Uncertainty, deflation and interest rates question

[astonas]

Re: Uncertainty, deflation and interest rates question

are you sure that it's hell towards which he's headed?

No, but I do think that's where he's been told to go. There's a good chance he'll get lost on the way, even with clear directions. ;)

[Polish_Silver]

Re: Uncertainty, deflation and interest rates question

Perhaps the reason they ignore deflation scenarios is that there is no adequate policy response in the Central Bank arsenal once it gets underway in earnest in an economy? . . .

They have many scenarios preventing deflation. I'd have to agree with EJ, that currency devaluation is always available and always works to stop deflation.

[Polish_Silver]

Re: Uncertainty, deflation and interest rates question

If being in the EU means accepting unlimited immigrants from anywhere else in the EU, I'd say the UK and every other decent country is out of it's mind for joining it in the first place. The EU was sold to people as a means of cooperation without losing national identity. Well, a lot of identity seems to be already lost, and the EU wants to take more away to protect the Euro.

[astonas]

Re: Uncertainty, deflation and interest rates question

If being in the EU means accepting unlimited immigrants from anywhere else in the EU, I'd say the UK and every other decent country is out of it's mind for joining it in the first place. The EU was sold to people as a means of cooperation without losing national identity. Well, a lot of identity seems to be already lost, and the EU wants to take more away to protect the Euro.

It is quite debatable whether it was ever intended to be a way to cooperate without loss of national identity. Many of its proponents saw the gradual loss of national identity over time as the key to achieving the single largest purpose of forming the EU: making war on the continent impossible in perpetuity.

Whether that is an achievable goal is of course a different question.

It is also quite possible that many of the people within the EU didn't understand that the loss of national identity was part of the point of the EU, and voted in referendums based on misleading campaigns. But I think it is hard to argue that the architects did not have identity integration in mind from the beginning.

Indeed, I suspect that pro-Europe forces on the continent are not at all disappointed that the economic crisis came along, since it provides a driving force for previously recalcitrant populations to see themselves as part of a single challenge (and what's more, one that can benefit them, depending on which solution is applied). The migration of populations between nations has always been explicitly stated as a desired way to relieve economic imbalances in Europe.

The goal of pro-Europe forces is not preserving individual national identities, it is jockeying to make sure their own cultural identity gets over-represented in the amalgam "european" identity that comes out the other side. That others become more like them, rather than themselves adapting to other views. And in spite of the drama of the crisis, it is still these pro-europe forces that are calling the shots in most nations of the EU. Even Greece is cracking down on nationalism. Britain really is the odd man out at this time.

[GRG55]

Re: Uncertainty, deflation and interest rates question

If being in the EU means accepting unlimited immigrants from anywhere else in the EU, I'd say the UK and every other decent country is out of it's mind for joining it in the first place. The EU was sold to people as a means of cooperation without losing national identity. Well, a lot of identity seems to be already lost, and the EU wants to take more away to protect the Euro.

I must say I disagree vehemently with this sentiment. The free movement of citizens, including industrial workers, seasonal workers, apprentices, students wishing to study and pensioners, within the EU is one of the most important tenets in the 1992 Maastricht Treaty, the 1995 Schengen Agreement and the 1997 Treaty of Amsterdam in my view. Has the USA suffered any great loss of identity by welcoming immigrants? Let's not confuse this issue with a flawed common currency execution. If you want to have a true economic union then those citizens within the union should be able to live, study and work anywhere they wish within those borders. After all, isn't that one of the distinguishing features available to the citizens of the United States of America, the most successful economic union in history?

I find those in the EU, especially the Germans, who are now squawking about the Brits to be short of memory and long hypocrisy.

In May 2004 the EU expanded by 10 new member states. Eight of those new member states were previously behind the Iron Curtain (Malta and Cyprus being the exceptions). Because of the vast difference in income, economic opportunity and standard of living (average wages in Latvia, one of the incoming members, were at the time estimated to be <15% of the pre-expansion 15 nation EU average) there was a great deal of controversy and no shortage of politically inflamed fear about waves of economic migrants overwhelming the EU-15. The ever xenophobic French invented the infamous "Polish Plumber", a fictional character (not to be confused with valued and real life iTulip member Polish Silver!) to whip up a fury of opposition to the very idea that skilled French workers would be allowed to be replaced with a tidal wave of Eastern Europeans willing to work for peanuts.

To deal with this a transition period of seven years was negotiated as part of the new 10-member accession (with migration from Malta and Cyprus exempted, and thus unrestricted). Within that seven year period each of the 15 pre-expansion member states could individually determine when it was ready to open its borders to "foreign workers" from the eight Curtain nations. All of the EU-15 had to open their borders no later than May 2011, exactly seven years from the official date of accession.

Three of the EU-15,including the United Kingdom, chose to open their borders immediately (Sweden and Ireland being the other two). Only two nations chose to keep their borders closed right to the end of the seven year period. Austria...
...and Germany. What a surprise.

I kept an apartment in Kensington and spent roughly half my time in the UK and parts of Europe between 2003 and 2006. At that time it was my custom every day I was in London to take a stroll around the Serpentine in Hyde Park. On Sundays, in any weather, the park would be filled and one would hear conversations in virtually every language imaginable. It is one of the enduring strengths of the UK economy that it is open to people from the Commonwealth (historically) and the EU (in contemporary times). The UK implemented a worker registration system to monitor post-accession migration. The data showed that during the seven year transition period some 70% of migrants from the eight Curtain countries came to Britain and Ireland.

France, on the other hand, seems to have had a preference for immigration from its former African colonies, such as Algeria, over Eastern Europeans, who share with the French a common religion (Christianity) and a closer geography and history (wars, Royal intermarriages and all). Germany seems to have a long standing predilection for Turkish workers over Europeans from "next door". So which are more likely to result in the greatest social stress due to differences or clashes in values and culture?

David Cameron is wrong to be pandering to the currently popular anti-EU immigration sentiment in the UK. However, Mrs. Merkel would do well to remember her own nation's recent behavior and avoid sermonizing.

[GRG55]

Re: Uncertainty, deflation and interest rates question

They have many scenarios preventing deflation. I'd have to agree with EJ, that currency devaluation is always available and always works to stop deflation.

If you read EJ's work carefully you will see that he too describes it as the Central Bank's ability to prevent deflation...not an ability to reverse it once established in earnest due to a serious policy mistake a la 1930.

[astonas]

Re: Uncertainty, deflation and interest rates question

I agree with most of what GRG55 says. I just read a (very slightly) different set of intentions into the actions.

David Cameron is wrong to be pandering to the currently popular anti-EU immigration sentiment in the UK. However, Mrs. Merkel would do well to remember her own nation's recent behavior and avoid sermonizing.

My read is that the sermonizing, while it might also be popular among a segment of less well-read voters, is in fact primarily intended to be irritating to Britain. In other words, Merkel would indeed be well-served (if her only priority was to hold together the EU in its current form) to stop sermonizing. I just think her motives are specifically to encourage Britain to move toward the door. Hence the deliberate provocation.

That circumstance strengthens the germanic position, at least marginally, either way. If Britain does leave, then the germanic monetary philosophy has a much easier time establishing dominance in the remainder of Europe. And if Britain stays, it will have far less credibility and hence influence on EU policy (such as blocking Tobin taxes or their antecedents) in the future than it does today.

The possible downside (Britain leaving the EU establishes a precedent for other nations to do the same at some point) may indeed be bad as well. But if I had to guess, Cameron doesn't really want to leave at all -- and by now everyone at the table knows it. His bluff is being called. Perhaps they're curious what excuse he'll have to concoct to wriggle out of his promised referendum? The only thing that seems certain is that there doesn't appear to be a single other player in Europe (Germany is far from alone this time) willing to give him a win. He's simply overplayed his hand.

[jk]

Re: Uncertainty, deflation and interest rates question

I agree with most of what GRG55 says. I just read a (very slightly) different set of intentions into the actions.



My read is that the sermonizing, while it might also be popular among a segment of less well-read voters, is in fact primarily intended to be irritating to Britain. In other words, Merkel would indeed be well-served (if her only priority was to hold together the EU in its current form) to stop sermonizing. I just think her motives are specifically to encourage Britain to move toward the door. Hence the deliberate provocation.

That circumstance strengthens the germanic position, at least marginally, either way. If Britain does leave, then the germanic monetary philosophy has a much easier time establishing dominance in the remainder of Europe. And if Britain stays, it will have far less credibility and hence influence on EU policy (such as blocking Tobin taxes or their antecedents) in the future than it does today.

The possible downside (Britain leaving the EU establishes a precedent for other nations to do the same at some point) may indeed be bad as well. But if I had to guess, Cameron doesn't really want to leave at all -- and by now everyone at the table knows it. His bluff is being called. Perhaps they're curious what excuse he'll have to concoct to wriggle out of his promised referendum? The only thing that seems certain is that there doesn't appear to be a single other player in Europe (Germany is far from alone this time) willing to give him a win. He's simply overplayed his hand.

do you think the uk will pay the recently levied "back taxes"? i don't see how cameron pays it without the ukip calling it a tax on the uk's relative success. i think it would drive more voters from the tories to the ukip, which cameron can ill afford. otoh, it's not clear to me what, if any, the consequences would be of refusing to pay it.

[Polish_Silver]

Gold vs deflation

If you read EJ's work carefully you will see that he too describes it as the Central Bank's ability to prevent deflation...not an ability to reverse it once established in earnest due to a serious policy mistake a la 1930.

I think the dollar vs gold devaluation (1933?) did play a part in reversing the deflation. It just took a while. If larger fiscal stimulus had been applied, the deflation might have lifted earlier. I think the CB can always devalue the currency.

[Polish_Silver]

Welfare states and immigration

I must say I disagree vehemently with this sentiment. The free movement of citizens, including industrial workers, seasonal workers, apprentices, students wishing to study and pensioners, within the EU is one of the most important tenets in the 1992 Maastricht Treaty, the 1995 Schengen Agreement and the 1997 Treaty of Amsterdam in my view. Has the USA suffered any great loss of identity by welcoming immigrants? Let's not confuse this issue with a flawed common currency execution. If you want to have a true economic union then those citizens within the union should be able to live, study and work anywhere they wish within those borders. After all, isn't that one of the distinguishing features available to the citizens of the United States of America, the most successful economic union in history?

I'd agree that the common currency is a bigger problem than immigration within the EU. The freedom to work in western europe was very attractive to young Poles when that nation was voting to join the EU.

If the idea is to make Europe more like the USA, than you are trying to make Europe a single nation, with the national governments mere figureheads. I don't think European voters wanted that.

I don't know whether European voters knew all of the fine print. Nor could they anticipate what nations would be joining in the long run. In a welfare state, tax payers have to take care of everyone who is legally present. I think they should have some say about who is allowed in. The EU was originally quite picky about who was allowed in, so that economic differences were relatively small.

I think USA culture has been changed quite a bit by all the immigrants, and I don't think that is entirely bad or good. The diversity in the USA makes it hard to create consensus and common feeling. Look at the medical care mess.
The USA does still to some degree control it's borders, and Europe still controls it's border with non-Europe.

I once did a "ride along" with a police cruiser in central San Jose, California. This
neighborhood has a great many hispanic people, many of them probably the children of illegal immigrants. The policeman told me that almost every adolescent male was involved in the gang culture to some degree. This patrol district was the smallest in the city because the crime rate was the highest. The people who want liberal immigration policies do not send their children to schools in this part of the city.

[GRG55]

Re: Welfare states and immigration

I'd agree that the common currency is a bigger problem than immigration within the EU. The freedom to work in western europe was very attractive to young Poles when that nation was voting to join the EU.

If the idea is to make Europe more like the USA, than you are trying to make Europe a single nation, with the national governments mere figureheads. I don't think European voters wanted that.

I don't know whether European voters knew all of the fine print. Nor could they anticipate what nations would be joining in the long run. In a welfare state, tax payers have to take care of everyone who is legally present. I think they should have some say about who is allowed in. The EU was originally quite picky about who was allowed in, so that economic differences were relatively small.

I think USA culture has been changed quite a bit by all the immigrants, and I don't think that is entirely bad or good. The diversity in the USA makes it hard to create consensus and common feeling. Look at the medical care mess.
The USA does still to some degree control it's borders, and Europe still controls it's border with non-Europe.

I once did a "ride along" with a police cruiser in central San Jose, California. This
neighborhood has a great many hispanic people, many of them probably the children of illegal immigrants. The policeman told me that almost every adolescent male was involved in the gang culture to some degree. This patrol district was the smallest in the city because the crime rate was the highest. The people who want liberal immigration policies do not send their children to schools in this part of the city.

I don't believe the idea is to make Europe exactly like the USA, or a "single nation", but one of the objectives of closer economic union was to create a Europe that could better compete with the USA. The individual US States still have considerable autonomy over broad swaths of policy. So do the individual EU member states.

The challenge in Europe is reconciling individual national interests (perceived and real) with the perceived and real "common good". The creative tension between Brussels and each national capital, and between the national capitals should be a constructive force over time.

As for the gang culture in San Jose, that is no more an excuse to slam the door on immigration than the Mafia "gang culture" a century ago in NY or Chicago...which had nothing to do with Hispanics.

[GRG55]

Re: Welfare states and immigration

...I don't know whether European voters knew all of the fine print. Nor could they anticipate what nations would be joining in the long run. In a welfare state, tax payers have to take care of everyone who is legally present. I think they should have some say about who is allowed in. The EU was originally quite picky about who was allowed in, so that economic differences were relatively small.

...

The welfare state in Europe cannot survive without immigration. Germany's birth rate is inadequate to produce enough new entrants into the work force to pay for all those that will be retiring.

That is the ironic part about this debate. If immigration is curtailed because "immigrants use too much free government service", then where do the workers come from to pay for those "free services" in years to come? Japan is already in this trap. Germany's best hope is European in-migration.

The birth rate in England broke the long downtrend and reversed in 2010 after the doors were opened to immigration from Eastern Europe earlier in that decade. In many respects the UK is reaping the benefit of these earlier policies, and its economy is arguably in better shape to face the future than any of the others, Germany included. After all, the "surprise invoice" from Brussels to David Cameron came about because UK economic growth rates have exceeded expectations (including, according to the EU's new metrics, in the prostitution and recreational non-prescription drugs categories ).

[shiny!]

Re: Welfare states and immigration

As for the gang culture in San Jose, that is no more an excuse to slam the door on immigration than the Mafia "gang culture" a century ago in NY or Chicago...which had nothing to do with Hispanics.

There's a big difference in legal, controlled immigration -vs- illegal, uncontrolled immigration. I don't think anyone here is talking about slamming the door on legal U.S. immigration.

There's been a change in attitudes among many immigrants over the generations. Used to be, immigrants for the most part tried to assimilate into the USA. Nowdays, too many immigrants don't want to assimilate but instead want to be catered to. They want their traditional holidays officially celebrated here. They want to practice sharia law here. We have multi-lingual ballots and multi-lingual classrooms. How can we have a united country when every minority group is pulling in different directions? You don't see that with the Italians, Germans, Poles, Japanese, Chinese etc. who came here in earlier waves. They consider themselves "Americans" not German-Americans, Japanese-Americans, etc...

I'm also concerned about legal immigration quotas being skewed too far towards unskilled labor rather than highly skilled labor.

I realize this might be an oversimplification. The worst bifurcation is between rich and poor, not between different races and ethnic groups. But I am concerned about worsening social polarization and balkanization.

[astonas]

Re: Uncertainty, deflation and interest rates question

do you think the uk will pay the recently levied "back taxes"? i don't see how cameron pays it without the ukip calling it a tax on the uk's relative success. i think it would drive more voters from the tories to the ukip, which cameron can ill afford. otoh, it's not clear to me what, if any, the consequences would be of refusing to pay it.

If he does have to pay, Cameron's really botched the PR game on this one, and even more embarrassingly than his usual ham-fisted style would predict.

The first thing to remember is that this was never a "surprise" to Britain at all. They had long ago agreed to a well-known formula that obviously increases the bill for nations that outperform the average. Then they knowingly submitted numbers that showed they did outperform. And then they pretend that it is outrageous that they have to pay the bill they knew was coming all along, and they had already agreed to pay. So all the outrage is pure theater for the folks at home.

Now the question is why he would put on such a show over a relatively small thing (no fundamental sovereignty is at stake), which was entirely foreseen.

My guess is that he is hoping to exaggerate a very small victory on this charge by being very public with it, to try to hide the fact that he will be swallowing a very large loss on matters more central, and far-reaching. He's already lost badly by bluffing on brexit, the question is whether the rest of Europe wants to see Britain leave so badly that they would add insult to injury, or whether they are content to give him a token win for the moment so he can save some face in retreat.

My guess is that Europe will give him a bit, just to make it look like they aren't being entirely unreasonable. There does have to be the illusion that all these states actually want to get along, after all. Perhaps there will be a negotiated payment plan that allows some of the money to be counted against some other dues as well? I'm sure there is a diplomatic trick somewhere that can be pulled out to allow some island flag-waving.

But the rest of Europe is already making clear what the price for that symbolic victory will be. Capitulation on at least one of the more central questions of sovereignty. A one-time Cameron political win for a permanent British cultural loss. The issue currently on the negotiating table is immigration caps, but there is a chance that may be swapped out for another if negotiation continues.

If he ultimately balks at that deal, then he will have to pay. And yes, that could well cost him the next election, given that he has already chosen to make such a fuss about it.

While I don't consider him to be particularly brilliant, I'd guess he does know enough about politics that he's probably already worked out the final deal in private before he chose to feign outrage. If he wasn't even bright enough to do that, my opinion of his common sense will erode further still. It would mean that he really is too dim-witted to be doing political diplomacy at all, and that he really should get credit for Britain being shown the door.

[GRG55]

Re: Uncertainty, deflation and interest rates question

I'd be curious to understand how you reconcile these two statements in your post? On the one hand it would appear that Britain has economically outperformed the average. On the other hand you suggest that other member states, including Germany, would encourage Britain to exit by "showing them the door"?

I am having great difficulty believing that the EU is going to let, much less encourage, one of its richest members to leave. What do the Germans intend to do if that actually happens? Singlehandedly try to improve the Greek economy by turning the Parthenon into a beer hall?

...The first thing to remember is that this was never a "surprise" to Britain at all. They had long ago agreed to a well-known formula that obviously increases the bill for nations that outperform the average...


...While I don't consider him to be particularly brilliant, I'd guess he does know enough about politics that he's probably already worked out the final deal in private before he chose to feign outrage. If he wasn't even bright enough to do that, my opinion of his common sense will erode further still. It would mean that he really is too dim-witted to be doing political diplomacy at all, and that he really should get credit for Britain being shown the door.