All entries for December 2011

Happy Christmas … And I Mean This

Writing about web page http://www.economist.com/node/21541767

The Christmas issue of The Economist has a piece on euphemisms. Euphemisms are things you say that soften your true meaning. Now, I think of myself as someone that normally favours plain speaking. Interpreted consistently, that suggests I would avoid euphemisms. Not so. I am British, after all, and the British invented insincerity.

Here are my three most frequent ways around the truth. If you are a student and you've had a letter from me, you've almost certainly met at least one of these before.

Thank you for your request.

This really means: "You're wasting my time." Here's another:

I should be glad if you would" (do something).

This really means: "Do it. Now!" (As does "It would be most helpful if you could".) And one more:

I realize you will be disappointed by this outcome.

This really means: "I'm impressed you made the effort to write your idiotic suggestion down in words."

To conclude, let me offer all my readers:

Very best wishes for Christmas and the New Year.

Which really means: "I want food and drink in front of the telly. Leave me alone!"

Mark Harrison : 21 Dec 2011 14:25 |  Tags: Truth |  Comments (1) |  Close comments |  Report a problem

Help Me, Daddy

Writing about web page http://www.bbc.co.uk/news/world-asia-16239693

The death of Kim Jong-il, who ruled North Korea from 1994, reminded me of something a Korean friend told me a few years ago. My friend is an expert on North Korea and told me this "for a fact." Now, I also remember many things I was told "for a fact" in Moscow in Soviet times. This is a fact I've never had the opportunity to verify (and wouldn't know where to look), so I'll put everything in quotes as my friend told it to me.

In order to facilitate his system of personal rule, Comrade Kim Il-sung devised a subcommittee of the party politburo to help him take the most important political and military decisions. The subcommittee had five members, so it became known as the Committee of Five.

Initially, the Committee of Five consisted of Kim Il-sung himself, his son Kim Jong-il, and three other senior party figures.

Note. Kim Il-sung was North Korea's first ruler, and the father of Kim Jong-il. The idea of a Committee of Five is very plausible. A key to the personal power of a totalitarian dictator is "divide and rule." One aspect of divide-and-rule is the compartmentalization of information and responsibilities, so as to minimize the number of people that have an overview of everything. Stalin was a master of this technique, and became notorious after the war for dividing the Politburo members into little subcommittees with limited oversight of particular aspects of policy. These subcommittees became known as the the Quintet, the Septet, and so on. Kim Il-sung's Committee of Five would have excluded other members of the Politburo from general oversight.

Time passed and took its toll. In 1994, Kim Il-sung "went to meet Marx." Following his death, he was promoted to the country's President for Eternity.

Note. This part is certainly true.

Since Kim Il-sung continued to be a state official, although dead, it was clearly out of the question to remove him from the Committee of Five, so he was not replaced. As the three other members of the Committee of Five aged and died, they too were not replaced, probably because there was no one that Kim Jong-il trusted sufficiently. Despite this, the Committee of Five lived on.

Eventually, only Kim Jong-il was left.

My friend concluded (this would be around ten years ago):

At the present time when important political and military decisions must be made, the Committee of Five continues to meet, but when it meets Kim Jong-il is alone in the room. After announcing each item on the agenda, he looks to the ceiling, clasps his hands, and says: "Help me, Daddy!"

This seems like a good precedent for Kim Jong-il's son and successor, Kim Jong-un, to follow. He'd better pray to Daddy; there's no one else he can trust.

Mark Harrison : 19 Dec 2011 09:01 |  Tags: History North Korea |  Comments (1) |  Close comments |  Report a problem

The Euro: What If …

Writing about web page http://blogs.ft.com/the-world/2011/12/eurozone-crisis-live-blog-19/#axzz1fweCvEJB

What if the Euro collapses? There's already more than enough speculation about that. I'm wondering what will happen if the Euro survives.

Since survival is always conditional, let's ask: What happens if the Euro survives the next three years, which should be enough to take us into the next upswing. Also, we know for sure that the Euro cannot survive in its present form, but let's say there is just enough peripheral shake-out (say, a Greek exit), enough extra liquidity (a "wall of money" to shield the other vulnerable countries from contagion), and enough institutional reform (movement towards a fiscal union) that in 2014 a currency union is still in place with most of its current members.

What then? With all eyes focused on financial and fiscal turmoil, the underlying problem is being forgotten: The Eurozone is still not an optimum currency area.

Robert Mundell (1961) first set out the conditions for a group of countries to benefit from monetary integration: He argued that, to make an optimum currency area, the member states must be convergent in at least one of the following:

• They should experience similar shocks, and respond similarly to them.
• Or. they should have flexible (high-mobility) labour markets.
• Or, they should have competitive (flexible-price) product markets.

If these conditions were met, the real exchange rates of the different member states of a currency union would remain aligned. Without them, a structural mismatch would inevitably evolve. Full employment with low, stable inflation in all parts would be impossible. Unless some parts of the currency union would accept rising inflation, other parts would risk permanent depression.

Using forecast bilateral exchange rate volatility with Germany to measure convergence, Bayoumi and Eichengreen (1997) showed that, from the start, many current Eurozone member states did not not "fit" the Eurozone. Encouragingly, they did find a pre-existing trend towards convergence on the part of countries like Greece, Italy, Spain, and Portugal (but not France or the UK).

There was then a short debate about whether the Eurozone might experience continued convergence so that, although not an optimal currency area at the outset, it might become one. Frankel and Rose (1997, 1998) were for. Feldstein (1997) was against. Then, the Euro was launched. For a while everything seemed fine. But we know now that Feldstein was right.

Behind the scenes, with the Euro in place, previous efforts towards convergence stopped. Greece, Italy, Spain, and Portugal moved further and further away from Germany, not towards Germany. This is shown by statistical series from productivity growth to real exchange rates, trade integration, and fiscal imbalances.

In other words, the Eurozone today is no more of an optimal currency area than it was in 1999 when the Euro was launched. The peripheral countries have not made their markets more competitive. With rare exceptions, labour is unwilling to move across frontiers. The economies of the Eurozone remain "otherwise different" in fundamental ways.

Behind current efforts to save the Euro is still the theory that Greece and Italy can eventually be made more like Germany. If fiscal union is not to commit Germany to subsidize the periphery forever, then it can only mean the application of ever more pressure. German prices must be allowed to bear down cruelly on Mediterranean costs. Their public finances must be topped and tailed to fit the Procrustean bed of German frugality. In the face of ever increasing pressure, the culture of the periphery must surely give way.

But this is almost exactly the same theory that was applied from 1999 to the present, and was found wanting. Pressure was tried before; the only difference in current efforts is the addition to "pressure" of the words "ever increasing."

In other words, whatever their short run expedients, in the long run, Merkel and Sarkozy plan to hold the Eurozone together by the exercise of pure will. Just as Europe's leaders ignored the Mundell criteria in 1999, they will continue to do so. They believe politics can trump economics.

Leadership matters. The price tag of a disorderly collapse of the Euro looks large enough that its leaders should try to avoid our having to pay it. But what can one say of leadership into a cul de sac? The willpower required to hold the Euro together in anything like the form currently envisaged is completely lacking in any Europe-wide popular mandate. The belief that Europe's leaders can look each others' national cultures in the face and remake them arbitrarily goes against all evidence.

In short: What if the Euro survives its present stage? Current efforts will buy time, at best. When time has been bought and paid for, the original flaw will still be there. A Eurozone that is sustainable indefinitely will be limited perhaps to Germany, Austria, and Benelux. It might not even include France, however hard that is to imagine. It will not include the UK.

References

• Bayoumi, Tamim, and Barry Eichengreen. 1997. Ever Closer to Heaven? An Optimum-Currency-Area Index for European Countries. European Economic Review 41:3-5, pp. 761-770.
• Feldstein, Martin. 1997. The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability. Journal of Economic Perspectives 11:4, pp. 23-42.
• Frankel, Jeffrey A., and Andrew K. Rose. 1997. Is EMU More Justifiable Ex Post Than Ex Ante? European Economic Review 41:3-5, pp. 753-760.
• Frankel, Jeffrey A., and Andrew K. Rose. 1998. The Endogeneity of the Optimum Currency Area Criteria. Economic Journal 108:449, pp. 1009-1025.
• Mundell, Robert. 1961. A Theory of Optimum Currency Areas. American Economic Review 51:4, pp. 657-665.

Mark Harrison : 08 Dec 2011 12:18 |  Tags: Economics Euro Greece Politics |  Comments (1) |  Close comments |  Report a problem

Russians, Be Careful What You Wish For

Writing about web page http://www.themoscowtimes.com/news/article/5000-protest-duma-election-results/449327.html

The Russian parliamentary elections show that, whichever party Russians voted for, whether they voted under free and fair conditions or not, they voted overwhelmingly for a strongman. United Russia (one half of the vote) is for Putin. The Communist Party (one fifth) is for Ziuganov. The Liberal Democrats (one tenth) are for Zhirinovskii.

Neither liberal nor democratic, the Liberal Democrats' favourite term of abuse for advocates of a free and competitive political system is der'mokraty, "shittocrats." The Communists have called for Russia to undergo "re-Stalinization." United Russia follows the hazy notion of "sovereign democracy," implying a non-competitive dialogue between rulers and ruled.

On the face of it, the outlook for democracy in Russia is hopeless. Apparently, nearly all Russians espouse one or another form of authoritarianism.

All the more surprising and encouraging that 5,000 Muscovites have taken the risky course of public demonstration against vote rigging and electoral fraud. But what do 5,000 demonstrators count, out of 65 million voters?

More than would appear at first sight, perhaps. A new article by Henry Hale(2011) of George Washington University suggests how much may be going on below the surface. Hale argues that we often misinterpret Russian opinion polls and election outcomes. When we find that many Russians take a dim view of "democracy," we fail to check that we and they understand democracy the same way; it turns out we don't. When we find that Russians frequently favour a strong leader, we assume that this is in conflict with the idea of competitive elections and we fail to check whether Russians see the same conflict. This too turns out not to be true.

On the evidence, Hale argues, most Russians do favour a strong leader, but the same Russians, even those who rail against der'mokratiia, also favour competitive elections. They want a strong leader that they have chosen, a strong leader who will govern according to the law, treat the people fairly, and then submit himself to competitive re-election as the constitution requires.

Such attitudes set up an obvious paradox, Hale observes. Russians know what they want, but they cannot have it for long. Any leader strong enough to rule as Russians want to be ruled is also strong enough to bend the law, pressure the courts, and stuff the ballot boxes. This seems like an electoral equivalent to the Weingast (1995) paradox: "A government strong enough to protect property rights and enforce contracts is also strong enough to confiscate the wealth of its citizens."

Hale has two conclusions. First, "Russia’s leaders, including even the highly popular Putin, are desired not as dictators but as powerful delegates with an expansive—but still limited—mandate to ‘get things done’. Limits include: that the basic rights of the opposition not be violated; that the leader not have a right to remain in complete power for life; and that the people retain the right to select a successor in a free, fair and competitive process when that leader’s constitutional term limits are up." It is logical therefore that, as Putin has increasingly overstepped these limits, he should gradually be losing his earlier support and legitimacy.

Second, Hale confirms that Russians are "the enablers of their own autocracy—but for reasons different from those usually given." The underlying problem is "not any kind of culturally embedded or historically developed support for autocracy, but the preference for a kind of democracy that nevertheless relies on electing a strong leader as a way of concentrating national efforts on the resolution of major national challenges."

Or, in the words of W. W. Jacobs: "Be careful what you wish for."

References

• Hale, Henry E. 2011. The Myth of Mass Russian Support for Autocracy: The Public Opinion Foundations of a Hybrid Regime, Europe-Asia Studies 63:8, pp. 1357-1375.
• Weingast, Barry R. 1995. The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development. Journal of Law, Economics, and Organization 11:1, pp. 1-31.

Mark Harrison : 07 Dec 2011 11:00 |  Tags: Politics Russia Stalin |  Comments (0) |  Close comments |  Report a problem