Monthly Archives: September 2013

The German euro-critical voice did not reach its national Parliament. Its electoral system requires a party to have at least 5% of the vote before it can partake. The new euro-critical party Alternative für Deutschland got 4.7% which is just insufficient. I don’t agree with the economic analysis behind AfD – see my alternative monetary analysis – but their analysis is important enough to be heard and discussed, and it is a shame that it is censored now.

Commentators say that Angela Merkel won the elections but we can observe that her coalition lost. Another victim of the 5% threshold namely is Merkel’s coalition partner, the conservative freemarket party FDP that got just 4.8%. The AfD received 12% of its vote from voters coming from FDP, which is the half procent point difference that caused it to go under. The AfD can claim some success.

There were other smaller parties that did not get over the threshold, with a total of 6.3% of voters. Thus in total 15.8% of the turnout has been blocked from partaking in Parliament.

This does not come across as being very democratic. The threshold of 5% has no base. A natural threshold is that a party should get at least one seat. With 630 seats and 61.8 legal voters the natural threshold is 98,000 voters per seat. The turnout was 71.5% so that this threshold drops to about 70,000 voters, which is still a sizeable number. This natural threshold is comparable to the situation in Holland, with about 65,000 voters per seat. The Dutch system is open, allows easier access to new voices, and keeps existing parties alert. The German threshold of 5% makes for a failing democracy, that is rooted in fear for other voices and a fear for an inability to co-operate.

The table below contains the data. A good democratic theory is that a turnout of 71.5% also means that only 71.5% of the seats are filled. Voters who don’t turn out then force the parties to co-operate. The majority in a Parliament of 630 seats remains at least 316 seats. When Angela Merkel doesn’t attract voters to the ballot box then this ought to cost her seats too. In the current system she gets 311 seats but in a proper calculation without the 5% threshold and with inclusion of empty seats for absentees she should get only 186 seats.

A strict majority coalition tends to stiffle Parliament, since coalition members have to support the coalition and maintain the coalition agreement. A better democratic alternative is a government that mirrors Parliament. (The argument for some threshold may have value here.) This kind of cabinet forces parties to co-operate and to look for compromises that respect the differences in opinion. When most parties are actually in government then Parliament has more room for checks and balances, to watch over effectiveness, efficiency, quality and proper procedure.

Germany still suffers from the DDR trauma. One thing that hinders this mirroring in Germany is that the SPD has put a ban on Die Linke. The latter is a combination of (former) communists like Gregor Gysi and former members of the SPD itself, like Oskar Lafontaine (who has found his new love Sahra Wagenknecht there too). Thus, even more people are excluded. Still, exclusion of large sections of the population increases the sectarian aspects on both sides. Precisely by offering responsibility in government (for areas that appeal to them and that others can tolerate) one creates a process that emphasises the arguments, keeps voters sharp, and reduces the flight into the easy protest vote.

Now that Merkel’s coalition has lost the elections, it ought to be conceivable that the SPD provides the Kanzler, with a minority cabinet with passive support from Die Linke. An important goal for government would be the abolition of the threshold of 5% and the abolition of the ban on Die Linke, and then have decent elections over a year.

By that time it will also have become clear that the euro means a higher fiscal burden for Germany plus the surrendering of elements of national sovereignty to Brussels (if my new analysis in monetary economics is not accepted).

See my earlier critique on the German elections. When we want democracy to mean that political leaders and the electorate communicate about the relevant choices, then Angela Merkel did not show democratic leadership. The main German parties have been stone-walling the AfD. The undemocratic 5% threshold rewards them for that (though with a vengeance on the FDP). Merkel did not elaborate on the choices on the euro and instead seduced her voters into merely trusting her. Her approach has been that of the classical populist who puts personal appeal above content. Merkel has been softspoken but who turns up the volume and speeds up the recording hears mainly shrill sounds without content. For that reason the civilized world should hope that the non-CDU/CSU majority in the German Parliament blocks her continuation on the European stage.

There is electoral chaos in Europe anyway. The UK has a disastrous district system that runs counter to proportional representation – see here. France has a separate election of its President, in a failing system with two rounds, that runs counter to the Parliamentary system with a proper choice of a Premier – see here. In Italy, the largest party automatically gets at least 55% of the seats. In Greece the largest party gets a bonus of 50 seats. These are all tricks out of fear for other voices and out of fear for the inability to co-operate. The democratic approach is to grow up, listen to other voices, and learn to co-operate. An important reason is also that mathematicians have been destroying voting theory because of their lack of understanding of democracy and of empirical issues in general. See my book Voting Theory for Democracy.

Writing a weblog is fairly easy. You watch some television and internet sites, the subconscious mind creates a text and suddenly (after a night’s sleep) your conscious mind observes that you are creating a new weblog entry. Wow. You only have to edit it, that is the hard work.

Today, September 22 2013, Germany has its vote on parliament. Maybrit Illner, in her broadcast “Kampf ums Kanzlerambt” of last Thursday, presented us with the options. Invited were only political observers and not the politicians themselves, which helped, since otherwise each would have to speak about “mein Kampf”. Somehow, the language doesn’t quite survive WW II. I am happy to understand German fairly well and speak it at kindergarten level, and when I meet Germans they are the kindest people, but it still remains the best option that they all switch to English – also adopting the English sense of humour (see the Heute Show).

Most of Maybrit’s guest were people of Angela Merkel’s and my age (1954). An exception was Andrea Hanna Hünniger (1984). Andrea has a background in Eastern Germany like Angela Merkel too. I hope that both will get to understand the economics of integrating the DDR into Germany. The way how East Germany was treated back then compares to how Greece, Spain and Portugal are treated now – accept that Germany doesn’t want to carry the burden now. Southern Europeans may be people but aren’t “German”. East Germany still isn’t performing economically as it should, but they are still “German”. Perhaps “German” means “having a different sense of humour”.

Andrea herself is a pretty tough lady too. The parties do not represent her and thus she does not vote. It is said that perhaps 35% if the Germans are undecided. The new party AfD still struggles to get 5% of the vote which is curious given the earlier report on euro-scepticism. The major parties CDU/CSU, SPD and FDP succeed in rocking German voters asleep, including Andrea, whose toughness is limited to a fairly short horizon.

In my analysis on (optimal) democracy, there would be no barrier of 5% and all major parties would be represented in the executive. Thus there would always be a coalition government. Each party would have a chance at trying to get a proposal passed by parliament. Thus the German discussion about what coalition would rule is misconceived too. Europe suffers from weak democracies that exclude the opposition from government.

A few hundred kilometers in the South, there is Greece. I chanced on a youtube page on an old concert by Charis Alexiou. This is back from the times when the Greek were happy merely by singing and dancing, and didn’t insist on euro subsidies. The recording is crummy, most importantly in the music too. You have to allow that it grows onto you. You see Greek dancing the sirtaki on their chairs. Now you understand why they hold on to each other: so that they don’t fall. You see little children still awake at this late hour, learning how to snap their fingers. You see people in the background, seemingly hanging in the air but actually on a hillside having come in to listen. There are women singing, knowing the songs as well as Charis. There are policemen sternly watching for un-Greek behaviour. You see the violin player leading the band, looking stern and aloof to make sure that his violin does not take over. You endure the hardship of  a bad recording. Finally, at minute 51, enchantment takes over. There is magic, full colour and 3D, you’re there, perhaps 35 years ago, one with Charis and her crowd. It lasts till the song ends. The mind struggles with the reality of the crummy recording and the language that it just learned of translating it. There are the two singing sisters and the women in the audience that take control. Then at 1.18 Charis discovers the power of the tambourine again and reigns supreme again.

The Greek seem locked up in their country now but should be all over Europe, singing and dancing: “We are people too, remember ?”

My Finnish correspondent reports:

It was interesting to read on Dijsselbloem and your views on the problem. It seems that we have a most awkward situation with our present government: they are afraid to make any meaningful or significant move to stop the economic free fall. We have a coalition government made of six parties and they have all made promises at last elections (not to increase pension age, taxes or cut services). Our national budget is 55 Bn euros and we are borrowing 9 Bn to cover expenditure! It is an impossible formula as 24% of our industrial companies are making a loss at the moment. Can’t devalue any more and industries are not investing in Finland. We are on the road to a Greek crisis…

The correspondent wrote this on August 27 and on August 30 Bloomberg reported that the six party coalition had reached an agreement w.r.t. the ageing society and pensions by 2017: 

“Finland is at a crossroads,” Finance Minister Jutta Urpilainen said yesterday. “Either we let the welfare society wither or we defend it decisively.”

Finland is in dire straights indeed. The Bank of Finland wrote in March about a recession of -0.2 in 2012 and -0.8 in 2013, but Statistics Finland recently revised the figure for 2012 downwards to -0.8 too. (PM. The budget size of 55 bn can be found in the National Accounts p93 code P1R.)

The EU budget czar Olli Rehn comes from Finland. He has been given the job to warrant budget austerity, with the rationale that this is required for Southern Europe with values above 80% Debt to GDP and hence also for Northern Europe with values below 80% Debt to GDP. He exerts that job with stout Finnish determination.

I would advise him however to consider Finnish unemployment.

Finnish unemployment rate and trend. (Source: Statistics Finland)

The crisis added at least 2% unemployment on average. The increase apparently was caused more by external events rather than internal (“Greek”) events. The proper reponse then would be to invest to get unemployment down again. See my earlier texts about national investment banks. A larger deficit could be accepted if the funds are invested into higher productivity and more internal employment to counter the adverse external shock. Now Finland seems to have the worse: borrowing that goes into consumption plus a persistent higher unemployment.

Olli Rehn apparently has studied some economics but is not a fully trained economist. It is difficult to argue economics with someone with that background. But perhaps the problems in his own backyard help him to turn around. Then, of course, he still has to face up to the misconceptions of Angela Merkel and Jeroen Dijsselbloem

Olli Rehn (right) and Jeroen Dijsselbloem (left). (Source: EU Council Eurozone)

I have always wondered where the Scottish Enlightenment with e.g. David Hume (1711-1776), Adam Smith (1723-1790) and Thomas Reid (1710-1796) came from. It appeared suddenly, like dropping from the sky. It appeared where you would not expect it, on the rough borders of the European civilized world, and then became its beacon of light.

This weblog concerns political economy and thus is rooted in a deep appreciation for Adam Smith. But where did Adam Smith come from ? We would better understand him when we also understood his roots.

I now just read Arthur Herman (2001), How the Scots invented the modern world. The true story of how Western Europe’s poorest nation created our world & everything in it. Herman finally answers that tantalizing question. A good review of Herman’s book is at the Guardian.

It was John Knox (c. 1514-1572) who brought Protestantism to Scotland in an iconoclast revolution. A first element is that the bishops (episcopalism) were evicted and that the church parishes were ruled by the elders (presbyterians), which introduced a form of democracy. A second element is the creation of free grammar schools in all parishes so that the children would learn to read the Bible. The children were also taught to write, and once they were able to write: there you have it.

Knox seems to have made a logical error. In order to read the Bible there is no need to be able to write, since it already has been written. Nowadays we don’t make that error. We teach our children to use computer programs and we teach only the happy few how to program computers. The scope for revolution in our age thus is limited. See my book on math education: Elegance with Substance (2009).

John Knox did not appear from a vacuum. It helps to be aware that Knox was trained by John Major (1467–1550) and that the Scots already had an early famous scolar in Duns Scotus (c. 1266-1308). The Scottish dislike of England caused a stronger link with Paris and the universities there. Knox was in Paris and met Calvin (1509-1564).

The Knox process is similar to the impact of Geert Groote (1340-1384) in Holland. He also started teaching people to read and write, though still by hand without the printing press of Johannes Gutenberg (c. 1395 – 1468). Groote managed to create an entire book industry, and thus helped to create the demand for the Gutenberg technique. That story is told by a recent CPB-study by Bas ter Weel, Semih Akcomak and Dinand Webbink (2013) Why Did the Netherlands Develop so Early? The Legacy of the Brethren of the Common Life.

Ter Weel e.a. claim that Groote had an impact on the modern school system, while Arthur Herman has this claim for the Scots. One supposes that there will be more influences. When the Edinburgh School of Medicine was created, their professors were chosen from Scots who had studied in Leiden under Herman Boerhaave (1668-1738) who again had been influenced by the empirical approach of Isaac Newton (1642–1727).

Arthur Herman concentrates on the influence of the Scots and tends to neglect the impact of other peoples on the creation of the modern world. This is okay for whom is interested in the onset of the Scottish Enlightenment and the influence of the Scots on later events. The book contains some hundred Scots who all have interesting biographies so that the book makes a wonderful read. One of them is Andrew Carnegie, whom we already met in the Peace Palace Centenary.

We also discussed the Glorious Revolution of 1688 with William & Mary. What basically happened is that the center of gravity of the Dutch Empire moved from Amsterdam to London and took the cloak of the British Empire. The geographical unit of Holland lacked the manpower and natural resources. Its sea-faring power was not equipped for an extension over land towards Germany (and Hanover). The Dutch conquest of England provided their next phase onto a World Empire. Arthur Herman tells the story that the Scots started running most of that British Empire, but he doesn’t mention that the Dutch already reduced the influence of the Anglo-Saxons and were open to other protestants who could do a better job.The situation would have been entirely different if the Anglo-Saxon noblity could have had a chance to hold on to their own power and biases against the Scottish startups.  

Arthur Herman is a visiting fellow at the American Enterprise Institute and speaks out in favour of supply side economics instead of vulgar “Keynesian” demand economics, see his short 2012 article. While I enjoy his book on the Scots I must observe that he is less at home in economics. This is no severe criticism since it appears that most economists don’t yet get it either. See my explanation that the Ronald Reagan “supply economics” actually amounted to a lot of “demand economics”. I agree with Arthur Herman that we should target at zero inflation with a bias to deflation so that productivity gains directly translate into an increase in welfare. But it takes an Economic Supreme Court to manage this while maintaining full employment.

The Arthur Herman book is a fun read since it also contains much of human folly. It is amazing how human sentiments change as the winds change, even in Scotland. From the Middle Ages to the Scottish Enligtenment to the development of the USA and the British Empire: there is much to think over about human wickedness and contrariness. This brings us also to the Scottish National Party (SNP) and their current plea for Scottish Independence.

The onslaught of stagflation since 1970 also caused the Thatcher years and the devastation of the economy in Scotland and North England. The UK Labour Party, aptly labelled by Keynes as “the party of catastrophy”, didn’t have an answer to stagflation and Margaret Thatcher. That answer can be found in my book DRGTPE. Thatcher was right on some points of Adam Smith but still lacked the full analysis. Lacking a good answer by Labour too, the SNP rose in membership and votes, with the simple answer that independence would solve matters. In a way they were right that Thatcher would have less chance in Scotland that leans to the left. (On the UK electoral system with voting districts, see this paper.)

The situation causes a conundrum. With DRGTPE the need for Scottish independence would fall away, since the whole UK would have full employment. The Scots would also appreciate many of the English investments in co-operation, such as the Caledonian Canal completed in 1822. Thus there are arguments to maintain the Union. On the other hand, there is the Heineken Eurotopia map, that grants independence to various smaller regions in Europe that have a unique base in history. See also this earlier weblog entry on some pro’s and con’s on Scottish independence. Overall I tend to advise smaller democratic units within the overall European Union, which EU concentrates on economic co-operation rather than “integration”.

It is nice to see how so many things hang together.


Arthur Herman reports that many Scots joined the Whig party, and when in London would meet at Holland House. That house’s name derives from an English region in Lincolnshire that is called Holland too. The name of the Dutch country derives from “Hout-land” (German “Holz-land”, English “Wood-land”). On the Lincolnshire region, Wikipedia explains: “Holland in England means “land of the hill spurs”, although hill spurs are hardly obvious.” The etymology is unclear too. There still might be some common source. I recall that someone told me that the fishermen living along the coast of the North Sea had a common language and also intermarried, from Holland to Denmark to Norway, England and Scotland. But I cannot find a source for that now. Wikipedia has a bit on Ingvaeonic languages but the map does not show the UK. The Wikipedia list of languages along the North Sea doesn’t mention a separate sea shore dialect. A book by Bill Griffiths ‘Fishing and Folk: Life and Dialect on the North Sea Coast‘ only considers the UK coast.

After President Obama announced to the Nation and the World “Let me make something clear: the United States military doesn’t do pinpricks” – see the White House text – I went over to the NSA and spoke with Colonel George Dapper of the Secret Pinprick Division.

Me: “The President says that you don’t exist. Or he may mean that if you would exist then you don’t do anything. But I saw you the other day visiting the President on Martha’s Vineyard. What is happening here ?”

Col GD: “Of course the President has to say that. We are a Secret Division, hence he cannot speak about us, or has to deny that we exist or do anything. You have never heard about ‘plausible deniability’ ?”

Me: “I recall a confusing discussion about that.”

Col GD: “But let us discuss our activities in the abstract. Like Galileo was allowed to discuss that the Earth moves around the Sun but only hypothetically.”

Me: “I love a hypothetical discussion that helps me avoid ending up on burning stack of pins. So what does your Division do, hypothetically speaking, that is ?”

Col GD: “We are the most important and most underrated Division in the NSA, Pentagon and CIA. Those other agencies cannot do anything before we have charted the terrain and made first contact. It is only after we are finished and when it appears that the target needs more prodding, that they are allowed to step in and bomb the target.”

 Me: “Ah, you must be the most cost-saving division ! You prevent that we have to spend millions of dollars on bombs on targets that are no good anyway.”

Col GD: “In a way that is true. Where-ever you don’t see a bomb, there we have been successful in preventing its being dropped. In practice it is more complicated. Pinpricking appears to be a very expensive activity. Our operatives are highly trained and thus earn top dollar. The Defence budget could save a lot of money if we just bombed everyone and forgot about the preliminary pinpricking phase.”

“Let me explain about the training. You must hold your pin steady and not let go. It is all too tempting to stick it into the target and leave it there, but this would give the wrong message that you don’t care about the pin and its pricking. The very purpose of the pinprick is to prove that you do care ! Hence you hold on to it, till the target notices that you are there, holding on to your pin. The delicate movement then is to extract the pin, hover for a moment, and then prick again ! And again, if necessary. The objective is to make the target aware that it is a target, so that it knows that it has been chosen by the most powerful nation in the world to be pinpricked.”

“You hold on to your pin also because you don’t want to lose it. Our operatives are trained to keep track of their pins. Those are colour coded so that it’s easy to see when one would be missing. If one is lost, it may be the proverbial needle in the haystack to recover it. We cannot have the pins just laying around. Before you know some other country or even a terrorist group gets hold of a pin, and then this awful weapon is turned against the USA itself. Our operatives are trained to guard their pins with their life. Most of the US Navy operations around the world have actually the purpose to protect our operatives and their pins, so that those do not fall into enemy hands.”

“It is also a dynamic situation. The target moves. People tend to think of a pin cushion that just lays there and that is easy to pinprick. In reality, targets are aware of what might be coming to them and tend to move about. There will also be third party enemies or even allies who have their own objectives and try to pinprick the target too. There is no way to predict what a target may do when various of the world’s secret pinpricking agencies are on its trail. This causes most of our counter-intelligence.”

“In training, our operatives also learn to hold the pin in the right direction, so that they don’t prick themselves inadvertently. This might seem obvious, but other Divisions at NSA, Pentagon and CIA have often forgotten about this, and have started operations that have severely hurt mostly the USA itself.”

Me: “I see that I have severely misunderestimated the importance of the US pinpricking activity. I am glad of having you around, hypothetically speaking, that is. It would be horrible if the World and all our enemies out there, if not our allies, would discover what we have been doing to them all these years.”

“Still, I am a bit worried about the President’s choice of words. He actually blowed the whistle on this, and he will be in serious trouble if the US military actually has to do a pinprick. Would it not have been wiser to leave this comment out of his speech entirely ?”

Col GD: “The White House has come around and agrees that this shouldn’t have happened. We just got notice that the speech writer has voluntarily signed up for our training and target practice. As a target, that is.”