Sunday, June 24, 2018

Economic Update - Contradictions Coming Home - 06.24.18 [feedly]

Economic Update - Contradictions Coming Home - 06.24.18

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Updates on the exploding suicide rate in the US, irrational home-building reflects and worsens inequality, VA nurses sue because of overwork required but not paid for, Uihlein family gives extreme right wing candidates (including Roy Moore), mocking claims that this is a one-person-one-vote democracy, Interview with Eli Campbell on the exploding student debt issue and the campaign to boycott its repayment.

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Moon in Russia: Gas pipeline no longer a pipe dream

Moon in Russia: Gas pipeline no longer a pipe dream // Asia Times

Russia established North Korea after World War II, but in recent decades has been marginalized in the region; warming economic ties with South Korea may help it regain a strategic position

The post Moon in Russia: Gas pipeline no longer a pipe dream appeared first on Asia Times.


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Global Financial Governance Ten Years After the Crisis

Global Financial Governance Ten Years After the Crisis // TripleCrisis

The financial crisis of 2008, which resulted in the near meltdown of the world's financial and banking system, has left a lot of questions unanswered regarding reform and whether enough has been done to avoid another similar crisis. A leading authority on financial governance, Ilene Grabel, Professor of  International Finance at the University of Denver, spoke to C. J. Polychroniou about where things stand today ten years after the biggest capitalist crisis since the Great Depression. (Cross-posted at Global Policy.)

C. J. Polychroniou: It's been ten years since the outbreak of the financial crisis, and the verdict on the effect of that crisis on global financial governance remains largely ambiguous.  Nonetheless, all this may soon change as a result of the publication of your recent book titled When Things Don't Fall Apart: Global Financial Governance and Developmental Finance in an Age of Productive Incoherence.  In this book, you argue that much has in fact changed since the East Asian financial crisis of 1997-98 and especially since the global financial crisis of 2008. In what ways has global financial governance changed over the last couple of decades?

Ilene Grabel: I argue that the contradictory effects of the East Asian financial crisis (EAFC) of 1997-8 laid groundwork for consequential (albeit paradoxical) shifts in several dimensions of global financial governance and developmental finance that deepened during and since the global crisis. The EAFC solidified neoliberalism through the leverage granted to external and domestic actors who had been previously unable to secure liberal reform prior to the crisis. The EAFC also inaugurated a gradual, uneven rethinking of capital flow liberalization. In addition, the crisis gave the IMF a vast new client base. But the crisis was ultimately costly to the institution because its crisis response led EMDEs to implement strategies (such as reserve accumulation) to escape its orbit. Reserve accumulation was enabled by the fortuitous global economic conditions that followed the EAFC.  The Asian Monetary Fund (AMF) proposal catalyzed by the EAFC was quickly scuttled by tensions between Japan and China, tensions that were adroitly exploited by the IMF and the U.S. government, both of which strongly opposed the AMF. Though the AMF proposal failed, the crisis ultimately bore fruit in the region and beyond. Not least, it yielded the creation of a currency reserve pooling arrangement among the members of the Association of Southeast Asian Nations plus Japan, China, and South Korea (ASEAN+3). More broadly, the EAFC stimulated in other regions of the developing world an interest in regional mechanisms that could deliver countercyclical liquidity support and long-term project finance through institutions that are, to some degree or other, independent of the Bretton Wood Institutions (BWIs, namely, the IMF and World Bank). In sum, the EAFC marked the beginning of the end of a unified neoliberal regime.

In When Things Don't Fall Apart I take on the widely held but incorrect view of the global crisis, which I call the "continuity thesis." The continuity thesis holds that the opportunity for meaningful reform created by the global crisis was lost, and that nothing of significance has changed, especially as concerns EMDEs. Against this view I argue that the Asian and especially the global crisis catalyzed disparate, disconnected innovations across several dimensions of global financial governance, and that these discontinuities matter deeply for EMDEs. But to be clear: I do not argue that the global crisis occasioned an abrupt, radical shift from one regime of global financial governance to another. It hasn't. Indeed I argue that non-trivial continuities in global financial governance are also readily apparent. But I argue–and this is the key point for me–that a chief problem with the continuity thesis is that it understands radical, systemic ruptures as the true test of meaningful change.My chief goal in the book is to defend what I call the "productive incoherence thesis." I argue that the changes we confront today appear inconsistent, contradictory, uncoordinated, ad hoc, fragmented, partial, uneven, and evolutionary. The conjunction of discontinuities and continuities is imparting incoherence to global financial governance and developmental finance. But I argue provocatively that this incoherence is productive of development rather than debilitating. Emergent "productive incoherence" is beneficial for EMDEs because it is creating a more complex, dense, fragmented, and pluripolar direction in global financial governance, and consequently expanding space for policy and institutional experimentation, new networks of cooperation, financial stability and resilience, financial inclusion, and learning by doing and learning from others.

I argue that emergent productive incoherence can be understood most fully within what I call a "Hirschmanian mindset," by which I mean an understanding of social and regime change informed by Albert Hirschman's key theoretical and epistemic commitments.  The alternative vision of change that I advance, and which reflects key commitments that mark Hirschman's work, recognizes that meaningful change can and should come about through proliferation of partial, limited, and pragmatic responses to the concrete challenges and opportunities that arise; and as a consequence of often disconnected, ad hoc, experimental, and inconsistent adjustments in institutions and policies.

In the book's empirical chapters I show that productive incoherence is apparent in four dimensions of global financial governance and developmental finance that are of particular salience to EMDEs (namely, transnational financial governance networks, the IMF, financial governance architectures within EMDEs, and capital controls).

C. J. Polychroniou: You argue in your book that capital controls been affected as a result of the global financial crisis. How so?

Ilene Grabel: Capital controls were central to the Bretton Woods era that followed World War II, but were sharply stigmatized as self-defeating under the neoliberalism of the 1980s-90s. Changes in ideas and practices around capital controls began to emerge unevenly and tentatively during the 1990s. The changes deepen, extend, and become more consistent during the global crisis. Beginning in 2008 a large number of EMDEs and several countries on the European periphery implemented far-reaching, heterogeneous controls on capital inflows and outflows in response to diverse economic challenges.

Of the many extraordinary developments that have occurred during and following the crisis, the successful "rebranding" of capital controls is among the most notable. Formerly denigrated as a policy tool of choice of the weak and misguided, capital controls have now been normalized as a legitimate tool of prudential financial management, even within the corridors of the IMF (which has even prescribed them to some borrowing and non borrowing countries during the global crisis) and the credit rating agencies. The neoclassical heart of the economics profession has followed the lead of some IMF researchers, who have domesticated the idea of capital controls by now referring to them with the new neutral technocratic label of  "capital flow management" techniques and referring to them as a "legitimate part of the policy toolkit."

The rebranding of capital controls has occurred against a messy backdrop of uncertainty and economic, political, and ideational change that reach far beyond the IMF. Productive incoherence surrounding controls is reflected in the proliferation of responses to the crisis by governments, multilateral institutions, rating agencies, and the economics profession that have not yet congealed into a consistent approach. Instead, we find a proliferation of strategies that defy encapsulation in a unified narrative. The complex processes of change around capital controls during and since the crisis can most accurately be understood as experimental, messy, uneven, contested, and evolving (in a word, Hirschmanian).

As with most rebranding exercises there is uncertainty about whether the new framing will prove sufficiently sticky, especially in the context of tensions and countervailing impulses at the IMF and elsewhere, a resilient bias among many economists against state management of economic flows, and new attempts to assert outflow controls in times of distress that would run counter to the interests of powerful financial actors. For now, though, there seems to be substantial momentum propelling increasing use of and experimentation with the flexible deployment of controls, in some cases with IMF support and in most other cases without IMF resistance. The new policy space around capital controls may well be tested if the vulnerabilities in financial markets (in, e.g., Argentina, Turkey, and Italy) deepen or spread elsewhere, and if policymakers opt to mitigate instability through capital controls.

C. J. Polychroniou: You also contend that the influence of the IMF has been severely reduced. In what ways, since in the aftermath of the global financial crisis the IMF was actually called on to respond to the challenges facing certain member states in the euro area?

Ilene Grabel: The global crisis has had significant, complex, and uneven effects on the IMF.

In terms of continuities, the crisis restored the IMF's coffers and its central role in crisis management; assistance packages to countries in distress followed the well-rehearsed pro-cyclical script (meaning that they enforce restrictive macroeconomic policies during crises); EMDEs secured only very modest voting share increases; and the US and Europe continued to exercise disproportionate influence at the institution e.g., by sustaining the postwar gentleman's agreement on the leadership of the BWIs, granting exceptional access and systemic risk exemptions to European countries, and the US Congress was able to stall extremely modest voting share realignments for five years.

In terms of discontinuities during the global crisis, IMF leadership, research staff, and staff working with crisis countries normalized the use of capital controls as I noted earlier. EMDEs twice took the unprecedented step of lending (in 2009, 2012) to rather than borrowing money from the IMF; the institution's client base largely shifted to the European periphery and away from EMDEs; and there was evidence of tension between the IMF and Eurozone authorities on debt sustainability in Greece, the decision to grant exceptional access in the larger Eurozone loan packages, the most severe forms of austerity in some crisis countries, and on maintaining the link to the euro in peripheral European economies. While the Fund continues to advocate fiscal retrenchment during crisis, it also now routinely emphasizes the need for "pro-poor spending" to protect the most vulnerable during crises. Indeed, longtime IMF critic (Nobel Laureate) Joseph Stiglitz now claims that the IMF "has been a tireless crusader" against inequality (a claim that goes much further than I would

In addition, the crisis opened channels for several countries, particularly China, to increase informal influence at the institution. And relatedly, the crisis seems to have ushered in what appears to be a new norm at the IMF in which key positions including the number two position is given to representatives of EMDEs, particularly China. In a different vein, but in keeping with the idea of discontinuities at the IMF, in 2015 China achieved a long-sought goal of having the IMF include its currency in the Special Drawing Right.

We also find increasing inconsistency between the rhetoric coming from the institution, its research, and its practice. I call these gaps between IMF rhetoric, research, and practice "ambiguities," and I explore in some depth key areas of ambiguity (e.g., in the realm of inequality and front loaded fiscal consolidation). In my view, the gap between rhetoric-research and practice reflects, not just public relations, but also increasing contestation and confusion within the IMF. ).  I argue that the IMF's crisis response strategy is marked by ad hoc measures that reflect important ambiguities within the institution. Strikingly absent here is the stifling attachment to a coherent global strategy of neoliberalism that marked the Fund's interventions over the past several decades.

A critical question going forward is whether the Trump administration's signature hostility to multilateral institutions will mean that US engagement with and influence in these institutions wanes. If the US does disengage from these institutions, other actors, particularly China (but also other EMDEs), may fill the vacuum left by US withdrawal. And if that occurs, it will be important to be attentive to whether this creates space for voice by more actors within the institutions, opportunities for debate, and heterogeneous and autonomy promoting responses to crises.

C. J. Polychroniou: Is the state of affairs you call "productive incoherence" affecting the nature of international economic relations in a way that may allow us to speak of alterations in the international balance of power?

Ilene Grabel: The emerging pluripolar regime of financial governance—where the BWIs continue to play central roles in crisis avoidance and response, and in providing developmental finance, but where a wide range of new institutions provide these and other services both in conjunction with the Bretton Woods and related institutions and also relatively autonomously—is meaningfully different from one where the BWIs do their work unencumbered by alternative institutions.

The aperture that has emerged in the space between competing overarching models—the one we are leaving behind and the one that might but has not as of yet emerged to replace it—is not to be taken as a handicap, but instead as an opportunity. Pluripolarity, as I use the term, does not entail the claim of a rising hegemon, a unified theoretical or practical model, or displacement capacity, but refers instead to increasing diversity, heterogeneity, and even inconsistency within the landscape of global financial governance. Incoherence and pluripolarity also provide EMDEs with a degree of insulation from the global spillover effects of a noxious policy environment. This is because negative spillovers are more powerfully and directly transmitted in a coherent financial governance landscape (such as that associated with the neoliberal era).

C. J. Polychroniou: Should we also interpret the decentralization of the developing world's financial governance architecture that you present in your book as an indication of the end of the reign of global neoliberalism?

Ilene Grabel: Productive incoherence is also evidenced in the emergence of a far more heterogeneous financial governance architecture. For institutions that pre-date the global crisis we find expansion in the scale of activity, geographic reach, and the introduction of novel mechanisms. Examples of institutions that have expanded their capacity include the Chiang Mai Initiative Multilateralization of the ASEAN+3, the Latin American Reserve Fund, the Arab Monetary Fund, and the Development Bank of Latin America. We also find "hybridization" as when a regional or national development bank provides counter-cyclical support. Examples of newly hybridized institutions include Brazil's National Bank of Economic and Social Development, the China Development bank, and the Development Bank of Latin America. We also find institutions that have been created during the crisis, some focusing on reserve pooling, others on development finance, and some doing both. Examples of institutional creation include the Eurasian Fund for Stabilization and Development of the Eurasian Economic Community, Contingent Reserve Arrangement and New Development Bank of the BRICS, Asian Infrastructure Investment Bank, and the 13 funds that China has created, the largest of which supports the Belt and Road initiative. Many of the institutions have signed cooperation agreements with one another. In contrast to its opposition to the AMF proposal, the IMF has been encouraging the expansion of and connections among these institutions and is creating linkages between it and EMDE institutions.

And so what we are observing is productive incoherence in the expansion of disparate and overlapping institutions that complement rather than displace the BWIs. These new arrangements in the financial landscape of EMDEs don't coalesce around a singular, grand new global architecture that displaces the BWIs. Instead, we observe productive incoherence in the expansion of disparate and overlapping institutions that complement the BWIs. Taken together, they increase the density and diversity of the financial landscape and create a more complex, decentralized, multi-tiered, pluripolar global financial system. The expansion of these initiatives widens policy space for development; presents opportunities for learning by doing and from others, and opportunities for new partnerships and coalition building. They also create opportunities for forum shopping, which may be of particular benefit to smaller countries; while complicating the terrain on which the BWIs operate. This increased architectural density also has the potential to yield productive redundancy, which can reduce instability, contain and ameliorate crisis, and increase opportunities to finance development, particularly if the rules of engagement among cooperating institutions are negotiated outside of a crisis context.

The emergent incoherence features an uncertain relationship to the hegemonic neoliberalism that constrained the material, ideational, institutional, and policy domains over the past several decades, especially across the global south and east. Neoliberalism has not been abandoned—far from it. A proscription that follows directly from a Hirschmanian mindset is that we should avoid thinking about the design of economic regimes in terms of their fidelity to an overarching model, or what we may think of as the pursuit of purity. To reiterate a previous point: I do not want to be misunderstood as suggesting that previous economic eras were in fact internally consistent or all encompassing. Despite the best efforts of the most committed neoliberal ideologues, for instance, nothing like the neoliberal ideal could or ever did emerge in practice. In practice that regime provided ample opportunity for powerful countries and elites to adjust the rules in non-neoliberal directions as circumstances warranted. Fidelity to the model was routinely sacrificed to protect those interests with sufficient influence. The range and extent of departures from the neoliberal ideal—such as bailouts of private financial and nonfinancial corporations—reveals that coherent systems are inherently risky and lack resilience, and on these accounts, are unsustainable.

Moreover, to say that the neoliberal project ultimately failed in its grandest ambitions is hardly to say that it was ineffective in profoundly reshaping economic arrangements from the local to the global level. The neoliberal ideal was effective in another sense as well. It acted as a dead weight around the ankles of less powerful actors who sought to pursue economic initiatives that were significantly inconsistent with its dictates. It bears noting that when we compare the current period against its immediate predecessor, then, we are not comparing a fragmented against a watertight system.

What I term incoherence emerges to some degree or other in every regime as agents look to manage economic affairs and advance causal narratives that would be deeply imperiled by fidelity to any overarching, simplifying regime. Thus, the presence of incoherence itself does not distinguish the present moment from the immediate past. What does distinguish the present is the relative absence of a consensus around any particular unified theoretical ideal toward which the institutions of financial governance are to hew. Today's 'post-neoliberal era' is not at all free of neoliberalism and it is not characterized by an alternative coherent doctrine or a corresponding set of institutional and policy arrangements. Recent political developments in many national contexts seem to promise a dangerous mix of neoliberalism, a backward looking form of economic nationalism, state capitalism and, in some instances (notably the US), kleptocratic and erratic practices.

C. J. Polychroniou: Certain pundits say that the next big financial crisis is just around the corner. Can you share your thought and views on this from the perspective of "productive incoherence?"

Ilene Grabel: We look out at a world that is fraught with a panoply of risks– from Trumpian Twitter-induced shocks; deepening kleptocratic tendencies in the Trump administration coupled with a commitment to dismantle the financial regulatory architecture and reduce the US role in the BWIs unless they can be bent to the administration's will (to an even greater extent than has been the case over the last many decades); uncertain fallout from Brexit on financial markets; unknown parameters of risks associated with cryptocurrency markets; shocks emanating from nationalist and xenophobic governments and political movements; high leverage rates and debt rollover risks in China and in many other countries (such as Italy); pressure on EMDE currencies coming from the investor exits stimulated by higher US and European interest rates; and possible instability associated with the Chinese government's plan to liberalize its financial system and currency. Any intensification of these (or other) crisis triggers will surely test the new, fragile, and evolving landscape of financial governance. These developments represent severe challenges that the emerging global financial governance architecture will be asked to manage. By now it is both prudent and sensible to assume that there will always be new financial crises, and that the most vulnerable nations and economically disadvantaged and politically disenfranchised groups within them will bear the heaviest burdens.

The emerging pluripolar regime of financial governance—where the BWIs continue to play central roles in crisis avoidance and response, and in providing developmental finance, but where a wide range of new institutions provide these and other services both in conjunction with the Bretton Woods and related institutions but also relatively autonomously—is meaningfully different from one where the BWIs do their work unencumbered by alternative institutions. In this connection we might consider a thought experiment. What might have been the possible effects of the Trump administration in the context of financial governance (and developmental finance structures and patterns) in the year 1990 or 2000? Then, the administration would have had available the streamlined, coherent institutional means to wreak havoc across the global south and east. In 2018 we can at least take some comfort from the fact that the Trump administration can barely manage to beat up on Mexico, let alone China. The productive incoherence that is a feature of emergent pluripolarity is central to the limited and inconsistent nature of the spillover effects of the administration's policies.

Nothing I've said should be interpreted to suggest that I think that things won't fall apart—of course they always can and will. What we can hope is that the innovations, the denser institutional landscape, and the new capacities and networks that I discuss in the book will allow EMDEs to dampen instability and otherwise manage turbulence better than in previous crises; and that new shocks provide opportunities for institutional and policy experiments that yield learning, enhanced robustness, and that draw on cooperative, and dense networks among policymakers, and don't constrain national policy autonomy to the degree that prior crises have. These are precisely the kinds of opportunities that the neoliberal coherence of the last several decades foreclosed upon.  That none of these benefits are guaranteed does not amount to an indictment of the emerging constellation of institutions and policies. In the world of economic development, at least, we should keep in view what Hirschman argued so convincingly: guarantees are few and far between, and almost always, illusory.

C.J. Polychroniou is a political economist/political scientist who has taught and worked in universities and research centers in Europe and the United States. His main research interests are in European economic integration, globalization, the political economy of the United States and the deconstruction of neoliberalism's politico-economic project. He is a regular contributor to Truthout as well as a member of Truthout's Public Intellectual Project. He has published several books and his articles have appeared in a variety of journals, magazines, newspapers and popular news websites. Many of his publications have been translated into several foreign languages, including Croatian, French, Greek, Italian, Portuguese, Spanish and Turkish. He is the author of Optimism Over Despair: Noam Chomsky On Capitalism, Empire, and Social Change, an anthology of interviews with Chomsky originally published at Truthout and collected by Haymarket Books.


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The Infinite Desire For Growth: a review [feedly]

The Infinite Desire For Growth: a review

What's so good about economic growth? This has been a tricky question ever since Richard Easterlin pointed out (arguably (pdf)) that there is no connection between GDP growth and a nation's overall subjective well-being. In The Infinite Desire for Growth, Daniel Cohen proposes an answer to this question. It's that economic growth helps to legitimate societies:

Growth is more important than wealth for the functioning of our societies; growth gives everyone the hope, short-lived but always revived, of rising above one's psychological and social condition. It is the promise that soothes worries, not its fulfilment.

This echoes Adam Smith:

The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining, melancholy.

Cohen places this in a wider context. The Enlightenment, he says, replaced the Christian hope of redemption in the next world with the hope of progress in this one.

This is consistent with – and a complement to – Ben Friedman's observation that slower economic growth breeds intolerance and racism: when people lack hope, they get meaner. This is perhaps the single most important fact about western politics today. 

And herein, of course, lies the problem. We are, says Cohen, "experiencing an industrial revolution without growth." Whereas earlier industrial revolutions saw workers leave agriculture to work in capital-intensive factories where they became more productive, today's revolution is bumping workers out of such jobs and into less productive ones; this is a natural effect of Moravec's paradox. Sure, tech giants such as Apple and Facebook are very productive. But they are too small a part of the economy. As Cohen says, "if a worker's individual productivity does not increase, growth is necessarily weak."

Whereas growth offers hope for all, its absence has, says Cohen, led to an increase in management by stress; rewards for a few, the sack for others. There's more stick, less carrot. Again, Cohen places this into a deeper context. Whereas the Enlightenment offered freedom and autonomy for all, these values are denied to people in capitalistic workplaces.

All this poses profound questions. Could decent growth resume? Cohen is pessimistic (though personally I'd have liked him to stress the shortcomings of neoliberal capitalism more than digitization and environmental constraints). If it cannot, he says, we need different types of progress. As John Stuart Mill said, a stationary state of incomes "implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress."

It's here that Cohen disappoints me. He offers few suggestions of what such progress might be, and how we might rekindle the legitimating hope societies need. Like Roger Betancourt, I found the end of the book a letdown.

This, however, is only a minor criticism. In a short book, Cohen has packed in countless thought-provoking insights about the links between growth, technical change and society. I suspect that many English readers will share my humility at just how much he has read that I haven't.

And Cohen is at least posing questions that most of the political class in the west are not even considering. Societies, he says, are "demonstrating an astonishingly weak capacity to project themselves into the future." In a country whose rulers are debating how to project us into the past, Cohen's book is a much-needed breath of fresh air.

 -- via my feedly newsfeed

Saturday, June 23, 2018

Nationalism Will Go Bankrupt [feedly]

Nationalism Will Go Bankrupt

Jun 20, 2018 

The opposite of populist nationalism is not globalist elitism; it is economic realism. And in the end, countries such as Britain, the United States, and now Italy will learn the hard way that reality always eventually wins.

ROME – Nationalism versus globalism, not populism versus elitism, appears to be this decade's defining political conflict. Almost wherever we look – at the United States or Italy or Germany or Britain, not to mention China, Russia, and India – an upsurge of national feeling has become the main driving force of political events.

US President Donald Trump and Canadian Prime Minister Justin Trudeau hold a meeting on the sidelines of the G7 Summit


Jun 21, 2018  worries that Donald Trump's policies and behavior are starting to leave a permanent mark on US alliances.

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By contrast, the supposed rebellion of "common people" against elites has not been much in evidence. Billionaires have taken over US politics under President Donald Trump; unelected professors run the "populist" Italian government; and all over the world, taxes have been slashed on the ever-rising incomes of financiers, technologists, and corporate managers. Meanwhile, ordinary workers have resigned themselves to the reality that high-quality housing, education, and even health care are hopelessly beyond their reach.

The dominance of nationalism over egalitarianism is particularly striking in Italy and Britain, two countries once famous for their phlegmatic sense of national identity. Flags in Britain are notable for their absence even on government buildings, and until the Brexit referendum the people there were so relaxed about their nationhood that they could not even be bothered to agree on the country's name: the United Kingdom, Britain, or England, Wales, and Scotland.

Italians were even less nationalistic. Since the European Union's founding, Italians have been the biggest proponents of federalism, with opinion polls showing that, until recently, voters had more trust in EU leaders in Brussels than in their own government in Rome. Italians are passionate about their culture, history, food, and football, but their patriotism has mostly been directed to regions and cities, not to the nation state. They prefer to be ruled from Brussels than from Rome.

The far-right League party, the junior member in Italy's new coalition government, was still called the Northern League until this year. One of its favorite slogans was "Garibaldi did not unite Italy; he divided Africa," and its main political demand was the country's abolition. Instead, the party demanded the creation of a new country called Padania that would separate the prosperous northern regions from the corruption and poverty of Rome and points south.

What, then, explains the sudden dominance of nationalism? There is not much positively patriotic about the new nationalism in Italy, Britain, or even the US. Instead, the upsurge of national feeling seems largely a xenophobic phenomenon, as famously defined by the Czech-American sociologist Karl Deutsch: "A nation is a group of people linked together by a common error about their ancestry and a common dislike of their neighbors." Hard times – low wages, inequality, regional deprivation, and post-crisis austerity – provoke a hunt for scapegoats, and foreigners are always a tempting target.


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There is nothing patriotic about Trump's belligerence against Mexican immigrants and Canadian imports, or the nativist policies of the new Italian government, or Theresa May's most famous statement after becoming UK Prime Minister: "If you believe you are a citizen of the world, you are a citizen of nowhere. You don't understand what citizenship means."

Now for some good news for those of us still proud to be "citizens of the world": The xenophobic effort to blame economic hardship on foreigners is doomed to failure.

Consider the post-crisis effort to divert popular anger about the collapse of market fundamentalist economics onto "greedy bankers." This ultimately failed, in part because bankers have huge resources to defend themselves, which foreigners generally do not. But banker-bashing failed to assuage public anger mainly because attacking finance did nothing to boost wages, diminish inequality, or reverse social neglect. The same will be true of the current attacks on foreign influence, whether through immigration or trade.

Britain, for example, is gradually waking up to the fact that European issues have nothing to do with the genuine political grievances that motivated a large part of the "Leave" vote. Instead, the Brexit negotiations will now dominate and distract British politics for many years, or even decades. And Britain's nationalist confrontation with the rest of Europe will offer politicians of all parties endless excuses for failing to improve everyday life.

In the months or years ahead, voters in the US and Italy will learn the same lesson. There, too, scapegoating foreign influences, whether through trade or immigration, will do nothing to lift living standards or address the sources of political discontent.

Italy has legitimate grievances against the EU: hypocritical and inequitable policies on asylum and sea rescues, self-defeating fiscal rules, and economically illiterate financial policies. But the new government is also exploiting the nationalist upsurge to attack reforms that have nothing to do with Europe and are vital to Italy's economic success.

Successive Italian governments since the financial crisis have gradually laid the foundations for pension, labor market, and banking reforms. These changes have created the conditions for economic recovery, which began last year, following a decade of recession; but they have been politically unpopular and are now being denounced as symbols of elitist foreign oppression. If the new government abandons all three reform projects, Italians can also abandon hope of economic recovery, perhaps for another decade.

The US will also discover that attacking foreign interests is no panacea and can make hardship worse. Trump thinks his measures against imports from China, Germany, and Canada will hurt these trading partners and create American jobs. This might have been true when the US economy was suffering weak growth and deflation. But in a world of strong demand and rising inflation, German and Chinese exporters will find new markets for their products, whereas US manufacturers will struggle to replace foreign suppliers. BMW and Huawei will be just fine, whereas tariffs will act as a tax on American consumers, through higher prices, and on American workers, businesses, and homeowners, through rising interest rates.

The opposite of populist nationalism is not globalist elitism; it is economic realism. And in the end, reality will win.

 -- via my feedly newsfeed

Friday, June 22, 2018

Christine Lagarde: Estimating Cyber Risk for the Financial Sector [feedly]

Estimating Cyber Risk for the Financial Sector

By Christine Lagarde

June 22, 2018

Versions in  中文 Français , Русский 

Average annual losses to financial institutions from cyber-attacks could reach a few hundred billion dollars a year (photo: Eti Ammos/iStock by Getty Images)

Cyber risk has emerged as a significant threat to the financial system. An IMF staff modeling exercise estimates that average annual losses to financial institutions from cyber-attacks could reach a few hundred billion dollars a year, eroding bank profits and potentially threatening financial stability.

Recent cases show that the threat is real. Successful attacks have already resulted in data breaches in which thieves gained access to confidential information, and fraud, such as the theft of $500 million from the Coincheck cryptocurrency exchange. And there is the threat that a targeted institution could be left unable to operate.

Not surprisingly, surveys consistently show that risk managers and other executives at financial institutions worry most about cyber-attacks, as in the graphic below.

Financial sector's vulnerability

The financial sector is particularly vulnerable to cyber-attacks. These institutions are attractive targets because of their crucial role in intermediating funds. A successful cyber-attack on one institution could spread rapidly through the highly interconnected financial system. Many institutions still use older systems that might not be resilient to cyber-attacks. And a successful cyber-attack can have direct material consequences through financial losses as well as indirect costs such as diminished reputation.

Recent high-profile cases have increasingly put cyber risk on the agenda of the official sector—including international organizations. However, quantitative analysis of cyber risk is still at an early stage, especially due to the lack of data on the cost of cyber-attacks, and difficulties in modeling cyber risk.

Cyber risk has emerged as a significant threat to the financial system.

A recent IMF study provides a framework for thinking about potential losses due to cyber-attacks with a focus on the financial sector.

Estimating potential losses

The modeling framework uses techniques from actuarial science and operational risk measurement to estimate aggregate losses from cyber-attacks. This requires an assessment of the frequency of cyber-attacks on financial institutions and an idea of the distribution of losses from such events. Numerical simulations can then be used to estimate the distribution of aggregate cyber-attack losses.

We illustrate our framework using a data set covering recent losses due to cyber-attacks in 50 countries. This provides an example of how potential losses for financial institutions could be estimated. The exercise is difficult and is made even more challenging by major data gaps on cyber risk. Moreover, thankfully, there has yet been no successful, large-scale cyber-attack on the financial system.

Our results should thus be considered as illustrative. Taken at face value, they suggest that average annual potential losses from cyber-attacks may be large, close to 9 percent of banks' net income globally, or around $100 billion. In a severe scenario—in which the frequency of cyber-attacks would be twice as high as in the past with greater contagion— losses could be 2½–3½ times as high as this, or $270 billion to $350 billion.

The framework could be used to examine extreme risk scenarios involving massive attacks. The distribution of the data we have collected suggests that in such scenarios, representing the worst 5 percent of cases, average potential losses could reach as high as half of banks' net income, putting the financial sector at risk.

Such estimated losses are several orders of magnitude greater than the present size of the cyber insurance market. Despite recent growth, the insurance market for cyber risk remains small with around $3 billion in premiums globally in 2017. Most financial institutions do not even carry cyber insurance. Coverage is limited, and insurers face challenges in evaluating risk because of uncertainty about cyber exposures, lack of data, and possible contagion effects.

The way forward

There is much scope to improve risk assessments. Government collection of more granular, consistent, and complete data on the frequency and impact of cyber-attacks would help assess risk for the financial sector. Requirements to report breaches—such as considered under the EU's General Data Protection Regulation—should improve knowledge of cyber-attacks. Scenario analysis could be used to develop a comprehensive assessment of how cyber-attacks could spread and design adequate responses by private institutions and governments.

Further work is needed also to understand how to strengthen the resilience of financial institutions and infrastructures, both to reduce the odds of a successful cyber-attack but also to facilitate smooth and rapid recovery. There is also a need to build capacity in the official sector in many parts of the world to monitor and regulate such risks.

In sum, strengthening the regulatory and supervisory frameworks for cyber risk is needed, and efforts should focus on effective supervisory practices, realistic vulnerability and recovery testing, and contingency planning. The IMF is providing technical assistance to help member countries improve their regulatory and supervisory frameworks.

 -- via my feedly newsfeed

Krugman: Return of the Blood Libel

Return of the Blood Libel

Paul Krugman

The speed of America's moral descent under Donald Trump is breathtaking. In a matter of months we've gone from a nation that stood for life, liberty and the pursuit of happiness to a nation that tears children from their parents and puts them in cages.

What's almost equally remarkable about this plunge into barbarism is that it's not a response to any actual problem. The mass influx of murderers and rapists that Trump talks about, the wave of crime committed by immigrants here (and, in his mind, refugees in Germany), are things that simply aren't happening. They're just sick fantasies being used to justify real atrocities.

And you know what this reminds me of? The history of anti-Semitism, a tale of prejudice fueled by myths and hoaxes that ended in genocide.

First, let's talk about modern U.S. immigration and how it compares to those sick fantasies.

There is a highly technical debate among economists about whether low-education immigrants exert a depressing effect on the wages of low-education native-born workers (most researchers find that they don't, but there is some disagreement). This debate, however, is playing no role in Trump policies.

What these policies reflect, instead, is a vision of "American carnage," of big cities overrun by violent immigrants. And this vision bears no relationship to reality.

For one thing, despite a small uptick since 2014, violent crime in America is actually at historical lows, with the homicide rate back to where it was in the early 1960s. (German crime is also at a historical low, by the way.) Trump's carnage is a figment of his imagination.

True, if we look across America there is a correlation between violent crime and the prevalence of undocumented immigrants — a negative correlation. That is, places with a lot of immigrants, legal and undocumented, tend to have exceptionally low crime rates. The poster child for this tale of un-carnage is the biggest city of them all: New York, where more than a third of the population is foreign-born, probably including around half a million undocumented immigrants — and crime has fallen to levels not seen since the 1950s.

And this really shouldn't be surprising, because criminal conviction data show that immigrants, both legal and undocumented, are significantly less likely to commit crimes than the native-born.


One Family's Toll on a Cruel Day: 7 Children With Amputated Legs

She Went to Jail for a Relapse. Tough Love or Too Harsh?

Deciding to Change My Body


So the Trump administration has been terrorizing families and children, abandoning all norms of human decency, in response to a crisis that doesn't even exist.

Where does this fear and hatred of immigrants come from? A lot of it seems to be fear of the unknown: The most anti-immigrant states seem to be places, like West Virginia, where hardly any immigrants live.

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But virulent hatred for immigrants isn't just a matter of rural rubes. Trump himself is, of course, a wealthy New Yorker, and a lot of the funding for anti-immigrant groups comes from foundations controlled by right-wing billionaires. Why do wealthy, successful people end up hating immigrants? I sometimes find myself thinking about the TV commentator Lou Dobbs, whom I used to know and like in the early 2000s, but who has become a rabid anti-immigrationist (and Trump confidant), and who is currently warning against a pro-immigrant plot by "the Illuminati of K Street."

I don't know what drives such people — but we've seen this movie before, in the history of anti-Semitism.

The thing about anti-Semitism is that it was never about anything Jews actually did. It was always about lurid myths, often based on deliberate fabrications, that were systematically spread to engender hatred.

For example, for centuries people repeated the "blood libel" — the claim that Jews sacrificed Christian babies as part of the Passover ritual.


In the early part of the 20th century there was wide dissemination of "The Protocols of the Learned Elders of Zion," a supposed plan for Jewish world domination that was probably forged by the Russian secret police. (History repeats itself, the first time as tragedy, the second time as more tragedy.)

The fake document received wide dissemination in the United States thanks to none other than Henry Ford, a virulent anti-Semite who oversaw the publication and distribution of a half-million copies of an English translation, "The International Jew." Ford later apologized for publishing a forgery, but the damage was done.

Again, why would someone like Ford — not only wealthy, but also one of the most admired men of his time — have gone down this path? I don't know, but clearly such things happen.

In any case, the important thing to understand is that the atrocities our nation is now committing at the border don't represent an overreaction or poorly implemented response to some actual problem that needs solving. There is no immigration crisis; there is no crisis of immigrant crime.

No, the real crisis is an upsurge in hatred — unreasoning hatred that bears no relationship to anything the victims have done. And anyone making excuses for that hatred — who tries, for example, to turn it into a "both sides" story — is, in effect, an apologist for crimes against humanity.-- 

John Case
Harpers Ferry, WV
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Thursday, June 21, 2018

Socialist Theses: in increments, part 1

This is really a diary of reflections on socialism and its range of attributes and methodologies.

1. "Socialism has no economics, so what can I possibly have to say about it that would merit consideration above any other opinion?" This is as close a paraphrase I can recall of a reply by Paul Krugman to a question posed at the American Economics Association annual meeting in New Orleans a few years ago. The question was: "Wouldn't socialism solve all these problems"? The subject was the devastation on labor and the poor in the Great Recession. He went on to quip "economically, socialism is merely expansion of public goods", which, without going into a long discourse on the economic definition of "a public good", are generally free, and non-exclusive or universal in access---no money, no exchange -- . The left labor folks did not seem pleased with Krugman's remark, but he was actually channeling Karl Marx (I've never seen Krugman quote Marx!), who, more than once, observed that capitalism arises from scarcity, and communism from abundance. When asked about the political economy of communism -- Marx also replied -- it has none.

2. In politics, socialism tends to arise to beat back the resistance to the expansion of public goods by the private interests, and to share the rising wealth (increasing abundance) created by capitalist development.

3. Extending this thought backwards, one would judge the early phases of the Chinese and Russian revolutions (both taking place in technically and economically backward nations against putrid feudal regimes) as marked by a serious  error. What does it mean, for example, to socialize a good that, for the moment, is NOT abundant, like food? It means the lines for access will be long (unproductive time is very expensive), and bribes will be made in other scarce goods to get to the front of the line. I don't see how avoiding corruption is even possible in that scenario -- a political disease that can prove fatal for a regime if it cannot be reversed.  Naive economics combined with serious security threats is a particularly dangerous cocktail. At the same time, aligning the expansion of public goods with the capacity to afford and implement them will be a complex and difficult balance. The Chinese appear to be making headway in mastering this.

4. Its dangerous to think in absolutes. Consider the connection between innovation, and scarcity. In order, for example, to "abolish capitalism", one would have to postulate a theory of non-economic scarcity, since every NEW thing or service will begin as scarce. Who gets it first?

5. Unrestrained capitalism tears communities, nations, indeed the world, apart. Yet it is the engine of advances in wealth that haves sustained the uneven but nonetheless most astonishing rise of human science, art,  achievement and fulfillment. It will not be modified or overcome except in rough proportion to the supply of the means of life as public goods.

Notes on Marx's proletariat.

6. Marx predicted the industrial proletariat would be the gravediggers of capitalism. A good historical economic argument can be made that indeed these wage workers were, and are, the gravediggers of a definite mode and era in capitalist development. There is good evidence and documentation on the very large impact of the class struggles  -- meaning the political and economic mobilization of mass production factory workers and their communities, as an economic and social class  --- in response to the dominant relations of employment then. Those relations were perfectly captured in a remark by Henry Ford that the ideal employee was "a maggot with hands".

7. Most of this mobilization was within concentrated local or regional labor markets, but occasionally, as in the  1946  coordinated CIO 'general'  strike, became national. Nonetheless, it transformed the craft based US labor movement and made collective bargaining a "law of the land"-- a law created and modeled on the patterns and balance of forces of industrial relations established in the 1930s and 1940s uprisings of Marx's proletariat.

8. Nationally, Marx's "industrial proletariat" played a key role in the rise of social-democracy in the US in the form of the New Deal. Internationally, this same class advanced social democratic reforms that took both communist and socialist/social-democratic forms in Europe, similar to the New Deal (soc. security, unemployment, legalize unions) plus national health care. In the developing world run by monarchies and imperial dictatorships, including Russia, Vietnam, Cuba and China, it took primarily communist forms as a political trend -- determined by who led the liberation from colonialism. This class is playing a key role in China now demanding a rise in living standards and culture in response to the "factory of the world" labor markets. Everywhere manufacturing in the mass production phase

9. But that class -- industrial workers -- is being obliterated in advanced economies. The process is longstanding and not reversible. Most labor is hired and deployed now as a service. Service workers' income, however is widely disparate by sector, and by the divisions of human capital (education, personality, experience, etc) and its impact on the labor market. Further the employee--employer--customer relationship is significantly altered from manufacturing in most service occupations. Even much that remains product-based in advanced economies is engaged in producing an intangible commodities (e.g. software).

10. To the "proletariat's" significant achievements in raising wages and standards in manufacturing, and contributing to a vast expansion of democratic power world-wide,  must be added the accelerated incentives  for corporations to automate. Add to this the ability to export labor intensive manufacturing to less developed parts of the world, or closer to export markets and/or important resources, voila, you have both the seeds and bitter fruits of the disappearance of the "middle class". Recovery from this phase will not be led by the disappeared, but by.....who? The end now has to include erosion of the "lower" class, and the "upper" classes, altogether, by the advance of "free stuff"

Socialism and Fascism

11. In the prolog to World War II, German and Italian fascism triumphed because Left and social democratic forces failed to unite to defeat it. On the social democratic side were forces who supported reform of capitalist relations. On the Left, mostly Communist, were those who saw capitalism itself as the cause of the fascist threat, and (therefore?) an inevitable consequence of capitalist relations. An important question is: Was that failure to unite to defeat fascism inevitable? Did it really require raising the question to an entirely different international level, where the question of unity had to be put before Roosevelt, Stalin and Churchill?

It's worth reviewing the connection between capitalism and fascism, in light of the rise of Trump and other 21st Century--hatched fascist movements. I start from the following premises, which I do not want to argue here, but seem beyond debate:

  • Capitalism has long term as well as short term cycles. The long term ones are associated with sudden or accumulated major shifts in both technology, and capital accumulation. Technology over time (and the science behind it) radically restructures the division of labor in society, and thus alters  its class and political structure in profound ways. Such restructuring demands vast sums of capital to achieve, and deploy throughout economies and societies. This results in a powerful tendency, well documented by Thomas Piketty, toward inequality and the undermining of democracy as instability grows.
  • Capitalist development generates, at different times and stages, powerful incentives both for and against democratic social organization. On the one hand, no owner of a business wants the state to be handing out prerogatives and monopolies (like the Kings did!) to their  favorites (unless its him!). On the other, they resist EVERY tax intended to avert the catastrophes associated with rising inequalities and the injustices they inflict and perpetuate.
  • Fascist movements have signatures that are unique to each culture in which they arise, but they share 1)  active support and financing from the most degraded faction of the rich; 2) a reliance on racism, nationalism and fear to divide and separate their adversaries, since they seldom actually represent a majority of the population; 3) a wholesale rejection of democratic institutions and values in favor of rule by force.

12. We see today in the US a revised form of the divisions that failed to halt fascism in the 1930s. The US has a two party system which naturally evolves from the winner take all outcomes and rules that dominate most elections. The divisions between anti-fascist forces thus take place mainly within and around the Democratic Party, at least for now. The Hillary-Bernie gap is the most publicized reflection. But there are more dimensions than that. Neither trade unions, pro-equality movements, pro-peace, public health and environmental advocates, most liberal and "new" capital (think Robert Rubin for an example), nor many others have identical stances or interests -- though all are mostly opposed to the fascist threat. It is unreasonable to expect these forces to unite as one---because they are NOT 'one'.  But it is essential that they coalesce to rid themselves of the threat that will doom them all.

13 For the liberal and social democrat, no reforms will happen until the threat to democracy by fascists is defeated. That cannot happen without joining with the Left, which means that the commitment to REFORM to remedy the social basis of the fascist threat must be sincere.  For the Left, "capitalism", reformed or not, will persist as long as the means of life are significantly satisfied by commodities -- things sold and purchased for cash or credit. Commodities will persist as long as they are scarce, and recede in proportion to rising abundance. So too with capitalism and socialism. As abundance grows the former will recede and the latter expand. What is socialism? We will know we are there when most stuff is free.

more to come.