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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.

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.

Dustmann et al. reported on Germany’s transformation from the Sick Man of Europe around 2000 into the Economic Superstar after 2010, in 2014a VoxEU and 2014b the Journal of Economic Perspectives.

Their VoxEU summary is:

“In a slow-growth, high-unemployment continent, Germany’s performance stands out. The success is often ascribed to the politically difficult Hartz labour-market reforms. This column discusses evidence to the contrary. The Hartz reforms played no essential role. Rather, the key was the threat of offshoring to central Europe together with the pre-Hartz structure and autonomy of the German labour-market institutions. This structure allowed trade unions to make wage concessions necessary to adapt to the new realities. Other nations should decentralise bargaining to the firm level while keeping workers’ representatives.” (Dustmann, Fitzenberger, Schönberg, Spitz-Oener, VoxEU, Feb 3 2014, my emphasis)

The latter statement in bold is a New Myth.

Response to the New Myth

In 2014 former IMF managing director Johannes Witteveen (1921) gave his valedictorian lecture on the Dutch policy of wage restraint and the surplus on the external account. In comment C I already responded to the Dustmann et al. analysis:

“The Dutch surplus actually started in 1981, see my 2009 paper “A macro-economic lesson from Holland“.
Gerhard Schröder (BRD Kanzler 1998-2005) started to copy the Dutch model of wage restraint. The consequence was that Germany and Holland out-competed the rest of Europe, creating the imbalances of the eurozone.
See The Economist “Model Makers” May 2 2002.
In VoxEU Feb 3 2014, Dustmann et al. look at wage-bargaining structures and argue that it wasn’t Hartz 2002-2005 that caused the German low wage policy, but rather the German Reunification in 1989. Okay, but: (1) The Dutch example helped Schröder to target lower rather than higher wages, (2) It remains important to maintain macro-economic co-ordination. Herein lies the main policy objective rather than in such wage-bargaining structures. The analysis by Dustmann et al. might be interpreted as suggesting the abolition of national bargaining but that would be false. My advice is also an Economic Supreme Court per country.
(Colignatus, comment C, May 21 2014 now bold)

The Dutch Royal Association on Political Economy (KVS) had a Preadvies on collective bargaining in December 2013.

(Former) KVS chairman Arnoud Boot (1960) – also a member of the Dutch Social Economic Council (SER) that monitors collective bargaining in Holland – liked the discussion so much that I felt encouraged to inform him in Februari 2014 about the drawbacks of the analysis by Dustmann et al.

Notably:

  • A factual analysis does not quite refute a counterfactual. The scenario of wage restraint might also have been adopted by central bargaining. When Germans grew aware decentrally that they needed restraint then this might also have surfaced centrally. The Dutch model of wage restraint was well known in Germany at that time.
  • Macro-economics remains more relevant than industrial relations. Papers on industrial relations say more about national conventions rather than about outcomes. Outcomes are rather determined by market conditions and policy decisions.
  • One should rather criticise the lack of co-ordination in Germany. Wage restraint (in West Germany) is no solution for the lack of investments (in East Germany). Certainly not when this causes problems in the rest of Europe.
  • If the advice by Dustmann et al. is followed then co-ordination in Southern Europe would be abolished, perhaps with ever lower wages without investments, which is a recipe for continued Depression. Beware of looking at the world through the glasses of industrial relations.
  • My comments on the KVS Preadviezen 2013 still stand: they are deficient on the Dutch policy of wage restraint and the lack of investments. Political Economy causes the suggestion of an Economic Supreme Court.
  • For the fall of the Berlin wall, see this memo.
Pseudo Erasmus and the European Soul

This issue becomes a bit more relevant since I came across a good summary of the New Myth by Pseudo Erasmus. This forms more entertaining reading, since this author isn’t quite interested in actual policy making, but rather searches for the elusive European Soul.

What makes Germany, France, England and so on tick, and keeps them apart ?

Reading requires these steps:

  1. First savour Der Todd des euro that debunks Emmanuel Todd‘s anti-German-isms.
  2. Secondly savour Pseudo Erasmus’s link to Graig Willy’s summary of Emmanuel Todd’s anthropological analysis on Europe.
  3. Thirdly savour Pseudo Erasmus’s discussion of the “anthropology” of the crisis, in which the New Myth also pops up. Pseudo Erasmus call’s Dustman et al. the “best” account of what happened but doesn’t think that the scheme would work in all countries. He basically agrees that the advice for decentralised bargaining in all countries is a myth indeed. His reasons differ from those above but can be supplemented with those.
  4. Finally check out that democratic nations need Economic Supreme Courts.

PM 1. I am reminded of Frank Sulloway, “Born to rebel”, 1996, who suggested a link with inheritance laws, in Catholic countries all going to the eldest son, and in Protestant countries an equal split. PM 2. Pseudo Erasmus states: “adjustment-through-recession is a painful process which might be alleviated, even avoided, if everyone could “share the pain”, rather than a select group of people be unemployed. But that just does not happen, because it cannot — except in Germany.” This isn’t quite true, since the Dutch model of wage restraint (exporting unemployment) is ex ante sharing of such pain (even before a recession). PM 3. Of course Germany should not be lumped together: there are important regional differences.

Since Pseudo Erasmus has an anonymous profile the picture prize is for Emmanuel Todd.

Emmanuel Todd in 2014 (Source: wikimedia)

Emmanuel Todd (1951) in 2014 (Source: wikimedia)

Jelmer Renema is a Ph.D. student physicist and blogger, currently still stuck in the Dutch language morass, but hopefully smart enough to discover English as the way to communicate to the world. In a recent text on robots he refers to two English sources to start with. These are rather typical sources though. Let me summarise Jelmer’s message and introduce those sources to you too.

Jelmer seems to think that economics is not a science but belongs to ideology and politics. His weblog is not on physics but on ideology and politics. In a way it is okay when a mind, that has been trained on logic and mathematics and empirics as those are used in physics, also looks at issues in ideology and politics. It becomes awkward when that mind overlooks some pieces of the puzzle that are provided by economic science. Jelmer’s articles come without the idea that author and readership would need some balance by actually studying economics. An exposition by him that seems nice can thus turn into a horror show. Perhaps this horror is the real purpose of the text. Isaac Asimov used the recipe to create science fiction, but while SF is a serious endeavour in itself, no reader of Asimov’s stories will take home the message that the next book to read should be on economics. The latter might be more a Robert “Tanstaafl” (“There ain’t no such thing as a free lunch”) Heinlein thing.

In the 1920’s Jan Tinbergen switched from physics to economics, understanding that only science could contribute something – see also my earlier text on the economic crisis. If Jelmer would not only switch to English but also to econometrics, and perhaps also change his haircut into the Tinbergen style, then we would see not only a full makeover but perhaps also have some reason for hope.

Jelmer refers to David Graeber, according to wikipedia an anthropologist and anarchist, who again refers to economist John Maynard Keynes. Keynes in 1930 wrote Economic Possibilities for our Grandchildren, a must-read. Graeber in 2013 wrote On the phenomenon of bullshit jobs, of which the title is less appealing and of which the content can be abstracted to two sentences, even though it has the advantage of 83 years of experience. A one line abstract of fact-finding: The economic possibilities that Keynes projected have materialised but work has not been reduced to 15 hours per week, and most people waste their lives in useless or counterproductive jobs. A one line of diagnosis: Something is wrong with our economic system. At this point, Graeber should read my book DRGTPE that takes up where Keynes and Tinbergen were not able to continue their analysis.

Jelmer can only refer to Graeber but cannot inform him that he should read DRGTPE since Jelmer is not interested in economics. Jelmer respects an anthropologist who refers to an economist writing 83 years ago, but does not respect a contemporary econometrician who protests against the censorship of economic science in his own country – as Jelmer likely does not think that economics is a science after all.

Jelmer’s second reference is to Gary Brecher’s long-winded rehash of Robocop and The Terminator, after Google’s buying up of robot companies. Focusing on Google’s Big Dog as a possibly scary creation, inserting more AI, swarm technology and drone control, it is easy to picture a world police state.

Now picture a million of these coming at you. Boston Dynamics "Big Dog" (Source: wikimedia commons)

Imagine a million of these coming at you. Boston Dynamics “Big Dog” (Source: wikimedia commons)

Jelmer proposes to use the topic of robots to get a better discussion “about work and the distribution of power”. He still does not conclude that one needs to study economics. Perhaps he thinks about a ballot box so that people who are scared about robots taking their jobs and shooting at them can block that police state, and create the kind of society that Keynes was musing about. According to Jelmer, you can create this kind of society when you have some proper “distribution of power”. He will not think that a rabbit foot can bring you luck but may not be far from thinking that money is the answer to all problems.

Jelmer does in fact refer to a contemporary economist, Guy Standing. An earlier text here already provided some critical comments on Standing’s cult behaviour proposal for a universal basic income. I said that economics is a science, and not that economics is without discussion and that each economist knows it all. I am still waiting for Standing’s evaluation of DRGTPE, and if Jelmer takes Standing seriously then he should also ask for such an evaluation.

The best approach is to resolve the censorship of economic science by the Dutch government, so that the analysis in DRGTPE can be checked and supported using some of the CPB econometric models and fully published and discussed by fellow economists. Till then, Jelmer Renema’s texts are noise on ideology and politics. They are counterproductive noise too, since they seem critical, but actually are severely biased. They are anti-scientific, since he does not recognise that economics is a science, and since he as a scientist does not protest against the censorship of science by the Dutch government.

I could write similar texts about other young Dutch scientists and publicists. This is a text in Dutch about some young writers. Dutch youth is disinformed and, guess what, they don’t like to be told that they are disinformed. A main worry w.r.t. Jelmer is however that he doesn’t seem to care about the problems in the education in mathematics either, see this letter to IMU / ICMI.

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

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

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

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

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

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

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

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

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

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

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

My earlier discussion of cult behaviour by advocates of the Basic Income (BI) in Holland was re-posted on BInews.org. The tally showed about 70 new readers. The re-posting showed openness of mind but the comments there fit the cult behaviour again. Is cult behaviour contagious ?

Before discussing those comments, let me further clarify the situation in Holland.

  1. Dutch readers may look at my criticism on BI in 1994. On the website of the Dutch BI association we even find a 1995 reference to part of my criticism, see this link and footnote 36. The latter link uses a search on my name, so that you can confirm that only part of my analysis is mentioned, without reference, and that there is no attention since 1995. (Nowadays better search on Colignatus.)
  2. This does not only hold w.r.t. my work but also w.r.t. others. There is a fine discussion by Michel Verbeek 2013 (whom I didn’t know before and whom I haven’t met) on the Sargasso weblog, that shows that the BI is costly & counterproductive and that there exists a better alternative in full employment and (rejuvenating) the Welfare State (which is my position as well). A search on the Dutch BI website on Michel Verbeek’s name remains negative. A search on Sargasso (which isn’t logical)  renders an overview article in which his article is listed. That overview article however misstates his argument. The BI adherent argues that the Welfare State is being redressed because of its inherent problems, so that the Welfare State cannot be the answer. However, the true reason why it is being redressed is politics. Politicians like Reagan and Thatcher were not interested in adapting the Welfare State to the 1970+ challenges, but let it implode and took the opportunity to start abolishing it. As scientists we can only respect political decisions but we must protest when false arguments are given, by Reagan, Thatcher and BI-advocates alike.
  3. I asked the chairman of the Dutch BI association last month whether their website could post links to my 1994 criticism and 2014 weblog. He answered that he had transferred that question to a research committee, and that he himself was too busy advocating BI. It should be obvious that there is little to “research” on this. The BI might have some complexity, but if you don’t understand it, then you should not advocate it. A chairman who advocates BI should be able to understand the criticism put forward by me and indeed also Verbeek. A chairman should be able to understand what criticism on cult behaviour entails, and react with alarm instead of putting the ostrich head ever deeper in the Dutch clay.

Last week professor H.J. Witteveen, former IMF-director, gave a fine lecture on the IS-LM model. His idea is that much more can be done on Dutch unemployment. See my former weblog entry on his lecture and my comments.

In composing those comments, a google also gave an article in The American Prospect, History’s Missed Moment“, September 2011: “The epic financial crash of 2007–2008 should have produced a massive political defeat for the conservative ideology whose resurgence began three decades ago.” Well, this weblog Boycott Holland is essentially scientific, and hence neutral on conservatism or progressivity. What matters here is that issues aren’t stated with false arguments. In that TAP article, I actually also saw quotes from Paul de Beer, professor in Amsterdam, who also featured prominently in the said BI cult behaviour criticism:

“In the neighboring Netherlands, Labor Prime Minister Wim Kok brokered a grand bargain in 1999. Employers got more discretion to hire temporary and part-time workers, but these workers were supposed to be accorded the same protections as those with regular contracts. Unemployment fell. “He was hailed as a miracle worker,” says economist Paul de Beer of the University of Amsterdam, “but it had a lot more to do with North Sea oil and favorable macroeconomic trends—higher worldwide growth, low interest rates—than with Kok’s reforms.”

(…) The overall consequence of these shifts is declining security and declining earnings. Among young Dutch workers, fully 61 percent have low-wage jobs. Meanwhile, the center-right government, which took power in 2002 with Labor as a junior partner since 2006, has acted to splinter other welfare-state programs. “Health insurance used to be mandatory and fixed,” de Beer says. “Now everyone has to insure themselves, there are many different kinds of policies, and companies engage in cherry-picking.” This story is all too American. What’s surprising is to find it in the Netherlands, much less as the partial handiwork of a labor party.”

It is up to the TAP reporter what questions are asked and how De Beer is quoted. Nevertheless, I maintain that De Beer blocks my ideas from further discussion by others like The American Prospect. He could have explained to the TAP reporter that there was a sensational new approach to tackle unemployment. He could have explained that he himself at that Dutch PvdA labour party had blocked that approach from discussion since 1990, after which that party and its leader Wim Kok started to use false arguments to deceive the public and help abolish the Welfare State, in a neoliberal delusion that also Europe’s social-democrats suffer from.

Let us now look at BInews.org. There are four comments on my protest on BI cult behaviour in Holland:

(1) LUI (Lui Smyth): “The title alone suggests he’s a crank, and he rails against censorship but then doesn’t allow comments on the blog. Which is just as well, because his whole argument hinges on the spurious claim that we can return to full employment simply by eliminating the “tax void”…which appears to be a reference to the income tax paid by on minimum wage.”

(a) Commenting is off, since it would take too much time eliminating spam. You cannot construe this as censorship itself.

(b) The claim is that we can return to full employment. Full employment in 1950-1970 wasn’t a fluke but derived from economic conditions that can be identified, and that are subtler than mere “restoration after WW 2”. Read carefully: abolishing the tax void is not sufficient, as DRGTPE clearly points to the Economic Supreme Court and National Investment Banks as well. The abolition of the void is however presented as an eye-opener to that analysis.

(c) The tax void is not “the income tax paid by on minimum wage”. See here.

(d) LUI doesn’t read well and starts slandering. LUI presents himself: “I am a postgraduate researcher in UCL’s anthropology department studying the Bitcoin community.” Don’t they teach anthropologists at UCL manners ?

(2) Timothy Roscoe Carter: “I was hoping there would be real critique of the basic income here to respond to. But this is just an academic who is upset that an academic committee with a BIG advocate on it it ignoring his personal theory that he thinks will help more people than a BI. Whether his theory is right or wrong, this really has nothing to do with a basic income.”

(a) It was not “an academic committee with a BIG advocate on it”. My text clearly described the Wiardi Beckman Stichting as the scientific bureau of the Dutch labour party PvdA. It advised Wim Kok (PvdA) who advised German Kanzler Schröder (SPD) who now embraces and advises Vladimir Putin.

(b) “just” and “personal theory” is derogative: the theory is up for scrutiny by the scientific community (except for the censorship that I seek to be lifted).

(c) Inconsistent: “theory will help more people than BI” and “this really has nothing to do with a basic income”. It is an important element for the BI that it is not only attractive in itself but also it should also be more effective.

(d) TRC appears to be a disability and taxation attorney in San Francisco (CA). He likes Science Fiction, and might appreciate my SF book. He wrote: The One Minute Case for a Basic Income (2013). He lists 11 “one minute” arguments for the Basic Income “to promote the abolition of poverty.” However, my argument was that the Basic Income will rather increase poverty.

(e) Hence Timothy Roscoe Carter would fit that question: Isn’t this pure evil ?

 (3) The BInews.org moderator US BIG doubts whether I am an academic. Well, I am a researcher and worked mostly at research institutes and indeed a short period of two years also at the regular “academia” of a university department. Why “doubt” when my cv is available (though needs updating) ?

(4) Jonah: “To investigate critical perspectives on BI is important. But the “pure evil” talking blogger is really just a crank. Nothing substantive there.”

(a) My weblog entry focussed on BI cult behaviour in particular in Holland and did not elaborate on an evaluation of BI compared to other arrangements. The Jonah response is non sequitur and slander.

(b) If Jonah thinks that “critical perspectives on BI is important” then he could have looked at DRGTPE that I referred to. Why didn’t he do so ? Perhaps he didn’t like the discussion on censorship and BI cult behaviour in Holland, but that is no reason to throw out the baby with the bathwater.

(c) There is no further link to identify who Jonah actually is. A google on “Jonah Basic Income” generates this article by Jonah Goldberg, also at the American Enterprise Institute. I hope that Jonah comes forward and that he doesn’t have to apologize at AEI for above behaviour.

Goldberg proposes: “According to Rector, 100 million Americans receive aid from the government at an average cost of $9,000 per recipient. Surely some of them are equipped to spend that money better than the government. Why not give them a shot at proving it? If they fail, they can always switch back to the old system.” The suggestion that this would be better is nothing but a newspaper article and the flash of some new idea, not supported by research. Possibly the below-$9000 will step out and ask for the full $9000 ? Or, let a recipient squander the money in the first day, visiting Las Vegas, and then for the rest of the year he or she would be a bum on the street: is that the goal ? This does not really get better if you do this on a monthly base. Basically, Jonah Goldberg proposes that the current monitoring system is replaced by one that monitors monitoring. This merely means that the system might be improved a bit, by a bit more freedom for dependents. My response is that it would be better to return to full employment and create a Welfare State that works.

Apparenly nobody at BInews.org was able to check this out themselves. Nobody defended my work against these absurd responses. The Dutch BI cult behaviour is either contagious or perhaps only an example of a wider world phenomenon. Indeed, Goldberg refers to Friedrich Hayek and Milton Friedman, and it is well-known that these economists didn’t really study the Basic Income and only mentioned it as an element in their ideology.

H.J. (Johannes) Witteveen (1921) is best known as managing director of the IMF in 1973-1978.

Please note that the Bretton Woods Institutions IMF and Worldbank have wrong names. J.M. Keynes already complained to the Americans: “The Fund is a bank and the Bank is a fund !” (no exact quote). It would be better that the IMF is renamed to World Central Bank and the Worldbank into World Investment Bank, since this would strengthen their role and position also in public perception and discussion.

Following the First Oil Crisis 1973-74 Witteveen created the Supplementary Financing Facility, unofficially known as the Witteveen facility, to channel revenues from oil producers back to the consuming countries, to prevent a liquidity crisis amongst those consumers. The IMF book by James Boughton The silent revolutionassigns a later major role to Witteveen’s successors Jacques de Larosiere and Michel Camessus, but underestimates how Witteveen paved the way.

In the current crisis of 2007+, Witteveen pointed to requirements for a New Bretton Woods (Nov 20 2008, Financial Times). For Europe he advised a similar “facility” again by the IMF rather than the ECB (Aug 22 2011, Financial times, Business Insider).

Recently, Witteveen looked at the Dutch export surplus and the need for an investment strategy in The Netherlands itself.

We can observe that the Dutch surplus exists since 1981. When Germany started copying that, Southern Europe got into problems. I tend to agree with Witteveen on IS-LM but advise at the level of each nation: (a) an Economic Supreme Court, (b) National Investment Banks (NIBs), (c) the overall approach to reduce unemployment as discussed in my book DRGTPE.

My pre-crisis book is Definition & Reality in the General Theory of Political Economy (DRGTPE). My 2007+ papers on the crisis are collected in Common Sense: Boycott Holland (CSBH). A boycott of Holland is warranted because of the censorship of economic science by the Dutch government. That censorship pertains to the issue discussed below, and professor Witteveen’s discussion suffers seriously from not having the material under censorship.

Witteveen had been professor at Erasmus University since 1948. Apparently he never got time for an official farewell, and last week the old fox took the opportunity of a Valedictory Lecture to gather an audience and to present his analysis on that Dutch investment strategy (May 15 2014). The Lecture was published by the Dutch economics journal Economisch Statistische Berichten (ESB May 17 2014 p294-298). I thank the editors for permission to reproduce the lecture with my comments.

Cllick here to read the lecture and my comments on my website.

Witteveen also wrote books on universal sufism (not to be confused with islamic sufism), see his personal website. As a personal remark on my side: my father is also from 1921 but has stopped reading and writing. I am much impressed by Witteveen’s command of economics. Admittedly, Keynes solved these issues by IS-LM itself already in 1936 and by his proposal for an international trade currency (bancor). Our main problem since 1945 has been that politicians arrogantly proclaim to know it better.

Witteveen’s Valedictory Lecture is a major event in economics. It deserves to be treated with much respect and critical comment. It shows that the problem is not lack of knowledge from economic science but that the problem lies in the structure of decision making about economic policy.

In 2005-2006 I worked on Curaçao, the Netherlands Antilles (NA). Back home I collected my analyses in the book The Political Economy of the Netherlands Antilles and the Future of the Caribbean (PENAFC, 2006), now out of print but the PDF is available on the web. The book is a supplement to the main analysis DRGTPE 2000 and now also CSBH 2012, see the About menu or the Video

PENAFC is relevant for e.g. these points:

  1. The NA appeared to have a social security system similar to that of Holland. By consequence it has the same welfare state diseases, even though the NA is partly a developing country. The same solution approach of DRGTPE applies, with the abolition of the tax void and so on.
  2. There had been a spectacular crash of the bridge across the harbour entrance. The historical picture is on the front page, with compliments to Wim ter Hart. In 1889 Dutch engineer / economist A.J. Cohen Stuart coined an analogy about income taxation and the ability to pay: “A bridge must first bear its own weight before it can carry a load.” My analysis agrees that tax exemption must be set at the level of the net minimum wage and that Value Added Tax (VAT) be around 1%.
  3. Traditionally there is the theory of Island Economies that regards islands as sea-locked. Nowadays, however, sea transport technology and logistics cause ships to have often comparative advantage over trucking and rail. See the book Transport Science for Operations Magagement.
  4. The idea of an Economic Supreme Court per nation allows countries to have forms of Union that are more intelligent than the traditional models. Let us learn from the mistakes of the European Union.
  5. Thus, the NA may find a better future not with Holland but within a Caribbean Union that avoids those mistakes. (See an earlier text on this weblog.)

Just to be sure: PENAFC had no impact. On October 10 2010 the NA ceased to exist. It split into two new countries Curaçao and Sint Maarten and three “special Dutch municipalities” Bonaire, Saba and Sint Eustatius. The Island Economy still applies here: with more power to the local elite we already see a rise in corruption.

Looking at the Caribbean, one cannot fail to see Cuba. It would be a prime partner in such a Caribbean Union. With the collapse of the Berlin Wall in 1989 and the end of the Cold War, one wonders why the boycott of Cuba continues now almost 25 years.

http://en.wikipedia.org/wiki/File:Caribbean_general_map.png

Caribbean (Source: Wikipedia)

There was the thesis van Peter van Bergeijk in 1991 that boycotts generally do not work and are counterproductive. This is an important thesis for this website Boycott Holland of course. A boycott does not affect the power elite much, who will tend to find ways around it. A boycott will affect the general population and reduce their means to resist against the power elite. A boycott could be effective for generally rich Holland when people get annoyed that the punch bowl is taken away and want it back. For Cuba it is counterproductive.

This causes the question why the USA would continue to support Castro by a boycott that enhances his power over Cuba ? In PENAFC I speculated that Castro might have been involved in the assassination of JFK. Castro would have suffered so many assassination attempts upon his own person that he retaliated. The USA could not state this in the open since the popular anger to do something might cause a nuclear war with the USSR. These days the murder of JFK 50 years ago got general attention again. Of the various complot theories this Cuba option still seems the strongest to me. Why persist in boycotting Cuba 25 years after the end of the Cold War, while it is counterproductive in the first place ?

However, my American correspondent writes: “I agree with your assessment about what the US should do in respect to Cuba.  But I think the US unwillingness to change has to do with Cuban exiles in Florida, who have resisted a softening of the approach. And Florida matters tremendously electorally.  If they all lived in New York, they would have no impact.  I think that is sufficient explanation for the US stance, but who knows if there is more?”

Yes, I did not think about that angle. Well, there is one way to test this: Let the good people in Florida study the Van Bergeijk thesis. If their objective is to get rid of the Castro regime, their best policy option is to end the boycott of Cuba.

PM. I rely on Van Bergeijk’s thesis in Dutch, 1991. I did not read the English version of 1994 but let me refer to (1994), Economic diplomacy, trade and commercial policy: positive and negative sanctions in a new world order. Edward Elgar. Most recent are the chapters in (2009), Economic Diplomacy and the Geography of International Trade. Edward Elgar.

Date: Thu, 31 Oct 2013
To: professor Kathleen Thelen (MIT)
From: Thomas Cool / Thomas Colignatus
Subject: W.r.t. your interview in the Dutch Volkskrant October 26

Dear professor Thelen,

Thank you for your interview in the Dutch Volkskrant October 26.

It will be useful for you to know that there is censorship of economic science in Holland, namely by the directorate of the Dutch Central Planning Bureau (CPB) since 1990.

That censorship pertains to the very subject that you study. See my book DRGTPE (with PDF):

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

Economists in Holland don’t do anything about that censorship. Since 2004 I advise to a boycott of Holland till the issue is resolved. See:

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

The Vrije Universiteit that granted you your honorary doctorate is a hotbed in contributing to that censorship and its cover up. The CPB director who started the censorship is Gerrit Zalm, VU graduate who became later a professor there, who became minister of Finance and who now is CEO of ABN AMRO. His close VU colleague is Frank den Butter, now retired, but see here:

http://thomascool.eu/Thomas/English/TPnCPB/Audit/Index.html

I advise you to return that honorary doctorate and keep some distance from those enemies of scientific freedom.

And I would welcome the idea that you would study DRGTPE and support my advice to boycott Holland till the censorship of science there is lifted.

Kind regards,

Thomas Cool / Thomas Colignatus
Econometrician (Groningen 1982) and teacher of mathematics (Leiden 2008)
Scheveningen
http://thomascool.eu/

PS. For Dutch readers: this misleading article by Barbara Vis (VU).