July 13th, 2015

In Which I Am Forced to Accept that Krugman Is Fundamentally Dishonest

http://krugman.blogs.nytimes.com/2015/07/12/killing-the-european-project/

"The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it."

Ignoring the second part of that paragraph, Krugman must be truly and deeply delusional if he thinks his commentary constitutes constant "praise" and "support" of the European project. He has relentlessly criticized it and predicted its failure over and over and over again. I'm betting the fundamental dishonesty is with himself, but this just makes him completely unreadable.

I think there are a lot of people overplaying what happened today. I'm still trying to figure out precisely which public assets are going to go into that fund, but it looks from here like the goal of the fund is to make it a lot harder for the government to loot large chunks of the economy (including the banks) to make operating payments. In order for this agreement to take effect, Greece has to take the first many steps (VAT tax, pension changes, etc.) and they have to do them soon, before this goes in front of any other country's parliament (I'm looking at you, Bundestag). I would argue it is a very open question whether those steps will be taken. This particular phase of negotiations is definitely not the last one, and I would argue it has all the characteristics of a showy display of force by creditors, which is precisely what has Krugman so enraged. What Krugman seems not to understand is that since Syriza came to power, the Greeks have been engaging in a showy display of resistance. I would argue that the other members of the Union have finally figured out that the kind of conversation that Greece want to have is not a pragmatic, quiet, sober conversation, but a big, loud, emotional conversation.

And an adaptable, compassionate conversational partner tries to adjust to what the other person is used to.

Since we're not actually involved, our best choice at this point is to say:

(1) No Grexit (yet). (Told You So.)
(2) Real Deadlines on Enacting Administrative and Governance Reforms that are widely regarded as necessary in any developed nation.
(3) The beginnings of the kind of oversight that any receiver wants in a BK situation, which, come on people THAT IS WHAT THIS IS. I know it's nice to think of BK as, oh, now I don't owe any more money! Yay! But what it really is, is, Oh, God, Someone Is Going to Haul Off Everything I Have Of Value, Leave Me Enough to Live On, and Then Grudgingly Agree to Leave Me Alone Thereafter, other than telling everyone else so no one else is willing to trust me for a period of time often on the order of 7 years.

It isn't nice to think of Greece as a client dependent on the generosity of the rest of the Union, any more than it is nice to think of some parts of our country in a similar way.

There are a couple tables in this that are not up to date, and rank differently depending on whether you are looking at them from the perspective of total dollars difference in money in vs. money out or the ratio thereof:

https://en.wikipedia.org/wiki/Federal_taxation_and_spending_by_state

But this gives a pretty clear sense that there _are_ states in our union which are quite dependent upon the union as a whole for their continued existence/solvency/banking system/balanced budget.

This kind of transfer payment system is _precisely_ what is missing in the European Union (and used to be missing in ours, as well!). The question _really_ is: how long is it going to take the EU to learn what we learned so very slowly? My guess is, not actually very long compared to us, but probably a few more years, possibly a decade or so.

And it may well be learned on the backs of Greeks.

Government pensions link-fu

And by government pensions, I don't mean the ones you might get by _working_ for the government as an employee of the civil service, or as a veteran of the armed forces. I mean what we call Social Security here in the US.

It occurred to me that a major form of transfer payments that results in some geographical locations receiving a ton of incoming money from the federal government/country as a whole compared to others is social security. This has been pointed out before. I know I'm not the first to notice. Each member state of the EU has their own comparable old age pension scheme. As demographics across the EU have evolved, it has become clear that these pension schemes required reform to continue on, and they have been reformed in many but not all member states. I thought, hey, you know, it would be really weird if Social Security for Mississippi, for example, was handled entirely by the state of Mississippi (honestly, it'd be weird even if it involved block grants, like Medicaid or whatever). And yet that is basically how old age pensions work in the EU. If the EU is going to truly create a unified labor market (and they both want and desperately need a unified labor market), they are going to have to harmonize their old age pensions.

So. Link fu to follow. I've got a crane in the driveway and a kid due to arrive on a van that therefore cannot enter the driveway.

http://link.springer.com/article/10.1007%2FBF03052291

This scholarly article is from 1993, and makes the basic point that I do above: if you have labor and households moving from one member country to another, then you will have to harmonize your pension scheme. It adds, for good measure, that you will also
have to share the debt 'round.

There's this:

http://www.pensionseurope.eu/iorp-directive

I think that is harmonization of pensions OTHER THAN old age pensions. So it's not like they've been ignoring this problem. They just worked their way through the lower resistance elements first.

There is a strong desire to pre-fund pensions (there are all kinds of pros and cons here that I am going to completely ignore). Thus pension managers wind up invested in ... a lot of stuff, and therefore care about how well markets are run. Here is a PensionsEurope discussion of their exposure to Greek Sovereign Debt and their participation in restructuring that debt which is ongoing.

http://www.pensionseurope.eu/economic-governance

Making PensionsEurope, and member participants like Germany that mostly avoided exposure to Greek debt participate, looks a lot like, let's make the old people fight this one out. Seems wise.

This paper, from 2003 (thus 10 years after the Springer paper above), argues that there isn't enough harmonisation yet. Which, well, kind of a duh.

https://ideas.repec.org/p/ces/ceswps/_1108.html

A few pages of this book:

_European Integration in the Twenty-First Century: Unity in Diversity?_

https://books.google.com/books?id=4Zqdmm-jU50C&pg=PA26&lpg=PA26&dq=harmonisation+old+age+pensions+europe&source=bl&ots=BUKTa3ACfr&sig=WKvzmw6o1tSsYfnIpbb-xANZ_fg&hl=en&sa=X&ved=0CCwQ6AEwAmoVChMIqturmdbYxgIVwY0NCh1A2gCL#v=onepage&q=harmonisation%20old%20age%20pensions%20europe&f=false

Give good flavor of the conflict. States with low benefit payouts (ones similar to ours in the US) have no desire to harmonize with states that have high benefit payouts (Spain and similar) to high earners/high contributors, because few states anywhere have substantial funds for their commitments, and low benefit payout states don't want to get stuck paying for high benefit payout states.

Look, I get the Krugman argument: if you can get the money circulating again in Greece, it'll all grow and be much easier to afford things than it is now. But Krugman et al are dead wrong. The demographics that allow for stimulus to work are not the demographics in play in Greece. And it really hurts even more that Greece has imported so much of what it consumes, and has done so for a really long time. Krugman's other argument -- they owe so much they can't ever possibly pay it off and trying to squeeze it out of them is vicious and cruel -- _is absolutely true_. But nobody wants to come back and do this again, so there's a desire to bend the curve somewhere.

This is an overview of Italian pension reform:

http://www.palgrave-journals.com/pm/journal/v16/n2/full/pm20116a.html

It apparently required working Italians to contribute to a private pension scheme? Maybe a 401K like thing? I dunno. But that's definitely a way to bend the curve, and move high-payout/high-cost/unsustainable systems in a direction that can someday harmonize with low-payout/lower-cost schemes.

Recent Activities Include: Crane, trees, chippers, no babysitters

Today, a gigantic crane arrived in our driveway. R.'s birthday request was to have some trees removed. It is amazing the number of people (including a police detail) that will show up without requiring a deposit, or even a same-day check. Of course, they _do_ know where we live, and I'm reasonably certain they know how to put a lien on a house, so they have high confidence they will be paid. (Duh, of course _I'd_ pay them, but that kind of trust always makes me go, whoa. How does that work, anyway? Answer: builder's lien in the land registry, usually.)

The chipper broke, and they had to get a different one out, but it's now eating trees again. Kid delivery (the CASE vans normally drop them off in the driveway) was tricky; I loitered outside and got them off the van on the side of the road, which no one likes but was pretty much the obvious strategy today.

We were, in theory, going to have two babysitters today, but Murphy decreed otherwise. Instead, we have none. My son is wicked sad about that. A. and I don't really care, because we're quite happy to hang out.