Left Outside

One reason the EU doesn’t deserve the Nobel Peace Prize

Unlike some, I think the EU winning the Nobel Peace Prize is a good thing. Europe was the most warlike place on earth for millennia. I have trouble thinking of somewhere more incessantly violent than pre-1945 Europe.

The Americas, Africa and Australia were both too sparsely populated for properly sustained warfare of the European variety. They also didn’t have the technology to produce viable killing machines. South Asia and East Asia, e.g. the Muhgals, Han etc. settled into imperial systems in which a hegemon acted arbitrarily violently, but which was never as dangerous as Europe”s state of war.

Things got a bit peaceful from 1815-1914, but once Europe had run out of non-Europeans to kill they went back for a hundred-year-giant-slaughter-anniversary bash which they ran, with intermission, from for about the next 30 years.

But, suddenly, since 1945, we haven’t really killed each other that much – apart from the Russians, but we’ve always thought they were a bit odd. In my view somebody needed an award, the EU is good enough. Plus, it has at least been pretending that maintaining the peace is what it was trying to do.

However, a couple of days before EU was awarded the prize, they did something which made the world a marginally more warlike place. Europe killed the BAE/EADS merger. BAE is synonymous with the British military-industrial complex, EADS is the same for continental Europe. A merger would have created one of the largest producers of military hardware in the world.

By killing the deal Europe has managed to prevent the management of BAE and EADS from rushing headlong into a pointless merger and stopped them from destroying millions of pounds worth of weaponised wealth.

Mergers have a terrible history. Rather than enabling synergies and economies of scale or scope, mergers often leave everybody worse off than if the firms had remained separate. The juries out on why mergers so often go wrong; it could be managerial hubris; it could be the winner’s curse wherein the winner is the person who bids ever so slightly too high; it could be something more Hayekian, in that people underestimate the complexity of the larger company.

In any case, I thought it was likely a BAE/EADS merger was a value destroying proposition. Both BAE and EADS are tightly linked to their sponsor states. A merged company would have had to answer to the British, the French and the Germans. Can you imagine them getting anything done if you had those three bosses? It would be a recipe for disaster, but disaster in the “killing things” supply chain is a net plus for the world, so I thought it odd to see these two stories come out at about the same time.

Oh, and why would two medium firms merge into a large one if it is such a bad idea? Well, its a bad idea for the owners, but for the management

Filed under: Economics, Politics, , , , , , , ,

The ECB as Schroedinger’s cat

The European Central Bank is at all times both fulfilling its legal mandate and ignoring it. Until you look closely it is impossible to tell which it is, and once you have decided which it is it can only be because you have lost sight of its mandate as set down in law. This explains a lot: Even I can’t decide whether Mario Draghi relentlessly adheres to or has completely abandoned the whole ECB mandate.

One of the reasons that Europe is collapsing and the whole world is heading for a recession within a depression is that the ECB is charged solely with maintaining price stability not supporting economic growth. Their duty, they argue, is to without prejudice support a European wide inflation rate below, but close to 2%. However, the mandate as set out in law is so convoluted as to leave the ECB council capable of simultaneously adhering and violating both the letter and spirit of the law. No wonder Europe is a mess.

They are not just charged with maintaining price stability, as interpreted, they are also empowered to…

Without prejudice to the objective of price stability, it shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. [my emphasis throughout]

This implies that although the ECB cannot ignore inflation, it has leeway to support the policies of member states and the Union as a whole. By this criteria the ECB should have done everything in its power to keep inflation and inflation expectations running at really, really, really close to 2%. Instead they have crashed. The mandate is wider than price stability and includes supporting economic policy making rather than sabotaging it.

However, the mandate continues…

The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119 of the Treaty on the Functioning of the European Union.

This part of the mandate implies that the ECB is empowered to not support the policies of member states if they are not compliant with “free competition, favouring an efficient allocation of resources.” That would certainly have empowered Trichet, and now Draghi, to withhold such support as is possible if they consider member states’ policy “insufficiently favourable to an efficient allocation of resources.”

At the moment it appears Draghi is refusing to cut interest rates below 1% to blackmail Greece and France into policies deemed favourable to “Article 119 of the Treaty on the Functioning of the European Union.” This seems like something that should be impermissible for a central bank but it is in fact within the Feds mandate. So refusing adequate policy until member states change policy is merely the ECB laying greater weight on supporting certain policies over others, as it is mandated.

The mandate references Article 119 which says…

1. For the purposes set out in Article 3 of the Treaty on European Union, the activities of the Member States and the Union shall include, as provided in the Treaties, the adoption of an economic policy which is based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition.

2. Concurrently with the foregoing, and as provided in the Treaties and in accordance with the procedures set out therein, these activities shall include a single currency, the euro, and the definition and conduct of a single monetary policy and exchange-rate policy the primary objective of both of which shall be to maintain price stability and, without prejudice to this objective, to support the general economic policies in the Union, in accordance with the principle of an open market economy with free competition.

3. These activities of the Member States and the Union shall entail compliance with the following guiding principles: stable prices, sound public finances and monetary conditions and a sustainable balance of payments.

The ECB has overseen a colossal balance of payments crisis, with the Eurozone periphery persistently running deficits and the core running surpluses. In 1992, at the signing of the Maastricht treaty, they saw this problem coming and specifically empowered the institutions of Europe to deal with it, and they have failed. This imbalance, rather than government profligacy is at the core of the Eurozone crisis. Certainly under Trichet, and now under Draghi, this part of the ECB’s mandate has been completely ignored.

A mandate is fulfilled or unfulfilled, but it is impossible to tell if the ECB has, is or will fulfil its mandate in its entirety. The ECB has failed or succeeded, and is on target to achieve or betray its objectives, it has achieved its aims “impeccably” or it is insane.

To be honest, I’m too tired to work out which it is, all I know is that all this makes me very pessimistic.

Filed under: Economics, Foreign Affairs, , , , , , , ,

Cameron’s dreadful case for national pride

This is just wonderfully revealing from Cameron today:

Whatever the obstacles to growth today, we still boast some of the best universities in the world, the most favourable timezone in the world, and the world’s first language.

Hundreds of years ago we conquered and colonised a load of places and they and their trading partners now speak our language. Also, by historical fluke, we just so happen to sit in between populus Asia and wealthy North America.

So this is what national pride has come to. No celebration of the English Pub, the centre of the community, no longing for days of imperial grandeur, no ideological fervour for christ, cricket and capitalism. Nope, something more like this…

A cosy 25 million bedroom nation with excellent local amenities, a large secluded garden and great transport links. Comes complete with lovely views of France and neighbours who will begrudgingly speak your language.

Filed under: Economics, Foreign Affairs, History, Politics, , , , , , , , , , , ,

Migration as Technology

I was a little confused by this Robin Hanson post. He cites with approval the fact that since 1970 40% of all the extra consumption in the world has occurred in the United States. Below are the top 30 gainers in terms of tens of billions of dollars a year.

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Robin argues that this is argument against Tyler’s notion of a slow down in technological innovation. But the population of the US is 48% bigger in 2010 (310,000,000) than in 1970 (209,000,000). At first I couldn’t see why this would counts as evidence against some notion of a slow down in intensive growth. The US got more from more which is great for all those people involved, but it is not evidence we can get more from less, is it?

Well, in a way it is, although you have to denationalise your perspective. The US does have an overwhelming lead in one “technology”; that of receiving and assimilating migrants. The factors behind this are geographical, historical and cultural, but it still as a really important technology in terms of increasing “our” productive and consumptive capacity.

The productivity of millions of people has been hugely increased simply by them moving across a border. Allowing more migration is an innovation that can make many people better off by improving their productivity. But it is a technology which cannot be excercised by a single firm, it is better thought of as a society-wide innovation akin to germ theory or corporation law.

Filed under: Blogging, Economics, History, Migration, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

When NGDP is Depressed, Employment is Depressed

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Increase NGDP, Put These People Back to Work

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