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Economic crisis

On November 5, Thomas Piketty will inform Dutch Parliament in The Hague and then continue to Amsterdam for the evening. While he is busy in The Hague – and likely will be grilled on the French economy – there will be a small symposium on inequality at the University of Amsterdam so that the students are prepared for the evening. Then in the evening Piketty will be interviewed by Joris Luyendijk (Dutch, The Guardian), who we can see already praising Tomas Sedlacek and his book on the economics of good and evil in this video from Belgium.

For some curious reason – probably to exploit the library budgets – there will also be a Dutch translation of Piketty’s book on October 30, even though it is a scientific book and English is the language of science. But, rationality and consistency are hard to maintain in an international hype. Also, for Dutch translators it is easier to translate from English to Dutch than to translate from Dutch to English. Translators paradoxically are a major cause for maintaining the Dutch language sinkhole.

My objection is that Piketty’s bookcase doesn’t have copies of my books DRGTPE and CSBH.

Thomas Piketty in Amsterdam 2014-11-05, Announcement (Source: Screenshot Paradiso)

Thomas Piketty in Amsterdam 2014-11-05, Announcement (Source: Screenshot Paradiso)

Overall, I seem to be one of the few economists who hasn’t read Piketty’s book yet. I intend to keep it so, not for lack of interest but because of lack of logical necessity. Piketty’s summary does not indicate that it is essential reading unless you are involved in economic statistics.

There are two papers w.r.t. Piketty’s work that I can recommend:

  • James K. Galbraith, Unpacking the first fundamental law, RWER 69download pdf
  • David Colander,  Piketty’s policy proposals: How to effectively redistribute incomeRWER 69, download pdf

I am happy to observe that inequality was large before 1900 and that labour unions, mass education and the welfare state contributed to a much more equal society. The economic analyses of Keynes (1883-1946) and Tinbergen (1903-1994) provided a framework such that natural human desires for democracy and social care could be combined with sensible economic policy. The problem is that this fortunate combination broke down since 1970. The explanation is provided in these sources:

Unfortunately, Holland appears to be a rather sick country that doesn’t mind censorship of economic science.

In that symposium at the University of Amsterdam there is econometrician David Hollanders, who in 2004 wrote a curiously convoluted analysis on the ‘death of politics because of the technocracy by said CPB’, but it may be that he also asserted the opposite because his analysis is rather inconsistent. Hollanders rejected to look into the censorship at the CPB. The magazine De Groene that published his convoluted article did not print my protest against his gibberish, see this 2004 protest here, and see also my 2012 protest against the Dutch “young Turks” who are so-called critical but who are intellectually lazy (and, indeed, try to find a translator for these Dutch texts). Fact-checking De Groene, we find that they put Thomas Piketty on their cover twice. Apparently they will use anything that sells, hypes included.

That symposium is also organised by AMCIS, and one click away is AIAS where we find professor Paul de Beer, who we discussed before on the basic income issue. Holland remains a small country.

My own work that relates to inequality, apart from full employment:

Thomas Piketty twice on the cover of De Groene (Source: website screenshot)

Thomas Piketty twice on the cover of De Groene (Source: website screenshot)

 

Tomáš Sedláček (1977) (henceforth without accents) will be giving the 32nd Van der Leeuw lecture in Groningen, November 7 2014. The title of the lecture isEconomics as an Unorchestrated Orchestrator“. This reminds of Adam Smith’s Invisible Hand or modern-day recourse to The Great Divinator of “the financial markets”. Since the lecture is held in the Groninger Martini church the religious notion that God himself creates order comes to mind as well. In this RSA video Sedlacek refers to economics as the modern religion indeed. However, his lecture in Groningen will be refereed only by professor Barbara Baarsma (1969), CEO of SEO in Amsterdam.

Actually, the Foundation that organizes the lecture has as its main purpose to use that church for other cultural or social events rather than the dwindling religious services. Especially when the heating costs in November must be bridged before the uptake around Christmas, it is useful to organise some event to get people into the building. Since the building concerns a church, they found a theologian to name the lecture series after, even though Gerardus van der Leeuw (1890-1950) isn’t so remarkable compared to other Groningers Daniel Bernoulli (mathematician), Johan Huizinga (historian), Heike Kamerlingh Onnes (discoverer of superconductivity) or Hendrik Willem Mesdag (painter). Every human being is important and should be remembered however, so we can only hope that more cities take the opportunity to dedicate their lectures to those who are in danger of being forgotten especially when the weather turns cold.

Announcement 32nd Van der Leeuw Lezing (Source: screenshot website)

Announcement 32nd Van der Leeuw Lezing (Source: screenshot website)

That Sedlacek gives the lecture fits the confusion of location and purpose. Sedlacek does history and philosophy but uses the label of economics. Listeners in a church and partaking in a non-religious event should not mind another and lesser distortion. Unless we have returned to the historical situation that everything is religion anyway.

Sedlacek is known internationally for his 2011 book Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street, see this review by Samuel Brittan in the FT. The book is his thesis that was rejected by the Charles University, and his website mentions that he is still registered there as a Ph.D. student. I haven’t read that book but have read some reviews and watched also this video recorded in Amsterdam June 11 2013.

I know about Evil, since I wrote about the pure evil of the basic income. I know about Good since I wrote The simple mathematics of Jesus (2012). I know about Economics, see the About page. I still don’t know whether Sedlacek’s book is good or evil but it doesn’t look like economics to me, whatever Deirdre McCloskey says about it. A term used is “meta-economics” but that might be comparable to sociology perhaps. I settle for “history and philosophy while trying to focus on economic thought”.

The publisher “describes” the book as:

“Tomas Sedlacek has shaken the study of economics as few ever have. Named one of the “Young Guns” and one of the “five hot minds in economics” by the Yale Economic Review, he serves on the National Economic Council in Prague, where his provocative writing has achieved bestseller status. How has he done it? By arguing a simple, almost heretical proposition: economics is ultimately about good and evil.

[Comment by TC: Surely, since economics is not about good and evil, it is ground-shaking to turn economics into theology indeed. Doing so is not heretical but quite fitting in church. It is quite a miracle: to be at an economics department, stop doing economics, but convince other people that you are still doing economics. As people can believe that Jesus walked on water, they can also believe that you are doing economics. The same miracle was performed by mathematicians who said that they were doing economics but in fact continued doing mathematics.]

In The Economics of Good and Evil, Sedlacek radically rethinks his field, challenging our assumptions about the world. Economics is touted as a science, a value-free mathematical inquiry, he writes, but it’s actually a cultural phenomenon, a product of our civilization. It began within philosophy–Adam Smith himself not only wrote The Wealth of Nations, but also The Theory of Moral Sentiments–and economics, as Sedlacek shows, is woven out of history, myth, religion, and ethics.

[Comment by TC: Economics as a science ought to be value-free, but its application is in society and thus its application is immersed in values. Yes, there have been and still are many influences on the development on economic thought, but that does not take away that former distinction.]

“Even the most sophisticated mathematical model,” Sedlacek writes, “is, de facto, a story, a parable, our effort to (rationally) grasp the world around us.”

[Comment by TC: There is nothing new in this, that a mathematical model can be seen as a story or parable – except that it would tend to be consistent and more precise. So what is the point ? Can philosophy be set equal to mathematics, since both are “just stories” ?]

Economics not only describes the world, but establishes normative standards, identifying ideal conditions. Science, he claims, is a system of beliefs to which we are committed. To grasp the beliefs underlying economics, he breaks out of the field’s confines with a tour de force exploration of economic thinking, broadly defined, over the millennia. He ranges from the epic of Gilgamesh and the Old Testament to the emergence of Christianity, from Descartes and Adam Smith to the consumerism in Fight Club. Throughout, he asks searching meta-economic questions: What is the meaning and the point of economics? Can we do ethically all that we can do technically? Does it pay to be good?

[Comment by TC: (1) Economics does not establish normative standards. Economics enlightens such choices. Check e.g. Pareto Optimality: Economic models don’t impose this but elucidate the notion. (2) The latter quoted questions are useful for the talk between an economic scientist and a policy maker. (3) The inner value of economics lies in increased knowledge, as for any science. Like pure number theory in mathematics. (4) The outer value of economics lies in its application. Like using number theory for cryptography for secure bank accounts.]

Placing the wisdom of philosophers and poets over strict mathematical models of human behavior, Sedlacek’s groundbreaking work promises to change the way we calculate economic value.”

[Comment by TC: If philosophers and poets can do without bread and butter, they can be excluded from the economic calculation, and we indeed have something novel. Overall though, economics was developed to get away from those unscientific story-tellers.]

Sedlacek in Dutch VPRO "Tegenlicht" program, June 11 2013 (Source: screenshot)

Sedlacek in Dutch VPRO “Tegenlicht” program, June 11 2013 (Source: screenshot)

Let us conclude with the following points:

  1. Dutch VPRO and professor Baarsma do not report about the censorship of economic science by the directorate of the Dutch Central Planning Bureau since 1990.
  2. Dutch VPRO and professor Baarsma do pay attention to Tomas Sedlacek’s story that isn’t economics and that is at points unscientific.
  3. We can enjoy various points in Sedlacek’s tale. The history of economic thought and its precursors is interesting and it would require a worse author to destroy this. For example the analogy between Christianity and the calculation of sin and redemption is nice. Hopefully he included the invention of Purgatory for the collectors of interest too. But the book should be rewritten before it can be advised.
  4. Check my books DRGTPE and SMOJ referred to above, for the full story on getting an Economic Supreme Court, for a better orchestra.

PM. Since Sedlacek is from the Czech Republic and advised Vaclav Havel, he might take an interest in the point that my analysis in 1990 originated from the Fall of the Berlin Wall in 1989, and was targetted at handling the economic fall out, see this text. The history of Eastern Europe and Russia would have looked quite different when the directorate of the Dutch CPB had respected science – or others in the surrounding had made a correction.

Mathematics professor Edward Frenkel is in a state of denial w.r.t. the reponsibility of mathematicians for the economic crisis since August 2007. I know of only one mathematician by name who warned before the crisis developed, and that is Paul Embrechts of ETH. Compared to him, there were various economists, read Dirk Bezemer on “No one saw this coming” (2009), but see also my protest w.r.t. some self-serving errors by Bezemer (including my irritation that he doesn’t look into my warning, since I am still warning about more things).

“We have to realize the power of mathematics. By now it’s well-understood that the global economic crisis was caused, in part, by misuse of mathematical models. People who understood those models were actually sounding the alarm. It was the executives who had the power, who were the decision-makers, who did not understand how these formulas functioned. Their logic was: “Well, while these things work, we’re making profits.”” (Frenkel in Slate 2013)

Thus, Frenkel denies and misrepresents the role of the mathematicians and “rocket scientists” who “understood those models”.

A key point is that mathematicians are trained for abstraction. Thus, they are oblivious to the risks in the real world, as they are oblivious to the empirical aspects in the education in mathematics. See my book Elegance with Substance (2009) that makes those points, and proves them too, with key cases from didactics and with an analysis of the political economy of the mathematics industry.

These statements by Frenkel are laudable:

“I would not tell any scientist to stop his or her research because it might have some possible evil applications. But once you discover that it does have these applications, I think it’s also your responsibility to do whatever you can to prevent the discovery from being used for evil purposes. [This seems to be formulated somewhat crookedly / TC]

(…) Mathematical power is not the power of a bomb. You cannot see its effect as immediately as Hiroshima and Nagasaki. But a formula can be just as powerful in terms of controlling our lives. It can alter the course of history; it can affect millions of people.

I think we mathematicians are a little bit behind the curve. We are not fully aware of the Frankenstein that we may have already created or could create. I think that’s another aspect of this responsibility of mathematicians to take a more public role—to educate the public by giving them access to the beauty and power of mathematics.” (Frenkel in Slate)

The latter, education, is precisely the answer of Elegance with Substance too. However, Frenkel is not aware of the conundrum: education is an empirical issue, and mathematicians are trained to think abstractly, and thus mathematicians should not the ones to “educate the public”.

Thus professor Edward Frenkel is another deluded and abstract thinking mathematician, who is in denial of the true guilt of mathematics: (a) for the economic crisis, (b) for the sorry state of the education of mathematics, (c) for the sorry state of the education of Edward Frenkel himself.

Obviously, our deluded professor wants the mathematics industry to lift itself from the current morass, as Baron von Münchhausen so famously did. Alas, mathematicians will not be able to do so. They hold society at ransom, just to pursue their own delusions. My advice is that each nation lets its parliament investigate the issue.

Baron von Muenchhausen, by Oskar Herrfurth (Source: wikimedia commons)

Baron von Muenchhausen, by Oskar Herrfurth (Source: wikimedia commons)

The author presents some scientific innovations that meet with unwarranted opposition or neglect by fellow scientists. Local conditions in Holland are relevant since those affect direct communication. Discussion of this case might inspire an overall improvement in politeness and competence. A key insight for readers: it is advisable to ask questions first.

See this 16 page PDF with the full discussion:

After 45 years of unemployment: If Holland had been just a bit nicer and more competent

Consider the problem first in abstract manner and then concretely.

(1) Abstractly: In the advancement of science it happens that researcher A has a new idea and tells researcher B about it. Since B did not launch the idea, and need not quite know what it entails, it is B’s role to ask questions first. Asking questions is not only polite and nice but basically part of scientific competence. The answers to those questions might cause A to retract the idea or B to accept it. It might be that B has been working on the same issue and feels that it isn’t necessary to ask questions. Still, it is useful to verify common grounds. The proper attitude in science thus is to first ask questions, in particular when you do not understand something. When B quickly rejects a new idea as silly, then science gets stuck in the situation that A has developed a new idea and B has developed a vested interest in calling it silly. The situation would be worse when there wouldn’t be a level playing field when A is a junior researcher and B a senior researcher. The idea gets blocked if the fast rejection by B is the standard attitude, or when other person C refers to B as the main source, with possible misrepresentation as to what the idea actually is.

(2) Concretely: The author reports about his experience in doing science in Holland. Holland has the reputation of being tolerant and open-minded but it is better to look at some facts about the country. In the author’s experience researchers in Holland may forget to ask questions and instead jump to rejection when findings contradict some strong convention or deeply held conviction. The maltreatment and scientific incompetence within the Dutch research community means that scientific results get blocked. If Holland had been just a bit nicer and more competent, then those results could have spread easier and the world could have been different.

A key issue is the censorship of economic science since 1990 at the Dutch Central Planning Bureau (CPB). The author advises the world to boycott Holland till the censorship of his scientific work at the CPB is lifted.

The French word for “forget” is “oublier”. An oubliette is a French dungeon in which you are dumped to be forgotten.

Thomas Piketty‘s book on Capital is discussed in the capitals of the world, but this is only because of the English translation. The original French “Le capital au XXIe siecle” of August 2013 received a cold reception by the intellectuals in Paris itself (David Priestland, Guardian May 7, and Peter Vermaas, NRC Handelsblad May 31). Priestland: “Interestingly, in his native France, where readers prefer philosophy and abstraction over numbers and equations, his book has been met with a massive Gallic shrug.”  Please note though that Piketty rejected the mathematical approaches at MIT and returned to France to include historical methods in his work. Thus Piketty is already quite French, but for his compatriots apparently not French enough.

Except for that translation, his work might as well have been dumped in the oubliette that is formed by the French language itself. The French bureaucrats in Brussels may have such low esteem of their native French economists that they apply the art of oublier as well.

Another piece of evidence for this oubliette of French is this: In 2011 Piketty together with Camille Landais and Emmanuel Saez put out a book in French that describes a fiscal revolution with more progressive taxation. The book on Capital mainly forms the statistical base for the earlier policy discussion on taxation. We thus observe a delay of 2011 to 2014 because of the French language drag. The list of titles of earlier publications by Piketty suggests that the drag is even larger. American readers who now regard Piketty as a world star in economics will be wondering how this gem has been hiding so long.

If you recall, there is an economic crisis since 2007. Wouldn’t more progressive taxation on income and capital have helped to restore government finances and economic prospects in the countries of Europe ? Thus the proper question is: Why didn’t France lead Europe in taking this road ? Why did we allow capital flight from Greece instead of having the rich Greek return parts of their gains ? See my earlier text What Greeks do to each other. As Christine Lagarde, now at the IMF, is also mentioned as a potential President of the EU Commission: isn’t she French, isn’t she known from the Lagarde List, and wouldn’t she have known about Piketty’s analysis on inequality and advice on taxation: so why the drag since say 2010 ?

It is conventional wisdom that the bureaucrats in Brussels speak both English and French. It may be more likely that they speak German. It used to be the strategy by Charles de Gaulle to entangle Germany and the rest of Europe within Brussels, and then let the French bureaucrats rule from Brussels. His scheme fails because the French bureaucrats aren’t so competent anymore. The Germans are taking over, reports Jan Tromp in Brussels lies in Germany (Dutch Volkskrant April 14). Since France cannot balance Germany anymore, it would seem wiser to select a native English speaker for the next President of the EU Commission.

I haven’t read any of Piketty’s work, only some summaries. A Dutch report is here. I don’t think that I am going to read his Capital, since the summaries show that there actually isn’t real news. The argument for progressive taxation on income, wealth and inheritance has already been made in the 1800s (see J.S. Mill for pro’s and con’s). Piketty’s book with his statistics apparently is mainly a contribution to economic history. The policy issue is known and will be decided upon by requiring wider models.

Note that Piketty’s advice on progressive taxation received nominal support by François Hollande who won the elections of 2012 but who apparently got cold feet when he discovered that he had to make the French economy more attractive to international investors. Will this be an argument in favour of European integration, with a common tax base, and progressive taxes on the richer North to support the poorer South and East ?

Before you decide on all of this, you still need some mathematics and the analysis in DRGTPE to complete the picture, with:

  1. the solution approach to unemployment (e.g. if you worry about inequality, note that unemployment affects it)
  2. the tax void (that affects people at the bottom of the income distribution, with the benefit burden for the richer)
  3. the dynamic marginal tax rate (that is important for efficient and fair taxation)
  4. an Economic Supreme Court (that allows policy to be based in science instead of fads and fashions)
  5. and a review of James Galbraith’s book on inequality Created Unequal.

While the French language is an oubliette, the Dutch language is an even bigger dungeon. Let me refer to my earlier text on Spinoza and the Crazy Centuries, about the loss of a lingua franca.

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.

World War I started in 1914, a century ago. Last Autumn showed the first commemorations and we will see those ad nauseum. Dignitaries will point to the progress made over that century. Yes, we have a European Union with the explicit objective to prevent war in the European theatre. Yet, it is political spin to present war as the point of reference.

It is peace that is the yardstick for normality. Importantly, war is not the only way to destroy people’s lives. It can also be done by unemployment, debt, bankruptcy, home evictions, lack of medical care, reduced pensions. Last November about 26 million workers in the EU were unemployed, almost 11% of the workforce. Technology advances and current investments are mainly directed at the reduction of labour and other costs. Imagine to be unemployed for some years and having bleak prospects to find a job.

A major factor in the economic crisis is the Monetary Union, with Eurozone and Euro, that was imposed by the European elite against good economic advice, see Bernard Connolly in the Wall Street Journal Feb 22 2013. The elite remains undaunted and EU president Herman van Rompuy presents a “roadmap” for “more Europe”. The elite in 2014 is as blind as in 1914.

Elites in 1914 and 2014

In May 2014 there are elections for the European Parliament and they come with a wry taste. We have learned a lot in the century since 1914, of course, and our democracies and technologies are advanced indeed. But WW I was caused by power elites that were far removed from the suffering of the commoners, and we still have such elites, witness the suffering of the commoners. Unemployment is first of all a sign of bad government.

The European mentalities of North vs South and East vs West still clash. The division between the Eastern and Western Roman Empire still shows, as does the division between the protestants above the Rhine and the latinized roman-catholics below the Rhine. European politics focusses on smoothing those differences and describes success in those terms, e.g. in the Franco-German axis. The real focus should rather be the welfare of Europe.

Timothy Garton Ash considered much of the same question: 2014 is not 1914, but Europe is getting increasingly angry and nationalist, Guardian Nov. 18. Indeed, elections are the reckoning time for praise and protest, even when the EP is mostly a ritual. However, it stands to reason that when 11% is unemployed then 89% is not. The majority may fear to lose when the status quo changes. Cas Mudde presents a common sense calculation that the new additional protest vote will be limited to around 15%, Washington Post Nov. 4: “In short, while the upcoming European elections will undoubtedly see an unprecedented success for ‘anti-EU populist’ parties, the next European Parliament will remain a bastion of pro-EU and soft eurosceptic forces, with all the power to enforce its will on the tiny minority of disorganized dissenters.”

One might discuss why the eurosceptics remain a fringe and why they don’t manage to prioritize European welfare and make a dent. The fringe seems a lost cause however. The relevant discussion is about the center parties and their failure to prioritize European welfare. Those parties can utter anti-establishment rhetoric too but they still remain in the core, like the UK Conservatives and Forza Italia. The center parties have had their own emancipatory moments in their past. The wonder is how emancipation gets dulled, how internationally minded politicians return to nationalism, how the idea of European welfare gets lost.

Eurasian Russia is European too

Surprisingly, the origin of World War I pops up as a relevant issue for a different reason. First consider the history. Nowadays we tend to think of prosperity in terms of education, technology and trade, but around 1900 the possession of fertile land and other natural resources had been the prime consideration since antiquity, and war belonged to that frame of mind. In May 1914 the capitals of Europe were already discussing war indeed. On June 28 1914, the Austro-Hungarian crown-prince Franz Ferdinand was assassinated in Sarajevo. It was an excuse as any for the power elites to start that war.

The Prussian aspiration for world power has been described in admirable fashion by Sebastian Haffner (1907-1999). The main theme is that Bismarck upset the balance of power in Europe by creating a unified Germany that had not existed before. Bismarck himself managed to appease the existing powers of France, Austria, Russia and Britain but Kaiser Wilhem II removed Bismarck in 1890 and set out a path towards war. A possible influence may have been that Prussian Wilhelm had a handicapped left arm since birth and hated his English mother, a daughter of Queen Victoria of Hanoverian descent. Haffner’s book “Die sieben Todsünden des Deutschen Reiches im Ersten Weltkrieg” (1964) – The seven deadly sins of the German Reich in the First World War – apparently never got an English print, and should get one. Haffner’s original name incidently was Raimund Pretzel, see this obituary.

The story must be amended by the Russian objective to take the Black Sea and Constantinople / Istanbul from the “sick man of Europe”, the crumbling Ottoman empire. See this review by Jesse Kauffman (2012) of McMeekin (2011) “The Russian Origins of the First World War”. Czar Nicholas II was already mobilizing his forces along the borders in July. “Thus, when Wilhelm II exclaimed at the end of July that “the Tsar … has been secretly mobilizing behind my back” (74), this was, more or less, actually the case.”

Next to the observation that power elites can follow their own objectives thus a second point becomes relevant: the roles of Germany and Russia in the European theatre. The name “European Union” without the involvement of Russia is a misnomer, with the perverse suggestion that Russia would not be in Europe while historically it is deeply involved. The ties became complex by WW I, the Bolshevik revolution financed by Germany, and the Cold War. In perspective this complexity is just another piece of evidence for the close involvement.

A mindmap

Instead of Van Rompuy’s “roadmap” let us consider the following “mindmap” for the European theatre. A mindmap consists of labels and connecting lines.

A mindmap for the European theatre

A mindmap for the European theatre

Four issues stand out.

(1) The “European Union” is not completely Europe and is not a Union. It is a hybrid between a free trade area and a federation. It is not only a mutant but also constantly changing, and each change causes a discussion about national sovereignty that erodes popular support. The EU is a teenager, wanting to be proud but in deep economic and political crisis. From Edinburgh to Moscow those with some education stand by and look in horror but also disarray at the political and bureaucratic incompetence. The EU better matures or ceases to exist. It seems optimal that the EU (508 million people) devolves into a free trade zone and extends with Russia (144), Belarus (9), Ukraine (45) and Turkey (76), and starts anew from there. Alternatively put, there already is the Council of Europe, and the policy focus could be to devolve the EU and to upgrade the CoE to some point of convergence.

(2) Money is a disaster. The German trauma of the Great Depression of the 1930s is hyperinflation, with rising prices and falling real wages, because the Germans printed money without bound. The UK and USA remained closer to the gold standard and their trauma is deflation, with falling prices and rising real debt. The economic lesson learned in the UK and USA is more balanced. The national debt of the UK is denominated in Pounds and the UK government has some control over the Pound, and hence the crisis in the UK is less severe than in the Eurozone. Similarly for the USA and the Dollar. When the Euro was created, Germany insisted on no-bailout conditions and other rules to prevent hyperinflation. The Euro isn’t linked to gold, but its architecture implies that governments have no control over the monetary denomination of their debt. Consequently the crisis in the Eurozone is much more severe than in the UK or USA. It is possible to give the Euro another architecture and remove this element in the cause for the crisis. For a new approach to the economic theory of the optimal currency area and the banking union, see this paper.

(3) The EU is already split between the Eurozone and the others. The UK is the largest non-euro country and tends to be in favour of a free trade area, but instead of providing leadership it causes fragmentation. The UK faces a referendum on membership itself and there is also the Scottish referendum of September 18. There is also the Catalan call for a referendum on December 18. In fact, Europe has more regions with a historical identity – as Bismarck’s creation of Germany is only 150 years in the past for example. It would make a lot of sense to split up the EU or the CoE into such regions, with a common trade area with some services like money, defence, harmonisation of law and inspection of agreed standards. See for example the Eurotopia map (1992) by Freddy Heineken, aided by Herman Wesseling and Wim van den Doel. Conceivably the regions could select the House of Parliament and the nations could select the Senate, thus with a better match of political interests.

(4) Of crucial importance is the political system and the performance of the political parties. The EP is more ritual than parliament. Power is transferred to the European Council without matching democratic control. There is no European demos with media and discussion. Those exist in the separate nations but the quality leaves to be desired. When parties don’t function there is no democracy. See for example this short discussion of the German elections of last September and the electoral deception by Angela Merkel. It is amazing that Europe functions as it is: but it doesn’t really function, witness the mass unemployment.

Concluding

Europe, love it or leave it. Youth unemployment has been above 20% for a couple of years now and rose to 24%, see Eurostat. It is 40% in Italy and 56% in Spain. Blame the leaders and parliaments of Italy and Spain, but also those of Germany, since we are all European, aren’t we ? Surely, if we include education, then on average “only” 10% of those below 25 are without activity, but still, if you are not in education and have to find a job then it is tough. The riots in Greece and Italy are bitter, now called the pitchfork protests. New is the issue whether kissing a police helmet (with a police officer in it) is sexual assault or acceptable peaceful civic disobedience. The answer from EU president Herman van Rompuy is a “roadmap” that works toward more integration, faster than originally conceivable, but still curiously slow if it really would be a solution.

Above “mindmap” provides an alternative view. The rules in the EU don’t tackle the age-old differences of North vs South and East vs West. Rather than squaring the circle, or forcing a big square into a small circle, a better option is to accept the impossibilities. The new theory of the optimal currency area mentioned above may still turn the Euro into a success and help resolve European unemployment, but the key alternative prospect is not a superstate but a community of nations and regions including Russia.