Memex 1.1

The Amazon cat, originally uploaded by jjn1.

Terrific Guardian column by Larry Elliott on the rearguard action by corporate execs like Eric Schmidt against public anger about tax avoidance.

All credit to [Margaret] Hodge [Chair of the Commons Committee which criticised Google] for flushing Schmidt out. He likes to portray himself as the new sort of boss of a new sort of company, the ones that boast of their non-hierarchical structures, their dress-down policies and their chill-out zones. But the row about tax has shown that the people running these new-wave behemoths are not hippy capitalists, they are robber barons in chinos.

Nor should we expect otherwise. The dominant form of corporate organisation in the west is the joint stock company, the purpose of which is to deliver profits for its shareholders. Almost all these companies pay lip-service to corporate social responsibility. The companies selling booze say they are firmly committed to tackling problem drinking. The betting shop chains say they want to see responsible gambling. The fast food companies and the soft drinks industry sponsor sporting events in the hope that nobody notices how they are contributing to obesity. But they are in business to maximise profits for their shareholders. Period.

Spot on. Whenever I hear corporate executives bleating about not being evil or about how passionately they care about ‘corporate social responsibility’ I’m reminded of our two domestic cats. They are charming animals, and I lecture them daily on the need to be kind to small mammals and the birds who throng to our garden. All to no effect: they are cats and they do what cats do. They follow their instincts. Same goes for corporations. They exist to maximise shareholder value. Period.

Lovely passage in John Gray’s Review of Jesse Norman’s book on Edmund Burke.

As a consequence of her leadership, the Conservative Party is in some ways weaker than it has ever been. Turning it into an instrument of her personal will, she triggered a coup that has left every subsequent Tory leader on permanent probation. Alienating Scotland, she virtually wiped out her party north of the border and planted a large question mark over the Union. Within England, her indifference to the human costs of de – industrialisation deepened the north-south divide. The result is a hollowed-out and shrunken party that faces huge obstacles in ever again forming a government. For someone who has been described as the greatest Conservative leader since Churchill, it’s quite a list of achievements. If you wanted to shake up Britain and change it beyond recognition, Thatcher was, of all postwar leaders, the one mostly likely to have this effect.

Re-reading Paul Krugman on our rulers’ weird addiction to austerity policies that clearly aren’t working, I was struck by his comment that the failure to anticipate the banking crisis was “a relatively minor sin”. Economies are complicated, ever-changing entities; it was understandable that few economists realized the extent to which short-term lending and securitization of assets such as subprime mortgages had recreated the old risks that deposit insurance and bank regulation were created to control. But, says Krugman,

what happened next—the way policymakers turned their back on practically everything economists had learned about how to deal with depressions, the way elite opinion seized on anything that could be used to justify austerity—was a much greater sin. The financial crisis of 2008 was a surprise, and happened very fast; but we’ve been stuck in a regime of slow growth and desperately high unemployment for years now. And during all that time policymakers have been ignoring the lessons of theory and history.

It’s a terrible story, mainly because of the immense suffering that has resulted from these policy errors. It’s also deeply worrying for those who like to believe that knowledge can make a positive difference in the world. To the extent that policymakers and elite opinion in general have made use of economic analysis at all, they have, as the saying goes, done so the way a drunkard uses a lamppost: for support, not illumination. Papers and economists who told the elite what it wanted to hear were celebrated, despite plenty of evidence that they were wrong; critics were ignored, no matter how often they got it right.

The Reinhart-Rogoff debacle has raised some hopes among the critics that logic and evidence are finally beginning to matter. But the truth is that it’s too soon to tell whether the grip of austerity economics on policy will relax significantly in the face of these revelations. For now, the broader message of the past few years remains just how little good comes from understanding.

For those who believe that our democracies are still capable of managing societies in an equitable way, this resistance to evidence and reason must be pretty worrying. To those of us who suspect that the system is irretrievably rigged in favour of certain powerful interests, however, it just confirms our suspicions. This obduracy is a feature, not a bug.

Einstein defined insanity as repeatedly doing the same thing and expecting a different outcome. I was reminded of this when reading Paul Krugman’s piece in the New York Review of Books.

The turn to austerity after 2010, however, was so drastic, particularly in European debtor nations, that the usual cautions lose most of their force. Greece imposed spending cuts and tax increases amounting to 15 percent of GDP; Ireland and Portugal rang in with around 6 percent; and unlike the half-hearted efforts at stimulus, these cuts were sustained and indeed intensified year after year. So how did austerity actually work?

The answer is that the results were disastrous—just about as one would have predicted from textbook macroeconomics. Figure 2, for example, shows what happened to a selection of European nations (each represented by a diamond-shaped symbol). The horizontal axis shows austerity measures—spending cuts and tax increases—as a share of GDP, as estimated by the International Monetary Fund. The vertical axis shows the actual percentage change in real GDP. As you can see, the countries forced into severe austerity experienced very severe downturns, and the downturns were more or less proportional to the degree of austerity.

There have been some attempts to explain away these results, notably at the European Commission. But the IMF, looking hard at the data, has not only concluded that austerity has had major adverse economic effects, it has issued what amounts to a mea culpa for having underestimated these adverse effects.

It’s patently obvious that the current policy of ‘austerity’ isn’t working, and yet our governments are hell-bent on continuing with it. Madness on stilts.

The fault-line that runs through the Tory party over membership of the EU has opened up again in a most entertaining way. Cameron seems as helpless in dealing with his Europhobes as poor old John Major was in his day. I’ve often wondered why the issue is so toxic for members of Britain’s governing elites. The only explanation I can think of is imperial afterglow. Whole-hearted membership of the EU means accepting that Britain is just another country — like France, Germany or — Sacre Bleu! — Greece or Portugal! And that’s too unpalatable for a country that once had an empire on which the sun apparently never set. The same afterglow is what is currently driving the government to insist that Britain needs to spend £20 billion-plus on a new nuclear deterrent.

It’s pathetic, but it’s happening: authentic folie de grandeur. And at the taxpayers’ expense, naturally.

Or why we are governed by imbeciles. Great piece by Mark Blyth in Foreign Affairs. Sample:

Austerity is a seductive idea because of the simplicity of its core claim — that you can’t cure debt with more debt. This is true as far as it goes, but it does not go far enough. Three less obvious factors undermine the simple argument that countries in the red need to stop spending. The first factor is distributional, since the effects of austerity are felt differently across different levels of society. Those at the bottom of the income distribution lose proportionately more than those at the top, because they rely far more on government services and have little wealth with which to cushion the blows. The 400 richest Americans own more assets than the poorest 150 million; the bottom 15 percent, some 46 million people, live in households earning less than $22,050 per year. Trying to get the lower end of the income distribution to pay the price of austerity through cuts in public spending is both cruel and mathematically difficult. Those who can pay won’t, while those who can’t pay are being asked to do so.

The second factor is compositional; everybody cannot cut their way to growth at the same time. To put this in the European context, although it makes sense for any one state to reduce its debt, if all states in the currency union, which are one another’s major trading partners, cut their spending simultaneously, the result can only be a contraction of the regional economy as a whole. Proponents of austerity are blind to this danger because they get the relationship between saving and spending backward. They think that public frugality will eventually promote private spending. But someone has to spend for someone else to save, or else the saver will have no income to hold on to. Similarly, for a country to benefit from a reduction in its domestic wages, thus becoming more competitive on costs, there must be another country willing to spend its money on what the first country produces. If all states try to cut or save at once, as is the case in the eurozone today, then no one is left to do the necessary spending to drive growth.

The third factor is logical; the notion that slashing government spending boosts investor confidence does not stand up to scrutiny. As the economist Paul Krugman and others have argued, this claim assumes that consumers anticipate and incorporate all government policy changes into their lifetime budget calculations. When the government signals that it plans to cut its expenditures dramatically, the argument goes, consumers realize that their future tax burdens will decrease. This leads them to spend more today than they would have done without the cuts, thereby ending the recession despite the collapse of the economy going on all around them. The assumption that this behavior will actually be exhibited by financially illiterate, real-world consumers who are terrified of losing their jobs in the midst of a policy-induced recession is heroic at best and foolish at worst.

Thoughtful (if depressing) piece by Ian Buruma.

The tragedy of Korea is that no one really wishes to change the status quo: China wants to keep North Korea as a buffer state, and fears millions of refugees in the event of a North Korean collapse; the South Koreans could never afford to absorb North Korea in the way that West Germany absorbed the broken German Democratic Republic; and neither Japan nor the US would relish paying to clean up after a North Korean implosion, either.CommentsAnd so an explosive situation will remain explosive, North Korea’s population will continue to suffer famines and tyranny, and words of war will continue to fly back and forth across the 38th parallel. So far, they are just words. But small things – a shot in Sarajevo, as it were – can trigger a catastrophe. And North Korea still has those nuclear bombs.

My Observer review of The The New Digital Age by Eric Schmidt and Jared Cohen.

When, in early 2011, Eric Schmidt stepped aside from his position as Google’s CEO to become the company’s executive chairman, some of us were reminded of Dean Acheson’s famous gibe about postwar Britain – which had “lost an empire but not yet found a role”. What, one wondered, would Dr Schmidt’s new role be, and when would he find it?

The New Digital Age: Reshaping the Future of People, Nations and Business

by Eric Schmidt, Jared Cohen

Well, now we know…

Steven Spielberg and Daniel Day-Lewis were invited to the annual White House Correspondents’ dinner this year. Here’s why.