Memex 1.1

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.

As Tony Hirst points out, the fiasco of the Reinhard-Rogoff correlation that evaporated under student examination is a very good argument for open data in social science as well as in the exact sciences. But I don’t think that the full import of the screw-up has dawned on enough people. After all, our economies are being destroyed by governments who believe in the economic equivalent of fairies, and the Reinhard-Rogoff correlation (of public debt with low or zero economic growth) provided the only theoretical fig-leaf that they had. And now it’s been shown to be a transparent fig-leaf.

The Atlantic had a good go at exploring what this means:

Austerity has been a policy in search of a justification ever since it began in 2010. Back then, policymakers decided it was time for policy to go back to “normal” even though the economy hadn’t, because deficits just felt too big. The only thing they needed was a theory telling them why what they were doing made sense. Of course, this wasn’t easy when unemployment was still high, and interest rates couldn’t go any lower. Alberto Alesina and Silvia Ardagna took the first stab at it, arguing that reducing deficits would increase confidence and growth in the short-run. But this had the defect of being demonstrably untrue (in addition to being based off a naïve reading of the data). Countries that tried to aggressively cut their deficits amidst their slumps didn’t recover; they fell into even deeper slumps.

Enter Carmen Reinhart and Ken Rogoff. They gave austerity a new raison d’être by shifting the debate from the short-to-the-long-run. Reinhart and Rogoff acknowledged austerity would hurt today, but said it would help tomorrow — if it keeps governments from racking up debt of 90 percent of GDP, at which point growth supposedly slows dramatically. Now, this result was never more than just a correlation — slow growth more likely causes high debt than the reverse — but that didn’t stop policymakers from imputing totemic significance to it. That is, it became a “fact” that everybody who mattered knew was true.

Except that it wasn’t.

Austerity is back to being a policy without a justification. Not only that, but, as Paul Krugman points out, Reinhart and Rogoff’s spreadsheet misadventure has been a kind of the-austerians-have-no-clothes moment. It’s been enough that even some rather unusual suspects have turned against cutting deficits now. For one, Stanford professor John Taylor claims L’affaire Excel is why the G20, the birthplace of the global austerity movement in 2010, was more muted on fiscal targets recently.

Will this matter? Hard to say. My feeling is that British economic policy-making has been evidence-free for a long time. George Osborne & Co are driven by blind faith in nonsense, and immune to every kind of logic, including, apparently, the electoral variety. But Krugman thinks that the Excel foopah has opened a crack in their invincible ignoramce.

“My vague, unquantifiable sense”, he writes,

“is that the debacle is changing the conversation quite a lot, even among the guys in suits. And it was the coding error that did it.

Now, the truth is that the coding error isn’t the biggest story; in terms of the economics, the real point is that R-R’s results were never at all robust, both because the apparent relationship between debt and growth is fairly weak and because the correlation clearly goes at least partly the other way. But economists have been making these points for years, to no avail. It took the shock of an outright, embarrassing error to shake the faith of the Very Serious People in a result they really wanted to believe.

The point is that the next time Olli Rehn, or George Osborne, or Paul Ryan declares, sententiously, that we must have austerity because serious economists (i.e., not Krugman and friends) tell us that debt is a terrible thing, people in the audience will snicker — which they should have been doing all along, but now it has become socially acceptable.”

Yep. Sometimes laughter is the best riposte.

LATER: Sooner or later, we ought also to start sniggering whenever an economist enters the room. As a profession addicted to a pathological paradigm which wrecked the banking system, its practitioners have shown an astonishing lack of remorse about their failings. And it turns out that, having had their incompetence exposed, Reinhart and Rogoff have been displaying textbook disingenuousness, so it’s nice to see that they’re now being called out on that too.

Terrific column by Peter Oborne.

The decision to give Lady Thatcher what amounts to a state funeral will not lead to fascism. But it nevertheless badly damages the British system of representative democracy, and as such will lead to a series of debilitating practical problems. The most serious of them concerns damage to the reputation of the monarch for scrupulous impartiality. During her long reign, the Queen has avoided attending the funerals of all her prime ministers, apart from that of Churchill, who had led the national government of a united Britain in the great common struggle against Nazi Germany. This is why he was the sole exception to the rule that former prime ministers do not get state funerals.

So the question arises: what’s so special about Maggie Thatcher? Defenders of next week’s funeral arrangements say that she was a “transformational” prime minister. This is true. But so was Clement Attlee, who introduced the welfare system and the National Health Service, thus fundamentally changing the connection between state and individual. Yet the Queen did not attend Mr Attlee’s funeral, a quiet affair in Temple Church near Westminster. According to a 1967 report in Time magazine, “all the trappings of power were absent last week at the funeral of Earl Attlee … there were no honour guards or artillery caissons, no press or television, no crush of spectators. Only 150 friends and relatives gathered for a brief Anglican ceremony in honour of the man who had shaped the political destiny of post-war Britain.”

The decision to acknowledge Lady Thatcher, but not Attlee, makes the Queen appear partisan and is totally out of kilter with the traditional impartiality of the modern British monarchy.

Great, impassioned, supremely lucid lecture. His book — Republic, Lost: How Money Corrupts Congress – and a Plan to Stop It is terrific also.

The title of the book picks up on a famous story about the Constitutional Convention of 1787 which gave birth to the United States. At the close of the Convention a lady asked Benjamin Franklin “Well Doctor what have we got, a republic or a monarchy.” Franklin replied, “A republic . . . if you can keep it.” Larry’s point is that the citizens of the new republic couldn’t keep it, and the reason they lost it was because the intrusion into electoral politics eventually became pathological.

Full explanation here but the gist of it is that “it’s like the Gold Standard but without the shiny rocks”.

Reading David Runciman’s absorbing review of David Graeber’s new book (The Democracy Project: A History, a Crisis, a Movement), this paragraph leapt out at me:

To make his case that electoral democracy entirely stifles the expression of everyday experiences, Graeber provides a brief history of how we got into our present mess. This is where the book comes alive, because Graeber’s uncompromising approach, so wearying when applied to his personal history, is bracing when applied to the world at large. He believes it is no accident that the current political system protects the interests of the super-rich at the expense of almost everyone else. Our democracy is not some imperfect version of the real thing. It is the opposite of the real thing. Genuine democracy enables ordinary people to break free from the conventions that limit their capacity to lead fulfilling lives. In our democracy, the limitations are entrenched, because the conventions are all about protecting the power of money.

Or, to translate it into programmer-speak: the fallout from the banking catastrophe is not a bug in the system, it’s a feature. It’s what the system now does: privatises profit and socialises losses.