The Eurocalypse Now debate
May 30th, 2012 at 10:00 am by David FarrarThanks to the NZ Initiative I was able to attend the Eurocalypse debate at the Auckland War Memorial Museum last week. Cam Browne was also there and has blogged on it. The pro-EU speaker commented that given the timing of the debate (new Greek elections just called), that he felt like someone preaching contraception to the College of Cardinals 
I won’t cover the debate in full, but it was a good example of the NZ Initiative can contribute to public policy discussions in New Zealand. There was one statement by MEP Dan Hannan which resonated with me.
Hannan said that the reason the UK (and other countries) went into the EU was the promise of prosperity. No country wants to surrender political sovereignty, unless there are benefits for them in doing so. The trade-off for surrendering power to the EU, was that they were forming a prosperous and powerful trading bloc. Europe would rival the United States as an economic super-power.
Two issues have undermined those benefits. One is the declining power of the EU in the global economy, as Asia especially grows. Growth in the EU is fairly minimal in the older member countries (but quite strong in the new economies). Already the EU has shrunk to just under 30% of the global economy. By 2050, it will be just 15% they project.
Worth noting the original EEC cost only 0.03% of European GDP. The EU now costs 1%, or 30 times that.
Now also put on top of that the Euro crisis, as weak economies threaten even the healthier EU economies. It becomes apparent that the rationale of greater economic prosperity in return for surrendering political sovereignty has disappeared. Hannan asked if either major party in the UK would propose joining the EU today, if it were not already a member. He says there is no chance at all.
So Hannan advocates that the UK leave the EU, but like Switzerland and Norway sign free trade agreements with the EU, so you get the benefits without the loss of control. Hannan said he thought a referendum on the UK staying in the EU was inevitable, but conceded to the other speaker that it is quite possible the UK would vote to remain, as the two main parties would both campaign to stay in there.
So it was an interesting debate, which I hope we will see more of. Also worth highlighting a profile and interview in the Listener of Initiative Executive Director Oliver Hartwich. Some extracts:
“Thank God for the porn industry,” he wrote in a newspaper column two years ago. “The seemingly questionable industry does not care about morality, but is nevertheless a constant source of innovation and social improvement.” The column lauded the industry for the development of 3D films, predicting the technology – if not the content – could be used by schools to make geography and chemistry lessons much more interesting. “With some justification, sexual needs could be called the mother of the web’s invention. Without streaming videos of screaming porn stars, bandwidth would not have been added so fast to the global net,” he suggested.
Oliver is not the only person to have noted the Internet porn industry has had a considerable part in the development of the Internet.
Since the end of the gold standard in the US in 1971 – which required the US dollar to be backed by a fi xed amount of gold – money has had no intrinsic value. Hartwich believes we need to again anchor the monetary system to a commodity – although not necessarily gold, and maybe a mixture of commodities. He’s not a lone voice on this. In 2010, World Bank president Robert Zoellick called for a return to the gold standard, saying the world needed a more co-operative monetary system and should “consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values”.
Hartwich’s friend and colleague Detlev Schlichter, author of Paper Money Collapse, says the financial crisis is not an accident of capitalism but the “unavoidable consequence of the political decision to abandon a gold standard and to adopt in 1971 a system of unrestricted fiat money creation”. Hartwich believes New Zealand and Australia should consider moving their currencies to some “new system of commodity banking”, although he hasn’t got a recipe for how that could be done.
A return to the gold standard is far from the orthodox view. Would be quite interesting to hear maybe Oliver and the Reserve Bank Governor debate whether we should return to commodity based currencies. I’m personally not convinced, but have never heard anyone except the anti-monetarist lunatics of Social Credit advocate this. It would be good to hear a more rational debate.
Although international leaders promoting stimulus packages often say they are following the path of British economist John Maynard Keynes, Hartwich claims they often misrepresent his actual writings. “Keynes never said you can spend and spend and spend.” In the 1920s, Keynes even said that government should make up no more than 25% of the economy. “That would make him a neoliberal by some standards today,” Hartwich chuckles.
A good reminder.
Hartwich is obviously well to the right of centre, yet he is not an aggressive tax cutter. He agrees there is a relationship between economic growth and levels of taxation, but he derides last decade’s Bush tax cuts in the US as “fiscally irresponsible” and does not believe governments should go into deficit to fund them.
I agree. Spending has to be under control to cut taxes.
Asked about his top priorities for New Zealand, he names education and housing policy. He also wants to examine social issues such as mental health. He worked for 15 months in a mental health institution as a young man “because I didn’t want to join the army”, and was moved by the experience.
Glad to see education on the list.
Related posts:
- Eurocalypse Now?
- The New Zealand Initiative
- Eurocalypse Now with Daniel Hannan
- Free debate, beer and pizza!
May 30th, 2012 at 10:10 am
As a book I’m reading at the moment points out, gold has no intrinsic value either, except as far as its properties have value in medical and high tech industries.
Vote:May 30th, 2012 at 10:12 am
Gold pretty much has no intrinsic value. It’s kinda pretty, and other people want it, but that happened with tulips too.
Vote:May 30th, 2012 at 10:23 am
snap.
Vote:May 30th, 2012 at 10:26 am
http://mises.org/rothbard/genuine.asp
I suggest you bump Not PC up your blog reading list a bit…because a quick search there produced this list:
http://pc.blogspot.co.nz/search/label/Gold%20Standard
Which lead me back to here:
http://www.kiwiblog.co.nz/2010/02/act_conference-2.html
Are you outsourcing your memory to your blog David?
Vote:May 30th, 2012 at 10:32 am
It is sterile to characterise economic policy in terms of what Keynes said to do or not. The debate is whether one should spend and borrow and print money to do it or whether one should practice austerity. It is surprising the amount of support quantitative easing gets and the degree it is being used in the UK and the US. I do not think it has been used in NZ yet but there is scope to do so.
Vote:May 30th, 2012 at 10:39 am
The porn industry has contributed to “social improvement”?
It’s a social improvement that the average age that children get exposed to hard core porn is 11? This is an improvement?
Wars create innovation as well.
Vote:May 30th, 2012 at 10:40 am
I believe orthodox Keynesianism advocates running surpluses to pay down debt in the good times and then running up spending to stimulate demand in the bad times. The last Labour and National governments managed to get that first part right, but sadly the current government is uninterested in the second part.
Vote:May 30th, 2012 at 10:42 am
Much as I agree with most of the arguments of gold-bugs against our modern system of fiat currencies, the history of governments is one of currency debasement. I’m not persuaded that they could not work loopholes with a currency backed by gold or some combination of commodities.
At best the argument is that such commodity-based currencies would make the debasement process much more difficult – which may turn out to be a good argument if we continue to have LTRO’s and QE’s from the central banks.
And on that note, I ran across this interesting article some days ago that compared the history of financial crashes and their economic impact in the USA for the pre and post-Federal Reserve periods: Charting Fun with Krugman.
The fun arises from the fact that this chart was presented by Krugman himself (and he’s probably the worlds No.1 Keynesian cheerleader) as a way of demonstrating that the periodic financial crisis that the US economy has suffered have been managed better in the Federal Reserve world than in the period prior to its creation. As this economist points out from Krugman’s chart:
Vote:May 30th, 2012 at 10:55 am
The gold standard is just ludicrous. Tying the amount of money to the amount of gold being mined could not be more arbitrary. Most countries and all the important ones have fairly prudent policies over money supply which is broadly in sync with the value of good and services in an economy. Quantitative easing places this at risk but a little inflation in low single digits seems acceptable and a little QE can be beneficial.
Vote:May 30th, 2012 at 10:57 am
The EU was from its outset a political project designed with the intention of full integration of the nation states into a supranational entity along the lines of a United States of Europe.
It was and still is the intention of the EU to abolish the nation state and federalise Europe.
This is well described in the book “The Great Deception” by Booker and North.
The common currency was merely a stepping stone to this political integration.
Vote:May 30th, 2012 at 10:58 am
For all the focus on Greece, the reality is the so-called “contagion” that might spread throughout the Euro-zone as the same forces focus on Spain and possibly even Italy. The writer known as “Spengler” has some harsh truths to say on this:
Ouch.
However, I don’t agree with his take on the impact of the fallout from a Greek departure:
Still, the point is that the real basis of economic success is culture. Always at the root it’s culture.
Vote:May 30th, 2012 at 10:58 am
absolutely Lucia, Softcore porn is a waste of time. much better to be exposed to Hardcore.
nothing wrong with porn, just becuase fundies like you hate their bodies and all kinds of fun.
Vote:May 30th, 2012 at 10:59 am
Some newer parts of the EC are taking off, such as Poland with an educated, hard-working, fertile populaton of about 35 million.
If the Russians could oust Putin and take it into the Europe group, too, the Old Continent would take off again.
Western Europe’s tiredness may also be shaken if the looming economic disaster leads to a resurgence of fascism. Fascists want people to have babies regardless of the effect, and a resurgence of young people would help Europe.
However, relative decline (as a portion of world GDP) doesn’t mean a helluva lot. China will certainliy become the biggest economy again, as it was for most centuries in the last 3000 years. That didn’t stop it being taken over by the dirt-poor horsemen of Mongolia, or stop its very rich culture from stagnating for a thousand years or so.
Vote:May 30th, 2012 at 11:00 am
“He agrees there is a relationship between economic growth and levels of taxation, but he derides last decade’s Bush tax cuts in the US as “fiscally irresponsible” and does not believe governments should go into deficit to fund them.”
John Keys tax cuts are funded through borrowing, yet they were the right thing to do. The medium term forecasts show the govt will return to surplus (I disagree this will happen in 2015 though).
Nice, the long term revenue equals long term Govt expenditure plus debt servicing. It just needs fine tuning along the way.
The problem is, when a govt introduces large social welfare schemes (WFF) , free student loans, train sets etc. None of this was needed.
Vote:May 30th, 2012 at 11:02 am
The pro-EU chap – most of whose arguments seemed weak on delivery – actually said “like selling condoms to the Vatican”. And thus showed how, despite being young, good-looking, and wearing a saavy Melbourne suit, a liberal academic can still come across as an oaf.
Vote:May 30th, 2012 at 11:04 am
Well, wreck, the government could reverse those policies if it chose. Oh wait, it’s a National government, so maybe we’d better not expect anything bolder than ‘aspirations’
Vote:May 30th, 2012 at 11:05 am
But DPF is right. It was a good session. Hopefully more of them to come.
What I found interesting is that there was no mention of demographics. And no one in the audience asked about it. This would surely have to be one of the big factors in the future of Europe. Maybe liberals are too scared to mention the M-word for fear of being racist. Better to stick our heads in the sand eh?
Vote:May 30th, 2012 at 11:12 am
In what world (aside from your own) does $US 5 trillion of created credit to buy $US1 trillion of GDP recovery amount to being a “prudent” money supply policy?
I love that word “little”. It might amount to a “little” risk if the existing debt was at levels of one or two decades ago. Now, not so much.
The only reason that inflation remains low is that the US economy continues to crawl along the floor while the global economy sags. US corporations are sitting on at least $US 2 trillion of cash rather than investing in new or expanded business. If that turns around and we begin to get a normal economic recovery (say 5-6% GDP growth per year for a couple of years), all that created credit is going to bubble onto the stage in one form or another. Normally the Fed and company would simply jack up interest rates to control that – but with government debts at these levels, even the smallest interest rate rise is going to kill their budgets.
Vote:May 30th, 2012 at 11:14 am
simonway,
Or perhaps the current govt doesn’t hold with Keynesian economic theory. Perhaps it considers it out-moded and flawed (stagflation in the 70s and the mantra that savings is ‘dead’ money would be a couple of examples.)
In which case, what sense would it make to evaluate their initiatives against keynesian economic theory. (it would have as much relevance as evaluating it against Marxist theory.)
Vote:May 30th, 2012 at 11:20 am
You might be interested in this take on that question from the Spengler article:
In other words, the demographic problems of Germany at least, may be solved by the internal migration of other Europeans to Germany as the “smart” ones get the hell out of Spain, France, Greece and similar basket cases.
Vote:May 30th, 2012 at 11:24 am
Okay, so yes, gold is not that practically useful, and it is a commodity with significant variables determining its worth. But a comparison to the tulip bubble is ridiculous. Gold has been used as money since mankind first discovered it, and there has never been a significant bubble. There has never been a glut of gold. Gold has never been worthless.
I think it is safe to say that gold will never go out of fashion. It is still a fairly rare metal, and it is mined in minuscule amounts. The entire amount of gold mined in the history of the world would only fill three olympic-sized swimming pools. The supply of gold changes very little. If you are going to pick anything to be your currency, gold is by far the best and most stable option. Fiat money, by contrast, is essentially turning the future forced labour of a country into currency through future taxation. It is a much flimsier and unstable method of trading, because not only is it not a real physical commodity, but the “money” does not even exist yet. It is supposed to be created at some point in the future. Fiat money is not a real thing, it is merely a promise that somehow something real will emerge in future.
A gold standard is no longer a fringe idea. It has become very much a part of the mainstream here in the US, and I suspect will gain traction as an idea more and more in other countries too.
Vote:May 30th, 2012 at 11:25 am
I was interested in your comment about culture above tom. What exactly is it about French, Italian and German culture that is so superior to Spanish and Greek culture?
Vote:May 30th, 2012 at 11:28 am
Adze @ 10:10
“.. gold has no intrinsic value either,…”
Not true, gold has available volume value.
As demand increases value goes up and available volume goes down AT THAT VALUE.
To that extent gold has no less value than work.
Only Government can fuck the system up.
db.
Vote:May 30th, 2012 at 11:32 am
Grendel (547) Says:
May 30th, 2012 at 10:58 am
absolutely Lucia, Softcore porn is a waste of time. much better to be exposed to Hardcore.
nothing wrong with porn, just becuase fundies like you hate their bodies and all kinds of fun.
There is no use simply sitting in the middle of a garbage heap and appealing to everyone else to be tidy.
Vote:May 30th, 2012 at 11:33 am
Tell you what milky, why don’t you write a decent-size commentary on your opinion about that – and then we can have a discussion. You can add South Korea into the mix for fun as well, since Spengler does.
Vote:May 30th, 2012 at 11:43 am
@ Grendel: you can be anti-porn without being a prude mate.
@ milkenmild: German people save, are long-term centric, are very focused on education and meritocracy, are taught from a young age to hate laziness and ineptitude that a person can avoid, and take pride in whatever it is they do.
Greece is a country where they shut the tourist attractions at random according to the whims of whatever stinking, lazy bad teethed citizen is supposed to be working that day, but decides they would rather go have a smoke and play cards somewhere else.
I cannot speak to Spanish culture, as I have never been there and don’t know too much regarding their culture.
French culture is nice. For many years they have had the production and wherewithal to afford their culture of a 35 hours working week, which is a great thing, and their citizens keep the govt on it’s toes while producing enough to keep the govt somewhere near solvency. I like France and French people, but I like Germans better.
Vote:May 30th, 2012 at 12:00 pm
DPF: but have never heard anyone except the anti-monetarist lunatics of Social Credit advocate [a return to the gold standard]
Really?? And you supposedly are a blue liberal….
It’s a pretty mainstream view in my circles and my reading. But it’s not a return to the gold standard particular, but to competing currencies. So we get rid of the Reserve Bank as its only two functions are to debase the currency at the expense of savers, and to bailout bad banks which in a capitalist economy we normally would have gotten rid of long ago.
The only reason we have paper money is because it allows government to debase the currency (inflate) as a form of hidden tax, which why governments have outlawed the competition. But governments will soon be forced as every paper currency has collapsed in the past.
And the internet will make competing currencies a quick reality as well.
Vote:May 30th, 2012 at 12:20 pm
@ tom hunter
Interesting. I wonder (because I’m an enthusiast, though I acknowledge it’s hard to predict on what hinges history will swing) what role the church will have in all of this over the next 100 years. There is no evidence that religion is dead (and media scandals are largely sideshows), and that despite the growing pains since Vatican II, the Catholic Church is rebuilding itself. Not its foundations, but on how it engages with the Europe and the West. John Paul II and Benedict XVI were excellent philosophers and have given penetrating commentary on 20th and 21st century Europe. Add to this, the next generation of young Catholics who understand the modern world better than their pre/trans Vatican II predecessors.
People will say “so what, who cares about the Church”. Notwithstanding that these people can’t see past their narrow view of the world from New Zealand and from watching TV3, to rule out that largest organisation that provides philosophical and material input into the affairs of the world reveals a persons ignorance or arrogance. One could argue that economic success can only occur in a virtuous community (please note that I don’t think the religious have a monopoly on virtue but I do think that religious people (of many faiths) are more virtuous than agnostic materialists) – and I don’t mean with regard to sex issues (though this is a part of it; raising dysfunctional children doesn’t help the economy). I mean the notion that hard-work and sacrifice are important in success. That greed and materialism (including, and especially, in the middle-classes) is bad. But even deeper than this is confidence in certain ideas being true – a confused and relativistic community can become cynical and selfish when they don’t have a hope and confidence in the future.
Despite hiccups, the Catholic Church has always been a messanger of hope – spiritually yes, but also materially and with regard to provide rich material in the deabte about how humanity best arranges itself to maximse human potential.
Vote:May 30th, 2012 at 12:22 pm
Neither a gold standard or 3d porn will save Europe from the inevitable melt down it now faces. The Eurozone breakup will create winners and losers and will impact upon the global economy, the trick is to prepare for it now.
Vote:May 30th, 2012 at 12:23 pm
The value of gold (besides the qualities of the material itself in industry, as previously mentioned) is only propped up by its relative scarcity. That will change once asteroid mining becomes mainstream later this century. Then any raw material will become only as scarce as the availability and transport of space-based mining assets (to begin with, only ultra-rare metals, then others down the food chain).
Vote:May 30th, 2012 at 12:29 pm
So then, what of the demographics? Non-religious Westerners and Westernised Christians are having fewer babies. The former fewer than the latter. Muslims, generally speaking, are having more. This is an issue, that at least, must acknowledged in the public debate. Further in, there are some fundamental differences between how orthodox Christians and Muslims view civil liberties and this may create conflict. (The non-religious have a different views on civil liberties too but these people may be irrelevant in 2050).
Vote:May 30th, 2012 at 12:52 pm
Which means it is an excellent form of currency.
Vote:May 30th, 2012 at 4:42 pm
After waiting for almost half a day for milky to make an explanatory contribution to a discussion about the effect that culture has in this Euromess, I suppose I’ll just have to accept that one-sentence questions are as good as it gets. It is work-day after all.
In the meantime, here is yet another writer – a historian in this case – who sees the cultural aspects of this disaster – Thoughts on the Rhine:
He also translates that into how Germans may start feeling about all this as the WWII guilt is eroded away:
I’ve often argued that the Greeks and company have to simply write-off their debts if they are to have any hope of gaining back a real economy. The debts are now simply too large to be fixed with anything less than Chinese levels of economic growth. However, Hanson makes the following point:
Vote:May 31st, 2012 at 12:16 am
Yay! Thanks for the link and mention!
Vote: