From: David
Sent: Tuesday, November 22, 2011
To: Jacob
Subject: Hi

Lovely to talk to you briefly 10 days ago. Hope your London trip was a success. Hope things are going well on the home front too. It’s tough and we are all getting older!

I am a great fan of the US economist Paul Krugman – I read his blog most days. I attach a link and his second piece on the euro is excellent and shows that morality tales don’t work.

http://krugman.blogs.nytimes.com/

Looking forward to seeing you all in late December. It will be lots of fun. I am taking a couple of days off this week to go down to Wareham to do some chores and a few walks. Will be a lovely break.

David

From: Jacob
Sent: Tuesday, November 22, 2011
To: David
Subject: Hi

Hi David,

Thanks for the tip. Fun to be pursuing this line! I tried reading Krugman’s stuff, but it is stuffed with a language I don’t speak. I’m not sure I understand any of it really. All I get is the feeling that he is pushing me into a certain camp when he uses the morality tale phrase. I am not sure I would put myself in that camp, were I to feel confident about what it is he is saying. On the other hand he appears surprisingly simplistic about his use of the word morality. Morality is a more subtle word than he appears to allow.

If morality is defined as the set of practices we can judge either wrong or right from a particular point of view, no action on our part can ever escape a moral dimension. His rejection of the morality tale approach is, as such, already a moral position and all the more worrying in his attempt to disguise it. I worry about people like that. In all their cleverness they know not what they

Allowing Greece and Italy into the Euro was questionable at the time. It was a political decision to let them in. I am glad they are in. I do not want to throw them out. However, we should stop spending more than we have. The fact is that Ireland is making a recovery now that it is disciplining itself. America on the other hand is slowly sinking into a quagmire of bipolar quibbling weighed down by its astronomical debt. Spain is bravely trying to hold itself out of the swamp and may succeed. England shouts in the desert and is suitably ignored by everyone. Let’s face it, its place in Europe is one where it tries to have its cake and eat it. It would be better for England and Europe for it to leave the Union altogether as it obviously does not feel happy in it. Moreover, reading the newspapers in London when I was over, I had my nose rubbed in the English blinkered obsession with blaming the Germans. It is rather old-hat and in bad taste. I personally rather admire Angela Merkel, she doesn’t have the Teutonic feel that Margaret Thatcher had, and she isn’t giving in to the French and all the other clever clods who haven’t got a clue above and beyond their thin diploma. For every Paul Krugman there is another “famous” economist who says the exact opposite: Keep inflation low, don’t go for easy spectacular options which will merely postpone the problem and allow social profligacy to become a chronic habit, spend less. That is language I can understand.

Capitalism, probably, like democracy, the best of a bad lot, itself has no moral dimension, but whatever is done in its name always has. This is also true for any other ideology. (And contrary to popular opinion capitalism is as much an ideology as any other political or economic view) It has its advantages, but it has clear disadvantages in that it gives near free reign to our most unattractive quality, namely that of greed. Greed keeping global food prices artificially high is quite simply wrong. Greed postponing action to improve our own environment is also wrong. Greed allowing its further destruction verges on the genocidal. Borrowing money which you cannot afford to pay back is not a good idea. I am no particular fan of Germans, The English, The Dutch, Italians, Greeks, The French or indeed the Belgians. There are nice people and greedy people among them all. The greedy ones are, quite simply, horrible even though their manner may be charming, even when they are being pleasant while sharing a beer.

I feel a great sympathy with the demonstrators in Wall Street and elsewhere, even though I myself, like them, have no clue what it is I want to demonstrate against. I suppose I want to demonstrate against our obsession with money and everything that is wrong with the world. If anything, I want more morality in our economics, with which I mean a more subtle weighing of policy to make society what I feel it should be: a place where everyone is given a comfortable place and a chance at dignity.

It comes down to a sort of Winnie-the-Pooh view of the world that serves me adequately and it reduces the problem to a very simple moral stand: less is better than more, enough is best. Now to get my own life in order, as we are very much in the position of Portugal, having stupidly given into temptation and, of course, regretting it.

Jake

From: David
Sent: Wednesday, November 23, 2011
To: Jacob

Interesting response! I think you misread Krugman. This is a blog remember not a long article. His point is that blaming the Spanish, Italians and Greeks etc does not make sense since money flows are like water – an imbalance on one side leads to an imbalance on the other. So to make these countries undergo austerity will not work. It sounds attractive since they are depicted as profligate southern European states. But lower growth will merely make their debts higher and their ability to service their debts more difficult. Germany and other northern European countries that have a surplus need to raise their demand to offset the lower demand in southern Europe at the moment. That is what he meant by a bad morality tale. Only one side of the equation is taking action when both need to make adjustments to get things back in balance.

Krugman is on the left of American politics and as an economist he has so far called the crisis since 2007 right. Most other economists have been hopelessly wrong. He is rightly concerned in my view that our political and governmental elites in the USA and Europe are making some grave mistakes that will lead to a whole generation having little work and needlessly lower living standards. Cutting debts now will further depress demand and will have the unfortunate effect of making the debts worse. He fears that we are making the same mistakes that Japan made from 1990. The euro is a special case but the general rule of austerity not working in a downturn holds true in my view and from all the history I have been reading recently.. Austerity works in boom times and then it is very good for governments to cut their spending. The British view is neither here nor there but the criticism of German policy is right at the moment. If Germany wants to protect the euro – which it should since disorderly exit could lead to a collapse and a sharp depression like the 1930s – it needs to realise it is a common currency and that it must defend all government debt and not pretend that the problem will go away or that the Chinese will decide to save the euro. So the ECB needs to start buying up government debt and this will stop the markets undermining individual countries and making their cost of borrowing threaten them with default and the euro itself. The German obsession with inflation and Weimar memories are understood but they need to rise above this now and realise that deflation is more of a risk (ignoring high energy prices) and the euro zone has to act in concert.

Your hair shirt view that less is better than more is fine for you but we need growth for others particularly the young and poorer in society. This is not an ideological point in the sense you say because a communist society also needs demand. If you don’t have that then famines arise which Mao an Stalin found to their cost. You need people to be able to exchange goods and services to create work for each other.

I am very pessimistic at the moment. We are not led by technocrats but crats – they have forgotten the techno bit! We are all limping to the precipice, aware of it, but seemingly unable to stop it. A bit like the 1930s when everyone was aware of where fascism was going but turning a blind eye to the evidence and hoping it would somehow sort itself out. We need decisive action by our leaders but they are incapable of it. Merkel and Cameron are both useless – politicians but not leaders. We need people like Lincoln instead.

Anyway – enough of this.

David

Sent: 24 November 2011 13:20
To: David

Hi David,

Love it. Why couldn’t he write it like that?  I think you should do your own blog. Funnily enough, I don’t think, we are all that far removed from each other’s standpoint. The morality, as Dostoyevsky said, is that we are all guilty! And so we all need to do the right thing. However. I am still not completely sure in my mind that the ECB should be involved. I like its independence. I think your tactic will only postpone the problem and not get rid of it. Permanent growth requires permanent increases in consumption. That is surely wrong. We need to rethink economics in terms of sustainability rather than simple material welfare. But I will get back to you.

Jake