Core argument

A 1998 text of mine for the general public is:

Will the West repeat Versailles ?

My suggestion is that you read it again, and ponder the question: What you did not understand back then ?

Clearly, the West has repeated Versailles. It has been treating Russia in such a way that we see resentment there. After the fall of the USSR the West should have opted for proper economic policy, but no, our misguided governments chose for a repeat of Versailles.

If you don’t know what resentment is, check Tichon Dzyadko in The New Republic: Putin Is Using WWII for Propaganda Because It’s the Best Memory That Russia Has (but you may have to practice your grasp of Russian jokes).

My current proposition is to start boycotting Holland. Doesn’t this makes sense too ?

PM. In 1996 and 1998 I wrote three short texts for the general public, which summarize the results of my new economic analysis DRGTPE, while the latter is intended for fellow economists. The text of Versailles is one of these, and it refers to four other papers:

For the general public (including economists):

(1) Unemployment Solved ! A breakthrough in economics (1996)
(2)  Enable Russia to help itself (1996)

For economists:

(3) Unemployment Solved: An answer to Krugman, Phelps, Ormerod and Heilbroner (1997) but see DRGTPE (2011) for the editted chapter
(4) The dynamic marginal tax rate (1997) but see DRGTPE for the editted chapter.

The summary of this weblog has already been given in the About menu plus the earlier post Cause and Cure of the Crisis. Now there is a Video as well, see above menu.

The sound recording isn’t that good yet but I am learning how to use the software. My speech speed is rather slow, it doesn’t have the pitch as e.g. is common on TED or with some journalists. You can run the video at a higher speed up to getting me quacking like a duck and approximate that TED idea.

My thanks go to YouTube, Microsoft Expression Encoder and Afsbinwin of in particular for the present result. I also learned from the software of Diego Uscanga of aTube Catcher and the Audacity team for sound editting, and the Media Player Codec Pack, and WinFF (GUI) for converting MWV into MPEG4. It seems that MsEE allows edits and encodings to MWV that are okay for Ms Media Player but that can get stuck in YouTube Processing, so that you can wait for days for something to happen. FFmpeg / WinFF indeed render errors on timestamp ordering in such a MWV file. Repacking that MWV into ASF with Afsbinwin apparently removes such errors, and YouTube Processing accepts the file. The cost is, however, that the sound turns bad at particular places where there has been an edit (not all). This audio drop happens at the same spots both in Asfbinwin and in the conversion from MWV to MPEG4, so I presume that the main problem lies in MsEE indeed. Perhaps Bill Gates can look into this.

While I was waiting for YouTube Processing, I had the chance to look at some videos of “the competition”. YouTube noticed that I was interested in the crisis and thus it presented me with recordings of George Soros, Jim Rogers, Peter Schiff, Richard Duncan, and so on, with various doom scenarios of world economic collapse. Especially the ticking National Debt time bombs draw attention. Deacon Swayne of the British magazine MoneyWeek has a 47 minutes “documentary” on The debt time bomb that is Britain. Though much of that “documentary” is accurate, it turns out to be a long commercial advising you to rely on MoneyWeek. My suggestion is that you watch my Video and check how much is explained of the crisis.

It cannot be denied that Soros, Rogers, Schiff, Duncan, Swayne and others, with their state of knowledge, point to relevant angles in world developments. But they lack the synthesis in economic theory that is presented here. In the same manner, governments study the various scenarios of world development. Their vested interest is to enhance stability rather than scare mongering. You wouldn’t like it when Angela Merkel had a broadcast every week like Peter Schiff about her ideas about the impending world collapse and how everyone should work hard and save for the future. Nevertheless, these governments also lack the proper knowledge, due to the censorship of economic science by the Dutch government (that doesn’t know what it is censoring).

I did enjoy the video by Bill Still on the Wizard of Oz. I knew from years back that the “Yellow Brick Road” was a reference to the gold standard, and so on, but Bill fills in historical details. It is also a serious issue whether money is in control by the state or by private banks, see my paper Money as gold versus money as water (2013). It is a no-brainer that money better be controlled by a democratic government.

It is a logical mismatch when the supply of money is associated with a rate of interest. If a private central bank with a monopoly on money creates a supply of 100 bn dollars in paper bills for use by the general public, and this supply is returned by the public to the bank at the end of the year, then it is physically impossible that the public can also pay an additional 5% rate of interest in terms of said paper bills, since all 100 bn dollars in paper bills have already been returned. It gives curious psychological power to such a bank to demand that the 5% interest is paid in terms of its own bills, though everyone should start laughing that the bank demands bills that it hasn’t issued itself. The current arrangements for the US Federal Reserve and the Bank of England suggest that there is private profit taking at the expense of those governments for no good reason (except lack of economic understanding in parliaments).

But it is incorrect when Bill Still suggests that issuance of money by the government means that there will be no National Debt. It is still possible that the government borrows from the public and builds up debt. It is advisable that the government does so, since e.g. pensioners would want a secure investment. That the current National Debts are excessive, is another story, see my Video.

Robert Skidelsky (1980), The reception of the Keynesian Revolution, p89-107 in Milo Keynes (ed) (1980), Essays on John Maynard Keynes, CUP, poses a key question on his opening page 89 and provides what I consider the key answer on page 104.

Skidelsky, parts of pages 98 and 104

The Trias Politica model of democracy fails. A system that relies on war to resolve issues of economic theory is a sick system.

Without war the ideas in this weblog might not be listened to. Europe has started a long period of open stagflation, while the risks of (civil) war are rising. With war, key agents with their ‘normal politics’ might be replaced, and then the ideas in this weblog might be listened to.

Hopefully Angela Merkel will admit after the elections of September 22 that she has been deceiving the voters. Hopefully she will admit later on that she opts for a United States of the Eurozone, that can levy additional taxes on Germany to pay for the problems in the South. Alternatively, by some freak accident of honest reporting in the German media, German voters discover her deception before the election day, and then run to the social democratic SPD that has no solution either, or the new party Alternative für Deutschland that wants to break up the euro and thus will cause such taxes right away anyhow.

See my Economic Plan for Europe elsewhere for a sensible middle road solution. See the About page for the links to the underlying theory. 

PM 1. Skidelsky now opts for a basic income but I see no economic need for that. The mixed economy by itself is able to restore full employment.

PM 2. The German speaking world has a weblog Ökonomenstimme for public discussion by professional economists. I submitted the following text but did not receive a response. I presume that my German is not so well but the text is short and an editor might quickly repair errors. The message would be relevant enough to publish it for public discussion.

Bundestagwahl 2013 und Boycott Holland

Thomas Colignatus
August 24, 2013

JEL A1, E0, P16

Die Wahl zum Deutschen Bundestag am 22. September 2013 mangelt an tüchtige Information und Debatte über den euro, den Währungsunion, den Zukunft Europas und die Steuern die damit kommen.

Es stimmt dass z.B. das Handelsblatt publiziert über den “DeutschlandDuell“, 22. August, zwischen AfD-Chef Lucke und CDU-Finanzexperte Brinkhaus.

Doch es gibt auch ein neu-Theorie für den Optimalen Währungsraum, verfügbar hier am Münchener Working Paper Archive April 2013 und peer-publiziert hier in den Real-World Economics Review Juli 2013.

Der Kern betrifft ein Wirtschafts Oberstes Gericht (Economic Supreme Court) pro Nation in den Währungsunion. Es gibt keine Weitergabe der nationalen Souveränität nach Brüssel. Es gibt aber eine stärkere Überwachung durch eigenen wirtschaftlichen Wissenschaftler. Schuldenbremse sind zweifelhaft da Nationen auch investionen erfordern, und zwar anti-zyklisch.

Die Theorie über den Wirtschafts Oberstes Gericht gibts es länger. Sie wurde lanciert in 1990-1994 für die allgemeine Anwendung auf makroökonomische Politik. Sie ist aber die Zensur der Wissenschaft unterworfen von der Direktion der niederländischen Centraal Planbureau (CPB). Seit 2004 rate ich zu einem Boykott von Holland bis die Zensur aufgehoben ist. Sehen Sie auf der Website


Eurogroup president Jeroen Dijsselbloem is not a macro-economist. By training he is an agricultural economist (Wikipedia). He will rely on macro-economists and judge their advice by economic common sense. That common sense may however also be influenced by traditional mercantilist ideas that exports will earn us gold and make us rich. There is also the success of Dutch agricultural exports that may cloud his judgement.

His recent letter of June 19 to Dutch Parliament about the budget deliberations for 2014 contains this key statement (p3):

“Holland is in a so-called debt-recession. (…) The usual pattern of economic recovery in Holland (rising exports, rising investments, rising consumption) is slowed down by the type of crisis.”  (In Dutch gibberish: “Nederland bevindt zich in een zogenoemde balansrecessie. (…) Het gebruikelijke patroon van economisch herstel in Nederland (export trekt aan, investeringen groeien en particuliere consumptie neemt toe) komt door de aard van de crisis langzamer tot stand.”)

But the export surplus in 2013 is about 10% of GDP, see the CPB Central Economic Plan.

The Dutch surplus contributes to the deficits of Soutern Europe. The huge Dutch surplus is part of the European problem. Christine Lagarde of IMF shouldn’t send a team only to Greece but also to Holland, to sternly explain that the situation is intolerable and that Holland should work towards a balance (notably by importing more).

Yes, there is a debt crisis. If you insist on recovery via exports then recovery will be slow. But the debt crisis does not prevent you from tackling the export surplus. Full employment can be restored at home, by proper internal measures.

Dijsselbloem gets his advice from macro-economists who have been emphasizing exports since 1970. The Dutch system of social security creates a huge unemployment on the home market. The Dutch solve this by lower wages and relying on exports. The Dutch have been exporting their unemployment since 1970.

See my 1996 paper on the exposed and sheltered sectors, at EconPapers or a local file with graphs. It is also a chapter in DRGTPE and an update is in CSBH.

The Eurozone group has a president who is one of the key creators of the problems that they discuss, though sadly enough they aren’t aware of this. (That is, they may think that he causes other problems.)

Eurogroup March 15 2013, Schauble, Lagarde, Dijsselbloem (Source: EU Council)

There are at least two “Earth Economics” websites.

The first website is an off-shoot of Herman Daly‘s research in ecological economics, see here. Quote: “Earth Economics provides robust, science-based, ecologically sound economic analysis, policy recommendations and tools to positively transform regional, national and international economics, and asset accounting systems.” However, they neglect the work of Dutch economist Roefie Hueting on how to account for the environment in the UN System of National Accounts. The Daly-Cobb Index of Sustainable Economic Welfare (ISEW) allows one to substitute home maintenance for the destruction of the ecology, which is silly. Hueting’s index of environmentally Sustainable National Income (eSNI) is the only index in the world that is properly based both in economic theory and statistical practice. See my paper The Old Man and the SNI.

The second website concerns the new economics textbook Earth Economics by Peter van Bergeijk of the Institute of Social Studies (ISS) in The Hague. The ISS gets its students from all over the world and thus it seems warranted that it pays attention to the world itself. This is a YouTube presentation by Peter explaining that the world is a closed economy and that there is emergent world governance perhaps as we see emergent stability in chaotic systems. Paraphrased: “We see governments all applying the same economic policy (of austerity) and thus the effect is similar to how there would be only one government following that policy.” See also a summary at Edward Elgar’s blog and this longer paper at SSRN.

I tend to enjoy Peter’s work in economics. Peter is open to the importance of the arts, and not only since he paints himself. His Ph.D. thesis (now here) had the important conclusion that economic boycotts are counterproductive. The power elites have the power to insulate themselves and only the weak general population suffers, while it also loses the ability to oppose the power elites. A better policy is to integrate troublesome countries in the world economy such that the internal countervailing powers generate moderation. The only reason that I still dare to advise to a boycott of Holland is that Holland is a wealthy country where a boycott would still achieve the desired outcome, i.e. the end of censorship of science.

It is wonderful that Peter now focusses on world governance. In the past Jan Tinbergen already focussed on this but the subject has been slipping from attention, even though we have the ecological crisis of which climate change is only an aspect. (The two websites are linked, if not by HTML then by content.)

I have some misgivings however.

(1) Peter states that he introduces the global dimension because he wanted to teach about an existing closed economy. This is convoluted. We don’t have a world government thus the world isn’t an existing closed economy in the sense of the Keynesian model. In common definitions we still have countries that trade. In the Edgeworth box the boundary conditions of world resources are given, so there is no need to switch to a closed economy model.

(2) My book DRGTPE also discusses world governance and suggests that this will be improved when countries have their own national Economic Supreme Courts (ESCs). In my analysis economic theory is important as an own separate factor in policy making and thus it requires special protection. That countries nowadays tend to follow the same policy (of austerity) is not a sign of convincing economic science but a consequence of unscientific processes. 

(3) My paper Money as gold versus money as water (RWER July 2013) gives an amendment on the theory of the optimal currency area and suggest that ESCs are the route also for the euro and world money.

(4) My 2005 paper on a World Parliament suggested that people can already start on creating such a parliament as an NGO, by setting up world political parties, holding elections, having parliamentary meetings, and paying voluntary (tax) contributions. Eventually such a parliament might develop some countervailing power to the UN setup. The European Union might be a bad example how countries could co-operate but we could all learn from the experience.

Peter’s book suffers from neglecting DRGTPE. I told him a decade ago about the censorship of science by the directorate of the CPB but he has been neglecting it. Students from all over the world come to The Hague to learn about economic science and “Earth Economics” but aren’t given science and aren’t told about the key results.

Sic transit gloria mundi.

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 to

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)

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

Subject: Your visit to Holland on June 19 & the crisis & the tax credit fraud in Holland

Dear professor Krugman and professor Van der Ploeg,

I sent prof. Krugman an earlier email for his visit to Holland on June 19, that is available here:

It so happens that last week had a discussion in Dutch Parliament on frauds with tax credits. As economists we are all aware that the tax credit is an important instrument for employment. We also see that Holland and Germany have a related low wage policy with structural surplusses on the external account that aggravate the problems in the Eurozone.

This present situation caused me to write this paper: Economics as victim between lawyers and mathematics: An explanation for the tax credit, Bulgarian potential fraud, European unemployment and the economic crisis. It is available here:

I write to prof. Rick van der Ploeg now at Oxford since he was assistant minister of culture and member of the Dutch kabinet in 1998 when the tax credit was introduced in Holland. In a discussion on the tax credit he stated that I was right theoretically but not practically. Van der Ploeg did not want to clarify this back then. Now that we see mass unemployment not only in Holland but also with the economic crisis all over the world, and now that we see this massive tax credit fraud in Holland, perhaps I can ask again what he means by that phrase.

I copy to some other people since the issue is quite important. A key question is whether Jeroen Dijsselbloem understands the issue. It is his Treasury that deliberately lied in 1998 and that would have to make amends now in 2013. It is the common problem in the OECD with the tax void masked by the tax credit that is key to understanding the Great Stagflation since 1970 and to start solving the present economic crisis.

Since prof. Krugman stated (a while ago) that he wasn’t quite at home in tax theory, I have written above paper such that it should be understandable for a wider audience.

For the context for Dutch readers, I copy below an earlier email in Dutch to prof. Van der Ploeg, parliamentarian Helma Nepperus and the editors of the national television NOS. I might copy another earlier email to Ruud de Mooij, tax specialist now at IMF, but I suppose I already sent enough to read.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scheveningen Holland

Date: Sun, 19 May 2013
Cc: whitebirdbv, Olivier Blanchard, Martin Wolf, Peter Bofinger, James Galbraith, Robert Skidelsky, Mark Thoma, Sandra Phlippen, Charles Groenhuisen, Sweder van Wijnbergen, Bas Jacobs, Alfred Kleinknecht, Ruud de Mooij, Helma Nepperus, NOS, and some others