As soon as the battle between Greece and its creditors ended, with the two sides agreeing to a four-month extension of Greece’s financial bailout, the battle over who had won began. Wolfgang Schäuble, the hard-line German finance minister, declared that the new Greek government, led by the leftist party Syriza, had been forced into a “date with reality.” Greece’s Prime Minister, Alexis Tsipras, called the agreement a “decisive step” that would help end austerity and lift the Greek economy from its deep depression, and the Greek public seemed largely pleased with the deal.
At first glance, Tsipras’s positive comments look like spin. Syriza came to power vowing to win a reduction in Greece’s enormous debt burden, to reject the budget commitments that the previous Greek government had made, and to liberate Greece from supervision by the so-called Troika—the European Central Bank, the International Monetary Fund, and the European Commission—that has been vetting all the country’s fiscal decisions in recent years. Yet the new agreement makes no provision for debt reduction. It says that the extension will take place only within “the framework of the existing arrangement.” And Greece’s plans will still be evaluated by the same three institutions. From that angle, the Greeks went 0 for 3.
If you look a little harder, though, you can see that Greece won important breathing room. Heading into the negotiations, the country faced budgetary targets for 2015 and 2016 that would have kept the economy stuck in recession—it has shrunk by thirty per cent since 2008—and prevented the government from doing anything about poverty levels that many observers say constitute a humanitarian crisis. The targets are now up for revision in future talks—a significant concession. According to Mark Weisbrot, the co-director of the Center for Economic Policy Research, “European officials were telling Greece it was their way or the highway. That’s changed. I think Europe blinked.” James Galbraith, an economics professor at the University of Texas at Austin who was in Athens and Brussels to assist the Greek team during the negotiations, told me, “Victory may be too strong a word. But you can certainly call it a successful skirmish. This has given Greece some room to maneuver. Not a lot, but more than it had before.”
In essence, the agreement kicked the can down the road for four months—which suits Greece fine. In recent weeks, money had been pouring out of the country, leaving the banking system on the verge of collapse. And Syriza officials inherited an administrative state that was barely functioning. As Galbraith said, “When they went to the Ministry of Finance for the first time, there was not a document, not a computer. The Wi-Fi was not turned on.” Now Syriza has a little time to deliver on the promises it’s made, both to voters and to Europe.
The real challenge is satisfying those two constituencies, which want very different things. And though there’s space for negotiations, Greece is still in thrall to European institutions: both the E.C.B. and the I.M.F. have already voiced concerns about the reform plans that Greece submitted last Monday. If you owe three hundred billion euros and need Europe to save your banking system, you’re bound to be supervised, but Greece has so far negotiated without its most powerful weapon—the threat of leaving the euro and defaulting on its debts. Such a move, known as the Grexit, was off the table, because Syriza had campaigned on staying in the eurozone, and polls show that this is what most Greeks want. But they may soon need to reconsider.
The conventional wisdom is that returning to the drachma would be a catastrophe for Greece. Certainly, it would be traumatic: there would be an immediate devaluation; the value of savings would tumble; the price of imported goods would soar. But Greek exports would become cheaper and labor costs even more competitive. Tourism would likely boom. And regaining control of its monetary and fiscal policy for the first time since 2001 would give Greece the chance to deal with its economic woes. Other countries that have endured sudden devaluations have often found that long-term gain outweighs short-term pain. When Argentina defaulted and devalued the peso, in 2001, months of economic chaos were followed by years of rapid growth. Iceland had a similar experience after the financial crisis. The Greek situation would entail an entirely new currency rather than just a devaluation. Weisbrot says, “It could work. You have to go through a crisis, but then the economy would recover, and probably more quickly than people expect.” Although Europe is much better equipped to deal with the economic consequences of a Grexit than it was three years ago, the political consequences would be devastating to the European project. That’s why, even if Greece wants to stay in the euro, a credible Grexit threat could help keep Europe from pulling the leash tight again.
For now, Syriza will try to change Europe from within. The fight over Greece’s budget isn’t just a fight about finances; it’s a fight about the ideology of austerity and about whether smaller countries will have a meaningful say in their own economic fate. As Weisbrot told me, “Countries like Greece have lost sovereign and democratic control over the most important macroeconomic policies that any country has. Greece is trying to take some of that control back.” The skirmish may have been successful. The real battles are yet to come. ♦
In their essay last fall on the state of economics, Seth Ackerman and Mike Beggs charged that today’s mainstream is irredeemably captured by conservative ideology. The good news is they’re wrong — Piketty’s work testifies to that.
Contemporary mainstream economics is a politically broad tent, and has a lot to contribute to economic analysis. But it needs to be struggled with, as many have in the debate surrounding Capital in the Twenty-First Century.
Every economics student learns the ‘Kaldor facts’ of economic growth. One of these is that the share of national income going to capital has a long-run tendency to stay constant.
Heterodox economists have been pushing against this stylized fact for a decade, and finally mainstream economists are recognizing and documenting that far from being constant, the capital share has in fact increased around the world. A noted paper by Lukas Karabarbounis and Brent Neiman documented this in the corporate sector around the world, while Francisco Rodriguez and Arjun Jayadev show it for global manufacturing.
Two explanations for this phenomenon typically thrown around by economists are ‘trade and technology’: the global supply of labor has increased relative to capital, and technological changes have lowered the price of capital and increased the substitutability of capital and labor. Another explanation, of course, is political, with right-wing ideology and policy ideas diffusing around the world alongside the Great Right Turn and the demise of the Soviet Union.
Piketty suggests that the rise is a long-term structural trend – the outcome of decelerating population and productivity growth coupled with a profit rate (r) that stays steady. But what keeps r high? Piketty never explicitly says. This question is at the heart of the struggle over how to interpret his book.
The neoclassical approach would be to examine three sets of forces in the market for capital that could account for it: supply, demand, and taxes. The supply of capital is given by the savings rate, and one important idea in Piketty is that the taste for savings at the top looks little like the frugal ant saving in order to consume for the future, the conceit of optimal growth theory. Instead, he suggests that a better way to think about savings is through models where accumulation and the building of estates are ends in themselves.
Piketty and others have been exploring these kinds of models in academic papers, where multiplicative shocks to capital accumulation — random fluctuations in tastes, lifespans, fertility and investment opportunities — generate a skewed distribution of wealth. ‘Accumulate! Accumulate! That is Moses and the prophets,’ ran a memorable line from Marx.
If it is an accurate description of the capitalist drive to invest and save, then the forces that drive the wealthy to accumulate might not just be the realization of future consumption, but instead an insatiable drive for security, sociological pressures, psychological fantasies of future empires, or other structural imperatives.
When you start thinking of savings this way, the case for taxing capital becomes much clearer. If the supply of capital is more like immobile real estate and less like footloose cash, basic economics suggests that we can tax it, because it won’t disappear, and you might even be doing some social good.
If people are saving to pass inheritances onto their kids, then the cost of taxing capital is depriving some of trust funds, not a comfortable retirement. Not only does it mean that certain standard theories saying optimal capital taxation is zero don’t hold up anymore. It also means that one-off re-distributions of assets won’t stay equal for long, so some kind of permanent capital tax is needed.
Piketty suggests a fruitful research agenda here. Once freed from the consumption Euler equation, the ‘frugal ant’ view of saving, what theory of private sector savings do we need to best understand inequality and growth? The question about how to tax capital becomes less about the trade-off between savings and consumption, and more about how to implement global taxes to keep capitalists from taking their money offshore.
The other blade of the scissors determining r is the demand for capital. Piketty makes the argument that r is likely to stay higher than g because capital and labor are becoming more substitutable, which could be read as the incoming future of robot capitalism as well as increased trade with labor-intensive countries.
The upshot is that even though capital will keep accumulating, the rate of profit will not fall much because we can keep substituting out workers with it. Peter Frase’s ‘Four Futures‘ captured this well; in one of the futures, an abundant, narrowly owned capital stock resulted in relatively low wages for everyone despite high output.
But we have heard this before. Consider the development of the tractor, which mechanized virtually all of agriculture over the 20th century. Somehow new desires and demands sprung up for new kinds of manufactured goods, many of pure entertainment value, and people stayed employed and real wages kept rising.
I do not think there is anything inevitable about how capital-labor substitution could evolve in the future. It is quite possible that future technological and organizational changes are labor-augmenting rather than labor-saving. I’ll return to this below.
Finally, Piketty can combine these supply and demand elements into a complete model of income distribution dynamics. Imagine an economy where capital is accumulated, but there are sudden shocks to savings/bequests as well as wages, and a high elasticity of substitution between capital and labor.
In this model, capital increases as a share of income, the rate of profit doesn’t fall very much (because capital and labor are very easily substituted for each other), and the distribution of capital is very unequal (because persistently high r allows capital shocks to be amplified over time). It can be embellished with increasing rates of return in wealth, reflecting the fact that richer people can obtain better financial services and diversification in order to earn higher rates of return. This model gets most of the way in explaining the stylized facts about capital in Piketty’s book.
The Limits to Capital
What I’ve described above is the conventional liberal economist’s interpretation of Piketty’s work, the one that Piketty and his critics have coordinated on in public. The question of whether capital will eat the world boils down to the degree of substitutability between labor and a single aggregate capital.
Despite assuming competitive labor and capital markets, this setup explains rising inequality and increasing capital shares, and yields a justification for capital taxation, completely within a neoclassical model. If this was all that was there, it would still be a pretty big advance within economics.
In this conventional interpretation, Piketty stays inside orthodox growth theory. His results arise from modifications to the savings equation and the marginal-pricing production function, not from alternatives to them. If the problem is just very high substitutability, a variety of labor market reforms are taken off the table, as firms would just replace workers with machines when you raise the wage. Minimum wages would kill a lot of jobs, and unions would immediately induce firms to close.
But this is again contradicted by recent evidence on both fronts. More importantly, it misunderstands capital by putting politics outside the production function, rather than inside it.
The increasing elasticity of substitution between ‘capital’ and ‘labor’ may be as much determined by institutions and property rights as by technology. Think of the parallel with slavery. The robot economy and the slave economy may both have higher elasticities of substitution than industrial capitalism. Slaves could do virtually all the tasks of free labor, and were movable assets.
In ‘The Causes of Slavery and Serfdom,’ Evsey Domar famously argued that it was a historical impossibility to have free labor, abundant land, and an aristocracy simultaneously. Free labor and abundant land would make aristocratic claims on labor impossible, abundant land and an aristocracy would require coerced labor, and only scarce land could depress wages enough to allow an aristocracy to coexist with free labor.
Perhaps a similar trilemma exists with abundant robots, dignified employment, and unequal capital ownership.
This sort of institutions-as-primitives thinking is how we should approach the question of capital. Capital is a set of property rights entitling bearers to politically protected rights of control, exclusion, transfer, and derived cash flow. The capital share of income is just the last part of that sequence.
Like all property rights, its delineation and defense require actions of state power, legal standardization, and juridical legitimacy. In the last instance, capital includes the ability to call on the government to evict trespassers, be they burglars, sit-down strikers, or delinquent tenants.
In economics, we capture some of the political dimension of capital with incomplete contracts. Contracts between financiers, entrepreneurs, and workers (among others) can never be completely specified. Instead, large domains of the economic transaction are left to the discretion of one side of the market.
A CEO like Steve Jobs complains about the power exercised by Apple’s shareholders in the late 1980s as surely as Jobs’s workers complain about the tyrannical power wielded by Jobs himself. As Ronald Coase argued, this distribution of power is not outside the market, but part of the transaction. Workers do what they are told because they can be kicked out of the firm. Capital here is seen as not just a flow of income, but rather a right to exclude and appropriate. Focusing on balance sheets rather than bosses will miss this.
Seeing capital this way also blurs the line between supermanagers and rentiers. Supermanagers happen to have labor market contracts (in the form of bonuses and stocks and options) that entitle them to stupendous income when the firm is doing well. It is not clear that this is ‘labor’ income as much as it is a form of capital that requires you to run meetings and wear a power suit.
Jointly, the rentiers and the supermanagers have cash flow and control rights inside the firm, and the institutions of corporate finance and governance that allocate these powers determine the demand for capital as surely as technology does.
The book is too good to miss this, however. It contains an excellent section on the gap between cash-flow rights and control rights in corporate governance, which suggests a capital demand schedule derived not just from firm optimization decisions, but from the distribution of power within the firm.
The book points out that German shares are ‘underpriced’ because shareholders there do not have the same level of political power as shareholders in the US and UK, since they have to share power with workers’ councils and other stakeholders. The same thing is true of unions in the US. David Lee and Alexandre Mas shows that strong union victories in NLRB elections once reduced stock prices, yet it is very unlikely they changed the replacement value of the company’s underlying assets.
The everyday encounter most people have with accumulated wealth is not through prices in the market for shoes, or the society pages, but instead the control and threats inflicted by their employers, landlords, and bankers. Inequality of income and wealth means that some people live off unjustly earned income, but it also means a lot more people are on the short-end of an asymmetric exchange, toiling away as personal assistants and Mechanical Turks.
This is where Piketty’s Walrasian conventions dampen his contribution: he discusses the first, but not the second. It’s like saying slavery is an inequality of assets between slaves and slaveholders without describing the plantation.
Even Adam Smith suggested measuring a person’s income by the ‘quantity of that labor which he can command.’ This has normally been taken to mean income of the rich relative to the wage. But it also means looking at ‘command’: what privileges and obligations can one demand from the soul purchased (or rented)?
An economy that allows indentured labor means that wealth can purchase more power over people; an economy with robust union contracts means that capital is trammeled in its control over the shop floor. From sexual harassment on the job to the indignities of gentrification and nonprofit funding, a world of massive inequality is a world where rich people get to shape environments that everybody else has to accept.
Piketty repeatedly announces that politics plays a large role in the distribution of income. But he neglects that the distribution of income and wealth also generates inequalities of larger privileges and prerogatives; wealth inequality together with a thoroughly commodified society enables a million mini-dictatorships, wherein the political power of the rich is exercised through the market itself.
In a thoroughly marketized world, the wealthy can purchase educational reform, the charity of their choice, think-tanks, legislative language, and faceless TaskRabbiters willing to work for a pittance. While feudal lords were wealthy, the absence of certain types of markets made their social power somewhat independent of wealth; the regalia and mounted vassals were an independent basis of status and were not simply purchasable.
But there is an important and nasty complementarity between massive inequality in income and wealth and a commodified, ‘fully-incentivized’ world. When every action can have pecuniary rewards attached to it, and every source of well-being can be priced at exactly a person’s willingness to pay, the social power commanded by the rich is magnified in a way that is difficult to see when comparing a dollar in 1920 with a dollar today.
Piketty’s big policy idea is taxing wealth directly, progressively, and globally. This is certainly important to put on the table, up there with other global problems like climate change, intellectual property, open borders, and, dare I say, reparations.
But the focus on taxes is again a straightjacket imposed by the equality-versus-efficiency lens through which too many public finance economists see policy issues. The preferred policy instruments are always taxes and transfers, when it is not at all clear that these alone are the best tools for reducing inequality (although they are surely useful for increasing it). This is the same technocratic spirit that makes American liberals love the Earned Income Tax Credit as the only redistributive arrow in the state’s quiver.
The structure and limitations of Piketty’s argument also explains the love the liberal American policy wonk has for it. It comes with a Zip file full of spreadsheets, a clear argument reasoned from data and common sense, the charisma of the economics profession, and a policy prescription that is technically feasible and politically hopeless.
Like the policy expert, it has neither utopian demand-it-all energy nor the concrete backing of a political actor aiming to win. The book reminds the American wonk community that if only their people could run the show, they have the expertise (and the data!) to produce finely-calibrated optimal policies without politics.
But the collapse in the capital and top income shares after World War II (and other wars) came along with radical transformations of all kinds of economic institutions, with millions of dead, sui generis geopolitics, and a host of newly mobilized popular forces. The obligations enshrined in balance sheets were destroyed by financial collapse and war, and kept in check by social democracy and postwar growth. Little in the way of clever policy advice mattered for any of this.
Where Do We Go from Here?
Piketty’s book reflects the promise and current limits of economics as a discipline. The ideas, which are powerful, could not have originated anywhere but mainstream economics. They require a command of the mathematical models of growth and taxation, and only economists would appreciate the painstaking reconstruction of the balance sheet data.
But Piketty oscillates between paying homage to fundamental forces of technology, tastes, and supply and demand, and then backtracking to say that politics and institutions are important.
So how to do better?
A first step could be a multisector model with both a productive sector and an extractive, rent-seeking outlet for investment, so that the rate of return on capital has the potential to be unanchored from the growth of the economy. This model could potentially do a better job of explaining r > g in a world where capital has highly profitable opportunities in rent-seeking rather than production, and it would generally disassociate the growth of the productive economy from the growth of abstract wealth. When people say neoliberalism was good for growth, they tend to be looking at the stock market, not GDP or wages.
More fundamentally, a model that started with the financial and firm-level institutions underneath the supply and demand curves for capital, rather than blackboxing them in production and utility functions, could illuminate complementarities among the host of other political demands that would claw back the share taken by capital and lower the amount paid out as profits before the fiscal system gets its take.
This is putting meat on what Brad Delong calls the ‘wedge’ between the actual and warranted rate of profit. Commentators have listed their pet policy proposals under this umbrella, from strengthening labor and tenants movements to weakening intellectual property rights and financial regulation. And yes, maybe even selective inflation of nominal claims, as with the repudiation of the gold indexation clause in 1933.
We need even more and even better economics to figure out which of these may get undone via market responses and which won’t, and to think about them jointly with the politics that make each feasible or not. While Piketty’s book diagnoses the problem of capital’s voracious appetite, it would require a different kind of model to take our focus off the nominal quantities registered by state fiscal systems, and instead onto the broader distribution of political power in the world economy.
Because not all institutions have access to the IOER rate, we will also use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, eligible counterparties may invest funds with the Fed overnight at a given rate. The ON RRP counterparties include 106 money market funds, 22 broker-dealers, 24 depository institutions, and 12 government-sponsored enterprises, including several Federal Home Loan Banks, Fannie Mae, Freddie Mac, and Farmer Mac. This facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the Fed. Indeed, testing to date suggests that ON RRP operations have generally been successful in establishing a soft floor for money market interest rates.
WASHINGTON — House Republicans on Wednesday peppered Janet L. Yellen, the Federal Reserve chairwoman, with pointed questions about the central bank’s stimulus campaign and its responsibilities as a financial regulator.
Republicans, who control Congress but not the agencies that interpret and execute legislation, appear frustrated with the course of economic policy. They want the Fed to retreat more quickly from its stimulus campaign and to ease some of the restrictions that a Democrat-controlled Congress imposed on the financial industry after its 2008 collapse.
Ms. Yellen, for her part, pushed back more strongly than at past hearings, sometimes speaking over her questioners to make a point. She defended the Fed’s actions and warned against proposals to constrain its independence.
The hearing opened with a sharp exchange between Ms. Yellen and Jeb Hensarling, the Texas Republican who is chairman of the Financial Services Committee.
Mr. Hensarling backs legislation requiring the Fed to adopt a mechanical rule for setting its benchmark short-term interest rate. Such a rule would have limited the stimulus campaign the Fed has undertaken since the Great Recession.
He quoted a snippet of Ms. Yellen’s remarks at a 1995 Fed meeting at which she praised rules that mechanically dictate how the central bank should balance the sometimes-divergent priorities of moderate inflation and minimal unemployment. That, he quoted her as saying, “is what sensible central banks do.”
He then asked Ms. Yellen, “Do you no longer believe that a rules-based policy like the Taylor Rule is what sensible central banks do?” The rule is a formula written by the Stanford economist John Taylor that specifies interest rates based on inflation and the gap between actual and potential economic output.
But the context of that 1995 quote is important. Ms. Yellen was then pushing the Fed to pay more attention to job growth, and she was expressing a preference for rules that considered unemployment and inflation, as opposed to rules focused solely on the pace of inflation.
That, she said at the time, “is an example of the type of hybrid rule that would be preferable in my view, if we wanted a rule.”
She continued, “I think the Greenspan Fed has done very well by following such a rule, and I think that is what sensible central banks do.”
The Yellen Fed regards job growth as its priority, a transformation so complete that hewing to a Taylor-style rule actually would curb the Fed’s stimulus campaign. Ms. Yellen has said in other forums that she sees rules as useful reference tools, but that policy should be shaped by circumstances.
On Wednesday, pressed by Mr. Hensarling, she responded sharply.
“I don’t believe that the Fed should chain itself to any mechanical rule,” she said. “I did not believe that in 1995. I do not believe it now.”
Democrats argue that Mr. Hensarling’s proposal is an attempt by Congress to meddle in monetary policy.
“I think it’s important to have transparency but not at the expense of the independence of the Fed,” said Representative Al Green, a Texas Democrat.
Representative Scott Garrett, a New Jersey Republican, said in turn that Congress had intended to shield the Fed from political pressure “to juice the economy,” while in the current situation, Republicans were seeking to curb its stimulus campaign.
Like Ms. Yellen, he suggested that circumstances had changed and that the rules should adapt.
Reading The Greek Deal Correctly by James K. Galbraith
On Friday as news of the Brussels deal came through, Germany claimed victory and it is no surprise that most of the working press bought the claim. They have high authorities to quote and to rely on. Thus from London The Independent reported:
several analysts agreed that the results of the talks amounted to a humiliating defeat for Greece.
No details followed, the analysts were unnamed, and their affiliations went unstated – although further down two were quoted and both work for banks. Many similar examples could be given, from both sides of the Atlantic.
The New Yorker is another matter. It is an independent magazine, with a high reputation, written for a detached audience. And John Cassidy is an analytical reporter. Readers are inclined to take him seriously and when he gets something wrong, it matters. Cassidy’s analysis appeared under the headline, “How Greece Got Outmaneuvered” and his lead paragraph contains this sentence:
Greece’s new left-wing Syriza government had been telling everyone for weeks that it wouldn’t agree to extend the bailout, and that it wanted a new loan agreement that freed its hands, which marks the deal as a capitulation by Syriza and a victory for Germany and the rest of the E.U. establishment.
In fact, there was never any chance for a loan agreement that would have wholly freed Greece’s hands. Loan agreements come with conditions. The only choices were an agreement with conditions, or no agreement and no conditions. The choice had to be made by February 28, beyond which date ECB support for the Greek banks would end. No agreement would have meant capital controls, or else bank failures, debt default, and early exit from the Euro. SYRIZA was not elected to take Greece out of Europe. Hence, in order to meet electoral commitments, the relationship between Athens and Europe had to be “extended” in some way acceptable to both.
But extend what, exactly? There were two phrases at play, and neither was the vague “extend the bailout.” The phrase “extend the current programme” appeared in troika documents, implying acceptance of the existing terms and conditions. To the Greeks this was unacceptable, but the technically-more-correct “extend the loan agreement” was less problematic. The final document extends the “Master Financial Assistance Facility Agreement” which was better still. The MFFA is “underpinned by a set of commitments” but these are – technically – distinct. In short, the MFFA is extended but the commitments are to be reviewed.
Also there was the lovely word “arrangement” – which the Greek team spotted in a draft communiqué offered by Eurogroup President Jeroen Dijsselbloem on Monday afternoon and proceeded to deploy with abandon. The Friday document is a masterpiece in this respect:
The purpose of the extension is the successful completion of the review on the basis of the conditions in the current arrangement, making best use of the given flexibility which will be considered jointly with the Greek authorities and the institutions. This extension would also bridge the time for discussions on a possible follow-up arrangement between the Eurogroup, the institutions and Greece. The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.
If you think you can find an unwavering commitment to the exact terms and conditions of the “current programme” in that language, good luck to you. It isn’t there. So, no, the troika can’t come to Athens and complain about the rehiring of cleaning ladies.
To understand the issues actually at stake between Greece and Europe, you have to dig a little into the infamous “Memorandum of Understanding” signed by the previous Greek governments. A first point: not everything in that paper is unreasonable. Much merely reflects EU laws and regulations. Provisions relating to tax administration, tax evasion, corruption, and modernization of public administration are, broadly, good policy and supported by SYRIZA. So it was not difficult for the new Greek government to state adherence to “seventy percent” of the memorandum.
The remaining “thirty percent” fell mainly into three areas: fiscal targets, fire-sale privatizations and labor-law changes. The fiscal target of a 4.5 percent “primary surplus” was a dog as everyone would admit in private. The new government does not oppose privatizations per se; it opposes those that set up price-gouging private monopolies and it opposes fire sales that fail to bring in much money. Labor law reform is a more basic disagreement – but the position of the Greek government is in line with ILO standards, and that of the “programme” was not. These matters will now be discussed. The fiscal target is now history, and the Greeks agreed to refrain from “unilateral” measures only for the four-month period during which they will be seeking agreement.
Cassidy acknowledges some of this, but then minimizes it, with the comment that the deal “seems to rule out any large-scale embrace of Keynesian stimulus policies.” In what document does any such promise exist? There is no money in Greece; the government is bankrupt. Large-scale Keynesian policies were never on the table as they would necessarily imply exit – an expansionary policy in a new currency, with all the usual dangers. Inside the Euro, investment funds have to come from better tax collection, or from the outside, including private investors and the European Investment Bank. Cassidy’s comment seems to have been pulled from the air.
Another distant fantasy is the notion that the SYRIZA team was “giddy” with political success, which had come “practically out of nowhere.” Actually SYRIZA knew for months that if it could force an election last December, it would win. And I was there on Sunday night, February 8, when Prime Minister Alexis Tsipras opened Parliament with his version of the State of the Union. Tsipras doesn’t do giddy. And Yanis Varoufakis’s first words to me on arrival at the finance ministry just before we went over to hear him were these: “Welcome to the poisoned chalice.”
Turning to the diplomatic exchanges, Cassidy concludes that Tsipras and Varoufakis “overplayed their hand.” An observer on the scene would have noticed that the Greek government remained united; initial efforts to marginalize Varoufakis were made and rebuffed. Then as talks proceeded, European Commission leaders Jean-Claude Juncker and Pierre Moscovici went off-reservation to be helpful, offering a constructive draft on Monday. Other governments softened their line. At the end-game, remarkably, it was the German government that split – in public – with Vice Chancellor Sigmar Gabriel calling the Greek letter a basis for negotiation after Finance Minister Wolfgang Schäuble said it wasn’t. And that set up Chancellor Angela Merkel to make a mood-changing call to Alexis Tsipras. Possibly the maneuver was choreographed. But still, it was Schäuble who took a step back in the end. It seems that none of these facts caught Cassidy’s attention.
Finally, in the run-up to these talks did the Greek side fail to realize that they had no leverage, giving – as Cassidy writes – all the advantages to Schäuble once “he realized that Varoufakis couldn’t play the Grexit card”? In truth the Greeks never had any intention of playing any cards, nor of bluffing, as Varoufakis wrote in The New York Times and as I had written two days after the election, in Social Europe:
What leverage does Greece have? Obviously, not much; the heavy weapons are on the other side. But there is something. Prime Minister Tsipras and his team can present the case of reason without threats of any kind. Then the right and moral gesture on the other side would be to … grant fiscal space and to guarantee Greek financial stability while talks are underway. If that happens, then proper negotiations can proceed.
That appears to be what happened. And it happened for the reason given in my essay: in the end, Chancellor Merkel preferred not to be the leader responsible for the fragmentation of Europe.
Alexis Tsipras stated it correctly. Greece won a battle – perhaps a skirmish – and the war continues. But the political sea-change that SYRIZA’s victory has sparked goes on. From a psychological standpoint, Greece has already changed; there is a spirit and dignity in Athens that was not there six months ago. Soon enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal, all of which have elections coming. It is not likely that the government in Greece will collapse, or yield, in the talks ahead, and over time the scope of maneuver gained in this first skirmish will become more clear. In a year the political landscape of Europe may be quite different from what it appears to be today.
Now that the dust has settled a bit, we can look calmly at the deal — if it really is a deal that survives through tomorrow, which some people doubt. And it’s increasingly clear that Greece came out in significantly better shape, at least for now.
The main action, always, involves the Greek primary surplus — how much more will they need to raise in revenue than they can spend on things other than interest? The question these past few days would be whether the Greeks would be forced into agreeing to aim for very high primary surpluses under the threat of being pushed into immediate crisis. And they weren’t.
One way to see this is through careful parsing of the language, as done here. That’s quite useful. But I’d argue that in an important sense we’re past that kind of word-chopping. Instead, we need to think about what happens substantively from here out.
Right now, Greece has avoided a credit cutoff, and worse yet an ECB move to pull the plug on its banks, and it has done so while getting the 2015 primary surplus target effectively waived.
The next step will come four months from now, when Greece makes its serious pitch for lower surpluses in future years. We don’t know how that will go. But nothing that just happened weakens the Greek position in that future round. Suppose that the Germans claim that some ambiguously worded clause should be interpreted to mean that Greece must achieve a 4.5 percent of GDP surplus, after all. Greece will say no, it doesn’t — and then what? A couple of years ago, when all the VSPs of Europe believed utterly in austerity, Greece might have faced retaliation thanks to wording issues; not now.
So Greece has won relaxed conditions for this year, and breathing room in the run-up to the bigger fight ahead. Could be worse.
I am trying to understand what, if anything, was agreed by Greece and the rest of the EU yesterday. I’m not sure they even agreed to kick the can down the road.
I think Matt O’Brien wrote a very good explainer for wonkblog at the Washington Post (as usual — he is well worth following). His bottom line seems to be that, while the agreement presents itself as a Greek surrender, they haven’t conceded the key point.
Greece got Europe to concede that it “will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account.” In other words, Greece won’t have to do the austerity it was supposed to this year.
On Monday, Greece must send its creditors a list of all the policy measures it plans to take over the next four months. If the measures are acceptable, European finance ministers could sign off on an extension of the bailout agreement on Tuesday.
So the result of the dramatic agreement is that Greece hasn’t promised further austerity in exchange for a bailout and the rest of Europe hasn’t promised a bailout. They have delayed for four more days deciding whether to delay for four more months the inevitable concession that Greece will not pay its foreign debts.
"I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.
"But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago."
While this deal isn't the best one, or the most moral one, it was likely the best political deal to be had. Syriza will need the four months to attempt a restructuring of its fiscal management - no government could implement a fiscal plan in a few weeks. And the apparent Schaueble plan was an implicit ultimatum: Syriza U-turn to the status quo, or deal with the capital flight that would start in earnest next week.
So all in all, given the political reality, this was likely the best possible outcome. I hope Syriza will find a way to build on this moment.
Germany says no to Greek request.To be fair, I think news reports describing the Greek letter as a complete u-turn and capitulation are wrong. I see this:
Photo
Credit
and it looks to me as if Greece is quite carefully not committing to the original fiscal targets; it will attain “appropriate primary fiscal surpluses”, which almost surely means less than 4.5 percent of GDP. So if the German complaint is that Greece is not agreeing to lock in total surrender to the preexisting austerity plan, this appears to be right. Instead, Greece appears to be seeking to buy some time to put together an economic strategy (remember, this is a new government without a deep bench of technocrats), and to negotiate terms later. Germany, on the other hand, is trying to force Syriza into complete abandonment of its election promises right now, today.
Do the Germans really think that’s a likely outcome? I suspect not. This looks to me like an attempt to force Greece out of the euro, right now. German policy is objectively pro-Grexit.
It’s also, given the likely fallout, objectively pro-Golden Dawn.
The role of the ECB is critical here, and Peter Doyle says what I’ve been meaning to say, but better:
[I]n the event that Euro-Greek negotiations fail, the ECB should unequivocally continue to provide full ELA to Greece. Furthermore, it should make that position clear now, while negotiations on the program continue. This would determine that Euro policymakers must not only resolve Greece without the ECB stick corralling them but must also find themselves another Euro enforcement mechanism.
The Economist magazine has a very good editorial discussing good and bad deflation, and worries that the world is now experiencing (at least in part) the bad type. They conclude by urging central bankers to rely on a less ambiguous indicator:
Change the target
Policymakers should be more worried than they appear to be, and their actions to avert deflation should be bolder. Governments need to boost demand by spending more on infrastructure; central banks should err on the side of looseness. (Next month the ECB will start quantitative easing—and about time too.) Now is also the moment to consider revising the monetary rule book—in particular, to switch the central bankers’ target from the inflation rate that most now favour to a goal for the level of nominal GDP, the total value of spending in an economy before adjusting for inflation. With such a target there is no need to distinguish between good and bad price shocks. And the change in rules would itself send a signal that policymakers are serious about banishing the threat of deflation.
Central bankers change course slowly, and their allegiance to inflation targets runs deep. Conservatism often serves them well. But in this case it could cost the world economy dearly.
Notice that they advocate “level” targeting, which is very important in a world where the zero bound seems to occur with increasing frequency.
HT: Peter Spence, Frank McCormick
PS. I also recommend Edward Hugh’s post on Spanish deflation.
The euro is a project to roll back social democracy and to reimpose the "discipline of the market" on the state -- or in other words to restore the logic of the gold standard, whose essential condition was that preservation of money-claims had priority over democratic government.
OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:
The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.
Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP.
There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing.
I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work.
Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I.
Either way, the lack of wisdom is astonishing and appalling.
It was pointed out that Varoufakis alluded to the Melian dialogue.
What’s the state of the Greek crisis? I have no idea, or at any rate no idea beyond what any diligent reader of press reports might glean. I do, however, have a pretty good idea of what Greece is asking for on the fiscal side, and it might be useful to talk about the arithmetic behind that position.
Here’s the basic point: Greece has, through incredible sacrifice, managed to achieve a primary budget surplus — a surplus excluding interest payments — despite a depression-level slump. That surplus is believed to be currently running at about 1.5 percent of GDP. The Greek government is not calling for a return to primary deficits; as I understand it, it is merely proposing that it be allowed to stabilize the surplus at that level, as opposed to raising it to 4.5 percent of GDP, a number that has few precedents in history.
Now, you might think that 3 percent of GDP is not that big a deal (although try finding $500 billion a year of spending cuts in the United States!) Given the macroeconomics, however, it is much bigger than it looks. Much like the reparations the Allies tried to extract from Germany after World War I — although for somewhat different reasons — forcing Greece to run huge primary surpluses at this point would impose a very large “excess burden” over and above the direct cost of the surpluses themselves.
First, austerity has a very negative effect on output in a country that does not have its own currency, and therefore cannot offset the fall in demand with monetary policy. The attached figure shows what was supposed to happen to Greek GDP according to the original 2010 request for a stand-by arrangement – that is, the original austerity-and-internal-devaluation plan — compared with what actually happened. There’s little question that the huge shortfall reflects the adverse effects of austerity, which the IMF admits it greatly understated. At this point a reasonable estimate for the Greek multiplier is on the order of 1.3.
This multiplier effect has immediate fiscal implications. Suppose that Greece were to spend somewhat more than contemplated under the current agreement; the primary surplus would surely be less than would otherwise be the case, but the effect would be much less than one-for-one. We can summarize the actual effect of higher government spending (ΔG) on the primary surplus (ΔPS) as follows:
ΔPS = -ΔG*(1-μτ)
where μ is the multiplier and τ is the marginal effect of a one-euro rise in GDP on revenues and/or cyclically linked spending like unemployment benefits. Say μ = 1.3 and τ=0.4, both more or less in the middle of the evidence; then higher spending would reduce the primary surplus by less than half the initial spending rise.
Or to turn this around, to achieve the extra three points of surplus the troika is demanding, Greece would actually have to find more than 6 points of GDP in spending cuts or tax hikes. And note that the multiplier is almost surely greater than one; this means that the fall in government spending would induce a fall in private spending too, which is an additional excess burden from the austerity.
The point, then, is that by demanding that Greece run even bigger primary surpluses, the troika is in effect demanding that Greece make sacrifices on the order of an additional 7.5 or 8 percent of GDP as compared with the standstill the Greek government proposes.
The procedural step forward came after the ECB's Governing Council extended a cash lifeline for Greek banks for another week, authorizing an extra 5 billion euros in emergency lending assistance (ELA) by the Greek central bank. The council decided in a telephone conference to review the program on Feb. 18.
Monday was the deadline for the bridge deal, but apparently that's pushed until Wednesday. Euro zone finance ministers will meet Monday.
I imagine Dsquared looks and sounds like the Spice Trader of Qarth in this video who is mildly trolling Khaleesi. He's very eloquent in his writing and thinking!
The - strained - analogy is this. Magic is coming back into the world with Dany's dragons. The red comet was a sign of this. With Dany's dragons, the Warlocks' power is increasing as well. They symbolize the fascists. And the increase in magic is the failure of austerity in Europe and increasing economic distress. This increases the appeal of the xenophobes and neo-fascists. The Warlocks team up with the King of Qarth to depose the Spice Trader and the Thirteen, but Dany's magic is too strong for them as she escapes the House of the Undying.
...Theon's laugh was half a titter, half a whimper. "Lord Ramsay is the one Your Grace should fear."
Stannis bristled at that. "I defeated your uncle Victarion and his Iron Fleet off Fair Isle, the first time your father crowned himself. I held Storm's End against the power of the Reach for a year, and took Dragonstone from the Targaryens. I smashed Mance Rayder at the Wall, though he had twenty times my numbers. Tell me, turncloak, what battles has the Bastard of Bolton ever won that I should fear him?"
The link no longer works. Maybe Martin changed his mind.
The song's theme is taken from the Spanish Civil War, and the idealism of Welsh volunteers who joined the left-wingInternational Brigades fighting for the Spanish Republic against Francisco Franco's military rebels. The song takes its name from a Republican poster of the time, displaying a photograph of a young child killed by the Nationalists under a sky of bombers with the stark warning "If you tolerate this, your children will be next" written at the bottom.[2]
Various works on the Spanish Civil War were the inspiration for this song, and certain lyrics pertain directly to these works. For example, the line "If I can shoot rabbits/then I can shoot fascists" is attributed to a remark made by a man who signed up with the Republican fighters to his brother in an interview years later. This was originally quoted in the book Miners Against Fascism by Hywel Francis. Another work George Orwell's first-hand account, "Homage to Catalonia". "I've walked Las Ramblas/but not with real intent" brings to mind the account in Orwell's book of fighting on the Ramblas, with the various factions seemingly getting nowhere, with the fighting and often a sense of camaraderie overriding the vaunted principles each side was supposed to be fighting for. Nicky Wire has also acknowledged that he was also inspired by a song by The Clash, "Spanish Bombs", which has a similar subject.
Release
The recording was issued as two CD singles: the first included versions of "Prologue to History" and "Montana/Autumn/78", and the second featured a remix by Massive Attack and a mix by David Holmes.
It became the first of the band's two number one singles in the UK Singles Chart. [1] It also became the group's biggest success on the Irish Singles Chart (where it reached number 3), and is the only Manic Street Preachers track to be released as a single in the United States.
In March 2009, it was discovered that the song was used on the website of the British National Party as the soundtrack of an article describing "the violence, hatred, fragmentation and despair" wrought on London by the "great multicultural experiment".[3] The choice of this song was considered ironic by many, considering the song contains lyrics such as "So if I can shoot rabbits/Then I can shoot fascists". Record company Sony successfully had the song removed from the site on the grounds of unauthorised use.[3] The BNP later released a press statement claiming that "the song had mistakenly been automatically streamed on to its site and had nothing to do with the official party", and that "you can interpret the lyrics any way you want".[3]
Tywin Lannister is dead. Cersei, Littlefinger, Jaime, Sansa. Is that Bronn with the sword? Someone escorted by the Knights of the Eyrie and Vale. The three Sand sisters, daughters of the Red Viper of Dorne. Tommen and Margaery Tyrell marry. Tyrion and Lord Varys in Pentos. Jon Snow. Daenerys Targaryen. Jorah Mormont in the fighting pits. Olenna Tyrell. Melisandre the Red Priestess.
The Kingsguard sent to protect the Princess Myrcella in Dorne? Theon Greyjoy. Arya Stark in Braavos. The Flayed Man of the Dreadfort pawns on a map of the North. Selmy, Grey Worm, Daario Naharis with Daenerys still.
"What we see is that Italy is somewhat out of line — but the real standout is Germany, which has had much too little wage growth. And this in turn suggests that if we’re looking for the key to European problems, it lies in Germany’s beggar-they-neighbor relative wage deflation — which is indeed a point made by economists like Francesco Saraceno."
What we see is that Italy is somewhat out of line — but the real standout is Germany, which has had much too little wage growth. And this in turn suggests that if we’re looking for the key to European problems, it lies in Germany’s beggar-they-neighbor relative wage deflation — which is indeed a point made by economists like Francesco Saraceno.
""Creditors are demanding that Greece run a primary surplus of 4.5 percent of gross domestic product. Mr. Varoufakis, however, said Athens would propose to hold the level to 1 percent to 1.5 percent of G.D.P.""
Wolf Hall on Masterpiece Theater starts on April 5th, a week before Game of Thrones.
Tony® Award-winning actor Mark Rylance (Twelfth Night) and Emmy® and Golden Globe® Award-winner Damian Lewis (Homeland) star in the six-hour television miniseries adapted from Hilary Mantel’s best-selling Booker Prize-winning novels: Wolf Hall and its sequel, Bring Up the Bodies. The television event presents an intimate and provocative portrait of Thomas Cromwell, the brilliant and enigmatic consigliere to King Henry VIII, as he maneuvers the corridors of power at the Tudor court. MASTERPIECE brings both of these works to life in Wolf Hall, airing on Sundays, April 5-May 10, 2015 at the special time of 9:55pm on PBS.
Mark Rylance is Thomas Cromwell, a brutal blacksmith’s son who rises from the ashes of personal disaster, and deftly picks his way through a court where ‘man is wolf to man.’ Damian Lewis is King Henry VIII, haunted by his brother’s premature death and obsessed with protecting the Tudor dynasty by securing his succession with a male heir to the throne.
Told from Cromwell’s perspective, Wolf Hall follows the complex machinations and back room dealings of this pragmatic and accomplished power broker – from humble beginnings and with an enigmatic past – who must serve king and country while dealing with deadly political intrigue, Henry VIII’s tempestuous relationship with Anne Boleyn and the religious upheavals of the Protestant reformation.
A historical drama for a modern audience, this unromanticized re-telling lifts the veil on the Tudor middle class and the internal struggles England faced on the brink of Reformation. At the center of it all is Cromwell, navigating the moral complexities that accompany the exercise of power, trapped between his desire to do what is right and his instinct to survive.
The cast also includes Claire Foy (Little Dorrit) as the future queen Anne Boleyn, Bernard Hill (Five Days) as the king's military commander the Duke of Norfolk, Anton Lesser (Endeavour) as Thomas More, Mark Gatiss (Sherlock) as Cromwell’s rival advisor Stephen Gardiner, Joanne Whalley (The Borgias) as Henry’s spurned first wife, Katherine of Aragon, and Jonathan Pryce (Cranford) as Cardinal Wolsey, the powerful Lord Chancellor who recognized Cromwell’s potential.
