Even with Fake Birds?

A Bird in the Hand

is Worth Two in the Bush

Rick Hebenstreit

Flickr

"A bird in the hand is worth two in the bush."

"Well then, I'll trade them two in the bush over yonder for that there one in yore hand, even-steven, okay?"

"Shore."

"Hey, wait a second! These birds are fake!"

"Nah, they're just sleepin'."

"Like that parrot you sold me? The one that's still sleepin'?"

"Egg-zakly like that parrot."

Economics: Josh Barro Cites Greg Mankiw, and I Learn Something Sort of New

Property Tax

Illustration by Mark Shaver

In an article titled "The Inevitable, Indispensable Property Tax" (NYT, July 4, 2015), Josh Barro reminds us of something we already know (else it wouldn't be re-minding):

As the economist Greg Mankiw wrote in this space three years ago, "A good rule of thumb is that when you tax something, you get less of it."

I kind of knew this intuitively, but I'd never heard it formulated, not even as a rule of thumb. The exception to this rule is . . . da-da-da-dum: Property Tax. Why the exception? "[B]ecause it can't be moved and it lasts a long time."

That makes two (or three?) new things I learned today! I realize most of my readers know these things already, but I've got a very spotty education. In fact, if I had my education to do over again, I'd make sure to take some economics courses.

"Hindsight is better than foresight" - which I think means we can see better with our hind ends than with our foreheads.

Steffen Huck - "The Economics of Breaking Bad"

Walter White

Breaking Bad
The Spectator

Concerning Breaking Bad, I've read another excellent review of this brilliant television series I've never seen: "Can you trade love for wealth? The economics of Breaking Bad" (The Spectator, October 2013). The review is by Steffen Huck, professor of economics at University College London and director of Economics of Change at the Wissenschaftszentrum Berlin für Sozialforschung, and here in part is what Professor Huck has to say:

When Breaking Bad hit our screens, . . . [t]he social experiment that the series set out to explore was strikingly simple: take an ordinary, law-abiding citizen and have him dabble in crime. Walter White Sr, a failed chemical scientist-cum-high school teacher, who works after hours at a car-wash plant to make ends meet, is diagnosed with advanced lung cancer. Facing death and foreclosure on his family home, he goes into partnership with his former pupil-cum-minor drug dealer Jesse Pinkman. As a gifted chemist, Walt will cook crystal meth of unprecedented quality and Jesse will sell it. Just enough to make sure that Walt's family, his newly pregnant wife and his teenage son, who suffers from cerebral palsy, will be able to survive once he is in his grave.

It sounds reasonable enough, doesn't it? Well, it does to a modern-day economist. Changes in circumstance (the prospect of premature death) give rise to changes in lifetime income (no salary for the deceased) as well as relative prices for different goods and services (no punishment for the condemned). A small change in consumption and occupational choice are exactly what is called for. After all, life is all about trade-offs[,] and when variables change[,] some fine-tuning is needed. Simple graphs drawn on blackboards in every introductory class to microeconomics demonstrate the innocuousness and indeed rationality of Walter White's choice.

But then it all goes wrong. Walter's cancer goes into remission in season two, and whereas his old self (the one that made thoughtful lists about the pros and cons of killing an adversary before proceeding) would have changed course at this point, his new incarnation punches his mirror image in the face when the happy news arrives.

In the process of trading off morality against self-interest a peculiar thing has happened to Walter. Something has been destroyed. Roger Scruton, the British philosopher, writes in his enlightening treatise on Richard Wagner's Tristan und Isolde: 'We are tempted to live by rational self-interest, judging everything -- the sexual act included -- in terms of cost and benefit. Homo economicus, who exchanges duty for pleasure and value for price, seems to us to have freed himself from guilt. But if he has done so, we recognise, it is because he has freed himself also from love.'

And so has Walter White. While his initial choice was justified by love for his family, he now embarks on a course that will destroy the very essence of this love. For those who harboured hope for Walt and his wife Skyler, it all comes crashing down in episode 14 of the final season. The two of them roll on the floor; between them, shockingly erect, is a knife.

It is a Wagnerian plot that the show's creator Vince Gilligan confronts us with. Love and morality cannot be straightforwardly traded for power and wealth.

And why can this trade-off not straightforwardly occur? Why not? Because that trade-off changes us essentially, transforming us into a thing immoral and unlovable. Or that, I gather, is the message of Breaking Bad.

For more on Huck and Gilligan, follow this link to "Vince Gilligan in Conversation," where you'll find another link to this video of the two-hour conversation among Gilligan, Huck, and others.

European Trilemma?

Purple People Eater?

Eeyew!

Illustration by Chris Van Es

Project Syndicate

I think I've previously blogged about Harvard professor Dani Rodrik's views on the problems faced by the European Union (EU), but why should that stop me from posting again? In an article "The Truth About Sovereignty," written for Project Syndicate (October 8, 2012), Rodrik explores what he calls the EU's trilemma:

That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.

By "We," he means the EU. But why can't 'we' have all three? Does Rodrik mean that a democratic nation-state cannot participate in globalization? If so, then is he implying that a world government is necessary for globalization to take place? He seems to understand globalization in primarily economic terms, as a large-scale integration of the world economy. But for that to work, there must be rules that can be enforced by one political center, and that excludes democratic national sovereignty. The world is the EU writ large, it seems. But wouldn't globalization also exclude nondemocratic national sovereignty? You'll have to read the article to try to follow his argument.

I do think that the EU faces a trilemma, but I wouldn't use the term "globalization." I'd refer to "economic union," instead. If the EU wants economic union, then national sovereignty doesn't seem to fit, as we see in Europe's current economic difficulties. But that means that democracy at the nation-state level won't have much authority over fiscal policy, so to save democracy in the EU, the EU will need to ground democracy at the EU's political level.

But is globalization the same as economic union? Can any reader clarify this for me?

Europe's Integration Problems

Dani Rodrik

Homepage

A year ago last fall, as some may remember, I taught a course on European integration, focusing on cultural issues, mainly, but touching upon some economic and political points, e.g., the Euro as common currency without the equivalent of America's Federal Reserve system to oversee a common monetary policy and without a political center to make fiscal policy. Not that I foresaw any of the current difficulties -- I am too ignorant of economics for that. Others predicted such risks, of course, and the contemporary economic problems in Europe have a way of focusing one's mind, so I've learned to appreciate reading what economists write, even taking a certain grim pleasure -- though not shadenfreude -- in their vocabulary of misery:

So, let's say you have mastered the euro zone concept of "financial contagion." Maybe you even know a thing or two about the euro "doom loop," in which sickly banks and indebted governments threaten to drag each other down a death spiral.

Time now to learn a new buzzword, one that captures the anxieties of those seeking long-term stability for the euro currency union: "trilemma."

The term, coined a dozen years ago by a Harvard University economist writing about the global economy, has come to encapsulate the awkward political options confronting the 17 euro zone countries.

To make the currency union work for the long haul, euro countries' heads of state have generally concluded that they must more fully integrate their economies. But within their own countries, the political leaders have only shallow support for that idea, if not outright resistance, from voters.

According to the trilemma theory, drawn in part from studies of the economic crises of 1930s and 1940s, it is possible to have two of three things: deep economic integration, democratic politics and autonomous nation-states.

But under the theory, it is not possible to have all three.

Lovely terminology: financial contagion, doom loop, trilemma. And ever notice how the word "terminology" sounds so . . . terminal? As though the end is near? But to get back to the trilemma noted by Stephen Castle in this article, "Euro Zone Nations Wrestle With a 'Trilemma'" (New York Times, July 6, 2012). This trilemma has been articulated by the above-depicted Dani Rodrik, Harvard Economist, who also proposes a resolution:

So how does Mr. Rodrik, the Harvard economist, propose that Europe resolve its trilemma?

A solution, in his view, might involve giving Greek, Spanish and Italian voters a greater say over euro zone decisions through a transnational system of democracy.

"This would be something like the U.S. federal system . . . in which the federal government doesn't bail out state governments but looks after residents of Florida, California, etc. directly because they are represented through their congressmen and senators."

He might have added that the bicameral American federal system offers a democratic compromise in return for the loss of individual, autonomous nation-state sovereignty. Each state would have both 'congressmen' and 'senators' who represent the people of their respective nations. Moreover, the 'senators,' who constitute the upper chamber of the bicameral legislature, would retain for each state a degree of state authority (not quite autonomy, of course) and a measure of state power even for states with small populations, so as to not let them be swallowed up in the political system by the democratic power of states with large populations.

But this doesn't so much resolve the trilemma (if a resolution means retaining all three horns) as offer a compromise in return for the loss of nation-state autonomy, and individual European nations might be unwilling to accept that.

The Trouble with Europe, the Future of Korea?

Rachel Donadio

Photo by Jacqueline Mia Foster
New York Times

Well . . . the trouble with Italy, anyway (and Korea's future?). Rachel Donadio, in "Stuck in Recession, Italy Takes on Labor Laws That Divide the Generations" (NYT, March 19, 2012), describes a problem that plagues Italy (and likely other European countries), a welfare state that advantages the old, disadvantages the young, stifles the economy, and is no longer paying for itself:

[A] generational divide . . . is crippling the Italian labor market. While older workers came of age with guaranteed jobs and ironclad contracts granting generous pensions and full benefits, younger Italians . . . are now paying the price. They are lucky to find temporary work, which offers few benefits or stability . . . . [U]nions, business groups and countless governments have invested in the status quo to protect their constituents, at the expense of economic growth. Without . . . changes, . . . Italy is headed toward an economic and social implosion, with a rise in under-the-table work and a looming pension crunch . . . . Italy's employment rate and productivity have been stunted by high labor costs . . . [. L]owering the cost of firing workers and increasing protections for shorter-term contracts would encourage companies to hire, stimulating growth . . . . "We have to get away from a dual labor market where some are overly protected, while others totally lack protection and benefits when unemployed," the prime minister [Mario Monti] said shortly after taking office . . . . [adding] that "equity and growth" would be the watchwords . . . and that he aimed to increase employment . . . . The most delicate topic . . . is the infamous Article 18 of the Italian labor statute of the 1970s . . . . It states that workers cannot be fired without just cause and, if fired, can sue their companies to be reinstated . . . [and] generally win . . . . While such cases are pending in the . . . slow legal system, companies . . . [must] keep fired workers on the payroll . . . at the expense of a company's solvency.

Italy -- and Europe -- has to solve this very pressing problem, and the solution will mean fewer benefits for those whom the welfare state has long protected. The irony for me is that just as Europe's welfare system is falling apart in some countries, South Korea's government is beginning to move toward a welfare system without seeming to give this enormous change much thought. For instance, Seoul's current Leftist mayor, Park Won-soon (of the Democratic United Party), pushed for free meals provided to all elementary school students in Seoul -- all of them! -- because the mayor and others on the Left didn't want only impoverished students to receive free meals, for that would 'shame' them in the eyes of their peers. One sees where this sort of 'thinking' would logically lead: welfare for everybody so that nobody is ashamed to be on the dole! The Korean Left's ideological sentimentality overrides reason.

And Korea's government spending is already increasing so precipitously that Lee Eun-joo, in "Piling debt could haunt economic growth" (JoongAng Daily, March 20, 2012), notes the money spent on public works, public housing, and the like, and adds up the cost:

According to data compiled by the Ministry of Strategy and Finance and the Bank of Korea, Korea's public sector's debt, including debt held by central and provisional governments as well as state-run companies, reached 789.4 trillion won ($703 billion) as of the end of the third quarter last year, up 9.2 percent from the previous year. This is double the government's budget of 325.4 trillion won for 2012.

In the same issue of the JoongAng Daily, Yu Jung-jae editorializes about "The real consequences of welfare," noting that both Left and Right share blame for thoughtless welfare policies. Why would the Korean Right join in? Yu reminds us that much social welfare legislation began in Germany under the right-wing Bismarck as a means of exerting control over society since a state that offered pensions held more power over its citizens. That perhaps was true of a Prussian-inspired authoritarian state like Germany's in the late 19th century, but in a democratic state, the political parties support social welfare because it's popular and gets politicians votes, and that dynamic goes on year after year until the entire system begins to implode, as in Greece or Italy, as well as other European countries.

The good news is that some Koreans see the looming problems, and I hope that their more sensible warnings receive a hearing. Korea has a strong economy and a population with a work ethic. I'd hate to see that ruined by thoughtless welfare policies that only serve to land Korea in European-style problems.

Not that I would oppose a reasonable social welfare program for those in need, but the definition of 'neediness' seems rather elastic . . .

Risky 'Robotic' Market Algorithms?

Rossum's Universal Robots (1921)
Karel Čapek, Playwright

Three Robots in a Scene from R.U.R.
Wikipedia

I read an alarming column by Mark Buchanan that riffs off Ray Kurzweil's concept of the "singularity" -- the point at which technology surpasses us in intelligence -- which might be sooner than we generally believe. The column, titled "The Reign of Robots May Be Closer Than You Think" (Bloomberg, March 7, 2012), warns of the danger lurking in our increasing tendency to automate processes that had formerly been subject to human judgment. Why a danger? Buchanan points to evidence of a shift toward automaticity in market trading and explains its risky implication:

[F]inance is flirting with a similar transition [through a singularity of its own], as ever-faster computing and communications technology takes high-frequency trading into a regime of speed where human beings can no longer keep up.

Indeed, Buchanan thinks that "we may have already arrived," and offers some disturbing evidence:

In a recent study, physicist Neil Johnson and colleagues found more than 18,000 instances over the past five years where markets, in about a second and a half or less, either ticked up or down at least 10 times in a row, making prices rise or fall in that span by more than 0.8 percent. Many of these mini-crashes and mini-booms took place in well under a tenth of a second, effectively instantaneous from a human perspective . . . . [and] have been happening roughly 10 times per day . . . . The same study looked at the incidents on different timescales, both above one second and below, and found a striking difference. Over periods of one second or longer, the distribution of events by size has the familiar "fat tailed" distribution -- the norm for markets, . . . which reflects their pronounced susceptibility to large price changes . . . . [F]or events that last less than one second, . . . the distribution is "fatter than fat" and shows an even greater than normal tendency for Black Swan-type upheavals . . . . [But what's] so special about one second? . . . . [T]he researchers point out . . . that one second . . . [is] around the speed limit for fast human decision making . . . . [A]re the markets at this timescale showing the signs of an emerging all-machine phase of trading over which human decisions have little influence or control?

Buchanan would answer yes, markets are showing signs of machine control. Why is this happening? We first have to understand a distinction between uncrowded and crowded markets:

Mathematical studies . . . show that one of the most fundamental factors influencing . . . basic [market] dynamics is how "crowded" the market is . . . . If the participants in a market use a wide and diverse range of trading strategies, then the market is uncrowded . . . . A healthy diversity of participants earns profits in different ways -- thinking and acting on different timescales, taking different views on the future and so on . . . . Real markets . . . look a lot like this uncrowded phase, with highly irregular market fluctuations and fat tails . . . . [I]f a market becomes overcrowded -- that is, if many traders chase few opportunities and use very similar strategies to do so -- then the continuity of the market tends to break down. In this regime, the market becomes prone to . . . sudden moves up or down much like those now observed in the sub-one-second trading regime.

So, the market is crowded, according to Buchanan. What, specifically, is driving this shift toward a crowded, rapid market?

[The use of] high frequency algorithms [that] . . . compete on speed and have to act extremely quickly . . . . [Such algorithms] must be relatively simple, and can't waste time analyzing too much information about the past. Given these constraints on the range of possible strategies, and given the number of traders operating within them, overcrowding is quite likely -- as are the . . . troubled market dynamics arising from it.

Not only is the market crowded, it's overcrowded! Now comes the scary part:

[W]e . . . should actually expect to see increasingly frequent Black Swan events in microscopic timescales. They may well be the natural consequence of machine trading . . . uncoupled from the strong influence of conscious human decision making . . . . [A]s Johnson and colleagues put it, [we're moving] "from a mixed phase of humans and machines, in which humans have time to assess information and act, to an ultrafast all-machine phase in which machines dictate price changes."

Concerning such a shift to machine control, Buchanan concludes:

We're crossing a boundary into a trading twilight zone, and doing so without much thought or awareness of the potential dangers

I think of the differences between the physical laws that describe the behavior of macroscopic and microscopic particles -- except that the quantum realm doesn't destabilize the macroscopic realm, whereas such destabilization seems the very real danger in markets as the algorithms begin to drive not only the sub-second market processes, but by implication the supra-second ones as well!

Do these automatic processes offer an intimation of what is to come? Will we enter a truly post-human world in which robots -- as in Karel Čapek's play, Rossum's Universal Robots -- vanquish humanity?

Stay tuned.

Jakub Grygiel on the EU and European Identity

Jakub Grygiel

Johns Hopkins University

Jakub Grygiel, a professor of international relations at Johns Hopkins University and a fellow at the Center for European Policy Analysis, has written a recent article for the Foreign Policy Research Institute on the Europen Union: "One Market, One Currency, One People? The Faulty Logic of Europe" (January 2012). I'll just quote a cut-and-paste summary and offer a brief, opaque commentary since I have little time this morning:

[N]o matter how much time and money European leaders put into this effort [of forging a common European identity], the outcome does not look promising . . . . The reason is that its causality is faulty . . . . The project of a united Europe is based on the belief that economic unity (itself poorly defined) will lead to political unity. The pooling of the economic aspects of state sovereignty . . . was meant to constrain and mitigate the nationalistic behavior of individual governments, thereby limiting the possibility of another war. Moreover, in the longer run, the expectation was that a growing economic integration, culminating in the establishment of a common currency, would create a common European identity . . . . Such a line of causation demanded a technocratic approach. Missing the underlying national unity, the establishment of a common market and a common currency had to be pursued by a supra-national elite with a very tenuous electoral accountability. Absent a demos, the technocrats had to take over the decision-making process. The hope, based on the assumption that a common economy creates a unified people, was that at a certain point a European demos would arise allowing the functioning of a European democracy. But until then, technocracy would have to suffice . . . . The "democratic deficit" of EU institutions is, therefore, a direct outcome of the faith in the transformative powers of economic structures. The economic, material conditions had to be first set up, then managed by the EU elites sheltered from electoral wishes (notice the EU's reluctance to allow, and fear of, referenda), and the effect would be the blurring of national differences and ultimately the birth of a European nation. One market, one currency, and -- sooner or later -- one people . . . . There was no need to figure out what Europe, as a cultural entity, really was because the new economic reality would have made a new nation. Hence, the EU technocrats strongly opposed any reference to a common religious background, Christianity, and ignored the three founding cities of Europe: Jerusalem, Athens, and Rome. In their stead, an anemic paean to universal values, reason, and tolerance was much preferred, and the less defined these terms the better. In a way, there were meant to be empty vessels, so anyone could fill them with any substance they desired because they were simply temporary placeholders for the unity that would have sprung from the material conditions created by a common market. One Europe under one currency . . . . [But] Europeans will not be created by the euro and a common market, and what we have right now is a set of EU institutions with no Europeans. But to recognize this leads to the question of what Europe is, a question that neither Merkel nor Sarkozy nor Barroso are willing to ponder because they seem to have little memory of the Christian roots of Europe. Jerusalem, Athens, and Rome are seen as contemporary sources of security and fiscal problems, not as symbols of a great civilizational and religious inheritance that truly unites Europe.

I think that Grygiel is largely right about the limitations intrinsic to employing economic unification toward driving cultural unity. But the European elite would respond that they have not neglected a larger identity, for they do appeal to "universal values, reason, and tolerance." Grygiel calls these three rather "anemic" compared to Europe's Christian roots. I don't think that anemia is the real issue, however. The problem with these three Enlightenment values is that in a postmodern Europe, they are redefined and even contradict each other, for the radical multiculturalism implicitly adopted undercuts appeal to any universal value except for the universal value of tolerance, itself self-contradictory, and reason is distrusted as an authoritarian arbiter of differences that would seek to impose its metanarrative upon the various cultural groups of Europe's multicultural reality.

That's what needs to be discussed.

Niall Ferguson for the euro?

Niall Ferguson

Homepage

I see Niall Ferguson, usually a critic of the EU project, seems implicitly to support a monetary role for the European Central Bank, if I read his recent Newsweek column correctly: "The Fed's Critics Are Wrong: We Need to Avert Depression" (December 5, 2011). In that column, he supports monetary easing:

In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times.

Ferguson isn't just speaking about the US Federal Reserve:

[A]larmingly, German Chancellor Angela Merkel reiterated her opposition to monetary easing as well as to the creation of common "euro bonds." Her latest proposal is that each European state should set up a national debt-reduction fund.

In Ferguson's view, the politicians are setting out to repeat a bad stretch of history:

People often forget that the Great Depression . . . [had] two halves. The first half was dominated by the aftermath of the 1929 U.S. stock-market crash. The second half, which made the depression truly "great" in both its depth and its extent, began with the European banking crisis of 1931. To understand . . . you need to know this history . . . . [and] read Milton Friedman and Anna Schwartz's Monetary History of the United States, the single most important book about American financial history ever written . . . . [as well as] Barry Eichengreen's Golden Fetters: The Gold Standard and the Great Depression . . . . Friedman and Schwartz argued that the stock-market panic of 1929 turned into a depression because of avoidable errors by the Fed. Instead of easing monetary policy by cutting interest rates and buying bonds, the Fed tightened. The result was a catastrophic chain reaction of bank failures, which caused the money supply to contract by approximately a third, and economic output with it. Eichengreen's book tells . . . [how] the rules of the gold standard forced central banks to transmit the American shock around the world. Then an increasingly polarized political atmosphere made it impossible to reach agreements about the enormous war and reparations debts that weighed down European governments. Despite multiple international conferences, the global financial system collapsed. Countries recovered only when they abandoned the gold standard and focused on job creation.

Not only are political leaders like Merkel opposed to monetary easing, some politicians think that a return to the gold standard would provide 'real' money. Ferguson is relieved that central bankers understand economic history:

We are indeed fortunate that at least the world's leading central bankers have studied this history: not only Ben Bernanke but also the heads of the Bank of England, the Bank of Canada, and the European Central Bank.

But he worries about the world's political leaders:

The bad news is that so few politicians and voters understand what . . . [the bankers] are trying to do, or why. The even worse news is that central bankers by themselves may not be able to stop our depression from turning great.

Ferguson doesn't come out and directly state it, but if I read him right, he's saying that the euro needs to be saved and the only way to do so is to give the European Central Bank power over the eurozone's monetary policy.

An EU critic coming to the EU's rescue . . .

Merkel the Marathoner

Pheidippides

First Marathon Runner

Wikipedia

Angela Merkel has compared the euro crisis as a "marathon," according to a report by Nicholas Kulish and Alan Cowell: "No quick fix for crisis in euro zone, Merkel says" (International Herald Tribune, December 3-4, 2011):

Chancellor Angela Merkel of Germany, a central player in efforts to rescue Europe's single currency, on Friday ruled out a rapid solution to the euro zone's debt crisis, comparing the process to a runners' marathon and saying it could take years . . . . "Resolving the sovereign debt crisis is a process and this process will take years," Mrs. Merkel said . . . . Marathon runners, she said, believe that their efforts become particularly difficult after the "35 kilometer mark . . . . But they also say that you can get to the finish if you are conscious of the magnitude of the task from the very start."

I'm not going to hazard a suggestion on how the European Union should resolve its euro zone crisis, but I will say that a "marathon" is not the most useful analogy. Merkel takes the analogy rather literally, too. She speaks of its "magnitude" and apparantly means 42.195 kilometers, for she refers to the "35 kilometer mark." Merkel's view of this economic crisis is too static. She imagines a fixed timeline for the crisis, with a clear beginning and a clear end and precisely 42.195 kilometers from the former to the latter. But this crisis is not static; it is dynamic, and if the EU does not run more quickly, then the race could extend indefinitely . . . until the euro's collapse, of course.

We might also want to remember that Pheidippides, the first marathon runner, died upon finishing his run . . .

Timur Kuran on the Retarding Consequences of Islamic Law

Timur Kuran

(Image from Wikipedia)

Nicholas D. Kristof, who writes a regular op-ed column for the New York Times, has a recent one titled, rather provocatively, "Is Islam the Problem?" (March 5, 2011). I say 'provocatively,' but that's only due to political correctness since the question is probably not provoking many readers to thoughts that they've not already, if silently, entertained. Kristof himself admits that the stagnation in many Muslim countries raises "a politically incorrect question: Could the reason for the Middle East's backwardness be Islam?"

Anybody can pose this question, of course, but Kristof's article is significant because it draws attention to a recently published book by Timur Kuran, a Duke University economic historian: The Long Divergence: How Islamic Law Held Back the Middle East. According to Kristof:

Professor Kuran's book offers the best explanation yet for why the Middle East has lagged. After poring over ancient business records, Professor Kuran persuasively argues that what held the Middle East back wasn't Islam as such . . . but rather various secondary Islamic legal practices that are no longer relevant today.

It's a sophisticated argument that a column can't do justice to, but for example, one impediment was inheritance law. Western systems most commonly passed all property intact to the eldest son, thus preserving large estates. In contrast, Islamic law stipulated a much fairer division of assets (including some to daughters), but this meant that large estates fragmented. One upshot was that private capital accumulation faltered and couldn't support major investments to usher in an industrial revolution.

Professor Kuran also focuses on the Islamic partnership, which tended to be the vehicle for businesses. Islamic partnerships dissolved whenever any member died, and so they tended to include only a few partners -- making it difficult to compete with European industrial and financial corporations backed by hundreds of shareholders.

I gather that sharia was one of Islam's 'killer apps' -- if I might put an ironic twist to Niall Ferguson's use of the expression -- for it seems to have killed economic development in the Muslim world. These two examples aren't wholly unfamiliar to me, for I've seen references to them before, especially to the latter, i.e., on the absence of a concept of the corporation in Islamic law. The West developed the concept of the corporation as an individual protected by law, enabling it to survive the death of those who founded it. Corporations could therefore bind together hundreds of partners, amass great wealth for investment, and develop long-term strategies for making money. They could also grow in experience over centuries and learn good business practices.

As for Professor Kuran's argument that these regulations in sharia retarding economic development in the Islamic world were a secondary development in Islam, inessential to the faith, I suppose that I'll need to look into this book to judge for myself, but I am often skeptical of attempts to rehabilitate some religion or other by claiming a distinction between an original, pure form of the faith that was liberatory and secondary practices that corrupted the faith and confined the believer.

Not that Professor Kuran is doing that, but I'll only know from taking a look at his argument.

Europa, Europa?

Flag of the European Union

(Image from Wikipedia)

I've not posted a blog entry on the EU for some time, so maybe the times has come to post again, for I've only this past weekend read two long, informative articles on the European Union's economic and political difficulties.

I first read Paul Krugman's "Can Europe Be Saved?" in The New York Times Magazine (January 12, 2011). I almost never read Krugman's columns, but the subject of this article intrigued me. I know next to nothing about economics beyond the basics, but my interest in European unification requires that I try to learn something. I won't even attempt to summarize Krugman, but I will offer a couple of quotes, the first one explaining the basic problem with that European currency called the "Euro" used in the Eurozone:

America, we know, has a currency union that works, and we know why it works: because it coincides with a nation -- a nation with a big central government, a common language and a shared culture. Europe has none of these things, which from the beginning made the prospects of a single currency dubious.

To see why this is true, read the article, which will clarify that a strong central government protects the economies of the individual states, a common language makes labor more flexibly mobile, and a shared culture insures that different regions can trust each other to act in similar ways. The multicultural entity that is the EU, as Krugman notes, lacks all three of these. No strong central government cushions local economies. Workers cannot easily move from poor local economies to better ones if a different language is spoken. Different regions don't share an identical culture that would ensure trust and predictability. Will we therefore see any countries exit the Eurozone to go their own way? Not likely, says Krugman:

As Barry Eichengreen of Berkeley pointed out in an influential 2007 analysis, any euro-zone country that even hinted at leaving the currency would trigger a devastating run on its banks, as depositors rushed to move their funds to safer locales. And Eichengreen concluded that this "procedural" obstacle to exit made the euro irreversible.

A draft of Eichengreen's article can be read here. I've not yet had an opportunity to read it, but Eichengreen offers a summary here, and it sounds rather persuasive in elaborating on the punishing consequences of trying to leave the Eurozone. The summary also, perhaps inadvertently, succeeds in making the Eurozone sound like a trap that no other EU state would wish to join . . . though that didn't stop Estonia.

The other article that I read over the weekend, "Europe's Odd Couple" by Steven Erlanger, also in The New York Times Magazine (January 13, 2011), describes and analyzes the political relationship between France's le petit Nicholas Sarkozy and Germany's still unfallen Angela Merkel, who apparently can't stand each other but are forced by circumstances to work together to make their 'Union' work together. I suppose that this says something about the maturity of European politicians. But the Union isn't easy, and here's a very big reason why:

The fundamental problem is that Germans are worried that their manifold sacrifices for national prosperity will be dumped down the drain of Europe's poorest and most profligate. Despite Germany's economic success -- almost a second economic miracle, after the expensive absorption of East Germany -- Merkel therefore has serious political challenges. "The Germans have discovered that they are the only serious global economy in Europe, capable of competing with the United States and China," says John Kornblum, a former American ambassador to Germany. "But they're afraid their world is coming apart around them, and what they thought would support them, the European Union, is dragging them down. They realized that the stability pact isn't working, that the Greeks were lying and maybe others, too, that their banks and French banks were deep in the muck, and they understood this is going to cost a lot of money. So they are behaving in a very demanding way, which smells to some like nationalism. But it really is fear."

So while Merkel says she is deeply committed to the European Union and the euro, she must, as a politician, manage the angst.

Politics, however, can only do so much managing. The question is: which way is economics going to pull, apart or together? If Eichengreen is right, the economics of the Eurozone will keep that crucial part of the EU together since to leave is even worse than to belong. But what happens if all the bad things about leaving happen even if a country doesn't leave? Like a run on its banks? We might just find out.

But don't listen to me, I don't know anything. Read the articles for yourself.

Edward Hugh: Twilight of the Euro Zone?

Edward Hugh

Photo by Lourdes Segade

The New York Times

My internet buddy Malcolm Pollack, over at Waka Waka Waka, first called my attention to the phenomenon of Edward Hugh in a blogpost a couple of days ago, but I probably would have run into Mr. Hugh anyway in the International Herald Tribune . . . since I in fact did, after all.

Pursuant upon reading about him there, I checked the New York Times and found the same article by Landon Thomas, Jr., "The Blog Prophet of Euro Zone Doom" (June 8, 2010), wherein he is described as "a gregarious British blogger and self-taught economist who repeatedly predicted that the euro zone could not survive."

Why not?

His bleak message, in newspaper columns, local television and radio appearances, and in meetings with officials, is almost always the same: since Spain and other struggling countries of the euro zone like Greece, Portugal, Ireland and Italy cannot devalue their common currency unilaterally, they have little choice but to endure what would essentially be a 20 percent internal devaluation instead. That means their public and private sector wages need to fall by roughly that amount if those countries are ever to restore competitiveness, lift exports and bring in the cash needed to pay down their debts.

"Why haven't these countries converged" with the rest of Europe? he asks. "It's demographics. As populations age, there are fewer people in their 20s to 40s to buy new houses, so they save more. The younger a country is, the more dependent it is on credit to get growth."

Germany, where the average age is 45 and rising even as the population is beginning to shrink, is a nation of savers, and public policy has encouraged keeping wages under control and building up export industries.

By contrast, the younger Greeks, Irish and Spaniards went on borrowing binges, driven in particular by rising demands for new homes and consumer goods that, in several cases, turned into housing bubbles before going bust. Wages were pushed up, encouraging spending but soon making it all but impossible for their industries to compete with the thrifty Germans, Dutch and other Northern Europeans.

Most economists, beholden as they are to their "promiscuous but essentially useless" economic models, Mr. Hugh rails, missed what he considers an easily predictable outcome. And that, he adds, "is why we are in such a big mess now."

In other words, the big economic imbalance between northern and southern Europe is due to the difference between an older, thrifty generation and a younger, spendthrift generation. Hence the 'twilight' of the euro zone.

Interesting.

But why is Mr. Hugh described as a "self-taught economist"? The article states that he "studied at the London School of Economics." Granted, he "was drawn more to philosophy, science, sociology and literature" than economics at that time and has probably learned a lot of economics on his own since then. But such is true of nearly any scholar in any field.

More significantly, however, "[h]is eclectic intellectual pursuits kept him not only from getting his doctorate but also prevented him from landing a full-time professor's job."

Hmmm . . . sounds vaguely familiar. Though I did manage in my academic studies to 'pile higher and deeper' for that coveted degree.

Be that as it may, Mr. Hugh himself sounds like an intriguing fellow of eclectic interests:

His blog posts reflect his varied interests, often citing Bob Dylan, Charles Bukowski, Jean-Paul Sartre, Friedrich Nietzsche and even the sociable behavior of his beloved bonobos, the primate species that is the closest relative to humans in the animal kingdom.

Bonobos? That's an especially intriguing interest. I wonder if the particular reciprocity characteristic of affairs among bonobos has any bearing toward explaining Mr. Hugh's "own support network of middle-aged housewives . . . , some of whom have provided him a place to live as he moves from abode to abode."

But I'll quell my curiosity on that point, and merely note that the article closes with an observation by Mr. Hugh:

"In the Middle Ages, curiosity in excess was regarded as a sin . . . . But with the Internet, I feel that I can do what I like. This makes me feel that I can really do something."

Yes, I also share that illusion, which explains my daily blogging . . . but as for those readers who would prefer the better informed illusions of Mr. Edward Hugh, feel free to click over and visit his own blog.

John Vinocur: Euroskeptic?

John Vinocur

(Image from The American Academy in Berlin)

John Vinocur, who writes the "Politicus" column for the International Herald Tribune, has a recent article there, "Frankness Would Serve Europe Well," in which he analyzes precisely how dishonest the European Union has been with itself over the past decade. It has dreamed dreams of political and military power in the world while knowingly mismanaging its economic union, and thereby failing in all three:

Involving cooked books, the averted eyes of officials, and the E.U. big players' painless disregard of the euro zone's deficit criteria, Europe's disdain for frankness with itself lasted for a good part of a decade until markets and ratings agencies caught on, leaving Europe to a financial and monetary crisis without a sure resolution in sight.

Now, Europe as a political project of remarkable ambition is entering a new phase where its supply of grace and favor are nearly exhausted. The suspension of disbelief granted for years by much of the world to the idea Europe might soon function as a superpower -- the same gift of plausibility that a theater audience extends a play's actors and fairly incredible plot -- is worn thin . . . .

And [as for] Europe's coming of age as a global force, unified politically and bolstered by a palpably developing European defense structure giving European foreign policy an element of independent power projection? These days, there are next to no takers for such long-shot bets.

But as another less-than-frank empire builder once observed, "All is not lost":

The European Union is not dead: its regulatory network alone brings vast and practical meaning to the idea of a single Europe. But held up against the reality of political performance and economic perspective, the E.U.'s grand aspirations to relevance and world decision-making, based on its claims to internal unity and solidarity, are devalued.

No, all is not lost, but lacking political leadership, the EU has had to confront this crisis without an ability to act quickly, a situation that the European heads of state created:

Europe, in full comprehension of what it was doing, decided last year to give the posts of president and high representative for foreign affairs created in its new constitution to two earnest but modest candidates who could not lead.

Angela Merkel and Nicolas Sarkozy, specifically, did not want the presidential candidacy of Tony Blair. Just months later, in a time of crisis, their decision has left the E.U. without a person capable of embodying the kind of notional authority the constitution was meant to provide.

Mr. Vinocur is saying much the same as I have also recently said, though he says it rather better. Without an effective political center, Europe's economic and monetary union will continue to disappoint . . . to say nothing of its minimal military power and futile foreign policy of its distant dream of rising once again to world-historical significance.

Niall Ferguson and David Marsh on the Uncertain Euro

European Central Bank

(Image from Wikipedia)

Niall Ferguson and David Marsh have topical articles in Newsweek ("The End of the Euro") and the New York Times ("The Euro's Lost Promise"), respectively, that are both worth reading on the current uncertainty about the euro and what it might portend for the European Union.

They both agree on the factor responsible for the euro's instability. According to Ferguson, the European Monetary Union (EMU) had a fatal flaw from the outset:

[T]he worst defect in the design of the EMU . . . was that it was uniting Europe's currencies but leaving its fiscal policies completely uncoordinated. There were, to be sure, "convergence criteria," which specified that a country could join only if its deficit was less than 3 percent of gross domestic product and its public debt was less than 60 percent. But even when these were turned into a permanent set of fiscal rules in the Stability and Growth Pact, there was no obvious way they could be enforced.

Why couldn't they be enforced? In referring to Europe's monetary union of December 1991 in Maastricht (southern Netherlands), Marsh explains:

[J]ust before the Maastricht meeting, Chancellor Kohl noted that a monetary union without a corresponding political union would be "a castle in the air." His remark echoed the concerns of the Bundesbank, his country's statutorily independent central bank, that unless it involved greater political and economic anti-inflationary discipline and solidarity among weaker and stronger states, a monetary union would be doomed.

Why, then, did the European nations seek monetary union? Ferguson tells us one crucial reason:

Monetary union had geopolitical appeal . . . . In the wake of German reunification, the French worried that Europe was heading for a new kind of domination by its biggest member state. Getting the Germans to pool monetary sovereignty would increase the power of the other members over a potential Fourth Reich.

Marsh again gives details:

In the vanguard of the effort [toward monetary union] was none other than Chancellor Helmut Kohl, the man who had driven German reunification with miraculous speed. He knew he had to enshrine the larger Germany in a new European order to ease its neighbors' fears. The euro would be the monetary equivalent of the ugly yet necessary military compact between NATO and the Warsaw Pact that supervised East and West Germany after World War II.

The analogy between a recently reunified Germany bound monetarily to the EU and a recently defeated German divided between Nato and the Warsaw Pact sounds rather strained now, but I lived in Germany from 1989 to 1995 and can vividly recall the fears expressed by various other European nations in 1990 to 1991 about a unified, powerful Germany.

In other words, fear drove the Europeans' monetary union, much as fear drove European unification itself, fear of Germany. In short, the EU was based on fear, not trust, and suspicion continues to pervade the union, only now more generalized and not solely fixed upon Germany. But if the euro is to work, then the EU's central political power must grow and assert itself over fiscal policy. According to Marsh, this is one side-effect of the recent financial intervention, which poured nearly one trillion dollars into the effort to rescue Greece's economy, stabilize the euro, and ultimately save the European Union:

The huge amount of money aside, the significance of the rescue package was that, for the first time, power over the European Central Bank started to move to the politicians. President Nicolas Sarkozy of France, a longtime critic of the bank's sway, joined forces with another Frenchman, Dominique Strauss-Kahn, managing director of the International Monetary Fund, to impose political supremacy over the euro zone.

The next year or two will determine whether the EU grows more unified through more centralized political power that can set fiscal policy . . . or not.

But if political centralization does succeed, there's still -- and even more so -- the so-called "democratic deficit" to deal with.

Niall Ferguson 'irons' Paul Krugman

Paul Krugman

Dec 7, 2008

(Image from Wikipedia)

In a recent Newsweek article, "An Empire at Risk" (December 7, 2009), Niall Ferguson offers a very bleak, even alarming analysis of America's economic future. I usually cast a cold eye toward alarmist prognostications on life, on death, especially those that casually refer to the US as an 'Empire', but Ferguson is not to be so readily scoffed at in his concerns over the American deficits. Besides, he admits that he didn't have to call America an 'empire':

Call the United States what you like -- superpower, hegemon, or empire.

I'd choose one of the first two, but perhaps Ferguson wanted to annoy some readers. Among readers that he apparently did want to annoy is Paul Krugman, as becomes clear in this passage:

Now, who said the following? "My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar."

Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina's (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was "deficits that saved us," and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.

In other words, Krugman was against deficits when they were Bush's fault but in favor of deficits now that they are Obama's achievement.

Just a little 'ironing' to straighten Krugman out . . .

Wisdom for the Ages

Thorstein Veblen

(Image from Wikipedia)

Perhaps every reader is familiar with this old but wise proverb handed down from simpler times:

"Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime."

These words are not merely wise, but actually offer excellent advice, unlike some bits of folk wisdom from the past, e.g., "a penny saved is a penny earned"? Some wise fool knew naught of inflation! Rather "a penny saved is a penny lost" -- to coin a phrase. Invest! Invest!

But speaking of improved folk wisdom, let me pass along one that my old Ozark friend Deva Hupaylo has forwarded, an even wiser varient on the old saw about fishing:

"Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime. Teach a man to create an artificial shortage of fish and he will eat steak."

These words of keen advice have been offered to us all by the wise old man of late-night television -- no, not David Letterman, but Jay Leno! -- and "oh, but they're weird and they're wonderful" advisory words indeed and have even inspired me with a way to make money, for as I retorted to Deva:

"In times of fish shortage, I would conspicuously consume fish and offer expensive fishing tips."

Deva, going beyond even Thorstein Veblen, observed:

"A born consultant!"

Me, a consultant? Really and truly? Well, undoubtedly a congenital defect -- as Deva has diagnosed -- but one of which I was entirely unaware before it was called to my attention. Nevertheless, I was raised to "turn lemons into lemonade," so I immediately made her an offer -- and just to "kill two birds with one stone" sent along a copy of the offer to another old Ozark friend, Pete Hale:

Exactly, and for a small fee (relative to what you'll gain), I can advise the two of you on better fishing! Hurry while you are both still solvent! A big mess of fish is guaranteed!

And to avoid charges of 'insider trading' -- or the consultant's equivalent -- I'm now making the identical, generous offer to all my readers for the same comparatively small fee.

Just ask now -- while you're still solvent!

Expat Living: "Broke bankers: move to Kansas"

Small Change?

Unneeded in Kansas. . .

And You Can Bank on That!

(Image from Wikipedia)

At last, another "Expat Living" article by yours truly has appeared in this morning's edition of the Korea Herald. I fear that today's column will therefore look rather familiar:

Broke bankers: move to Kansas

Despite the world's recent economic downturn, I have no wish to traffic in the dismal science. Mine is the sunny science of loquacious economics, and this being a language column, I offer manifold words of advice. These might not amount to verbal economy, but I do truly desire to help those who have suffered the most in the current economic crisis: New York bankers.

Therefore, in the disinterested interest of helping this select few of those rendered unemployed or at least insolvent by the recession that has accompanied the ongoing financial mess, I offer as free advice the following tip: Move to Kansas and take up farming.

"But," you may well protest, "I'm a New York banker who knows nothing about running a farm."

No problem. You knew nothing about running a bank either, but that ignorance never kept your confidence in check. If you can simply regain that level of ignorant arrogance, you will be well-qualified for the farm "job" that I suggest.

Here is the deal, which I shall elaborate in my ramshackle style. My "Cousin Bill," a Kansas native, was recently on one of his "Weekly Ramblings" through Kansas and vicinity, taking in the broad vistas that stretch from one grain elevator to the very next one 20 kilometers off in the majestic distance. Up close, these elevators can be quite elevating. Cousin Bill, for instance, had an elevated conversation with a local grain-elevator farmer in the town of Offerle and offers us this synopsis in his "Weekly Ramblings" newsletter:

"At an Offerle service station, I briefly talked farming awhile with a tall, lean, elderly, baseball-hatted grain-elevator farmer obviously in need of communication with someone other than a prairie dog. He advised that his farming now consisted of collecting a monthly check from the state of Kansas, that entity paying him more to idle his ground than he was making with his corn and alfalfa crops. He did tell us that the main reason Kansas did that was 'cause they found he was pumping out way too much ground water for irrigation, and said if he'd shut off the pumps they'd just pay him not to grow. He was a nice guy, interesting and would have talked for several hours if we'd had the time."

This nice, interesting farming kind of guy would undoubtedly have had a lot more fascinating things to reveal to Cousin Bill, but the important point to note here is that you need only threaten to pump ground water to irrigate your Kansas farm, and the Great State of Kansas will pay you a good money not to pump that water.

"Hold on," you may well say. "I'm already not pumping ground water in Kansas, but I haven't received any money."

Yes, that happens, so I have to ask a personal question. Have you actually threatened to pump water? I thought not. Moreover, and this is the sticking part, you need to actually have some land in Kansas, else the threat will not work. Allow me to anticipate your next objection, that you own no land in Kansas and have no money to purchase any. Well, do not let your New York state of penurious repose shut you out from your Kansas state of pecuniary reward. According to the website "Kansas Free Land" (www.kansasfreeland.com), there's free land in Kansas:

"Several communities in Kansas are offering free land and other incentives. Our goal is to help our rural areas sustain and grow economically. We welcome you to take a look at the various communities."

Just visit "Kansas Free Land," choose your preferred isolation, settle down to the modern farming way of life, and covertly but unmistakably threaten to pump some of that precious Kansas ground water. I guarantee you that this will work if you just have the right degree of ignorant arrogance. Of course, you may have learned something about basic economics from your recent debacle, so you might need to forget some of that. You need only learn to not ask too many questions about whether this all makes any sense and just wait for the money to start rolling in to your account in a local bank (if there is one) in return for your not farming.

Technically, you will still be unemployed, but at least you'll have land, home, and cash . . . a bit like what you had before. Not quite as much money, of course, but beggars can't be choosers.

Jeffery is a professor at Ewha Womans University and can be reached through his blog Gypsy Scholar at gypsyscholarship.blogspot.com -- Ed.

As I warned, this one will have sounded familiar. Faithful readers will also recall my more serious entry concerning Professor Jasper Kim's informative column on the forces that precipitated our current financial crisis.

I'd chat more this fine morning, but I have student debates to judge . . . and grade.

Professor Jasper Kim on the Financial Crisis

Professor Jasper Kim

Ewha Womans University

Department of International Studies

(Image from Ewha GSIS)

Professor Jasper Kim, of Ewha's International Studies Department, published a column, "The global financial crisis 101," in last Thursday's Korea Herald that helped clarify for me our current financial crisis, so I'll provide a synopsis of his article.

Professor Kim presents a number of factors contributing to the perfect economic storm.

As the first factor, Kim identifies "the extremely low interest rates following the 9/11 attacks." The Federal Reserve cut rates to about 1 percent for some time, which resulted in very low interest rates on loans, including mortgages, and led to "cheap money."

As the second factor, the low mortgage rates were "coupled with relatively complex mortgage terms and conditions that were often hard to understand for the typical homebuyer." Significant for this point was that mortgages that required "only a 1 percent down payment . . . to buy a home" often had variable interest rates that would result in "lower interest payments . . . first, followed by larger principal payments later." These generous-sounding terms "induced many relatively unqualified borrowers to buy homes they in reality could not afford," and the loans were what have been called "subprime."

As the third factor, Professor Kim identifies "complex financial products that had a direct link to the U.S. mortgage market." On this complex factor, I need to quote the professor directly:

These products, known as mortgage-backed securities, or MBS -- one type of collateralized debt obligations, or CDOs -- were effectively represented by a high-yielding note or bond that entitled the MBS investor to principal and interest payments. These MBS products were also collateralized by money received from pooled mortgages (mortgage receivables). As part of the MBS structure, created by sophisticated financial institutions, investors who bought these MBS products effectively also bought "insurance" against payment default in the form of credit-default swaps, or CDS. So as long as mortgage borrowers continued to make their mortgage payments on time, no problem would exist.

I won't pretend to understand this very well, but I do understand enough to recognize that a lot of people had put their money into investments that depended upon mortgage borrowers continuing to make payments. Unfortunately, the US housing market was a bubble that burst as interest rates began to rise, requiring those who had taken out loans, especially subprime loans, to make higher payments that they could not make.

As the fourth factor, Professor Kim identifies "the fall of many of the major investment banks, such as Bear Stearns and Merrill Lynch," which had incurred enormous losses from the large number of bad mortgages on their books. The psychological breaking point was the fall of Lehman Brothers, which put global financial markets into a tailspin. Interestingly, the professor blames "the laissez-faire ideological stance that existed at this time," which prevented "a Lehman bailout of even a few hundred million dollars" that "would have . . . proved a much better policy move compared to a plethora of bailouts and stimulus packages that . . . looks to be in the trillions . . . of dollars."

Well, that's Professor Kim's analysis. Doubtless, the factors are both more numerous and more complex than these four, but the professor does call his article "The global financial crisis 101," thereby acknowledging an oversimplification of the issues. Moreover, as "a former banker with Lehman Brothers, Barclays Capital, and Credit Suisse," Professor Kim would appear to be a person who knows what he's talking about . . . though I must confess to a nagging doubt about precisely what bankers really do know, given their failure in this crisis.

Comments from those more knowledgeable than I are very welcome . . . and that category would include the majority of my readers.

Ironies of Activism...

Tübingen: Outlook on an Insight

(Image from Wikipedia)

I'm still reading Bruce Bawer's While Europe Slept: How Radical Islam is Destroying the West from Within and finding that Bawer has remarkable insights on a number of issue, one of these being an insight into an especially pernicious side effect of Europe's generous social welfare system. In commenting on Europeans' bystander passivity, their tendency to stand aside and do nothing but watch during antisemitic attacks on Jews or gay-bashing of homosexuals, Bawer noted:

How to reconcile this kind of unresponsiveness -- this colossal lack of what Americans call civic responsibility -- with all the proud rhetoric about "solidarity" and "community" that fills Western European political speeches and newspaper editorials? Well, I realized quite a while back that this rhetoric, far from having anything to do with cultivating among citizens a feeling of mutual support and neighborliness, was, quite simply, welfare-state sloganeering. Western Europeans have been brought up to think of solidarity with one's fellow man not as something they have to attend to themselves but rather as something mediated through state bureaucracies. (Bawer, While Europe Slept, page 149)

I recall a conversation, sometime around 1990, that I had with a Pakistani-British woman in a coffee shop in Tübingen, Germany. She was very critical of Britain's Prime Minister Margaret Thatcher and argued that the British were becoming more conservative and thus more selfish, less concerned with community or with helping others. I politely disagreed with the argument that turning conservative meant that one was becoming more selfish, and I said that reliance upon the state might actually discourage individuals from personally acting to help others and therefore might tend to undermine community.

That was 17 years ago, and I've since had similar thoughts. Just yesterday, Michael Bauman and I exchanged emails on this point. I wrote first, sending a note of thanks for sending me some articles and books that he had authored:

As for the other books that you sent, previously, I've read everything that you wrote . . . and some things written by others. All were quite enlightening. I find myself more motivated to defend free markets as I grow older, so reading more about their defense is useful.

Just yesterday, I was telling my wife that the Korean protests against American beef were "irrational." Eventually, she saw my point -- especially when I pointed out how much more she was paying for Korean beef[, which is protected from a free market,] when the risk of mad cow disease from American beef was, roughly, one in one-hundred million.

Michael replied:

I think you are quite right about the failures and foolishness of interventionist economics. It simply does not work. The closer you get to government control of a market, the closer you get to the poverty of places like North Korea, or the hyper-inflation we mentioned on your blog last week. I am continually astonished by the ignorance of Christians like Jim Wallis, who want to exercise compassion for the poor, but who don't know the first thing about how poverty is defeated or how wealth is created.

On the point about misdirected compassion, I replied:

I think that the ethical intuition usually directs us to do something active to help the needy, whereas laissez-faire economics advises us to do nothing, counter-intuitive if anything is.

The irony is that the social-welfare state trains its citizens to be passive. The moral intuition to help gets directed toward the state, which vicariously takes on the role of moral agent . . . but without the ability to enjoin responsibility on the part of those whom it 'helps.'

Or so things seem to me, for with the years comes clear the irony of unintended consequences as we find ourselves living them out in our own lives.