Category Archives: ethics

The Euro and the Economists

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Spiegel Online International interviewed two German economists on the future of the euro.  One has an (incomplete) approach to a solution, the other still can’t see the problem.  The split between the two mirrors the split among politicians (although along different dimensions than the politicians), and the existence of the split is a demonstration of the lack of coherence in reaching a solution.  Which bodes ill for the euro and for the European Union.

The interview opens with this; I’ll cite one economist’s response, as the other is saying substantially the same thing I’ve been writing, and so he’s to a large extent preaching to the choir.

SPIEGEL: Mr. [Joachim] Starbatty, Mr. [Peter] Bofinger, can the euro still be saved?

Bofinger: …The highly indebted countries must be able to borrow at moderate interest rates so they don’t go bankrupt. This could be achieved with euro bonds. And if they can’t be implemented that quickly, the ECB has to stabilize the system. In doing so, it would not create inflation but would in fact avoid deflation.

Mr Bofinger is wrong on two counts, and his first error demonstrates his plain lack of understanding of the nature of the problem.  Disastrously indebted countries do not need to “be able to borrow at moderate interest rates.”  They’ll never be able to borrow their way out of a debt-based bankruptcy.  Disastrously indebted nations instead must stop borrowing altogether and reduce their debt through annual budget surpluses.  Moreover, budget surpluses achieved by taking money away from their citizens and so out of their economies in the form of higher taxes will only guarantee continued economic failure.  The borrowing must stop and the debt reduced through reduced government spending.  Secondly, throwing money at the problem via the ECB certainly will avoid deflation—by leading to explosive inflation from too much money chasing too few goods from too little production.

Bofinger goes on in response to another question:

German politicians have not acknowledged that these countries have already reduced their deficits significantly. Compared to 2009, deficits have declined in all of the crisis-ridden countries…. The markets haven’t even noticed this.

It’s true that the deficits have shrunk.  What the markets have noticed, though, is that reduced deficits means continued deficits which means still increasing debt for nations with too much debt already.

On Spiegel‘s question of EU-wide increasing yields on sovereign debt (which means it’s getting ever more expensive for governments to borrow), the two economists had this:

Starbatty: Because the trouble spots in the euro zone are not being isolated, the sparks are jumping over to the healthy countries. Everyone knows that if the weaker countries are to be rescued, two countries — Germany and France — will ultimately be doing all the heavy lifting. So the most important question is: How long are the Germans willing to pay? And how long are the French in a position to pay?

Bofinger: You correctly describe how the euro zone behaves today, with 17 different countries trying to address the problems individually. In fact, the real question is whether Germany can be everyone’s guarantor in the end. That’s why we have to turn things around and say: We will now act as a unit. If Italy can go into debt through euro bonds, it will always be able to raise money, even it has to refinance €300 billion ($400 billion) in debt next year.

Mr. Starbatty exposes the false premise of the fiscal union on offer: that the “weaker countries” should be rescued at all, and if so, by whom.  The German citizens are tired of being everyone else’s piggy bank, and the French, while slower to the realization, are rapidly losing their capacity, even as they remain (sort of) willing.  Bofinger, on the other hand, misses the problem altogether: the fiscal union both allows an Italy (or a Spain, or a…) to continue to borrow profligately, rather than bringing its debt under control, and it traps Germany (and France) into being the union’s piggy banks.

Here’s this exchange, also:

SPIEGEL: So are the euro countries too different to be welded together in a single currency, as euro critics have claimed from the start?

Bofinger: There are also big differences in productive capacity in the United States. The problem is that we in Germany have tried to become even stronger by holding back wages….

Starbatty: The mistake lies in the fact that the weak countries in the monetary union have not changed their policies. They have used the low interest rates to have a party….  …which is why we now have a large divide in the monetary union. Some are overly competitive, while others can’t keep up anymore.

Both economists have it wrong.  The variability in productive capacity isn’t the problem for cohesiveness.  The lack of common social and philosophical imperatives and the vastly differing views of the purpose of money are what make a cohesive fiscal union of all 17 nations impossible and that are pulling the 27-nation EU apart.  Separately, “overly competitive!?”  Only in the fantasy world of too big to fail does this contradiction make sense.

The interview goes on in this vein.  Without even an understanding of the nature of the problem, there can be no hope of a solution.  But let’s expand government (here in the form of more power to the ECB and a fiscal union layered on top of national governments), as one economist and a gaggle of politicians insist, anyway.

Read the whole thing.

Government “Largesse”

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A remark attributed to Margaret Thatcher from her beginnings in British politics in the late ’40s or early ’50s comes to mind.  She said, in essence,

[I]f you do not provide [for a rainy day–or for any other purpose] you cannot be certain that anyone else will.

This truism would seem self-evident, but I’m going to expound on it a little, anyway.  In the end, “you” is not all of us, but each of us.  Government is what is all of us, acting in concert through the mechanism of representatives we elect for the purpose.

If we, individually, do not provide for our own future, but depend on government—all of us—to do so, then none of us will be capable of providing.  If none of us is providing for ourselves, then we will not have the resources to help any other who has not provided, or cannot provide.  Rely on government?  Government can’t provide for any of us without taking from at least some of us.  That taking is not different in its effect on us from our own conscious decision not to provide for ourselves: what must be taken is exactly that which we would have put by for ourselves.

There’s more to this, though, than just the pecuniary aspect, and that is the morality of relying on “anyone else” to provide.  Leaving the matter to government (for instance), rather than to “anyone else” means ultimately that we must have the government provide for us—we will have become dependent on government, rather than reliant on ourselves.   Worse, a habit of dependency will develop, and the dependents will lose their ability to provide for themselves.

This does not change when that dependency is on “anyone else” instead of on government; it remains dependency.  Of course this is different from an occasional hand up.  From the perspective of Thatcher’s “you,” each of us (but not all of us) is that “anyone else,” and it certainly is our individual duty to offer a hand up (not a handout) to “you” in an hour of need.  Just as it is the duty of “you” not to make asking for, or accepting, such hands up so habitual that they become handouts, and “you” become dependent.

More on Too Much Law

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A quick note on how our government’s regulatory overreach is affecting even the EU’s banking system, courtesy of Spiegel On Line International.

It’s been noticed that American money is rapidly departing European banks, and one reason for this is fear for the safety of those banks and, from that, fear for our money in those banks.

There’s another reason for that concern, and the departure of American money, though.  American money is being kicked out of the European banks by those banks.  It seems that, due to stricter tax reporting requirements pushed through by the Obama administration and the Progressive Congress in 2010, EU banks are reluctant to accept or retain our business.  The Foreign Account Tax Compliance Act (FATCA) was passed in 2010, and it takes effect January 2013.  FATCA requires all foreign banks to identify and report all US citizens who have accounts greater than $50,000, all in an effort to clamp down on tax evasion.  If the banks refuse to comply, they face a punitive 30 per cent withholding tax on all payments from the US.  Never mind that under German (and many other nations’) laws, it’s illegal to give up much of the information FATCA demands.

It gets better.  FATCA also hits foreign banks that have investments in the US or that are part of an expanded affiliated group that includes e participating foreign financial institutions doing business in the US—even if those banks have no US customers.

DWPBank, which handles securities transactions for 1,600 German banks—the primary type of account that would be affected given that minimum account size—estimates the total cost of compliance in Germany alone to be as much as €10 billion ($13 billion).  A senior manager with JPMorgan Asset Management in Germany also notes that all the benefits, an estimated $8 billion in increased tax revenue over 10 years, accruing from this cost go entirely to the US.

Already, HypoVereinsbank has decided to stop many of its services for American customers as of 1 January 2012, while Duetsche Bank cancelled its accounts of its type last summer.  Commerzbank (already in trouble from the debt crisis, and at risk of being nationalized by the German government) is “considering a similar move.”  The cancellations aren’t limited to German financial institutions: HSBC, of Great Britain, will no longer service such large American accounts, and Credit Suisse, of Switzerland, has made the same decision.  The latter’s move, though, also could be related to US pressure on the Swiss government to alter Swiss banking laws to allow Swiss banks to report on US account holders.

Of course there’s another result to all this, also.  Americans in Europe may have trouble finding banks who want our business.

Government and Innovation

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Government’s role is to create an environment within which men can prosper in accordance with their own efforts and the degree of those efforts.  Thus, legitimate government sets laws that prevent one from cheating another and laws that require each to honor the contracts to which they agreed.  Legitimate governments do very little more than that.  Government does not have, for instance, a legitimate role in determining what those contracts must accomplish, or how they must be structured.  Nor does government have a legitimate role in inuring any of us from the failure of our efforts: it is, in fact, from those failures that our enterprises grow stronger for the next effort.  It is in the fermentation vats of competition, unconstrained by government, that innovation occurs.

Why, then, is what used to be a uniquely American skill of innovation moving apace overseas and no longer occurring here?  Here’s an example of this failure, and it illustrates an answer.  Despite our need to become energy independent, for a range of reasons I’ll not go into here, and despite our Progressives’ push to move away from coal, oil, and gas as the primary source of our energy, nuclear power innovation is moving to the People’s Republic of China, at the behest of American innovators.  In this illustration, I’ll leave aside the question of helping the PRC obtain technological superiority over us (which is troubling in itself).

The Washington Post reports that a startup called TerraPower has developed a nuclear power breakthrough that involves traveling wave reactor technology and this technology’s ability to use depleted uranium to power a nuclear plant for decades without need of refueling or waste removal.  However, instead of looking to deploy this technology in the US, TerraPower, heavily backed by Bill Gates of Microsoft fame, is talking to the PRC government about selling its technology there.  How does this work?

For one thing—for the driving thing—innovators still are human, and humans still can go anywhere they like.  And humans, being humans, are going to go where it’s easiest to follow their dream, easiest to satisfy their own drives and imperatives.  With business, and especially high-tech business, those places are where the conditions conducive to development and growth are most available.

The US’ rules for permitting and environmental studies, especially for nuclear power, and the US’ litigation environment that encourages lawsuits over any perceived slight, whether environmental, social, or something else all serve to drive the costs of bringing innovation from the laboratory into the market to astronomical heights.  Although, in TerraPower’s case, this might be irrelevant: “Current U.S. rules don’t even cover the type of technology TerraPower hopes to use.”

Additionally, the US’ visa rules are outright stupid.  We educate highly talented and motivated engineers and scientists, and then, because they’re aliens, we send them back to their home countries, even if they want to stay—the quotas are too low and for the few allowed, it takes too long for the converted visas to be issued.  Then, getting talented, motivated, already educated—and experienced—foreign engineers and scientists (back) into the US also is a Herculean task, made worse by not having allowed those freshly trained to stay: the quotas are set too low, and the few authorized visas are slow to be issued.  In either case, why should we have quotas at all?  We should welcome these people with open arms, as we did with the German scientists after WWII, who built our space program.

On the other hand, the PRC has programs like “Thousand Foreign Talents” to attract the world’s best and brightest into China.  And they have an active, empirically visible interest in tech and in having an environment conducive to development—and deployment.  While the US is shrinking its satellite and exploration programs and withdrawing from manned space efforts, while hoping for small change from companies like SpaceX (which NASA is in the process of stiffing due to budgetary problems), China is accelerating its programs, including intending to put a man on the moon by 2020—a feat we’ve been too timid to think about trying for 40 years.

As the WaPo concludes

The lesson is clear: The U.S. government needs to be just as aggressive as the Chinese in creating incentives for entrepreneurs and technology start-ups to grow and mature. At a time when the U.S. is downplaying efforts to attract and retain foreign entrepreneurs and flirting with legislation that could slow the pace of digital innovation, it is strangely China that is proving to be more proactive in creating the conditions for innovators to thrive. Bill Gates is one of America’s great entrepreneurial legends. Something feels wrong about seeing him launch a new chapter in his tech career in China and not the U.S.

Hmm….

Voter ID and What It Means to Be American

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The right to vote is held by all Americans to be a precious right, central to our American democracy.  The 14th Amendment to our social compact’s blueprint, our Constitution, makes this clear:

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States[.]

and [emphasis added]

…the right to vote at any election…male inhabitants of such State, being twenty-one years of age, and citizens of the United States….

The 15th and 19th Amendments extend this, making clear that the right to vote is any American citizen’s right, regardless of race or gender.  Notice that: the right to vote is a citizen’s right, and this right is not to be abridged in any way.

To support this, and to reduce the ability for one party or another to perpetrate voter fraud and thereby harm the sanctity of the citizens’ voting, the several States are actively enacting laws, centered on requiring photo IDs, to ensure that a prospective voter is both who he claims to be and a citizen and so eligible to vote.

Some argue that this is onerous and discriminatory: the elderly, the young, blacks, and so on do not possess photo IDs—one example offered being that many of these do not drive and so do not have the photo ID of a driver’s license.  These also argue that it’s too hard to get a photo ID at the last moment, on the way to a polling booth on the day of an election.  This is nonsense.  It’s just too easy to get a photo ID, including one that has the form of a driver’s license: it’s an ID any state issues to non-drivers explicitly for the purpose of identification.  The argument that it takes too much time to get a photo ID is little more than an insult to those who wish to get one; it says these people are too stupid to understand that there is an upcoming election, and so it’s time now, rather than later, to get the ID.  Further, the argument is fatuous.  The time spent getting the ID is a one-time cost—the IDs are renewable with even less expenditure of time, usually doable through the mail on the State government’s initiative.  The voter generally needs to do nothing more to renew his ID than to answer his mail.

Others argue that IDs of any sort are unnecessary.  Non-citizen immigrants, legal or not, as members in good standing of their communities, should be allowed a voice in the direction of their communities: they should be allowed to vote in elections.  Thus, with anyone allowed to vote, there is no need of any proof of ID or of eligibility.  This is a powerful argument on its face, but the argument is just that superficial.  Non-citizens are not members of their communities; they’re visitors.  They may be highly welcomed, and they may be highly productive and economically contributory, but the fact remains that, as non-citizens, they can only be visitors.  This does not leave them voiceless in the communities, though.  They are free to express themselves to their neighbors, they are free to take part in discourse in the public square, they are free to engage in any and all of the debates about our future that might occur.  But they cannot vote on the outcomes of those debates: they are not citizens, and so they cannot be members of their communities.

And yet the present administration objects to protecting this quintessential American right.  Instead, it’s launching, through Eric Holder’s DoJ, a campaign to block State photo ID laws on the basis of their alleged discriminatory nature.  Aside from this naked attempt to intimidate the States into diluting, rather than protecting, citizens’ rights to vote, though, it’s purely hypocritical: Holder doesn’t even mean it himself.  As Power Line has noted,

…people lined up to enter the LBJ Library to hear AG Holder rail against voter ID laws.   As each person entered the library they were required to present their photo IDs in order to be allowed in to hear the speech.

Non-citizens are, by definition, not Americans.  They may be here—they’re very likely here—under entirely legitimate means and doing very good work in the communities in which they live, but they’re not American.  Voting in an American election is part of what it means to be an American.  It’s wrong to attempt to dilute this fundamental right, this basic aspect of citizenship, by watering down the effect of an American’s vote, through which an American expresses his desire concerning the direction of his community and of his country, by allowing noncitizens to vote, also.  Indeed, such a dilution would seem to be an unconstitutional abridgment of the citizen’s right.