Economic planning in Europe

After World War II most nations created institutes for economic planning. The Great Depression of 1929-1940 and the war effort of 1940-1945 taught the importance of economic science. The analysis by Keynes of 1936 had been confirmed, i.e. the huge investments for the war effort had pulled the US economy out of the Great Depression. New techniques had been developed like linear programming for military sea transports. Economic planning overtook the world and it is as common now as the weather forecast.

Forecasting the weather is fairly simple. You look at the satellite picture and figure out the direction and speed of the wind. Economic projections for next year have a similar structure. Businesses have to decide on their budgets and investments some time in advance and thus it is a good technique to sample them on their intentions. Also governments must decide on their budgets and appropriations, and thus the national economic planning bureaus provide the required integration and co-ordination of the various ministerial plans with the economic prospects.

The problem lies with looking ahead for more years, when also results for next year depend upon what people expect for later on. The economic planning bureau must be based in science, in order to respect the statistics of the past and the samples taken this year, and to separate reasonable expectations for the longer run from political dreams by the administration in power.

Europe has many countries and each has its national economic planning bureau. The EU has now 28 members and thus 28 planning desks. There is much double work and inefficiency as they all try to forecast next year’s outlook. This inefficiency doesn’t matter much. It is like 28 students in a classroom trying to solve the same math exam question: doing it yourself keeps you alert. People normally don’t mind 28 weather forecasters either, who have to translate to local conditions anyway. Variety also prevents group think. Still, it would be somewhat strange if, for example, Germany would forecast 0% and France would forecast 2% for EU growth. Thus there is co-ordination by the EU Commission and by a group like the Association of the European Conjuncture Institutes (with French abbreviation AIECE). Co-ordination of course re-introduces the risk of groupthink via this backdoor.

The Dutch Central Planning Bureau (CPB) is a member of AIECE. As the directorate of CPB has been censoring my analysis since 1990, we may presume that they have not been informing AIECE about it. Neither will they have reported to AIECE that the present economic crisis confirms my analysis. Earlier I explained where my work can be found and why it tends not to be present in “peer reviewed journals”. Hence the economic planning bureaus of Europe are likely to be blissfully unaware of the economic analysis that would greatly contribute to the resolution of the Great Stagflation since 1970 and the economic crisis since 2007.

Hence, I took the liberty to send the economic planning bureaus the email in the appendix below. I have editted the text for readability. The moment of sending the email is a bit awkward: I received various vacation absentee notices of contact persons. The weather forecast requires daily presence, even in sunny California, but economic planning still allows for vacations. Hopefully the AIECE secretariat takes proper care.

It is a moot point whether the other economic planning bureaus would have acted in the same manner as the directorate of the CPB: censoring my analysis and dismissing me with untruths. These institutes may not be immune to the bureaucracy-bug, and we may linger a longer while on the question which bureaus had staff members who issued warnings about a potential crisis before 2007. The suggestion of creating national Economic Supreme Courts would be relevant here.

Appendix: parts of an email

To: the UK Office of Budget Responsibility (OBR), the German Sachverstaedigenrat, the French Commissariat general a la strategie et a la prospective (CGSP),  the Belgian Federaal Planbureau, the Italian ISTAT, the Spanish Direccion General de Analisis Macroeconomico y Economia  Internacional, the Swedish NIER, the Danish DORS, Statistics Norway, the Polish Institute For Market, Consumption And Business Cycles Research, the Greek KEPE, the Finnish ETLA, and AIECE, and CC the Financial Times
Subject: My solution approach to the deepening European crisis / Protest against censorship of science in Holland
Date: Tue, 30 July 2013

Dear fellow economists,

There is a serious risk that the economic crisis in Europe could develop into a much larger one. The euro works out as a gold standard and then consider what happened in the Great Depression.

You might therefor allow me to call your attention to my suggested solution approach in my book DRGTPE that I regard as a nice sequel to Keynes’s “General Theory”. […]  I invite [econometricians] to test my additional analysis in the paper “Money as gold versus money as water” (2013). This is supplementary to DRGTPE (2000, 2005, 2012). I refer to the internet links below. Please be aware that my internet site changed from dataweb.nl to thomascool.eu.

You will generally not be aware of the censorship of science by the directorate of the Dutch Central Planning Bureau (CPB) since 1990. The Dutch government recently appointed per August 1 2013 as new CPB-director ms. Laura van Geest, who however is a bureaucrat and has no track record as a scientist. The same happened in 1988/9 when the government appointed bureaucrat and non-scientist Gerrit Zalm, who after his CPB-period till 1994 continued as Dutch minister of Finance (adopting the euro) and now is CEO of the Dutch bank ABN-AMRO. Regrettably, Zalm started in 1990 censoring my analysis on unemployment and dismissed me with untruths in 1991. Holland hasn’t been able to resolve the issue yet. I advise to a boycott of Holland till the issue is resolved.

Key points in my analysis are:

(1) Between net minimum wage income and gross minimum wage costs there is a tax void. This can be abolished without costs, allowing a reduction of minimum wage costs.

(2) The relevant marginal tax rate is the dynamic marginal tax rate, that comes about by using the total derivative that includes tax changes over time, instead of the partial derivative. Thus VAT be best at 1% (for statistical purposes and as an optional tool for the cycle).

(3) Modern economies require counter-cyclical national investment banks.

(4) When standard macro-economic models are adapted for 1-3 then we have an explanation for the Great Stagflation with its shift of the Phillipscurve since 1965. This stagflation was hidden by the economic deregulations since 1980 but now that we are re-regulating again the problem comes back into the open. PM. Note that Holland tries to solve its 1-3 problems by a low wage policy that exports its unemployment to other countries. Germany copied that policy, with the resulting trade imbalances in the EU.

(5) The lesson learned for the future: The Trias Politica system of government with subordinate planning bureaus fails, and requires the amendment of an Economic Supreme Court.

(6) Since the euro works as a gold standard, this requires a new treaty on an euro 2.0. However, we need not wait for the political process of adoption of a new treaty. European governments can already express their interest and commitment, and create acting national Economic Supreme Courts, so that the process can start fast.

(7) And naturally various details to complete the picture.

Note that DRGTPE 2012 with the PDF on the website consists of the 2005 edition that focusses on unemployment. It includes only summaries of my papers since 2007 on the present crisis. Those papers themselves have often PDFs at MRPA, and are collected in the book “Common Sense: Boycott Holland” (CSBH, no PDF).

I hope that you will study DRGTPE and CSBH, and that you also adopt my advice to boycott Holland till this issue of scientific integrity in Holland is resolved.

PM 1. […]
PM 2. My intention was to send this email to the planning agencies of the countries in the EU. Clearly there are a lot of those, and there is the issue of whom to contact. The above is a fair effort. Perhaps you can make sure that this email reaches the appropriate colleagues at your institute (e.g. the other members of OBR or Sachverstaendigenrat) and the other institutes, where you might perhaps ask AIECE to co-ordinate.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
http://thomascool.eu/
http://econpapers.hhs.se/RAS/pco170.htm
https://boycottholland.wordpress.com/

[… omitted additional appendix …]
[PM August 19: I should have included the EuroFrame network but informed them separately now.]

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