I already left Australia because of continual idiotic debates like parallel imports

Magda Szubanksi said she would consider leaving Australia if the Productivity Commission’s recommendations regarding parallel importing of books were to come into place. Leaving aside the notion that leaving Australia would make absolutely no positive difference to her income with or without Australia’s current laws — her core market is still Australians — this is just one in a continual douching of verbage that comes from Australian authors ever single time the parallel importing laws come up. This time around the most ridiculous bit of self-interested dribble came from Richard Flanagan.

His argument is that he is a writer, the things he and other writers are good. Actually not just good so bloody good that the government should pay for them because they can’t convince readers to shell out. Flanagan argues that look other interest groups get money so we should too. That last bit is not a bad argument — if ship is sinking let’s get more people lifeboats — but I am not in the multiple wrongs make a right mood.

The Productivity Commission’s crime is to suggest that Australians should not pay more for books than people overseas. That includes the fraction of those books that are authored by Australians. So the Flanagan argument is that all books in history should cost much much more so that the fraction of current Australian writers can get a little bit more. This is basically the same argument as big coal uses to stop climate change policy — we shouldn’t have to pay more even if it is going to help save every living thing on the planet.

I hate these continual interest group based arguments. Their on-going nature and my personal failure to do anything about it was defnitely on the ‘reasons to go’ side of the ledger when I left Australia six years ago.

But on this issue I have more moral authority. I am an author. Several of my books cannot be bought digitally by Australians because we have parallel import laws and their like. I can’t even give them away! But more critically, I am a co-author on Australia’s leading textbook on economics. That is one of the books that earns a shit-ton of money (mostly for publishers but also for its authors) by charging Australians ridiculous prices — sometimes a couple of hundred dollars. Parallel import laws may well crush those prices. And that is just fine by me. Why? Because it will lower the prices of all books.

My strong wish is that finally this time around the Government actually follows the Prouctivity Commission and stands up for Australian readers and Australian students and the culture of the world.

Why Boehmermann and Merkel have already won, and Erdogan is set to lose: Some backward induction

The players and their alleged actions

Lest you have lived under a huge rock for the last couple of weeks, you will have heard about that German comedian (Boehmermann) who in his tv show dared to insult Turkish president Erdogan with a rather (c)rude poem in which assertions were made (involving, for example,  goats,  shriveled balls, a tiny penis, paedophilia, SM, gang-rape, etc.) that we can only indicate in this fine family outlet.

Erdogan, already enraged by a short and rather brilliant song video that colleagues of Boehmermann at another tv program had produced earlier,

not only demanded the poem also to be taken down, but demanded that the German government – represented by Merkel –  allow an obscure paragraph in Germany’s Criminal Code (“Strafgesetzbuch”) be invoked that makes insulting a foreign leader punishable with up to 5 years of prison. That obscure paragraph, 103, goes back to 1871 and has been invoked only a few times previously. Equally obscure, and absurd, is paragraph 104a which stipulates that the government must decide whether it allows for the complaint to go forward under 103.

After a few days of consultation and reflection, Merkel allowed the complaint to go forward, copping plenty of criticism for her decision from the usual bunch of Libertarian simpletons (but the freedom of artistic expression ! and the  freedom of speech !), politicians that oppose Merkel on all issues as a matter of principle (Die Linke), or at least saw an opportunity to score cheap public-opinion points (the Social Democrats, her coalition partner, that continues to slide towards oblivion in the polls), and of course the usual slew of (social-)media dimwits and ignoramusses.

The New York Times editors, for example, chipped in, demonstrating for the most part their lack of knowledge about the situation and their lack of understanding of the context. Erdogan silencing all of satire in Germany? Really? Boris Johnson also took it upon himself to lecture the world about the unprincipled decision that Merkel had allegedly taken. Creditable and evidence-based opinion right there. Of course, on top of being mostly spectacularly ill-informed about important details, all these arm-chair commentators had their own motives which we can safely assume had to do with the advancement of their own profile.

The (legal) facts

One fact is of particular importance and it has all but gotten lost in the media storm that has ensued. In his tv show Boehmermann started with a comment on Erdogan’s failed attempt to have that earlier biting song video about him taken down. Pretending to lecture Erdogan directly, and heaping in passing plenty of subtle ridicule on him, Boehmermann first expounded why Erdogan failed in his earlier bid to have the song video taken down. He then explained why some such song video – and any fact-based song video of that make – would be covered by freedom of artistic expression and freedom of speech (“Kunst – und Meinungsfreiheit”) in every civilized country in Europe, or at least the European Union (of which Erdogan would like Turkey to be a member of).

Boehmermann then proceeded and explained where the limit of such satire was, seemingly giving up at some point his attempt to explain legal fine points and instead illustrating with his poem the limits of what can be said. Throughout he stressed – dialoguing with a sidekick — that this was an illustration of what one could not say under paragraph 103. It was all quite brilliant, as these things go. Very funny, too. And it rhymed.

Looking at the context in which Boehmemann recited his poem, it seems to me that it cannot possibly construed as violating paragraph 103. I predict, and I predict confidently, that the judges will agree, dismiss Erdogan’s complaint (or, at worst, slap Boehmermann with a small token fine), and in passing shower Erogan with more ridicule.

(The young Augstein, thinking of himself – once again falsely — as being the legitimate successor of his father, argued that a violation of that paragraph for illustrative purposes is still a violation, in the same way as the illustration of an assault on someone is an assault. This attempted analogy seems pretty obviously flawed but I let the legal experts sort that out.)

The players and their actions

To understand why Merkel’s move was a savvy, and ultimately the only rational one, let us do some backward induction. It is a reasoning procedure that assumes rational (and typically self-regarding) behavior and starts from the outer reaches, or terminal nodes, of the sequential game tree that one wants to analyze. For the sake of simplicity, let us assume it will be the media circus in which Boehmermann, and his lawyers, will get the chance to explain why the 103 does not apply.

(Reasonable people can disagree whether this spectacle is indeed the end of the game. One could, for example, argue that this spectacle is embedded in a larger sequential game whose terminal nodes involve the repeal of the paragraph, something that all parties at this point seem to have agreed on for 2018 already. But let us focus on the more narrowly defined game. The extension just complicates the analysis but does not undermine the key points that need understanding.)

Merkel surely made her decision not by herself but based on legal advice and plenty of consultation and reflection on the payoffs of the actions she had available. I have little doubt that Merkel has been advised that Boehmermann is not likely to face serious consequences under 103 although he may still face consequences when Erdogan fans – of which there are many dimwitted ones even in Germany – will try to go after him (but they will of course do that anyways). It is indicative that Boehmermann is currently under police protection and had to cancel the next instalment of his show. But it was him and the producers, and not the government, that decided on this precaution, contrary to what some uninformed sources have argued or intimated.

Had Merkel decided not to allow the complaint to go ahead, she would have unnecessarily  – especially given that she needs Erdogan to sort the refugees mess out – gone confrontational with the dude at predictably very high cost to her and the country. She also would have to continue to deal with the issue (rather than let the court and Boehmermann deal with it) and would have pre-empted what I anticipate to be a lesson for Erdogan about the freedom of artistic expression, the freedom of speech, and for that matter the separation of power – surely it will be spectacular lesson. Hand over the popcorn.

Allowing the complaint to go forward under that silly paragraph was, in game theory lingo, a dominant strategy and it was the clever thing to do. Merkel lobbed the whole affair out of her court, seemingly conceding to Erdogan that he might have a case but at the same time making sure that dude will get yet another fundamental lesson in what satire is allowed to do in Europe. As a matter of fact, her own framing of the situation mentioned – not co-incidentally – Rechts-staatlichkeit (roughly due process and separation of power) and the presumption of innocence as motivators for her decision.

In sum,

for all I can see Merkel did everything right in this situation. Boehmermann will get the glory for having triggered the repeal of the 103 and 104a paragraphs and has become a household name in Germany and beyond (I never heard about the guy before): It was a brilliant performance by any measure, as others have also observed. Merkel can lean back and enjoy the show – possibly tete-a-tete with Boehmermann — that is certain to follow and meanwhile deal with way more consequential issues, such as the threatened Brexit, the continued Greek crisis, the refugees crisis, and the rise of a very vocal right-wing movement in Germany.

Erdogan will soon notice that his ways of silencing critics – while it seems to work in Turkey for the time being —  does just the opposite in Germany and for that matter in most of Europe: While both the Erdogan song video  and the poem would have been heard / seen by maybe hundreds of thousands and would soon, without his interventions, have been forgotten like those Greek and Polish magazine covers showing Merkel as Hitler, or dominatrix, and what not, the song video has now amassed at one source alone more than 8 million hits.


You should make sure to watch it because satire does not get much better.

Erdogan’s curiously ill-advised actions have led to millions hearing and seeing the artifacts that he tried to incriminate and thus brought to the attention of those millions what a dim-witted and delusional wannabe dictator Erdogan is. And that’s before his complaint has been dealt with in court.


Update October 5, 2016. The German court has decided to dismiss the complaint, as predicted.


So, is there a crisis? Or is there a crisis of the crisis, or what? On replicability, reproducibility, and other current challenges in the social sciences

As the old adage has it, before it gets better it will get worse.

I have previously written about the deepening sense of crisis in economics and psychology (e.g., in The Conversation and in Core Economics Today – here and here and here)

Three interesting recent exhibits

The last couple of weeks we have seen three interesting additional exhibits:

First, a quartet from Harvard tried to straighten out the public record established by the Open Science Collaboration (OSC)  – a group of 270 researchers from psychology — a few months earlier: that results in psychology are mostly not replicable. Gilbert and his colleagues make the remarkable claim that there is “no evidence for a replicability crisis in psychological science.”

Second, on the same day an author made the astonishing claim in Slate magazine that 20 years of studies of ego depletion, an influential and seemingly robust set of findings, have recently dissolved into thin air.

Third, a group of 18 researchers in economics published the (long awaited) findings of another replication project and – after the dismal findings of another such attempt reported by two researchers from the St Louis Fed last year — , had mostly good news for econs. A colleague of mine from psychology sent me the write-up from The Economist with these words:

“So all is fine in the house of experimental economics then…



Is it?

Is there a crisis, if not in economics, then in psychology?  Or, in the social sciences as such?

In the following I will briefly comment on each of these three events from the last couple of weeks and the heat that they have produced. I will then try to cast a broader net before I come to an assessment of the current state of affairs in the social sciences.

So, is all fine in the house of experimental economics?  

As I pointed out to my colleague, a replication of 11 of 18 experiments published in a couple of top journals (which have an acceptance rate of well below 5 percent and huge selection biases) says little about the state of the art – replicability, reproducibility — in economics.  I like to believe that evidence production in economics is more stable than in psychology because economists’ experimentation practices are less laissez faire but I fear that we have also a lot of false positives. In work that I have done with Le Zhang (currently under second- round review), we have shown that dictator game experiments published in the top experimental economics journal were typically severely underpowered, inviting them pesky false positives. While Camerer et al. ran their replications under an exacting standard of a required power of 0.9, until recently most (well, at least most dictator game) experiments in economics were not properly powered up.

It is also worth recalling briefly that a few months earlier two Federal Reserve economists came to the alarming conclusion that economics research is usually not replicable. Their conclusion was based on an attempt to replicate 67 empirical papers in 13 reputable academic journals of which they could, without assistance by the original researchers, replicate only a third of the results. With the original researchers’ assistance that percentage increased to about half. A good summary of their study can be found here. This is an arguably even more troubling result, as you would think that the additional variance that experimenters’ choice of experimental design and implementation details entails, would reduce the irreplicability of empirical findings (where data sets are, after all, pre-existing). This replication attempt indicates the magnitude of the problems that economics might have.

Indeed, we have seen for a couple of decades now that effects – for example, many so-called cognitive illusions – have not survived serious attempts at replication, or maybe I should say at reproduction. Take as a recent – non-laboratory — example the controversy over reference dependence and the alleged propensity of taxi drivers to shoot for income targets, thereby violating the neo-classical optimizing model of labor supply theory. In a recent article, Hank Farber, using a much larger and complete data set for New York taxi drivers than Camerer et al. (QJE 1997) had, finds that “income reference dependence is not an important factor in the daily labor supply decisions of taxi drivers”. My colleague Tess Stafford had come to a similar conclusion earlier, demonstrating how the results in Camerer et al. (QJE 1997) can be made to appear and disappear. Hint: proper metrics is a key. Complete and large data sets also help.

I could parade many examples (endowment effects anyone? Loss aversion? Conjunction fallacy?) where serious questions have been raised about the replicability and reproducibility of effects claimed in the Biases and Heuristics literature.

On balance then there is reason to believe that economists have way to go and ought to continue to improve their data collection and sharing efforts and to reflect on the design and implementation of their experiments and, very importantly, the appropriate econometric assessment of the evidence produced. The house of experimental economics, I fear, is not yet in good order.

Is all fine in the house of experimental psychology?  

The Harvard quartet’s critique of the OSC initiative, and Ed Young in The Atlantichttp://www.theatlantic.com/science/archive/2016/03/psychologys-replication-crisis-cant-be-wished-away/472272/ its provocative conclusion that “the reproducibility of psychological science is quite high and, in fact, statistically indistinguishable from 100%“  has been widely dissected by OSC as well as individual OSC members (e.g,, Brian Nosek and Elizabeth Gilbert hereA number of commentators had their take on the situation published in popular media (e.g., Katie Palmer in WIRED and Ed Yong in The Atlantic , for others see the retraction watch list or Mayo’s summary of the recent developments on repligate), and some highly qualified (albeit not always completely uninterested) parties such as David FunderAndrew GelmanDaniel LakensUri Simonsohn. and Sanjay Srivastava have done so in more specialized outlets. (Follow the links attached to the names.)

The latter three have, at least to my mind, demolished pretty good the case that Gilbert and his colleagues presented. As did Funder and Gelman (and some of the commentators on Gelman’s piece).

Funder and Gelman also step back from the battle and look at the war that really is being waged here and by doing so provide some much needed light where there is currently way too much heat.

Funder, for example, points out that the OSC study “is not the only, and was far from the first, sign that we have a problem”; he is too modest to point out that he himself has provided more than a decade back a lengthy contribution and problem description.

Funder, seemingly unaware of the replication crisis that economists are dealing with, points also out that “other fields have replicability problems too”; he mentions specifically biochemistry, molecular biology, and medical research including cancer biology studies.

He then argues, “if Gilbert & Co. are right, are we to take it that the concerns in our sister sciences are also overblown?” It is a rhetorical question to which his answer is pretty clear. He concludes with a useful discussion of  ”the ultimate source of unreliable scientific research”, locating it in a tightening market for academic jobs and opportunities, the emerging “academic star” system, and other perverse incentives for academics.

The apparent debunking of 20 years of ego depletion findings mentioned at the beginning as one of three prominent developments during the last two weeks is just another illustration of the current unsatisfying state of affairs.

So, is there a crisis?

You have to live in an ivory tower to believe that there is not. It seems obvious to me that there is and that before it gets better, it will get worse. That’s because suddenly everyone is talking about it and got interested in it. And a general sentiment has developed, and even found its way in editorial practices, that flashy results that barely clear conventional hurdles ought to be not trusted.

Some observers have taken the current debate as a cue to rethink the way we do science. In psychology for example, in the wake of huge and somewhat nasty controversies over the reality of various priming effects, a replication recipe has been proposed and it would indeed be a good start if it were widely implemented. Likewise the various offerings of pre-registration, while not completely uncontroversial, are a welcome move in the right direction if the rather stunning results from NHLBI funded trials recently reported in PLOS One are any indication.

How deep the crisis is, is a question that is harder to answer. That’s because any such answer depends on what our measuring rod is, and ought to be. Are we looking for what some people call direct replication, or are we really interested in what some people have called conceptual replication and yet others have called reproduction? Ben Strickland makes an excellent case for conceptual replication here, arguing that what we really ought to be after is reproducibility of robust effects. Rolf Zwaan makes a related argument here.

Which of course ties into important question of the appropriate choice of design and implementation characteristics, as well as the question of the correct statistical evaluation which is another but related battlefield.

In sum, there can be little doubt that there is a crisis. There is no crisis of the crisis, for all I can see. And it seems fair to say that the sense that there is a crisis has both widened and deepened to judge by the evidence that has been forthcoming.

That there is a crisis and that it is widening and deepening, at least for now, is the bad news. The good news is that overdue discussions – about replicability and reproducibility and everything that is connected to them — do take place and do take place in a serious manner. Mostly.

The widening sense of a widening and deepening crisis is upping the level of the game; it is for example encouraging to see the increasing offerings of pre-registered studies, the increased opportunities to publish replications or reproductions, the fact that many journals now require submission of data files before publications, etc.  Similarly, it is encouraging to see platforms such as retraction watch emerge and clearly stay for good.


Ten commandments for the social-media demagogue

  1. Ignore facts. Facts are pesky and quaint. They constrain your narrative and might constrain, oh my, your priors. And they might even make it necessary that you provide links. Which might actually be checked. So, don’t go there.
  2. If someone brings them (pesky and quaint facts) up, either ignore them and their facts or, if that is not possible, question them and their facts – and do so with the right mix of indignation and annoyance — but do so preferably with opinions of others. For example, you could say your acquaintances and/or friends told you so. Remember: facts are pesky and quaint. They could be fact-checked. Opinions of acquaintances and/or friends, not so much.
  3. When you identify something, stay away from precise descriptors; it’s just too friggin labor-intensive. So rather than being specific (lots of work to figure out), say something like “the left” or even better say “the regressive left”. That will a) signal unmistakably where you stand and b) draw the admiration of your followers. Hail, you.
  4. Never worry about base rates. Way too complicated an argument. For example, if you were to look up the percentages of sexual assaults and rapes in Germany, you might learn that those of immigrants were about the same as those of “natives”. Which would make posting attention-grabbing individual cases look kinda silly. But that’s where you want to go. Post attention-grabbing individual cases. (Don’t forget to prettify your post with some pictures that tuck at heart-strings. Children that have drowned, or at least look sad, are always a winner.)
  5. Don’t worry about the fine difference between allegations of facts and established facts. Again way too subtle an argument. They are really the same to most people anyways. Because, you know, the subtle distinction between allegations of facts and established facts is just too cumbersome. Again, it constrains your narrative and might constrain your priors about how the world is, and in any case ought to be. According to you.
  6. Attribute motivations, or use conversational implicatures to have them imputed. For example, say that Merkel does not care about her female compatriots and the fact that they get raped by those Magrev types. (Note the clever use of commandments 4 through 6 here.)
  7. Relatedly, freely and generously use innuendo. When doing so, make sure that you maximize the reputational impact on your target.
  8. Make sure to be aggrieved when someone challenges you.  Accuse them of being ignorant and not knowledgeable.
  9. Post and post and post (preferably articles you have not read so that you can post more of them; the headline should be good enough to discern which fits your priors.) Don’t bother to summarize key arguments you find in an article, or at least to cut and paste the key paragraphs of the article. Way too labor-intensive.
  10. Freely and generously dispense your opinions. Never miss a chance to comment just because you had the opportunity not to say something,

Slippery slipping standards

Attention has recently been drawn, yet again, to the spectre of falling skills standards in Australia. This time, several commentators from inside and outside academia have picked up on a newly-released report by the Australian Industry group claiming that employers are loudly complaining about their workers’ literacy and numeracy skills.

The AIG report contains the results of an employer survey – termed the Survey of Workforce Development Needs – in which employers could flag one or more of a number of possible problems that were being `affected’ by a lack of literacy and numeracy. Some 42% of respondents flagged the problem of `poor completion of workplace documents / reports’, and several other problems got votes of over 20% (`teamwork / communication problems’, `material wastage / material errors / non-compliance’, and `time wasting’).

The AIG report also shows the position of Australia relative to peer nations on the OECD’s `Survey of Adult Skills‘ for both literacy and numeracy, and proceeds to ring the following alarm bell: `It is clear that a major literacy and numeracy problem persists in the general population and the workforce.’

Sounds pretty bad, doesn’t it?

Around the merry-go-round…again

There is a strong element of deja vu about this. The fear that Australia is turning out a next generation that is under-prepared to succeed in the global economy is a perennial public hot button, because it calls into question the potency of the country on the world stage.

Heated conversations (e.g., here, here, here, and here) over the past several years about NAPLAN, teacher training, bureaucratic incentives, classroom management, monolingualism, the Gonski program and so on have demonstrated the public concern for the quality of education in our country.

Concerns about slipping standards in higher education have also been a popular theme in recent times, with fingers pointed at university incentives, student cheating, international students, and university governance.

These discussions have pointed to myriad possible ways we could try to improve the education provided to students studying in Australia, from primary school to university. But did all of these previous discussions miss something big that the new AIG report unearths?

The AIG Report

Let’s consider exactly what the AIG report is saying. The focal question posed of employers is as follows (lifted from here):

Is you business affected by any of the following problems due to a lack of literacy and numeracy skills? Check any that apply
Poor completion of workplace documents / reports
Time wasting
Potential for workplace injuries or unsafe work practices
Material wastage / material errors / non-compliance
Staff lack confidence / unwilling to take on new work
Financial miscalculations
Recruitment difficulties
Teamwork problems / communication problems

Leaving aside the grammatical error in the question itself, the `problem areas’ listed have been significantly widened compared with the analogous `problem areas’ listed in the previous version of the report, reproduced below:

Inadequate completion of workplace documents or reports
Time wasting
Material wastage
Staff unable/unwilling to take on new work
Staff lack confidence
Financial miscalculations
Recruitment difficulties
Ineffective work teams
Not applicable

Far fewer `yes’ boxes were ticked in this previous (2012) survey. The shock 42% of employers complaining about errors in document preparation in the most recent results was only half that size in the prior survey’s results. Was there a true 100% increase over three years in employer-reported document and report completion problems laid at the feet of poor basic skills? It seems more likely that fewer employers would agree that employee skill problems caused `inadequate completion’ than that they caused `poor completion’, because `inadequate’ is a subset of `poor’.

The report also does not make explicit where the `over 90%’ scare figure comes from that is picked up here. Further, while declaiming about the poor state of basic adult literacy and numeracy demonstrated in the OECD survey data, the reports fails to mention that Australia is actually ranked fifth best – between Sweden and Norway – in the OECD adult literacy league table, and only just below average (slightly above Canada) in adult numeracy. We may be bad, but then so are our friends it seems, at least on these measures.

More broadly, the AIG as an institution has every incentive to design surveys so as to highlight workforce problems for which industry cannot be blamed. Doing this successfully makes it easier for the AIG to lobby for more money to be spent on government programs to fix those problems, whether they are argued to be the fault of schools or poor (dare one say inadequate?) subsidies for post-school training programs.

And, exactly in line with these incentives, calls for more money for training programs (`national provision of foundation skills programs in the workplace’) feature prominently in the AIG report’s conclusions.

What’s news?

If the facts here broadly consist of old wine in new and somewhat leaky barrels, then what can we take away from the AIG’s investigations of workplace skills?

What this report makes me wonder is where exactly our literacy and numeracy skill inadequacies, to whatever degree they exist, are coming from. From a long-term policy standpoint, there are two distinguishable sources: inadequate formal education, or inadequate training for workers who did not attend formal education in Australia.

If the problem is the former, then Australians’ robust discussions around how to improve school and university performance, some of which are linked to above, are hitting the source of the problem on the head. We should be experimenting with different mechanisms, from meritocratic teacher compensation to flipped classrooms to foreign-language immersion from kindergarten to university governance shake-ups, with the goal of isolating a few potent levers and them implementing them on a broader scale. The policymaker concerned with getting everyone over minimum thresholds in basic literacy and numeracy before they enter the workforce should focus particularly on innovations that can be implemented in failing schools, rural schools, and those that serve disadvantaged populations and children whose first language is not English.

If, however, the problem is inadequate basic skills of people arriving here after their formal education has been completed, then a very different long-term policy prescription would be written. One would then want to see more government investment into cultural assimilation programs, English training programs, and workplace numeracy programs – much more in line with what the AIG report’s writers call for. Countries that welcome immigrants who do not possess the skills to succeed in their new country, yet are not offered affordable and accessible training in those skills, do so at their peril.

Is this a description of Australia?  While the AIG report writers did not disaggregate their results by type of respondent (schooled abroad or schooled in Australia), they could contribute more to the public dialog on this question by doing so in the next iteration of their survey – while keeping their focal survey questions identical across waves.  It may be considered un-PC to ask directly whether Australia-raised or overseas-raised residents are more under-skilled, but it is arguably bad for the country – and for all its residents – not to ask it.  Without good data, one cannot design good policy.

Random observations on China

Warning: This is mostly a personal travelogue, with some generalizations and conjectures thrown in for good measure. A colleague of mine was so kind to comment on a draft and nonchalantly suggested that the title of the piece ought to be “Clueless Westerner hops off a plane and makes many random observations”. So there, I warned you.

This was my first visit to China and these are indeed very first impressions but …

it is a fascinating and intriguing country. Certainly, Shanghai and Beijing are. I will be back.

I was there mostly for professional purposes, gave a couple of talks and worked with a former student — now assistant professor at ShanghaiTech University — on a couple of manuscripts. It’s publish or perish there, too.

I stayed at the Hope Hotel in Shanghai – somewhere in the west of the city, near the downtown campus of ShanghaiTech U — where, it seems, I was for a while the only foreigner among all Chinese guests. But these Chinese were clearly middle class or maybe even higher up.

Food was plenty and often excellent. Curious and exotic, too.  Spicy chicken feet for breakfast? Well, maybe not. And frog at lunch in a fine eating establishment next door? Thank you but no, here, too.  Also, scorpions, spiders, and snakes are just not my thing. Even fried or grilled. I did try the salted eggs and the ginger threads and the lotus roots and the various mushroom delicatessen and other fascinating food stuff. The fish in chilli peppers was fabulous both times I had it. Also, it is amazing in how many ways you can prepare bean curd and I really liked the black rice cake. But I am digressing.

I made an excursion to the Hope Hotel neighborhood on the second day, just strolling through a few streets off the main traffic artery (about half a dozen lanes in each direction). While spending the weekend in Beijing  I likewise strolled through several neighborhoods there, mostly off the beaten tracks and with the help of a fabulous guide born in Beijing. A very different picture emerged in these excursions (a couple of them through hutong neighborhoods that the government has the good sense to preserve in their original building substance.) Hundreds of little shops, often literal holes in the wall (struggle town right there), offering an astonishing amount of riches at rather reasonable prices. Just for the record, the next time you are in Beijing, try Grandma Creative Kitchen, a little unconventional gem off the beaten track. You can thank me later.

Whatever legitimate gripes people might have about the system (and there are some such as pollution, restricted access to information, and corruption that seem very justified), it is remarkable that China, or at least Shanghai and Beijing, are the functioning metropoles that they are. Much of this remarkable development — remember, just a couple of decades back the country had trouble feeding its citizens — seems to be driven by entrepreneurial activities in the large and small. In particular the latter, as exemplified by the numerous eating places, many of them so small that it is hard to imagine how they can make ends meet. In any case, many people seem to do very well although it is also clear that the wealth and income distribution is rather unequal. This is communism? Or at least real existing socialism? I wonder what good ole Kalle would have to say about it. Or for that matter Chairman Mao.

For the most part, I did not dare to eat street-food although some of it looked rather yummy.

I did buy local beer (excellent) and wine (better than expected, in fact quite enjoyable). Also, the coffee is often much better than its reputation and I am not talking about coffee at a Starbucks which seems to have many outlets in particular in Shanghai. Outlets that are crowded indeed. Goldmines, surely. A regular skim latte with two extrashots? That’d be … 38 yuan (almost 10 Aussie dollars). Wow. (For comparison, four times that amount buys you a delightful lunch, for two, at the Grandma Creative Kitchen.)

I arrived on Sunday evening (December 6) in Shanghai and the next day read in the news sites that I could access (yahoo, Spiegel, SMH, no google or gmail or facebook there lest one goes VPN) that the authorities in Beijing had issued the highest environmental alert ever for Tuesday through Thursday. As it is, pollution in Shanghai was about ten times what it typically is in Sydney when I arrived but then, after some rain Wednesday and Thursday, reduced to three times that benchmark. None of it seemed to faze my local friends much (although allegedly pollution has gotten to the point where some expats are getting really concerned). My head, in any case, noticed the improvement. And on the day when I left, it also noticed – having been pampered for several days in Shanghai and Beijing by pollution levels classified as green or yellow (i.e., acceptable) – the sudden worsening in pollution from two / three times the Sydney standard to ten times, a worsening that happened within a couple of hours. It was remarkable: In the late morning good visibility and blue skies and even sun and then a couple of hours later clearly reduced visibility, grey skies, and if there was a sun it was well hidden behind a haze that got stronger with the minute.

The worsening environmental pollution seems the biggest threat to the welfare and productivity of the country and also to the pre-eminence of the party. (As in Vietnam, one keeps forgetting  that this is a “communist” country because on the individual level, entrepreneurialism is alive and well, and one sees little in the streets in terms of police, or other manifestations of state power, or what not.)

When I read about the Red Alert in Beijing, and in light of the threat that pollution poses for the government, I found it interesting that the authorities would allow some such alert: the worsening environmental pollution seems so obviously a systemic failure and hence to reflect on the party that runs the country.

Not really, my friends said. It is considered a failure of everyone and most Chinese seem to be able to relate to that because self-regarding preferences and a lack of concern for the commons, or for that matter, for externalities that one’s own behavior produce, are constituents of life in China. That’s similar to what I noticed in Moscow, or for that matter in Prague a decade or two back (and even now), or during numerous visits in what was then East Germany. Real existing socialism seems to bring out some pretty nasty sides in people. China, of course, is a very strange variant of real existing socialism: The planners in the state party that think they know best economically and socially and otherwise are at the top but at the bottom unrestrained Darwinian competition seems to carry the day. Even in its daily manifestations: Queueing anyone? Also, why worry about litter? Them pesky cigarette stubs – away with them on the side-walk.

I had been warned that in China I would face a hard test of my addiction to facebook (and google for that matter). Well, all true. But I survived it and it is easy to access many sites that you would normally google via bling or equivalent. Plus VPNs are on offer everywhere if your fb addiction were to get the better of you. I did just fine. Life without facebook is possible.

It seems that the Chinese authorities block some sites – such as facebook — religiously and you wonder why. Really. Everyone can access whatever they want if they really want. And what threat to the system does a 25-year old beauty queen really pose? Its’ puzzling. Likewise, allegedly the authorities seem to currently – again – be going after some young feminists. Someone somewhere high up in the state party hierarchy seems to have problems with their priorities. Did I mention air pollution? And ground and water pollution for that matter? Also, it is simply stupid from a public relations point of view. Anastasia Lin and Li Tingting clearly know how to work (social) media and the authorities seem woefully out of their depth in understanding the dynamics of it all.

As mentioned, one does not really notice much of state power in the streets; for someone visiting major cities it seems to show up mostly in odious reporting requirements (if one does not stay at a hotel), the restrictions on certain foreign sites, and access to free wifi in cafes that requires a working mobile phone in China. (So much for free wifi at the airport.)

I mentioned the occasional nastiness, or maybe I should better say unfettered self-regarding behavior, of some of the people I saw/encountered. There is a couple of notable exceptions.

First, everyone I met professionally was unfailingly polite and concerned to various degrees.

Second, children. The Chinese adore children in a way that I have yet to see in any other culture. They dote on them and I wonder what it does to these kiddos – overwhelmingly now sole children – down the road. (Yes, I am aware of the work of some my Australian colleagues, and also of Gigerenzer and his colleagues, about little emperors but also the dispute that it generated.) At the same time, everyone is worried about the future of their children and whether they can make the grade. The expectations are high and many kids are being pushed hard to perform.  I am not sure that is the way people get educated in ways that serves a society well. In fact, I am pretty sure it is not. A friend who I discussed this observation with explained it in terms of an intergenerational social contract: She thinks that the way how parents and grand-parents treat (their) children is related to the idea of parents bringing up children for the purpose of being looked  after well in their old age. When there is no well established financial / banking system and social security, people rely on children and may value the investment in children as insurance againist longevity. Chinese people thus  emphasize or value the filial responsibility as the most important value. Children have the obligation to pay the “loan” back to parents and grand=parents. That strikes me as a credible explanation.

Finally, corruption. When you visit a country for a few days it is hard to see many manifestations of it but corruption is clearly a problem for China; the authorities would otherwise not engage in high-visibility campaigns of various forms against it. I saw one striking example of likely corruption in the small: At the Shanghai hi-speed train station a mafia-like, well-organized mob was aggressively trying to persuade those arriving to take private and presumably unlicensed cabs  rather than to progress through an extraordinarily long queue that it took about half an hour to clear. The aggressiveness of the mobsters was disconcerting and it is astonishing that the city and train station administrations allow for it to happen. Likewise, taxi services in Shanghai seem to cost about twice as much. Apparently the mafia-like mob at the trainstation has considerable clout with these administrations. I’d be surprised if it did not come at a price.

Feel free to comment on my observations, generalizations, and conjectures above, especially if you know the country first-hand and better than I do. I am eager to learn more about it.

Why don’t Australian banks support Apple Pay?

Apple Pay is near ubiquitous in the US despite the relative lack of terminals to support them. But in Australia, those terminals are all over the place yet the only card accepted on Apple Pay is American Express; a card not issued by the major banks.


For those who don’t know, Apple Pay is as convenient as a tap and pay card but with the security that no one can use it other than you because of the finger print identification. It came to Australia and Canada last week but only with AmEx. I have used it this week and it works beautifully. As magically as Apple claim.

With iPhones capable of doing this the now largest set of iPhones out there, why is the use of Apple Pay so constrained in Australia but not in the US.

In this morning’s SMH, Ed Husic, a Labor politician, lays blame at the big banks and specifically at some sort of collusion or coordinated boycott by them of Apple.

Normally when politicians suggest the banks are colluding they are off base; tapping into our generic distrust of banks. But this time around, it is hard to come up with an alternative rationale.

The card issuing market is supposed to be relatively competitive and the banks pay a ton of money in terms of loyalty programs to get users to use them. As Apple Pay makes it easier to do just that, why isn’t competitive pressure driving adoption?

The banks appear to be claiming that Apple are negotiating for too high a fee. That may be true but two things run counter to it. First, Apple are providing a real cost saving in terms of radically decreasing the probability of card fraud through the touch ID system. Second, this hasn’t been a problem in the US and the UK. Why would Apple be different? I suspect they are offering exactly the same model to the banks as AmEx.

Now one possibility is that the banks actually earn margins over the fraud costs on transactions and so Apple eliminating those costs threatens their business.

But another that I am unable to readily dismiss is that there is some coordinated conduct going on. I am not saying that there is but, in my opinion, I am struggling to provide alternative explanations. Credit cards is one area where the banks cooperative in order to have a system and for that reason the Reserve Bank and ACCC have always paid closer attention to it. The question is: where are they now?

Australia after 3 years

I have been back in Australia this past week for the first time in over three years. Here are some brief impressions:

  • The airports are great. Even better than before, Security is no issue (I passed through in 30 seconds) and Canberra airport is now fantastic — world class as they say. Why airline lounges are still popular I have no idea as the terminal themselves are as good as lounges elsewhere in the world.
  • Broadband is terrible. If anything it appears to have deteriorated over the last 5 years (if such a thing is possible). People complain about it and they have legimate complaints. This is not about streaming video but just doing what is now normal business that has to be conducted from the home. For instance, relying on video conference calls is, for many, virtually impossible. Wireless, by contrast, is actually a better performance option. At the time, I liked the idea of the NBN as private investment had stagnated. Now I have to admit that I place some probability on the notion that Australia may have been better off letting Telstra run the show. In reality, the lack of vigilance on encouraging competition in this space is likely the big culprit. In Canada — no paragon for great broadband — I have 300Mpbs at home on cable from Rogers. The reason I have that is that there are three broadband cable competitors.
  • Nothing has changed with the Universities. Same issues, same challenges, same toying with the idea of spending $$$ on online education without any proven model existing anywhere. Oh yeah, they also throw money at startup incubators now.
  • Melbourne CBD is booming. Full of people and buildings. Large shopping malls. Indeed, it has to be the largest concentration of affluent people in the world not to have an Apple Store anywhere near them. What is the deal with that?
  • Coffee is wonderful. I mean really wonderful. Australia has that reputation and it is deserved. Virtually whereever you go you can get coffee that is equal to the best in the best cities elsewhere. The coffee you have to search for in other places is flowing in the streets. Why? I have no idea. It is not expensive but the barristas are competent and everywhere. Chains, by contrast, are far less prevalent. No Starbucks etc. Perhaps that tells us something.
  • People are the happiest with their government than I have ever seen. In my left leaning set, folks are talking about voting Liberal in the next election for the first time ever. Of course, that set prizes intelligence and the PM has that (especially in contrast to the previous one). But Australians tend to default to cynism. At this moment, that isn’t happening. It is nice to see.

The Grexit deal, Varoufakis, and anti-Greek sentiments

The deal yesterday morning between the Greek PM and the Eurozone Finance ministers is an agreement to reform before talks. By tomorrow evening, the Greek parliament has to accept 4 pieces of legislation on a large range of issues (pensions, labour markets, taxation), after which the other 19 Eurozone countries will start negotiations on another bailout. The European Central Bank has refused any loosening of the conditions for more loans to banks, meaning that Greece will have to keep up its end of the deal whilst its banks are essentially bankrupt and the rest of the countries take their time to negotiate and decide whether they agree with the outcomes.

Any negotiated bailout will need unanimity to go ahead. So the Fins, whose government is dependent on the ‘Real Fins’ who are adamant that there will not be more money going to Greece, would have to agree. The Dutch liberal party PM, who brought a long list of broken Greek reforms to the attention of the Eurozone meeting (backed up by the Slovenians and others) would have to break an election promise not to send any more money to Greece. The German parliament, which is being inundated with stories of Greek corruption in the German press, would have to agree. The Baltic, Irish, and Portugese governments would also have to agree to more money for the Greeks, when the Greeks failed to push through the reforms that they did implement the last 6 years.

Forget it. Not gonna happen. Discussions on whether the reforms are useful or whether they would push Greece into another recession are beside the point: the outside money has dried up and Greece will have to live within its means whilst its government and its banks are bankrupt, so you should see the agreed-upon reforms as the first step of Greece outside the Eurozone. A tragedy for the population of Greece.

From an Australian perspective, you would be forgiven for being bemused at this turn of events as the Australian media and commentariat has by and large taken the perspective that the Greeks are victims. I don’t really know why the Australian media has adopted this stance because this is certainly not what the Europeans, or even the UK commentators on average think. Take the recent interview with the UK conservative William Hague who describes Varoufakis as “a demagogic and now departed finance minister who regards as “terrorism” the simple act of lending money and expecting it back one day”. Perchance the Australian media follows the perspective of the half a million ex-Greeks in Melbourne?

But if you follow the European news, you will be struck by how widespread the anti-Greek sentiment has become. Stories of broken promises, sabotaged reforms, outright corruption, tax evasion, and wilful obstructionism are daily fare. Not just in Germany, but in the whole of Northern Europe, the Baltics, and the Balkans. The Greek people have lost a lot of good-will in the last 5 years and get blamed for the actions of its politicians and economic elite. Rightly or wrongly, the sense that the Greeks have betrayed the trust of other Europeans and need to suffer for that betrayal runs deep.

The last 6 months in particular have been disastrous for the image of Greece. Varoufakis, admired here in Australia, is seen as a figure of ridicule and derision by the rest of Europe, even by many on the left-side of politics. His pronouncement that the rest of Europe was engaging in ‘terrorism’ when it put conditions on new loans, was a terrible mistake. His constant belittling of the other Eurozone partners in the media and the grand-standing on democracy and how Greece was a ‘victim’ cost the Greeks. The latest Eurotop saw the result of this: a Greek denouement that was well-prepared by both the French (who appear to have helped Greece write its latest proposals and got the Greek PM to meekly accept everything) and Northern Europeans (who ambushed the Greek PM on reforms and spending).

I read the full interview of Varoufakis once he was ex-minister. It makes painful reading. He tells of how he tried to have academic debates with the Eurozone ministers he was negotiating with. They would have none of it, but he seems to have persisted for 5 more months. He tells of how the preparations for a possible grexit went no further in Greece than a few discussions with 5 others in the ministry. He hence tried to enforce his idea of debate on the people he was begging for more money and did not seriously prepare for the eventuality that there might not be agreement. As a commentator said, Varoufakis showed up for a gun-fight with a latte! Painfully amateurish. He then proudly relates how he supplied a Greek victimhood story to his current PM in 2010 and the Syriza party since then, who bought it hook, line, and sinker. He thus dragged his PM and a whole party with him in his personal mission to reform the European establishment and mainstream economics by means of open debate. Instead of living such dreams, he should have pushed through reforms within Greece (rather than reverse the reforms of the previous government), and prepare his country for a grexit.

What happens in the coming weeks? I still think a grexit is coming and that it on balance will be better than the alternatives. Exactly how is hard to know, though I am willing to have a guess. The Greek parliament will probably accept a few new laws by Wednesday, followed by temporary easing of the Emergency Liquidity Assistance conditions on Greek Banks that will keep the banks afloat a few days. Negotiations will then start, but I think stories will quickly appear in the media of how the Greek ministries are not implementing the new laws and how the follow-up laws on the judicial system that are supposed to be approved by Wednesday next week are not what they were agreed to be. That will be enough of an excuse for several countries to veto any proposed deal, which then means the Greek banks will be visibly bankrupt, at which point the Greek government will have little option but to introduce a new currency. Varoufakis himself flags the first two moves in a grexit: the introduction of IOUs to pay the bills and direct control of the Greek central bank.

It seems the Greeks have not printed a new currency in preparation of a grexit. I hope for their sakes that the ECB has been more forward looking and has printed it for them.


Three perspectives on the coming Grexit

The Greek referendum and the hype leading up to it have gone exactly according to my script of 8 days ago, where I predicted a resounding ‘no’ vote and a Grexit to stop the bank-run, with the other European politicians too offended and belittled by Tsipras and Varoufakis to organise another bailout.

The Grexit is now very likely, so likely in fact that Varoufakis’ friend Jaques Delors is writing open letters to European newspapers to implore the rest of Europe not to let Greece go!

To get a good view of what has happened in the last 15 years and what is going to happen in the coming months, let us take the perspectives of three fictitious people: that of an informed Greek businessman, that of an informed Dutch politician, and that of an American commentator.

The Greek business man, February 2015

Syriza has just had its moment with a landslide victory in the elections, getting the population to believe that the Eurozone countries will indefinitely support their pensions and welfare, and allow Greece to not reform in any meaningful way. Party time!

The election after-party was great, with lots of Ouzo and olives, but I know it can’t last. The other Europeans might have seemed gullible to the extreme so far, but even they will not want to be to be hung out to dry in the media like saps, month after month. At some point, the EU countries will stop lending money to anything Greek and ask to be paid back something, whether that is a government, a bank, or a business. How to plan for this, what to do?

Let’s think about what I stand to lose if the Greek government starts issuing that awful Drachma again, worth a fraction of the current Euros.

Firstly, my bank accounts in Greece will halve in value, if not worse. So I am going to take out all the money from my deposits and park it in Northern European banks, or Northern European treasury bills. Moreover, I will give my uncle, the bank manager, a call so as to invite him for dinner and discuss the possibility of taking out a long-term loan with his bank, Euros I will then also park in Northern Europe. When the Drachma is re-introduced, we both know his bank will be in terrible trouble as it simply will not have the Euros to pay depositors what they are owed, but he and I will be doing very well indeed as our loans will be converted into Drachmas whilst our assets are still in Euros in Northern Europe. I am going to get rich from this!!!

Secondly, once the Drachma comes back, my holiday resort will have Greek workers paid in Drachmas and foreign guests who want to pay in Euros. That should work just fine and, since I know my workers will then be paid a lot less, I can start to withhold their pay in the months just before the reintroduction of the Drachmas. I will then pay them later in fewer Euros or perhaps not at all if the mess is big enough and I manage to go bankrupt for the fourth time this decade. All the assets are in my 2-year old son’s name anyway, so I should be able to get away with that trick again. By the same token, I can make a deal with my old school-mate who is now a tax auditor so as to delay paying my taxes until just after the reintroduction of the Drachma.

Thirdly, I am going to have to think about all that German beer I stock for the tourists and thus have to pay for in Euros. There has got to be a way I can use the coming Grexit to have my beer and not pay at all. They don’t trust me at all over there in Germany, which means they insist I pay beforehand, but perhaps I can wriggle out of that if I have to for a few months. Oh, I know what to do: I am going to set up a post-office business in the Netherlands via which I then buy lots of beer with credit, which I then transport to my resort. Those post-office businesses provide a means for American companies to hide from their tax authorities, so why shouldn’t I set one up to defraud a German beer company? By the time they find out what has happened and have traced things back to me, all the intermediary companies will be bankrupt anyway and I will have that beer but no need to pay for it.

Now, what other opportunities will open themselves up? Surely, there will be a humanitarian crisis here once the Grexit happens. How can I make money off that? Perhaps my daughter, who studies in Paris, can set up an aid agency for ailing Greek Islands like the one I live on. I should plan the aid brochure, which incidentally makes advertisements for my resort: those aid workers have to stay somewhere and they need to rent some place for those starving old ladies!

The price of particular supplies might also skyrocket at such moments. I bet the Internet can tell me what kind of goods usually increase in price, so if I start hoarding those, preferably using loans, then I will be in a great position to profit once our two political leader have taken us out of the Euro. Hmmm, this Grexit might work out beautifully for me….. hurray for Syriza ….. perhaps I should have lunch with my old mate Varoufakis and ask him just when he plans to blow the current deal with the Europeans so that I have everything in place at the right time….

The Dutch politician, June 2015

That bloody Greek crisis again, man!!! I had the main Dutch pension fund on my back when this thing went pear-shaped in 2008/2009, blabbering on about how they had hundreds of billions of Euros forthcoming from these Southern European banks and governments. Something about interest-rate swaps where they were on the right side of the bets. The mega-deal with the Greeks, Italians and Spanish secured them most of those profits, but has that been the end of it?

Not in the least. It has been one thing after the other with those damned Greeks. If only they could be like the Spanish, or better still, the Italians. With the Italians you know you are going to have a good glass of wine in the evening, talk about shit and compare mistresses, whilst you do a quiet deal that is not too bad and out of the media in the morning.

But with the Greeks? In the evening you have to read in the Greek newspapers that you are a Nazi stealing from old Greek ladies. In the morning, you get to read in your own newspaper that that peroxide-blond right-wing nutcase in your own parliament has called you a weak-kneed heroin-pusher again. And in the meantime you have to hear how undemocratic you are and how much better for the world if you simply lent all the money you were ever going to have to lend out and then keep quiet and be ashamed of how uncool you are. It’s like being at university again, infuriating, you just can’t win!

What was it this time last year? Last year, you had this great deal sown up with Samaras, a very reasonable-spoken Greek prime minister, where he agreed that they would finally start laying off some of the teachers and doctors who never actually showed up at the schools and hospital they supposedly work for and simply get salaries for no output. He would blame me for forcing him into this in his own media and I would say I finally got Greece to be responsible. Being portrayed as a Nazi again in Greece was a bit of a bugger, but I wasn’t planning on going on holidays there anyway (the mistress prefers the lakes in Finland), so that was ok.

Now, as a result of his ‘outrageous concessions to Northern European Nazis’, the Greek population, with unproductive teachers and doctors in the front row, has voted themselves a party that promises to re-hire everyone who was fired for gross incompetence. That old show-off Varoufakis now flat-out refuses to even pretend to pay back those generous new loans Greece was given not much more than a year ago. Man, the ingratitude of some people!!

Worse, I have been to college with some of those Greek jokers now in the government, and they are all the same politicians and their advisers again. They just jumped ship from the old Pasok party to this new-fanged Syriza gang. But they are all still the same people, whom Christine Lagarde has told me are individually dodging their own taxes and have large bank accounts in Switserland. I know exactly what it is they are hiding, but I don’t have the freedom to release that information to the press since Christine wants the Greeks to sort out their own tax evaders. What was she thinking of? It is like expecting the foxes to ramp up security to the chicken coop!

What do these Greeks want now? They want the ECB to keep lending their banks unlimited amounts of Euros via the ‘Emergency Loan Assistance’ scheme, presumably until all the Greek deposits have left that country and are safely in one of my own banks. And they want me to openly support their demand that they won’t ever have to pay anything back of the loans made to the Greeks over the last 15 years, even though I already agreed to halving their loans in 2010-2013 in return for reforms that they didn’t implement.

I hence am going to have to take my economic advisors seriously who have been telling me for years now that a Grexit is inevitable. Ok then, man-up and think this through, what are my risks?

First off, openly admitting that Greece is bankrupt means that the European Financial Stability Facility will come knocking on my door because we helped to guarantee the loans they gave to Greece. I remember the great party where we agreed to this, but now this is going to come back and bite me. We will have to openly admit a loss of some 10 billion Euros (if not more, hard to remember just how much it was. How much were we liable for again with the ECB? Have to ask in the morning!). This of course means budgetary pressure for years, which might cost me the next election.

I am going to have to find a way to blame the Greeks for this. To that end, I am going to have to quickly start portraying them as lazy junkies who have lied to all of us all this time. Easy peasy because the population already is prone to believing that. I know that blonded right-wing rat-bag will yell ‘I told you so’ from now till the next election, but if I just keep calling him a racist, the electoral fall-out shouldn’t be too bad.

Perhaps I can go one better though and avoid having to own up to that 10 to 20 billion Euro mistake entirely. Maybe I can get together with the other Northern European countries and argue to the EFSF and the ECB that we take on this loan onto our own books as other Eurozone countries, but that they should lend us the money to pay these loans back, with the loan tied to what Greece does. Perhaps special bonds that we will only have to pay back if Greece pays back its loans to us? Hmm, it sounds a bit too dodgy when it is put as clearly as this, but perhaps we can get the whizzes in our financial unit to think of a more complicated way to have the loss converted into something that needn’t be visible till a few elections down the road and I am safely retired, enjoying stints in the board of directors of the major Dutch banks. The media release will have to use the words ‘threat of contagion’ liberally. That always sounds scary to the population and yet is too difficult for them to understand and hence allows for a bit of discretion.

Second off, those bloody Greeks are threatening to open their borders and let in millions of Africans and Asians smuggled via Turkey into the EU. We are going to have to talk about strengthening border patrols around Greece, for which I need to talk to their neighbours – Bulgaria and Macedonia. Those politicians are a corruptible mess themselves and I know that the Schengen-neighbours just wont trust them to do our bidding, so we are going to also have to think about setting up controls in the next ring up – Hungary, Austria, and others. We are also going to have to insist with the airlines that they start checking passports again for passengers on any flight from that region. God, this is going to be messy!

Third off, even though the Greek elite has gotten super-rich from all this, it will still be a tragedy for the majority of the Greek population and I can’t be seen to be uncaring, so we are going to have to be seen to have some humanitarian plan ready. What will they need? Shelter, food, health care, and water: the basics. We are going to have to talk to the Greek ministries about ways in which we can support just those basic provisions in Greece without being seen to bail out the whole country and I know this is going to simply open up another gushing financial wound: the Greek political system is now set-up to take advantage of such outside funds, slushing it to Switserland or banks in my own country (but owned by them, not me, so that if I ever organise a bailout for my own banks, I will be bailing them out!).

Fourth, we are going to have to think about the legalities of having Greece in the Eurozone whilst they also have a drachma. With all that grand-standing that the Greek politicians have been doing the last 20 years – insisting only their cheese is called ‘feta’, blocking Turkey’s entry into the EU, and blocking Macedonia’s association with the EU just because they dare call themselves the same name some Greek province does – I just know that they are going to fight us tooth and nail if we try to kick them out of the Eurozone deliberations and structures. Those nit-picking European courts are going to agree with them as well, even if we just bar them from the ESFS and ESM system in the future. It is like walking around with a goddamned junky on your tail who won’t stop clinging to you as long as you have something to share.

Damn, what a mess!!! Why on earth didn’t we just let them go bankrupt in 2010 and simply supported our own banks and pension funds from the fall-out if that was really necessary? I need a Finnish holiday….

The American blogging economist, June 2015

My audience of econ grad students expects another juicy piece on Greece.

Of course, my audience doesn’t even know where that country is or how the Byzantine politics of Europe truly works, let alone that no-one is really in charge there. But it’s in the econ-news and you can’t be a self-respecting economist without having all your pet theories confirmed in this saga, so I gotta write something.

What am I going to go for this time? Have a go at Krugman who keeps bleating that the Europeans should print more money for Greece and not force them into austerity? He is easy to refute, simply by pointing out the massive capital flight from Greece: there has been no shortage of money going to Greece at all. It simply doesn’t get spent there as it leaves the country almost as soon as it arrives, ending up in old socks or Northern European treasury bills. It is the incredible political dysfunctionality of the political elite in that country that is the economic problem there, not a lack of money or any true austerity (an austerity which generations of Greek politicians have simply refused to actually implement). Indeed, if the Greek saga shows anything, then it is that throwing nigh unlimited funds at a small country will not help it avoid a big recession once the political and bureaucratic system has metastasised to nearly pure rent-seeking. Having loans of 180% of GDP plus extra ELA loans, and having lots written off already, it is hard to argue that not enough money has gone to Greece! So I can have a go at the old Krugger for abusing the Greek saga to score an ideological point, but the argument might not be understood by my audience because I will then be seen to pick on the poor but-oh-so-brave Greeks.

What other story important in the States can I pretend is definitely settled by the Greek saga? Perhaps how you need a fiscal union if you are going to have a monetary union? No, that wont play out so well with all the individual states here who are simply allowed to go bankrupt if they spend too much. Hard to argue that Greece should have indefinite bailouts when we allow our own states to go bankrupt. I’d have to argue it should never have been bailed out in the first place, which wont play well with pictures of starving old Greek ladies soon in the news.

How about blaming the Germans for being German then? Stories of inflexible and insensitive Germans normally go down well. I can pretend that Merkel is the one who gets to decide what happens to Greece and berate her for demanding the impossible of Greece, conveniently ignoring the other 20 governments and 10-odd institutions that have to agree and that are dominated by Southern Europeans. My audience probably won’t know all of that and many like to believe the worst of the Germans anyway, so I can shove that under the carpet. I can detail the idiotic things that the Troika has asked of the Greek government over the years, such as increasing the pension-age to near-US levels, or making it possible to actually fire Greek civil servants who previously had a constitutionally guaranteed job for life…

Ehmmm, no, skip that argument and those examples, I will clearly have to stay away from actual details. I can go for older stuff though, such as how the French and Germans didn’t hold to the Maastricht criteria either, or have ignored various experts at various times who told them how the Greeks and others were cooking the books. I guess that would work somewhat towards making them sound like meanies towards Greece, but there will still be a nagging doubt in the minds of much of my audience that someone who lends money has some right to demand good behaviour from the other side. The Germans might come off looking too sympathetic with any angle that portrays it as a simple game between a lender and a borrower.

I know what to do: I can of course go for that golden oldie and blame the European bankers for all the woes of Europe. Easy to do that, for the ECB has been guilty of printing money for them via those easy loans they offered to big banks, hidden behind the name ‘market sterilisation’. The bankers’ bonuses are huge; the boards of banks are full of ex-politicians; the ECB has refused to become a people’s bank; and the European institutions have pretended to start to monitor banks whilst there is still no institution with the actual manpower to do the monitoring. So I can point all that out and seem an informed person when I then make the leap to say the politicians have all been hoodwinked by the bankers when it came to Greece. My audience will lap it up. It is not quite fair to lots of European politicians whose first thought was their voters and their own pensioners, and it doesn’t fit the reality of how lots of rich investors have lost their shirts over Greece, but one cannot spin a good old morality tale without taking a few short-cuts.

Starving Greek ladies paying for European fat bankers and being made an example off for daring to stand up against the capitalists of Europe? Yeah, that has a nice ring to it. Even if you turn out to be wrong with a story like that, you sound sympathetic. You are almost bound to be on the right side of what ends up as the written history of this saga.

My Perspective

The Greek saga has been an unanticipated cluster f-up all round. I don’t believe for a second that the Greek politicians in 2008 saw the misery of their own country coming, nor that the main politicians doing the deciding in 2010 knew what was coming.There are too many decision makers involved in many different types of institutions for any single interest to have been decisive in the decision making. No, the prolonged Greek recession and the descent of the entire Greek political and bureaucratic system into rent-seeking apathy has caught them all out.

The main policy failure has thus been of not reading correctly how Greek politics and the Greek economy would evolve when put in a situation of almost unlimited loans and a troika that would come round and ask them to do sensible things that went against the interest of the politically powerful. They should have seen coming that the Greek politicians would start to blame the people who were feeding them the money, even though that money supported their political clients. They should have seen coming that huge loans and open conditions would make things far worse, not better.

It is thus a failure of political theory, both in economics and other social sciences, that is to blame. The European elites are steeped in historical education on politics but were nevertheless naive about the internal dynamics within Greece and stuck to that naivety for far too long after it became crystal clear round about 2011 how hopeless the situation within Greece truly was.

My take-away message: don’t lend vast amounts of money to parasitical political elites and don’t send them more once you found out you were mistaken about them earlier! It is not good for their populations, nor your own.