The Failed Economics of Austerity in Europe, and its consequences in Denmark.

After the American Century

The way governments responded to the financial crisis of 2008 differed. In Europe, they pursued austerity. They held down deficit spending and cut government jobs. In the US this response was common at the state level, but the Federal Government pursued a different policy. It loaned money to the faltering automobile industry, which has now recovered. It sped up spending on infrastructure, and was not afraid to stimulate the economy. 

Now we can see the results. The US economy has recovered considerably, with unemployment falling almost continuously during the last five years. The economy has grown every year since 2009 when Obama took office.

Contrast almost any country in Europe, where economies are barely holding even or shrinking. The headlines years ago focused on Greece, Italy, Spain, Portugal and Ireland.  But now the austerity policy has begun to hurt the larger, stronger economies. Germany is struggling to keep growing. France is in recession. This is now much in the news.

But Denmark is also having economic problems. Its economy has essentially stopped growing, and even shrank during some recent quarters. According to the World Bank, the Danish economy shrank in 2009 by -5.7 %. Five years later it has not gotten back to where it was before the crisis. With growth of -0.4% in 2012 and + 0.4% in 2013, the Danish economy is flat. This failure of economic policy ought to be the focus of attention. 

But the ruling Danish politicians have mounted a massive campaign of distraction. They have managed to convince many journalists and much of the public that unemployment is high and that this is the fault of the universities. Both statements are false. The Danish unemployment rate is historically lower than for most of the last twenty-five years (see chart below.) 

The idea that the universities are somehow responsible for this non-existent unemployment problem is nonsense. The real problem is that the economy as a whole is stagnant and that few new jobs are being created. Moreover, the age of retirement is rising, so that replacement of the old by the young has slowed down. But no politician wants to admit that the economy is stalled. 

Instead, the "solution," the Ministry of Research claims, is to eliminate thousands of admissions to universities, especially in the humanities. But this is all nonsense. The number of unemployed in Denmark was much higher between 1990 and 2005 than between 2010 and the present.

Historically speaking, the number of unemployed is low, if one's point of comparison is any time except 2006-2008. The real problem is that the percentage of people working is falling, both because the economy is weak and because the population is aging.  Starting in 2009, the percentage of the total population that is working has fallen from 75% to 70%. That is a big drop, and that drop has little or nothing to do with the universities.

More generally, the European-wide crisis that began in 2008 was not caused by universities. Regardless of what students majored in, there just are not as many jobs available as there were in 2009. Eliminating thousands of university admissions in the humanities will not create any jobs, but it will create a cohort of uneducated, unemployed people. If 3,000 fewer people enter the universities every year, after a decade there will be 30,000 more Danes who never attended university. As a result, they will earn less, pay less in taxes, and be more often among the unemployed.

Why is the Danish press unable to see through this government PR campaign? The government's analysis of the problem is wrong, and the "solution" to the problem is wrong. Austerity will make matters worse, creating a stagnant pool of unemployable people.  

The total number of Danish jobs has declined, because the government has pursued an austerity policy. It should have listened to Nobel-winning economist Paul Krugman. He has written about this often, for example in 2012, when he said, "in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess." He noted that "research by the International Monetary Fund suggests that spending cuts in deeply depressed economies may actually reduce investor confidence because they accelerate the pace of economic decline."

President Obama's administration listened to such advice, though I should note that Krugman suggested an even higher level of pump-priming than Obama practiced. As a result, the US economy has turned around. In contrast, the Danish politicians obediently marched in lockstep with the Germans, believing against common sense, as well as against the economic analysis of Krugman and others, that if all the European countries reduced spending  their economy would magically improve. 

The Danish government is incompetent in economics, but it is good at creating a distraction, and it has managed to blame the universities for its own mistakes.  As Professor Krugman remarked, with regard to widespread failure of austerity policies to produce the results they had predicted, this is  "a case in which rival theories made different predictions, the predictions of one theory proved completely wrong while those of the other were totally vindicated — but in which adherents of the failed theory, for political and ideological reasons, refuse to accept the facts."

When prophecy fails, a famous psychological study found, its adherents circle the wagons more tightly and re-embrace their mistaken ideas, convinced that someone or something else is responsible for the failure. Today, as Krugman notes, "the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner."

The Danish government and its economic advisers are in this situation, and therefore they need to blame someone else for the failure of austerity. And so they blame the universities. The failed logic is that, if only the universities had trained 3,000 more scientists and engineers every year since 2008 rather than humanities students, then these 15,000 people would now be working. But the statistics clearly show that workforce participation has fallen 5% and that there are fewer jobs now than there were five years ago. Even so, the unemployment rate is lower than it has been for most of the  25 years since 1990, because there are more old people and fewer young people. 

Reducing the number getting a university education will not change these facts, but the Danish media seem unable to read statistics, to make elementary calculations, or to read alternative views. Instead of seeing whether there is any logic or statistical basis for the new government policy of austerity for the universities, the Danes have engaged in a heartfelt discussion of the value of the humanities and their place in the development of civilization. An interesting discussion, but it just adds to the confusion artfully created by the government, and it gets in the way of understanding the real situation, which is that the government's German-inspired economic policy has been a fiasco.

America from the Air, a fascinating book

After the American Century

Somehow until this year I never heard of Wolfgang Langewiesche or his three books dealing with various aspects of aviation. One of these, Stick and Rudder, is still unknown to me, though it has gone through more than 70 editions since it was published in 1944. What I have read, with great pleasure, is America from the Air, a reissued work from Johns Hopkins University Press, 2004, that combines portions of two other books, I'll Take the High Road (Harcourt, Brace, 1939) and A Flier's World (McGraw-Hill, 1951). The first of these two was praised  by the New York Times as "a stirring and revealing story, told with sensitiveness and lucidity and with the warmth of a modest personal charm." These words still ring true 75 years later.

America from the Air is so clearly written that the text jumps off the page. Langewiesche came from Germany to the United States to study in Chicago, but he developed a passionate interest in flying, particularly in small planes. During the early 1930s he spent every dollar he could get his hands on paying for flying lessons and renting planes by the hour. He sold his car to get more air time, paying 25 cents a minute. He considered the airplane "of all the works of man" to be "the nearest to a living being." (1) And he loved to fly low over the American landscape, developing an understanding of the country from its physical and man-made formations. His prose is so good, he makes you see it too.

This book also explains how exciting aviation seemed in the 1930s. Reading it recaptures that time of open skies and free exploration, before traffic increased and security concerns clamped down. It also explains lucidly the stages an apprentice pilot must pass through before being ready to solo. It should be read alongside Mark Twain's account of what it took to become a Mississippi river pilot in the 1850s. Langewiesche and his generation had no radar and only the simplest of controls. They flew planes far less reliable than those of today, whose engines needed more frequent service. Langewieschetook practiced parachute jumping, just in case.

But America from the Air is not merely of historical interest. The experience of seeing the American landscape from a small plane at 3,000 feet, rather than from 35,000 feet, remains exhilerating and fascinating, not least because the pilot in a small plane has a much wider and unobstructed view than an airline passenger, who can only gaze out a small window in one direction, with the view of the  distant ground often blocked by a wing.  

This is a classic.

Might Japan Be the Broker to Negotiate Peace Between Israel and Palestine?

After the American Century

The Middle East has been the burying ground for American diplomatic missions for decades. Each new president and each new Secretary of State thinks peace is finally going to be attainable. Each is disappointed in different ways. Sometimes peace seems to have been achieved, with treaties signed and handshakes all around. That was Jimmy Carter's experience. Relations were better for a while, particularly between Egypt and Israel, but real peace did not emerge. It is too tedious to go through all the other administrations before or since then, but no one who has followed it all can help but be a bit depressed.

Not only is Israel seemingly no closer to peace with its neighbors than in the 1960s, but the entire neighborhood is in a worse uproar that usual. Syria is in a civil war, with millions of refugees, and none of the three (or is it four or five?) sides is a particularly attractive option.  Iraq is falling apart, along religious and ethnic lines, even in the face of the rise of ISIS, a new factor in teh region, which seeks to create an Islamic state. The Egyptians have gone back to military rule, after a brief experiment with democracy brought the conservative Muslim Brotherhood to power. Lebanon is struggling to remain out of the violence in Syria. The Palestinians are split into two factions. The one in Gaza continues to launch largely ineffective rockets at Israel, to show that they can do it. In return they are pulverized, and gain some sympathy outside the region. But the Hamas is bankrupt, economically speaking, part of the fallout from the Syrian civil war.  For decades Hamas has built complex systems of tunnels underground, which have now been destroyed. The other Palestinians are a bit less militant, but also unable to come to an agreement with Israel.

But perhaps because things are so bad, a negotiated settlement might be attainable. However, this requires a neutral broker to do the job. Who could that be?  When American diplomats attempt to negotiate peace, they are usually perceived to be Israel's allies, and it is hard to convince Arabs that Washington can be an honest broker. Yet Americans are even-handed, the Israeli government typically becomes upset and stirs up problems in the US, through its conservative allies. In short, the Americans are in many respects not well-positioned to broker a deal. Perhaps it is time for the US to step back from its direct diplomatic efforts and instead to encourage another nation to take the lead.

But if not the Americans, who? The EU would seem the obvious choice, but the EU does not have a shared foreign policy. Each member state has a somewhat different policy, and it cannot function effectively in such a negotiating situation. (Indeed, the EU is not good at handling international crises.)  Russia has strongly sided with Syria, where it has a major base, which makes it unacceptable to Israelis. What has long been needed is an honest broker whom both sides have no reason to distrust. The lone superpower manifestly cannot impose a settlement, or it would done so by now. Instead, a country like Japan, Brazil or South Africa might be able to do broker successful negotiations, though none of these three seems to have any inclination to do so. 

My own preference would be Japan, precisely because they are so far from the Middle East and have no obvious axe to grind. The Japanese are also patient negotiators, who take for granted that before a meaningful agreement is possible it is necessary to spend some time face to face. Wouldn't it be worth a try? Imagine Palestinian and Israeli representatives in a pleasant, remote Japanese hotel, with a view of the sea. Taken away from their familiar surroundings, immersed in the fascincating cultural world of Japan, they might gradually find some common ground.

What might be in it for the Japanese? Three things. (1) International praise for succeeding where all others have failed, with a very real chance to receive the Nobel Peace Prize. (2) National pride as Japan shows its importance on the world stage, pushing its economic stagnation and nuclear woes into the background. (3) Recognition as a force for peaceful coexistence, in contrast to Chinese muscle flexing in their own region.

As the US heads into another presidential election, it seems particularly unlikely that it can negotiate peace between Israel and Palestine. It is time to admit the obvious facts. The US is too entangled with its ally Israel to do the job, and it has so many complex and often conflicting interests in the Middle East that it will have trouble focusing on this single problem.  But will any other nation take up the challenge?

Government web pages

After the American Century

I often have the same experience with web sites set up by governments and monopolistic organizations supported by government:  dysfunctional pages, where the services are hard to use. It requires many clicks to find the information or perform a simple task. For example, when one tries to use the website of the Danish post office system, to tell them when one is on vacation and does not want mail delivered. This proved an impossible  task in over half an hour of trying.  The site kept crashing on me and sending incomprehensible error messages.

In contrast, I had no trouble buying a plane ticket, making hotel reservations, or finding lots of useful information, all provided by people who need to survive in the marketplace.  I realize that this might make me sound like a Republican who wants to reduce government to national defense and farm subsidies, but that is not at all the case.

Some government websites do work well, notably those that provide weather information, which is often of life-and.death importance.  But all too often public services are digitized in order to save money, and to become "more effective," which is often means firing staff and forcing the public to deal with whatever website is substituted.

The solution might be to compare services in different countries and use those that work best as models for others to adapt to their own cultures and circumstances. Most of the needed innovations are probably out there, waiting to be emulated.

So, an example. The Danish tax system, which successfully collects the highest taxes in the world, at least is user-friendly. The citizen can see his tax situation on-line, where most of the needed information is automatically gathered from banks, pension plans, employers, and other institutions. Not only this year's tax is there, but several years previous as well. This particular Big Brother is watching, but they are also communicating what they see, and the taxpayer has a chance to correct or modify it. The taxes may be high, but at least they are extracted with little pain,  and there is a dialogue between citizen and government institution. It is not always the happiest dialogue, of course!

In contrast, another advanced industrial economy, I will not name names, which lies somewhere between Niagara Falls and the Baja California, estimates that a citizen filling out its standard tax form needs a total of 15 hours, or two entire days, to read and understand the basic forms and advice, and then do the calculations needed. The form is blank at the start, and the citizen has to try to remember everything and make no mistakes. (The Danish form is filled in by the tax authorities, and the citizen only has to check the facts, and then make additions or changes.) I know a few people from the other nation, and they tell me that it is often not possible to complete the form in 15 hours without assistance. There is an enormous amount of information on-line, and there are numbers to call for more information, too. But it is a much harder process to negotiate, and once the forms are filled in and delivered, I have it on good authority, one often never hears anything back.  

In Denmark, feedback on all tax returns is made available on a particular date, and the whole country tries to find out at the same time. Now that can cause a cyber traffic jam.

Is the Internet Shortening attention spans and undermining long term cultural memory??

After the American Century

I have been silent for longer than at any other time since this blog began in 2007. I might blame this on any number of events. But my silence has much to do with increasing doubts about the overall effects of the Internet on our lives. The increasing commercialization and the wholesale acquisition and resale of knowledge about everyone using the Internet are disturbing.

It is not just the NSA that invades our privacy. So do many others. Some do so openly.  My opinions, friends, likes and dislikes, and much else is gathered by Facebook. Credit card companies gather data about the purchases of their cardholders. Google has built up an enormous mine of data for resale. As one analyst put it, Internet users have become the product that Internet companies sell.

Many others invade our privacy illegally, prying their way into on-line identities, extracting money from digital bank accounts, or assuming false identities and telling us lies in the hopes that we will give them a pin code or a social security number. Cyber criminality is big business, and the ordinary individual does not have many weapons to fight back.

Once, enormous corporate advertising budgets went to magazines and newspapers, and in exchange one had a vibrant news media. This is all changing today, and it is not yet clear to me that the Internet is an improvement. Yes, everyone can publish, including myself. But there are so many voices competing for attention that only a tiny fraction get an audience. The older media often seem to be dominating the Internet, in any case, and, more and more, they are charging for their services. Is the overall result positive? It is too soon to be certain.

A similar pattern is evident in book publishing. There are far more authors than ever before, but most titles are now self-published. Bookstores are dying. Academic publishers are struggling. The reading audience does not seem to be growing as fast as the population. Moreover, the newspapers seem to review fewer books, and they seldom take note of academic titles, compared to the situation 20 years ago.

For about a decade the answer to these worries seemed to be that e-publishing would expand the market. But in 2013 sales of e-books in fiction fell just slightly, the first time this had ever happened. Overall, e-book sales have flattened out after rising quite rapidly in the first years. At present, the e-book is eating into sales of hard copy books, but the overall sales are not increasing. Predictions seem to be that e-books will surpass printed volumes in the very near future, but the market as a whole is not necessarily growing. 

Moreover, the number of books actually being read is probably falling, if my own experience is any measure. I have purchased many inexpensive e-books and downloaded quite a few free ones, but I have read very few of them. I got them because they were free and made it possible to search a large corpus quickly. This is admittedly an advantage. But when I buy the complete works of Mark Twain for a few dollars, in order to search them easily for certain materials, such a multivolume purchase falsely suggests a larger reading public than is actually is out there.

The kind of public that surfs the Internet constantly is not thinking long and hard, it seems. The attention span dwindles. Like students who browse the Web during classes (which they have seldom prepared for, in any case), the Internet seems to support banter and jokes on Twitter more than thoughtful, long analysis.

In short, the pluses may be gradually outweighed by the minuses of the Internet. This is particularly clear in Denmark, where the government has decreed that all communication between the state and the citizen must be conducted digitally. More, they have created systems that only work with new computers, so that anyone, like myself, who has a 32-bit computer literally cannot log in. I know a number of older people who do not even know how to use email, and they will effectively be cut off. I intend to make a personal and a written protest, along with a request to be allowed a tax deduction for purchasing an other wise unnecessary new computer. 

In a similar move, the Danish state schools are beginning to demand that all parents supply their children with a laptop or an Ipad for use in school every day. Imposing this expense while saving money on textbooks is wrong. Asking children under 10 to carry around a valuable computer is an invitation to thieves and bullies. Expecting teachers to solve the software problems that will ensue because children have different systems and machines is an idiotic waste of their time. Assuming that technology makes education better without public discussion is dubious.  I could write a column about this issue alone.

But to keep to the larger perspective. The new reality is that banks, government, schools, and employers now demand that everyone has a new or recent computer. It is fast becoming impossible to pay taxes, seek a job, pay a bill, or keep track of expenses without mastery and continual updating of multiple accounts, including continually changing passwords.

Worst of all, I suspect that in the long term this vast digital system is going to suffer memory losses. On a personal level, I cannot now access the things I wrote and in many cases published in the 1990s. The software and the hardware has changed too much. Does anyone really believe that if a tax or financial or legal issue arises that requires older records, that these will really be available? The jury is necessarily unable to decide this issue, and we will just have to wait several decades to find out.

Last year I was in a small courthouse in Iowa, and wanted to see some records from 1894. They were handwritten, easily retrieved, and perfectly legible. Will the same thing be true of our digital records 120 years from now? I doubt it. 

Is the Internet shortening attention spans in the short term, and undermining long term cultural memory? Is the state beginning to abuse the Internet and demand "participation" in digital systems simply to save money and to distance itself from actual contact with citizens? Are state institutions, such as schools, substituting technology for books and other physical resources, and transferring the cost to citizens? In the name of efficiency and convenience, we seem to be entering a digital prison, with short-term advantages but long-term costs, not the least of which is collective memory loss.

On Becoming A Knight

I was knighted in Copenhagen on Monday, 27 January.

Such ceremonies are private, with no reporters or photographers allowed. Even family members are not permitted to attend or to wait inside the palace. I had originally thought to write up the experience, but I have realized that it would be considered improper for me to write at length about this happy event. Not everything is open to public scrutiny!

The medal that one receives cannot be sold or transferred to anyone else. It remains the property of the Queen, and must be returned after one passes away. It must be worn whenever I am in the Queen's presence. I have not yet needed to wear it a second time.

The Longterm Perils of Fracking

After the American Century

Fracking is much in the news. This new way of extracting oil and natural gas is controversial because, while it lowers energy prices and generates jobs, it has an environmental cost. If North Dakota is booming and crying out for more labor, deep beneath the surface of the state fracking is pumping chemicals into the bedrock.  No one knows with certainty how this may affect the ground water a generation from now. North Dakota is extracting oil using this method, while it is being used in Pennsylvania and New York to extract natural gas.

Regardless of where fracking is taking place, the public does not know what exactly is being injected into the ground, because industries regard this as a trade secret, and no legislation forces them to disclose what exactly they are doing to the land. However, some of these chemicals used in fracking are known, including hydrochloric acid, boric acid, sodium chloride, and ammonium chloride. Many of the chemicals are "biocides" that are intended to kill bacteria.  Others seek to change the ph of the water.

It may seem amazing, but the "Safe Drinking Water Act" has an exemption for hydraulic fracturing (or fracking). The act specifically does not control or regulate, "the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities." (See the Environmental Protection Agency.) There are rumors that some oil and gas drillers are using nano-technologies whose environmental consequences are not known.

Fracking demands large amounts of water, between two and eight million gallons for a single well. Permits have been issued for more than 80,000 wells, and these typically have pools of waste water nearby. Lawsuits in several parts of Pennsylvania and New York have established that this chemically charged waste has polluted drinking water. The contamination is necessarily a mix of chemicals injected by the drillers and substances already in the ground that were released along with the oil and gas. These also include the methane being sought; Duke University scientists found methane in many wells near fracking operations in Pennsylvania. It may be that methane is not toxic in small does, but it definitely is "an asphyxiant in enclosed spaces and an explosion and fire hazard." A methane-polluted well is unsafe as a domestic water supply.

Safe Water Drinking Act to remove a special exemption for hydraulic fracturing - See more at: http://www.dcbureau.org/201203097069/natural-resources-news-service/cuomo-and-corbett-ignore-health-concerns-from-gas-fracking.html#sthash.iZpPPkht.dpuf

Safe Water Drinking Act to remove a special exemption for hydraulic fracturing - See more at: http://www.dcbureau.org/201203097069/natural-resources-news-service/cuomo-and-corbett-ignore-health-concerns-from-gas-fracking.html#sthash.iZpPPkht.dpuf

The long-term pollution of water is an obvious danger that is being downplayed in the rush for quick profits, but there is another danger that is less discussed. Fracking has given the oil and gas energy regime a new lease on life. Just five years ago one could argue that both national security and the danger of global warming pointed to the need for a rapid conversion to alternative energies. But in 2014 US oil and gas production is soaring to the point where the government is under pressure to allow the nation to become an oil exporter again. The falling cost of natural gas is making the US highly competitive in some industries, in contrast to Europe where gas prices are noticeably higher. In the short term, this stimulates the economy, but in the longer term it encourages Americans to remain high energy consumers, embracing an unsustainable style of life.

The current American oil and gas bonanza will delay, perhaps for an entire generation, the transition away from fossil fuels to sustainable homes, vehicles, and consumption levels. Leadership in the new technologies of wind, solar, and bio-fuels may continue to slip away from the US to foreign competitors. Germany, for example, has made a major commitment to becoming more energy efficient, even as it is abandoning nuclear power. The Danes have developed one of the world's largest and best windmill industries.The Chinese are investing heavily in solar energy and have out competed the US for foreign markets.

Fracking may be good for the American economy in the short run, but in the long run it cannot be very good for the land itself. Furthermore, it misdirects economic development toward an inefficient, high-energy dead end. It will not reduce the cost of oil, because that is shaped by world demand, which is rising rapidly. It will retard transition to a sustainable energy regime, and it may well undermine US competitiveness in the growing area of alternative energy technologies.

The United States is opting for a strategy of quick profits and "pollute now, pay later."  Most of the costs will be paid by later generations.