Paul Krugman, writing on “Why Hungary matters,” tells it like it is
A quick note here: I’m actually kind of shocked at some of the comments on Kim Lane Scheppele’s latest post here. Not the ones accusing her of lying or getting her facts wrong; that’s part for the course, with my own experience being that the more solidly grounded in evidence I am the more hysterical accusations of dishonesty I get.
No, what shocks me are the complaints that there’s even a post on the subject, asking why bother with Hungary at all.
First of all, if you find the subject of a post boring, here’s a useful productivity hint: don’t read it.
But more than that, Hungary really should matter, both to Europeans — many of whom read this blog — and to Americans.
Look, there are currently two great democratic powers in the world: the US and the EU. The EU is not a state, but it acts as a unit in many ways, and is a powerful force making the world a better place. And the European idea has been a key driver of democracy and peace these past two generations.
So if you believe in democracy and peace, you have a stake in that idea’s success — which is why all of Europe’s current troubles are a tragedy for all of us.
And now we have a nation in the heart of Europe, a member of the EU, a nation that emerged from dictatorship, which is at the very least backsliding on democracy. This is terrible — and terribly important.
If you can’t see this, there’s something very wrong with your priorities.
On the subject, the Israeli journalist and blogger Dimi Reider has an important piece on the NYRB web site on how the right-wing controlled Knesset is undermining democracy in Israel. I shudder to think of the consequences for democracy in America if the GOP were to control all three branches of government—White House, both houses of Congress, and the Supreme Court. Quel cauchemar.
Re: ISRAEL
If one respects democracy, one must respect the people’s choice. In Israel, the people have spoken, again and again. In latest polling, Benjamin Netanyahu, and his government, have the overwhelming approval and support of the Israeli people. His popularity is on the rise.
53% APPROVAL
40% DISAPPROVAL
http://www.jewishjournal.com/rosnersdomain/item/netanyahus_approval_rating_53_percent_20120313/
With respect to your trembling fear about our upcoming elections: in America, IMHO, In most cases, one party control of all three branches of government is not ideal, but under the present circumstances, in this political climate, with the numbers being what they are with the number of Democrat seats up in the House and Senate, it is very
possible.
It’s all about the will of the people. If you go against it, there is a heavy price to pay.
@CCinna: Quoting poll numbers to me, are you? Pour mémoire, last September 6th you informed me that “Polls are for strippers and cross country skiers”…
@Arun: Sorry that you’ve chosen this particular blog from Krugman. It shows a side of him that rears its head with some regularity: jingoistic slogans. Krugman’s generally guilty of this mostly when assessing the governments of everywhere but the “superior democracies” of the West. So he does it with China, Russia, other former Soviet republics, the Middle East apart from Israel…
While I know that you reject comparisons between the US and Europe on one side and the rest of the non-democracies on the other, I would point out here that Krugman raises that comparison explicitly. “There are two great democratic governments in the world”, says he.
Except that the EU isn’t a democracy. And indeed, two of the countries in the EU that Krugman would claim are democracies are also not: Greece and Italy, both of which have appointed, not elected, heads of state.
And the claim that the US is a democracy is also specious. In at least two of the past three presidential elections, there were as many “irregularities” in the voting process as in any of the countries Krugman would dismiss as non-democracies. In 2000, the country literally resorted to an appointment of the president by the Supreme Court. In 2004, Bush’s alleged carrying of the essential state of Ohio was notoriously a fabrication.
These electoral issues don’t even consider the absurd funding of the American political system by the rich. Campaign financing at all levels of US government makes democracy impossible. And that doesn’t even consider the funding of government officials by private industry in thousands of other ways.
Lest you accuse me of being “batshit crazy”, I would urge you to permit me to refer you to the many scholarly and other articles that have documented these issues.
And again, it was Krugman who raised the comparison, not I.
@dojero: You’re touching on a number of issues here that I would comment on at length but don’t have time to at the moment. Briefly, Krugman I believe meant to say that the member states of the EU are democracies, not necessarily the EU itself (whose democratic deficit is well-known). As for the US, it is indeed a democracy, albeit flawed. On the 2000 election and what happened in Florida – and the Supreme Court ruling – I will agree entirely that this was a travesty of democracy. That election was in effect stolen. But not in 2004. I looked into what happened in Ohio – following an exchange at the time with a lefty American friend – and determined that Bush won the state. There was no funny business there.
@Arun: Giving Krugman the benefit of the doubt (though it certainly isn’t clear from the way he wrote) still leaves me wondering where you stand on the appointments of Papademus and Monti. In what sense are these democratic? In the case of Italy in particular, Monti was literally not even a member of the legislature. Instead, Napolitano appointed him a Senator for Life in order to overcome that apparently unimportant issue. So the vote of no-confidence in Berlusconi resulted (for the first time that I can find since WWII) the installation of a prime minister who was not elected to any position in any party. And now we have no elections on the horizon in Italy. Indeed, most seem to expect that Monti will serve out the term to which Berlusconi was elected.
There’s every reason to believe that Monti was in fact appointed by Napolitano at the direct urging of the heads of states of other countries (Merkel and Sarkozy), who in turn found his academic credentials appealing, but found his long time connection to Goldman Sachs even more so.
There’s now some question as to whether Greece will hold elections in April, even after having its unelected government push through a horrible austerity budget. And cheerleading against the elections are those bastions of democracy: the ministers of other EU countries.
It is stunning that in this climate Krugman or anyone else would claim superior democracies for Europe.
@dojero: Where do I stand on the Papademus and Monti appointments? I don’t have a position on them, or even an opinion. I can’t be everywhere and take positions on everything… So far as I know the appointment of these men happened by the rules in those countries, i.e. there was not a coup d’état or gross violation of the constitution. If Italians and Greeks feel that there was, then they’ll just have to deal with that themselves…
It is clear that Greece should have never been admitted into the euro – or even to the European Community – and that the Italian lira was locked into the euro at too high a rate (I linked to a report on this in a post last July). But all that’s water under the bridge. In the case of Greece, I have no solutions and see no way out of the catastrophic situation there that won’t involve a lot of pain for the Greek people. Whatever the solution, Greece is going to lose a good part of its sovereignty for years to come. When your economy has to be bailed out by foreigners to such an extent, those foreigners will impose oversight over your public finances and tell you what you can and cannot do. C’est comme ça…
@Arun: I understand that this blog can’t discuss all issues and have no interest in changing its focus. My comments were specifically in response to Krugman’s claim about European democracy, which you supported and echoed. Given that you have no position on Greece and Italy and the fact that their heads of state were not elected, I cannot understand how you can either agree or disagree with Krugman.
Incidentally, I will say that I think you’re wrong in your view that Greece had to be bailed out by foreigners and so accept foreign oversight over its public finances. Greece could, instead, simply have defaulted on the loans and then exited the euro. At that point, it would have been free of foreign oversight of its public finances and it would have been able to devalue its currency. And too, at that point, the profligate lenders who recklessly and greedily had put Greece into its untenable position would have had to be bailed out and forced into external oversight of their finances, which would have been the best result of all.
@dojero: I specified that I have no position on the manner in which the current Greek and Italian PMs acceded to their positions, not on the situations in those countries themselves. As for your “solution” to Greece’s predicament, were it so simple! If this had a been a credible option, it would have at least been seriously debated in Greece, if not carried out by now. But if Greece had defaulted on its debts and exited the euro, we know precisely what would have happened: Greece would have exited not only the euro but the EU as well, Greek banks would have all collapsed and much of the banking sector in the rest of Europe as well, the contagion would have spread to Portugal and then to Spain and Italy, resulting in a collapse of the euro and the likely breakup of the EU. Needless to say, the ensuing economic catastrophe would have affected not only Europe but the entire global economy, making what happened in 2008 look like child’s play by comparison. Nostalgics for 1917 may think this marvelous – a divine surprise -, hoping that it would lead to a Europe-wide – or even worldwide – storming of the proverbial Winter Palace. I doubt it. More concretely, the immediate consequence for you and me – as residents of the EU – would be that on our next trip to the ATM to withdraw some cash, nothing would come out. I wouldn’t be too happy about this and I doubt you would be either.
But even if Greece could be ring-roped in such an eventuality – the planning for which may in fact be in the works – what would be the consequences for it? An economy that has been so massively dependent on foreign loans and EU transfer payments would not receive a penny and would be unable to borrow on international financial markets for an indefinite period. The standard of living of the Greek people would plummet, possibly to Third World levels, and with no hope of improvement for many years to come. And I shudder to think of what political forces there would come to fore. Economically speaking, here’s the thing about Greece: the country is heavily dependent on imports for just about everything but exports little. Its balance of trade is sharply negative. It exports some agricultural goods – which have heavily benefited from the CAP (that would of course end in the event of a euro exit) – but its manufacturing sector is not competitive – either on price or quality -, and it no longer has the edge in shipping that it once enjoyed. Basically the only comparative advantage Greece has is tourism: its history plus sea and sun. Personally, I love Greece. But if it quit the euro and EU en catastrophe – and with the inevitable political instability and decline in the quality of services and everything else – it is not too likely that hordes of beer-swilling German and British holidaymakers would descend on the country, no matter how cheap a devalued drachma would make it.
The country could, of course, be bailed out by China, Qatar, and the Russian mafia, who could come in and buy up big chunks of the country’s economy – and maybe its beachfront property too, plus a few islands thrown in – at bargain basement prices. Great! But do you think the Greeks would remain sovereign masters of their destiny in such an eventuality?
Let’s be clear about it. The reason why Greece didn’t follow your course of action is because its governing class – however decadent and venal it may be – still has some sense of responsibility. These people are not crazy.
@Arun: Your post is filled with dire speculation and I will of course propose alternative futures to the apocalyptic ones you project. But first, I think it important to be clear about whether my proposed solution to the Greek debt is credible.
I think it easiest to direct you to a column written by Mark Weisbrot in the NY Times last May on the subject: http://www.nytimes.com/2011/05/10/opinion/10weisbrot.html?_r=2&hp
Weisbrot, for all who don’t know, has his PhD in economics and would certainly seem to most people (I think) to be qualified to offer credible alternatives to the path that Greece took. Indeed, while Paul Krugman didn’t agree with Weisbrot in the end, he certainly found Weisbrot’s view credible (http://krugman.blogs.nytimes.com/2011/05/10/greek-out/).
So I would think you should dispense with the claim that my solution (it doesn’t need to be put in quotes, as though it’s not really a solution) is and was indeed credible; in fact it was recommended by more than one (if you need more citations to complement Weisbrot, please let me know) economist.
By reading Weisbrot, you’ll also be able to see speculation about the future under a default and euro exit strategy for Greece that differs considerably with your own.
Before addressing your comment further, I’m wondering if you might consider commenting differently about the credibility of my solution. I wonder, too, if you might comment on Weisbrot’s article and even tell me why you think his speculation about the results of a Greek default and exit from the euro is so profoundly and obviously wrong (as I expect you think it is).
Incidentally, I would also call your attention to Paul Krugman’s article this past week on Greece: http://www.nytimes.com/2012/03/12/opinion/krugman-what-greece-means.html
While Krugman continues to believe that exit from the euro is a last resort, he does recognize it as an alternative. Indeed, he says that it may be inevitable. And in the meantime, Krugman wrings his hands over the catastrophic consequences of the path Greece has taken (together with the rest of Europe) of impossible austerity.
You and I (and Krugman and I) can certainly differ about whether Greece’s leaders should try all these other solutions, no matter how impossible they are (and Krugman agrees they can’t work). I would of course argue that Greece should have simply defaulted and exited the euro earlier (since Krugman seems to agree they’ll get there eventually). I think (as Weisbrot does) that Greece would have found itself like Argentina…yes there would have been great pain, but probably less than they’re going through and will go through. And no, they wouldn’t have found it impossible in perpetuity to borrow in the international markets.
In any event, unless you consider Weisbrot to be as crazy as you apparently consider me, your last line is simply hyperbole without any substance. We can agree that Greece’s leaders are venal and decadent, though. In fact, I’d argue that these characteristics are precisely what led them to accept the EU’s imposition of austerity that will cripple them into the foreseeable future instead of Weisbrot’s and my alternative.
@dojero: I did see Weisbrot’s op-ed at the time plus Krugman’s commentaries. I need to specify that I do not argue against Greece quitting the euro. I’ve been saying since the crisis began that it would probably have to do so sooner or later. What I was objecting to was the notion that it should have pulled out of the euro precipitously and unilaterally. Had this happened, the consequences I mentioned would have surely come to pass. If Greece is going to quit, it has to be done in such as way that there is little or no contagion, that the rest of Europe is not brought down along with it. I have no idea how this would happen – I am not an economist or specialist in finance – though one may presume that the ECB, Germans, French et al have been quietly laying the ground for this, notably to limit the risk to European banks and the other PIGS. So if the fateful day does come, it would have to happen quickly – with no prior announcement – but where all the main actors are ready for it.
In his op-ed Weisbrot offers no scenario for a Greek withdrawal. He simply asserts that the Greeks should quit. Krugman, while sympathizing with the principle, does specify why he can’t go along with it at the present moment. As he says, Greece is in a far weaker position than was Argentina. One should have no illusions. Whatever the solution, it will be really bad for the Greek people and for many years. It’s tragic.
@Arun: It’s remarkable that you can be so certain about the outcome of a summary withdrawal by Greece while at the same time confessing to being neither an economist nor a specialist in finance. And you insist on these dire consequences even though there are many economists who have specifically differed (Weisbrot was only one; if you are interested in additional ones, I would be happy to provide more evidence).
Since this is all speculation, I will say only that I too could use hyperbole to make the point. I could, for example, simply assert that yours is a ridiculous and outrageous effort at fear mongering that simply echos the claims of the powerful interests in the governments of France and Germany and the even more powerful interests of the financial industry that would have lost money in the event. I could easily use words like “surely” as though there could be certainty about an unknown future.
In terms of background, I actually am a specialist in finance. In my work life (I am now retired), I was a management consultant specializing in the financial industry. I also have worked in a variety of senior positions for a private bank. I don’t claim that this background makes me expert on international finance. I do claim that it makes me qualified to present what should be considered a credible opinion on such questions as how lenders and investors view things.
What I would suggest is that you first try to understand that lenders and investors must lend and invest. That’s not a simple concept for most people to understand. Dire predictions about the future of lending and investment almost always omit this fundamental truth from their calculations. Lenders and investors must lend and invest. Because that’s how they make money. So they will seek out investments and loans in all ways at all times.
That’s why Weisbrot’s comparison of Greece to Argentina seems valid to me and it’s why I think Krugman’s concerns are invalid. And it’s why I think your apocalyptic predictions about the future of Greece in the event of a summary default are simply wrong, not only for Greece, but more important, for the alleged possibility of contagion. Lenders and investors must lend and invest. And there will always be risk takers among the lenders and investors who want to make a better return and are willing to take higher risks to do so.
Because of these fundamental truths, it’s reasonable to expect that there will always be lenders and investors who will take the higher risks associated with investing in Portugal and Spain even if Greece defaults. In fact, there will always be lenders and investors who will take the higher risks associated with investing in Greece. In fact, it’s reasonable to expect that Greece will become an even more appealing place to lend and invest than it is now. That’s because investing in Greece after the fact will be investing in a country that has finally reduced its onerous debt obligations (by default). There will speculators who will also believe that Greece wouldn’t dare to default a second time after defaulting the first time.
What’s perhaps most surprising in your comments is your apparent confidence in the ECB, Germany, and France. I would certainly agree with you if your contention is that they would do anything to protect the interests of a select few. I would ask what evidence you have for thinking that they would act to protect the masses of people who are suffering already from the austerity budgets being imposed throughout Europe.
That’s perhaps where we diverge. I am not concerned with the financial health of the lenders and investors who have taken risks by lending to Greece and other countries and now want the people of those countries to protect them from loss by giving up their jobs and plunging themselves into poverty. And I am convinced by my experience and everything we can know about fundamental economic processes that these same lenders and investors will come back following losses and lend and invest again. Because that’s what they do.
@dojero: I may not be an economist or have worked in finance but do try to stay informed on these matters. If I didn’t feel sufficiently informed, I wouldn’t say anything. (Just as one hardly needs to be a political scientist or have worked in political campaigns to comment intelligently on politics). Re Greece, we seem to be going in circles. And the question that has been posed – as to what the consequences would have been had Greece quit the euro over the past three years – is neither here nor there, as it didn’t happen, so we’ll never know. But if you have an informed analysis that gives more details than Weisbrot’s op-ed, do send it along. And if you haven’t done so, I encourage you to read the articles on Greece I’ve posted in past months (go to the Europe category and look for the posts dated December 31, September 16, July 4, and June 18).
@Arun: To be clear: I am often simply responding to your comments. And so, for example, had you not raised your lack of economic or finance background, I would not have elaborated on mine. I absolutely agree that it is unnecessary to have such a background in order to make qualified remarks on the issues. And, too, I wouldn’t raise the experts’ blogs as evidence, except that you remarked that my view wasn’t credible. I’m perfectly happy to read your blogs, and comment where I want to present my response and then, if others or you respond, to engage in dialogue. If credibility is raised as an issue, then I feel compelled to demonstrate credibility, both through citing my own knowledge base and the comments of those who are expert in a field. Otherwise, those things aren’t generally relevant.
For another citation on Greece, this might be of interest (from March 2011): http://www.angrybearblog.com/2011/03/greece-this-decades-argentina.html.
I can find more, but don’t think it worth the time or energy. This discussion has been about Greece and whether defaulting was a viable alternative to the austerity budgets that have been adopted by leaders whom I consider to be unconscionably oblivious to the suffering of their own people (while unconscionably supporting the financial industry of Europe and the world). If you would still insist that it wasn’t a viable alternative, then I doubt that more citations (in addition to the ones we’ve already reviewed and the new one I provide here) would be convincing.
I will certainly try to take a look at your earlier blogs on Greece.