Friday, July 31, 2015

A Quick Note on Donald Trump

A quick note to everyone panicking over the prospect of Donald Trump as the Republican nominee. Chill!  You seem to forget that Trump was Republican front runner at this stage in the last election as well.  And yes, I understand why everyone has managed to drop that down memory hole, but it remains the case.  Trump surged ahead by being the only Republican contender to seriously entertain the birthers.  The Tea Party embraced him.  However, he was not a member and did not speak their language, and it soon became apparent that he was merely pandering to them.  So the Republicans moved on to semi-serious candidates like Michelle Bachman, Herman Caine, Newt Gingrich, and Rick Santorum.  They were an appalling bunch, but at least they had one thing going for them -- none of them were Donald Trump.

This time instead of birtherism, the issue is illegal immigration, which has the advantage of being at least a real issue.  Still, there is every reason to believe that sooner or later Trump will commit some faux pas that makes clear to Tea Partiers that is is not one of them and is just pandering (again).  The Iowa caucus is still over five months away, for Pete's sake!  That will give plenty of time for the novelty to wear off and Trump to self-destruct over something.

I try to make it my rule not to comment on the election until the actual primaries begin.  This counts as a failure but occasionally a bit of madness has to be tamped down.  Panic over Trump is one such occasion.

Monday, July 27, 2015

American Labels Don't Fit in Europe

To continue, American political labels just don't work in Europe.  They didn't hold well in the 1930's, and they don't apply well now.  In the US, the macroeconomic left can roughly be identified with people who favor counteracting economic downturns with stimulus, whether fiscal, monetary or by currency depreciation.  The macroeconomic right either believe that stimulus is futile and what is needed are structural reforms, or that the downturn is a necessary correction and any attempt to counter it simply prolongs the pain.  The macroeconomic left tends to correlate with the microeconomic left (i.e., people who favor health and safety regulations to protect labor, consumers, and the environment), although there are a few exceptions like market monetarists.  These things tend to correlate, although they do not have to.  Indeed, one of the basic concepts my freshman year macroeconomics textbook had was that how activist one believed government should be in demand management and how large one believed the public sector should be were separate issues.  But no one in the US makes the distinction.

Europe is another matter.  This article suggests that in the German economic and ideological framework of "ordoliberalism":
[F]or ordoliberals the state is not an impediment to the efficient functioning of markets; for them strong government regulation is a necessary prerequisite for competitive market activity. And unlike in the Austrian or Chicago variants of neoliberal thinking, a strong state is seen as necessary to produce the moral, legal, and social frameworks (the Ordnung) essential for the functioning of markets. 
These state-initiated rules were intended to approximate as closely as possible the functioning of a perfectly competitive market. Consequently, ordoliberals place an outsized emphasis on preventing the establishment of cartels and monopolies. By preventing the formation of powerful economic agents which can influence the prices of goods and services, the state can create a situation approximating a state of perfect competition, which will drive economic development without government stimulus or non-regulatory intervention. By controlling the size and power of economic agents, and by encouraging the formation of a strong state, ordoliberals hoped to prevent a situation of regulatory capture, thus protecting the market from subversion by powerful economic actors. 
Perhaps unsurprisingly for a philosophical tradition from Germany, a famously rule-obsessed country, the need for a robust system of rules runs throughout the ordoliberal project. For them, economic rules are seen as constitutional, as an inviolable part of the fabric of society. For people in the ordoliberal tradition, as the legal scholar David Gerber put it, any action “which does not conform to constitutional economic principles should be overturned by the courts…just as if it had violated the political constitution.” In effect, ordoliberalism “constitutionalizes” the economy and embeds it in a broader normative framework.
Social democratic parties have been paralyzed by fidelity to the euro, acceding to ever harsher austerity that slowly grinds their economies down.  In the words of Matt Yglesias, "[S]ocial democrats feel paralyzed by the bounds of the eurozone. They don't have a strategy for changing the rules and they don't have the guts to tear up the rulebook."  It has been right wing parties, irate over the invasion of their country's sovereignty, that have been the serious challengers to austerity and the modern equivalent of the gold standard.  And I confess, much though I disapprove of the scapegoating of immigrants, it is hard not to applaud far right parties for their clear-headedness on economic matters.

Which leads to the subject of Ambrose Evans-Pritchard, right wing British journalist, euroskeptic, business editor for the conservative Daily Telegraph, Clinton conspiracy theorist -- and Keynesian. He writes column  after irate column on the subject in language that makes Paul Krugman sound temperate.  And in particular he calls on the left wing to rediscover its identity and make common cause:
We Conservatives have watched in disbelief as one Socialist party after another immolates itself on the altar of monetary union, defending a project that favours the elites - a "bankers' ramp", as the old Left used to call it. 
We have watched our friends on the Left apologise for 1930s policies. We have seen them defend a regime of pro-cyclical fiscal cuts imposed on the whole eurozone by a handful of "Ordoliberal" reactionaries in the German finance minstry. . . . It has somehow found ways to justify a youth jobless rate still running at 42pc in Italy, 49pc in Spain and 50pc in Greece, despite mass emigration.
. . . . . . 
This is what they agreed to, and what they have reluctantly defended, because until now they dared not question the sanctity of EMU. And so the once mighty Dutch Labour Party has been reduced to a pitiful relic. Pasok has been obliterated in Greece. 
The Spanish Socialist Workers' Party has lost its left-wing to the rebel Podemos movement, freshly victorious in Barcelona. France's Socialist leader, Francois Hollande, has been languishing at 24pc in the polls as the French working class defects to the Front National.
And this is not so far from what happened to the center-left in Europe as well in the 1930's, even as the US was electing Roosevelt.  And, as I said before, I begin to see why some US liberals in the 1930's might have applauded Mussolini or even Hitler for having the gumption to "tear up the rulebook" and save their countries' economies.  

Sunday, July 26, 2015

Liberal Fascism Reconsidered

Anyone who followed me back when I was Enlightened Layperson knows that for a time I became obsessed with Jonah Goldberg's Liberal Fascism, without (I admit) actually going so far as to read it.  I generally agreed, however, with whoever it was who said that the book had already been written in 1944 under the title of The Road to Serfdom, and that Liberal Fascism was just a dumbed-down version.  In effect, any departure from libertarian minarchism that stops short of Communism is fascism.  And certainly any challenge to the will of the omnipotent and omniscient Free Market placed us on the Road to Serfdom.  And nowhere did I wax so indignant as on the subject of German Social Democrats who, after all, were champions of the eight-hour day, unemployment insurance, union representatives on corporate boards, and many other departures from strict libertarian economics, yet were the staunchest supporters of liberty and the Weimar Republic.  I said:
[I]f Goldberg's definition of fascism is broad enough to encompass the modern-day Democrats, there can be little doubt that the SDP would also be (inadvertently) caught in his net. . . . [D]oubtless it can be established that Social Democrats and fascists (as well as New Dealers) would agree on some (but not all) economic policies. But Nazis and Social Democrats were truly antipodes on the issue that mattered most of all -- respect for democratic norms and individual rights. 
If Goldberg wants to dismiss that aspect of fascism (and Nazism) as insignificant in order to score a few cheap points in the context of US politics, well, American liberals and Democrats can afford a thick hide. We are not being menaced by jackbooted Storm Troopers, after all. But to every brave German Social Democrat who stood up for democracy when the conservatives went along with Hitler, to every Social Democratic martyr who paid the price with loss of home and job, harassment, persecution, exile, prison, torture or murder for defending the democracy no one else was willing, Goldberg owes an apology.
I wrote that on January 31, 2008, aware at the time that our economy had some problems, but thinking of them as little more than distant events on the horizon, and certainly seeing the Great Depression has highly salient to understanding fascism, but of mostly historical interest.  I certainly did not foresee that a remarkably similar series of events would be playing out within the next few years!  But events then and now have forced me to learn more about international economics in general and the Great Depression in Europe in particular.  And what I have learned has compelled me to the conclusion that Goldberg, if he chose, could build up an ideological divide that would place Hitler, some of Hitlers conservative coalition partners, Mussolini, Japanese militarists, and Franklin Delano Roosevelt on one side (along with some Scandinavian Social Democrats as acceptable collateral damage); and German Social Democrats, the Catholic Center Party (ancestor to modern Christian Democrats), libertarians, and British politicians, Conservative and Labour, on the other.

The divide, of course, is Keynesian economics.  The German Social Democrats favored  social welfare programs, labor protective legislation, union representation on corporate boards, and other un-libertarian economic policies, but they were not Keynesians.  They never questioned the need to balance the budget but only suggested that cuts come from the military instead of unemployment insurance.  The German Social Democrats were prisoners of a semi-Marxist ideology, one that attempted to make Marxism a humanitarian ideology by keeping its indignation over the (genuine) abuses and flaws of capitalism, while rejecting the parts about violent revolution and hoping to achieve the grand utopia by reform instead.  In good times, this effectively meant building capitalism with a human face, but it left them completely paralyzed and unable to act in the face of the Great Depression.  Communists rejoiced in what seemed the final death throes of capitalism and prelude to the glorious socialist revolution.  Libertarians treated the downturn as a necessary shakeout to be endured.  And less ideologically rigid people, from Keynes on the left to elements of the German military on the right began calling for public works to revive the economy.  But German Social Democrats rejected such proposals.  As humanitarians they were horrified at the suffering they saw around them and by the prospect of revolution, but they were still too Marxist to be willing to save the capitalist system when it seemed to be destroying itself.  The British Labour Party, though less ideological, also embraced austerity.

In short, if you regard Keynesianism as fascism's original sin -- not its worst sin, but its initial sin from which all others flowed -- then I suppose one could absolve the German Social Democrats of any ties to fascism while roping in FDR even if he did not go as far as Mussolini, let along Hitler. Not having read Liberal Fascism, I do not know to what extent Goldberg blames everything on Keynes. Probably not that much, to judge from reviews, that seem to place more emphasis on turn-of-the-century Progressives that Keynesianism as such.

If Goldberg had written that book now, he would no doubt put more emphasis on the evils of Keynes. Because it is happening all over again.  Once again, countries have fallen into economic crisis are are prevented from recovering by a currency beyond their control -- gold in the 1930's; now euros.  Once again, creditor nations insist on full payment without regard to debtors' ability to pay.  Once again, all respectable parties are calling for austerity and ever more austerity.  And once again, when all respectable parties call for self-destructive economic policies, people increasingly turn to disrespectable parties.  Or, as Matt Yglesias says:
From Spain to France to Italy to Finland, social democrats feel paralyzed by the bounds of the eurozone. They don't have a strategy for changing the rules and they don't have the guts to tear up the rulebook. You have to turn to a LePen or a Beppe Grillo to see someone willing to say that if leaving the eurozone is the only way to reemploy the population, then it's time to leave the eurozone.
 And rightly so!  I begin to see how liberals of the 1930's might have started to admire Mussolini, and even to applaud Hitler for his ability to revive the German economy.  Just as I am beginning to have a guilty admiration for Marine LePen.  Unfortunately, sensible economic policies are being accompanied by a hefty dose of ethnic scapegoating.  And if you are going to argue that Keynesian economics is the original sin of fascism, I suppose it would follow that ethnic scapegoating simply flows from it.  Indeed, the National Review is accusing Bernie Sanders of being a "National Socialist" (though not, of course, a Nazi) because of he protectionism in trade and the acknowledgement of some of his followers that a strong welfare state is easier to achieve under conditions of ethnic homogeneity.  At the same, time, the article acknowledges:
F.A. Hayek’s Road to Serfdom notwithstanding, corralling off foreign-made cars does not lead inevitably to corralling off foreign-born people, or members of ethnic minorities, although the Asians-and-Latinos-with-their-filthy-cheap-goods rhetoric in and around the Bernieverse is troubling. There are many kinds of Us-and-Them politics, and Bernie Sanders, to be sure, is not a national socialist in the mode of Alfred Rosenberg or Julius Streicher.
Ultimately, the author acknowledges that Sanders' sin is in punching up, not kicking down.  But he does appear to see Sanders as a liberal fascist and at least try to tar him with ethnic scapegoating. The problem, of course, is that while in Europe the party that favors Keynesian economics and the one that engages in ethnic scapegoating are the same, it then U.S., they are not.  And if you are going to denounce fascism both for its Keynesianism and its ethnic scapegoating, there is no getting around the fact that in Europe those things go together, but in the US they do not.  Which places US libertarians of the Goldberg type in the awkward spot of having to decide which sin is worse.

Again on the Iran Deal

Sorry to keep circling back to the Iran deal, but it just seems kind of mind-boggling that a lot of people keep arguing that we would be better if Iran continued expanding its nuclear program than if it reduced it.  Let's not forget that they made the same objection when Iran agreed to freeze its nuclear program in exchange for limited and temporary sanctions relief and the beginning of talks.  Then, too, Iran hawks denounced the deal as appeasement and a grave danger.  Does anyone think we are better off with Iran continuing to expand its nuclear program than freezing it?  Does anyone think we are better off with Iran's nuclear program at current levels instead of reduced?  How is that supposed to work?

Of course, we know their real reason.  They don't care about the specifics of the program at all.  What matters is that the deal is with Iran.  Their policy toward Iran is regime change.  To sign any deal whatever with the Iranian government is to tacitly acknowledge its legitimacy and abandon our policy of regime change.  Thus critics of the deal say they are not in favor of war and they may very well be telling the truth.  They are in favor of regime change.  Whether the Iranian government has an active nuclear program is a whole lot less important than maintaining this commitment.

It is rather like argument at the end of the First Gulf War that Saddam Hussein had to go because he was just as much a danger as before.  In other words, he was just as dangerous whether he had an army or not.  It seemed uncommonly foolish to me, but at least that time around we first destroyed Saddam's army and then proclaimed him equally dangerous without it.  In other words, we were merely pretending there was danger when it was long gone.  This time Iran hawks are effectively saying that the Iranian government is equally dangerous regardless of what sort of nuclear program it has and are therefore blocking and steps to restrict its nuclear program.  That seems even more foolish to me.

At the same time critics want to refute accusations that they are opposed to any deal whatever.  They will agree to a deal that amounts to de facto regime change.  Well, here's a hint.  Dealing with a hostile regime by turning our backs and hoping that it will go away is not a very effective policy.  It wasn't effective against the Soviet Union before WWII.  It wasn't effective against Communist China. It wasn't effective against the Communist government in Vietnam.  It still isn't effective against Cuba under the Castros.  And it didn't stop North Korea from getting nuclear weapons.  There is no reason whatever to believe that it will be any more effective against the Ayatollahs.

Saturday, July 25, 2015

What if Nixon Went to China But All He Got Us Was This Lousy T-Shirt?

I have several blog posts swirling around in my head, but they will take me some time to sort out and put in order.  In the meantime, this column annoyed me enough that I felt the need to write a refutation.

The basic premise of the column is that Alexis Tsipras will be the Greek equivalent of Luis Ignacio Lula da Silva of Brazil or Kim Dae-jung of Korea -- a politician of the Left who nonetheless adopts fiscally responsible, free market policies and thereby cements them into irrevocable policy on the theory that “If he now says that these measures are unavoidable, there truly must be no alternative.” Or, as the author himself comments, the left-wing equivalent of Nixon going to China.

The reason I am unconvinced is that the author is leaving out an important detail. For someone to adopt a policy that goes against ideological type and thereby cement it forever, it is not enough for the policy to go against ideological type.  It must also be successful.  If a political leader adopts a policy that goes against ideological type only to see it fail badly, people tend to be unimpressed by his going against ideological type and continue to want a policy that is successful.  People are funny that way.

Consider Nixon going to China, for instance.  Up till then, the formal policy of the US toward China had been one of regime change.  Specifically, we were formally committed to overthrowing the Communist government and restoring the Kuomintang government of Chiang Kai-shek in exile on Taiwan.  Of course, neither we nor the Chiang Kai-shek government had any capacity or plan for bringing such a result about, so our actual policy was to refuse all dealings with China's Communist government and hope it would go away.  It failed to cooperate.  Although the policy was an utter failure by any standards, no one dared depart from it for fear of being attacked by right wing hawks like Nixon.  Thus Nixon could get away with going against ideological type by going to China because he was immune from such attack.  But if it took Nixon to go to China, it took success to make Nixon going to China be a model to be emulated.  When Nixon went to China, it was the beginning of a long, slow process whereby the US and China normalized relations and China came out of its isolation to join the community of nations.  If instead Nixon had gone to China and received insulting and deliberately humiliating treatment there and a year or two later China had invaded Taiwan and/or South Korea, no one would cite Nixon going to China as a model to follow.

Or consider Nixon's predecessor, Lyndon B. Johnson.  I am firmly of the opinion that, just as it took a Nixon to go to China, it took a Southerner to enforce the Second Reconstruction.  But Johnson could be said to have gone against ideological type in another way as well.  His immediate predecessors, the liberal New England Democrat John F. Kennedy and the liberal Republican Dwight David Eisenhower had both resisted the temptation to go to war in Vietnam, considering it unwise to fight a land war in Asia.  In 1964, Barry Goldwater criticized Johnson for his timidity resisting going to war in Vietnam.  The American people voted for Johnson by a landslide, considering Goldwater a crazed warmonger.  Johnson nonetheless ended up sending 500,000 troops to Vietnam.  Arguably, he was going against ideological type.  But oddly enough, no one ever says, "It takes a Johnson to fight a land war in Asia," or "If even he sent 500,000 troops to Vietnam, there must truly have been no alternative."  The fact that the war did not go very well probably has something to do with that.

So, too, with Kim Jae-jung and Luis Lula da Silva.  I know more about Lula than about Kim.  My understanding in that case is that Lula looked at leaders of the Latin American Left who tried to overturn the social and economic order through the electoral process, only to see the order fight back and win.  After giving it careful thought, he decided that this was not a wise course of action and left the general structure intact, while pursuing moderate redistribution programs intended to put more money in the hands of poor people and allow poor children to stay in school.  Lula's policies became firmly cemented, not just because they went against ideological type, but because they worked.  If Lula had pursued generally conservative policies only to see Brazil grow torpidly, most benefits go to a narrow oligarchy, and then the economy crash into another crisis, it seems mostly likely that most people would not have said, "If even he says these measures are unavoidable, there must truly be no alternative."  More likely, people would have gone on looking.

Well, that is exactly what is going on in Greece today.  The EU has demanded that Greece continue pursuing policies that have been disastrous so far and give all promise of being disastrous into the indefinite future.  Center-left political parties have been duly falling in line with such policies since the financial crisis began, and they have been consistently unsuccessful.  Despite the fact that center-left parties have endorsed these conservative policies, the pubic remains unconvinced that there is truly no alternative.  The main result has not been making the public love austerity, but the destruction of center-left parties (the subject of one of those blog posts swirling around in my head). The author may think that a far-left party will make all the difference, but color me unconvinced.

In fact, the author sort of half-heartedly admits that one reasons people keep looking for an alternative to ever more austerity and "structural reforms" that look very much like very greater numbers of layoffs is that these policies have not worked very well.  
Foreign creditor governments can be unreasonable as well. The misperceptions and errors by leaders in Germany and other creditor countries have been as damaging as those on the part of the less-experienced Greek leaders. For example, the belief that fiscal austerity raises income, rather than lowering it, even in the short run, was a mistake, as was the refusal in 2010 to write down the debt. These mistakes explain why Greece’s debt/GDP ratio is even higher today than it was then.
Each side’s refusal to admit its mistakes reinforced the other side’s stubbornness. The Germans would have done better to admit that fiscal austerity is contractionary in the short run. The Greeks would have done better to admit that democracy does not mean that one country’s people can vote to give themselves other countries’ money.
Is it my imagination, or does is the acknowledgment that the measures creditors were insisting on actually harmed the Greek economy sort of undermine the argument that Greece should never have resisted them?  I suppose the author might argue that he wasn't talking about austerity, he was talking about "growth enhancing structural reforms" without ever explaining what these "structural reforms" are.  Is it too much to insist that anyone proclaiming that "structural reforms" are the secret to economic recovery should first at least explain what those "structural reforms" consist of?

I have seen only one explanation of why an agreement that is basically just more of the same policies that have been so disastrous up till now will be successful, and comparisons to Lula are instructive. Lula da Silva ran for President of Brazil promising to put the interests of the domestic population, especially poor people, ahead of foreign investors and creditors.  This so alarmed foreign investors and creditors that Conventional Wisdom urged Lula to begin his term by undertaking some harsh measure to hurt or punish poor people, not because it made any sense at all, but on a "Nixon goes to China" theory that only such a measure would reassure creditors that he didn't really mean it.  Well, Lula did not take their advice, and somehow creditors managed to calm down anyhow.  The article I have seen explains that for domestic consumption, Greece's creditors have to take some harsh measure to hurt Greece whether it makes economic sense or not, just to punish it for defying creditors.  But they don't really mean it and once the domestic public is not looking, they will secretly take it back and not insist on squeezing the Greeks, but merely on more of those "growth enhancing structural reforms," slightly more specifically identified as "promises on privatization, labor markets, and pension reform."  The author argues that, having adequately punished and humiliated Greece, Europe can't afford to see its latest effort fail and will have to loosen up.  In other words, Syriza committed the unforgivable sin of pointing out that Europe's policies were not working, Europe has forced Greece to say that they work and will now change its policies to something that actually does work in order to claim vindication.  I guess we will see.

Monday, July 20, 2015

Uh oh!  It looks as though Republicans are not the only ones whose base will be causing them problems in the upcoming election.

Constitution Sola Scriptura

OK, with that out of the way, I should probably say something about my general philosophy of interpreting the Constitution.  My philosophy is the one usually described as "textualism," i.e., that any decision should be justifiable by the text itself.  I have on other occasions referred to this as the enlightened layperson approach to the constitution -- that interpretations should make sense to a person with no special training in law or history who has nonetheless read the Constitution itself. It has also been called Protestant constitutionalism.  While Catholicism had a long history of scholarship and tradition in interpreting the Bible, Protestants proposed to set that aside and let every layperson read the Bible and interpret it in accordance with his or her personal conscience.  This is also called sola scriptura (only scripture) or the priesthood of the believer.

I have long been a fan of sola scriptura, although the rise of Wahabi/Salafi Islam has given me second thoughts.  I think it is fair to call the Wahabis/Salafis the Muslim equivalent of radical Protestants.  Like the more extreme Protestants (especially in the 16th Century), they are iconoclasts and destroy sacred objects lest they become objects of idolatry.  They also reject a longstanding body of scholarship and tradition in favor of sola scriptura and appear to believe in the priesthood of the believer. (At least Bin Laden, an engineer with no special religious training, was issuing fatwas in flagrant violation of tradition).  So I am now of two minds about sola scriptura.  On the one hand, it is supreme arrogance to set aside the contributions generations of scholarship who made study of the scriptures (and other forms of religion) their life's work and say that you know better.  On the other hand, quite simply, scholars can be wise and learned and still be wrong.  And if one scholar builds upon the work of another, retaining the earlier scholar's errors and elaborating or magnifying them, you can end up with a huge edifice of scholarship that ends up having no scriptural basis whatever. That is worth challenging.

I am rather less conflicted about the subject when it comes to the Constitution.  The Constitution was not written in the distant past by remote and little-known figures.  It was written in 1787 by well-documented figures with an outlook not so different from our own.  The Founders had, for the most part, moved away from Christian orthodoxy.  They were, nonetheless, intellectual and philosophical heirs of the Protestant tradition of making the Bible available to the laity, and the view that equated sola scriptura with liberty.  (Specifically, freedom of conscience).  It is, therefore, probably not a coincidence that they wrote the Constitution they used simple language with a minimum of legalese. This was (presumably) done to make the Constitution accessible to the general public.

It should be interpreted in a way that makes sense to the general public, and that allows a judge to point to a actual language in the constitution as the basis for a particular opinion.  That means none of this elaborate body of tradition with one opinion building on another to create a whole castle spun out of air, such as a constitutional right to abortion or to same sex marriage.  And just for what it is worth, plenty of experts get cynical about the process.  One of my constitutional law professors would speak about reading the Constitution with a "magic decoder ring."  And in our six-week prep class the constitutional law lecturer went so far as to say, "Don't pay attention to what the Constitution actually says.  Follow what the judges say it says."  Or one of my teachers as a paralegal, "From the right to be free of  unreasonable searches and seizures comes the right to privacy.  And from the right to privacy comes the right to abortion.  Well, don't laugh,  It's what they said."  I am opposed to any interpretation of the Constitution that encourages this sort of cynicism.

The textual or sola scriptura approach is not the same as originalism.  Granted, originalism can protect against something really nutty like a constitutional right to abortion or same sex marriage. But it makes the Constitution inaccessible to the general public.  Indeed, as this post brilliantly puts it, it even makes the Constitution  inaccessible to judges.  Only a narrow priesthood of professional historians can understand it;
[O]ur constitutional rights will be defined by amateur historians’ ability to cherry-pick the historical record. 
Aside from the epistemological problems, it’s worth noting how utterly non-transparent and undemocratic this methodology is. In the Middle Ages, priests kept power by using a language (Latin) that only the educated elite could understand. Similarly, the Court’s tedious examination of dueling history books makes the opinion unreadable, and prevents the larger public from having a meaningful debate about it.
I mean, this is a problem with law opinions more generally. But debates about text and structure and policy and institutional allocation of power are least potentially accessible to the public. 
Hell, I teach law and I can’t even get through the tangled 157-page mess that came down this morning. More to the point, it’s impossible for me to realistically assess the historical validity of these claims. To have fully informed decisions on close historical questions like these from the 1790s and earlier would require you to take a few years off and work on a history Ph.D. Thus, the dueling history opinions are not so much wrong, as they are unverifiable either way. I’m honestly not competent to assess them. 
It shouldn’t be that complicated. If it is, we’re doing something wrong.
He then goes on to discuss the problems with the assumption that decisions should address the issues of the 18th Century rather than the issues of today.  At the same time, he concedes that historical background can be useful when the record is clear (for instance, putting soldiers on 25 cent pieces is not an unconstitutional "quartering" of troops).

I would add, it is also useful when the text is not easily accessible.  For instance, "No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken."  To most people these days, that would be incomprehensible.  A little historical background, however, makes the meaning clear.  In the 18th Century, a "capitation" was a head tax.  A "direct" tax was either a head tax or a property tax.  So this section says that "direct" federal taxes must be head taxes rather than property taxes. The census previously mentioned is a  mandatory ten-year census that would base representation and direct taxation on all "free persons" and three-fifths of all "other persons," i.e., slaves.  In other words, this section specifically bans a property tax on slaves and says that only three-fifths of slaves may be counted in a head tax.  No wonder this section is unclear; it was intended to obfuscate!

This is not to deny that even under a textual basis some decisions will be controversial.  But at least in cases of such controversy, judges will be able to point to a specific clause of the Constitution as what they are applying.

Sunday, July 19, 2015

Obergefell v. Hodges (at Last)

So, at last a post on the Supreme Court decision of Obergefell v. Hodges, the decision saying that same sex marriage is mandated by the Constitution.  What can I say?  Anthony Kennedy broke joined the liberal bloc in voting for same sex marriage.  He wrote the majority opinion, presumably because being written by a conservative would give it greater heft.  All four conservative judges wrote separate dissents, most joining each other.

Given that the Constitution says nothing whatever about marriage, let alone same sex marriage, finding such a mandate in the Constitution is a challenge, but the majority was up to it.  They rested their opinion, first and foremost on the theory of "substantive due process."  What is "substantive due process"?  Well, the Fifth Amendment says that no one shall be deprived of life, liberty, or property without due process of law, but it applies only the the federal government.  The Fourteenth Amendment applies the same requirement to the states.  Substantive due process says that "liberty" means more than just that no one may be imprisoned without a fair trial, but that the government may not infringe on certain "fundamental rights."  Which rights are "fundamental"?  Well, the ones enumerated in the Bill of Rights, certainly, but some other, very ill-defined rights as well.  What determines what these other "fundamental" right are?  Well, that is extremely unclear.  "History and tradition," for one, Kennedy says, but obviously history and tradition do not support same sex marriage.*  Nonetheless, the Supreme Court has recognized the right to marry as fundamental.  It recognized such a right in the case of interracial marriage (Loving v. Virginia, 1967), men owing child support (Zablocki v. Redhail, 1978), and inmates (Turner v. Safely, 1987).  The majority then goes on to set forth various decisions expanding the recognition of the rights of gays.  And it offers four principles to show that the fundamental right to marry applies to same sex couples as well, (1) choice of who to marry is inherent to personal autonomy, (2) marriage is a unique form of commitment between two individuals, (3) children of same sex couples should not be stigmatized, and (4) marriage is the keystone of the social order.  Finally, the opinion declines to wait for the decision to be made through the democratic process because fundamental rights should not have to wait.

Roberts, Scalia, and Thomas wrote separate dissents, each mostly joined by the others, none of them attacking same sex marriage on the merits, but all denying that it was a proper issue for the Supreme Court.  Roberts, as is his custom, was the most restrained.  He rehearsed a long-familiar litany of bad cases made on substantive due process grounds, from Dred Scott to early 20th century cases striking down labor protective regulations and said that these are an example to be avoided.  He did not conclude from this, however, that the doctrine of substantive due process, but merely that it should be limited to cases supports by "history and tradition."  He points out that while the institution of marriage has changed, its basic definition of marriage as the union of a man and woman has not. Scalia's dissent is shorter, saying that the matter should be left to the political process, which can more easily reach an appropriate compromise than the absolutism of a judicial ruling, and that the "fundamental rights" doctrine invoked by the majority is completely arbitrary.  Thomas's dissent is bolder than his colleagues', rejecting "substantive due process" altogether.  "Due process" and "liberty" simply mean that no one may be imprisoned without a trial.  To the extent that it means anything more, it means purely negative liberty, such as the right not to be prosecuted for homosexual acts, not positive rights, such as the right to have one's relationship formally recognized.

Alito did not join in any of these dissents, but wrote one of his own, joined by Scalia and Thomas, the only only to attack same sex marriage on the merits.  He also argues that the decision should be left to the democratic process, but also argues that the idea of marriage as being primarily for the benefit of the spouses is not traditional; traditionally marriage is for the sake of children.  This is a standard argument against same sex marriage, but not really all that convincing.  Certainly, children have traditionally been an important part of marriage, but that is not quite the same as saying that children are the entirety of marriage.  Nor is this an either-or.  Marriage can be for the benefit of children, for the benefit of the spouses, and for the benefit of the larger society all at once.  The best proof that the idea of marriage as for the benefit of spouses is neither new nor radical nor particularly Christian comes from the epistles of St. Paul on the subject of marriage.  They discuss at length the proper relationship between a husband and wife without ever so much as mentioning children.

*It should be added, though, that contrary to what the court opinion says, such practices did exist before 2000.  In parts of Africa, a woman who pays a bride price can take another woman as "wife" and be considered her "husband."  In such a marriage the woman-husband will have the same prerogatives as a male husband and can assign the wife a male sexual partner and be considered "father" of her children.  In some American Indian cultures, men might adopt the female role in life and be taken as "wives" by other men.  But these were not same sex marriages in the modern sense -- a partnership between equals.  They continued to maintain the unequal roles of husband and wife.

Thursday, July 16, 2015

A Short Way of Expressing Skeptics' View of the Iran Deal

So why do Republicans oppose the deal with Iran?  Do they actually think that Iran is just about ready to give us everything we want if we just hold out a little longer?  Or do the really want a war? In some cases, probably.  But for many (as I have said before), whether Iran gets a nuclear weapon is entirely a secondary concern.  The most important thing is to express unyielding opposition to them. Put differently, here are the four possibilities, ranking in hawks' order of preference:

Iran does not get nukes
Iran does get nukes
Maximum confrontation with Iran
Preferred outcome

Acceptable outcome
Cutting a deal with Iran
Unacceptable outcome

Worst possible outcome

Of course, they would rather Iran not get nuclear weapons than get them, but better to express unyielding opposition and have Iran get nuclear weapons anyhow than to cut a deal, even if it works. And cutting a deal and having it not work is the worst possible outcome.

By contrast, proponents of the deal see keeping Iran from getting nuclear weapons as the top priority and confrontation versus negotiations as merely a means to an end.  Their preferences are as follows:

Iran does not get nukes
Iran does get nukes
Maximum confrontation with Iran
Acceptable outcome

Unacceptable outcome
Cutting a deal with Iran
Preferred outcome

Unacceptable outcome

So, yes, they would probably rather keep Iran from getting nuclear weapons by a deal than by confrontation.  But if Iran does get a nuclear weapon, then it makes little difference whether it was negotiations or confrontation that failed -- failure is failure.

Tuesday, July 14, 2015

Another Attempt to Understand Iran Hawks

So, the nuclear deal with Iran provides that the Iranians will reduce their number of centrifuges from nearly 20,000 to 5,060.  It limits uranium enrichment to 3.67% (well short of weapons grade or even medical grade).  It requires Iran to ship all but 300 kg of its enriched uranium (almost 98%) out of the country.  It requires the Iranians to shut down one of their two enrichment facilities.  It requires their reactor that could produce plutonium from spent fuel to be converted into one that cannot and to ship the spent fuel out of the country.  And it introduces inspectors to make sure the terms are kept.

And Republicans are denouncing the deal as dangerous because it does not destroy Iranian nuclear capacity altogether.  But the Iranians were never going to agree to that.  Acknowledging that in the real world, we can't always have everything we want, which is safer, an Iran with 20,000 centrifuges, or one with 5,060?  An Iran with two enrichment facilities or an Iran with one?  An Iran with 300 kg of fuel-grade enriched uranium, or one with 50 times as much?  An Iran with the capacity to refine plutonium from spent nuclear fuel, or an Iran without that capacity?  Hint:  This is not a trick question.  Why would Republicans prefer the former option?

I don't know, obviously.  I have made several guesses, so here is another one.  It is based on (1) our experience with North Korea, and (2) a joke Truman's Secretary of State, Dean Acheson, made about the Korean War.

Republicans regard our deal with North Korea as a model of what to avoid. The US and North Korea made a deal in which North Korea sealed its reactor and admitted inspectors to the country in exchange for fuel and reactors that could not be used to make nuclear weapons.  However, North Korea repeatedly cheated, eventually abandoned the deal, and built nuclear weapons.  Conclusion: No deal is better than an imperfect deal.  There are some serious flaws in that account.  In 1994, Bill Clinton did, indeed, make such a deal with the North Koreans.  The North Koreans did, indeed, regularly cheat and see what they could get away with.  But so long as the fuel rods were sealed and weapons inspectors in place, the cheats could be stopped before they got near the threshold of building an actual nuclear bomb.  It was a tiresome hassle trying to reign in people who were clearly not acting in good faith.  It did, nonetheless, keep the North Koreans from building a nuclear bomb as long as the rods were sealed and the inspectors in place.  In 2002, President Bush learned that the North Koreans were experimenting with uranium enrichment and called the whole deal off.  It was only then that the North Koreans withdrew from the Non-Proliferation Treaty, expelled the inspectors, and unsealed the fuel rods.  Bush, distracted by preparing for the war in Iraq, did nothing. He neither went to war nor undertook negotiations.  He resolutely focused on invading Iraq and refused to let the little detail of North Korea expelling its inspectors or unsealing its reactor lead him into doing anything whatever.  As the cited article comments, "Before the present President Bush, no one thought that just allowing North Korea to get nuclear weapons was an acceptable option."  So blaming the deal for North Korea getting nuclear weapons just doesn't cut it.

And now for Acheson's joke that he recounted in his memoirs.  He told it during the Korean War when MacArthur was becoming increasingly insubordinate but any attempt to fire him would make Truman look unpatriotic.  As a result, Truman tried to reign MacArthur in, with diminishing success, until he wrote a letter to a Congressman clearly intended to pressure Truman into invading China and the Congressman made the letter public.  At this point, Truman had no choice but to fire him. Acheson compared it to the case of a man living by a railroad with his wife and daughter.  His wife was very worried about protecting the daughter's chastity from those unruly railroad men and always bothering him with her attempts to protect the girl, the girl's rebellion, what she had been up to, the mother's fears, etc.  Finally one day he came home to see his wife crying.  She announced that the worst had happened, their daughter was pregnant.  The father said, "Thank god that's over!"

Fearing the worse for a long time can make it a relief when it finally happens.  There is no doubt that trying to hold North Korea to the terms of the agreement was very stressful and involved a lot of worry and fuss and tiresome back and forth.  Maybe to a lot of Republicans, when they finally did get nuclear weapons, their reaction was mostly one of, "Thank god that's over!"  Maybe they feel the same about Iran.

Monday, July 13, 2015

So Greece has caved.  There is nothing I can add that I haven't said before.  Impotent cursing and railing is a waste of time.  Might as well moving on to something more important <sarc tag> like same sex marriage.

Sunday, July 12, 2015

The EU Unmasked

One thing we may be certain will emerge from the current showdown. Greece will suffer.  Greece has been made an example of, regardless of how that is done.  The general consensus is that this is being done at least partly as a warning to Spain, Portugal and Italy not to seek any relief from austerity lest we do the same thing to you.  And who knows, it may very well work.  It may, indeed, frighten Southern Europe into submission and put an end to any further calls for a relaxation of austerity.  And Southern Europe is, after all, showing early signs of recovery, so it may recovery, austerity may be considered vindicated, and no one may ever question austerity again -- or else!

But it puts an end to any sort of illusion that the EU is a community of democratic nations, acting in cooperation and harmony.  The EU has thrown off the mask and revealed what it really is -- the Fourth Reich (Empire).  According to the Nazis, the first German Empire (Reich) was Charlemagne's empire.  The second was Bismark's.  And the third was their own. Well, now we have a fourth German empire, which is what the EU now is.  And it may very well be the, for the time being, Germany's economic might will cow the weaker powers into submission, and that outsiders seeking admission to the euro will blame Southern Europe for its own problems and not the euro itself.  Well, if the EU is, in fact, simply the Fourth Reich, and if structural problems with the euro are contributing mightily to the current disaster, then this is not the end.  The present crisis may end soon with German victory, but it will be back with the next economic downturn.  And the next.  And if the EU comes to be seen, not as cooperation among states, but as a German Empire, then eventually resistance to it will rise and its true nature will become ever more naked.

In Which I Lose Any Vestiges of Respect I May Have Had for Tsipras

Memo to Alexis Tsipras:  Teddy Roosevelt famously said, "Speak softly and carry a big stick."  We Americans consider that to be the very essence of wise negotiation.  Of course, he was speaking as the big bully on the block in how to deal with little countries in Central America and the Caribbean that we could kick around at will.  When you are a small and weak power, that is not so much an option.  In that case, the best advice is, "Speak softly and carry the biggest stick you have available, even if it is a toothpick."

The main stick Greece had was leaving the euro.  That was something everyone on both sides of the negotiating table wanted to avoid.  Granted, to many people for Greece to threaten to leave the euro was less like threatening the other side with even a toothpick than like holding a gun to its own head and threatening to shoot.  Yet many people will act to prevent even such an action.

Now it appears (at least according to Krugman) that Tsipras considered a Grexit impossible.  (I am not clear whether that means politically impossible or operationally unfeasible).  He thus never made even contingency plans for leaving the euro, which  meant throwing away the only bargaining chip (however weak) that he had.  This was a huge mistake.  From day one, the Syriza government should have been gaming out an exit from the euro, making operational plans, and making discreet contacts with Russia, the US, Greek Americans, and even Turkey for necessary help in getting through the shock of devaluation.  This does not mean that Grexit should have been a favored option.  But every army knows that it should game out scenarios that it considers highly implausible just in case.  This is a new form of warfare.  The treasury should have been gaming out the Grexit from the start to make it a feasible operation if worst came to worst.

With leaving the euro ruled out, the only possible options open were capitulation and begging for mercy.  This being the case, speaking softly became all the more urgent because pleas for mercy made in tones of anger and bluster are most unlikely to be heeded.  In effect, Tsipras ruled out going for the long shot gamble and pleading for mercy effectively.  That left no option other than capitulation, but capitulating after going out of your way to offend the other side is a surefire way to guarantee the worst terms possible.  Right now, those terms are apparently that by Wednesday the Greek Parliament must past legislation demanded by by EU finance ministers including severe austerity, and turn state assets worth 50 billion euros over to an EU trust for privatization.  In return, Greece will get loans enough to tide the banks over for a few more days until negotiations can resume.  There is not guarantee that these negotiations will yield any further assistance or debt restructuring, only that Germany has absolutely ruled out any debt reduction.  And Tsipras is on the verge of capitulation because he has no plans in place for the Grexit.

Whether the Greek Parliament will also cave remains to be seen.  Another possibility is simple paralysis and indecision, leading to a Grexit forced by circumstances.  Any chances of a good outcome from leaving the euro have been substantially reduced by Syriza's idiotic failure to make any sort of plans for it.  Could any worse bungling be possible?

Saturday, July 11, 2015

How to Convince a Liberal on Immigration

Anti-immigration activists do have one point.  It is simply not possible for the US to accommodate everyone who wants to move here.  I have seen the estimate, for instance, that if all immigration barriers with Haiti were removed, as much as 70-90% of the population would move here.  But at the same time it seems harsh to shut out people in need.  So what do you do?

I recall an column by David Neiwert commenting that while should take a firm stand against nativist views treating immigrants as a plague and a scapegoat, still, admitting everyone is not the answer, so what is the liberal answer.  Well, to me the liberal answer is straightforward enough. Improve conditions in Mexico to the point that people from Mexico lose interest in moving here.  But what do we do in the meantime?  And if you want to make the liberal argument for restricting immigration, what do you say?

So if any of you nativists are out there wondering how to convince a liberal (I know you aren't), let me give some pointers on what not to say.  Do not tell pro-immigrant people that they are part of a conspiracy by a sinister global elite to destroy Western Civilization by contaminating it with Third World people.  This tends to give offense.  Do not describe immigrants as a disease, a pollution, a contaminant, criminals destroying our society, etc.  Do not, in other words, make comments to the effect that immigrants (legal or illegal) are un-people and have no place within the circle of people who morally "matter."  To a liberal, that is simply not acceptable.  Do not blame all our social ills on immigrants.  That is scapegoating.  That is also unacceptable.  Moving into more realistic territory, don't argue that illegal immigrants are criminals and should apply for admission through legal channels, even if it takes decades.  The distinction between "wait for decades to be processed" and "don't come here at all" is one mostly without a difference.  Don't blame our loss of good-paying blue collar jobs on immigration.  A whole lot of those jobs were automated away or went overseas.  And even for the ones that don't automate or go overseas, I don't see a lot of anti-immigration activists clamoring for jobs picking vegetables or working in a meat packing house.  Don't complain that a multi-ethnic society just can't work.  That sounds a lot like concern trolling.  Besides, our country has done a whole lot better at making multi-ethnic society work than anyone ever thought possible.

Finally, I understand that the nativist wing of conservatism and the libertarian wing are not the same (with a few exceptions like Ron Paul).  But really what you are seeing at work here is the law of supply and demand.  It applies to labor just the same as to anything else.  And yes, I agree, that is troubling.  In college economics, our international trade class focused on the theory that over the (very) long run, wages would tend to equalize worldwide.  It seemed mostly abstract at the time, but what we are seeing now is the early phase of just that.  A scary thought in a high wage country!  But at the same time, as my economics textbook put it, the invisible hand fights back.  I am not one who believes that the minute anyone introduces any economic regulation whatever we have taken the first step on a slippery slope that leads all the way to the gulag.  But I do believe that when the regulation takes the form of banning a product that people want (cheap labor for employers, better jobs for immigrants), distortions enter the system, people resort to elaborate lengths to evade the ban, and ever more repressive measures are needed to enforce it.  One hears a lot about this these days with the War on Drugs.  Here is an account of the War on Cloth Buttons and War on Calico in 17th Century France.  It works with labor, too.

Nonetheless, the argument can be made convincingly if you consider not only the effect on the US, but on the effect on the country supplying the immigrants.  Consider Marine LePen.  (Can't be bothered to find the link.  Sorry).  When confronted with a high-performing African immigrant professional asking what Ms. LePen had to say to her, Marine did not tell her that she was destroying France or that she was a disease or cancer in the fabric of society.  (Mixed metaphor intended).  She said that the immigrant was, indeed, contributing productively to French society, but that she was depriving her home country of a valuable member.

Certainly this article by Matt Yglesias is revealing in looking at the unusual case if Puerto Rico.  Puerto Rico is, for the most part, a Third World country, but it is also a US possession and all Puerto Ricans are US citizens.  That means there are no barriers to immigration.  What is the result?  No doubt Puerto Rican immigration puts some burden on the US. But the one really being harmed by it is Puerto Rico.  Mass emigration makes for a declining population, which, in turn, causes a shrinking tax base and makes the per capita government debt burden ever greater.  Which leads to higher taxes, less services, and more emigration. Paul Krugman has noted a similar phenomenon in Europe.  And within the US, when a local area sees its economic base removed, the most energetic and dynamic portion of the population leave, and the remaining portion spirals ever further and further downward.  In Haiti as much as 70 to 90% of the population would move to the US given the opportunity.  For the US, the burden would be tough but manageable.  For Haiti, it would mean complete societal collapse.

All of which means that any liberal attempt at cutting back immigration will have to be transnational. Protect our country from alien scum just won't cut it.  Improve the quality of life in other countries to make staying home more attractive and convince the most dynamic and mobile people that their country needs them will have more appeal.  Of course, it will also be slow-moving.

Greece: The Deja Vu is Killing Me

So, while waiting for developments in Greece, I will take time out to discuss the annoying tendency to treat debtors as sinners and creditors as blameless, or to treat importing as sin but exporting as virtue.

The logical flaws here are obvious.  Every export is necessarily an import.  Every amount borrowed is necessarily an amount lent.  If borrowing and importing are sins, then lending and exporting abet sin.  If using drugs is a sin, then the drug dealer who never samples his product is not virtuous or even neutral, but deeply complicit.  Or the teetotaler bartender, or the chaste pimp, etc etc.  As Paul Krugman likes to say, the world economy is a closed system, which means that until we find another planet to export to, it will not be possible for every country to run an exports surplus.  (Well, I suppose we could make stuff and blast it into outer space even if there were no buyers, but that would be stupid).

In the case of Greece today, as in Latin America in the 1980's and many times since, the banks have made foolish loans, but the entire cost of their mistakes is expected to be born by the people of the borrowing country.  Well, at the risk of sounding libertarian, that sounds awfully collectivist to me. The nation has sinned and the nation has suffered without any thought to the individuals involved. Well do I remember reading about the Latin American debt crisis in the 1980's and hearing about the boom that preceded it and all the VSP's of the day shook their heads and said that Latin American countries had lived beyond their means and would have to pay the consequences.  Then you read about the boom that preceded the crash, vast growth in GNP, almost all of it concentrated in the upper quintile of income distribution while the poorest quintile received an increased income of about $2 per year.  And when the crash came, it was the people who benefited least (and certainly did not borrow any money from foreign banks) who were expected to bear the brunt of the adjustment. Financial moralists scolded the boy shining shoes on the streets of Brasilia and others in the marginal sector, telling them that they had lived beyond their means during the preceding boom and would just have to tighten the belt now to pay for their old extravagance.  And in Greece today when children search the garbage for food, when mental patients are thrown out on the street and malaria makes a comeback, creditors tell them that it serves them right for borrowing so much.  The attitude was then and appears still to be that countries should not squander resources on people who don't even produce foreign exchange when banks are facing losses.

So I thought I would quote this article on why it is unreasonable to place all the costs of adjustment on the debtor and let the creditor off scot-free:
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.
This is, perhaps, a bit overly harsh to creditors.  The concept of moral hazard is that if people are shielded from the consequences of their mistakes, they take excessive risks.  But the opposite applies. If the consequences of failure are too harsh, people become overly risk-averse.  This can shrink credit to the point of crimping the entire economy.  But if there is one thing events from 2008 onward have proven, it is that the upsurge in credit caused by an overly creditor-friendly regime is only a short-term blessing.

The author goes on to explain why it is dangerous to give creditors too much power in cases of default:
A state cannot be liquidated. In bankruptcy terms, it must be reorganized. Corporate bankruptcy laws wisely limit the control rights of unconverted creditors during reorganizations, because creditors have no interest in maximizing the value of firm assets. Their claim to any upside is capped, their downside is large, they seek the fastest possible exit that makes them mostly whole. The incentives of impaired creditors are simply not well aligned with maximizing the long-term value of an enterprise.
Yeah, basically.

Greece: It Ain't Over Till the Fat Lady Sings

The fat lady has not sung yet in negotiations between Greece and its creditors.  The most recent development:  Greece, after voting to reject the creditor's demand, has offered to agree to even tougher ones.  The creditors are saying to little, too late.  So what do they want, bodies of starving children?  German finance minister Wolfgang Schauble, known as the creditors' ultra-hard liner, has made an extreme proposal. Either allow the EU to take over Greece's public administration and run any money lent for its own benefit, or leave the euro for five years.  This sounds like the sort of ultimatum people offer when they are trying to provoke a war Grexit but don't want to look too much like the aggressor, one meant to be met with an outraged Ohi!  It also remains very much the minority view among creditors, who are increasingly split over where to go from here.  Stay tuned.

Friday, July 10, 2015

It is official then.  Greece has surrendered.  All that holding out, tough bargaining, calling a referendum, and voting Ohi! have come to nothing.  Syriza has agreed to terms tougher than the ones they just rejected.  In return, they have asked for some measure of debt relief.  There is definite momentum in Europe, with the possible but not certain exception of Germany, to agree.

So two questions remain.  Will the Germans accept the surrender?  (The other Europeans appear to be agreeable).

And, assuming that they do, will the positive effects of debt restructuring outweigh the harm from further austerity, and from the crisis?  I don't even understand what what the proposed debt restructuring means, let alone how long it will take to yield benefits (if ever).

And, I suppose, there is a third question.  How will all this effect other anti-austerity parties in Europe?

Tuesday, July 7, 2015

Planning for the Grexit

There is no doubt to my mind that right now the Syriza government should be frantically planning for the Grexit.  There is no doubt to my mind that the Syriza government should have been doing just that from the first it was inaugurated.  And, as someone (I forget who and certainly could not find the link) commented that if Syriza has been making any such plans, they have been hiding them well.

That is somewhat a different story.  While I believe Syriza should have been making such plans, it should also be keeping them as secret as possible.  This post, though speaking of FDR, explains the problem very well.  Any time a government is planning a devaluation, it must lie about it until the very last minute because as soon as a government says that it plans to devalue, there is immediate flight from the currency forcing an immediate devaluation.  And anytime people thing a government might devalue, it leads to bank runs, currency hoarding and -- well, see what has been happening in Greece in the past week.  In the interregnum between Hoover and Roosevelt, it went on for months. The author has a fascinating post about the fear and damage the economy suffered at the mere thought that Roosevelt might devalue -- as opposed to the immediate, immense benefit it reaped when he actually did devalue.

In the US, when there was fear that Roosevelt would devalue the dollar against gold, there was a stampede to convert dollars into gold.  This meant taking dollars out of banks and out of circulation, which led to mass credit freeze and bank runs.  Even people who were not thinking of converting their dollars into gold wanted to get them out of banks once the banks started to look shaky. Likewise, in Greece, fear that the government will introduce a new currency, which everyone agrees will fall fast, is making people want to take their euros out of the bank and hoard them.  Even people who aren't thinking of hoarding euros don't want to leave their money in a shaky bank.

But there are at least two critical differences between the US in 1933 and Greece today.  First, the US was a large enough country to be largely self-contained and have very little foreign debt, and besides, it was a creditor.  This meant that a devaluation would not have the catastrophic result that it has had in other countries, a skyrocketing of foreign debts.  And, surprisingly, Greece is apparently a net creditor in private finance, i.e., its investments abroad in private hands exceed its private foreign debts.  But both amounts are much larger in Greece today than they were in the US in 1933, so no one doubts that devaluation would be much more traumatic.

The other, huge, difference was that in 1933, US dollars, in paper, did physically exist.  To devalue did not change the currency that normally changed hands; it simply meant that currency could be exchanged for less gold than in the past.  In Greece, by contrast, drachmas have no physical existence and will have to be re-started.  This will take time, and given all that has been said about speed being of the essence, that is a serious problem.

This article is the best account I have seen yet on how to reintroduce the drachma.  It recommends legislation converting all financial assets and liabilities and all contracts from euros into drachmas at a rate of one to one.  (The drachma will then fall in international trade, but there will be no need to modify domestic contracts).  Banks will have to close for a few days to reprogram their systems. After that electronic transactions in drachmas would be possible until the physical drachma is introduced, which could take months.  It would be inconvenient but more annoying that anything for people with bank accounts and electronic transfer cards.  For people without banks or cards, it could be devastating.  Such people are most common in the informal sector.  In hard economic times, the informal sector grows.  And the line between the poorest members of the formal sector and the informal sector can be hazy.  A lot of the poorest members of the formal sector don't have bank accounts and deal in cash.  (Trust me, I know whereof I speak).  There would be other problems with skyrocketing foreign debt and bankruptcies and controlling inflation, but these problems would be the same in any devaluation.  It is creating a new currency where none existed before that makes the Grexit such a challenge.

The article convinces me that the transition is doable, and greatly facilitated by the use electronic transfers as money.  But the transition will require skill and competence.  Syriza does not impress the author with either.  Or me either.

The Importance of a Plan B

Up till now I have been a champion of the Syriza government in Greece.  I have blamed Greece's problems primarily on the European system being unreasonably slanted toward creditors.  I have watched in outrage as the whole idea that a country should be run for the good of its domestic population instead of for foreign creditors is treated as something radical or even insane.  I have gnashed my teeth in fury at the Europeans for crushing the Greek economy and then complaining that they feel betrayed by Prime Minister Alexis Tsipras' insistence on having some breathing room.  I have been outraged by their chutzpah in complaining refusing to allow even a few face-saving token compromises and them denouncing Tsipras' intransigence.  But this time I actually do agree that Syriza has done the inexcusable.  It doesn't have a Plan B.  Apparently Tsipras came to the table without a detailed plan.

Let us concede that Tsipras and the rest of the Syriza team were naive in thinking that Europe was going to relax its grip just because the Greeks had voted in favor.  Let us concede that they were naive in believing that bringing a democratic mandate to the table would be enough to make Europe budge.  Still, all that can be dismissed as inexperience and not knowing what they were up against.  It is a pardonable failing.

But now Tsipras and his team have had five months to learn what Europe is made of, five months to learn what the Eurocrats think of democratic mandates, five months to learn that the Eurocrats don't want negotiations and compromise, they want unconditional surrender.  So Tsipras held a referendum asking the Greeks, in effect, do you want your country to be run by a bunch of Eurocrats for the sake of its creditors.  By a landslide, the Greeks voted "No."  So what does Tsipras do?  He heads back to the negotiating table waving an even stronger democratic mandate, thinking that this will make Europe finally agree to more favorable terms.  As the old saying goes, insanity is keeping on doing the same thing and expecting a different result.

As I have learned through long and frustrating experience, any time you base your plans on the other person doing what you think they should do, you are setting yourself up for disappointment.  No matter how obvious it is to you that you are right, there is no guarantee that the other person will agree -- or share your priorities.  If you can persuade the other person, great.  But if you can't, then to base all your plans on getting the other person to do what you want is to give the other person a unilateral veto over anything you want to do.  You really don't want to do that.  If your ideal plan requires a certain course of action by the other person and there is no way for your ideal plan to work without it, well, go ahead and make your ideal plan.  Just don't count on it.  Have a Plan B ready if things don't go your way.

Tsipras appears to have actually believed what he said about the referendum strengthening his hand in negotiations.  He does not appear to have taken any account of the obvious -- that it would not.  He should have gone to the negotiating table with Plan A ready at hand, ready to drive a hard bargain.  And all the while, he should be working like mad on Plan B, the Grexit.  It now appears he did neither but simply expected Europe to respect the results of the referendum.  And this incident convinces as nothing did before that Greece needs a new Prime Minister.  This one is clearly incompetent.

Sunday, July 5, 2015

Greece: It's Ohi Day

Despite the polls, it wasn't even close.  No has won 61-39%.  I say and maintain that what we are seeing here looks very much like the run-up to a war.  You have the failed negotiations, the increasing intransigence, the outraged nationalism, the (probably intentional) humiliating ultimatum and the irate refusal.

There may also be a true dog whistle going on here.  By making his slogan Ohi! -- No! -- to a German ultimatum, Prime Minister Tsipras may be making a strong nationalist appeal with symbolism apparent to a Greek, but not to an American.  (I can't say about other Europeans). To recap, in October, 1940 the Nazis had overrun Poland, France, the Low Countries, and seemed invincible.  Mussolini, wanting in on the action, made demand on October 28, 1940 that Greece lay itself open to Italian troops.  The Greek Prime Minister answered in French,  "Alors, c’est la guerre.”  "Then this is war." But the Greeks preferred to believe that he answered in Greek, "Ohi!" "No!"  Greeks poured out into the street shouting "Ohi! Ohi!" to proclaim their support.  War ensued, the Nazis behaved like Nazis, and Greece suffered more than the worst possible outcome anyone can contemplate here.  Despite the horrors that followed, Greeks are proud of their defiance and celebrate every October 28 as Ohi Day, the day we said no.  So making Ohi! one's slogan, parading signs saying Ohi! in the streets and calling on the Greeks to say Ohi! to this ultimatum are more potent appeals to nationalism than we may realize.

And they appear to have worked.  Talk about the mysteries of the "Greek temperament" are futile here.  And this does not contradict the foregoing paragraph.  The symbols of nationalism and defiance differ from one country to the next, but underneath it all, human nature is the same.   And it is human nature to dislike being bullied, humiliated or coerced and to respond with defiance -- often foolish and self-destructive defiance, but defiance nonetheless.

And make no mistake, what the Europeans were trying to do was bully, humiliate and coerce.  They determined their offer and made clear that there was to be no negotiations, no concessions, no face-saving compromise that was really a capitulation in disguise.  Capitulation must be open and acknowledged.  This looked suspiciously like a move to depose the Syriza government and install one more to Europe's liking.  Such a move would not be unprecedented, after all.  Th EU has already deposed Silvio Berlusconi in Italy, although the Italians don't seem to have minded much.  But Berlusconi was unpopular, scandal-plagued, and had overstayed his welcome. In the case of Greece, the EU was seeking to depose a leader duly elected less than six months earlier and replace him with someone more subservient.  And they were shocked -- shocked -- that the people responded with anger.  And now Europe and Germany are reacting with their own anger and shutdown.

Europeans ask why the Greeks were such fools as to think they had options when there was only one option all along -- submission.  Well, not quite.  Syriza proved quite wrong if they they thought there was a good option.  But when you present and ultimatum, you are ultimately offering two options -- submit or be crushed.  And looking over the history of warfare, an extraordinary number of nations in such a position have chosen "be crushed."  Well, it is my belief that this whole showdown should be analyzed through the lens of war.  In all probability, Ohi! means  "Alors, c’est la Grexit.”  How does  "Alors, c’est la Grexit” compare to  "Alors, c’est la guerre"?

We know that in old-style warfare, the early ravages of war -- bombed cities, invasions, soldiers coming home in body bags, etc. does not undermine a nation's resolve, but rather strengthens it.  But we also know that morale and resolve don't survive famine.  When food runs out, so to does the will to fight. On the other hand, sanctions that pinch but do not starve have proven to be most ineffective. They simply give the sanctioned government a scapegoat to  blame for the country's misfortunes and rally against.  In case of Grexit, Greece is apt to experience something worse than mere sanctions, but not as bad as true famine and blockade.  And I wonder now as I did before how long a country's resolve can hold up under surging costs of imports, plummeting values of savings, surging foreign debts, widespread bankruptcy, economic crisis and all the other hardships that will attend a devaluation.  We have the answer on at least one question.  A nation's resolve can withstand a week of frozen bank accounts and limited withdrawals.  But how much more?