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Five years ago I discussed the “Dutch Taliban“. I can now include Dutch “pluralist economics” to this narrative.

There is this particular course “Economics from a pluralist perspective” in English though created by two Dutch professors Irene van Staveren (ISS) and Rob van Tulder (RSM) and a PhD student. I have no access to this course so I cannot check whether they refer to my analysis in DRGTPE and CSBH or not. I presume that I would have been informed if they had. The following is conditional on the probable assumption of neglect.

I will refer to some books that I haven’t read, and explain why I will not read them. One book by Van Staveren that I haven’t read deals with economists who aren’t read. I understand that she doesn’t include me as an economist who isn’t read.

I already wrote about “Economics as a zoo” in 2005, and pointed to the terms of orthodoxy and heterodoxy as inadequate. Much is plain old history of economic thought. Apparently the new term is “pluralism”. Also, I was one of the economists who warned before the 2007+ crisis, yet Dutch economists neglect my work and neglect my protest against censorship, and apparently I am in some other dimension than their “pluralism”.

I regard myself as a neoclassical economist, in the term as coined by Paul Samuelson. I am eclectic and open to ideas but for practical work there must be a model, using theory and tested by statistics. My work is not mainstream yet because my work has been hit by censorship. My work rejects neoliberal economics (Robert Lucas), but anyone can check that neoliberal economics is emperically untenable. Readers should not confuse neoclassical economics with neoliberal economics.

My impression is that “pluralist” economists might so much fear mainstream economics and also so much desire to be accepted, that they opt for versions of “pluralism” that are not really dangerous to mainstream economics. Which means that their “pluralism” is useless. But they can applaud each other greatly in their mutual admiration bubble.

Pluralist economics, before or after the crisis ?

The two professors cause the tantalising question whether pluralism starts before or after the 2007+ crisis.

The online course refers to Irene van Staveren’s matricola textbook Economics After the Crisis. An Introduction to Economics from a Pluralist and Global Perspective.  ($61.53) (Dutch: Managementboek).

The online course manual states clearly that this textbook is not necessary for the course itself. This is fine, since the book is rather expensive, and one would wish for open access books nowadays. (See here for a cheap solution for open access publishing.) They state that the book will be helpful if you want to read from paper. The professors apparently thus think that the economic crisis hasn’t been a natural experiment that explains which approach was empirically most relevant, but only provides a case for more pluralism, perhaps to allow for more natural experiments by economists who don’t know what to think because they have so many theories to choose from.

Pluralism as Orwellian newspeak

Dutch pluralist economics is Orwellian newspeak for anything fashionable, as long as it neglects the censorship of science since 1990 by the directorate of the Dutch Central Planning Bureau (CPB). Dutch pluralist economics has these fundamental tenets:

  • Economics is an empirical science, and the censorship at CPB doesn’t exist so it cannot be observed. Any fact on this can be neglected. (If I worked there and there aren’t CPB publications to my name, then this must have another explanation than censorship.)
  • Scientists will protest against censorship, and since scientists don’t protest then apparently there is no censorship. Hail to free society and the wisdom of Dutch government and Dutch economists. Except criticism for pluralism, of course.
  • Errors by the directorate of the CPB might be made, but not on censorship and dismissals with untruths. If the Dutch legal system allows such censorship and untruths because judges assume that the Dutch government wouldn’t do such things, then this only proves that there is no censorship.
  • The censorship has no consequences for policy making either, since something that doesn’t exist clearly can have no consequences.
  • It is only possible to know what the censorship is about once it has been lifted, but since it doesn’t exist it must be about nothing.
  • The economic crisis of 2007+ confirms my analysis of 1990, yet for Dutch economists there is the special task to completely neglect his work and his protest against censorship, since Thomas and his work do not exist, as proven in the above.
  • Well, Thomas might exist as a lunatic, see his protest against this censorship by the directorate of CPB. Completely irresponsible about such a respected institute (even though the directorate goofed on the crisis and its treatment and the policy of wage moderation).

What might seem tolerant or pluralist appears to be another form of fundamentalism. Professors Irene van Staveren (ISS) and Rob van Tulder (RSM) show engaging smiles that however hide mental niqabs or beards. (There is no need to overdo the metaphor with Photoshop.)

Van Staveren is anabaptist and her answer to neighbourly love is that she selects which neighbour to love. Van Tulder has a book for students about the essential skills for studying. Indeed, in our knowledge society, studying is actually a job too, and I am in favour of a student wage. Van Tulder’s book has the advice: “Dare to build upon research from others” – and apparently he has found other others than me who he really dares to build upon for his version of pluralism.

 

Smiles that hide fundamentalism. (Source: RSM and wikimedia)

Amartya Sen, voting theory and the Brexit referendum question

Irene van Staveren states that she derives much inspiration from the work of Amartya Sen. Sen however is a very mainstream economist and is seriously misguided on some key issues, so that one wonders what Van Staveren finds so inspiring. Sen is famous and fashionable, true, but fame and fashion are not scientific criteria.

  • One of my papers that got hit by the censorship deconstructs Kenneth Arrow’s impossibility theorem. (CPB internal memo 90-III-37, but better start now with my book Voting Theory for Democracy (VTFD).) Sen in his Collective Choice and Social Welfare gives a useful standard presentation of Arrow’s theorem. One can check that Sen doesn’t understand it. (Dutch readers can look here.) With Arrow, Sen actually helps to destroy democracy.
  • One can check that Sen’s own theorem on the supposed impossibility of a Paretian liberal is misguided as well, see VTFD.
  • Sen’s book Development as freedom is a collection of platitudes and open doors, comparable to “don’t give money but a fishing rod”.
  • Sen contributed to the Stiglitz-Sen-Fitoussi report, but this neglects the work by Tinbergen and Hueting on the economics of ecological survival (see my draft book).
  • Sen’s argument that democracies have less famines than non-democracies is questionable, see India itself. It is a better argument that the Trias Politica model of democracy fails, also in the case of hunger, whence each democracy requires an Economic Supreme Court.

While Sen has a training as an economist and mathematician, all this suggests that he is more inclided to abstract thought as a mathematician and less as an empiricist. It is not clear to me what Van Staveren’s background w.r.t. mathematics is.

It are such uncritical professors like Irene van Staveren who cause that Sen has gotten such authority in some circles. This is not without consequences. Sen’s misconception on voting theory shows also in his article with Eric Maskin in the NY Review of Books on electoral reform in the USA. The key advice that voting theorists can give to democracies is to switch to proportional representation (PR) in the House of Commons of parliament, and the selection of the executive power (ministers including PM) by such a PR House of Commons. Instead, Maskin and Sen stick to direct election of the US President, which however is subject to many voting paradoxes as has been illuminated by Arrow’s theorem. They adopt the best way to destroy democracy, namely by using methods that are unconvincing for the general population. There are various techniques of voting, but these better be used by parliament itself, once parliament has been chosen by PR. (Compare Holland with the UK.) Thus, Maskin and Sen, in their lack of understanding of voting theory, keep the US caught in suboptimality and cynicism. If there are no good alternatives, then Trump perhaps really was the democratically best choice. Similarly for the UK and India indeed. And Van Staveren cheers on, finding inspiration in Sen, and neglecting the censorship of science by the directorate of the CPB w.r.t. my work that contains the scientifically correct analysis.

Another example is Brexit. Undoubtedly many UK policy advisors have been trained either directly or via their teachers on Sen’s Collective Choice and Social Welfare as well. See my article in the RES Newsletter, April 2017, and reproduced on the LSE Brexit blog.

Environmental sustainability

A bit more can be said about sustainability, apart from Sen. Rob van Tulder has a major teaching engagement on management of sustainability in businesses. If prices aren’t right, then companies might make amends themselves. It seems that he neglects Tinbergen and Hueting’s on environmental sustainability. It would be much more effective to argue that environmental costs are included in the prices, since companies should not do what only the government can do properly.

“Professor van Tulder is co-founder of RSM’s Department of Business-Society Management, a world-leading department on the issues surrounding sustainability. The department offers a highly successful master’s specialising in sustainability.”

Also, Irene van Staveren and Jan Peil have edited this Handbook of Economics and Ethics. (2009), £168.30 in a period where open access already was a known concept.

  • Hans Opschoor there explains the topic of sustainability. I don’t have the text and would be interested to see what he states about Hueting’s work, since there are remarkable confusions about it. Opschoor coined the term “milieugebruiksruimte” (environmental carrying capacity) in 1989, but this is only an application of Hueting’s notion of environmental functions of 1974, after which Opschoor got citations that should have gone to Hueting. In this short text of 2016 Opschoor only refers to Hueting”s 1974 thesis but not to his later notion of environmentally sustainable national income (eSNI).
  • My own analysis on Arrow’s impossibility theorem might be included too, since Arrow claims moral desirability for the demolition of democracy, while I use deontic logic to show that this is unwarranted, see VTFD chapter 9.2 on page 239. (And perhaps read “Deontology” by Mark D. White.)  Yet, why would my analysis be included in this book behind a paywall, as VTFD is already online ? Hopefully some of the authors refer properly.
  • There is a chapter on Sen by Sabina Alkire, and hopefully she was aware of the above.
  • There is a chapter on poverty by Andy Sumner and on minimum wages by Ellen Mutari, and I can only hope that they have been aware of the following below.

Unemployment and poverty

In 1998 I gave Van Tulder a copy of this Dutch book on unemployment and poverty. He would read it and get back to me. This didn’t happen. Perhaps Van Tulder did not like the book ? We can only guess. This is a nice review in Dutch at DISK (lay people) and this is a misguided and misleading review by a Dutch economist, Joan Muysken, which case I already discussed on CofFEE or latte. If Van Tulder had misgivings in 1998 he could have discussed those with me. My impression is that Van Staveren can be annoyed towards Van Tulder that his silence on this may have caused her the lost years of 1998-2017 of looking for a good analysis, and the rest of the world the actual crisis of 2007+.

The book is a text for the general public, and fellow economists can find the same analysis in DRGTPE. However, journalists Hans Hulst and Auke Hulst report also on some events w.r.t. CPB which isn’t in DRGTPE.

Van Staveren’s co-editor Jan Peil, from above book on economics and ethics, also collaborated on a Dutch book on poverty and social exclusion. Translation: “Almost a million people in Holland have to deal with poverty.” This is a review at DISK in Dutch of 2007. DISK has been abolished now. Above book W&A had been reviewed also by DISK, but the review might no longer be at their site. My impression is that various channels of information have not been used.

Economists who (almost) aren’t read anymore

Van Staveren also wrote a book (EUR 22.50) for the general public, in Dutch, about economists “who (almost) aren’t read anymore”. (The brackets are logically strange.) There exists already a Dutch translation of Heilbroner’s masterpiece, but Van Staveren wants to link up to the 2007+ crisis.

The book’s cover has a problematic claim. Let me use Google Translate for the fun of it, and it actually does a remarkable good job. The first sentence is that neoclassical economics seemed to be the only relevant theory.

“After the Cold War, the only relevant theory seemed to understand the economy and influence the neoclassical. Economists who thought otherwise were dismissed as naive, or worse, as stupid. The financial crisis has painfully shown that this limited look is unjustified and can even cause a lot of damage. Irene van Staveren therefore advocates a pluralistic approach to the economy.” (Google Translate of: “Na de Koude Oorlog leek de enige relevante theorie om de economie te begrijpen en te beïnvloeden de neoklassieke. Economen die anders dachten, werden afgedaan als naïef, of nog erger, als dom. De financiële crisis heeft op pijnlijke wijze laten zien dat deze beperkte blik onterecht is en zelfs veel schade kan toebrengen. Irene van Staveren pleit daarom voor een pluralistische benadering van de economie”)

It is incorrect to say that other thoughts were generally dismissed. Perhaps there were instances, but not over the board. Good economists have kept an interest in the history of economic theory. But not everything can be used at the relevant job at hand. When there has been bad policy, a main factor has been the failure of the Trias Politica model of democracy, with too much room for politicians to manipulate information. See my advice for an Economic Supreme Court.

The unread ones are supposedly: Karl Marx, Hyman Minsky, Keynes, Frank Knight, Barbara Bergmann, Thorstein Veblen, Amartya Sen, Gunnar Myrdal, Adam Smith and Joan Robinson.

Why doesn’t Van Staveren mention my work as largely unread ? For an answer, she only allows the categories that I would be naive or stupid. This doesn’t strike me as logically and empirically sound. Her book must be the product of a severely deluded bubble.

I wonder whether I should show Van Tulder’s “Dare to build upon research from others” to give some indications about these authors. I can spend only a line on each, and this might strike the reader as dismissive and disrepectful, while the fellow economist might have worked hard most of his or her life to contribute to economic science. I wouldn’t want that my own work would be dismissed disrespectfully either. Yet, Van Staveren’s selection strikes me as rather curious:

  • Of these fellow economists, I had never heard of Barbara Bergmann before. Apparently she looked at gender in economics, and this hasn’t been my topic of interest. I suppose however that she is well read by economists who deem gender an important aspect. (E.g. on risk taking.)
  • Karl Marx is only interesting for history, in the same way as one would read Julius Caesar.
  • Perhaps Gunnar Myrdal isn’t much read nowadays, but that requires a longer explanation, including the lifting of the censorship at CPB.
  • Hyman Minsky of course is the celebrated case, but the description about his lack of influence is more complicated than mere dismissal. He really was a professor of economics, and I am not. I wonder whether there weren’t more standard neoclassical authors who said much of the same, so that Minsky’s main advantage is that he now is the best known “neglected” one. The main point is not neglect, but the failure of the Trias Politica model of democracy.
  • Keynes would not be read ? Well, one might say that many neoliberals didn’t read much of Keynes before 2007, but Ben Bernanke was chairman of the US Fed in 2006-2014, and we can be assured that Bernanke read Keynes, and that he responded admirably to the crisis, for otherwise the world had imploded. Let me also mention the biography by Skidelsky, that generated a renewed interest in Keynes, starting in 1983.
  • Frank Knight gave wrong definitions of uncertainty and risk, see DRGTPE. What was relevant however got reworked by Keynes. The 2007+ crisis caused a renewed interest in the Chicago Plan, indeed. See the comment on Minsky.
  • Thorstein Veblen wasn’t read ? I cannot believe this.
  • Amartya Sen has been amply read, see above discussion. Van Staveren wants to portray him as unread only to promote her bubble.
  • Adam Smith unread ? I cannot believe this. Contrary to Marx, he is still quite relevant, see Heilbroner.
  • Joan Robinson ? Apparently her contribution on “imperfect competition” has been included in neoclassical economics. In heterodoxy, her writings have some popularity, but it is not clear to me why she should be read more widely. Her work never seemed to matter for my own work and I haven’t really read her. Perhaps she is relevant for other fields of economics, but I would not know.

Above indication isn’t intended to mark these authors in a particular manner. The only intention is to argue that Van Staveren’s selection is rather curious. Most likely the title of her book is plain wrong. The present title might be much of a marketing ploy. A neutral title might have been: Views from the history of economics on the economic crisis.

It matters a great deal how the issue is presented (framed):

  • My analysis is that economics already contained ample information, so that the crisis has been caused by failure of the Trias Politica by abuse by policy makers. For example, policy makers could and can cherry pick an economist to defend a particular policy. My advice is an Economic Supreme Court, so that such cherry picking is no longer possible, for the ESC will weigh arguments on content.
  • Irene van Staveren puts the blame of the crisis on the economics profession itself, also at the academia, instead of the policy makers. She wants the whole of the economics profession to function as an Economic Supreme Court. This is a category mistake, since the academia do not have the task to support policy making but to generate new insights and criticism.

Misleading the public

In her bubble, Van Staveren neglects my work, doesn’t mind about the censorship, and misleads the public.

A lay person’s review shows that Van Staveren partly did a good job in reaching out to the public.

“A few jumping points from the book: Not only did many scientists see the 2007 financial crisis, the same people predict that the weather will go wrong. According to them, nothing has changed, such as the strict separation of savings banks and business banks and insurance. Taxpayers have to pay billions to save banks that were too big to fail, the banks are still too big to fail and still sell incomprehensible and uncontrollable products, so soon we have to dock again. If we all agree to vote On politicians who send themselves through the bank lobby because we just do not understand well, we have to pay for our intellectual laziness.” (Google translate from: “Een paar springende punten uit het boek: niet alleen zagen veel wetenschappers de financiële crisis van 2007 aankomen, dezelfde mensen voorspellen dat het weer mis zal gaan. Er is volgens hen niks wezenlijks veranderd, zoals het strikt scheiden van spaarbanken en zakenbanken en verzekeringen. Belastingbetalers hebben miljarden moeten betalen om banken die too big to fail waren te redden, de banken zijn nog steeds too big to fail en verkopen nog steeds onbegrijpelijke en oncontroleerbare producten, dus binnenkort moeten we weer dokken. Als we met z’n allen blijven stemmen op politici die zich door de bankenlobby laten sturen, omdat we het gewoon niet goed begrijpen, zullen we dus voor onze intellectuele luiheid moeten boeten.”)

However, this message could also have been given without this particular book.

This lay person shows a confusion between neoclassical economics and neoliberal economics. Perhaps Van Staveren has this too ? Also, this lay reviewer states to have gotten an interest in Amartya Sen because of Van Staveren’s praise. Ouch.

More points tomorrow

There are some more points, see the next blog entry.

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This discussion continues with the exchange of Flassbeck & Lapavitsas versus Storm.

My own position is as follows. Holland creates its own unemployment since 1970 by a wrong policy on taxes and premiums. Holland has the entrenched government policy of “solving” this by wage moderation and exporting its own unemployment to other nations. I present my alternative analysis since 1990. Economists at TU Delft have been arguing against this policy of wage moderation for decades too. They overlook the cause in taxes and premiums, and focus on technology. Schumpeterian innovation requires higher wages to get rid of obsolete technology. Now that Germany has had wage moderation too (because of the fall of the Berlin Wall and the Mark = Mark policy) the discussion on wage moderation moves to center stage for the survival of the Euro. Servaas Storm at TU Delft enters the European discussion again with arguments about technology, and again neglecting taxes and premiums, and neglecting the censorship of science by the Dutch government (what this weblog is about). Storm has an innovation in his analysis by including banking, and how international credits drive international trade, yet, he seems to neglect the phenomenon that trade surpluses generate funds that look for opportunities, often by providing credits that generate more surpluses. Thus Dutch and German wage moderation would be causally more important than bank credits.

PM. See also former IMF director Johannes Witteveen’s lecture on the Dutch export surplus and a need for an investment policy. There is also my discussion in 2009 with a chart of the Dutch export surplus in 1971-2010 (forecast). This is already 8 years ago.

Let me restate some basic economics for some readers who lack this.

Basic macro-economics

  • Let real national output (GDP) be y and the price level be p.
  • Let labour input be x and the wage be w.
  • Then labour productivity is λ = y / x and the Labour Income Quote is LIQ = w x / (p y).
  • Let there be a Cobb-Douglas production function: y = β x^α, with β containing capital and technology.
  • When producers maximize their profits π = p y w x subject to labour input x, then we can derive:
  • The first order condition: dπ / dx = 0 gives p β α x^(α – 1) – w = 0.
  • Or the wage can be set at w = p β α x^(α – 1) = p α y / x = p α λ, since the national labour supply is given as x.
  • This w = p α λ is the rule mentioned by Flassbeck & Lapavitsas: let wages grow with labour productivity and the agreed target of inflation of 2%.
  • From w = p α λ we can derive α = w x / (p y) or α = LIQ.
  • Unit labour costs are ULC = w x / y = w / λ = p LIQ. Thus alternatively w = p LIQ λ or w = ULC λ.

The assumption of the Cobb-Douglas function seems somewhat specific, but given the relatively small changes that we are considering the approximation is often so good that we almost seem to have a definition. The LIQ has the character of a structural parameter α, at least for annual changes.

If prices p and wages w and labour input x remain the same from one year to the other, and productivity rises by rate g, so that  =  (1 + g) y[-1], then α = LIQ = w x / (p y) = w x / (p (1 + g) y[-1]) = LIQ[-1] / (1 + g) = α[-1] / (1 + g). For example, if α[-1] = 80% and g = 2% then α ≈ 78%. In this case α would be stable if wages would rise by 2% too.

The w = p α λ condition is not in the EMU rules. The Eurozone countries apparently are less aware of the notion of “national bargaining” (as in the Dutch Polder model) and have been hesitant to include national wage agreements in the EMU and Stability & Growth Pact (SGP) and its updates. (Check for the word “wage” on this wiki page.)

Another possible rule might be a tax of 5% on the three year cumulative trade surplus (which may be seen as 15% for a single year), to be invested in productive capacity in the deficit countries via national investment banks. Such a tax would not be on export items (like a tariff) but levied on the Eurozone member governments of surplus countries. (At this applet, set the color bar to a score of 0, and slide over the years.)

It is unavoidable to think about such rules. Holland has been moderating its wages long before Germany did. The policy put pressure on the exchange rate of the guilder, but this was resolved by joining the Euro. Holland still is a small country and the impact wasn’t much felt. Now, Europe must explain to Germany that a raise of German wages is required, whatever they fear about inflation. It should help Germany to grow aware that my analysis (see DRGTPE) allows full employment at stable prices, not only by exports but also by stimulating the domestic market.

Shifting the blame

Both North and South Europe deviated from w = p α λ. Some Northerners blame the South, and some accept some blame themselves.

  • Sinn and Schäuble argue that Southern Europe should moderate their wages like Germany.
  • Bofinger and Flassbeck & Lapavitsas argue that Germany (and Holland) should raise their wages.

As Storm states:

“Their main point is that there would not have been large unsustainable current account imbalances within the Eurozone, and consequently no sovereign debt crisis in the deficit countries, if all member states had kept their nominal wage growth equal to labor productivity growth plus 2% (the inflation target). Professor Wren-Lewis (2016) has been making the same point. In this account, this delicate equilibrium has been deliberately upset by nominal wage moderation in mercantilist Germany, with a growing German trade surplus just being the flipside of the growing trade deficit in Southern Europe. It is rather ironic, in my opinion, that a similar logic is used by mainstream observers such as Sinn (2014) or even Mr. Schäuble himself, with this difference: Sinn and Schäuble argue that the current account imbalances were caused by a failure of the crisis countries to follow Germany’s successful example in cutting down their unit labor costs.”

Towards a collapse of the Euro

Sinn and Schäuble want to control inflation and they lack instruments to make sure that Southern Europe adheres to the EMU rules. Thus Sinn and Schäuble take the hard line that it is up to Southern Europe to choose themselves:

  • either unemployment because of high wages
  • or internal devaluation, and subsequent unemployment because of deficient internal demand.

Hence we can understand Flassbeck & Lapavitsas:

“Germans ought to know better than all others about the difficulties caused by wage divergences in a currency union. The deviation of East German wages as measured in international currency, following the German Monetary Union of 1990, destroyed East German industry and forced a transfer union. Unfortunately, for the EU and the EMU the option of a transfer union is simply not available. As long as Germany persists with its policy of wage moderation, the only future for the EMU is collapse.”

Check how I criticised Angela Merkel for her deceit at the German elections in 2013. Given German policies on wage moderation, standard economic theory allows her the choice between a transfer union or a breakup, but she kept silent about this. Of course there is my amendment to the theory of the optimal currency area, see MPRA or RWER, but as long as German policy makers do not indicate that they understand his amendment, we must conclude that they disinform their electorate.

How does Storm handle this ?

How does Storm handle this reference to basic economics ? He misstates the argument, and then rejects it.

“(…) that Eurozone imbalances were driven by (exogenous) losses or gains in unit labor cost competitiveness (…) is a myth (…)”

Storm’s problem is on causality: “what drives what”. Yet this is not quite what this discussion is about. What Storm calls a myth are basically accounting rules.

  • Use GDP = Y = p y = C + I + G + X – M, with consumption C, investments I, government G, exports X and imports M.
  • The current account CA = X – M is also the increase in foreign assets FA = X – M (NY FED).
  • National income, employment and wage translate into LIQ and λ. This is mere accounting.
  • Compare two situations for the same country with only a difference in M. In the first situation there is Y1 with a surplus on the current account, or M < X. In the second situation there is Y2 with a deficit or M > X. Thus Y1 > Y2. Assume the same output price p and working force x so that y1 / x > y2 / x, or λ1 > λ2. The productivity with a surplus is higher than with a deficit. For example, in the second case the country worked as hard as usual, but also imported a car by borrowing from abroad. Mere accounting causes that observed productivity drops. Similarly we have w x / y1 < w x / y2 or ULC1 < ULC2, or that the deficit situation has higher unit labour costs.

Economics is about causality and not about accounting, but it is important to be aware of accounting effects. Regressions with statistical data that contain these accounting effects must be judged carefully.

In above example of importing a car, causality seems to run from first importing to secondly a statistical observation on productivity. This is Storm’s view. But this is not the only causal possibility. Sinn and Schäuble might argue that higher productivity might have been feasible if the car hadn’t been imported but e.g. produced in the country itself with a creditor in the country itself. Thus there seems to be more complexity than Storm allows for (though he already makes a complex case). And Sinn and Schäuble might state more clearly that they also plea for the demise of the German car industry.

Storm’s five arguments

Storm has five arguments that we may indicate shortly. Apparently he repeats himself at points, but this is okay since we look at the arguments and not their number.

  1. Banks in Northern Europe lent to customers in Southern Europe, assuming that loans in Euro were safe anywhere. (Comment: True. However, if there hadn’t been surpluses on the Northern current accounts, then these banks would have had less funds. We are not speaking about a single year, but a prolonged period of surplus funds looking for “investment” opportunities.)
  2. German firms, producing high-tech, high value-added, high-priced and mostly very complex manufacturing goods, do not directly compete with Spanish, Portuguese, Greek or even most Italian firms, which are specializing in lower-tech, lower value-added, low-price and less complex goods (Simonazzi et al. 2013).” (Comment: This is not relevant, since differences in quality are corrected by differences in wages, whence we compare w1 / λ1 and w2 / λ2.)
  3. Four empirical “facts”. (a) Elasticities. (b) In Spain imports grew while exports were unaffected. (c) World income explains exports, and national income explains imports. (Costs might have a one-time effect but then are stable.) (d) There were first the imbalances and only later the worse ULCs. (Comment: Basically agreed on (a)-(c). However, this (d) is the same as (1). We are not speaking about a single year, but about a prolonged period of imbalance and funds looking for profit.)
  4. A more theoretical discussion of (3c), with the example of (2). “These asymmetric growth patterns are the direct consequence of structural differences in productive specialization (Simonazzi et al. 2013).” (However, see (2). Obviously, the EMU doesn’t have an exchange rate regime to correct sustained imbalances. Apparently governments must impose what otherwise would have been done by exchange rate markets.)
  5. “Higher Wages and Higher Inflation in Germany Will Not Help.”

Storm on point 5:

“German exports and imports, as I argued above, are not very sensitive to changes in relative unit labor costs, however, and hence there will be only a limited amount of expenditure switching (away from German products and toward foreign goods), as has also been convincingly shown by Schröder (2015). Let me repeat for clarity’s sake that I am strongly in favor of higher nominal wage growth (in excess of labor productivity growth plus 2%) in Germany. It will definitely help Germany. But it will not help the crisis-countries of the Eurozone.”

“The assumption is that German GDP increases by € 100 billion (which means German GDP is growing at 3.7%). Through global production chains, [my emphasis] German growth creates € 29.5 billion of income in the rest of the world and about € 7 billion in the selected European countries listed in Table 1.”

This looks at production chains (Germany, USA, Korea) ! This may well be. But higher German wages would also mean higher German imports for consumption.

Storm’s view on the real issues (again)

Storm repeats what he regards as the real issues:

“(…) the common currency and monetary unification have led to a centrifugal process of structural divergence in terms of structures of production, employment and trade (as explained in my earlier notes).”

“German wage moderation mattered a lot, not through its supposed impact on cost competitiveness, but via its negative impacts on (wage-led) German growth and inflation, which in turn prompted the ECB to lower the interest rate in the first place.” (Comment: This “negative impact” is TU Delft slang for the idea that low wages reduce the need for Schumpeterian innovation.)

“The consequent crisis of the Eurozone is a deep crisis of inadequate aggregate demand in the short run and unmanageable structural divergence between major member states in the long run.”

I wonder. If Germany provided the European industrial zone and Southern Europe provided the European vineyards, olive trees and universities, then this might still work and everyone might be happy, provided that the prices of cars, wine, olive oil and Ph. D. doctorates would be right. Wage levels in Southern Europe might still be lower, but with a purchasing power parity (PPP) living standards might still be quite comparable. Sinn and Schäuble might like an argument that EU support for investments in Southern Europe should not be competitive to the German car industry (see here on the restauration of the Colosseum).

But this is not the full story. The Po valley has fine cars and machinery too. Italy itself has a North-South problem. Spain has the difference between Catalunya and Andalusia. And Germany has Laender who don’t do as well as Bayern.

Closing this review

This exchange started with Bofinger’s argument that German wages should be raised. This argument is fine. It will stimulate Germany’s domestic economy and imports. The obvious ceiling is provided by risks of unemployment and inflation, but the rule of a wage rise with productivity and the target of 2% inflation is fine too. Germany also has some catching up to do.

It is correct that German exports might not be much affected, and thus neither employment in the exporting sector, because the productivity growth in the exporting sector likely is larger than this growth in the domestic sector. But the rise of imports would still help in reducing the surplus on the external account.

Storm’s arguments on competitiveness & wage moderation are a different subject. This is basically the subject of investments and regional development, and the role of banking. Germany is advised to focus on domestic investments.

Economic analysis would be served by having another indicator alongside GDP, namely a correction of GDP for borrowed funds. The X – M correction works fine for foreign assets, but a correction for domestic borrowing would be helpful too. If one buys a domestic car with credit, then this domestic car really has been produced, but it would be indicative to know whether 10% or 25% of GDP would be from credit.

Overall I can repeat that my analysis of 1990 is still very relevant for understanding and solving the Great Stagflation since 1970. There are DRGTPE dating before the 2007+ crisis and CSBH after it. DRGTPE already has a chapter on the distinction between the exposed and sheltered sectors, and CSBH has a refinement of that argumentation.

It is unfortunate that our fellow economists at TU Delft have been neglecting that analysis since 1990, whence they still lack the full picture. But every day starts with a new sunrise.

This is a remarkable exchange of articles:

Storm’s criticism shows some kind of trauma at TU Delft. Like Germany has the trauma of hyperinflation, TU Delft has the trauma of wage moderation. The Dutch government has an entrenched policy of wage moderation, and the research group at Delft TU has been arguing against this for so long, that when they hear the term “wage moderation” then they automatically argue against this. The research group and everyone else better be warned that this hangup better be resolved. Economists in the world are being disinformed.

Readers would be advised to first read the two articles by Bofinger (VoxEU and “Friendly Fire”), then below discussion, and then Storm’s articles to verify that there must be something like this trauma at TU Delft indeed.

Supportive material would be Storm on how Brexit challenges economic thinking, 2016-06-26. Storm indicates that he still is looking for the proper analysis, so that we can infer that his position on wage moderation forms only part of a puzzle.

“We desperately need a new paradigm to reform the system and make it work for the majority (…) Unless there is serious new economic thinking beyond austerity, deregulated finance, and a corporate dominated politics and state, social and political tensions will continue to build up within the E.U.”

Bofinger’s “Friendly fire” response contains a graph that shows the close connection of German productivity per person and per hour. Presuming that this also holds for other countries then this distinction need not confuse the argument.

Storm’s earlier key statement

In July 2015, Storm & Naastepad of TU Delft already presented this key statement:

“Myths, Mix-ups and Mishandlings: What Caused the Eurozone Crisis?

The Eurozone crisis has been wrongly interpreted as either a crisis of fiscal profligacy or of deteriorating unit-labour cost competitiveness (caused by rigid labour markets), or a combination of both.
 
Based on these diagnoses, crisis-countries have been treated with the bitter medicines of fiscal austerity, drastic wage reductions, and far-reaching labour market deregulation—all in the expectation that these would restore cost competitiveness and revive growth (through exports), while at the same time allowing for fiscal consolidation and private-sector debt deleveraging. The medicines did not work and almost killed the patients. The problem lies with the diagnoses: the real cause of the Eurozone crisis resides in unsustainable private sector debt leverage, which was aided and abetted by the liberalization of (integrating) European financial markets and a “global banking glut”.”

Thus, curiously, the TU Delft researchers of productivity repeat the finding by our colleagues who look for restructuring debt and financial markets. In itself I support the diagnosis that 1981-2007 are Keynesian years. I also support notions of restructuring of money and finance, see my paper Money as gold versus money as water. Yet,my point for this current weblog entry is that the TU Delft has a hangup on wage moderation, and that this causes disinformation and needless discussion, in a similar fashion as the German hangup on hyperinflation. Economic advisors might be in need of psychiatrists who help them deal with their anxieties.

Supplementary

Supplementary, there is my own text on the myth on German wage bargaining.

German readers might benefit from this text by Kleinknecht & Kleinknecht (2015) (in German), “The Erosion of “Made in Germany”: What Germans Should (Not) Learn From the Dutch“,  ZBW – Leibniz-Informationszentrum Wirtschaft.

Dutch readers would look at this 1996 discussion of mine on the three approaches: CPB, me, and Kleinknecht. Useful is also Bomhoff, NRC 1994-10-24.

Alfred Kleinknecht and his focus on wage moderation

The TU Delft research group had been started by Alfred Kleinknecht (1951), now emeritus.

Kleinknecht had started originally at VU Amsterdam. His institute got financial support from the Dutch Ministry of Economic Affairs. The Ministry was clearly interested in economic analysis of technological development.

At that time, Dutch economic analysis was dominated by the VINTAF model at the Central Planning Bureau (CPB). This combined a “keynesian” demand side with a capital vintage supply function. There was no direct substitution between capital and labour, but a Leontief technology per vintage that increased the vintage effect. A high wage would cause the elimination of older technologies, and a subsequent reduction of the wage would not be able to restore what had been eliminated.

Kleinknecht has been arguing much of the same during his career: Higher wages will increase productivity, partly by eliminating older techniques and partly by spurring innovation. Kleinknecht’s argument is not always based upon the assumption of vintages, and rather upon Schumpeter’s “creative destruction” and more often upon empirical research that is neutral on assumptions on particular technologies. His recent estimate on 19 OECD countries for 1960-2004 is that 1% wage increase might cause 0.4% increase in productivity (“Erosion”, p 409), for me with some doubt of the causal order. It would be important that other researchers replicate that finding.

One might assume that the Dutch Ministry of Economic Affairs would embrace Kleinknecht. The opposite happened. They withdrew all subsidies, and Kleinknecht had to look for another place to work.

  • From the VINTAF discussion, Dutch policy makers including the labour unions concluded to a policy of wage moderation. Maintaining employment was more important than increase in productivity.
  • Kleinknecht published articles that criticised this policy of wage moderation, for causing lower welfare in the long run. Apparently, the Ministry did not enjoy this criticism.

Eventually, Kleinknecht was able to restart at TU Delft to proceed with his analysis. He also kept singing the same song, and was often ridiculed by other economists for not supporting the conventional wisdom of wage moderation. Yet his work was published in major journals, and we can observe that he has a major track record.

There are people who are critical about the EU austerity after the 2007+ financial and euro crises. Such arguments are often less developed with vague references to say Keynes and demand management. The criticism by Kleinknecht et al. is much more specific, with also strong arguments. For example, the EU encourages labour market flexibility and the abolition of various arrangements, but Kleinknecht points to the importance of stability on the labour market. Companies must make risky investments in new technology, and they require workers who commit themselves. Bomhoff, referred above, argues that new companies entering the market should be able to pay lower wages, but this is an argument rather on wage structure and not on flexibility.

PM. Another positive point about Kleinknecht is that he warned in 2007 about the risk of an “earthquake on financial markets” (see here). There is Dutch Dirk Bezemer (also at INET) who wrote about such warnings by economists, but Bezemer doesn’t mention Kleinknecht, just like Bezemer doesn’t mention my work.

How a focus causes a blind spot

As I already explained in 1996 (Dutch article) Kleinknecht wasn’t aware back then of my alternative analysis and criticism of the policy of wage moderation. Given my analysis, Kleinknecht’s analysis on technology is supportive but not crucial.

Apparently, Kleinknecht has never wanted to study my analysis. Part of his reluctance can be understood, since my analysis has also been hit by censorship so that there are key parts that are not available yet. Part may be that Kleinknecht didn’t want to have another clash with the establishment. He already had his own struggle and didn’t need another one for someone else. Yet the censorship by the directorate of CPB exists since 1990 and Kleinknecht had his inaugural lecture at VU only in 1994.

I can only speculate what his motivation might be, since he hasn’t been willing to discuss this with me, and there is no need for speculation. It suffices to observe, and check above ZBW 2015:

  • Kleinknecht has his focus on technology and wage moderation
  • he doesn’t refer to my work on the Great Stagflation in the OECD, including the Dutch policy of wage moderation
  • and he doesn’t inform other scientists about the censorship of science since 1990 by the directorate of the Dutch CPB.

The TU Delft research group

In the past I sent an occasional update email to Kleinknecht, since he was the director of the TU Delft research group. I did not communicate with his co-authors. It is unclear to me to what extent Kleinknecht has communicated to others about my work. Thus, now that he has retired, and when I see that Servaas Storm repeats some of the arguments, I wonder whether this might mean that there is scope for a fresh restart, or that the hangup on wage moderation has become part of the TU Delft paradigm.

A note on VINTAF

For the record: The VINTAF model died a soft death at CPB and was replaced by models without vintages. The major industrial effect in the Dutch economy was the demise of the industry of clothing and textiles. Once this had happened, there wasn’t cause to presume a major vintage effect. In my own analysis, the demise of the clothing and textile industry can also be explained by a wrong management of the wage structure. My criticism on VINTAF is also my criticism on Kleinknecht et al. They neglect the impact of taxation and social premiums on the wage structure. Low tax exemption causes high minimum wages, while this industry might have adapted better with lower wage costs and thus high tax exemption. Holland would be served by differential management of wages and taxes. The domestic market requires lower taxes and thus lower wage costs (for barbers and gardeners) and the export market can allow for higher taxes and higher wages (for high tech industry and agriculture). This can be regulated by high exemption for taxes and premiums, and a VAT at 1%. This alternative analysis started at CPB itself by Marein van Schaaijk and Anton Bakhoven. I supplemented this with the analysis of the tax void, dynamic marginal tax rate, shift of the Phillipscurve, and the need for an Economic Supreme Court, see DRGTPE.

Return to the beginning

The reader may now return to the beginning of this weblog entry. One may check what the exchange is all about.

My take on this

Let me also give you my take on this. In my perception, Storm is fighting Kleinknecht’s Dutch ghosts from the past.

Storm 2016-01-08 states:

“The sad truth, however, is that Bofinger and Wren-Lewis are right for the wrong reason—hence their interventions are less than helpful, because rather than knocking out the remaining errors in the “consensus diagnosis”, they help perpetuate a mistaken doctrine: that relative unit-labor-costs matter [?] are the prime determinant of a country’s international competitiveness, current account balance, and foreign indebtedness. “

This confuses description and cause. Statistics show such differences. If Southern Europe doesn’t invest in technology as Germany does, then we can observe such relative unit labour costs (ULC). The cause would be investments.

“Rising relative unit labor costs supposedly killed Southern Europe’s export growth, raised current account deficits, created unsustainable external debts and reduced fiscal policy space, and hence, when the crisis broke, these countries lacked the resilience to absorb the shock. It follows in this story that the only escape from recession is for the Southern European countries rebuild their cost competitiveness—cutting wage costs (because Eurozone members cannot devalue their currency) by as much as 30% (as proposed by Sinn 2014), which requires in turn that their labor markets be thoroughly deregulated.”

This looks like a chicken-egg problem. Who would invest in Southern Europe if wage costs are so high ? If there is wage restraint, then investments would not be so large to generate sufficiently low unit labour costs.

“Secondly, of course it is true that Germany and German wage moderation bear part of the responsibility for bringing about the Eurozone crisis. Bofinger and Wren-Lewis have the best intentions while making this point (alas, the road to hell is paved with good intentions ….), but their single-minded emphasis on the importance of relative unit labor cost competitiveness is misguided for at least the following three reasons.”

When Bofinger and Wren-Lewis point to a particular factor, one cannot call this “single-mindedness”. The model is obviously larger than a single variable. First Storm grants part of their argument and then denies all of it.

(1) “Unit labor costs make up less than 25% of the gross output price, while a second reason is that firms in general do not pass on all (but mostly only half of) unit labor cost increases onto market prices.  (…) Germany excels in non-price (technology-based) competitiveness and does not engage (much) in price competition.” It may be doubted that Germany could simply raise the prices of its quality export products without a dent in their exports. Thus the prices and labour costs matter. 

(2) “It was German engineering ingenuity, not nominal wage restraint or the Hartz “reforms”, which reduced its unit labor costs. Any talk of Germany deliberately undercutting its Eurozone neighbors is therefore beside the point. ” The point was that wage moderation had an important contribution, and this is not negated by pointing to something else.

(3) “The only rational explanation for the observed time-sequence is that Southern Europe first experienced a debt-led growth boom, which then led to higher imports and higher capital inflows leading only after a lag of many quarters to lower unemployment and higher wage growth in excess of labor productivity growth (see Storm and Naastepad 2015c).” He might have mentioned that low domestic demand in Germany also reduced the scope for exports by Southern Europe to Germany (like holidays). The German balance of payment surplus had to be invested abroad, simply because of accounting rules. Thus if Germany had targeted for a external balance, Southern Europe would have faced a different situation.

According to Storm German wage moderation would be a factor but not the key one:

“In a nutshell, since the mid-1990s, Germany has become stronger and more productive in high-value-added, higher-tech manufacturing (in conjunction with outsourcing to Eastern European countries), while Southern European countries became more strongly locked into lower-tech, lower value-added and, often, non-tradable activities (Storm and Naastepad 2015c).”

“Cheap credit in the South created unsustainable asset bubbles and facilitated untenable debt accumulation which fed into higher growth, lower unemployment and higher wages—but all concentrated in the non-dynamic and often non-tradable sectors of their economies.”

This repeats point (3) above, and is the common critique about irresponsible banks, who did not take proper account of the creditworthiness of their customers (or the system of central banks, that did not take account of these systemic effects).

Storm is a student of the economics of technology, but arrives at issues of finance:

“What is the appropriate interest rate for the structurally divergent “core” and “periphery” in a one-size-fits-all monetary union? And how can banks, the financial sector and capital flows be made to contribute to a process of convergence (rather than divergence)”

“(…) ditch the dangerous myth that unit labor cost competitiveness is the prime problem”

In reply:

  • Nobody put the notion of “primacy” on the table. The model has more variables. Storm seems to fear such primacy because of the TU Delft research group hangup on wage moderation.
  • He overlooks the observation by Keynes, and repeated by Bofinger, that surplus countries have a responsibility too. Bofinger explicitly argues for a rise of wages in Germany while those in Southern Europe are restrained. Bofinger’s analysis is targeted at explaining that German wages should rise, and the argument is sound.
  • Does Storm really imagine a banking system that facilitates investments in Southern Europe even when unit labour costs guarantee a capital loss ? (Though levels are important rather than changes. E.g. compare hourly wage costs in Germany about 34 and Spain about 22 EUR per hour, which then must be met with productivity.)

Political fall-out

Dutch Wikipedia reports that Kleinknecht in 2007-2008 was member of a committee that advised the GreenLeft political party about its programme principles. Potentially one might understand Kleinknecht’s hesitance as a scientist to study my analysis and join the protest against the censorship of science since 1990 by the directorate of the CPB, yet such hesitation also affects such advise in such political environments. The first is worse, since the second is politics only, and the GreenLeft might be deluded anyway, yet it overall makes one wary about the anatomy of Holland and the spillover effects on Europe and the world.

On Flassbeck and Lapavitsas later on.

The road from science and scientific discovery into political discussion is often via the channel of a particular party. Politicians of any party are less likely to discuss an idea when there is no party advocating it anyway.

In the USA, members of the Senate and House are elected via districts, which is District Representation. This likely caused the division between two main parties, Democrats and Republicans. The situation likely causes that there are a lot of Think Tanks that want to reach out across the division, to inform voters directly on their various own approaches. For Think Tanks it is important to find at least one representative who is willing to support their case. Bipartisan support is nice but not always necessary, as one can always wait for the next turn in the political cycle.

In Holland, there is Proportional Representation (PR). With 150 seats, it takes only 1 / 150 = 0.67% of the nation-wide vote to get a new party into Parliament. When an issue is important enough to start a Think Tank on it, then likely at least 0.67% of the voters would care about it nation-wide, and then it might be better to start its own party rather than a Think Tank. Political parties in Holland have their own “scientific bureau“, that can inform the rest of the world about their analyses.

This paper of mine compares DR and PR, with the example of the UK, and concludes that the Dutch system is most democratic. See also the short discussion of this in Mathematics Teaching 222 in the context of the UK referendum on PR in 2011.

Baudet starts a think tank rather than a party

Thierry Baudet (1983) started in 2015 a Think Tank “Forum voor Democratie” (FvD) (forum for democracy).

Unfortunately the FvD English page currently still gives a Dutch text on their mission. Let me translate. Their stated mission is to fight the deterioration of democracy and improve its quality e.g. by means of referenda and direct elections of mayors. They also want to move power from the EU back to Holland. They want a strict system of “green cards” for immigrants. They explain their perceived link of democracy to the latter by that “uncontrolled immigration threathens social peace” (my translation). (Like in Brexit, immigration pops up at unlogical spots, as if people stop thinking when the subject arises.)

It is remarkable that Baudet thinks that he cannot get 0.67% of the vote for such a noble cause as the defence of democracy. In Holland, the political party D66 also wants to improve democracy, but they are pro-EU and not anti-EU, and thus he cannot join up. However, as a Think Tank, Baudet would be forced to collaborate a lot with D66, because of the shared view on democracy.

Perhaps it might be easier to start a niche Think Tank rather than a political party though: for, a party requires capable representatives. It may also be a matter of temperament, as Baudet states that he has no affinity with politics itself and wants to remain “independent”. It is okay for other people to follow him but he will not follow others.

Baudet and his FvD helped initiating the 2016 Dutch referendum on the EU Treaty with the Ukraine, see my discussion here and here. Baudet is also prominent in the peuro.nl petition, discussed in the former weblog text. There I promised to look a bit closer at Baudet’s views, which I will do here.

A bit on Baudet’s background

Today’s society cannot do without education. It is always useful to look at what people got their diploma in. This is not intended for an ad hominem argument but helps to clarify their field of competence and way of thinking. The theme of the “Two Cultures” by C.P. Snow indicates that we must be alert on bridging gaps. (See e.g. here.) When people age and grow more experienced, they will tend to diversify from their diploma, but it is seldom that a person from the humanities acquires a taste for science and mathematics as well.

Baudet’s cv doesn’t state whether he did gymnasium A or B. Generally students with gymnasium B tend to specify this though. Also given his later studies in history and law there is a great likelihood that Baudet did A. We should not expect insight in science and mathematics.

He got a bachelor in history in 2006. At Vox Europ 2012 “The EU is an empire, and empires mean war“, the website claims that he would be a historian too, but generally this label would be reserved for masters, and Vox Europ better corrects the claim.

Observe that the general label “historian” is vague too. It is generally better when people study a particular field before they look into the history of that field. It is awkward to look at an issue in the past when you don’t know about the very field of study itself. Grand themes might be an exception since it is impossible to study everything, but check out this discussion on David Armitage.

Baudet’s 2012 thesis,The significance of borders. Why representative government and the rule of law requires nation states“, is a thesis in law, supervised by law professor Paul Cliteur and philosopher Roger Scruton. Thus it is not a thesis in history, though the thesis refers to historical events.

PM 1. The other members of the thesis commission are in law too, except for Alfred van Staden who is a political scientist and professor in international relations. Would he vouch for these aspects in this thesis ? PM 2. The meaning of a thesis is that it is one way of showing that you are qualified to do scientific reseach in that particular field. It doesn’t necessarily mean that you fully proved a particular argument. PM 3. An objective of a thesis is that the new doctor learns modesty about what can actually be proven. PM 4. Cliteur states on his website that he looks at issues of free speech, see also his lecture. I informed him about the censorship of science since 1990 by the directorate of CPB, and he doesn’t show an interest. Apparently Cliteur doesn’t see that it is a no-brainer to say that religious fundamentalism and terrorists who abuse religion present a problem to free speech. Those groups enjoy that he pays attention to them because they thrive on attention and it makes them more important than they are. In the mean time, Cliteur doesn’t defend the freedom of scientific thought right on his doorsteps, while it would be important for a free society that such defence is provided.

I am still looking for a review of Baudet’s thesis by an independent reader.

Potentially the mentioned short Vox Europ article has the same theme as the thesis. The scheme of that short article is that imperialism causes wars, that nationalism is opposite to imperialism, and (thus) that nationalism would support peace. Also Baudet classifies the EU as imperialist. Whether these definitions and statements are supported by scientists working in this field remains to be seen. I am more inclined to interprete developments in terms of political economy, and I haven’t read a key (convincing) statement by Baudet yet why his approach from law should generate key conclusions.

For example, Robert Mundell’s theory of the optimal currency area starts from economics and then provides some historical data that confirm the point. It is open for falsification from history. Baudet seems to turn this around, and starts with historical cases like Napoleon or the USSR and transfers insights to the present EU. This complicates the issue very much, since it suggests that we all must be historians of Napoleon and the USSR before we might discuss the EU. Instead, I prefer a background in political economy, and look at the EU and its future, while I am open for falsifications by historians who suggest parallels in their area of study.

For example, Deirdre McCloskey in her work as economic historian started out from economic theory and the philosophies of ethics and liberty before she discovered the key role of Holland around 1650 in the transformation from the Middle Ages towards the modern world economy. I think that McCloskey is a fine economist and historian, and her discovery of the key role of virtue ethics in this historical process is very convincing – i.e. the change of the social view of the merchant as a robber towards that of admiration and high social status, with the whole social infrastructure of bourgeois society supporting that change of perception. A good historian is always aware that one should not read modern ideas into the past. However, scientific laws are the same over time, and economic processes work the same too.

Incidently, Hubert Smeets, a journalist who has been reporting about Russia and the former USSR over many years, suggested in NRC-Handelsblad last weeks, that Baudet, Kelder & Wellens (from the peuro.nl inititative) would have compared the EU to the former USSR. This is a strong accusation, since the USSR was a totalitarian state. Wellens asked the NRC Ombudsman for a correction. The Ombudsman Sjoerd de Jong gave a fallacious reply. This is my deconstruction (in Dutch) of this affair. Conclusion: Smeets made a false accusation. Baudet’s comparison concerns imperialism which is a different issue, and what Baudet wrote by himself doesn’t have to be supported by Kelder & Wellens. The Dutch Ombudsmen do not work well, see my letter of 2013 to the international organisation of Ombudsmen.

Comparison with Hans van Mierlo and D66 who are pro-EU

In 1966, master of law and journalist Hans van Mierlo (1931-2010) founded the political party D66 (“Democrats ’66”). The “crown jewels” of D66 are: (1) a change from PR to DR, (2) direct elections of mayors and prime minister, and (3) referenda. Thus:

  • Baudet cannot join D66 or their scientific bureau (named after Van Mierlo who didn’t do science) since they are pro-EU and he is anti-EU. But he would be forced to collaborate with D66 a lot because of the shared views on the “crown jewels” (except perhaps DR ?).
  • Scientific analysis of democracy shows that these D66 “crown jewels” actually are less democratic. See my book “Voting theory for democracy“.
  • As far as I know, Hans van Mierlo never studied democracy and its electoral systems. Van Mierlo only was in love with the USA of JFK, and in Holland in the 1960s these ideas sounded new.
  • As far as I know, nobody else in D66 studies democracy. See how they disinform the UK.
  • As far as I know, Baudet never studied democracy and its electoral systems either. I am not aware of a clarification by him why D66 never succeeded w.r.t. its crown jewels. Apparently, Baudet only buys uncritically into the propaganda by D66 as if referenda and direct elections would be more democratic. Curiously, Baudet’s 2012 thesis,The significance of borders. Why representative government and the rule of law requires nation states“, discusses representative democracy and not “democracy” by plebiscite.
  • The Brexit referendum is rather disastrous from the scientific view on democracy, but it requires some study – see here – to cut through the dogma that a referendum is pure democracy by definition.
Legalistic / Popular Scientific
Pro EU and euro Van Mierlo, D66: crown jewels
Anti EU and euro Baudet, FvD: referenda, direct elections, vague on DR vs PR
Pragmatic on EU and euro Me, SvHG: anti-crown jewels

When Van Mierlo deceased in 2010, I honoured him with the pamphlet “Laat D66 zichzelf opheffen” (Let D66 abolish itself). About the dead nothing but good, and the pamphlet was intended as an antidote for his sectarian followers in D66 who might turn him into a saint and martyr of democracy. Observe that I signed this pamphlet under my personal and not scientific name, since it is a personal political opinion that a political party better abolishes itself.

Pamphlet 2010: Let D66 abolish itself

Pamphlet 2010: Let D66 abolish itself

PM. There is also the Dutch LibDem Party (LDP), founded in 2006 by Sammy van Tuyll. They are social liberal like D66, like my suggestion from 1993 of a Social Liberal Forum (SLF). Van Tuyll has a background in medicine, economics and law, and should be able to understand my economic analysis. It is not clear to me why he doesn’t study and discuss it. Van Tuyll and I met in 2007 and I explained about the censorship of science, and it didn’t ring a bell. I can only suppose that when Van Tuyll ever is elected into government then he will continue with the censorship of science by the Dutch government.

Meeting Baudet in 2010

I met Thierry Baudet at a book presentation in 2010, when he was co-editor with Michiel Visser of a collection of essays on conservatism. My comment at the book presentation was that a good starting point would be the natural conservatism in classical liberalism as formulated by J.S. Mill and J.M. Keynes. Of course my background is in economics. The book title suggests the conundrum that conservatism actually is progressive, but the content of the book did not clearly resolve this conundrum. Overall I thought that the book was useful, but did not feel that I should buy the second volume.

I gave Baudet a copy of the book by Hans Hulst & Auke Hulst in collaboration with me (1998) Werkloosheid en armoede, de oplossing die werkt” (W&A) (Unemployment and poverty, the solution that works). In response, Baudet gave me his business card, whence I sent him a note on the next day, April 13 2010, to confirm contact. The card and this link show that Baudet was already active in improving democracy.

Baudet's business card of 2010, referring to Dutch Parliament with 150 representatives

Baudet’s business card of 2010, referring to Dutch Parliament with 150 representatives

My presumption was that Baudet would read W&A, and that there would be a discussion proceeding from there. In some interviews Baudet is portrayed with stacks of books in the background so there is the suggestion that he might read books. However, while I read the book that he and Visser edited, I did not get a reply on W&A and neither on my suggestion to have a further discussion. One possibility is that he was too busy with his 2012 thesis (though W&A is relevant for that topic too). But after completion of the thesis, there still is no sign of interest.

There is my warning from January 2012 to various young Dutch intellectuals who might come across as “Young Turks“, including Baudet, that they should not forget about the need for a solid scientific approach to change of society. I knew that Baudet was a PhD student but not that he would present his thesis in June that year. Perhaps Baudet thought this warning superfluous since he was working on that thesis at that time. Perhaps it is okay to put on blinders for a thesis when finishing it. The very purpose of a thesis however is to teach you the scientific attitude that one should not neglect criticism.

In 2012 I highlighted the issue that now surfaces in the peuro.nl petition again, namely the link between the EU and euro crises to the censorship of science by the directorate of the CPB.

If Baudet and his FvD are so much interested in improving democracy, why are they not interested in my analysis of the failure of Trias Politica, and the need for an extension with a constitutional Economic Supreme Court ? Why doesn’t Baudet write a review of “De ontketende Kiezer” (2003) ? Why this island mentality and burking and elbowing out of views of others ?

Baudet doesn’t inform Kelder & Wellens at peuro.nl

Baudet in 2015 collaborated with master of law and journalist Jort Kelder and management accountant Arno Wellens on the peuro.nl petition that wants an enquiry by Parliament about the creation and future of the euro. See my discussion of peuro.nl in the former weblog entry.

Kelder & Wellens confirm to me that Baudet did not inform them about W&A and this warning of mine of 2012 to the “Young Turks”. If they want Parliament to provide “full information”, then I would hope that they themselves acknowledge that they had a glitch in their own information amongst themselves. They disinformed the 40,000+ people who signed their petition.

Because of Baudet’s neglect since 2010 of key information about economics and censorship of science, there now is this peuro.nl initiative that focuses only on the euro, while the relevant enquiry should be about unemployment, role CPB … and euro. The euro is only a symptom, and an addition to what went wrong already before.

KWB

Jort Kelder, Arno Wellens and Thierry Baudet, screenshot peuro.nl 2015-12-14

Council of Recommendation

The format of a Think Tank for Baudet’s FvD allows academics to join up in a council of recommendation, too, which some might find problematic if it were a political party.

Member of the FvD council of recommendation are professors in constitutional law Jos Teunissen and Twan Tak. They should understand my approach that there should be no taxation on minimum earnings. See the short text “Don’t tax sweat“.  Teunissen has this useful text “Vrijheid, gelijkheid en belastingen” (2010) on couples, but it is better to start with individuals, and then see DRGTPE p131-132 on couples. Constitutional lawyers should also understand the failure of the Trias Politica model of democracy and the need for an Economic Supreme Court (per nation).

Seeing the names of Teunissen and Tak causes the hope that they will be able to explain these things to the other members of the council, and that all agree that FvD can be abolished as it has been based upon a wrong analysis, neglect by Baudet and disinformation since 2010.

Here we find Baudet’s thesis advisors Paul Cliteur and Roger Scruton again. Obviously the thesis differs from the mission of FvD and it is a bit remarkable that the supervisors travel along, though the direction of travelling might also have been the other way around (from Euroskeptism towards thesis).

To my surprise I also see: Deirdre McCloskey ! After some search, though, we see that Baudet explains in his cv that he taught “between 2010 and 2011” at Arjo Klamer’s school “Academia Vitae” (though it filed for bankruptcy in February 2010), when Jos de Beus (1952-2013) got ill. McCloskey may have taught at this school too. Arjo Klamer was close to De Beus and gave an impressive presentation at the memorial meeting – see my comments on this. It is important to know that Jos de Beus did not understand Kenneth Arrow’s impossibility theorem for collective decision making. It is important to know that there is a line in economic theory from Jan Tinbergen to his PhD student Hans van den Doel to me, with a floundering branch to political theorist Jos de Beus, who collaborated with Van den Doel. Jos de Beus and I met when I presented Van den Doel with the Samuel van Houten Penning in 1994. We had occasional contact but to no effect.

As an economist, Arjo Klamer could help out by studying my work, but he doesn’t. Klamer however is also in the council of recommendation of FvD. For some reason, economists Klamer and McCloskey prefer Baudet’s non-economic approach in theory of law above my development in economic theory from Jan Tinbergen and Hans van den Doel. If only they studied my analysis and stated why they disagree, but now the world must wonder why they don’t look at it at all. And why would they not understand that they cannot see the full analysis yet, because of the censorship ? Ergo, that this censorship must be lifted ?

A member of the FvD council of recommendation is philosopher Ad Verbrugge. He is founding chairman of “Beter Onderwijs Nederland” (BON) (for “Better Education”). At the website of BON, some mathematicians are slandering about my work on mathematics education. Verbrugge doesn’t do anything about this. There is this letter of 2009 (my website has moved to thomascool.eu). I have rephrased some questions again this Summer for fellow math teacher Karin den Heijer, now board member of BON, see page 11 here.

The link to mathematics education is important. See my letter to the president of KNAW and directorate of CPB 2016, that explains that maltreatment of my work on mathematics education hinders other people to also see the value of my work in economics.

Member of this council of recommendation is Kees de Lange, emeritus professor in physics and former chair of an association on pensions NPB. De Lange might have looked at my suggestions on mathematics education, see my suggestion on what physicists might do. I am not impressed by De Lange’s understanding of economics. I am not aware of someone in the Dutch world of pensions who warned about the 2007+ crisis. In 2009 I contacted De Lange as chairman of NBP and informed him about the censorship of science since 1990 by the directorate of CPB. His reply was sympathetic to my feelings, as if that were a relevant issue, and that NBP did not look into economic analyses, and that my approach might only be discussed when shared by more economists (but they didn’t look at analyses anyway). I came away from this with the impression that De Lange was lost, both as a scientist and chairman of NBP. Later in 2010 De Lange helped found a political party 50Plus, he was elected in the Dutch Senate as member of a two-man fraction of OSF 2011-2015, but then continued independently.

PM. At this spot it is useful to mention that Baudet, Wellens and De Lange also perform in video channel “Cafe Weltschmerz“, created by (bachelor in business and marketing) journalist Willem Middelkoop (LinkedIn), who after the 2007+ crisis got rich by telling people to get into gold rather than have a parliamentarian enquiry into unemployment and censorship since 1990 by the directorate of CPB. One of Middelkoop’s books was published by Amsterdam University Press and by standard arrangement adopted by the University of Chicago Press, but it should have been accepted at neither place since there is no link to science. See my discussion of the gold bugs. One supposes that Middelkoop likes it when Baudet, Wellens and De Lange continue to create uncertainty amongst viewers, so that the market for gold as a “safe haven” remains strong. It is a pity, though, that this circus also draws in young people looking for answers, like psychiatrist Esther van Fenema (wiki) and mathematician Anna Grebenchtchikova (LinkedIn) and lawyer Hester Bais. They, with their higher education that should guard them, might be falling in the journalistic trap to look at symptoms rather than causes.

Member of the council of recommendation is Tom Zwart, professor of international and European law, since 2007 director of the Dutch School of Human Rights Research. Perhaps freedom of expression is also a human right of a scientist ? Or is the option to do science no human right ?

Member of the council of recommendation are other economists Edin Mujagic, Bruno de Haas and Daniel Lacalle. Let me invite them to study my work, starting with DRGTPE (before the crisis) and CSBH (after the crisis). Mujagic hasn’t responded yet, though my analysis dates from the fall of the Berlin Wall, that also affected his past. Lacalle is a hedgefund manager and could get very rich if he would start supporting my analysis (supporting the boycott of Holland, explaining to all that it is needed, and speculating on it).

Last but not least there is Theodore Dalrymple, who might be very happy to finally understand why the Dutch welfare state isn’t working as it is supposed to.

Thierry Baudet and Paul Scheffer

At “Cafe Weltschmerz” there is also this (tedious) interview of Paul Scheffer (1954, like me, Angela Merkel and Franςois Hollande) by Baudet on the Dutch referendum on the treaty of the EU with the Ukraine. Scheffer states that he would vote Yes for the treaty. Baudet participated in setting up the referendum, with the objective that people would vote No. It is fine that they can have this civilised talk, though it was so tedious that I quit watching after 10 minutes (though the referendum has already taken place).

Baudet was for one year a post-doc in 2013 with Paul Scheffer who has a chair in European studies in Tilburg. Originally, Scheffer first wrote a popular book on migration and the multicultural society, and then turned this into a thesis for Tilburg. The Leiden professor of social history Leo Lucassen stepped down from the promotion committee in protest that not enough had been done to make it a real thesis.

Scheffer did highschool HBS A, and graduated in political science in 1986. In his student years he joined the Dutch communist party, and later switched to the social democratic PvdA. He was at the Wiardi Beckman Stichting (WBS), the “scientific bureau” of PvdA in 1986-1992.

I was a member of PvdA in 1974-1991. When I was at CPB in 1982-1991 I developed my analysis on unemployment, with the conceptual breakthrough when the fall of the Berlin Wall in 1989 caused me to look at some fundamentals. My analysis was censored by the directorate. I sent a copy of my 1990 paper to Parliament, so that all parties were informed, and I was free to contact PvdA of which I was a member. I contacted WBS, and I assumed that fellow social democratic scientists would be interested in an analysis on unemployment. To my great surprise and dismay, they were not. See the letter reproduced in “De ontketende kiezer” (2003) p128. See my discussion “Soms loopt het zo” in “Trias Politica & Centraal Planbureau” (1994). My contact was with fellow econometrician Paul de Beer. I met Scheffer at a PvdA convention at that time so he was in the know. I met Scheffer again at the memorial service of Jos de Beus. I later discovered that Paul de Beer was an adherent of the idea of a basic income. See my discussion about the sectarian behaviour around basic income.

Director of WBS in 1989-2006 was Paul Kalma. I had had some contacts with earlier director Joop van den Berg (1981-1989), now fellow at the Dutch Montesquieu institute. The idea that there are drawbacks to the Trias Politica structure hasn’t arrived there yet.

When Holland succeeds in having this parliamentarian enquiry on unemployment and the role of the CPB … and the euro … then these events at WBS would be important to look into as well. As said at the beginning, the road from science and scientific discovery into political discussion is often via the channel of a particular party. Politicians of any party are less likely to discuss an idea when there is no party advocating it anyway. Thus it is very relevant to know why social democratic researchers at WBS were and still are not interested in a new approach to unemployment. I will be interested in hearing what has been happening as well. Obviously, Parliament will be hesitant to ask questions, since WBS is protected by the aura of science and by that parties will not easily look into dealings of other parties. But the notion of “scientific bureau” better be taken seriously, and scientists should be familiar with the idea of answering questions. Perhaps Thierry Baudet can already ask Paul Scheffer what his recollections are, and why Scheffer didn’t and still doesn’t do anything about the censorship when he heard about it.

The three Pauls (De Beer, Kalma, Scheffer), in 1991 at WBS (wikimedia commons and website De Beer)

The three Pauls: De Beer, Kalma, Scheffer, who were in 1990-1991 at WBS (wikimedia commons and website De Beer)

When a petition (“civil initiative“) in Holland achieves 40,000 signatures then it is mandatory for Dutch Parliament to pay attention to it, and formulate an answer.

The right to petition is old. The right to petition is in the Magna Carta of 1215. In Holland, the petition in 1566 by the nobles to Margaret of Parma is still taught in schools as a first step to the 80 year liberation war from Habsburg Spain in 1568-1648.

Famien_Strada_Histoire-Smeekschrift_der_Edelen-ppn087811480_MG_8892-T1p287In 2016, a letter to Parliament might be enough. Perhaps the issue can be resolved when Parliament (existing parties) indeed pay attention. But Parliament might not pay attention as it is too busy with its own petitions to the cabinet. Citizens with an issue might unite in a political party and get a seat in Parliament, but then there might be one-issue parties. Thus, the procedure for such a civil initiative and the criterion of 40,000 signatures make some sense. Dutch wikipedia (a portal no source) has a list of such petitions since 2006.

My scientific endeavour caused me to propose two petitions: (1) to have a Parliamentarian enquiry into unemployment and role of the Central Planning Bureau … and the euro, (2) to have a Parliamentarian enquiry into mathematics education and its research and policy making. Let us momentarily ignore the second one on math ed and its research, and focus on the economy.

There are two other petitions on the economy that require some attention. These have been caused by popular worry on the 2007+ crisis and not by scientific endeavour. Thus, let us discuss these three petitions to Dutch Parliament:

  1. Ons Geld (our money): a petition to have a different system of money and banking, with nationalisation of seigniorage, e.g. 0% or 100% fraction reserve banking. Their general website apparently is different from the petition itself, and is here. They want Parliament not just to study but to accept a principle.
  2. Peuro.nl: a petition to have a Parliamentarian enquiry into the creation and policy options for the euro.
  3. My petition to have a Parliamentarian enquiry into unemployment and role of the Central Planning Bureau … and the euro. Dutch readers would benefit from my discussion in 2013 (three pages) of euro 2.0 and a new system of money and banking.

From a position in science, the first 2 petitions are misleading to the people. They don’t focus on the real problem in the crisis and distract from the 3rd petition. They also abuse public worries about the crisis for the hobby horses of the initiators. These initiators found 40,000+ people willing to sign up, but the initiatiors did not give these people full information about the 3rd option. The initiators regard democracy as a beauty contest for the attention of the masses and not as an obligation to first arrive at sound information.

Thus, when Parliament evalutates the law on civil initiatives, it might look into rules how to better deal with information.

  • It would be important to know what individual members and Parliament as a whole accept as information. There is often reference to “science” but scientists have various analyses. A petition for a Parliamentarian enquiry might be superfluous when Parliament can already state what it “knows”. Such an enquiry however is useful for finding new information – e.g. via testimonials by experts.
  • Parliament already has a list of incoming data (with a difference between data and information). People might check these data too, but perhaps there can be a Parliamentarian institution turning these data into information.
  • People who want to embark upon a petition might be assisted in the identification of what isn’t known yet, and should also accept the responsibility of scientists to include information that might be new to them and respond to criticism, so that they don’t impose upon social time needlessly for what it essentially their own process of learning.
Petition 1. Ons Geld: 0% or 100% (?) reserve banking and nationalisation of seigniorage

Steps in the petition proceedings were:

  1. Jeroen Dijsselbloem, the Dutch minister of finance, replying to the petition in his letter of Feb 1 2016, rejected a change in the present system of money and banking.
  2. For the Parliamentarian debate there were different motions.
  3. The motion by Wouter Koolmees (D66) was accepted, to make it easier to have a 100% fraction reserve bank. Potentially, deposit insurance premiums might be reduced, but not fully abolished, since bad investments are not excluded (except in my scheme in “Money as gold versus money as water” (2013)).
  4. The motion by Pieter Omtzigt (CDA) to have a deeper study by the Scientific Council for Government Policy (WRR) apparently is still under consideration. However, Jeroen Dijsselbloem apparently accepted the suggestion during the debate, and the WRR now has a weblink about this planned study. At WRR, a key position is by Arnoud Boot, professor of financial markets, at UvA. Boot has been prominent in the Dutch discussion on the 2007+ crisis.
  5. Jeroen Dijsselbloem, in his letter of June 21 2016, reviews current policy. He doesn’t refer to the WRR study like it doesn’t exist or would be relevant.

Thus, the petition started by non-scientists, and their request has been channeled towards science.

The initiators might have asked Arnoud Boot directly – by phone or email or at a conference or by organising a small conference themselves – whether he would be willing to look into this issue and try to get some WRR backing. There have been plenty of academics and policy researchers who have looked into the notion of 100% reserve banking, see for example the Benes & Kumhof IMF 2012 working paper, that revisits the Chicago Plan of 1936 by Irving Fisher and others. A researcher alerted me to Charles A. E. Goodhart and Meinhard A. Jensen,”A Commentary on Patrizio LainaÌ’s ‘Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf´“, Economic Thought Vol 4, No 2, 2015. Update 2017-06-09: On 0% reserve banking, see e.g. here (except for the view at the end that our banking system is a Ponzi scheme).

The advantage of the petition however might be that now it is the minister of finance who asked WRR. It might be less easy for the minister to neglect the report once it arrives because he himself asked for it. However, such WRR reports tend to cause ministers no real problems.

A key problem would be that seigniorage now is under control of the European Central Bank (ECB) and that the Maastricht Treaty would require amendment which would not be achieved easily. However, the EU is managed by crises by management, and there will be plenty of crises requiring new adaptations.

Irving Fisher (1933) and Arnoud Boot (ca. 2010), Wikimedia Commons (photo Christiaan Krouwels)

Irving Fisher (1933) and Arnoud Boot (ca. 2010), Wikimedia Commons (photo Christiaan Krouwels)

A guarded compliment for Dutch Parliament

Overall, I find the process still is a bit surprising. It was Parliament that created this new law on petitions, and Parliament can be complimented that it dealt with the petition by proper procedure.

Undoubtedly, all political parties already had ideas by themselves about money and banking. They didn’t need this petition to discuss the topic. However, the media reported on the initiative, and it touched a nerve in public worry about the 2007+ crisis, and thus the existing political parties in Parliament were alerted on their role as representatives of the people in general. Apparently, the petition caused a temporary focus on some aspects that they enjoyed discussing.

The end result that there will be a study by WRR could also have been achieved otherwise, but overall the petition allowed Parliament to show how Parliament can work on its better days. Except that it is a pity that Parliament did not discuss my letter that explained what in this petition was misleading.

Why the Ons Geld petition is essentially misleading

The economist in this group is Ad Broere, now independent consultant. It is unclear to me whether he is a general economist or a business economist, but he taught financial management and management accounting. I don’t see when the petition started but I informed Broere in April 2013 about this weblog of mine and about my approach to Euro 2.0, and did not get a reply. I find this problematic. Isn’t Broere interested in fellow economists who look into a similar issue ?

The Ons Geld documentation refers to engineer and non-economist Klaas van Egmond, who supposes a stock of money as large as GDP (= 1 in the model MV = PY) so that 1% growth in the stock of money (seigniorage under full reserve banking) amounts to 6 bn euro’s (page 13 of their document, or p645 in Van Egmond & De Vries ESB 4721, November 5 2015). They also seem to forget that banks use current seigniorage to pay for costs. They sugggest that all seigniorage can be taken by the government without the need for bank to raise transaction fees. Taking seigniorage away from banks might also be seen as the government introducing a tax on banks that they must recuperate in fees. The email exchange with Van Egmond on this is here. Any economist who looks into this proposal should spot these misleading assumption. It is curious that ESB let this paper be published. Any banker can tell these initiators that they tend to neglect the costs of operating a money system. Indeed Wim Boonstra in the same issue of ESB explains about costs.

There is also Dirk Bezemer who is only an advisor to the Ons Geld group, but he claims a position in science, and in fact recently in June 2016 was appointed as economics professor in Groningen which I protest about.

I already discussed this Ons Geld petition when observing that Dirk Bezemer disinformed Dutch Parliament in 2015. Before that, he disinformed Sweden in 2012, and after that he disinformed Radar TV in 2016.

A strange interaction between Van Egmond and Bezemer

Klaas van Egmond in both ESB and his presentation for Parliament refers to the article by Bezemer 2009 “No one saw this coming“. Apparently, Van Egmond has not read this article since he misrepresents its message.

The crisis of 2008 was not or hardly forseeable: “no one saw this coming” (Bezemer, 2009).” or in Dutch: “De crisis van 2008 was niet of nauwelijks te voorzien (…)

However, Bezemer really stated (VoxEU column):

“One result from such reflection would be that in fact, many had predicted this course of events for years. In a recent study (Bezemer 2009), I document the economists who did “see it coming”. At least a dozen serious analysts issued fairly detailed, well reasoned, and public warnings of imminent finance-induced recession.

They were apparently ignored by Stevens and other central bankers who then, as Alan Greenspan professed in his October 2008 testimony, watched with “shocked disbelief” as their “whole intellectual edifice collapse in the summer [of 2007]”. The official models they relied on missed the crisis not because the conditions were so unusual, as we are often told. They missed it by design.”

More on Dirk Bezemer 1

Bezemer’s background is in agricultural economics (thesis 2001). This need not be a problem. Jeroen Dijsselbloem is an agricultural economist, and there it is a problem. John Kenneth Galbraith started as an agricultural economist too, and I am much in favour of Galbraith, so this background itself should not prevent Bezemer from studying other issues too. It might actually be beneficial to have more background than only a focus on money as often happens with monetary economists. Bezemer came to money and banking via the notion of risk, the collapse of the Albanian economy due to a Ponzi scheme, and the crisis of 2007+.

Scientists should reply to criticism by fellow scientists. If Bezemer doesn’t reply to criticism and proceeds in disinforming others then his claim on being a scientist is up for grabs.

Bezemer had the bad luck that his paper “No one saw this coming” of 2009 got the fancy of readers who worried about the economic crisis. He got a subsidy from INET. Apparently he doesn’t want this success to be tainted by having to reply to criticism.

  • Just to be sure: I am very specific w.r.t. my criticism of 2009  w.r.t. Bezemer’s paper of 2009. If he would provide an answer perhaps this criticism might be resolved.
  • In 2016 there however are the additional questions:
    • why it takes so long to answer to criticism of 2009,
    • why he misleads people by not responding to criticism, including now his co-authors or own PhD students Kristiana Rozite, Joeri Schasfoort, Maria Grydaki, Anna Samarina and Lu Zhang, or his contacts in the Bank of England (BoE),
    • why he didn’t spot Klaas van Egmond’s errors: (a) on the stock of money, (b) on bank costs, (c) on misquoting his own paper,
    • why he doesn’t support my protest against censorship of science since 1990 in Holland. Like we had “Albanian (Ponzi) economics” and “Greek statistics” we also have “Dutch economic science” and one would expect scientists to protest about this.
More on Dirk Bezemer 2

In a google for this weblog text I also found an interview in English with both Lex Hoogduin and Dirk Bezemer in 2014 about the “pluralist” course in money and finance that they teach at the university of Groningen (also my alma mater).

Apparently, this “pluralist” approach still excludes reference to my work (DRGTPE and CSBH). It is also awkward to read such such interviews. I warned about developments before the crisis but neither Hoogduin nor Bezemer warned about the crisis but make a living of explaining it after the fact. Hoogduin was personal advisor of Wim Duisenberg and thus would be a prime witness for the peuro.nl Parliamentarian enquiry discussed below.

Bezemer states:

“(…) almost nobody saw it coming. Those who did see it coming, where rather obscure economists working in the Post-Keynesian and Austrian traditions.” (Bezemer, p6, first column, bottom)

  1. This is a misrepresentation of history. There is much more to the explanation of the crisis than what Bezemer makes of it. This is not a trivial issue. The diagnosis is relevant for the treatment. When you only see half of the explanation – since you willfully ignore criticism – then your policy advice will also be biased.
  2. There were more people warning, including me. Let Bezemer reply to my criticism. I am no obscure economist. I am part and parcel of the tradition of Jan Tinbergen and the Dutch Central Planning Bureau. I am an economist who is censored and ignored by deliberation.
  3. Bezemer shifts the meaning of his own analysis. Has he forgotton what he wrote, and is he starting to believe the quote in his title ?
  4. Hyman Minski was no obscure economist. The post-keynesian and Austrian traditions are well-known in economics, i.e. for people who study economics who aren’t of a one-track mind. Much is also in Maynard Keynes, who clearly included the uncertainty of the future into the conceptual model (e.g. “animal spirits”). “Post-Keynesian” might often read as Keynesian as well.
  5. It may well be that central banking economists like Lex Hoogduin forgot about Minski but that doesn’t make Minski obscure but it rather makes Hoogduin less competent. It is not as competent as well how Hoogduin treats my analysis, e.g. in the context of Peter Bofinger‘s visit to Amsterdam in 2012.

Bezemer also states:

“Thanks to research grants, I can put my money where my mouth is.” (Bezemer, p6, second column, bottom)

This is a wrong application of the proverb. Putting your money where your mouth is concerns your own money, not the money of other people received as research grants.

PM. Edin Mujagic and murdering money

I now found this text by Edin Mujagic who argues that the Ons Geld petition is rather superfluous, and that the focus should be not on banks but on Central Banking. I agree with much of this. However, it would be a change in the system of money and banking when economic agents could have accounts at the Central Bank at very low cost, see my paper “Money as gold versus money as water” (2013). The Central Bank doesn’t have to make investments since it can always print money, and also print money to run the system. A transaction fee however makes sense since it involves human activity. Also, it is better to first have an Economic Supreme Court before discussing changes in Central Banking. Mujagic has a recent book on central banking that I haven’t read and likely will not read, since it is better that he first reads my earlier analysis. Mujagic collaborated with Thierry Baudet on the latter’s Forum voor Democratie, about which later on.

Petition 2. Peuro.nl: A Parliamentarian enquiry into the creation and policy options for the euro

The petition was started by doctor of law Thierry Baudet (1983), master of law Jort Kelder (1964) and management accountant Arno Wellens (ca. 1988). Steps in the proceedings have been:

  1. When the petition had 38,000 signatures, there was this useful tv-interview with Kelder by journalist Sven Kockelmann (1969) (March 30 2015).
  2. After the petition got its 40,000+ signatures, there was a meeting of the Parliamentarian committee where the petitioneers presented their case (Video December 14 2015).
  3. Jeroen Dijsselbloem restated the position of the Dutch government, with the main point that the euro had been created in a democratic process (letter July 13 2016).
  4. The Parliamentarian committee will look into this when returning from the Summer vacation.
  5. PM. Political parties are busy with their programmes for the Dutch general elections of March 2017.

In NRC-Handelsblad Baudet, Kelder & Wellens warned “the Dutch elite” that there might be a Nexit if public concern isn’t handled properly. They got a reply by economists Steven Brakman & Harry Garretsen, and there is a short deconstruction by Ron Ritzen. Note that Kelder doesn’t want a Nexit but only wants to leave the euro and only warns about the risk about a Next.

Kelder and Wellens versus Baudet

Kelder and Wellens show much interest in money & wealth and its frauds.This interest might have seduced them to embrace the peuro.nl petition, not hindered by a deeper study of political economy (Dutch “staathuishoudkunde”).

Kelder studied law, became a journalist, was chief editor of Quote magazine (a Dutch version of Forbes) and started his own digital magazine 925.nl (“nine to five”) of which Wellens is chief editor. Kelder is well-connected and counts Dutch prime minister Mark Rutte as one of his friendly contacts from the students days and young liberals JOVD. Mark Rutte studied history, and not economics, and still is an adept of Margaret Thatcher.

In the interview by Kockelmann, Kelder states that he was invited by Baudet. In 2010 I gave Baudet a copy of the book by Hans Hulst and Auke Hulst in collaboration with me, “Werkloosheid en armoede, de oplossing die werkt(1998). Readers of English may be helped by this part of the analysis “Don’t tax sweat“. I asked Kelder & Wellens whether Baudet had informed them about this, and they said “No”. At a Parliamentarian enquiry, Baudet might explain why he invited Kelder without giving full information, and Kelder might explain why he is happy with this.

Kelder

On the question what news Kelder wants to see, Kelder rather dodges the question.

  1. Duisenberg (1935-2005, age 70) is deceased. A point of him is that people like Lubbers, Kok, Zalm and Bolkestein are still alive, and that there still is the opportunity to record their views. They are no longer in Parliament. However, they already presented their views in Parliament in the past. Their positions have been well documented. Readers and listeners of Dutch can see the video of “Geschiedenis24” of Black Monday of the Maastricht Treaty.
  2. According to Kelder many people accept the euro without studying it. If Parliament would have public hearings then people would start paying attention. This “media circus” however is not the purpose of a Parliamentarian enquiry. The purpose is to collect information for law making. Thus, the law on petitions generates a request to abuse the law on the Parliamentarian enquiry.
  3. Kelder states that there is hardly discussion about the consequences of the euro. There is discussion about millions of euros but not about the trillions of euros involved in the future of the euro, say ESM and so on. His peuro.nl initiative is intended to generate more attention for a public discussion of these issues. However, Kelder ignores that there is a discussion between experts. Public discussion of course is okay in a democracy, but soon issues become complex, and then the lay people and experts have a difficult time in communicating with each other. My suggestion has been the creation of an Economic Supreme Court (ESC), to help bridge the gap. The ESC focuses on government policy, is open to science and the public, and thus would provide a platform to discuss issues on content without political meddling. Kelder ignores this idea too. Thus he is aware that there is a problem in modern democracy with complex issues, but his solution is from 1800 to have a “public debate”. Thus he ignores that there is already discussion (see e.g. my papers and book “Common Sense: Boycott Holland” (CSBH, 2012), and he, as he writes me, actually doesn’t have time for following this discussion, so that he is a bit like the ostrich who wants Parliament to make the monster go away.

Recently, Kelder stated that he wants to quit the euro (Telegraaf, July 2). It is unclear whether he means that Holland must create the guilder again, or whether he e.g. wants a break-up into Northern and Southern coins (and France belonging where ?). Thus Parliament still has something to study for him.

I feel uncomfortable about this Telegraaf interview, since Kelder uses strong language that make him sound annoyed and angry, while he generally tends to present a polite and easy-going image. In the interview, Kelder grows aware himself about this contrast, is amazed about his own bitterness, and clarifies that he isn’t himself when speaking like this. Kelder states these views:

  • He rejects the Southern influence on the euro because of the differences in management cultures (Calvinism versus Catholicism), and sees leaving the euro as the only way to handle such differences,
  • he calls the EU a “religion”,
  • and calls Jean-Claude Juncker a “power junkie” (Dutch “machtswellusteling”, Google Translate “power voluptuary”) who has not been elected democratically (though there have been EU Parliamentarian elections),
  • and warns for a Nexit (NL leaving the EU) when Dutch policy makers do not come to their senses. Kelder would not be in favour of Nexit. He focuses on the eurozone. In this, Kelder seems to ignore the errors in democracy in the Brexit referendum. That is, when there would be a Nexit, he would not fight it as a result of misleading processes (e.g. errors that are propounded by Baudet’s Forum voor Democratie), but would still regard it as proof that people reject current policy making,
  • he doesn’t want to come across as angry, because he states that he isn’t, though he uses language that suggests that he is.
Baudet and Wellens

This weblog entry is already too long. In a sequel I will look at Baudet and Wellens.

PM. Petition 3. Unemployment, CPB … and euro

I suppose that I can give the short conclusion that this petition is the one to sign (by Dutch citizens). See the About page of this weblog.

President Obama can do little other than teach, in the last year of his presidency and with a majority opposition. Obama just advised the British to vote for the EU on the Brexit referendum. He is at risk of infringing upon national sovereignty, the very thing that the referendum is about.

The Brexit referendum stay / leave question is, and let me include the FT poll score,

Should the United Kingdom remain a member of the European Union or leave the European Union?
Remain a member of the European Union [  ] (44%)
Leave the European Union [  ] (42%)

Leaving the EU still allows various alternatives. If the vote would split over those options, perhaps one better stays. There is no way of knowing. Referenda tend to be silly and dangerous.

  • Referenda work only well when there are two options only, with a clear-cut Yes / No answer. This kind of question occurs only by exception.
  • Normal issues have more options and grades of grey. With at least three options, there arises the Condorcet paradox. For such issues, there better be representative government, with a Parliament selected by proportional representation (PR), and which Parliaments uses more complex methods for bargaining and voting – see Voting Theory for Democracy.
  • The pitfall is that a question might seem to have a clear-cut Yes / No answer while it actually has other options and such grades. Check how the Brexit question masks the other options. It often is an issue of political manipulation to reduce a complex issue to seeming simplicity, and to create a situation such that the political leader who drafts the question might argue to have the backing of the people.
  • Referenda belong to populism and not to democracy.

In this case, UK prime minister David Cameron has to overcome a rebellion in his own party and the threat of defection to UKIP. Check this report on Cameron’s bargaining with the EU. Given this bargaining result Cameron now argues for the EU and he hopes to secure peace in his party. It is somewhat curious that the whole of the UK is called to the ballot box to resolve such internal strife, but the same happened in 1975 with Harold Wilson and the Labour Party.

An advantage of the Brexit referendum is that the BBC now had two broadcasts “Europe: Them or Us“, that review the relation of the UK to the EU. It has been awfully nice to see the ghosts of the pasts perform their part in this drama. See also here and youtube. Some key points that struck me were:

  • Churchill argued for a united Europe.
  • The UK 1975 referendum caused people to complain a decade later: “We voted for a Common Market and later we got something else.”
  • Margaret Thatcher started out as a European, supported Europe in 1975, actually initiated and signed the 1986 Single European Act, with the change from a Common Market (with veto power by country) to the (Europe 1992) Single Market (replacing veto power by qualified majority), and whisked it through the UK Parliament without proper discussion about this abolition of national sovereignty. Only later came the 1988 Bruges speech.

The key point for Cameron has been to restore a shadow of that veto power. Britain cannot block others from having an ever closer union, but it has an opt-out:

“Assessment: Mr Cameron has secured a commitment to exempt Britain from “ever closer union” to be written into the treaties. He has also negotiated the inclusion of a “red-card” mechanism, a new power. If 55% of national parliaments agree, they could effectively block or veto a commission proposal. The question is how likely is this “red card” system to be used. A much weaker “yellow card” was only used twice. The red-card mechanism depends crucially on building alliances. The sceptics say it does not come close to winning the UK back control of its own affairs – and Mr Cameron is set to announce further measures which he claims will put the sovereignty of the Westminster Parliament “beyond doubt”.” (BBC Feb 20 2016)

Some points that I missed in these two “Europe: Them or Us” broadcasts:

  • There is no recognition for Bernard Connolly whose The Rotten Heart of Europe helped the British to stay out of the euro and to keep the pound. There is still room for a better approach to the notion of an optimal currency area.
  • There is little clarity about what the economic discussion really has been about. “Economic union” and “political union” are vague words, and it seems relatively easy to make a political speech or TV broadcast with these. Details matter however. Details help to keep out the ideologues. It is said that Britain has the best economists (Marshall, Keynes, Hicks) but Germany the best economy. Margaret Thatcher would have been much more effective when she had proposed good economics rather than banging the handbag. The relation of the UK to the EU would have been far better had the UK shown better economic analysis and an economy to prove it. Thatcher came to power during a time of stagflation when economists were in disarray and neoliberalism seemed the only way out. This neoliberalism however contributed to the global financial crisis and the economic crisis of 2007+. See my analysis since 1990. Of the core issue, a recent turn is the myth about German decentralised labour market bargaining. Britain has an impact on the European economy via the City and its banks (a fair reason to stay in), but why doesn’t Britain have more impact ?
  • Democracy in the UK suffers from district representation (DR), and it would be better to have proportional representation (PR). There is too little awareness in the UK that much of their political mayhem is caused by their rather unresponsive electoral system. See the comparison of Holland and the UK, and see how Nick Clegg shot his own foot (and destroyed the LibDems).

PM. After writing this, I discovered this review of “Europe: Them or Us” by Sean O’Grady and he says much of the same thing.

The recent Dutch referendum on the Association treaty with the Ukraine is another example of how referenda can be silly and dangerous. I voted against that treaty because of the military section hat would involve the EU in helping secure the Ukrainian borders, which would effectively move NATO’s borders eastward. Government propaganda did not pay much attention to the military section and emphasized the section on free trade. Even there the propaganda didn’t draw the parallel with the economic collapse in East Germany (DDR) when it was merged with West Germany (BRD). In this case, representative democracy failed, for it created this Association treaty, and the Dutch referendum was a freak event that might actually do some good. It still confirms that referenda tend to be silly and dangerous, since the proper answer would have been a better informed discussion in Parliament, notably by having (a) an Economic Supreme Court, (b) annual elections.

Reproduced with permission by Jos Collignon

Thanks to Jos Collignon for permission to reproduce this

Last February, fellow economist John Quiggin tried to make sense of political developments by relating those to the economic crisis of 2007+ a.k.a. the Global Financial Crisis (GFC). Quiggin warned about his “amateur political analysis” and proceeded to identify a “three party system“: with leftism, neoliberalism and tribalism (see his definitions). The neoliberals are soft (“reforming” the welfare state) or tough (abolishing it). Dutch readers may check the column by Wouter de Been which alerted me to this, and who argued: “It’s still the economy, stupid.

A first comment is that Quiggin actually has four groups, namely leftism (Bernie Sanders), soft neoliberals (Hillary Clinton), hard neoliberals (Donald Trump) and tribalism (Ted Cruz). See the diagram below.

A second comment is that Quiggin uses the economic term “neoliberalism” as a political label. However, economics is a tool and not an objective. Instead we should categorize politics by values, such as (in-) equality and freedom. It must be admitted that economics has much influence on political discussion but it remains necessary to distinguish ends and means.

  • As discussed before, Emmanuel Todd distinguishes the stable categories of equality / inequality and authoritarian / liberal. A common distinction is between the political “left” and “right”, but this distinction is vague, and it is more informative to distinguish Todd’s two dimensions.
  • For Trump, the label rather isn’t “liberalism” but “neoliberalism” (“freedom”). Trump pursues more freedom but does so in an authoritarian manner. Over time his manner could be more important than his stated goals and then he would shift down.

Quiggin holds that there is instability because of the Condorcet paradox and other reasons. A third comment is that these four can actually be arranged on a left-to-right line and then fit the Duncan Black single-peakedness and the median voter theorem.

  • In the diagram, the conceptual gap between Sanders and Trump is rather large, and they are only comparable in radicalism. Clinton and Cruz are closer on caution and conservatism.
  • In Europe, we might perceive of a coalition that excludes the inequality & authoritarian group and includes the others on liberty, equality and fraternity (in the colour map: exclude green and include the others). This coalition might work if there is gradual change and no French Revolution.

A fourth comment however is that there better be electoral reform, such that parties can collaborate on issues rather than fight about ideology.

2D to 2D

Other charts on political views

Sanders and Trump seem to score higher on their radicalism than on clarity about a position on the scale from authoritarian to liberalism / freedom / neoliberalism. We could include a third dimension of the attitude towards change. There is a range from conservatism to radical adaptation. The term “conservative” itself is ambiguous: it may mean that one wants to maintain the status quo (e.g. with current liberal properties), but it may also mean that one wants to return to some ideal past (reactionary, e.g. with king and aristocracy (billionaires)).

A fifth comment thus is to maintain caution on these dimensions.

The Nolan chart has the axes of economic freedom (low to high) and personal freedom (low to high). This compares to the chart above, when we replace equality / inequality with economic freedom, and replace authoritarian / liberalism with personal freedom. The Nolan chart however again confuses political values with economics as a tool. There is also the problem of balancing opposite effects.

  • A minimum wage reduces the economic freedom of the entrepreneur and the outsider unemployed, but enhances the economic freedom (bargaining position, income) of the insider employees. See DRGTPE for a better approach to the economics of the minimum wage. This is economics and not an issue of political values, though politics are relevant when deciding what policy to adopt.
  • One might presume a natural state and then hold that any measure that is to the disadvantage of someone counts as the reduction of economic freedom, even when it would advantage others. However, there is no clear specification of such a natural state. (Todd’s scheme identifies at least four types of family structure.)

A classification of Dutch political parties by Andre Krouwel (“kieskompas“) still uses the political left-right distinction, but this distinction has been based upon programme details and thus might still be relevant.

The lifestyle consultancy firm Motivaction identifies eight groups in Dutch society, from traditionals to post-modern hedonists. Potentially these link up to political parties.

Mentality_EnglishReturn to economics

I tend to agree with Quiggin:

“But the more fundamental problem is that none of the competing forces has an obviously compelling solution to the problems we face. Neoliberalism has manifestly failed to deliver the prosperity promised by triumphalists like Thomas Friedman in the 1990s. Tribalism is already a lost cause, given the massive migrations that have already taken place, and can at most be slowed in the future. The left needs to rebuild institutions and policies that have been in retreat for decades.”

The true problem is one for economic analysis. The derived problem for the political leaders and parties and their voters is to select which economic advisors to listen to. The sixth comment is that there is censorship of economic science since 1990 by the directorate of the Dutch Central Planning Bureau (CPB). Governments didn’t get proper advice, and the economic crisis of 2007+ a.k.a. GFC is evidence of this. Boycott Holland till this censorship is solved. See the About page. What the censored analysis fully is can only be seen after the censorship has been lifted of course.