Unfortunately Europes stupid austerity measures are set to continue. This article tells you why.
The intellectual excuse that lead to economic policies that have been followed in the U.S. and the EU in recent years is a book from economists Carmen Reinhardt and Ken Rogoff. In this book the authors argue that once a country has more government debt than 90% of GDP economic growth is sharply reduced.
This has been an important part of the reason for deep cuts in social services, cuts in wages and cuts in social security in Greece, Spain, Ireland, Portugal and more countries. Simultaneously, the same countries, and ultimately, European taxpayers have acquired large amounts of private debt, without getting anything in return through the so-called saving of the banks. This is perhaps the biggest robbery of tax payers ever.
One has to weep
What really is a laughable matter is that Reinhardt and Rogoff had made a tiny mistake in the spreadsheet. This small error meant that the result of the research was completely wrong. There are, in other words no longer any intellectually defence for the cuts and the robbery the inhabitants in the EU are exposed to.
To steal a bit from Bloomberg:
The paper, “Growth in a Time of Debt,” concluded that countries with public debt in excess of 90 percent of gross domestic product suffered measurably slower economic growth. It has been cited by U.S. House Budget Committee Chairman Paul Ryan and European Union Economic and Monetary Affairs Commissioner Olli Rehn in defense of efforts to drive down budget deficits.
All in all tears more than laughs are appropriate. For the banks and the bank owners have received their unfair share. And therefore Paul Krugman is right here:
If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.
Lesson: never trust anyone who say that we need to take money from ordinary people and give them to people who already have the most.
Today at 9:44 the private company SpaceX launched the first commercial rocket that will carry goods up to the International Space Station. This opens a new chapter in our relationship to space.
I am not sure if I like this or not. On the one hand I think that if we want our exploration of space, and not least, our use of space to grow, we need more actors than the public agencies such as NASA, ESA and JAXA. On the other hand, for the foreseeable future it will be the tax payers who will pay the private companies for what they do (except for what happens on the satellite side, but that’s another story). Should we really use tax money to create private profit? NASA is paying SpaceX 1,6 billion USD for 12 trips to the Space Station.
Here is NASA’s video from the launch
I believe our future lies in constantly exploring new horizons.
“Go West, young man, go West. There is health in the country, and room away from our crowds of idlers and imbeciles.” “That,” I said, “is very frank advice, but it is medicine easier given than taken. It is a wide country, but I do not know just where to go.” “It is all room away from the pavements.” Horace Greely said once (there is disagreement about who is the origin of the term Go West, young man, go West, some claim it comes from John Soule)
Greely’s advice was given in conjunction with drive to occupy the American West. This movement brought great suffering to the original people there, but let us look away from it for a moment and reflect upon where we now can go to build a better society for people.
I believe that at least some of the answer lies in space.
It may very well possible that Greece and not Germany who is holding with the best cards when it soon is to be decided what happens to the euro.
Alexis Tsipras is a good man. At least he’s a very good poker player. He hasn’t yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won’t like: He is, in short, the first Greek politician to use the his country’s leverage over creditors.
Furthermore, it follows that:
The German response so far? “Oops. This guy is blackmailing us. What shall we do?” Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted “wirtschaftwunder” as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika?
I believe that the austerity line now being taken in Europe to rescue the euro is a recipe for economic decline. An economic downturn that primarily will affect people who do not sit at the top of the social pyramid.
Nobel Prize winner in economics, Paul Krugman, writes on his blog:
So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.
I think Europe and the somewhat the United States is about to make the same mistake as when all countries were to return to the gold standard after the First World War. The policy led to mass unemployment and poverty. About this parity policy the Norwegian Encyclopedia says:
University economists and others warned against the parity policy, because deflation would cause bankruptcies and major restructuring difficulties for businesses, while the Central bank director-Rygg claimed that the parity line was both morally right and necessary to maintain international confidence in the Norwegian krone. (my translation)
Is there anyone other than me who recognizes the moral politics rather than economic reality as the foundation of what is happening in Europe now?
Today, the Norwegian national budget will be presented. While there will be a lot of money to support carbon capture and storage, as well as a lot of money for the worlds forests. However, the budget will also show that we are not using enough on climate.
In 2010, Norway exported 77,954,000 tons of crude oil, the equivalent of approximately 245 million tons of CO2. A CO2-quota in the EU market has had a price between 12 and 30 euros for ton. This means that the CO2 cost of the Norwegian oil exports is between three billion and 7.3 billion euros. This corresponds with the current exchange rate between 22 and 54 billion Norwegian kroner.
In 2010, the Norwegian government’s transfer to the oilfund was 181 billion Norwegian kroner. This means that we ought to, just to compensate for the CO2 from this oil, (I have not included gas, condensate and NGL export) should use between 12 and 30 percentages of the oilfund on stopping climate change at least if we wish to make up for the problems we are causing.
In this context, the costs to establish CO2 capture and storage are trivial. If we want to have a clean conscience for our oil export, we should spend far more each year to find ways to mitigate greenhouse gases from our oil.
No one wished for the current crisis in Europe, but that it happens is still an expression of conscious politics. The EU’s four freedoms and the introduction of the euro is the basis for the crisis we see today. The EU-system changes power conditions in the labor market, high unemployment reduces the unions power – that is why we have both the crisis and the constant attacks on the rights of working people.
When Greece adopted the euro, two very important things happened. First of all, interest rates fell dramatically, money was cheap. Investors the world over decided that all euro countries suddenly was equally safe payers and that it therefore was logical to demand the same rate from Greece as from Germany. It meant that Greece could borrow money and for whatever they wanted. They imported German interest rates without importing the German budget discipline.
The second thing that happened was that Greece no longer had the ability to devalue to make their debts bearable. A country like the U.S. can never go bankrupt. We hear a lot about the large U.S. government debt, but unless the United States wants to,it cannot go bankrupt. Their borrowing is in U.S. dollars. If the debt becomes too large, it is easy for the U.S. to start the printing press and make more than enough dollars to pay all they have loaned. This opportunity does not exist for Greece, nor any of the other euro countries.
When the “normal” form of devaluations no longer exists the alternative is what is called internal devaluation. Now, what is an internal devaluation?
It is to reduce wages of ordinary working people in a country. This makes production cheaper, exports improves and the debt may be possible to pay. Many countries have tried this cure, Argentina, CFA area, the Baltic countries. For most it went very badly. Argentina finally had to break the peg with the dollar and devalue, the Baltic countries ended up with a sharp decline in GDP and very much lower wages for most people.
An internal devaluation leads (almost) always fall in GDP, which means that the debt is more difficult to bear. Furthermore, many people point out that the internal devaluation in Greece, means that the debt will rise from today’s impossible level to almost 200% of GDP.
The failure is almost inevitable.
But in today’s discussion is the major focus on banks, government debt, bonds, and investors. It is much less focus on those who must bear the burden of an internal devaluation.
In Greece, wages has declined by around 30 percent, both in private and public sectors. 100 000 public employees have been dismissed, pensions have gone down considerably and taxes are rising sharply. To use a random example, a clerk in a municipality in Greece has seen their pay fall from 2000 dollar a month to 1300 dollars a month. At the same time VAT has increase from 13 to 23 percent, all have received additional incometaxes of between one and four per cent and a significant property tax has been instituted.
It should be mentioned, of course, the Greeks might not have always been the most observant at paying their taxes, either with joy or grief, especially rich Greeks have failed to pay. But it is ordinary people who get the burden.
In short, if a country devalues the banks and the investors must carry most of the loss, while with an internal devaluation (at least initially working people most of the burden. Now the EU must allow Greece to go “bankrupt”, the debt must be hammered down.
Afterwards let us handle a possible bankcrisis. It is better to let the banks be nationalized than to let ordinary people bear the burden of the crisis.
PS. I know this is simplified, a banking crisis will have serious consequences for ordinary people, but I think the consequences will be much less.
Growth in the U.S. economy from the war and until the middle of the 70th century was based on the picking of three low hanging fruit. Now, the fruits are picked, and perhaps it is one of the reasons that there are so few jobs created in the United States.That, at least is the claim Tyler Cowen makes in his book “The Great Stagnation”
In the book he emphasises that the United States has had three major advantages. They have had a nearly free land, major technological breakthrough and smart uneducated youths. Now these resources fully exploites, and Cowen believes that there are few low hanging fruit in the future.
In a figurative sense, the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century, whether it be free land, lots of immigrant labor, or powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think.
It is obvious that there is no more free productive land left in the USA. It is also understandable that after a while, as education level increases and more and more people are educated the productivity growth for each additional year of education is less and less. However, the most interesting in Cowen’s analysis is that he claims that we have reached a technological plateau, and that technology can no longer drive the economy. He says that the big leap is over. We all have electricity, running water, telephone and transportation. Exchanging a refrigerator of 60 liters for a 240-liters machine with ice cube fascilities is not a quantum leap, but a small improvement. It was something quite different when we first got the possibillity to freeze or keep our food cold.
Across the years 1965 to 1989, employment in research and development doubled in the United States, tripled in West Germany and France, and quadrupled in Japan. Meanwhile, economic growth has slowed down in those same countries, and the number of patents from those countries has remained fairly steady. The United States produced more patents in 1966 (54,600) than in 1993 (53,200). “Patents per researcher” has been falling for most of the twentieth century.
By this, I believe, he means to say that despite the internet revolution, we have not seen new technologies that really changes the way we live. As he says, teleportation would change the way we live, an internet enabled car with GPS does not.
A lot of our recent innovations are “private goods” rather than “public s.” Contemporary innovation often takes the form of expanding positions of economic and political privilege, extracting resources from the government by lobbying, seeking the sometimes extreme protections of intellectual property laws, and producing goods that are exclusive or status related rather than universal, private rather than public; think twenty-five seasons of new, fall season Gucci handbags.
Keep in mind that median income growth has been slow, and stock prices—the valuation of capital—haven’t made lasting progress in a long time. As of the fall of 2010, the S&P 500 is more or less back where it had been in the mid-1990s. As economist Michael Mandel puts it, if neither labor nor capital is reaping much gain, can we really trust the productivity numbers
“Discovering who isn’t producing very much and firing them” has been the biggest productivity gain in the last few years.
This is exciting ideas to develop further. It is interesting how he takes issue with the Internet hype from the last few years.
Most Web activities do not generate jobs and revenue at the rate of technological breakthroughs. When Ford and General Motors were growing in the early part of the twentieth century, they created millions of jobs and helped build Detroit into a top-tier U.S. city. Today, Facebook creates a lot of voyeuristic pleasure, but the company doesn’t employ many people and hasn’t done much for Palo Alto; a lot of the “work” is performed more or less automatically by the software and the servers. You could say that the real work is done by its users, in their spare time and as a form of leisure. Web 2.0 is not filling government coffers or supporting many families, even though it’s been great for users, programmers, and some information technology specialists. Everyone on the Web has heard of Twitter, but as of Fall 2010, only about three hundred people work there. Let’s go down the list and look at the (approximate) employment figures for some of the top Web companies: Online Industry Employment Levels Google–20,000 Facebook–1,700+ eBay–16,400 Twitter–300
Now the numbers he uses does not including all the supporting industries that spring up around these internet companies, but there is no doubt that Google or Facebook is far from creating as many jobs as the old industrial companies did. At least as interesting that the fact that these companies do not earn so much money that tax revenues provide the ability to support a welfare state or to pay pensions to people who are not working. Of course, the Internet has a value beyond the purely monetary. You can read more about Cowen’s thoughts on it here. And I should also mention that he concludes the book with an optimistic belief that the internet and smart machines can still turn out to be the breakthrough that is helping to create new low hanging fruit
All this is of course very important for income and income distribution in society. This graph shows how the development has been in the United States.
Media income has risen much less than the growth in gross domestic product. Until about 1975 median income increased entirely in line with growth in GDP. So the change is after that time is significant. I also believe that this shows partly at least, why the extreeme right is dominating the economic discourse in the US. In a country without strong trade unions that can fight for equality, where the average man and woman do not see their own income grow while the richest only becomes richer, it is not surprising that tax relief is one of the most important political issues. In Norway, there have also been differences, but not nearly so great. From 1990 to 2007 the increase of the real value of median income after tax was 40 percent, while GDP rose by over 70 percent from 1990 to 2010
How should we interpret this in a Norwegian context?
Here we have also had great low hanging fruit that we have picked, perhaps the most important been an abundance of natural resources (oil, hydroelectric power and fish) and a strong increase in women’s labor force participation, as well as a big growth in education level. I think we’ve taken out most of the potential within the labor force participation and education. And we know that oil is going to end.
If we believe this analysis shows that the need to change from an oil-based economy to a different type of economy is urgent. If we do not,and do not find new low hanging fruit, there is great danger that we too can experience an economy that grows, but where there is not created employment and income for ordinary people.
We need to start the restructuring now, we should be ready with something new when the last sweet oilapple are picked.
It is a litle bit strange, but fish and pirate has become a pair of words that belong together. We now longer have pirate ships, we have pirate trawlers. The question is, what links the words pirate and fish with Somalia?
The media has been full of report of pairates off the coast of Somalia. But there has been precious little about fish. Especially heavy coverage was there after pirates seized the ship «Faina», filled with weapons of all kind. Now, we could always where those weapons really were headed, but that is not my theme today. However, in all those media reports, how many really tried to analyse why there are so many pirates in Somalia? Except that is, by calling Somalia a failed state.
According to FAO, the UNs food and agricultural organization around 700 foreign vessels are involved in illegal fishing in Somali waters. This makes it totally impossible to monitor and control the fisheries in any meaningful way. That means that the status of the stocks are unknown. However, I believe we can safely expect the stocks to be in bad shape. Experiences from other places do not give fish stocks that are exploited unchecked good odds. This means that there is litle left for the traditional artisan fisheries of Somalia. These fisheries traditionally employed 30 000 fishermen, and another 60 000 in related industries. These are good boatspeople that now find themselves with litle or no money. OK, what expertise do these people have that can be harnessed in war torn Somalia. Ah, yes, you are right. They can handle boats and the can handle guns. Any career counsellors would see it immediately and counsel you to bring your CV to the nearest pirate establishment.
Of course, lets be clear, loosing your fish does not give you the right to tout guns and kill people, but it goes a long way toward explaining why people would do so. In addition to stealing fish, foreigners, again according to FAO dumped illegal hazardous waste in Somali waters. I can understand that people get angry.
The Chinese paper «Peoples Daily» reported the 21st of February 2006 that:
“Somalia is grateful for recent initiatives taken by the United States Navy aimed at curtailing rampant sea piracy that has been taking place in the territorial waters of Somalia,” said Farah.
“But it will also be pleased if similar action could be taken against illegal fisheries in the Somali territorial waters. The illegal international fishing vessels cause serious damage to Somali marine resources and its environment,” said the minister.
The minister certainly has a good point? Tony Blair had a slogan during an election that I believe would serve us well in this case: «tough on crime, tough on causes of crime». Maybe that should be an international slogan. It would serve us well in more places than Somalia.
The Chicago Tribune reports that the waters off Somalia became an international dump of hazardous waste in the early nineties. They write:
Fishing boats from Italy were reported to have ferried barrels of toxic materials to Somalia’s shores and then returned home laden with illicit catches of fish. Rusting containers of hazardous waste washed up on Somali beaches as recently as 2005, after a powerful tsunami roared through.
But fish poaching has proved far more devastating to Somalis, environmental officials say.
“It’s been like a long gold rush for Thai, European, Yemeni and Korean boats,” said Abdulwali Abdulrahman Gayre, the vice minister of ports and fisheries for Puntland, a dusty, semiautonomous state in northern Somalia that is the bastion of the pirates.
“We have some of the richest fishing grounds in the world,” said Gayre. “Scientists say it is like a rain forest of fish. But our fishermen can’t compete with the foreigners in big ships who come to steal from our waters.”
Many of Somalia’s angry fishermen have picked up rifles and joined the pirate mafias that have seized more than two dozen vessels off the Somali coast so far this year, maritime security experts say.
“It’s almost like a resource swap,” said Peter Lehr, a Somalia piracy expert at the University of St. Andrews in Scotland and the editor of “Violence at Sea: Piracy in the Age of Global Terrorism.” “Somalis collect up to $100 million a year from pirate ransoms off their coasts. And the Europeans and Asians poach around $300 million a year in fish from Somali waters.”
The most important paragraph is the last. Somali pirates are sophisticated, well trained and smart, but they have only managed to regain one third of what has been stolen or vandalized.
Are we, then, able to say something about how the Somalis themselves look at this business. I have not spoken with any pirates, but the New York Times have. They had a conversation with the spokesman for the pirtes aboard the «Faina». I do not vouch for the spokesman, he might be propagandising, but who would not be? Still he is quoted by NYT:
“We don’t consider ourselves sea bandits,” he said. “We consider sea bandits those who illegally fish in our seas and dump waste in our seas and carry weapons in our seas. We are simply patrolling our seas. Think of us like a coast guard.”
He insisted that the pirates were not interested in the weapons and had no plans to sell them to Islamist insurgents battling Somalia’s weak transitional government. “Somalia has suffered from many years of destruction because of all these weapons,” he said. “We don’t want that suffering and chaos to continue. We are not going to offload the weapons. We just want the money.”
Al Jazeera reports that it costs 2,5$ to dump a ton of hazardous waste of Somalia. If you wanted to do it properly, it would cost you a 1000$ or more per ton. That is cost cutitng that matters to the bottom line! In the same article Al Jazeera quotes the UNs envoy to Somalia:
“What is most alarming here is that nuclear waste is being dumped. Radioactive uranium waste that is potentially killing Somalis and completely destroying the ocean,” he said.
Ould-Abdallah declined to name which companies are involved in waste dumping, citing legal reasons.
But he did say the practice helps fuel the 18-year-old civil war in Somalia as companies are paying Somali government ministers to dump their waste, or to secure licences and contracts.
So, there is no doubt that fish, pirates are words that belong together. Still, they belong together in slightly different ways off the coast of Somalia than they do in the Barents Sea.,