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Jul. 9th, 2015 06:16 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
koganbotThis long post by Steve Randy Waldman has been getting attention in the econ blogosphere and is a slamming bit of writing that's also clear and coherent and seems to explain a lot.
http://www.interfluidity.com/v2/5965.html
The two money quotes, so to speak:
http://www.interfluidity.com/v2/6013.html
Of course, as I've said often, I'm not an economist and don't have the knowledge or ability to truly evaluate such arguments. That Waldman’s explanations resonate with me is actually not a good reason to think they're right, in fact is a warning light. Not that it’s a reason to think his explanations are wrong, either. But one of the things that resonates is that the villains in Waldman’s story, the European policy and business elites, created and chose a story that resonated with them and that gave them a villain and scapegoat and simultaneously absolved themselves of the responsibility for examining what they themselves had done and for changing what they’re now doing. The psychology behind their story choice isn’t unlike mine, though I’m not an actor in this story and my self-interest is purely psychological. I’ll also quickly point out that Waldman is emphatically not saying there were no other bad actors, or, for that matter, that there was never any idealism or genuine concern mixed into the elite behavior. The sin he identifies in the elites is their refusing to acknowledge that there was a Europe-wide failure that involved many parties, and that there was a system that encouraged it.
More links:
Paul Krugman has been blogging daily about Greece. Maybe his two most crucial posts are:
Breaking Greece
Austerity Arithmetic
First one in brief (my words): The creditors are dictating that the Greeks adopt supply-side policy (spending cuts rather than tax hikes), but these are fantasy proposals that will not help an economy that's running 20 percent below capacity.
Second one in brief (my words): Let's say we try to raise the primary surplus by 1 percent. At best this will take decades to reduce the debt ratio, but it may well never reduce the debt ratio, in fact may raise it, forever.
(I myself don't pretend to understand the calculations in the second one.)
One from Simon Wren-Lewis, like the Waldman but in a measured tone of voice.
The Greek people have paid for their governments’ mistakes — and for the errors of the Troika
Nate Silver has a fascinating though speculative post about not just why the opinion polls were so wrong on the Greek referendum ("no" winning by only 3 or 4 percentage points, not the 22 it actually won by), but why at the end they all pretty much agreed with one another, so were all more or less equally — and drastically — wrong. Given the volatility of opinion and the chaos brought on by the snap referendum and the bank defaults, opinion polls should have wildly disagreed with one another. So Silver suspects "herding," which means that towards the end, when a pollster got results that were out of line with most other pollsters' published results, the pollster either suppressed the findings or altered them. Basically, pollsters didn't trust their own numbers and didn't want to look like fools (safer to be wrong along with everyone else than risk being the only one who's wrong). But also, respectable opinion/conventional wisdom (whatever you want to call it: pundits and journalists and financial markets and banks and brokers etc.) overwhelmingly supported "Yes" and assumed the public would too, and this influenced both the pollsters and the betting markets, the latter uncharacteristically being even more wrong than the opinion polls.
Basic takeaway: polling is getting harder for a number of reasons, and pollsters are adapting or fudging their numbers to compensate, without really knowing what they're doing.
An article from Alison Swale and Andrew Higgins at the New York Times is interesting because it quotes two experts who, though they appear to be saying the same thing, are actually making points that are almost completely at odds.
Angela Merkel Faces Monumental Test of Leadership After Greek Vote
Each expert seems to be saying that politics is transcending or superseding economics, but actually expert number one (Techau) is saying that, while Germany's tough stance has been dictated by economics, Merkel now may be softening the stance to accommodate the political need for European integration and solidarity. Meanwhile expert number two (Ruparel) says that, while the economics always supported the Greek position against austerity, this issue has never been just about economics; it is also about accommodating politics throughout the Eurozone, especially German politics, which pushes for toughness against the Greeks.
And here, a piece in the Telegraph by Ambrose Evans-Pritchard that I just don't know what to make of. Its kicker goes,
Prime Minister Alexis Tsipras never expected to win Sunday's referendum. He is now trapped and hurtling towards Grexit
One of the commenters over at Yves Smith's Naked Capitalism said it "reads like the kind of story you’d see at the supermarket checkout." But Smith claims Pritchard's article is sourced, withrock star former Greek Finance Minister Yanis Varoufakis one of the sources. (She doesn't say how she knows this.)*
Finally, today, from Liz Alderman and James Kanter in the NY Times, Tsipras seems to have caved (which I was pretty sure would happen), though you never can tell. I'll wait till someone who knows a lot tells me what to think.
Greece Submits 11th-Hour Bailout Proposal to Creditors
*Well, Varoufakis is quoted in the piece, but not in regard to any of its sensationalistic claims.
http://www.interfluidity.com/v2/5965.html
The two money quotes, so to speak:
With respect to Greece, the precise thing that European elites did to set the current chain of events in motion was to replace private debt with public during the 2010 first "bailout of Greece." Prior to that event, it was obvious that blame was multipolar. Here are the banks, in France, in Germany, that foolishly lent. Not just to Greece, but to Goldman's synthetic CDOs and every other piece of idiot paper they could carry with low risk-weights. In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc. Cash flowed into Greece only so it could flow out to rickety banks. Now, suddenly, the banks were absolved. There were very few bad loans left on the books of European lenders, everyone was clean, no bad actors at all. Except one. There were the institutions, the "troika," clearly the good guys, so "helpful" with their generous offer of funds. And then there was Greece. What had been a mudwrestling match, everybody dirty, was transformed into mass of powdered wigs accusing a single filthy penitent (or, when the people with their savings in just-rescued banks decide to be generous, a petulant misbehaving child).And
For the record, my sophisticated hard-working elite European interlocutors, the term moral hazard traditionally applies to creditors. It describes the hazard to the real economy that might result if investors fail to discriminate between valuable and not-so-valuable projects when they allocate society's scarce resources as proxied by money claims. Lending to a corrupt, clientelist Greek state that squanders resources on activities unlikely to yield growth from which the debt could be serviced? That is precisely, exactly, what the term "moral hazard" exists to discourage. You did that. Yes, the Greek state was an unworthy and sometimes unscrupulous debtor. Newsflash: The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a "loan." It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors' prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place.There were several comments challenging his contention that "In 2010, the EU, ECB, and IMF laundered a bailout of mostly French and German banks through the Greek fisc. Cash flowed into Greece only so it could flow out to rickety banks." Here is his response:
http://www.interfluidity.com/v2/6013.html
Of course, as I've said often, I'm not an economist and don't have the knowledge or ability to truly evaluate such arguments. That Waldman’s explanations resonate with me is actually not a good reason to think they're right, in fact is a warning light. Not that it’s a reason to think his explanations are wrong, either. But one of the things that resonates is that the villains in Waldman’s story, the European policy and business elites, created and chose a story that resonated with them and that gave them a villain and scapegoat and simultaneously absolved themselves of the responsibility for examining what they themselves had done and for changing what they’re now doing. The psychology behind their story choice isn’t unlike mine, though I’m not an actor in this story and my self-interest is purely psychological. I’ll also quickly point out that Waldman is emphatically not saying there were no other bad actors, or, for that matter, that there was never any idealism or genuine concern mixed into the elite behavior. The sin he identifies in the elites is their refusing to acknowledge that there was a Europe-wide failure that involved many parties, and that there was a system that encouraged it.
More links:
Paul Krugman has been blogging daily about Greece. Maybe his two most crucial posts are:
Breaking Greece
Austerity Arithmetic
First one in brief (my words): The creditors are dictating that the Greeks adopt supply-side policy (spending cuts rather than tax hikes), but these are fantasy proposals that will not help an economy that's running 20 percent below capacity.
Second one in brief (my words): Let's say we try to raise the primary surplus by 1 percent. At best this will take decades to reduce the debt ratio, but it may well never reduce the debt ratio, in fact may raise it, forever.
(I myself don't pretend to understand the calculations in the second one.)
One from Simon Wren-Lewis, like the Waldman but in a measured tone of voice.
The Greek people have paid for their governments’ mistakes — and for the errors of the Troika
Nate Silver has a fascinating though speculative post about not just why the opinion polls were so wrong on the Greek referendum ("no" winning by only 3 or 4 percentage points, not the 22 it actually won by), but why at the end they all pretty much agreed with one another, so were all more or less equally — and drastically — wrong. Given the volatility of opinion and the chaos brought on by the snap referendum and the bank defaults, opinion polls should have wildly disagreed with one another. So Silver suspects "herding," which means that towards the end, when a pollster got results that were out of line with most other pollsters' published results, the pollster either suppressed the findings or altered them. Basically, pollsters didn't trust their own numbers and didn't want to look like fools (safer to be wrong along with everyone else than risk being the only one who's wrong). But also, respectable opinion/conventional wisdom (whatever you want to call it: pundits and journalists and financial markets and banks and brokers etc.) overwhelmingly supported "Yes" and assumed the public would too, and this influenced both the pollsters and the betting markets, the latter uncharacteristically being even more wrong than the opinion polls.
Basic takeaway: polling is getting harder for a number of reasons, and pollsters are adapting or fudging their numbers to compensate, without really knowing what they're doing.
An article from Alison Swale and Andrew Higgins at the New York Times is interesting because it quotes two experts who, though they appear to be saying the same thing, are actually making points that are almost completely at odds.
Angela Merkel Faces Monumental Test of Leadership After Greek Vote
Each expert seems to be saying that politics is transcending or superseding economics, but actually expert number one (Techau) is saying that, while Germany's tough stance has been dictated by economics, Merkel now may be softening the stance to accommodate the political need for European integration and solidarity. Meanwhile expert number two (Ruparel) says that, while the economics always supported the Greek position against austerity, this issue has never been just about economics; it is also about accommodating politics throughout the Eurozone, especially German politics, which pushes for toughness against the Greeks.
And here, a piece in the Telegraph by Ambrose Evans-Pritchard that I just don't know what to make of. Its kicker goes,
Prime Minister Alexis Tsipras never expected to win Sunday's referendum. He is now trapped and hurtling towards Grexit
One of the commenters over at Yves Smith's Naked Capitalism said it "reads like the kind of story you’d see at the supermarket checkout." But Smith claims Pritchard's article is sourced, with
Finally, today, from Liz Alderman and James Kanter in the NY Times, Tsipras seems to have caved (which I was pretty sure would happen), though you never can tell. I'll wait till someone who knows a lot tells me what to think.
Greece Submits 11th-Hour Bailout Proposal to Creditors
As details of the new offer emerged, it appeared the Prime Minister Alexis Tsipras was capitulating to demands that he urged his countrymen to reject in the referendum last Sunday, like tax hikes and various measures to cut the costs of pensions.I don't know. Greece got blasted. Syriza doesn't have a mandate for Grexit. Maybe the Syriza group and their coalition partners figured that even if Greece could hack an exit from the euro and eventually prosper, the short run is far too hard. Or maybe I'm reacting too soon, and this isn't close to over.
But Mr. Tsipras seemed to have gained ground on debt relief, his one bedrock demand. Germany’s truculent finance minister, Wolfgang Schäuble, finally gave a little on that Thursday, admitting that “debt sustainability is not feasible without a haircut,” or writedown of debt, even if he then appeared to backtrack.
*Well, Varoufakis is quoted in the piece, but not in regard to any of its sensationalistic claims.
Re: Okay, this seems stunning, but I don't know if it is, actually, or what it portends
Date: 2015-07-15 07:11 pm (UTC)Re: Okay, this seems stunning, but I don't know if it is, actually, or what it portends
Date: 2015-07-16 03:34 pm (UTC)quickly to lay out why i think davies is often a useful corrective to economists and financial journalists = he was (until very recently) a very successful stockbroker, which is to say someone who has learnt to trust his instincts on the shape of the working market, where the strengths and weaknesses and trades are, the flows and the flaws and the stoppages, when to buy and when to sell -- so his commentary is based on experience and feel first, and applied theory a distant second, if you like, though he is very well read in the theory: less how it's MEANT to work, more how it actually DOES work (in his experience, which he gained making or losing money for clients).
Like Krugman, he is very much at heart a Keynesian -- he thinks Galbraith the elder is one of the great writers on money and has a lot of time for Galbraith the younger -- but essentially in his analyses he is following his nose and instincts as a trader, and then trying to fill in the underlying explanations for this. I also think he's absolutely honest -- certainly in the sense that he doesn't spend a lot of time saying things that make him popular in the territories he comments.
In my original post, I wanted to offset two levels of understanding: the tactical (syriza at the negotiating table attempting to get the stimulus package they actually needed) and the strategic (syriza on your TV attempting to wake the counterforces that will stand up against the austerity dragon). Obviously it's far too soon to say where we are -- but my own rough scorecard is that they've done worse with the tactical than people expected but much better with the strategic, and that this failure and success are intimately linked (they possibly couldn't have got the second without the first). I don't believe it was remotely intentional -- because it would have been unconscionable -- but in a sense they have allowed the sacrifice of greek wellbeing to be the price of conjuring at least the possibiliity of the emergence of an opposition. Even though the latter remains more hope than effectively reality, it is definitely a Very Good Thing. And actually kind of unprecedented in Europe-wide politics. We shall see.
Re: Okay, this seems stunning, but I don't know if it is, actually, or what it portends
Date: 2015-07-16 07:56 pm (UTC)You attribute to DD the idea that Merkel's premises are based on the experience of Germany's early '90s unification, this experience and these premises not being applicable to Europe as a whole or to the current situation, but Merkel/Schäuble decisions being rational extensions of these bad premises. The word "rational" here is kind of iffy: "rigidly, deductively logical without taking into account counter-evidence or noticing alternative explanations" would seem to fall short, though I don't know if what I wrote is a fair account of what these people are doing; but also, if their idea is, "Everyone needs to become a net exporter, like we did," it doesn't even pass muster as deductive logic (again, don't know if that's a fair assessment of their ideas).
In PR terms, the last two weeks have been a disaster for Merkel and Schäuble internationally, even if they've done well with the German populace and some in the north and some in the former eastern bloc. Well, no, of course I'm not certain about this, either, and hanging around the econ blogosphere isn't necessarily a good way to find out about broad public opinion. But press accounts more and more are including phrases such as "unsustainable debt" and statements such as "economists oppose austerity as being unworkable" and so forth. Of course, the media still leaves out explanations as to why economists oppose it, so "austerity" is functioning as a buzzword. But still, it's one that's now starting to buzz more and more negatively for a lot of people. So indeed you may be correct that the conversation is changing. Meanwhile, the German govt. comes across as simply having argued in bad faith, and Syriza comes across as honest if not competent.
Schäuble, by the way, is now publicly saying that Grexit might be best for Greece, 'cause it allows Greece to devalue its currency. Presumably, he's not saying that Grexit should include a Greek default. Krugman also seems to think that Grexit would be the best of bad alternatives for Greece, but I assume Krugman would include a Greek default as part of the maneuver.
My guess is that Krugman thinks that a United States of Europe just isn't going to happen, so that conditions will always remain unequal as to who benefits from policy, and that once a country is in trouble, depression-like conditions will always prevail during the "internal devaluation," one that occurs via unemployment rather than a not-possible-in-the-eurozone devaluation of currency — and this is inevitable even when European leaders aren't fundamentally supply-side nitwits and austerity nuts.
Speaking of Coppola, looking back at a previous post of hers, I see that Lagarde had made it clear publicly last week in a speech to Brookings that the deal had to include debt writedowns; though I'm guessing she didn't explicitly say, "Or there's no fucking way that the IMF will participate" (I can't find the full text). So, one possible explanation for why Schäuble et al. didn't include guaranteed debt restructuring is that they assumed all along that they were going to force Greece out, that they were making offers that Tsipras could not accept, so it didn't really matter what they included or didn't include. Perhaps he's still hoping the deal falls apart.
"Schäuble, if you reach an agreement after such long and hard talks, you have to stand behind it"
Date: 2015-07-16 10:59 pm (UTC)Bernanke
Date: 2015-07-17 06:47 pm (UTC)And
He also says that, while structural problems may have an impact on long-term growth, they've little to do with either causing or getting Europe out of its current pickle. "Cost-saving measures are less relevant when many workers are already idle."