European debt crisis for... Americans

Apparently "European debt crisis for dummies" is a very popular search keyword nowadays, since my post with the same name scored at least eighty hits. At this link you will find a real analysis of the European debt crisis and its possible impact on the American economy. I abstain from quoting, since this is a serious and informative article - if you are interested in this problem, you would prefer to read it in full anyway.

Anti-social protests

Yet another "social protest" is planned in Israel:
"The march is being organized for the third year in a row by the Association for Civil Rights in Israel (ACRI) in collaboration with dozens of other local human rights organizations. Organizers say the recent social justice movement that swept the country over the summer, bringing hundreds of thousands of Israelis into the streets, will give the march added relevance."

I do agree that human rights is an important cause. However, these protests are made completely irrelevant to actually improving human rights by their organizers and participants absolving themselves from any responsibility and demanding that the solutions come from the government:
“Despite the fact that the public voted with its feet for social justice last summer, the government continues to focus on legislation assaulting democratic values. This year at the Human Rights March, we will remind the government that it has forgotten to listen to us, the people. We will march for social justice, freedom of expression and protest, for human rights for all of us, Israelis and Palestinians,” ACRI director Hagai El-Ad said in a press release issued this week."

There are several reasons why blaming the government and demanding that it must solve all the protesters's problems is ridiculous:
1. This is a democratically elected government. On the one hand, this may mean that the government reflects the will of the majority of the Israelis, in which case the protesters are trying to impose the will of the minority on the rest of the country - a very kind of human rights violation that they protests against. On the other hand, if the protesters believe that they represent the majority, there is only one way to check it and to implement the majority demands -  by differently voting in the next election or possibly forming a "social protests" party that will run for the parliament.

2. Government is the main source of human rights abuses. Hoping that the government will correct itself, without voters themselves doing anything more than marching once in a faceless crowd is silly. Lest my opposition to too much governmental power seems to you too libertarian, let me quote the protesters themselves, blaming this very government for the very abuses that they ask the government to correct:
"Lenkinski said she believed the march was coming at a time when “Israel’s democratic principles are increasingly being called into question,” citing what she referred to as “anti-democratic trends in legislation in the Knesset [as well as] a public atmosphere that is hostile toward civil society organizations and human rights organizations in general.”

She said anti-democratic legislation was broken down into four categories: legislation like the Nakba Law and the loyalty oath, which target the country’s Arab minority; laws like the boycott and foreign funding laws that target civil society and NGOs; legislation to limit the power of the High Court of Justice; and legislation to limit freedom of speech."

3. As a democratic country Israel possesses the appropriate system of checks and balances to control the over-reaching by any branch of the government. The fact that mentioned above "un-democratic" legislation have been repeatedly turned down by the Israeli Supreme Court is a proof of that. The protesters however have a tendency over-emphasize any unsuccessful attempt at minor human rights violation in Israel, while remaining completely mute at the atrocities that happen elsewhere - for example, across the border in Syria.

Euro and Hayek

A curious point of view that introducing the single European currency was not merely the matter of convenience, but a departure from the millenniums old tradition of governments controlling this important economic tool:
"But the euro was not just the outcome of an idiosyncratic quest to reduce the wear on pockets stuffed with odd national coins, or to facilitate intra-European trade. The bold European experiment reflected a new attitude about what money should do, as well as how it should be managed. In opting for a “pure” form of money, created by a central bank independent of national authority, Europeans self-consciously flew in the face of what had become the dominant monetary tradition. 


In the twentieth century, the creation of money – paper money – was usually thought to be the domain of the state. Money could be issued because governments had the power to define the unit of account in which taxes should be paid. This tradition went back well before paper, or fiat, currencies. For many centuries, even while metallic money circulated, the task of defining units of account – livres tournois, marks, gulden, florins, or dollars – remained a task of the state (or of those with political power)."

Also quite interesting note about the views of Hayek having actually found a place in modern economic decision-making:
"The makers of modern Europe saw that unstable and politically abused money would be a European nightmare, and lead to destructive national animosities and antagonisms. They were supported by the twentieth century’s two most influential economists, Friedrich von Hayek and John Maynard Keynes.

Hayek was the most consistent critic of state-produced money. His proposal, competitive currencies produced by “free banking” in which numerous private authorities would issue their own money, was more radical than the solution adopted by Europeans in the 1990’s. But the Hayekian element of a money-issuing authority that was extensively protected against political pressures, and consequently against political opprobrium, was a key part of the European Union’s Maastricht Treaty. Keynes, too, in planning for the postwar order, proposed a synthetic global currency that would guarantee stability and prevent deflation.

The vision of central-bank independence as a necessary part of the constitution of a sound and stable political order was not simply a European construct in the 1990’s. It was also reflected in legislative changes affecting other central banks, and in central bankers’ growing prestige."

Economics Nobel prize: Christopher Sims and Thomas Sargent

The New York Times provides the profile of this year Economics Nobel Prize winners - Christopher A. Sims and Thomas J. Sargent. The article touches on many interesting related subjects:


Attempts by both Conservatives and Progressives to claim the prize winners as their own (naturally The New York Times stresses their Democratic credentials):
"So it comes as a surprise, not least to Mr. Sims and Mr. Sargent, that these two now find themselves thrust into an uncomfortable spotlight. Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentators say.

It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent."

Essence of their work (if one can trust at all a popular-science article like this):
"Mr. Sims developed a statistical approach called vector autoregression, or V.A.R. It enables the testing of cause and effect — whether, for example, the money supply is affecting interest rates, or vice versa. That is a crucial determination if economic models are to have any accuracy, as the Nobel committee has noted.

V.A.R. has become a tool, albeit a highly specialized one, in financial analysis. It’s used in some models run by central banks, and, as Aaron Gurwitz, the chief investment officer at Barclays Wealth, says, it has been useful in “helping us understand the patterns in market volatility over time.”"

and (somewhat too general)
"GOOGLE “Thomas Sargent” and “rational expectations” and you’ll get hundreds of hits. Along with Robert E. Lucas Jr. of the University of Chicago, who won the Nobel in 1995, Mr. Sargent is widely considered one of the founders of the theory, though he says it had many earlier proponents, including Keynes.
...
Put simply, the idea of rational expectations is that in many economic situations, the outcome depends on what people expect to happen. That might sound obvious today, but in the ’70s and ’80s, many economic models, based on aspects of Keynesian theory, didn’t take expectations into account. Policies informed by those old models may have helped cause the stagflation of the ’70s. In 1977, Mr. Sargent wrote a paper, “Is Keynesian Economics a Dead End?”, which highlighted such models’ flaws."

Some economic outlook at the situation in Europe and the United States:
"In a prescient paper more than a decade ago, Mr. Sims warned of disaster to come in the euro zone if a new central bank wasn’t accompanied by a unified fiscal authority. To avoid disaster now, he says, the European Central Bank must show a willingness “to act as a lender of last resort” in Europe. If that happens, he says, markets may be able to stabilize long enough for Europeans to study a long “menu” of accompanying fiscal and political arrangements. 

Mr. Sargent has also written extensively about “budget constraints” and monetary policy. One influential study, “Some Unpleasant Monetarist Arithmetic,” written with Neil Wallace of Penn State, says a central bank will eventually run out of ammunition if the government fails to manage its debt. That analysis applies to the United States today, Mr. Sargent says."

Finally, interesting note on the analogy between the European debt crisis and the history of the United States, which I discussed in a recent post:
"Mr. Sargent notes that the United States moved from loose confederation to federal union — the arrangement embodied in the Constitution — in large part because of a crippling debt crisis. The parallels with Europe seem clear. Is he calling for a federal Europe? "