Archive

Economic crisis

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 Radioactive.com 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, FFmpeg.org 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.

The Dutch king Willem Alexander (WA, 1967) will be busy next week. Most important is his visit to Russia and meeting with president Vladimir Putin (VP) on Friday November 8. This visit to Russia will be somewhat special since WA is likely the last remaining governing descendent of the Romanovs, via Anna Pavlovna (1795-1865). This year Russia and Holland celebrated a year of friendship but this celebration was marred by tricky incidents on freedom of speech and arrests and beatings in diplomatic circles. Dutch diplomats are crossing their fingers that Queen Maxima’s charm will cure all wounds.

A bit less important than Russia but not to be discounted is the event on November 6, when WA will present the Erasmus Prize to Jürgen Habermas (JH, 1929). Undoubtedly, JH will inspire WA to some Erasmian message to VP, though diplomats will try to induce him not to press the issue. But WA might say to VP: “Dear president, a few days ago I presented the Erasmus Prize to JH. I enjoyed this very much. Perhaps it is an idea for you to create a similar prize in the name of a great Russian author or philosopher.” Who knows.

JH will give his lecture Deliberative democracy and political crisis on the day before, November 5, at the Dutch Academy of Sciences, organized by the Huizinga Institute, with this programme and planned livestream. Some of his ideas are covered by an email-interview with the Volkskrant, this weekend (apparently not linkable), a book review, and here his book in English.

My sad observation is that JH doesn’t add to enlightenment and only adds to the confusion. He is a Grand Old Man in social research and philosophy, but he is not a mathematically trained economist, and he cannot really evaluate what happens both in economic theory and in the real economy and thus in society. For his data, he refers to a report in Die Zeit with statements of “leading economists”. His main complaint is that European politicians dodge the real issues. As if we would not know that. As if we would not have a crisis because they dodge the real issues. As if you can trust “leading economists” and the process how the powers that be and the media select those.

No, if you really want to understand the economic crisis and the failing of the Trias Politica model of democracy, read my books DRGTPE and CSBH and VTFD, see the about page here above. Please note that these books suffer from censorship of science, so that the discussion on November 5 at the Dutch Academy of Sciences is severely crippled.

JH comes from a tradition that looks at high theory and that neglects to study the real world. He is part and parcel of a new class of priests like those who Erasmus poked at in The Praise of Folly (1509). Because of his fundamental neglect of reality JH is anti-Erasmian.

The Dutch committee that awarded the Erasmus Prize to JH is similarly affected. JH supports fast European integration and the committee seems to associate this with the pro-European outlook of Erasmus. They neglect the shallowness and they fear real criticism of the European Project.

A charade it is, a scandalous charade. A corruption of thinking and ethics, in mentally sick modern Holland.

PM. There is another Romanov connection to Prince Charles, see here. But Charles doesn’t reign yet.

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.

http://www.stat.fi/til/tyti/2013/07/tyti_2013_07_2013-08-20_kuv_004_en.html

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

http://www.flickr.com/photos/92227533@N07/8466751401/in/photolist-dUbjdr-dUbjiT-dZFpEE-eHGhWT-ej9f2Y-e9CnAg-f68fFu-dNoNST-f5kE1t-dNuoJ9-dNuoFq-e4bC6Q-e4b8r3-fogiTk-fogiee-8F3jgQ-eRt8Ee-e4Rp8T-dvvzPe-8cJYid-d1Px8b-eREwum-eiXoMS-eRuAeV-eiS4J4-eiREgF-eiXoKJ-eiXoSf-eiREpa-eiXGKU-eRt8VR-dUbj8g-eiYdEA-eRuAbk-dUgVUu-dUbjgP-dNuKmu-dUgVR5-dNpawk-dUgVPS-fxzbzD-8SN4Mo-c5JFxw-dr1jTY-brVTXN-dfJAtQ-dr1qJh-dwELen-fogimt-fogk9M-fovB3W/

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

Germany has elections on September 22, 2013. Angela Merkel supports the euro and is against financial transfers to Southern Europe though standard economic theory explains that a common currency requires such transfers. Merkel doesn’t mind her inconsistency and the misleading of voters since her goal is to win. After the elections, developments will force her to choose and perhaps then she will confess that the euro requires a United States of Europe with Germany to pay the bill. But power first, truth later.

Merkel thus shows herself a worthy daughter of Helmut Kohl who introduced the euro without telling the general public about the consequences that were already known to economists at that time.

The curious thing is that anyone can find this information on the internet, in economic textbooks, in the ample discussions on the European crisis, in the election programs of other parties, notably in Alternative für Deutschland (AfD) that has been founded for this very reason. German voters don’t seem to care. They seem to prefer the seeming certainty of the Merkel Ostrich Act above the uncertainty of new information and hard choices.

Merkel’s minister of finance Wolfgang Schäuble finally made some comments now that a new programme for Greece is required. Apparently not right away, the unemployed in Greece will have to wait till after the German elections. Bernd Lucke of AfD rightly comments: “He is miles away from laying all his cards on the table and talking straight with the population.” (Financial Times, August 20.) Will the German Election Summer finally turn hot this coming month or was this FT article just a fluke of reality ? A point is that economics professor Bernd Lucke is at danger of becoming too political himself too, as he apparently neglects my new suggestion for the theory of the optimal currency area, see MPRA or RWER.

A Ph.D. thesis by journalist Jens Peter Paul gives an interview with Helmut Kohl from 2002 where he clarifies his considerations, see this article by Valerina Pop at the EU Observer (2013). Kohl professes that his main concern was to prevent war. His circumstances were not as peaceful as presently is the case: the reunification of Germany was contentious and the USSR hadn’t collapsed yet. If it is true that the European political elites had been slowly manoeuvering towards a United States of Europe anyway then one might conceive an argument that a move towards a single currency might give good leverage (which argument of course neglects crucial national sentiments).

Kohl & Merkel make a complex couple. Merkel abhors the election finance scandal that Kohl caused and that forced her to replace him. Kohl abhors having been caught and replaced. Helmut Kohl is reported to have said that Merkel now is destroying his Europe, but he denies to have said so, see here. In 2012 we saw a forced meeting-again with clenched smiles, see here. British commentator Paul Goodman states: Merkel is Kohl, Cameron is Major.

Let us wish that Merkel doesn’t want to be a worthy daughter of Kohl and comes out clean. There is nothing to be afraid of, see my said paper on money.

http://en.wikipedia.org/wiki/File:Ostriches_Kgalagadi_Transfrontier_Park.jpeg

Helmut Kohl, Angela Merkel, Ostriches (Source: Wikipedia Commons)

PM. The article by Valentina Pop has a comment that refers to dr. Rath who points to persistent German efforts at world domination since 1900 (with some farmaceutical companies that annoy him and that have undeniably nazi and holocaust links). Kaiser Wilhelm clearly hated the British Empire (and his British mother). A quick introduction is provided by the open letter in the International Herald Tribune, December 12, 2012 in relation to the Peace Prize for the EU. In itself it is striking that the first EU Commission President Walter Hallstein is a German who apparently wrote on European “integration” already before and during WW II. This however is not mentioned in Wikipedia (yet). In itself one can understand that Germany after WW II opted for European integration rather than being dominated by France and England. Perhaps it is a good idea for the EU Parliament to provide funds to historians to look into that open letter (and to farmacists for dr. Rath’s other claims).

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.]

Caroline de Gruyter is the NRC Handelsblad correspondent in Brussels. Here is her bio at Presseurop where she gazes dreamily into a far distance. Her acute and informative diagnosis though of last April at Cargenie Europe has the apt title The Dutch Are Trapped In Europe.

“Since the Second World War, the Dutch have wanted to be part of a transatlantic community based on the principles of liberalism and free trade. But instead they have become embedded in a continental and deeply political European community. They would like to live in a British Europe but find themselves in a German one.”

“There are no signs that the tension between the transatlantic dream and the European reality will ease soon. The Hague will probably continue to react in its traditional, irresolute way to all things European that cross its path.”

“There are two obvious developments the Netherlands can hope for, apart from economic recovery. The first is that the UK finds a contructive way to stay in the EU and that it stops holding up initiatives in Brussels. The second is that the EU manages to successfully negotiate a free trade agreement with the United States in a year or two. That would give the Dutch a morale boost, vindicating their stubborn dream of a transatlantic community.”

“Both developments would, however, reconfirm that Dutch well-being in Europe is shaped mostly by events outside of Dutch control.”

Caroline crafts a very British understatement here: “that the UK finds a constructive way to stay in the EU”. Given the reports in The Economist about David Cameron’s problems with UKIP and his referendum, it is more likely that the EU has to find a constructive way to handle the UK – including Scottish independence. A EU & USA free trade agreement is less likely when the EU is locked up in recession for the North and depression for the South. Hence I don’t quite agree with Caroline’s otherwise acute analysis. It is very much in Dutch control to lift its censorship of science so that this continent can end its visit to Hades.

In NRC Handelsblad last weekend, May 25th, Caroline also wrote about Thomas Wieser and Hans Vijlbrief (a text in Dutch).

Thomas Wieser looks a bit like the Ben Bernanke of Europe. The most informative article about him seems to be by Tim Jones in the EuropeanVoice.com, 2009. He now holds the chair of the EU Economic and Financial Committee, say the key policy making committee of the issues discussed in this weblog. Thomas Wieser happens to be born in 1954, like me, Angela Merkel, Franςois Hollande and, not to be forgotten, Alex Salmond of Scottish independence.

Caroline compares the diplomatic and effective teamwork of Jean-Claude Juncker and Thomas Wieser with the undiplomatic and increasingly ineffective non-teamwork of Jeroen Dijsselbloem and his treasurer and assistant Hans Vijlbrief.

“They seem to confirm the old cliché that the Dutch ‘speak too long and tell others how things must be’. Treasurer-general Hans Vijlbrief, who also worked for De Jager, apparently speaks a lot. Many call him competent, some see him as a jovial burgundian – but also a somewhat crude burgundian. Strict pronouncements by Vijlbrief about Greece and other Southern countries in the past, are still recalled with resentment by some delegations – and not only the Southern ones. “Vijlbrief acts sometimes as if Holland pays the whole bill for Greece, Portugal, Ireland and Cyprus,” says a national diplomat. “But Malta pays relatively more than Germany. This annoys people.” (…) A diplomat confirms: “Perhaps we see this wrongly, but this is not a team by which Dijsselbloem can gain our hearts and minds.”

Caroline explains that this is an element in the reasoning that caused Franςois Hollande on May 16 to propose that there will be a permanent Eurozone government, with its own President – and no longer a parttime appointment from a Member State. This is the report from France24 and this is from Reuters. In itself it makes sense. In standard economic analysis, the Eurozone needs integration for the euro to function properly, and then one needs a government with an Executive, Legislative and Judiciary to maintain democracy. The French economy is in dire straits and could very well benefit from such a Eurozone government that starts taxing Germany and subsidizing France. Of course, the UK would be an onlooker only, fall apart, and perhaps be reduced to something like Great Denmark.

The situation still causes a small surprise, that however might not be a real surprise since there is a system in the madness.

I happened to hear about Hans Vijlbrief for the first time when he wrote a fax in 1995 to the reporters of MUG in Amsterdam. MUG is a monthly magazine for welfare recipients that reports about how to find a job, how to apply for benefits if you don’t succeed, and how to save expenses when on benefit. It is quite popular with a quite large circulation in the Amsterdam region. The name MUG incidently derives from an abbreviation of Dutch Maandblad Uitkerings Gerechtigden, say “Welfare Recipients Monthly”, and should not be confused with the English word mugging, though some readers may of course wonder whether lazy welfare recipients aren’t mugging the welfare state on a grand scale. The actual Dutch pun in its name is that “mug” also means mosquito. At that time MUG received subsidies from the Amsterdam local council and many of its articles carried the stinging message that benefits were too low for a decent living. This is its 2013 website.

In 1995 I had good news for MUG’s reporters: there was a new approach in economics that would allow full employment again, provided that the censorship at CPB was resolved. At that time, Vijlbrief worked at the Dutch Ministry of Economic Affairs that supervises CPB. His fax to the reporters explained that CPB functioned fine, that the Ministry also looked at employment, and that they followed a different policy than mine precisely because their approach was better for employment. The final published MUG article can be found here, with my comments in brackets (all in Dutch). My main comment was that I was surprised that Vijlbrief already knew my analysis even though it was being censored. The man must be brilliant, to already know what isn’t available yet. We can observe that Dutch employment policy before and after 1995 is a mess, with a beggar thy neighbour policy of exporting unemployment by means of low wages. It must be with the same ‘burgundian’ optimism and clair voyance that Hans Vijlbrief now conducts the Eurozone policy, managing employment policy that he doesn’t understand, and with a similar command of monetary policy. I am quite tempted to apologize to Thomas Wieser for his incompetence and behaviour.

Dear Mr Salmond and Mr Miles,

I react to the idea, mentioned in The Economist, that an independent Scotland might wish a currency union with the remaining UK.

If you indeed would want to investigate this option, I advise you my paper
Money as gold versus money as water
http://mpra.ub.uni-muenchen.de/45759

That paper discusses the eurozone, but the mechanism would apply to any currency area. I am proposing a new theory – though untested yet – that countries with an Economic Supreme Court could have a currency union without greater political union. Perhaps you would not want to wait till the eurozone gives the working example. A definition of an Economic Supreme Court is in an appendix in my book DRGTPE, see the paper references.

It is useful to also refer to the paper by David Miles cs. on Optimal Bank Capital, now published in the Economic Journal but also available at the BOE:
http://onlinelibrary.wiley.com/doi/10.1111/ecoj.2013.123.issue-567/issuetoc
http://ideas.repec.org/p/mpc/wpaper/0031.html

The link is that optimal bank capital can be easily attained, if money / capital is created by the Central Bank and directly neutralised by capital requirements. Again, this would help the eurozone, but perhaps the UK can set the example.

I happened to see Mr Salmond’s cv and that he was born in 1954. It happens that I was too, like Angela Merkel and Francois Hollande as well. I suggest to take advantage of the common experience of history. It is important to refer to the censorship of science since 1990 in Holland and my advice to boycott Holland till that censorship is lifted. Perhaps your best point to start reading is this weblog entry where I observe that Spain might block EU membership of Scotland for fear of a precedence on Catalunya. But Spain might be grateful if you help solve the EU crisis by boycotting Holland till the censorship of economic science is lifted.

https://boycottholland.wordpress.com/2012/12/20/war-in-europe/

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician and teacher of mathematics
Scheveningen, Holland
http://thomascool.eu/

PM. Link in The Economist
http://www.economist.com/blogs/blighty/2013/04/scottish-independence

Subject: Your visit to Holland on June 19 for the session “Who holds the key ?”

Dear professor Krugman,

You will visit Holland on June 19 for a commercially funded conference “Who holds the key ?”,
http://www.wieheeftdesleutel.nl/programma/ Of course, this relates to your column about “ernstig” people and your defence of Coen Teulings, who recently departed as director of the Dutch Central Planning Bureau (CPB).

I live a few blocks from the conference center, more towards the Scheveningen beach close to the Kurhaus hotel, and allow me to invite you to come over for a discussion with me too. I copy to Olivier Blanchard, Peter Bofinger, Martin Wolf, James Galbraith, Mark Thoma, and Robert Skidelsky, and perhaps some of them will support the idea that we finally get to talk.

I wrote this paper in 1997 with many compliments for your work but also some points of criticism. The paper apparently was included in the Unofficial PK website:

http://www.pkarchive.org/others/krugmanetc.html

It is included in DRGTPE, and the PDF will read better, see page 219+:

http://thomascool.eu/Papers/Drgtpe/Index.html

http://thomascool.eu/Papers/Drgtpe/2011-10-16-DRGTPE-3rd-edition.pdf

See DRGTPE for the general analysis anyway.

Key points are:

(1) You apparently do not see the impact of the tax void and the dynamic marginal tax rate.

The tax void is the tax wedge at the minimum wage. This location causes a special effect. Your proposals for quantitative easing will not work much for the unemployed who are locked up in the tax void. The tax void for the USA is here, see the appendix:

http://mpra.ub.uni-muenchen.de/14812/

The dynamic marginal tax rate is the total-differential over time, rather than the mere partial differential. This affects discussions about the optimal tax rates. According to my analysis VAT can best be 1%.

See DRGTPE p140-145.

Both tax issues affect the shift of the Phillipscurve.

(2) A modern economy needs an Economic Supreme Court (ESC), rather than failing CPB’s or CEA’s.

The definition of an ESC is in DRGTPE page 279+

See DRGTPE, CSBH and my weblog:

http://thomascool.eu/Papers/CSBH/Index.html

https://boycottholland.wordpress.com/about/

(Perhaps you should ask the conference organisers to send you the two books DRGTPE and CSBH.)

(3) For the Euro, my new theory for the “optimal currency area” is that democracies with an ESC would not need to transfer power to the Brussels burocracy. See my paper “Money as gold versus money as water”:

http://mpra.ub.uni-muenchen.de/45759

(4) I advise the world to boycott Holland till the censorship of science by the directorate of the CPB since 1990 is resolved:

https://boycottholland.wordpress.com/about/

(4a) You defended Coen Teulings, but as CPB-director for the last 7 years, he continued the censorship of science, and he did not check that the economic crisis 2007+ confirms my analysis.

(4b) Sweder van Wijnbergen was Secretary General of the Ministry of Economic Affairs in 1997-1999, and did not do anything about the censorship. He clashed with the minister on other subjects and had to resign. But he was a bureaucrat and had to be silent. While my position was that of a scientist, and I have to speak up.

Van Wijnbergen also maltreats the crititism of Alfred Kleinknecht on the Dutch export surplus. But part of the criticism on that export surplus is on target, see:

http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2009-03-31-MacroLesson.pdf

For unclear reasons the organisers see Van Wijnbergen as a better specialist on the crisis but he did not warn ahead of the crisis and maltreats the analysis by Kleinkecht, while Kleinknecht warned ahead of the crisis and has some useful things to say about the Dutch export surplus. It may be noted that the Dutch Ministry of Economic Affairs stopped funding Kleinknechts research so that he had to move from VU to TU Delft to continue it.

(4c) Bas Jacobs has not spoken up against the censorship of science. He does not check whether the crisis confirms my analysis.

Jacobs has investigated tax theory, along the lines of Mirrlees. However, my analysis on the tax void and the dynamic marginal tax rate are important qualifications for that line of research.

I have informed Jacobs and his two Ph.D. thesis students Floris Zoutman and Aart Gerritsen about my amendment to common tax theory. But they neglect it. E.g. in Dutch ESB 95 (4586) may 28 2010, Jacobs & Zoutman say that 52% top rate reduces tax receipts, where they refer to Emmanuel Saez, while the estimate ought to be improved, and they ought to have referred to my analysis.

(4d) According to the plan, you, Van Wijnbergen and Jacobs will be interviewed by Sandra Phlippen, chief editor of the Dutch economics magazine ESB. However, ESB has refused to publish my protest against the censorship since 1990. Dr Philppen is new to the editorial team and has said that she will consider the issue with an open mind. Two papers of mine are under review there since March 12, now for almost eight weeks while four would be the norm. I am still hoping for the best. One paper is a Dutch summary of “Money as gold versus money as water”, the other is an explanation in Dutch of the tax void. Both are quite easy to understand, so the real difficulty lies in my protest against the censorship of science by the directorate of the Dutch CPB. But perhaps dr Phlippen thinks differently.

Please note that I do not tend to write for the economic journals. My base line is that the censorship should be resolved at CPB, and thereafter I would be a free scientist again. I did submit a few papers at some occasions, but apparently those got rejected with nonsensical arguments. Apparently few editors have an overview of the various subjects that are involved for the proper analysis, like taxation, labour market, Phillipscurve, monetary policy, econometric methodology, institutional analysis, history of political economy, and such.

To be sure: I will not be present at that commercial conference or its VIP dinner. We once met when you gave your Tinbergen Lecture for KVS in Amsterdam, but you were severely challenged by lack of sleep, and you just managed to give your speech and shake hands. Even when this present occasion would be more suitable, you are still surrounded by professors who generate wrong analyses, who don’t listen to criticism, and who don’t speak up against censorship of science, so I better stick to my suggestion that we meet separately.

Sincerely yours,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scientific co-worker CPB 1982-1991
http://thomascool.eu/
(links relocated to here)

Date: Sun, 05 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