it could be incumbent on parliament to vote
on whether or not to trigger Article 50 and this question could get asked again…and
again…and again.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I don’t think it unhelpful that such pressure be applied in order for there to be proper scrutiny of the process and I think it speaks to the importance of the legal case currently in front of the Supreme Court. The key here is likely not to be the end point of repatriating powers over migration or removing EUCJ oversight, but the route taken to get there. As we have learned from IMF programmes of recent years, the most important thing for major economic adjustments is not only to have the right goals but to ensure that the timing of reforms (be they regulatory, legal or economic) is done in a way that avoids damaging the underlying economy as far as possible.<br />
<br />
After
the end of March the Prime Minister will inevitably turn her attention away
from her domestic audience and towards Brussels, where Sir Tim Barrow is highly
unlikely to find his negotiating partners any more generous or the government’s
approach any less “muddled” than his predecessor. If, at that point, the best May can offer is “Brexit means Brexit” then I’d suggest the UK is in for a bumpy landing indeed - and all of those who vote in favour of whatever plan is ultimately presented to parliament will be implicated in the result as much as the executive.</div>
</div>
</div>
Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-47645599658962126432016-12-13T09:19:00.000-08:002016-12-13T09:41:16.869-08:00The Case Against Globalisation Reparations<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">There are a lot of column inches currently being devoted to
an increasingly popular idea: That the
benefits of globalisation and free trade haven’t been sufficiently broadly spread and <b>something must be done</b>.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">This has been variously conceived in the form “globalisation’s
losers”, “Rust Belt rebellion” and “back row kids” and has been placed at the
centre of the anti-establishment wave sweeping developed economies. Without
wanting to antagonise the no doubt well-meaning authors of such pieces,
however, I’m not at all convinced that at this stage addressing national
inequality using globalisation reparations frame is a good guide for public
policy.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">For an example of this argument, see Gavyn Davies <a href="http://blogs.ft.com/gavyndavies/2016/12/11/how-should-we-compensate-the-losers-from-globalisation/">recent
column in the FT</a> (emphasis mine):<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<blockquote class="tr_bq">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "arial" , "helvetica" , sans-serif;">“Economists have now recognised these dangers, and a new
consensus has started to emerge. There has been (almost) no change in the
overwhelming belief that free trade and globalisation are good things for
society as a whole. But it is now much more widely accepted that the losers
from these changes can be more numerous, more long lasting and more politically
assertive than previously thought.</span><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>The new consensus
holds that the gains from globalisation can only be defended and extended if
the losers are compensated by the winners</b>. Otherwise, pockets of political
resistance to the process of globalisation will begin to overwhelm the gainers,
even though the latter remain in the majority.”</span></blockquote>
</div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">I think this consensus, if it is such, is not only unhelpful
but potentially highly economically and socially corrosive. To see why, you
need first to look at what we mean by globalisation losers.<o:p></o:p></span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="text-align: left;">
<span style="line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;">There is little doubt that the most immediate
impact of opening up global trade, in particular the emergence of China as a
global trade power from the 1990s, was disruptive and ultimately helped drive the dismantling of
large sections of the manufacturing base of the developed world. As <a href="https://ftalphaville.ft.com/2016/12/06/2180771/how-many-us-manufacturing-jobs-were-lost-to-globalisation/">the
FT’s Matt Klein illustrates</a>, although a great deal of US manufacturing jobs
would likely have been lost to technological advancement the impact of import
competition has also been significant – in the no import competition model Klein
suggests the manufacturing workforce could be some 19% bigger than it is today.</span></span></div>
<div style="text-align: left;">
<span style="line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></span>
<span style="line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_6vjaktcz9kjeCDpSvvUc_uE9wBn9-if_Q1tdpx_zIXXF5Vl5KcxRSz1TxTTLANKo7WeBpVs3ElUPyvgz235AavwhnYRHnXwfvcxbEm_ueg_eomsb2RhOsjSNkehGkCXKGDh61966viXG/s1600/fredgraph+%25281%2529.png" imageanchor="1"><img border="0" height="153" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_6vjaktcz9kjeCDpSvvUc_uE9wBn9-if_Q1tdpx_zIXXF5Vl5KcxRSz1TxTTLANKo7WeBpVs3ElUPyvgz235AavwhnYRHnXwfvcxbEm_ueg_eomsb2RhOsjSNkehGkCXKGDh61966viXG/s400/fredgraph+%25281%2529.png" width="400" /></a></span></span></div>
<div style="text-align: left;">
<span style="line-height: 115%;"><span style="font-family: "arial" , "helvetica" , sans-serif;"></span></span><br />
<span style="line-height: 115%;"><br /></span>
<br />
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">But even acknowledging the significant disruptive influence
of opening up global trade on huge swathes of domestic industries and
communities that relied on them, compensation for globalisation losers remains
a poor framework to guide public policy. Where it is useful is in adjusting
future approaches to positive supply shocks from free trade, ensuring that
re-training programmes are available for affected employees, providing incentives
for corporates to re-locate to affected areas, that targeted investment in
communities to build long-term assets are considered as well as direct
transfers such as unemployment benefits.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Perhaps most importantly, policy needs to insure that income
shocks don’t create a vicious cycle of lower asset prices leading to negative equity/high
indebtedness and effectively trapping people into poverty.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Yet there is a reason why the rust belt has got its name. In
short, these policies weren’t in place early enough to prevent the decline of
former industrial towns and cities. Moreover, there is also a consensus
among economists that, absent significant import tariffs and quotas providing a
substantial self-imposed negative supply shock creating a worse problem than the one you’re trying to solve, there is no way for the US to bring back these
manufacturing jobs.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Indeed, large parts of the so-called rust belt are already a
fair way into the transition out of industrial decline and integrating well
into the modern services economy. The "Rust Belt" states have seen significant net job gains over the past decade, and
while the unemployment rate is (on average) somewhat higher than the national
average the participation rate in most rust belt states is above the national
average in all save Pennsylvania.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">That is not to suggest these regions don’t have problems,
only that the practical problems they have – urban/rural disparities, poverty, education
gaps – are common to a number of areas and communities outside of
de-industrialised areas. What proponents of the globalisation reparations
argument seem to suggest is that, rather than address those as issues of
national importance, we should instead privilege industrial towns because they
appear to be angriest about their relative status change.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 115%;">
<span style="line-height: 115%;">I am simply not convinced that putting relative
status above actual need in a hierarchy of concerns for public policy is either
sensible or desirable. And, moreover, it privileges a certain type of
disenfranchisement – the decline of the factory worker and their perceived place
in the American mythos – over other disadvantaged communities who have long been
fighting to close a status and income gap that remains one of the biggest
indictments of policy to date.</span></span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 115%;"><span style="line-height: 115%;"><br /></span></span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 115%;"><span style="line-height: 115%;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiogs7vT0T7XcsceVL9CpWIuEv7DpxMzBcnpHIEdPeslUKGvA07Vv9UtOsuW08opzq5k4XU7Jso4xjFFsRsmd8g7Fil9aoX1aFfC_NLNYIAFDxZrt9k7Ew6w7FmMG_ykpUuVdFI7wmA6CZl/s1600/chart325final.png" imageanchor="1"><img border="0" height="290" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiogs7vT0T7XcsceVL9CpWIuEv7DpxMzBcnpHIEdPeslUKGvA07Vv9UtOsuW08opzq5k4XU7Jso4xjFFsRsmd8g7Fil9aoX1aFfC_NLNYIAFDxZrt9k7Ew6w7FmMG_ykpUuVdFI7wmA6CZl/s400/chart325final.png" width="400" /></a></span></span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 115%;"><br /></span></div>
<div style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif; line-height: 115%;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggmj-6-x_jyY7iYJR-siEem4ZodLirrK7EfhhpCb-r2ZCEz3cfBeBc-QR_HwYWEPMWBMP9GNwIPmnkt2LHxOumOGXVDfKtQ5eke0y5bHirbdYB_3BbtmXnwJl6be_VhVeQNIe8EhqsLe5g/s1600/screen+shot+2013-09-17+at+1.22.26+pm.jpg" imageanchor="1"><img border="0" height="263" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggmj-6-x_jyY7iYJR-siEem4ZodLirrK7EfhhpCb-r2ZCEz3cfBeBc-QR_HwYWEPMWBMP9GNwIPmnkt2LHxOumOGXVDfKtQ5eke0y5bHirbdYB_3BbtmXnwJl6be_VhVeQNIe8EhqsLe5g/s400/screen+shot+2013-09-17+at+1.22.26+pm.jpg" width="400" /></a></span></div>
<div style="text-align: left;">
<br /></div>
<div class="MsoNormal" style="text-align: left;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Indeed, the closing of that gap between the white working
class and traditionally marginalised groups may have made that status anxiety
all the more acute. And the answer surely cannot be to reopen it simply in order
to buy off hostility by the most vocal to globalisation and free trade at the
cost of better policy for everyone. Still less is it an argument for pushing back against openness to trade and migration now that the initial costs have already been experienced - guaranteeing only that they will be less able to partake in the benefits of a faster growing, ever-more-integrated global economy.<br /><br />Doing so would be to compound rather than learn from the mistakes of the recent past.</span></div>
</div>
</div>
Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-76651271755159616392013-04-17T03:34:00.002-07:002013-04-17T03:34:28.138-07:00Introducing Pieria<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">My new site, <a href="http://www.pieria.co.uk/">Pieria</a>, launched last week devoted to improving and expanding the debates in finance and economics. Below is a short summary of what the site is about and what it offers so please do come join the discussion!</span><br />
<span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;"><br /></span>
<span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;"><b>What is Pieria?</b></span><br />
<span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;"><br /></span>
<span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">Pieria is like going to your favourite cafe, if your favourite cafe is frequented by some of the best people in their field; discussing and debating the big issues of the day, a melting pot of ideas, disciplines and points of view. It’s an ongoing conversation and we’ve designed the site to reflect this.</span><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;"> </span><br />
<br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">The main navigation is divided between macro and micro sections, which together give a rounded overview of what’s going on right now in the economy. </span><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">On the homepage you will find the daily ‘HOT TOPICS’ and is a good starting point for exploring the site. These articles combine a briefing report with in-depth commentary on a single key issue that people are talking about or one which we think worthy of wider discussion. </span><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">Hot Topics bring you up to speed on important issues, and provide you with key talking points and plenty of ideas which you can then pass off as your own. </span><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">The main section of the Hot Topic report is entitled ‘what our experts say’ and is made up of key excerpts from conversations we’ve had with our members or from articles they’ve written which you will find in full on their profile pages. This way of working is our take on transparent/conversational journalism, principles which underpin our way of working at Pieria. (See our piece '</span><a href="http://www.pieria.co.uk/articles/straight_from_the_source_an_interview_with_the_founders" style="background-color: white; color: #1b5c87; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto; text-decoration: none;">Straight from the Source</a><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">' for more on Pieria.) </span><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">We think of our EXPERTS section as our black book, but it’s your black book also, and it’s woven into the fabric of the site. It works something like this: Experts have their own profile pages where you will find all of their articles, books and journals. They publish material straight to the site and our editorial team curates these where relevant into our homepage and feature stories, linking back to the original document for readers who want more than an overview. It’s a bit more involved in practice, but that’s it in a nutshell. </span><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><br style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;" /><span style="background-color: white; font-family: Georgia, serif; font-size: 13px; line-height: 18px; text-align: -webkit-auto;">And if you want to explore topics in even more depth, then each article is accompanied by recommended reading from our experts, of either books or journals. 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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-5163574245056515582013-04-01T13:30:00.002-07:002013-04-02T05:18:50.093-07:00In defence of 'plogs'<div dir="ltr" style="text-align: left;" trbidi="on">
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It is fair to say that I would not have imagined myself
writing a post in defence of the Office for Budget Responsibility.
Nevertheless, here I find myself (sort of).<o:p></o:p></div>
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That is not to say I intend to offer any excuses for the
OBR’s worryingly poor forecasting record for UK economic output, which
have been used all too frequently as a fig-leaf to cover a litany of equally
poor policy decisions. Instead I want to defend Robert Chote and his team from
a particular charge levelled at them by the FT’s Chris Giles last week.<o:p></o:p></div>
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In an article entitled “<a href="http://www.ft.com/cms/s/0/c87cf658-954c-11e2-a4fa-00144feabdc0.html#axzz2PEy2uM4T">How
to ‘plog’ the hole in our awful public finances</a>” Giles writes:<o:p></o:p></div>
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“Had the OBR assumed significant spare capacity now
alongside extremely weak growth in the economy’s potential output, it could
combine a lacklustre forecast for output growth without the assumption that
spare capacity would still exist in 2017-18.<o:p></o:p></div>
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The benefit would be a logical and consistent forecast, but
the assumptions would come at a cost: the OBR would have been forced to tell
the chancellor he needed to raise taxes or cut spending further now. In this
world, more of the government’s borrowing would be deemed structural rather
than cyclical – meaning it would not disappear automatically when growth
resumed.”<o:p></o:p></div>
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Given the OBR’s track record, I can understand Giles’
cynicism over the latest forecasts (even though they have become much more
conservative since December). The problem is that the assumption of “extremely
weak growth in the economy’s potential output” relies on an extrapolation of
the UK’s prospects based on current policy. That is, if we continue to go down
the current path the government may ultimately have to cut much deeper in order
to hit its own targets.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And here, I think, is the mistake. Current policy has
undeniably failed to deliver the recovery expected by the OBR to date. With no
meaningful changes to the policy mix it remains difficult to see where the
drivers of growth will come from that will allow the economy to grow 1.8% next year
and 2.3% in 2015.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yet I see it as no less of a heroic assumption to claim that
there has been permanent output destruction than it is for those on the other
side of the debate to suggest that the large output gap can be bridged through
better policy. Moreover, as Japan has demonstrated over the past two decades, the sustainability of government finances cannot simply be measured by a
country’s net sovereign debt to GDP but in its ability to service it.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Giles suggests that if the OBR had factored in a shallower
recovery it might have necessitated “telling
the chancellor he needed more austerity now”. This logic, however, sits
uncomfortably with a <a href="http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf">recent paper
released by the IMF</a> on the challenge of debt reduction during fiscal
consolidation.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In what could be seen as a shot across the bows for
governments trying to cut their way to fiscal sustainability the author’s
write:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“[Debt] targeting could be self-defeating: if authorities
focus on the short-term behavior of the nominal debt ratio, they may engage in
repeated rounds of tightening in an effort to get the debt ratio to converge to
the official target, undermining confidence, and setting off a vicious circle
of slow growth, deflation, and further tightening.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The implication is that bringing in new rounds of fiscal
consolidation to chase arbitrary targets can damage short-term growth causing
the targets to be missed again and necessitating further rounds of cuts. Sure,
if the UK’s output capacity has been permanently impaired then reducing the
rate of spending may be necessary over the medium term, but establishing how
much of the deficit is “structural” and how much “cyclical” seems to me just as
impossible a debate to resolve as establishing a consensus for the size of the
Output Gap has proven.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Giles claims that the implicit assumption of the OBR’s forecast is that the Bank of England is effectively impotent as it is “unable
to eliminate spare capacity in the economy until about 2021”. In effect he goes
on to dismiss this idea by suggesting that the reason the output gap cannot be
bridged through monetary policy is that some output has been permanently lost, therefore is “structural”.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There is, however, another plausible option. With monetary
policy already bumping up against the zero lower bound and most of
the extraordinary measures brought in (such as quantitative easing) limited in
their impact by a damaged financial sector the idea of constraints on monetary
policy is far from fanciful.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If the transmission mechanisms of monetary policy are
impaired, then the impact on the real economy is likely to be muted. Yet one
effect that the BoE’s asset purchase programme has had is in reducing the cost
of government borrowing and, through its <i>de facto</i> guarantee to act as buyer of
last resort, has also helped to invert the impact of economic weakness on
government bond yields.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This has left a potential avenue of central bank policy into the
real economy – government investment. Unfortunately it was precisely the
assumption that fiscal policy could do nothing to aid Britain’s growth
prospects that lead to the Coalition’s austerity policies and appears the tacit
position in Giles’ thinking.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yet as Brad DeLong wrote in <a href="http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf">a
Brookings paper last year</a>:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“[In] a depressed economy, with short-term safe nominal interest
rates at their zero lower bound and with monetary authorities committed to
keeping them there for a considerable period of time, the policy-relevant [fiscal]
multiplier is likely to be larger than econometric estimates based on times
when the zero nominal lower bound does not hold would suggest.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As DeLong’s paper suggests one of <b>the best ways to ensure
that the damage from an economic crisis becomes permanent is to allow cyclical
unemployment to become structural</b>. If the lesson policymakers take from
deteriorating OBR forecasts is that they should do <b>more</b> of current
policy then we may have lots to fear indeed.<o:p></o:p></div>
<!--EndFragment--></div>
Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-31705456401502980082013-03-19T11:35:00.000-07:002013-03-19T11:35:55.424-07:00Cyprus - Beware False Equivalence<div dir="ltr" style="text-align: left;" trbidi="on">
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<br />
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<b>Empathy</b>: <i>The ability to imagine oneself in another’s
place and understand the other’s feelings, desires, ideas, and actions.</i><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When faced with an example of injustice it is a common
psychological trait to relate the suffering of others to our own experiences.
While this can be helpful in fostering greater insight into the personal
hardships they may be undergoing it can also cause people to prioritise the
similarities of their situations and underplay the differences.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
It is in this light that I view attempts to liken the
haircuts to Cypriot depositors to ultra-low interest rates in Britain. Yet to
my mind this false equivalence does a disservice to understandably panicked
depositors in Cyprus and causes undue concern for savers in the UK.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I first came across this particular line of argument on
twitter in a tweet from <a href="https://twitter.com/rosaltmann">Ros Altmann</a>,
former director general of Saga and pensions expert. She wrote:<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
“UK vs. Cyprus - Sterling devaluation +inflation +ultra-low
rates have been stealth tax on savers, to help borrowers and banks”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Altmann went on to point out that UK monetary policy has
cost savers more than 20% in real terms since 2008 inflation peak. And she is
far from alone in her concerns. Many joined her in her staunch defence of
savers against the clawing hands of the Bank of England.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now I’m not actually disputing the facts as presented. Both
savings and real incomes have been clobbered since the crisis by a combination
of near-zero interest rates, modest wage rises and above-target inflation. The
question is whether this combination of factors can be compared with a sudden
seizure of deposits by the state.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is an important question to answer as the critics are
bringing into question the legitimacy of policies brought in to address the
crisis. So is the UK really taking money from savers in order to pay for the
pre-crisis excesses?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It is certainly true that saving and incomes have fallen
sharply in real terms over the crisis. To my mind, however, the question misframes
the problem and obscures the purpose of current monetary policy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
During “normal” times when the economy is growing interest
rates are certainly higher. Yet the reason for this is not simply to reward
savers for their frugality but to incentivise holding back cash in bank
accounts and disincentivise heavy borrowing in order to prevent the economy
from overheating and driving up inflation.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a consequence of the so-called “Great Moderation” savers
got used to these higher interest rates. This was understandable with
politicians unwisely boasting that they had ended boom-and-bust economics. But
the fundamental truth remained that high interest rates reflected the central
bank’s attempt to hold inflation around target, not to protect the purchasing power
of savers.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When the Great Recession struck, therefore, central banks
responded to the economic shock by dropping interest rates. This had a number
of potential benefits. Initially low rates prevented a cascade of disorderly
defaults by allowing struggling companies to refinance at lower rates and
encouraged stronger firms to take on more debt.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, they also caused the rate of interest paid on cash
held in people’s bank accounts to fall. This is quite a deliberate aspect of
the policy as it should prompt savers to move some of their money either into
current spending or investments, which helps boost the velocity of money in an
economy (and therefore GDP).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That it is an intentional effect of monetary policy does not
make it a Machiavellian plot to steal people’s savings. Instead it should be
viewed as a good reason to move money into a portfolio of financial assets that
should benefit in the case of an economic recovery or to bring forward already
planned spending.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In fact some academics, including Professor Miles Kimball of
the University of Michigan, believe that current interest rates remain too
high. Kimball has <a href="http://qz.com/21797/the-case-for-electric-money-the-end-of-inflation-and-recessions-as-we-know-it/">advocated
negative nominal rates</a> whereby central banks could in effect impose a
charge on cash holdings.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In <a href="http://theleisuresociety.tumblr.com/post/45659854526/not-expropriation">a
recent post on her blog</a> FT Alphaville’s Izabella Kaminska says the Cyprus bank
levy represents a harsh example of a negative interest rate. She writes:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“This is the ultimate negative interest rate because it
shows that the privilege of having deposits (delaying spending) is associated
with principal loss, from the offset.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Which is why negative interest rates, as I have long argued,
are a bad omen for the banking model. They show banks have become redundant and
that sound equity is more desirable than deposits or weak equity.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Deposits have always represented a store of value. Rather
than spending (redeeming your money, which is national equity) on goods or
assets which are consumed or depreciate or perish over time you can
artificially extend the life associated with your share or the real economy’s
wealth by turning your stake into deposits (loanable funds).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b>The fact that
deposits are now depreciating more quickly than real assets only implies there
is no longer any sense in delaying spending.<o:p></o:p></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Better to spend now on good equity or goods than be lumped
with disappearing equity.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In terms of the implications of negative rates for the
banking sector, Kaminska certainly raises some fascinating points but I don’t
agree on the particular charge that the Cyprus levy is representative of what the
policy would look like in practice. And this goes to the heart of the debate
about UK monetary policy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
With a mix of above-target inflation and ultra-low interest
rates UK savers are facing an environment negative <b>real </b>rates. Yet unlike their Cypriot counterparts British savers
have the choice of where, when and whether to move their money out of their
bank accounts. That they have not been doing so on a larger scale is indicative
of a failure to explain the consequences of the current policy mix to the
public.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Raising rates while the economy is still weak and companies
(including banks) are in the process of deleveraging could raise the spectre of
disorderly defaults and an increase in bankruptcies. Those campaigning for
policymakers to protect savers need to look at the systemic implications of
their proposed solutions.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Of course none of this should reduce our sympathy for Cypriot
depositors who have found themselves caught up in a political standoff that
they have no control over.<o:p></o:p></div>
<!--EndFragment--></div>
Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-4258853295698980532013-03-11T06:47:00.001-07:002013-03-11T06:51:47.749-07:00Weak sterling is a reflection of a weak economy, not a policy objective<div dir="ltr" style="text-align: left;" trbidi="on">
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As sterling hits another new low against the dollar many
have started question whether the supposed benefits of a weak currency have
been overstated.<o:p></o:p></div>
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Among the voices within the sceptic camp is Andrew Sentance,
former Monetary Policy Committee member and currently senior economic adviser
at PWC. In <a href="http://pwc.blogs.com/economics_in_business/2013/01/still-selling-england-by-the-pound.html">a recent blog post</a> Sentance suggests that while Britain’s economic
weakness and reduced fear over a eurozone collapse have both played their part
in lowering the value of sterling, there has also been a concerted effort by
policymakers to “talk down the pound”.<o:p></o:p></div>
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He writes:<o:p></o:p></div>
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“[A] weak pound appears to be an important ingredient of
official economic policy. Government ministers, including the Chancellor, have
talked of rebalancing the economy and emphasised the role of a competitive
currency in achieving this. The Governor of the Bank of England has argued
along the same lines. In his major speech earlier this week, he argued that the
25% fall in the value of the pound was “certainly necessary for a full
rebalancing of our economy”.”<o:p></o:p></div>
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In order to understand his point we need to look at the
measures taken by the government and the Bank. It is certainly the case that
under normal circumstances a central bank issuing £375 billion of new money
into an economy might be expected to lower the exchange rate value of a
currency.<o:p></o:p></div>
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However, this idea relies on the notion that the Bank of
England has somehow managed to outcompete other central banks through its
easing programme. The figures would suggest that this is far from the case.<o:p></o:p></div>
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It is undeniably true that the Bank’s balance sheet has
swelled to around £400 billion but this is dwarfed by the Federal Reserve’s
$2.92 trillion (£1.96 trillion) or the European Central Bank’s €2.77 trillion
(£2.42 trillion). Moreover, unlike its American counterpart, the Bank has
resisted increasing its stock of asset purchases since the £50 billion boost last July.<o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlOuqloinkBFm4zeHKmPVx-iOd_JpKSMk-CXVjUD-WK5mAmtdMZziYzxepXRf8k0dLLMYfs8YCIzO7YvP-oMrM3okYNHMjSSgr-cMuQnV_aB9T3slTlVHc_n24SurQ8FQMIuvXj9nrgQcP/s1600/dataspot1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="250" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjlOuqloinkBFm4zeHKmPVx-iOd_JpKSMk-CXVjUD-WK5mAmtdMZziYzxepXRf8k0dLLMYfs8YCIzO7YvP-oMrM3okYNHMjSSgr-cMuQnV_aB9T3slTlVHc_n24SurQ8FQMIuvXj9nrgQcP/s320/dataspot1.jpg" width="320" /></a></div>
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In fact sterling’s recent falls against the dollar have predominantly
been a 2013 phenomenon, after the latest batch of asset purchases had already
ceased (see chart below).<o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0TCSCTcqcZFU7fJ9tv270grjukkeKn0Ot7fkwqTwfSkZd3xNTAazNLmUfyeM7BkK0gF9MV7F5jA44jZcQCL5PnnUbZ9c0wBvHfdRizuLdu5fe5UpcqH2bLRON2rQ6Mru2JFq77yyacJwS/s1600/Sterling+vs+dollar.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="223" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi0TCSCTcqcZFU7fJ9tv270grjukkeKn0Ot7fkwqTwfSkZd3xNTAazNLmUfyeM7BkK0gF9MV7F5jA44jZcQCL5PnnUbZ9c0wBvHfdRizuLdu5fe5UpcqH2bLRON2rQ6Mru2JFq77yyacJwS/s400/Sterling+vs+dollar.png" width="400" /></a></div>
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To claim that Mervyn King has managed to influence its trajectory you have to believe that foreign exchange markets are reading the tea leaves of future policy rather than responding to central bank actions. Otherwise the dollar would surely be in freefall after the Fed’s announcement of “Unlimited QE” in September last year that will see the balance sheet grow by $85 billion a month until unemployment falls below 6.5%.</div>
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For those who support the notion of rational markets is it not more likely that markets are instead responding to repeated
demonstrations of Britain’s economic fragility?<o:p></o:p></div>
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Official figures suggest the UK saw a meagre 0.2 per cent
growth last year versus a 2.2 per cent rise in the US’s national output. This
disappointing economic performance has undermined government efforts to improve
the national finances and, much to the chagrin of the Chancellor, cost Britain its AAA rating from Moody’s last
month.<o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5_3vDHDUDVFibP49G5b8evMYAozPqJ2gO6ImuV-XgM8cDq-2zKbP2zBObEb5RSJVYgcaMMRQlFtU7q1zAgqiTxtYQ4ZBMnKW4LcEqVP1nphihQzu2ZM0AFZH4gyYjZUYiFoe9CYoUxq68/s1600/US+vs+UK.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5_3vDHDUDVFibP49G5b8evMYAozPqJ2gO6ImuV-XgM8cDq-2zKbP2zBObEb5RSJVYgcaMMRQlFtU7q1zAgqiTxtYQ4ZBMnKW4LcEqVP1nphihQzu2ZM0AFZH4gyYjZUYiFoe9CYoUxq68/s400/US+vs+UK.png" width="400" /></a></div>
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Here a<a href="http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf"> report from the International Monetary Fund</a> (IMF) last week could perhaps shed some light on why the UK has fared so badly in the post
financial crisis environment. Building on the Fund's earlier work on fiscal multipliers, it suggests that key forecasts for the effects of
government cuts may have been optimistic and that the actual impact of
fiscal tightening policies have been much more severe than anticipated:<o:p></o:p></div>
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“The negative impact of fiscal tightening on economic
activity in the near term is indeed amplified by some features of the current
environment, including the proportion of credit-constrained agents, the
depressed external demand, and the limited room for monetary policy to be more
accommodative…It may also lead country authorities to engage in repeated rounds
of tightening in an effort to get the debt ratio to converge to the official
target. Not explicitly taking into account multipliers or underestimating their
value may lead policymakers to set unachievable debt targets and miscalculate
the amount of adjustment necessary to bring the debt ratio down.”<o:p></o:p></div>
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It should be noted that the paper is not a critique of the
UK government’s plan and indeed the authors are keen to stress that it does not
make a comprehensive case against fiscal consolidation. Rather it serves as a
warning that under current circumstances cutting government spending can
significantly lower output in the short term and worsen a nation’s debt
dynamics before it improves them.<o:p></o:p></div>
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From this line of argument one could perhaps conclude that
if George Osborne chooses to continue with current policy in his Budget then
he is indeed targeting weaker sterling in the short term in order to prompt a
sharp boost to the UK's trade balance. If so he might consider listening to Sentance’s warning
that “exporters in a mature industrialised economy like the UK do not respond
to short-term currency movements in this way”.<o:p></o:p></div>
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As he says, businesses need the longer-term reassurance of strong, stable demand for their products in existing markets before they look to expand operations elsewhere. If the fiscal multiplier is high then far from promoting an export-led recovery government cuts may be helping to erode confidence and force the private sector into its own bout of consolidation.</div>
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Weak sterling is not a policy objective, save as a get-out-of-jail-free card for politicians wedded to the dogma of austerity. So
far it has failed to provide even that.<o:p></o:p></div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-63991201023032938222013-03-04T08:17:00.001-08:002013-03-04T08:29:54.301-08:00The Collapse of the Soviet Union: A Warning for Europe<div dir="ltr" style="text-align: left;" trbidi="on">
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">On June 5, 1989 the attention of the world was grabbed by the image of an anonymous man standing in front of a column of Chinese tanks in Tiananmen Square. Elsewhere, however, in the People’s Republic of Poland an equally momentous event was unfolding in the narrative of the Cold War.</span></span></div>
<img alt="" border="0" id="BLOGGER_PHOTO_ID_5674792603140859122" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSsIBxsQdI0ssOGJ42B5FlpXMvhAnj_94fdWYK73_aHAit0iHRXHo8LfBoafle_5A1k2xn7oHAcLRJw4JXaiwK4Uf18JRkjO-kwc1nlr7iLO73s7YXp-43MZNOqSPbAAXSeHdbYOurRjE/s200/Solidarity.jpg" style="cursor: pointer; float: left; height: 150px; margin: 0px 10px 10px 0px; width: 200px;" /><br />
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Solidarity, a Polish labour union movement born in the Gdansk shipyards at the start of the decade, was poised to shake the Communist stranglehold on power for the first time since 1944. In the first multi-party elections since the country’s liberation from the Nazis the party, led by shipyard worker Lech Walesa, won between 70-80% of the vote and shattered the semblance of Soviet political invulnerability.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">The impact across the USSR’s expansive empire was seismic. By the end of 1989 Azerbaijan, Hungary and Czechoslovakia had declared their sovereignty and these were soon followed by Georgia, Lithuania, Estonia, Latvia and ultimately Russia itself the following year. Over 12 months the Eastern European bloc that had been one of the defining features and central obsessions of the 20th Century imploded at a pace that confounded politicians and commentators alike.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">This was the inglorious endgame for Europe’s last monetary union. While its significance to the global balance of power and to political discourse can hardly be said to have been underappreciated, its relevance to the current woes of Europe’s single currency has been largely ignored.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">A great deal has been written on the numerous failings of the Soviet system by the 1980s. The USSR was overstretched, haemorrhaging money to its vassal states and fighting an increasingly costly proxy war in Afghanistan, and was quickly becoming victim of its own closed economy.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Theoretically it was impossible for the Soviet Union to run a budget deficit. If its liabilities exceeded its revenues the state could simply raise the costs of the goods and services it provided to compensate. Nevertheless when Mikhail Gorbachev took office in 1985 he took on a social system that was struggling to pay its bills.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“The heaviest burden we have inherited from the past is the budget deficit, which was carefully concealed from society, but nevertheless existed,” Gorbachev acknowledged in 1989. “And, of course, the deficit has a pernicious influence on the entire economy…at the practical level the most urgent and immediate task…is to restore a balanced market and normal financial relations.”<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">No doubt many of today’s politicians trying to untangle the complex financial history of southern European economies will have sympathy with the former General Secretary.</span></span><br />
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Yet the Soviet Union’s deficit appeared a manageable 2% in 1985. </span></span><span style="font-family: georgia; font-size: medium;">Even by 1989 as it neared collapse the deficit of the Soviet bloc amounted to only around 9%. Furthermore fiscal transfers, which have proven such a point of contention between euro member states, were an inherent part of the USSR’s structure. Kyrgyzstan and Uzbekistan, for example, would receive over 10% of annual gross national product (GNP) from other republics while more developed countries such as Belarus would traditionally pay out a net 15-20% of its GNP.</span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Of course within this system Russia was the largest source of credit for its satellite republics. Just as Moscow was the political centre of the Soviet project so too it became the biggest regional investor.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“The Soviet Union was a peculiar empire in that it didn’t simply exploit its colonies for material gain but actually provided for them,” says Gabriel Stein.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Increasingly there are voices calling for Germany to follow the Russian example and play a similar role for struggling eurozone countries. Gavyn Davies, chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners, wrote last year in his </span></span><a href="http://blogs.ft.com/gavyndavies/2011/11/06/the-eurozone-decouples-from-the-world/#axzz1dgPbhoMA"><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">column for the FT</span></span></a><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;"> that it could be more informative to view troubles in the eurozone not as a public debt crisis but as a balance of payments problem.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">The struggling eurozone periphery, made up of Italy, Spain, Portugal and Greece, are running a combined budget deficit roughly equal to the current account surplus of Germany. Davies contends that what needs to happen is not some external bailout but the annual transfer of around 5% of German GDP from the eurozone core to the periphery.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">This does not mitigate the pressing need to reform uncompetitive economies but it should provide the breathing room for these reforms to happen without exacerbating the economic slowdown. Neither a condition-free bailout nor a simple policy of enforced spending restraints are likely, by themselves, to return these countries to a sustainable growth path.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">For European politicians, however, the concept of fiscal transfers has provided them with something of a mental block. A number of politicians, with Angela Merkel, the German chancellor, foremost among them, have proven wary of sleepwalking into a fiscal union under the pretext of addressing the crisis.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“A necessary but not sufficient condition for the survival of the euro in its current form would be fiscal union,” Stein says. “But everyone knows that it would be political suicide to attempt it.”<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">The alternative route is to go the way of allowing a limited break-up of the monetary union. By allowing Greece to leave policymakers would be free to focus their attention on the more strategically significant economies of Spain and Italy, while the Greeks could allow their domestic currency to devalue against the euro to plug its competitiveness gap.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Here the Soviet example offers a pertinent warning. On the face of it as the USSR’s main creditor the country that stood to gain most from its disintegration was Russia. Equally those with most to lose were the less developed republics that had become accustomed to central handouts.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">A quick glance at how these republics have fared over the past two decades offers us some stark truths about this process.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Figures from the World Bank show that while per capita income in Russia has almost trebled since 1991 many of its neighbours have failed to keep up. The Kyrgyz Republic, for example, has seen per capita income grow by only 29% over that time, and it took the country almost 15 years for average incomes to return to 1991 levels.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Indeed excluding the Baltic countries, most of the former Soviet states have suffered since the break-up. A number of them were drawn into bloody wars over territorial disputes and huge swathes of their populations emigrated to the West. In the case of Armenia it is estimated that almost a quarter of its people were lost after it declared its independence.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">The Russian Federation, however, was far from immune to the turmoil. The average life expectancy for men fell from 65 years in the mid 1980s to 57.6 years in the early 1990s. This exacerbated nascent demographic problems in the country and the population, having peaked at 148.7m in 1992, has declined to under 142m today.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Chris Weafer, the chief strategist at Troika Dialog, says the central problem was the failure of governments across the region to establish themselves:<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“The reason we saw such a severe economic decline in the 1990s was that there was a sharp decline in government control. It may have marked the end of the Soviet command economy but the reason it took so long to recover was the lack of political leadership.”<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Despite Merkel’s oblique reference to Europe’s troubled history, military disputes are highly unlikely to erupt as a consequence of the eurozone crisis. Yet it is surely of note that cutting Greece off risks forcing the country into years or even decades of economic and social strife.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">It is important to remember that much of the German productivity miracle has been based on the disparity between faster growing southern Europe and the sluggish central European countries. While the austere Germans berate the profligacy of their neighbours now, it was this same consumption boom that fed directly into the country’s savings glut.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Moreover members of the single currency would be unwise to split its members between an expendable periphery and a necessary core. If Greece is forced to exit it could set a precedent that would encourage bond markets to look for the next vulnerable candidate.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">This domino effect is precisely what was observed in 1989. Once Poland had been effectively allowed to separate from Moscow the rest of the “outer empire” fragmented and eventually shook the core until it shattered. With Portugal, Italy and Spain all potentially next in the firing line such a prospect would surely be unwelcome.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Certainly the underlying economic inflexibility of the USSR propelled it towards its demise but that in itself is only part of the story. Ultimately, <b>the key lesson from the Soviet Union’s collapse is that the decision to break-up a monetary union is first and foremost a political and not an economic one</b>.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">As Gorbachev himself put it:<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“The Soviet model was defeated not only on the economic and social levels; it was defeated on a cultural level. Our society, our people, the most educated, the most intellectual, rejected that model on the cultural level because it does not respect the man, oppresses him spiritually and politically.”<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">It is therefore imperative that policymakers convince the majority of people within the eurozone to remain supportive of the single currency if it is to survive. This is one reason why depriving the Greek people of a referendum on membership was such a poor judgement. Above all else they must maintain the cultural legitimacy of the European project.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Already we have seen a rise in the popularity of the extreme right on the Continent. A </span></span><a href="http://www.demos.co.uk/files/Demos_OSIPOP_Book-web_03.pdf?1320601634"><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">research paper from Demos</span></span></a><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;"> concludes that many of these movements tend towards a fear that</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">immigration </span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">and multiculturalism are destroying national...</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">values and culture</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">”</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">. Finland, the Netherlands and Slovakia all boast strong far-right parties while the National Front in France and Italy's Northern League have been gaining ground.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">These nationalists are taking advantage of economic weakness and the understandable fears of the voting public to thrust their regressive ideas of ethic nationalism back on the agenda. Just as in Russia after the default of 1998, the opinion is growing that liberal politicians have failed to address a system in crisis. Attempts to absolve themselves of responsibility b</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">y blaming market</span></span><span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;"> behaviour is only likely to accelerate this process.</span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">“History is against European leaders that the fundamental weakness [in the eurozone] is economic rather than political. They absolutely must have leadership if they are to convince people that the euro will survive,” Weafer says.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: georgia;"><span class="Apple-style-span" style="font-size: medium;">Abandoning a weak link may make pragmatic sense in the short term but it sends a message that the commitment to the euro is far from absolute. Those calling for its dissolution should think again about the both the human and the economic cost that such an act could entail. Europe needs a combination of renewed political resolve and trust in its citizenry if it is to avoid the Soviet outcome.</span></span></div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-90538660808088901152013-02-26T05:34:00.002-08:002013-02-26T08:00:46.319-08:00Corporate cash reserves are far from a myth<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="background-color: #fff2cc; font-family: inherit;">The Telegraph's Jeremy Warner has <a href="http://www.telegraph.co.uk/finance/comment/jeremy-warner/9893496/Trillion-pound-cash-mountain-to-the-rescue-Its-unwise-to-bank-on-it.html">written a piece</a> questioning whether the story about corporate cash hoarding holding back an economic recovery in the UK stands up to scrutiny.</span><br />
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<span style="font-family: inherit;">Although he acknowledges that corporates have been steadily increasing their reserves over recent years he suggested this trend may not suggest that there is a tsunami of </span>investment waiting in the wings<span style="font-family: inherit;">. According to the ONS total cash reserves held on private non-financial company balance sheets accounted for £672 billion in the third quarter of last year, but Warner claims the figure is only "</span><span style="color: #282828; font-family: inherit; line-height: 20px; text-align: -webkit-auto;">£50bn higher than they were before the crisis began and hardly enough to explain the great “compensating” leap in public indebtedness".</span></span><br />
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<span style="background-color: #fff2cc; font-family: inherit;"><span style="color: #282828;"><span style="line-height: 20px;">He goes on to say that the evidence for this being purely a reaction to the crisis and therefore easily reversible is not as strong as many, including members of the Coalition government, have suggested. Rather than a response to short-term uncertainty higher cash balances could instead prove to be "</span></span><span style="color: #282828; line-height: 20px;">a semi-permanent corporate phenomenon". Only through serious entitlement and supply-side reforms, Warner concludes, can the government hope to pull the economy out its current malaise.</span></span></div>
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<span style="color: #282828; line-height: 20px;"><span style="background-color: #fff2cc; font-family: inherit;">It seems only fair to start with an important point in which I agree with the piece. Firstly, it is absolutely true that the increase in corporate currency and deposit holdings began some time before the crisis. Below is a chart of the ONS data:</span></span></div>
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<span style="color: #282828;"><span style="background-color: #fff2cc; line-height: 20px;">As you can clearly see, even a decade ago corporate reserves were on an upwards trajectory. Indeed the rate of increase in reserves was far faster in the five years before the start of the crisis than in the last five years. This suggests that, whatever the underlying causes of corporate cash hoarding are, they are not simply explained by pointing to uncertainty caused by the crisis.</span></span></div>
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<span style="color: #282828;"><span style="background-color: #fff2cc; line-height: 20px;">This, however, is where is where I part ways with the author.</span></span></div>
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<span style="color: #282828;"><span style="background-color: #fff2cc; line-height: 20px;">It is quite clear that <b>irrespective of the drivers of the trend corporate cash balances remain high on historical standards</b>, despite Warner's claim otherwise to me on Twitter. Moreover, it seems to me that either high reserve balances are a "semi-permanent corporate phenomenon" or they are not high by historical standards - they cannot be both.</span></span></div>
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<span style="color: #282828;"><span style="background-color: #fff2cc; line-height: 20px;">Now the confusion here might well have arisen due to the impact of corporate borrowing. If corporates are running large capital reserves and taking on debt then net liabilities may not look unusually high. Indeed there does appear to be evidence that this is in fact the case:</span></span></div>
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<span style="background-color: #fff2cc; color: #282828; line-height: 20px;">The reason for this rise in borrowing can, in my opinion, be traced to a combination of ultra-low interest rates and the desire by corporates to improve returns on equity to keep management and investors happy (e.g. it could be understood as an unintended consequence of the central bank's response to the crisis). As Andrew Smithers, head of Smithers & Co, says:</span></div>
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<span style="background-color: #fff2cc;"><span style="font-family: inherit;"><span style="color: #282828; line-height: 20px;">"</span><span style="line-height: 18px; text-align: -webkit-auto;">The data from the Office of National Statistics show that debt is high, compared to output or assets, whether measured gross of net of cash type assets</span><strong style="line-height: 18px; text-align: -webkit-auto;">. </strong></span><span style="font-family: inherit; line-height: 18px; text-align: -webkit-auto;">Bonds are raised and repaid in lumps. Individual companies therefore tend to have high cash balances when they have just borrowed or are just about to repay debt. On average therefore companies will tend to have more cash when they have more debts."</span></span></div>
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<span style="font-family: inherit;"><span style="background-color: #fff2cc; line-height: 18px; text-align: -webkit-auto;">In itself raising debt at low interest rates is not a big problem. The issue is that this money does not appear to be going to productive investment but instead funding corporate share buybacks:</span></span></div>
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<span style="font-family: inherit;"><span style="line-height: 18px; text-align: -webkit-auto;">As a recent Ernst & Young ITEM Club report suggests, while investment grew by 5.1% in the year to the end of Q3 2012 it was<span style="font-family: inherit;"> still some </span></span></span><span style="line-height: 18px; text-align: -webkit-auto;">11.6% lower than the peak of Q4 2007. </span><span style="font-family: inherit;"><span style="line-height: 18px; text-align: -webkit-auto;">This poses some potential problems as rather than invest in improving efficiency, for example through investing in new technology, or expanding business operations the figures suggest managers are instead focused on massaging equity returns. If the trend continues it could mean that profitability becomes increasingly squeezed and that firms are ill-prepared to take advantage if a recovery sets it.</span></span></div>
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<span style="font-family: inherit;"><span style="line-height: 18px; text-align: -webkit-auto;">It could also mean that companies with large debt piles could struggle to refinance if interest rates were to move upwards, leaving the central bank with the uncomfortable choice of leaving rates lower for longer risking further debt increases or raising rates risking disorderly deleveraging.</span></span></div>
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<span style="background-color: #fff2cc;"><span style="background-color: #fff2cc; font-family: inherit; line-height: 18px; text-align: -webkit-auto;">The falls in capital reserves since Q3 2011 may well point to a slight improvement in corporate investment, although we have not yet seen this reflected in the GDP numbers. Of course, they could also reflect falling profitability as firms dip into their reserve to meet current obligations.</span></span></div>
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<span style="background-color: #fff2cc; line-height: 18px; text-align: -webkit-auto;"><span style="background-color: #fff2cc; font-family: inherit;">I cannot fathom why Warner would wish to paint such a gloomy picture of the UK economy where a cautious, risk-averse private sector indefinitely holds back investment necessary for sustainable growth when the evidence suggests that good policy could alleviate many of the present barriers to recovery. Perhaps the UK's sovereign debt downgrade by Moody's has had the same effect on commentators that doomsayers suggested it would have on markets.</span></span></div>
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<span style="background-color: #fff2cc; line-height: 18px; text-align: -webkit-auto;">Yet if he is right that corporate cash hoarding represents a structural rather than a cyclical shift in corporate behaviour, it argues all the more strongly for the government to help plug the shortfall in investment rather than continue to cut capital spending as the Coalition has done.</span></div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-88571388621646949642013-02-18T00:32:00.003-08:002013-02-18T03:12:29.958-08:00The Price of Safety<div dir="ltr" style="text-align: left;" trbidi="on">
In my latest feature "<a href="http://www.fundweb.co.uk/fund-strategy/issues/18th-february-2013/the-price-of-safety/1065978.article">The price of safety</a>", co-written with Frances Coppola, we take a look at an issue I have been closely following over the past few years - the economic impact of corporate cash hoarding. To my mind the story is a crucial one to help explain why more than five years since the start of the financial crisis Western economies are still struggling to achieve meaningful growth.<br />
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For me the key to understanding this point is an appreciation of sectoral balances. The concept was eloquently summarised by<a href="http://blogs.ft.com/martin-wolf-exchange/2011/12/05/understanding-sectoral-balances-for-the-uk/"> Martin Wolf in 2011</a>:</div>
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"If the government wishes to cut its deficits, other sectors must save less. The questions are 'which ones' and 'how'. What the government has not admitted is that the only actors able to save less now are corporations."</div>
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Since the onset of the crisis executives of cash-rich firms (along with a number of commentators) have argued that they have good reason to build up capital buffers. Macro threats such as the eurozone crisis, heated debates over the federal budget in the US and a possible hard landing in China have all been offered as sources of existential risk.</div>
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When I first looked at the issue I was tempted to accept this analysis. The overwhelming desire for safety in the face of these risks appeared both to explain rising cash reserves and below inflation yields on government debt instruments. In effect management of businesses running a cash surplus were focused solely on downside protection even at the medium term cost to profitability and the wider economy.<br />
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<a href="webkit-fake-url://7429B348-18E2-45DA-A644-077846DAEA9F/application.pdf" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a>Yet Andrew Smithers, head of Smithers & Co, had a different interpretation. <a href="http://www.fundweb.co.uk/fund-strategy/issues/5th-december-2011/skewed-view-of-cash-raises-questions/1042592.article">He noted</a> that while cash reserves were indeed high so too were corporate debt levels. With interest rates at historic lows profitable businesses found an extremely cheap source of financing in debt markets and appeared to be using them to fund, among other things, large scale share buybacks and dividend payments. Smithers says buybacks alone were equal to 3% of UK GDP in 2011.<br />
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Unsurprisingly equity investors have broadly supported these moves with many actively <a href="http://www.creditwritedowns.com/2013/02/excess-cash-on-the-balance-sheet-is-wealth-destruction.html#.USACmj4bXa4.twitter">agitating for them</a>. Some have even <a href="http://www.reuters.com/article/2013/02/08/us-apple-greenlight-idUSBRE9160MI20130208">filed law suits</a> to that effect.<br />
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While I understand their motivation, I think the argument that companies should simply hand their reserves back to investors or reduce the stock of risk-absorbing equity may well be misplaced. This is because in large part these capital stockpiles have been built on businesses slashing their capital investment. The lack of organic investment may be part of the explanation for falling productivity and over the medium term could also have serious consequences for the profitability of these firms (even if the trend can temporarily be masked by a boost to investor returns through buybacks).<br />
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Falling manufacturing profitability, as show by the ONS chart below, could suggest that this squeeze is already starting to happen. It might also demonstrate that corporates are having to try to protect margins by bleeding existing assets to a greater extent and leaning on suppliers - neither really offering a long term solution.<br />
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Furthermore, while the private sector remains focused on its search for safety the public sector in the UK is attempting to cut spending in an effort to improve the longer term trajectory of government finances. This is helping to drive a toxic cycle whereby fears of the impact of government cuts on demand can be used as a pretext for increasing capital buffers - or as Wolf puts it: "The government's - not surprisingly, unstated - policy is to demolish corporate profits."</div>
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In "The price of safety" we conclude that although it may not be the government's intention to undermine aggregate demand, nor the private sector's desire to hold back economic growth (although with large and growing debt piles they may have some motivation to keep interest rates low!) the lack of investment is nevertheless having that effect. Frances writes:</div>
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<span style="font-family: inherit;">"<span style="line-height: 18px; text-align: -webkit-auto;">It is unreasonable of the private sector to withhold risky investment in potentially productive activities themselves </span><strong style="line-height: 18px; text-align: -webkit-auto;">and</strong><span style="line-height: 18px; text-align: -webkit-auto;"> refuse to allow government to do so. If private investors will not take risks, and the government cannot for fear of upsetting private investors, the economy is doomed to stagnation."</span></span></div>
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For me, this is an excellent summary of the game of chicken that has been initiated. Ultimately either the private sector will have to balk at falling profits or the government become shy of driving output lower if we are to break free of the current economic malaise. On current signals from both sides it seems that realisation may take some time yet.</div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-71903821286752193742013-02-14T14:52:00.001-08:002013-02-14T14:52:38.916-08:00Why this time IS different<div dir="ltr" style="text-align: left;" trbidi="on">
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Usually I try to avoid engaging in spats on social media – they’re time consuming and invariably end up with both sides all the more convinced of their original positions. Nevertheless last weekend I <a href="http://storify.com/tomashirstmoney/can-high-transfer-payments-raise-gdp?utm_source=t.co&utm_content=storify-pingback&utm_medium=sfy.co-twitter&awesm=sfy.co_fEK2&utm_campaign=">found myself engaged in one</a> with Ryan Bourne of the Centre for Policy Studies over a <a href="http://conservativehome.blogs.com/platform/2013/02/andrew-lilico-two-fallacies-about-transfers-and-consumption.html">recent post on ConservativeHome</a> by Andrew Lilico.<o:p></o:p></div>
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In it Lilico claimed that the very idea that government transfers could boost aggregate demand and, as a consequence, GDP is a “fallacy”. He writes (emphasis mine):<o:p></o:p></div>
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“The naive idea behind this is the intuition that if people spend more of their money, rather than saving it, that will boost growth. Except that's just wrong. <b>In orthodox macroeconomic models, money that isn't consumed is invested. And investment boosts GDP as well as consumption.</b> So when the economy is operating properly, even if we could costlessly transfer money from high savers to high consumers and would not distort their incentives by doing so, there would be no effect upon GDP - it's just that a bit more of that GDP would be consumption and a bit less investment.”<o:p></o:p></div>
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Now I think it’s important to address this point. Yes, at the most basic level orthodox economic models demonstrate that savings always equal investment. As <a href="http://mainlymacro.blogspot.co.uk/2012/01/savings-equals-investment.html">Simon Wren-Lewis explains</a>:<o:p></o:p></div>
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“In the most simple model of a closed economy without government, income (Y) = consumption (C) + saving (S), but also expenditure (Y) = consumption (C) + investment (I). So S=I by definition.”<o:p></o:p></div>
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The problem here is the so-called “paradox of thrift”. That is, if there is an external shock a reduction in consumption reduces output (and therefore incomes), offsetting any temporary rise in saving.<o:p></o:p></div>
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This fall in output can be exacerbated because people decide not to invest their excess capital but instead park it in bank accounts as money. During “normal” times this should not pose much of a problem as the bank can then lend that money out but this may not happen if, for example, the financial sector is in the process of deleveraging and de-risking.<o:p></o:p></div>
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Instead that additional capital could simply sit on the bank’s balance sheet in order to improve its loan-to-deposit ratio. Or as Wren-Lewis puts it – “the bank may just decide to hold on to the cash”.<o:p></o:p></div>
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During these periods there could be good reason for a government to seek to reallocate idle capital from those with a low marginal propensity to consume (MPC) to those with high MPC. As The Economist’s Daniel Knowles suggests, this should increase the velocity of money (eg what GDP is designed to measure).<o:p></o:p></div>
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To be fair to Lilico his central case is slightly more nuanced than the classical savings = investment model. He states that even if a government were able to transfer money to those with high MPC it may still fail to improve output:<o:p></o:p></div>
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“[It] isn't the amount of <i>saving</i> that counts here, but the amount of <i>over</i>-saving. The fact that one person saves a lot doesn't mean that she over-saves - it might be optimal for her to save a lot. And the fact that someone else hardly saves at all doesn't mean he doesn't over-save - ideally he might save even less! So transferring money from low MPC folk (say, "the rich") to high MPC folk (say, "the poor") might<i> increase</i> over-saving, rather than reducing it.”<o:p></o:p></div>
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Now this looks like a valid point. If we are saying that an external shock can make saving the overwhelming priority for people, then we should assume that it applies as much to those on low incomes as those on higher incomes.<o:p></o:p></div>
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But here is where <b>this time really is different.</b><o:p></o:p></div>
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As the chart below shows, during almost all recent recessions prices have fallen much further than average earnings. During this latest downturn, however, the opposite has happened.<o:p></o:p></div>
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Household costs in particular have held up during the recent recession, shrugging off falling incomes to post in many cases inflation-busting price increases.<o:p></o:p></div>
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What this suggests is that, unlike during a traditional recession, those whose incomes were already hitting up against their expenditure before the crisis would have struggled to cut costs even if there was an overwhelming pressure to save. Many would have had to raid savings, sell investments or borrow against fixed assets just to meet current spending commitments.<o:p></o:p></div>
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Yes, this <i>could </i>also apply to those at the higher end of the income spectrum but they are likely to have been far less impacted by increases in household costs and would be in a far better position to adjust their finances towards saving (liquidating assets, cutting down on discretionary spending etc). Simply put, under current circumstances with the overwhelming incentive to save it is doubtful whether the concept of "optimal saving" is really relevant to the policy discussion.<o:p></o:p></div>
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Bourne, however, claims that people’s spending decisions are not based on short-term factors. In <a href="http://www.cps.org.uk/blog/q/date/2013/02/03/the-idea-robin-hood-policies-would-boost-gdp-and-employment-is-wrong/">his recent blog post</a> on the CPS site he writes:<o:p></o:p></div>
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“Those advocating redistribution now usually do so by advocating one-off transfers because of the current state of the economy. But economic analysis generally finds that people’s spending decisions tend to be based on permanent income, so this sort of one-time transfer is unlikely to have any significant effect even if you believe all of the assumptions above hold.”<o:p></o:p></div>
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Yet that was not what was suggested by the work of Christopher Carroll and Miles Kimball in their 1996 paper “<a href="http://www.econ2.jhu.edu/people/ccarroll/concavity.pdf">On the Concavity of the Consumption Function</a>”. In the paper the authors conclude that “adding income uncertainty to the standard optimization problem induces a concave consumption function in which, as Keynes suggested, the marginal propensity to consume out of wealth or transitory income declines with the level of wealth”.<o:p></o:p></div>
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Or, as Carroll later described in a NBER article:<o:p></o:p></div>
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“[In] the presence of uncertainty, households with low levels of wealth will respond more to a windfall infusion of cash than households with ample resources”<o:p></o:p></div>
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As such there is good reason to believe that <b>precisely because of the current state of the economy </b>transfer payments could increase aggregate demand. While during normal times savings held as cash in bank accounts may have made their way into productive investments, the dysfunction within the banking system at present makes that highly unlikely.<o:p></o:p></div>
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Now, simply because transfer payments could increase aggregate demand does not make them ideal policy. Both Bourne and Lilico rightly point out that there are significant deadweight costs to such policy moves. My preference would, instead, be for government to increase spending on infrastructure, which would have long-term benefits for the economy as well as the short-run boost to aggregate demand.<o:p></o:p></div>
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However, simply because it is not ideal policy does not make it a “fallacy”. The question Lilico, Bourne et al need to answer is whether the economic status quo is really better than the alternative that they attack?</div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-87983967737360201662013-02-14T14:51:00.002-08:002013-02-14T14:52:38.920-08:00How monetary policy can help explain the employment puzzle<div dir="ltr" style="text-align: left;" trbidi="on">
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So over the past few days I’ve found myself in two debates over the impact of automation on jobs with the New Statesman’s <a href="https://twitter.com/alexhern">Alex Hern</a> and the inimitable <a href="https://twitter.com/Frances_Coppola">Frances Coppola</a>.</div>
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In both I wanted to discuss the demand impact of automation, which has thus far been largely ignored in the “robots ate my job” discussion. Basically my point is that the consequences of high unemployment on demand would ultimately be enough to offset the case for automation. Or looked at another way, businesses might choose to retain employees even if the cost per unit is higher than with an automated alternative.<o:p></o:p></div>
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For me, this has important implications. In the short term the fear of demand destruction is likely to do little to dissuade individual businesses from trying to increase productivity through automation – so some of the fears about job destruction are at least theoretically justified.<o:p></o:p></div>
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In the longer term, however, the costs of rising unemployment should help to erode profit margins faster than automation can maintain them. As persistent mass unemployment would be intolerable for both sides – either government transfer payments would have to be significantly increased or circumstances would risk profound social upheaval.<o:p></o:p></div>
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One response to this could be a temporary expansion in the public sector as the private sector adapts to technology “shocks”. There are still plenty of long-term productivity gains that can be achieved through large-scale infrastructure improvements and meanwhile it would allow new types of industry to form.<o:p></o:p></div>
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Alternatively, the private sector may seek to stagger investment in new technology in order to avert a demand shock. To an extent this appears already to be happening, particularly in the energy sector, and has been abetted by protectionist measures by governments (usually at the behest of lobby groups). As Frances points out, this type of labour hoarding comes very close to the Luddite argument.<o:p></o:p></div>
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It is fair to say that both Alex and Frances were sceptical of the demand picture I was painting. I concede that the reality could be much more disruptive and far less smooth a process than it suggests, but I still believe it could ultimately become an important factor – if it’s not already so.<o:p></o:p></div>
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And yet even if you accept the thesis is does not seem a sufficient explanation for what is actually happening in UK labour markets. <a href="http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/january-2013/index.html">Figures out from the ONS earlier this week</a> showed that unemployment fell again between September and November, even as early GDP estimates suggest growth was pretty much flat over 2012.<o:p></o:p></div>
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Ben Broadbent, External Member of the Monetary Policy Committee, gave a speech last September on <a href="http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech599.pdf">productivity and the allocation of resources</a>. In it he laid out the current debate on the causes of the surprising resilience of Britain’s labour market:<o:p></o:p></div>
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“One explanation for this is labour hoarding. Because it is costly both to fire and to re-hire employees firms may have hung on to staff in an expectation that demand will pick up. Another is that underlying productivity growth has slowed. In that case, weak output may not be the result purely of weak demand. It may instead reflect an independent hit to supply, one that explains why employment and inflation have been relatively high.<o:p></o:p></div>
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As extremes, these two hypotheses can have very different implications. If the first is true, then without a strong pick-up in economic activity, employment and inflation are likely to decline. Finding themselves in the position of a cartoon character that has run off the edge of a cliff, but is not yet aware of the fact, firms will at some point have to face reality and trim their under-employed workforce. Cost growth and inflation will then fall. If, instead, supply is (and remains) the problem, we could continue to see below-par output growth without any such implications for employment or inflation.”<o:p></o:p></div>
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Broadbent’s claim is that there is an element of both at play, as the fundamental problem is a <b>misallocation of capital</b>. While labour has proven itself flexible in the aftermath of the crisis, ironically capital has proven sticky.<o:p></o:p></div>
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This has been caused, he contends, by a combination of uneven demand between sectors and an impaired financial system unable to efficiently reallocate capital - hence the growing number of stories about “zombie companies” kept going simply to service debt. Although this would have a negative impact on productivity and output in the short run, it should also mean that there are good reasons to expect these to ultimately recover.<o:p></o:p></div>
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However, I think here there is also an issue that Broadbent does not address. In its efforts to avert a systemic collapse in financial services the Bank of England, along with the other major central banks, has in effect given an open-ended commitment to support asset prices.<o:p></o:p></div>
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In doing so they may be exacerbating the causes of misallocation of capital, in particular through a mispricing of risk. If central bank action is helping keep unproductive areas of the economy on life-support then default risk is effectively taken off the table for investors, encouraging unproductive investment.<o:p></o:p></div>
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Unfortunately this has left successful companies unable to gain access to capital, which is holding back investment in making their businesses more efficient (eg investing is new technology). Employing more workers to meet demand is a partial solution to this, but the current trend could quickly run out of steam if the underlying economy continues to stagnate and real wages continue to fall.<o:p></o:p></div>
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As such while it is understandable that central bankers have focused on the problems within the financial sector to prevent a system-wide collapse, it is not a costless strategy. The problems of “zombie” loans and the rebuilding of shattered confidence between institutions are likely to take many more years to resolve themselves. In the meantime Britain’s economic potential is being squandered.</div>
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Perhaps it is time to take seriously the idea of a sovereign wealth fund for developed countries, as suggested by <a href="http://qz.com/40235/why-the-us-needs-its-own-sovereign-wealth-fund/">Miles Kimball</a> and hinted at by <a href="http://mainlymacro.blogspot.co.uk/2013/01/safe-assets-and-government-debt.html">Simon Wren-Lewis</a>, to help free up productive capital.</div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-74457277913694982882013-02-14T14:50:00.000-08:002013-02-14T14:52:38.919-08:00The uncertain course of debt deflation<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-size: 15px;">This post is written jointly with Frances Coppola.</span></div>
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<span style="font-size: 11pt;">I have been re-reading Irving Fisher's "Debt deflation"<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="color: black; font-family: "Times New Roman"; font-size: 11pt; line-height: 17px;">[1]</span></span></span></a>. Short and immensely readable, it remains one of the best explanations of financial crashes and depression in economics literature. But I am puzzled. What is going on at the moment doesn't quite fit, somehow.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">On the face of it, much of what has happened over the last six years fits all too well with Fisher's description of debt deflation. He identifies two prime causes of booms and busts - what he calls the "debt disease" and the "dollar disease". Over-indebtedness before the crash results in debt deflation after the crash - the "debt disease". And shortage of money in circulation leads to apparent over-production and crashing prices - the "dollar disease". The disastrous deflationary spiral experienced by the US in the Great Depression, and by several Eurozone countries at present, can be adequately explained by these two factors. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">But what is happening in countries such as the US and UK is much less straightforward. We had a crash, followed by sharp deleveraging in the private sector, distress selling, price crashes and bankruptcies. But then we propped it all up. Governments intervened to arrest the deflationary slide by taking distressed private debt on to public balance sheets, and central banks flooded the place with new money to prevent catastrophic price falls. The sharp deleveraging stopped and the price level stabilised - in fact in the UK the general price level actually rose. And yet we seem to be experiencing a number of features of Fisher's debt deflation spiral. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">Fisher identifies a chain of nine linked stages in debt deflation:<o:p></o:p></span></div>
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<span style="font-size: 11pt;">1)<span class="apple-converted-space"> </span><b>Debt liquidation</b> causing <b>distress selling</b> leading to<o:p></o:p></span></div>
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<span style="font-size: 11pt;">2)<span class="apple-converted-space"> </span><b>Contraction of deposit currency</b><span class="apple-converted-space"> </span>as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes<o:p></o:p></span></div>
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<span style="font-size: 11pt;">3)<span class="apple-converted-space"> </span><b>A fall in the level of prices</b>, in other words a swelling of the dollar. Assuming....that this fall of prices is not interfered with by reflation or otherwise, there must be<o:p></o:p></span></div>
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<span style="font-size: 11pt;">4)<span class="apple-converted-space"> </span><b>A still greater fall in the net worths of business</b>, precipitating bankruptcies and<o:p></o:p></span></div>
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<span style="font-size: 11pt;">5)<span class="apple-converted-space"> </span><b>A like fall in profits</b>, which in a capitalistic society leads the concerns which are running at a loss to make<o:p></o:p></span></div>
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<span style="font-size: 11pt;">6)<span class="apple-converted-space"> </span><b>A reduction in trade, in output and in employment of labour</b>. These losses, bankruptcies and unemployment lead to <o:p></o:p></span></div>
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<span style="font-size: 11pt;">7)<span class="apple-converted-space"> </span><b>Pessimism and lack of confidence</b>, which in turn lead to<o:p></o:p></span></div>
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<span style="font-size: 11pt;">8)<span class="apple-converted-space"> </span><b>Hoarding and slowing down still more the velocity of circulation</b>.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">The above 8 changes cause<o:p></o:p></span></div>
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<span style="font-size: 11pt;">9)<span class="apple-converted-space"> </span><b>Complicated disturbances in the rates of interest</b>, in particular a fall in the nominal (money) rates of interest and a rise in the real (commodity) rates. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">Now it is easy to see where in this sequence governments and central banks intervened. Clearly it was between stages 2 and 3 - exactly where Fisher says that reflation might interfere with the process. Bernanke and Geithner may not have read Fisher, but they did what he suggested. Consequently we have not seen a general fall in the price level and we have not had a spate of bankruptcies. But that's where the good news ends. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">There is no doubt that the financial crisis did severely disrupt trade, output and employment, despite the reflationary efforts of governments and central banks. And it is still doing so. Employment in Western nations is well below what it was before the crisis: in the US this shows itself as a stubbornly high unemployment rate, while in the UK it takes the form of substitution of full-time employment with part-time, short-term and casual work. Output is also significantly lower than before, to the extent that the UK's OBR pessimistically forecasts that it cannot return to its previous level. And both domestic sales and exports are reduced. The feeble nature of the economic recovery is the reason why Western central banks are still reflating their economies six years after the crisis. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">Evidently the reflation did not fully prevent stage 6 from occurring. And it seems to have had no effect at all on the subsequent stages. Pessimism and lack of confidence is evident throughout the economy: people are worried about their savings, their jobs and their incomes. People and businesses are cutting spending and saving like crazy: they are paying off debt and hoarding cash and other assets. Investors are moving their funds to safe havens - highly-rated government debt, traditional safe haven currencies such as the Swiss franc, government-insured deposit accounts. Even UK local authorities are under-spending their budgets and building up reserves. Yet the crisis itself is long over and did not cause the catastrophic deflation of the 1930s. What on earth is going on?<o:p></o:p></span></div>
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<span style="font-size: 11pt;">There is no doubt the prompt intervention of the authorities prevented a repeat of the 1930s disaster. We did not repeat the mistakes of the early 1930s, except in the Eurozone where the Euro straitjacket forced countries to maintain tight monetary and, latterly, fiscal policy, precipitating the classic deflationary spiral. Or - did we? Six years on, monetary policy is so loose it is practically in pieces and central banks are resorting to increasingly esoteric and untested tools to find ways of depressing interest rates further (actually this amounts to the "complicated disturbances in interest rates" that Fisher mentions, though not for the same reasons). But fiscal policy is another matter. In contrast to 2009, when governments worldwide collaborated to give substantial fiscal stimulus to the global economy as a whole, the general policy stance of Western governments now is that fiscal policy must be progressively tightened in order to reduce public deficits and - as the IMF puts it - "get public finances on to a more sustainable path". In other words, we are VOLUNTARILY undertaking debt deflation in the public sector. The only Western government that hasn't so far adopted fiscal austerity as a general policy is the US. But it clearly intends to. Even Obama talks about reducing the deficit , though whether he means short-term spending cuts or longer-term structural reform is unclear. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">The prevailing view appears to be that fiscal "reforms" - i.e. public debt deflation - can be conducted despite difficult economic conditions if monetary policy is supportive. But this ignores the fact that fiscal and monetary policies affect the economy in different ways. Monetary policy primarily affects the financial system: fiscal policy primarily affects the "real" economy. Or in US parlance, monetary policy influences Wall Street, fiscal policy Main Street. Obviously there are indirect effects: monetary easing depresses interest rates on variable-rate mortgages and on savings and investments, benefiting homeowners: taxation policy affects the nature and direction of money flows around the financial system. But the direct effects have more impact - and the direct effects of ANTICIPATED fiscal austerity and government spending cuts are sufficient in themselves to explain pessimism, lack of confidence and hoarding among the general public. Never mind that governments actually haven't done much fiscal tightening yet. All that matters is that people think they are going to. Public sector workers are worried about losing their jobs - and with reason, as there have already been significant job losses and further cuts to government departments are planned. Working-age people on low to middle incomes worry about tax rises and benefit cuts. US pensioners worry about cuts to Medicare: UK ones, about means-testing of benefits such as the winter fuel allowance. And there is clearly more to come. The UK government responded to the news that it would miss its deficit reduction target by announcing a further 3 years of cuts and austerity. Really they are stupid. Did they think people would react to that by going on a spending spree? Anybody with any sense surely could have foreseen that people would respond by increasing their savings level. The effect of the UK government's announcement must have been to depress the economic activity of average UK households. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">Perversely, the effect of monetary easing can also be to reduce spending and increase savings rates. Pensioners on fixed incomes cut their spending in anticipation of poorer returns on their investments due to depressed interest rates. And people who are suffering erosion of their capital due to negative real interest rates don't necessarily spend the money instead - certainly not if it is money they are saving up for their old age. No, they try to make good the difference. They cut discretionary spending and save even more. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">The effect on businesses of anticipated fiscal austerity is slightly different. Businesses generally don't suffer directly from fiscal tightening, unless governments raise corporation taxes. They suffer indirectly, because of demand reduction caused by households suffering reductions in real income and/or opting to save instead of spend. Resilient (or even improved) private sector profitability has been the surprising story of this financial crisis, but it has largely been driven by the ability of some businesses to bleed existing assets (increasing rents) while cutting investment in future projects (holding back innovation causing artificial scarcity). Unfortunately because incomes are being squeezed by a combination of inflation and corporate cost cutting this will likely prove a temporary state of affairs. Indeed we are already seeing a growing number of corporate profit warnings.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">The problem then is what companies do with their surpluses. If fiscal policy is still a driver of uncertainty then there is very little incentive for them to start investing as they rationally assume demand will be further undermined. But the alternatives are not very compelling either – sitting on cash (or cash-equivalent assets) with interest rates around zero and above-target inflation mean they are already losing significant amounts in real terms. Moreover, contrary to what a number of investors have been advocating for, committing to paying it out as dividends is also problematic as at best it can only buy time unless the business can achieve meaningful organic growth.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">Yet their reluctance to spend is helping to intensify the economic downturn and undermining central bank attempts to reflate. This has created a destructive cycle whereby businesses try to anticipate the demand impact of government cuts by building up surpluses, increasing the actual impact of the cuts when they occur. The burden is then shifted onto central banks to mitigate the shortfalls by trying to reflate the asset base, even as the spillover effects of unorthodox monetary policy erode returns on safe assets and prop up inflation above average wage rises. It hardly makes a compelling case for banks, which are under regulatory pressure to de-risk, to start increasing lending to the real economy.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">They too are sitting on what little profits they are able to make, refusing to take on risk and lobbying government in the hope of reducing<span class="apple-converted-space"> </span>regulatory threats.<o:p></o:p></span></div>
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<span style="font-size: 11pt;">Debt deflation doesn't follow a predictable sequence: it meanders in an uncertain and unpredictable manner, depending on the situation of each economic agent. So the<span class="apple-converted-space"> </span>relationships between Fisher's nine linked stages are complex, and the effect of later stages can be to recycle earlier ones. So, for example, the effect of private sector hoarding is to reduce economic activity, depressing trade, output and employment and causing bankruptcies. Businesses that aren't highly indebted and are able to cut costs may survive depression of customer demand, but businesses that have significant amounts of debt and/or high fixed costs may go right back to stage 1) - debt liquidation, distress selling and bankruptcy.<span class="apple-converted-space"> </span><b>This includes banks</b>. There have been calls for banks to reduce "forbearance", where they do not foreclose on bad loans, because it maintains businesses that should be allowed to fail, preventing growth of new, more viable businesses. But when the banks have balance sheets stuffed full of loans to zombie businesses and underwater homeowners, their own solvency is at risk if they foreclose on those loans. Forbearance is a self-protective hoarding strategy on the part of banks. Without it, banks would go bankrupt. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">The effect of banks desperately hanging on to bad loans in order to avoid bankruptcy is that new lending, particularly to business, is severely curtailed - as Fisher forecast. They cannot afford the risks that these businesses represent. They have quite enough risk on their balance sheets already. But the effect is that small and medium-size businesses, particularly, are starved of the essential finance they need to grow. And as Fisher also forecast, debt deflation in general and hoarding behaviour in particular (including forbearance and lending restriction) has disruptive effects on interest rates. Interest rates on assets perceived as "safe" crash through the floor, while interest rates on finance for productive activity head for the moon. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">So the picture we have is one of continuing, though slow, debt deflation and significantly disrupted price mechanisms despite - and to some extent because of - central bank attempts to reflate. It seems that the supportive effect of monetary easing is cancelled out by both the reality and the threat of fiscal austerity. We are locked into the same deflationary spiral as the US of the 1930s, but at a much slower pace. Now, slow may be better - it may avoid the appalling hardship described by Steinbeck and evident in reports from today's Greece. But it does mean that recovery is not going to happen for a very long time. <o:p></o:p></span></div>
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<span style="font-size: 11pt;">Whether softening the fiscal stance, delaying public sector financial reforms and allowing reflation to do its job would stop the debt deflation spiral and allow economies to recover I don't know. There are a lot of very worried people out there. It may be that the biggest problem now is not the debt, not the economic problems, but people's hearts and minds. The world is a frightening place at the moment. Everyone is desperately trying to protect what they have rather than risking it in the hopes of better to come. But risk-taking is essential for economic growth. While risk aversion remains the dominant paradigm, there can be no lasting recovery. <o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Calibri; font-size: 12pt; line-height: 18px;">[1]</span></span></span></a> Irving Fisher – Debt Deflation: http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf</div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0tag:blogger.com,1999:blog-176494268867728621.post-54110228451607572922013-02-14T14:49:00.001-08:002013-02-14T14:52:38.911-08:00The dangerous game of monetary policy primacy<div dir="ltr" style="text-align: left;" trbidi="on">
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There is a growing trend, particularly among US economic commentators and bloggers, to stress the importance of the policy choices facing central bankers. While monetary policymakers will undoubtedly be crucial in achieving and sustaining an economic recovery, ignoring the impact of fiscal policy choices on fear-driven economies is wrongheaded.</div>
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Of course, many will argue that it was ever thus. Writing on the CrookedTimber blog, John Quiggin explains (emphasis mine):<o:p></o:p></div>
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“Clearly there was a consensus as of early 2008. The differences between “saltwater” (former New Keynesian) and “freshwater” (former New Classical/Real Business Cycle) economists had blurred to the point of invisibility. Everyone agreed that the core business of macroeconomic management should be handled by central banks using interest rate adjustments to meet inflation targets. In the background, central banks were assumed to use a Taylor rule to keep both inflation rates and the growth rate of output near their target levels. <b>There was no role for active fiscal policy such as stimulus to counter recessions</b>, but it was generally assumed that, with stable policy settings, fiscal policy would have some automatic stabilizing effects (for example, by paying out more in unemployment insurance, and taking less in taxes, during recessions)… This broad consensus was destroyed by the Global Financial Crisis and the Great Recession, but it wasn’t replaced by anything resembling a real debate.”<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[1]</span></span></span></a><o:p></o:p></div>
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That is to say mainstream economic models assumed that the role of fiscal policy during a recession was to act as a stabilising force as increased spending on social welfare acted to mitigate falling economic activity. Monetary policymakers could then use their interest rate levers to lower borrowing costs, push interest down on savings (decreasing the incentive to hoard capital) and improve growth expectations.<o:p></o:p></div>
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As Quiggin suggests, however, these traditional policy channels proved insufficient to cope with the impact of the Global Financial Crisis and its aftermath. Instead a combination of massive fiscal stimulus alongside a range of new monetary policy tools, including large-scale central bank asset purchases and looser inflation targets, were brought in to counter systemic threats to the financial system.<o:p></o:p></div>
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Whether these new tools have proven successful is the subject of much debate. What is increasingly apparent though is that subsequently central bankers have proven far more responsive to changing circumstances than politicians on both sides of the Atlantic.<o:p></o:p></div>
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Given the political gridlock in America and austerian fervour across the European Union it is understandable that focus has been driven towards areas where meaningful policy decisions can still be achieved (i.e. the Federal Reserve and the Bank of England). Yet while central bank policy loosening (even the unorthodox variety) undoubtedly has an impact, it is being diluted by the threat of fiscal tightening hanging over developed economies.<o:p></o:p></div>
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This point could prove crucial. If the West is facing a period of persistent demand weakness with current output significantly below potential (see Roger Bootle<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[2]</span></span></span></a> and Gavyn Davies<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[3]</span></span></span></a>) then the private sector has little reason to invest in trying to grow their businesses, and a large incentive to hoard capital. Indeed this is what we have seen.<o:p></o:p></div>
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Slate’s Matthew Yglesias says that the best way in which to shake these reserves loose is through leaning on monetary policy measures. He writes (emphasis mine):<o:p></o:p></div>
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“That's why a real strategy for bringing corporate cash off the sidelines doesn't have anything to do with tax reform (though tax reform might be nice), it has to do with monetary policy. Specifically an NGDP targeting strategy or an "Evans Rule" strategy would work on both of these dimensions. That's because both the Evans Rule or a reasonable NGDP target amount to a promise that either real growth will be faster-than-expected or else inflation will be faster-than-expected or else both. That doesn't give you "certainty" about the future, but <b>it gives you a rational basis for shifting assets at the margin out of low-yield high-liquidity strategies and into more aggressive ones</b>. That more aggressive business investment posture should, in turn, produce both more real output and somewhat higher prices thus creating a credible virtuous circle.”<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[4]</span></span></span></a><o:p></o:p></div>
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I think Yglesias is missing something here. I agree with him that profitable firms must decide what to do with their excess cash. Yet when faced with existential threats, such as a eurozone collapse, or the prospect of wilful demand destruction carried out by governments they have good reason to seek insurance in “safe assets” like sovereign debt rather than put capital at risk.<o:p></o:p></div>
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Looked at another way the US debt ceiling debate – much as the fiscal cliff debate before it – is not really about a threat of sovereign default but about the future of fiscal policy. If the Republicans succeed in exacting harsh spending cuts then the country could quickly find itself in a similar position to the UK – with a government wedded to both upfront cuts to spending (including slashing investment) and reducing countercyclical benefit payments.<o:p></o:p></div>
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You need only look at Britain’s recent economic performance to illustrate just how successful those policies have been.<o:p></o:p></div>
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That Obama appears sympathetic to the argument that his administration needs to rein in spending<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[5]</span></span></span></a> should be a concern. As Jonathan Portes, director of the National Institute of Economic and Social Research, has suggested<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftn6" name="_ftnref6" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[6]</span></span></span></a> the danger with this type of thinking is that it risks self-fulfilling pessimism even as debt markets are effectively paying governments to borrow.<o:p></o:p></div>
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I would not argue against the point that there are a number of necessary reforms to put both Britain and the US onto sustainable fiscal trajectories, including dealing with contentious issues such as healthcare and pensions. But lumping these in with short-term efforts to reduce the deficit, as the Coalition is doing and as the GOP are threatening, looks increasingly counterproductive.<o:p></o:p></div>
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Denying the need for fiscal and monetary policy coordination simply because the political classes have become dysfunctional rather lets politicians (and their economic advisers) off the hook. We should instead be vocal in pointing out their folly in the hope, if not the expectation, that they will realise there is still time to change course.<o:p></o:p></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[1]</span></span></span></a> http://crookedtimber.org/2013/01/01/the-failed-state-of-macroeconomics/<span lang="EN-US"><o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[2]</span></span></span></a> http://www.telegraph.co.uk/finance/comment/9701668/OBRs-supply-pessimism-could-be-the-ruin-of-this-government.html<span lang="EN-US"><o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[3]</span></span></span></a> http://blogs.ft.com/gavyndavies/2013/01/13/how-much-spare-capacity-does-the-world-have-left/<span lang="EN-US"><o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[4]</span></span></span></a> http://www.slate.com/blogs/moneybox/2012/12/11/cash_on_the_sidelines_has_nothing_to_do_with_uncertainty.html<span lang="EN-US"><o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[5]</span></span></span></a> http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/14/obama-wants-1-5-trillion-in-deficit-reduction-what-about-the-gop/<span lang="EN-US"><o:p></o:p></span></div>
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<a href="http://www.blogger.com/blogger.g?blogID=4599046696381808078#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Cambria; font-size: 12pt;">[6]</span></span></span></a> http://www.publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/uc1691-i/uc169101.htm</div>
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Tomas Hirsthttp://www.blogger.com/profile/03513019095017908741noreply@blogger.com0