The ECB is fiddling while Europe burns

If not quite burning yet, the eurozone is kindling. For once, most people agree why: money is very tight.

The central bank’s interest rate is low, yes, but this is not a good measure of the stance of monetary policy. What matters is the interest rate relative to the ‘natural’ interest rate – ie, what it would be in a free market. It’s difficult to know what this natural rate is (as Hayek would tell us) but we can look at things like nominal GDP and inflation to help us guess. Both are way, way below levels that the market is used to. Deflation is back on the menu.

As Scott points out, whatever you think about the American or British economies since 2008, the Eurozone looks like a case study in central bank failure:

The eurozone was already in recession in July 2008, and eurozone interest rates were relative high, and then the ECB raised them further.  How is tight money not the cause of the subsequent NGDP collapse?  Is there any mainstream AS/AD or IS/LM model that would exonerate the ECB?  I get that people are skeptical of my argument when the US was at the zero bound.  But the ECB wasn’t even close to the zero bound in 2008.  I get that people don’t like NGDP growth as an indicator of monetary policy, and want “concrete steppes.”  Well the ECB raised rates in 2008.  The ECB is standing over the body with a revolver in its hand.  The body has a bullet wound.  The revolver is still smoking.  And still most economists don’t believe it.  ”My goodness, a central bank would never cause a recession, that only happened in the bad old days, the 1930s.”

. . . And then three years later they do it again.  Rates were already above the zero bound in early 2011, and then the ECB raised them again.  Twice.  The ECB is now a serial killer.  They had marched down the hall to another office, and shot another worker.  Again they are again caught with a gun in their hand.  Still smoking.

Meanwhile the economics profession is like Inspector Clouseau, looking for ways a sovereign debt crisis could have cause the second dip, even though the US did much more austerity after 2011 than the eurozone.  Real GDP in the eurozone is now lower than in 2007, and we are to believe this is due to a housing bubble in the US, and turmoil in the Ukraine?  If the situation in Europe were not so tragic this would be comical.

There is a point here. Economic news, by its nature, tends to emphasise interesting, tangible, ‘real’ events over things like central bank policy changes (let alone the absence of changes).

Of course that can be deeply misleading. The stance of money affects the whole economy (at least the whole economy that does business in nominal terms, which is pretty much everything except for gilt markets), and the Eurozone is experiencing exactly the sort of problems that the likes of Milton Friedman predicted that tight money would create.

Overall, the Euro looks like the most harmful institution in the world, except perhaps for ISIS or the North Korean govt. It may be unsaveable in the sense that it will never really be an optimal currency area, but looser policy (which free banking would provide) would probably alleviate many of the Eurozone’s biggest problems. Instead, what Europe has is the NHS of money – big, clunking and unresponsive to demand.

And the ECB seems wilfully misguided about what it needs to do. The only argument against this is that surely—surely—Draghi and co know what they’re doing. Well, what if they don’t?

Seumas Milne’s dodgy statistics on African poverty

Seumas Milne’s column last week blamed globalisation for migrant deaths in the Mediterranean. The column isn’t that important, but this bit jumped out at me:

As the catechism of “free market” deregulation has been imposed across the world under “free trade” and “partnership” agreements and the destructive discipline of the IMF, World Bank and WTO, capital and resources have been sucked out of the developing world and tens of millions of people have been driven into urban poverty by corporate land grabs.

That is why the number living on less than $2 a day in sub-Saharan Africa has doubled since 1981 under the sway of rich world globalisation. Africa’s boom has been in resource exploitation, not in most people’s living standards. So it is hardly surprising that migration from the global south to high and middle-income countries has more or less tripled over the past half century.

Actually, the percentage of people living on less than $2 a day in sub-Saharan African has fallen from 72.2 percent to 69.2 percent since 1981. The total number of people on $2 a day has doubled because sub-Saharan Africa’s population has doubled (p. 96). “Free market deregulation” has nothing to do with it, except for the fact that infant mortality has fallen substantially.

I know this because it is in the same paper that Mr Milne’s figure comes from, on the same page, in the same table. It’s a pity that he did not think to mention the data that directly disproves his claim.

Screen Shot 2014-10-16 at 09.25.27I wrote a letter to the Guardian pointing this out but they didn’t print it. It’s also worth pointing out that African poverty fell by 38% between 1990 and 2011. (h/t Anonymous Mugwump.)

Screen Shot 2014-10-16 at 09.38.06

 

Being economically worth less does not mean you are worthless

I’ve just been on Channel 4 News discussing Lord Freud’s comments about letting people with disabilities choose to work for below the minimum wage. I haven’t watched it back but I gather from Twitter that I fluffed it a bit – unfortunately the producers put me up against two people without telling me, so I got flustered. 

The thing I said that upset people the most was that some people with severe disabilities or learning difficulties may be economically worth less than people without. (One of the people I was debating apparently thought I said ‘economically worthless’.) 

Lots of people have taken this to be a comment on the moral value of people with severe disabilities or learning difficulties. This is an error. The value of a person’s labour is equivalent to what others will pay them for a given amount of time, also known as their productivity. When Lord Freud talked about people not being ‘worth’ the minimum wage, this is what he meant.

It has absolutely nothing to do with how important they are as a person. Some very good people are unproductive because they are inexperienced, they don’t have economically-valuable talents, or they are disabled. Some very bad people are very productive because they did well in the lottery of life. Indeed this is something I care about very strongly, and it has led me to abandon beliefs I once held quite strongly in favour of mechanisms that would redress some of this imbalance.

Perhaps it was a bad choice of words to say ‘economic worth’ because many people are unaware of the above. I can understand that if you heard me say someone was ‘economically worth less’ (let alone ‘economically worthless’!) that you might think I was making some comment about that person’s value as a human being. I’m pleased, at least, that many people who disagree with me nonetheless give me the benefit of the doubt, and I hope I’d do the same.

I think Freud’s comments were motivated by a sincere desire to make disabled people’s lives better off by allowing those that want to work to do so, with their wages topped up by the taxpayer. Whether or not you agree that this is a wise move it does nobody any favours to suggest that anybody in this debate thinks people with disabilities are not valuable as human beings.

What’s at stake in the social justice debate

The most interesting cultural debate of modern times is about the free expression of ideas.

The main instigators of this debate are the social justice movement. It champions people who lack or are seen as lacking social power, like women, racial minorities and transgendered people. It does this by criticizing people who say and do things that hurt or reinforce the powerlessness of these groups. An example may be the ‘misgendering’ of a transgendered person – that is, referring to someone as a man when they identify as a woman.

Opponents of the social justice movement are numerous but intellectually disorganized. In this post I hope to draw the lines of battle as fairly as possible in order to make the fundamental argument clearer to both sides. I will try to make a case for the side I prefer in a future post.

The social justice movement sometimes tries to “show the door” to people who say what it sees as bad things. One example was the campaign against Brendan Eich after he was made CEO of the Mozilla Corporation, which makes the Firefox web browser. Eich, who invented the Javascript coding language, had donated $1,000 to the anti-gay marriage campaign in California six years previously. This led to a campaign for a boycott of Mozilla products and calls by Mozilla employees for Eich to resign. Ultimately, Eich resigned.

Another recent example is the (comparatively muted) reaction to TV presenter Judy Finnegan’s discussion of a rapist footballer on Loose Women earlier this week. Finnegan argued that because the rape was not violent and the victim was drunk at the time, the footballer should be able to return to playing football after he had served his time. This has prompted calls for apologies and so on.

The Eich case is significant, the Finnegan case is not. But both are essentially skirmishes in the debate over what we can say in public and what we can’t. Note that I disagree with both Eich and Finnegan – I support gay marriage and I don’t think ‘non-violent’ rape is any less bad than violent rape (except the obvious additional injuries and trauma associated with any violence).

But the crucial issue is not whether these beliefs are good or bad, it’s whether they’re acceptable to say in public. This is what distinguishes the social justice movement and makes it interesting: its aims are to discourage the expression of certain bad beliefs, not to correct or rebut them. It’s not about whether Eich or Finnegan’s beliefs are right or wrong, it’s about whether society should tolerate their expression at all.

This is very important. Much of the content of the social justice movement’s beliefs is either right or trivial – gay rights are good, acceptance of transgendered people is good, etc. The idea that makes the social justice movement special is the idea that some ‘words matter’ so much that we need to stop them from being said through social and consumer pressure.

For the most part, the debate is not about legislation on either side. Most social justice advocates want to boycott firms that employ people with bad beliefs and socially shun people with bad beliefs. Some have sudden conversions to ‘thin libertarianism’ when opponents say they are undermining free speech, claiming that the only kind of freedom of speech worth caring about is that affected by the state.

But this is silly. Private actions can impose costs on others to an enormous extent. If being a Muslim in Britain meant losing your job and losing your friends, it would be a significant and meaningful limit to your freedom to be a Muslim. To the extent that this happens, it is a meaningful limit on Muslims’ freedom. The consequences are what matter.

Members of the social justice movement might point out that words do indeed have consequences. Eich’s donation helped the platform of people who want to restrict gay rights; Finnegan’s beliefs may lead to greater tolerance for rapists and hence, at the margin, more rapes. And almost everyone thinks that some words should be restricted: harassment and threats can ruin people’s lives and it is for the best that certain kinds are illegal.

What’s more, lots of people who think it’s bad to boycott a firm for employing a transphobe think it’s right to boycott a firm for employing, say, a racist. And virtually everyone thinks it’s OK for a firm to fire an employee for being rude, obnoxious or dishonest.

But this may go too far. Even if words can have bad consequences, they can have good consequences too. A utilitarian justification for free speech is that we need it to discover what’s true. Many beliefs that once seemed untrue to almost everyone later became very convincing to almost everyone, like heliocentrism and equality for non-whites. We can never be sure of practically any of our beliefs, but we do seem to have the ability to gradually sort bad ones from good ones. A competitive ‘marketplace of ideas’ may be a good way of helping that to happen.

I suggest that opponents of the social justice movement should organize around this kind of principle. The onus may be on us to prove that losing the ‘marketplace of ideas’ is worse than the hurt and/or powerlessness that its existence exacerbates.

The question is about the costs of freely discussing ideas that may indirectly lead to bad things. In a future post I will try to argue for a very extensive form of free speech that would require us to tolerate the expression of virtually any concept or idea, if it’s done so politely and honestly. But to understand why we should value a ‘thick’ definition of free speech we must first understand why people want to curb it.

Voters are very ignorant, and that should terrify you

Voters are very ignorant about the basic facts of politics. This is where Americans fall when asked what the US government spends the most on:

Screen Shot 2014-10-09 at 13.20.14And here is how the money is actually spent:

Screen Shot 2014-10-09 at 13.23.00As I’ve often asked before, how can we possibly expect voters to elect the right people if they know so little about the issues at stake? It’s like asking a blind man to be your ship’s navigator.

Governments have vast powers and responsibilities. Their reach is essentially limitless. And the people who decide what they do are hopelessly ill-informed about the world. Forget the Hayekian knowledge problem – the voter ignorance problem means democracies cannot hope to elect decent governments with the priorities and policies that the voters themselves would want if they were well-informed.

Elite rule might have been the answer, but elites are dogmatic, closed-minded ideologues. No, there does not seem to be any group we can rely on to rule. Voter ignorance should make us extremely reluctant to bring the state in to solve some problem we’re having.

And before you tell me that democracy is the worst system we know of, apart from all the others: Are you sure?