Showing posts with label europe. Show all posts
Showing posts with label europe. Show all posts

Thursday, June 22, 2017

Sexual regret in US and Norway: Effects of culture and individual differences in religiosity and mating strategy

Sexual regret in US and Norway: Effects of culture and individual differences in religiosity and mating strategy. By Mons Bendixen et al.
Personality and Individual Differences, 1 October 2017, Pages 246–251, http://www.sciencedirect.com/science/article/pii/S0191886917303148

Highlights

•    Men were significantly less likely to regret having had casual sex than women were.
•    Men were significantly more likely to regret passing up casual sex than women were.
•    More religious regretted having had casual sex more and passing up casual sex less.
•    Unrestricted regretted having had casual sex less and passing up casual sex more.
•    Overall regret and patterns of sex differences not different between nations

Abstract: Sexual regret was investigated across two disparate cultures: Norway (N = 853), a highly secular and sexually liberal culture, and the United States (N = 466), a more religious and more sexually conservative culture. Sex differences, individual differences in preferred mating strategy, religiosity, and cultural differences in sexual regret were analyzed. Men were significantly less likely to regret having had casual sex than women and were significantly more likely to regret passing up casual sexual opportunities than women. Participants who were more religious regretted having had casual sex more and regretted passing up casual sex less. Sexually unrestricted participants were less likely to regret having had casual sex and were more likely to regret passing up casual sex. Finally, North Americans and Norwegians did not differ significantly in overall amount of sexual regret nor in patterns of sex differences in sexual regret. Discussion focuses the robustness of sex differences across cultures, the importance of explaining individual differences within cultures, and on future directions for cross-cultural research.

Keywords: Sexual regret; Religiosity; Sociosexual orientation; Culture; Sexual strategies; One night stands

Friday, April 25, 2014

Daniel Schuman's Thomas Piketty Revives Marx for the 21st Century

Thomas Piketty reviu Marx per al segle XXI. By Daniel Shuchman
Wall Street Journal, Apr 21, 2014
http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592

Translated by Un Liberal Recalcitrant from Thomas Piketty Revives Marx for the 21st Century, below.

Thomas Piketty li agrada el capitalisme, ja que assigna eficientment els recursos. Però ell no li agrada com es distribueix la renda. No, pensa que pràcticament és una il·legitimitat moral qualsevol acumulació de riquesa, i és una qüestió de justícia que aquesta desigualtat pot radicar en la nostra economia. La manera de fer això és eliminar les rendes altes i reduir la riquesa existent a través d'impostos.

"El capital al segle XXI" és una densa exploració de Thomas Piketty en la història dels salaris i de la riquesa en els últims tres segles. Presenta un desgavell de dades sobre la distribució dels ingressos en molts països, provant de demostrar que la desigualtat ha augmentat dràsticament en les últimes dècades i que aviat tornarà a ser pitjor. Independentment de si un està convençut per les dades del Sr Piketty  -i hi ha raons per a l'escepticisme, donat el cas de les pròpies advertències de l'autor i pel fet que moltes estadístiques es basen en mostres molt limitades dels registres de l'impost sobre béns de dubtosa extrapolació- en última instància aquest és un fet de poca importància. Conseqüentment aquest llibre no és tant un treball d'anàlisi econòmica com el d’una norma ideològica estranya.

Professor de l'Escola d'Economia de París, el Sr Piketty creu que només la productivitat dels treballadors de baixos ingressos pot ser mesurada de forma objectiva. Ell postula que quan un treball és replicable, com el d’un "treballador de la línia de muntatge o el d’un cambrer de menjar ràpid",  es pot mesurar de forma relativament fàcil el valor aportat per cada treballador. Per tant, aquests treballadors tenen dret al que guanyen. Ell troba que la productivitat de les persones amb alts ingressos ´rd més difícil de mesurar i creu que els seus salaris es troben en el final de la "gran mesura arbitrària".  Són el reflex d'una "construcció ideològica" més del mèrit.

Segons Piketty, els sous altíssims per "supermanagers" corporatius ha estat la major font d'augment de la desigualtat, i aquests executius només poden haver arribat a la seva recompensa gràcies a la sort o falles en el govern corporatiu. Es requereix només una mirada ocasional a aquest diari per confirmar això. No obstant, l'autor creu que cap CEO podria mai justificar el seu salari en funció del rendiment. Ell no diu que qualsevol professional –atletes, metges, professors d'economia, que venen llibres electrònics per 21,99$ de marge amb cost zero per còpia- tingui dret a majors ingressos perquè no vol "gaudir de la construcció d'una jerarquia moral de la riquesa".

Ell admet que els empresaris són "absolutament indispensables" per al desenvolupament econòmic, però el seu èxit, també, està generalment contaminat. Mentre que alguns tenen èxit gràcies al "treball per part del veritable emprenedor," altres tenen senzillament sort o aconsegueixen l’èxit a través del "robatori descarat". Fins i tot seria el cas de les fortunes fetes del treball empresarial que evolucionen ràpidament cap a una "concentració excessiva i duradora del capital". Això és una injustícia d'auto-reforç, perquè "la propietat a vegades comença amb el robatori, i el retorn arbitrari sobre el capital pot perpetuar fàcilment el delicte inicial. "De fet tot el llibre incorpora com a una hostilitat gairebé medieval la idea de que el capital financer tingui un retorn o benefici.


El Sr Piketty creu que com més rica es torna una societat, més gent va a la recerca de la millor posició social relativa, condicionant més desigualtat. Rememora les atemporals autoritats econòmiques com Jane Austen i Honoré de Balzac en la cartografia del nostre futur. Al llarg del llibre es divaga amb les maquinacions inadequades, perseguint de personatges de novel·les com "Sentit i sensibilitat", i obsessivament, amb el calculador "Papà Goriot": Són els fruits del treball dur superiors a les intencions per casar-se i aconseguir una fortuna? Si no és així, "per què treballar, i per què comportar-se moralment bé?"

Mentre que els executius corporatius dels Estats Units són la seva “bèstia especial”, el Sr Piketty també està profundament preocupat per les desenes de milions de persones treballadores -un grup que ell anomena despectivament "petits rendistes"- que els seus ingressos els col·loca molt lluny de l’u per cent, però que encara tenen estalvis, comptes de jubilació i altres actius. Considera que aquest gran grup demogràfic es farà més gran i que el seu creixement de riquesa es transmetrà mitjançant les herències, essent això "una forma bastant preocupant de desigualtat". Es lamenta del difícil que és "corregir" tot això perquè es tracta d'un ampli segment de la població, no una petita elit, més fàcilment “satanitzable” .

Llavors, què cal fer ? El Sr Piketty insta a constituir una taxa impositiva del 80 % en els ingressos a partir del 500.000$ o 1 milió. "Això no és per recaptar diners per a l'educació o per augmentar les prestacions d'atur.  Contràriament, no ho espera d’un impost d'aquest tipus perquè el seu propòsit és, simplement, "posar fi a aquest tipus d'ingressos”. També serà necessari imposar una taxa -del 50/60%- sobre els ingressos més baixos, com els de 200.000$. Afegeix també ha ha d'haver un impost a la riquesa anual de fins el 10 % sobre les fortunes més grans i una càrrega fiscal, d'una sola vegada, de fins el 20% sobre els nivells de riquesa més baixos. Ell, alegrement, ens assegura que res d'això reduiria el creixement econòmic, la productivitat, l'emprenedoria o la innovació.

No és que el creixement i la millora no estigui en la ment del senyor Piketty,  sin´ó que es tracta com un assumpte econòmic i com un mitjà per a una major justícia distributiva. S'assumeix que l'economia és estàtica i de suma zero; si l'ingrés d'un grup de població augmenta, un altre necessàriament ha d’empobrir-se. Ell veu la igualtat de resultats com la finalitat última i exclusivament per al seu propi bé. Objectius -tals alternatives com la maximització de la riquesa general de la societat o l'augment de la llibertat econòmica o la recerca de la major igualtat possible d'oportunitats o fins i tot, com en la filosofia de John Rawls, el que garanteix que el benestar dels més desfavorits es maximitza -són ni mínimament esmentats.

No hi ha dubte que la pobresa, la desocupació i la desigualtat d'oportunitats són els principals reptes per a les societats capitalistes, i els diversos graus de la sort, el treball dur, la mandra i el mèrit són inherents a la humanitat. El Sr Piketty no és el primer visionari utòpic. Cita, per exemple, "l’experiment soviètic" que va permetre a l'home llançar "les seves cadenes juntament amb el jou de la riquesa acumulada." En el seu relat, només va portar el desastre humà perquè les societats necessiten mercats i propietat privada per tenir una economia que funcioni. Ell diu que les seves solucions ofereixen una "resposta menys violenta i més eficient per l'etern problema del capital privat i del seu benefici. En lloc d'Austen i Balzac, el professor hauria de llegir "Rebel·lió a la Granja” i "Darkness at Noon".

Shuchman és un gestor de fons de Nova York que escriu sovint sobre el dret i l'economia.


---
Thomas Piketty Revives Marx for the 21st Century. By Daniel Schuman
An 80% tax rate on incomes above $500,000 is not meant to bring in money for education or benefits, but 'to put an end to such incomes.'
Wall Street Journal, April 21, 2014 7:18 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592

Thomas Piketty likes capitalism because it efficiently allocates resources. But he does not like how it allocates income. There is, he thinks, a moral illegitimacy to virtually any accumulation of wealth, and it is a matter of justice that such inequality be eradicated in our economy. The way to do this is to eliminate high incomes and to reduce existing wealth through taxation.

"Capital in the Twenty-First Century" is Mr. Piketty's dense exploration of the history of wages and wealth over the past three centuries. He presents a blizzard of data about income distribution in many countries, claiming to show that inequality has widened dramatically in recent decades and will soon get dangerously worse. Whether or not one is convinced by Mr. Piketty's data—and there are reasons for skepticism, given the author's own caveats and the fact that many early statistics are based on extremely limited samples of estate tax records and dubious extrapolation—is ultimately of little consequence. For this book is less a work of economic analysis than a bizarre ideological screed.

A professor at the Paris School of Economics, Mr. Piketty believes that only the productivity of low-wage workers can be measured objectively. He posits that when a job is replicable, like an "assembly line worker or fast-food server," it is relatively easy to measure the value contributed by each worker. These workers are therefore entitled to what they earn. He finds the productivity of high-income earners harder to measure and believes their wages are in the end "largely arbitrary." They reflect an "ideological construct" more than merit.

Soaring pay for corporate "supermanagers" has been the largest source of increased inequality, according to Mr. Piketty, and these executives can only have attained their rewards through luck or flaws in corporate governance. It requires only an occasional glance at this newspaper to confirm that this can be the case. But the author believes that no CEO could ever justify his or her pay based on performance. He doesn't say whether any occupation—athletes? physicians? economics professors who sell zero-marginal-cost e-books for $21.99 a copy?—is entitled to higher earnings because he does not wish to "indulge in constructing a moral hierarchy of wealth."

He does admit that entrepreneurs are "absolutely indispensable" for economic development, but their success, too, is usually tainted. While some succeed thanks to "true entrepreneurial labor," some are simply lucky or succeed through "outright theft." Even the fortunes made from entrepreneurial labor, moreover, quickly evolve into an "excessive and lasting concentration of capital." This is a self-reinforcing injustice because "property sometimes begins with theft, and the arbitrary return on capital can easily perpetuate the initial crime." Indeed laced throughout the book is an almost medieval hostility to the notion that financial capital earns a return.

Mr. Piketty believes that the wealthier a society becomes, the more people will claw for the best relative social station and the more inequality will ensue. He turns to those timeless economic authorities Jane Austen and Honoré de Balzac in mapping our future. Throughout the book, he importunately digresses with the dowry-chasing machinations of characters in novels like "Sense and Sensibility" and " Père Goriot. " He is obsessed with the following calculus: Are the fruits of working hard greater than those attainable by marrying into a top fortune? If not, "why work? And why behave morally at all?"

While America's corporate executives are his special bête noire, Mr. Piketty is also deeply troubled by the tens of millions of working people—a group he disparagingly calls "petits rentiers"—whose income puts them nowhere near the "one percent" but who still have savings, retirement accounts and other assets. That this very large demographic group will get larger, grow wealthier and pass on assets via inheritance is "a fairly disturbing form of inequality." He laments that it is difficult to "correct" because it involves a broad segment of the population, not a small elite that is easily demonized.

So what is to be done? Mr. Piketty urges an 80% tax rate on incomes starting at "$500,000 or $1 million." This is not to raise money for education or to increase unemployment benefits. Quite the contrary, he does not expect such a tax to bring in much revenue, because its purpose is simply "to put an end to such incomes." It will also be necessary to impose a 50%-60% tax rate on incomes as low as $200,000 to develop "the meager US social state." There must be an annual wealth tax as high as 10% on the largest fortunes and a one-time assessment as high as 20% on much lower levels of existing wealth. He breezily assures us that none of this would reduce economic growth, productivity, entrepreneurship or innovation.

Not that enhancing growth is much on Mr. Piketty's mind, either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum; if the income of one population group increases, another one must necessarily have been impoverished. He views equality of outcome as the ultimate end and solely for its own sake. Alternative objectives—such as maximizing the overall wealth of society or increasing economic liberty or seeking the greatest possible equality of opportunity or even, as in the philosophy of John Rawls, ensuring that the welfare of the least well-off is maximized—are scarcely mentioned.

There is no doubt that poverty, unemployment and unequal opportunity are major challenges for capitalist societies, and varying degrees of luck, hard work, sloth and merit are inherent in human affairs. Mr. Piketty is not the first utopian visionary. He cites, for instance, the "Soviet experiment" that allowed man to throw "off his chains along with the yoke of accumulated wealth." In his telling, it only led to human disaster because societies need markets and private property to have a functioning economy. He says that his solutions provide a "less violent and more efficient response to the eternal problem of private capital and its return." Instead of Austen and Balzac, the professor ought to read "Animal Farm" and "Darkness at Noon."

Mr. Shuchman is a New York fund manager who often writes on law and economics.

Thursday, April 10, 2014

Views from FYR of Macedonia: Russia, the West, America

Views from FYR of Macedonia: Russia, the West, America

After sharing with some people an article on new software for US military cargo helicopters to take more autonomous decisions*, a Macedonian in the group wrote (Spanish):
Si, tenemos suerte y los rusos nos defienden. Si no estamos j[xxx]dos con los americanos y sus maquinas de muerte

Translation: Yes we are lucky that the Russians defend us. If not, we would be [doomed] by the Americans and their Machines of Death.

The article: Navy Drones With a Mind of Their Own. WSJ, Apr 5, 2014. http://online.wsj.com/news/articles/SB10001424052702303532704579481510076347466

 

Friday, November 22, 2013

Control d'armes en acció: Els nois dolents enganyen i les democràcies no fan res

Les sancions contra l'Iran no es manipularan. . Per Douglas J. Feith
Control d'armes en acció: Els nois dolents enganyen i les democràcies no fan res.
Translation to Catalan of Sanctions on Iran Won't Be Cranked Back Up. By Un Liberal Recalcitrant
Wall Street Jounal, updated Nov. 18, 2013 7:24 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303914304579193652675971392

El president Obama vol que l'Iran suspengui parts del seu programa nuclear a canvi d'alleujar les sancions econòmiques internacionals. Els crítics sostenen que si Occident arriba a un acord en aquest sentit, l'Iran podria enganyar molt més fàcilment, molt abans que la resta del món pogués establir noves i dures sancions. Però el senyor Obama insisteix que relaxar les sancions és reversible : Si els iranians estan pel "no seguir endavant", va dir recentment a NBC News, "Podem anar endavant ".
Els acords de pau i el control d'armes tenen una llarga història que hauria de ser un advertiment contra aquestes garanties. Els països democràtics, durant molt de temps, no van poder aconseguir el que esperaven dels seus antagonistes no democràtics - i després es van veure incapaços o no van estar disposats a complir el tracte-.

Després de la Primera Guerra Mundial, els tractats de Versalles i Locarno van sotmetre Alemanya  a mesures de control d'armes, incloent la desmilitarització de Renània. Quan el règim nazi d'Alemanya, va remilitaritzar audaçment la Renània el 1936, ni la Gran Bretanya, ni França, ni cap altre signant del tractat va prendre cap tipus d’acció legal.

Aquest i d’altres incidents del segle XX van portar l’estratega dels EUA Fred Iklé a escriure un clarivident article el 1961 a la revista "Afers exteriors", titulat "Després de Detectar-ho - Què ?" Va sostenir : "Si signem un acord de control d'armes, hem de saber no només que som tècnicament capaços de detectar una violació, sinó que també nosaltres, o la resta del món, estarà en condicions de reaccionar eficaçment si es descobreix una violació, ja sigui legalment, política o militar. " Iklé va preveure que els soviètics violarien els seus acords i que als presidents dels Estats Units els resultaria difícil o impossible de posar remei a les violacions.

No obstant això, els EUA va fer una sèrie de tractats de control d'armes amb els soviètics i quan es van produir les violacions previstes, no va haver-hi cap tipus d'imposició, ni tan sols es va intentar.
Durant el govern de Reagan, les autoritats nord-americanes van detectar un enorme radar a la ciutat soviètica de Krasnoyarsk que violava el Tractat de Míssils Antibalístics del 1972. Malgrat la seva reputació de ser un escèptic en relació al control d'armes i de la línia dura anti - soviètica, Reagan va concloure que no tenia bones opcions, fora de la de queixar-se. Els EUA seguí per adherir-se al tractat per als següents 16 anys, fins que el president George W. Bush ho va retirar per raons no relacionades amb les violacions del tractat.

Una altra democràcia que no ha aconseguit complir els acords és Israel. Quan Israel va signar els Acords d'Oslo amb l'OAP el 1993, al després Ministre de Relacions Exteriors israelià Shimon Peres se li va preguntar què faria Israel si es es violés l'acord. Ell va declarar que era un tractat "reversible", assegurant que era escèptic i que si l'OAP trenqués les seves promeses de pau, Israel no només aturaria els recessos territorials, sinó que reprendria territoris ja negociats.
L'OAP va violar ràpidament el Tractat d’Oslo de diverses maneres, el més flagrant amb la Segona Intifada l’any 2000. Però cap govern israelià d'esquerra o de dreta mai va liquidar els acords, i encara menys revertir qualsevol retirada.

El que sol passar amb aquest tipus d'acords és el següent : Al costat democràtic, els líders polítics donen publicitat a l'acord per als seus votants significantlo com una gran fita diplomàtica de la que cal sentir-se’n orgullós. Per l’altra banda  -generalment el costat no democràtic, es porta a terme l’engany, la deshonestedat i l’agressió.

Els líders democràtics no tenen cap desig de detectar la violació perquè no volen admetre que l'acord o plusvàlua, per raons diverses, és una eina de relacions amb l’altra part i, òbviament, no volen pertorbar aquesta relació. En els casos que no es pot passar per alt la violació, afirmaran que l'evidència no és concloent. Però si és concloent, en menyspreen la importància de la infracció. Els funcionaris del costat democràtic de vegades actuen de facto com a advocats de la defensa per als tramposos.

Recordem el cas de Krasnoyarsk. Alguns funcionaris nord-americans en les reunions internes de l'administració en què he participat, van dir que no hem d’acusar els soviètics de violar el Tractat ABM, simplement perquè es va construir el radar en un camp de futbol  gran. Per desgràcia, però sostingut de forma descarada, vam haver d’esperar a que els soviètics el posesin en marxa..
Quan els funcionaris de l'OAP en la dècada de 1990 van violar el tractat d’Oslo per incitar a l'odi contra Israel i donar suport al terrorisme, els israelians que havien signat el tractat, van oferir excuses similars i vergonyoses tals com: "No ens importa el que diguin, només el que fan" i "Cal fer les paus amb els enemics, nopas  amb els amics. "

Un acord que realment desmantellés el programa nuclear iranià seria un èxit formidable. Però si Obama pot justificar el seu acord amb l'Iran només amb la promesa de “relaxar les sancions” als tramposos iranians, ningú donarà credibilitat al programa.. La història ensenya que hem d'esperar sempre l'engany, però no una aplicació efectiva del tractat.

Feith, investigador principal a l'Institut Hudson,  va exercir com subsecretari de Defensadels EUA per a la política ( 2001-05 ) i és l'autor de  "War and Decision: Inside the Pentagon at the Dawn of the War on Terrorism" (Harper, 2008)


--- Sanctions on Iran Won't Be Cranked Back Up. By Douglas J. Feith
Arms control in action: The bad guys cheat, and democracies do nothing.Wall Street Jounal, updated Nov. 18, 2013 7:24 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303914304579193652675971392

President Obama wants Iran to suspend parts of its nuclear program in return for easing international economic sanctions. Critics contend that if the West strikes a deal along these lines, Iran could cheat far more easily than the rest of the world could reinstate tough sanctions. But Mr. Obama insists that relaxing sanctions is reversible: If the Iranians are "not following through," he recently told NBC News, "We can crank that dial back up."

Peace and arms-control agreements have a long history that warns against such assurances. Democratic countries have time and again failed to get what they bargained for with their undemocratic antagonists—and then found themselves unable or unwilling to enforce the bargain.

After World War I, the Versailles and Locarno Treaties subjected Germany to arms-control measures, including demilitarization of the Rhineland. When Germany's Nazi regime boldly remilitarized the Rhineland in 1936, neither Britain, France nor any other treaty party took enforcement action.

This and other 20th-century incidents led U.S. strategist Fred Iklé to write a prescient 1961 "Foreign Affairs" article titled "After Detection—What?" He argued: "In entering into an arms-control agreement, we must know not only that we are technically capable of detecting a violation but also that we or the rest of the world will be politically, legally and militarily in a position to react effectively if a violation is discovered." Iklé foresaw that the Soviets would violate their agreements, and that U.S. presidents would find it difficult or impossible to remedy the violations.

Nevertheless, the U.S. made a series of arms-control treaties with the Soviets. When the predicted violations occurred, no enforcement actions were even attempted.

During the Reagan administration, U.S. officials detected a huge radar in the Soviet city of Krasnoyarsk that violated the 1972 Anti-Ballistic Missile Treaty. Despite his reputation as an arms-control skeptic and anti-Soviet hard-liner, Reagan concluded he had no good options other than to complain. The U.S. continued to adhere to the treaty for another 16 years, until President George W. Bush withdrew for reasons unrelated to violations.

Another democracy that has failed to enforce agreements is Israel. When Israel signed the Oslo Accords with the Palestine Liberation Organization in 1993, then-Israeli Foreign Minister Shimon Peres was asked what Israel would do if the agreement were violated. He declared it was "reversible," assuring skeptics that if the PLO broke its peace pledges, Israel would not only stop territorial withdrawals, but retake the land already traded.

The PLO promptly violated Oslo in various ways, most egregiously by launching the Second Intifada in 2000. But no Israeli government—on the left or right—ever terminated the Accords, let alone reversed any withdrawals.

What typically happens with such agreements is the following: On the democratic side, political leaders hype the agreement to their voters as a proud diplomatic achievement. The nondemocratic side—typically an aggressive, dishonest party—cheats.

The democratic leaders have no desire to detect the violation because they don't want to admit that they oversold the agreement or, for other reasons, they don't want to disrupt relations with the other side. If they can't ignore the violation, they will claim the evidence is inconclusive. But if it is conclusive, they will belittle the significance of the offense. Officials on the democratic side sometimes even act as de facto defense attorneys for the cheaters.

Recall the Krasnoyarsk case. Some U.S. officials in internal administration meetings in which I participated said we should not accuse the Soviets of violating the ABM Treaty simply because they built the football-field-size radar. Rather, they disgracefully but brazenly argued, we should wait until the Soviets turned it on.

When PLO officials in the 1990s breached Oslo by inciting anti-Israel hatred and supporting terrorism, the Israelis who had made the deal offered similarly disgraceful excuses along the lines of: "We don't care what they say, only what they do," and "You have to make peace with your enemies, not with your friends."

An agreement that actually dismantled the Iranian nuclear program would be a formidable accomplishment. But if Mr. Obama can justify his deal with Iran only by promising to "crank up" the relaxed sanctions if and when the Iranian regime cheats, no one should buy it. History teaches that we should expect the cheating, but not effective enforcement.

Mr. Feith, a senior fellow at the Hudson Institute, served as U.S. undersecretary of defense for policy (2001-05) and is the author of "War and Decision: Inside the Pentagon at the Dawn of the War on Terrorism" (Harper, 2008).

Sunday, July 7, 2013

Lord Morris of Borth-y-Gest Memorial Lecture. By Michael Howard, MP. July 6, 2006

Lord Morris of Borth-y-Gest Memorial Lecture. By Michael Howard, MP
http://web.archive.org/web/20070505062753/http://www.michaelhowardmp.com/speeches/lampeter060706.htm
July 6, 2006


It is a great privilege to have been invited to give this lecture.

Lord Morris of Borth-y-Gest – or John Willie as I recall him being almost universally referred to – was one of the giants of the law when I studied it at Cambridge and during the years when I was making my way as a Junior Member of the Bar.

Superficially we had quite a few things in common. We were, of course, both Welsh. We were both members of the Inner Temple. We had both been Presidents of the Cambridge Union. And we both, and this may be particularly encouraging to some, took second-class degrees in law.

But there, I fear, the similarities come to an end. I could not hope, even to begin to match the distinction of John Willie’s attainments at the Bar, on the Bench and as one of our great appeal judges. Nor, let’s be frank about this, could I aspire to his hallmarks of gentleness, patience and universal popularity.

He was a legend in the land. And not just, of course, for what he achieved in his legal career. At the outbreak of war in 1914, at the age of 17 he joined the Royal Welsh Fusiliers, saw service in France, reached the rank of Captain and was awarded the Military Cross. And it is said that, after being appointed a Law Lord in 1960 he walked down Whitehall to the House of Lords every day, lifting his hat as he passed the cenotaph.

Sadly I never had the honour of appearing before him. But I did meet him. When I was an undergraduate at Cambridge he came to see us to encourage us to go to the Bar.

I cannot pretend that this was a decisive influence on my own career because I had already made up my mind that that was what I wanted to do. So none of the blame for my subsequent career can be laid at John Willie’s door.

The Dictionary of National Biography, in describing his judicial characteristics, says that he was 'vigilant in protecting the freedom of the individual when threatened by the executive' and adds that 'he exhibited judicial valour consistently and in full measure.'

These statements are justified. But they must be interpreted in the spirit and context of their time. Thirty years ago judges were also conscious of the constraints which were imposed on their role.

Since then, that role has been greatly expanded, first as a consequence of the enlargement of judicial review, more recently as a result of the Human Rights Act. It is to that trend, its implications and its consequences that I intend to devote the rest of my remarks this evening.

Over thirty years ago, on a visit to Philadelphia, I fell into conversation with a woman who had recently been given a parking ticket. She had been incensed, so incensed that she decided to go to Court to challenge it.

When she appeared in Court she was rather surprised when the magistrate called all the defendants who were due to appear that day to the bar of the Court. He told them his name and asked them to remember it. Then he said, “All cases dismissed.”

The astonishment of my acquaintance at this development was tempered somewhat when she discovered that a few days later the regular election of magistrates in the city was due to take place. The magistrate before whom she had appeared, albeit rather briefly, was re-elected with the biggest majority in the history of the Philadelphia magistracy.

When I was told that story I reacted, I am sorry to say, with a rather superior disdain. “What can you expect” I asked, “if you elect magistrates and judges? We in Britain would never contemplate any such step.”

Thirty years on I am much less sure. The truth is that during that time the power of judges in this country was increased, is increasing and will increase further, if nothing is done to change things.

For the most part this increase in power has been at the expense of elected Governments and elected Parliaments. Our judges, of course, are unelected. They are unaccountable. They cannot be dismissed, save in the most extreme circumstances, and in practice never are.

Moreover they are appointed without regard to their political background and views are without any public scrutiny, parliamentary or otherwise. I believe that this has, in the past, been one of the great strengths of our judiciary. But as they move, increasingly, to the centre of the political stage how long can this state of affairs continue?

It would be wrong to suggest that this shift in power is entirely new or that it is entirely due to the coming into force of the Human Rights Act.

The Courts have traditionally had the power to curb the illegal, arbitrary or irrational exercise of power by the Executive. But, traditionally this power was exercised with restraint.

The Courts would be careful not to quash decisions because they disagreed on the merits with the decisions under challenge.

There is common consent that during the last 50 years this restraint has been eroded. As the previous Lord Chancellor, Lord Irvine put it, in his 1995 Address to the Administrative Law Bar Association:
“The range of circumstances in which decisions may be struck down has been extended beyond recognition.”

That address was essentially a plea for judicial restraint. Indeed in it the future Lord Chancellor referred to what he described as the “constitutional imperative of judicial self-restraint.”

He gave three reasons for it. First he referred to the constitutional imperative – the fact that Parliament gives powers to various authorities, including Ministers, for good reasons and in reliance on the level of knowledge and experience which such authorities possess. Secondly, he referred to the lack of judicial expertise which, he said, made the Courts ill-equipped to take decisions in place of the designated authority. Thirdly, and most pertinently, he referred to what he called the democratic imperative – the fact that elected public authorities derive their authority in part from their electoral mandate.

It is worth quoting his words in full: “The electoral system,” he said, “also operates as an important safeguard against the unreasonable exercise of public powers, since elected authorities have to submit themselves, and their decision-making records, to the verdict of the electorate at regular intervals.”

With respect to Lord Irvine, I couldn’t have put it better myself.

Remarkably enough he even prayed in aid, as one of his arguments against judicial intervention, the fact that it would strengthen objections to the incorporation of the European Convention on Human Rights into our law – the very Human Rights Act which he did so much to introduce.

Rightly describing it as a step which would hugely enhance the role and significance of the judiciary in our society he said this:- “The traditional objection to incorporation has been that it would confer on unelected judges powers which naturally belong to Parliament. That objection, entertained by many across the political spectrum, can only be strengthened by fears of judicial supremacism.”

Lord Irvine was right. My essential objection to the Human Rights Act is that it does involve a very significant shift in power from elected representatives of the people to unelected judges. Members of Parliament, and Ministers are, except for Ministers in the House of Lords like the Lord Chancellor, answerable to their electorates. As I know only too well they can be summarily dismissed by the electorate. They are directly accountable. Judges, as I have already pointed out, are unelected, unaccountable and cannot be dismissed.

The reason why this difficulty arisesin such acute form as a result of the Human Rights Act is because so many of the decisions which our judges now have to make under it are, essentially, political in nature.

Just this week, Charles Clarke, the former Home Secretary, complained that, and I quote:- “One of the consequences of the Human Rights Act is that our most senior judiciary are taking decisions of deep concern to the security of our society without any responsibility for that security.”

What on earth did he expect?

Of course that is one of the consequences of the Human Rights Act. It is an inevitable consequence. It is what the Human Rights Act obliges the senior judiciary to do. It is not the fault of the judges if they perform, as conscientiously as they can, duties which the Government has placed on them.

And it is not as though the Government were not warned.

To select a quote almost at random Appeal Court Judge Sir Henry Brooke predicted that judges would be drawn into making “much more obviously political decisions.” He pointed out that under the Act “for the first time judges would have to decide whether government interference with a human right was 'necessary in a democratic society.’ – and that, of course, is clearly a political value judgement.

How does this arise? In a nutshell the Act requires our courts to apply the European Convention on Human Rights in every decision they make. The rights which the Convention seeks to protect are framed in very wide terms. The Convention was drawn up in the aftermath of the Second World War. Its authors saw it as a safeguard against any revival of Nazism or any other form of totalitarian tyranny. I suspect that many of them would turn in their graves if they were able to see the kind of cases which are being brought in reliance on it today.

None of these rights can be exercised in isolation. Any decision to uphold one right may well infringe someone else’s right. Or it may conflict with the rights of the community at large.

The example that has most recently hit the headlines well illustrates the difficulties that arise.

As David Cameron pointed out in his recent speech on this subject life in the globalised twenty first century world presents two great challenges to governments. The first is to protect our security. The second is protecting our liberty.

We would, I suspect, all agree with his view that 'it is vital that free societies do all they can to maintain people’s human rights and civil liberties, not least because a free society is, in the long term, one of the best protections against terrorism and crime.”

As he said, “The fundamental challenge is to strike the right balance between security and liberty.”

The fundamental question is who is ultimately responsible for striking that balance: elected members of Parliament or unelected judges?

In the cases on terrorism, Parliament twice, after much anxious consideration by both Houses, reached its view. It was not always a view with which I agreed. But it was the view of Parliament.

Yet twice the Judges have held that Parliament got the balance wrong. They thought the balance should be struck differently.

And in doing so they were not deliberately seeking to challenge the supremacy of Parliament. They were simply doing what Parliament has asked them to do.

There are countless other examples. In his recent speech on the subject David Cameron discussed the way in which the Human Rights Act has made the fight against crime harder.

He cited the example of the Assets Recovery Agency, which was set up to seize the assets of major criminals.

The agency has been forced to spend millions of pounds fighting legal challenges brought by criminals under the Human Rights Act.

This has had bogged down cases for years, and the backlog in the courts has grown to 146 uncompleted claims.

The Director of the Agency has directly blamed the human rights “bandwagon” for thwarting its efforts.

He referred to the case of the convicted rapist, Anthony Rice, who was wrongly released on licence and then murdered Naomi Bryant.

The bridges Report set up to investigate the case makes clear that one of the factors that influenced the thinking of officials in dealing with Rice was a concern that he might sue them under the Human Rights Act.

As David Cameron acknowledged there were other elements in the case that had no connection to human rights.

And it is true that any legal challenge by Rice might well have failed.

But it remains the case that officials sought to protect themselves rather than risk defeat in the courts.

The Rice case illustrates a wider trend.

Even without actual litigation, some public bodies are now so frightened of being sued under the Human Rights Act that they try to protect themselves by making decisions that are often absurd and occasionally dangerous.

We saw this recently when the police tried to recapture foreign ex-prisoners who should have been deported and had instead gone on the run.

The obvious thing to do would have been to issue “Wanted” posters but police forces across the country refused to do so on the grounds that it would breach the HRA.

The Association of Chief Police officers says in its guidance to forces: “Article 8 of the Human Rights Act gives everyone the right to respect for their private and family life.....and publication of photographs could be a breach of that.”

According to ACPO, photographs should be released only in “exceptional circumstances”, where public safety needs to override the case for privacy.

These were criminals who had been convicted of very serious offences and who shouldn’t even have been in the UK.

Yet the Metropolitan Police said, “We will use all the tools in our tool box to try and find them without printing their identity – that’s the last recourse.”

Perhaps the most ludicrous recent example occurred a few weeks ago when a suspected car thief clambered onto the roof tops after a high speed chase and began pelting the police who had tried to follow him with roof tiles.

It ended with a siege that would waste the time of 50 police officers, close the street until 9.40pm and culminate in the spectacle of the suspect being handed a bucket of KFC chicken, a two litre bottle of Pepsi and a packet of cigarettes at tax payers expense – all apparently to preserve his “human rights.”

Of course there are examples of cases where the Act has led to results most of us would applaud. But we have to ask whether those results could not have been achieved by effective lobbying of our elected Parliament or a change of Government following an Election.

The Human Rights Act requires the Courts to interpret legislation so that it complies with the Convention if that is at all possible. If in the Court’s view any secondary legislation – passed after due consideration by both Houses of Parliament – is incompatible with the Convention that legislation can be struck down by the Court.

If any primary legislation is held to be incompatible there is a fast-track procedure which would enable the Government to short-circuit the normal processes of parliamentary scrutiny in order to amend or repeal any such legislation.

This surely a direct threat to the very democratic imperative on which the then Lord Chancellor waxed so eloquent 5 years ago.

One of the consequences of this is likely to be the increasing politicisation of judges.

How long, if the Act remains in force, will our present system of selection of judges survive? How long before the political backgrounds of candidates for judicial office become subject to Parliamentary scrutiny? How long before we see demands that these judges submit themselves for election?

The most common argument in favour of the Act is that it 'brings rights home.’ By that its supporters mean that since the Act could in any event be relied upon in an appeal from the English Courts to the European Court of Human Rights it is much better to allow English judges to apply it themselves. Indeed in presenting this argument the impression is sometimes given that the new jurisdiction of the English Courts will in some way replace the jurisdiction of the European Court of Human Rights. This is of course quite untrue. The right to appeal to the ECHR will remain.

I would concede that the previous situation was not ideal.

The ECHR does sometimes reach decisions which are very difficult to understand and sometimes cause considerable frustration.

But there is a remedy for this which the last Government was pursuing. The ECHR recognises the existence of what it calls a 'margin of appreciation.’ By that it means that will make some allowance, in applying the Convention, for the local circumstances and traditions of the country from which the appeal is brought. The last Government had embarked on a campaign to increase this margin of appreciation so that the Court would give greater leeway to countries to decide things for themselves.

Now the very future of the margin of appreciation is uncertain. Academic controversy rages on to whether our courts will apply it. And the ECHR is much less likely to apply it to decisions of our Courts than to decisions of administrative bodies.

It is in this context that David Cameron’s proposal for a British Bill of Rights should be considered.

As Mr Cameron expressly said the existence of a clear and codified British Bill of Rights will tend to lead the European Court of Human Rights to apply, and I would add to enhance, the “margin of appreciation.”

This seems to me to be the key to the continuing application and acceptance of the European Convention. It was intended to be a backstop to ensure that there was no repetition in Western European of Nazi atrocities and to minimise, as far as possible, the danger of future totalitarian outrages. It was not intended to strike down carefully considered judgements by democratically elected authorities of where the balance should be struck between legitimate but competing interests.

The route to this more limited role for the Convention and the Court which adjudicates on it lies through an enhanced margin of appreciation. A British Bill of Rights may well help us to reach this very desirable destination.

It is of course true, as Mr Cameron himself acknowledged, that the drafting of such a Bill would represent a formidable challenge. But this is true of all charters of this kind. If it helps us to achieve a workable solution to our relationship with the European Convention the effort will be well worth while.

And if it also enables us to scrap the discredited Human Rights Act it would be doubly welcome.

As the distinguished Scottish judge, Lord McCluskey predicted, the Act has become:- “A field day for crackpots, a pain in the neck for judges and a goldmine for lawyers.”

It is an experiment that has failed. It should go.

Thursday, March 28, 2013

Cyprus: Some Early Lessons. By Thorsten Beck

Cyprus: Some Early Lessons. By Thorsten Beck
World Bank Blogs, Mar 28, 2013

The crisis is Cyprus is still unfolding and the final resolution might still have some way to go, but the events in Nicosia and Brussels already offer some first lessons. And these lessons look certainly familiar to those who have studied previous crises.  Bets are that Cyprus will not be the Troika’s last patient, with one South European finance minister already dreading the moment where he might be in a situation like his Cypriot colleague.  Even more important, thus to analyze the on-going Cyprus crisis resolution for insights into where the resolution of the Eurozone crisis might be headed and what needs to be done.

1. A deposit insurance scheme is only as good as the sovereign backing it

One of the main objectives of deposit insurance is to prevent bank runs. That was also the idea behind the increase of deposit insurance limits across the Eurozone to 100,000 Euro after the Global Financial Crisis. However, deposit insurance is typically designed for idiosyncratic bank failures, not for systemic crises.  In the latter case, it is important that public back stop funding is available.  Obviously, the credibility of the latter depends on a solvent sovereign. As Cyprus has shown, if the solvency of the sovereign is itself in question, this will undermine the confidence of depositors in a deposit insurance scheme.  In the case of Cyprus, this confidence has been further undermined by the initial idea of imposing a tax on insured deposits, effectively an insurance co-payment, contradicting maybe not in legal terms but definitely in spirit the promise of deposit insurance of up to 100,000 Euros. The confidence that has been destroyed with the protracted resolution process and the back-and-forth over loss distribution will be hard to re-establish. A banking system without the necessary trust, in turn, will be hard pressed to fulfill its basic functions of facilitating payment services and intermediating savings. Ultimately, this lack of confidence can only be overcome by a Eurozone wide deposit insurance scheme with public back-stop funding by ESM and a regulatory and supervisory framework that depositors can trust.

2. A large financial system is not necessarily growth enhancing

An extensive literature has documented the positive relationship between financial deepening and economic growth, even though the recent crisis has shed doubts on this relationship (Levine, 2005, Beck, 2012).  However, both theoretical and empirical literature focus on the intermediation function of the financial system, not on the size of the financial system per se. Very different from this financial facilitator view is the financial center view, which sees the financial sector as an export sector, i.e. one that seeks to build a nationally centered financial center stronghold based on relative comparative advantages such as skill base, favorable regulatory and tax policies, (financial safety net) subsidies, etc. Economic benefits of such a financial center might also include important spin-offs coming from professional services (legal, accounting, consulting, etc.) that tend to cluster around the financial sector.

In recent work with Hans Degryse and Christiane Kneer (2013) and using pre-2007 data, we have shown that a large financial system might stimulate growth in the short-term, but comes at the expense of higher volatility. It is the financial intermediation function of finance that helps improve growth prospects not a large financial center, a lesson that Cyprus could have learned from Iceland.

3. Crisis resolution as political distribution fight

Resolution processes are basically distributional fights about who has to bear losses.   The week-long negotiations about loss allocation in Cyprus are telling in this respect.  While it was initially Eurozone authorities that were blamed for imposing losses on insured depositors, there is an increasingly clear picture that it was maybe the Cypriot government itself that pushed for such a solution in order to avoid imposing losses on large, (and thus most likely) richer and more connected depositors.

While the Cypriot case might be the most egregious recent example for the entanglement of politics and crisis resolution, the recent crises offer ample examples of how politically sensitive the financial system is.  Just two more examples here:  First, even during and after the Global Financial Crisis of 2008 and 2009, there was still open political pressure across Europe to maintain or build up national champions in the respective banking systems, even at the risk of creating more too-big-to-fail banks.  Second, the push by the German government to exempt German small savings and cooperative banks from ECB supervision and thus the banking union can be explained only on political basis and not with economic terms, as the "too-many-to-fail" is as serious as the "too-big-to-fail" problem.

4. Plus ca change, plus c'est la meme chose

European authorities and many observers have pointed to the special character of each of the patients of the Eurozone crisis and their special circumstances. Ireland and Spain suffered from housing booms and subsequent busts, Portugal from high current account deficits stemming from lack of competitiveness and mis-allocation of capital inflows, Greece from high government deficit and debt and now Cyprus from an oversized banking system. So, seemingly different causes, which call for different solutions!
But there is one common thread across all crisis countries, and that is the close ties between government and bank solvency. In the case of Ireland, this tie was established when the ECB pushed the Irish authorities to assume the liabilities of several failed Irish banks. In the case of Greece, it was the other way around, with Greek banks having to be recapitalized once sovereign debt was restructured.  In all crisis countries, this link is deepened as their economies go into recession, worsening government’s fiscal balance, thus increasing sovereign risk, which in turn puts balance sheets of banks under pressure that hold these bonds but also depend on the same government for possible recapitalization. This tie is exacerbated by the tendency of banks to invest heavily in their home country’s sovereign bonds, a tendency even stronger in the Eurozone’s periphery (Acharya, Drechsler and Schnabl, 2012).  Zero capital requirements for government bond holdings under the Basel regime, based on the illusion that such bonds in OECD countries are safe from default, have not helped either.

5. If you kick the can down the road, you will run out of road eventually 

The multiple rounds of support packages for Greece by Troika, built on assumptions and data, often outdated by the time agreements were signed, has clearly shown that you can delay the day of reckoning only so long. By kicking the can down the road, however, you risk deteriorating the situation even further. In the case of Greece that led eventually to restructuring of sovereign debt. Delaying crisis resolution of Cyprus for months if not years has most likely also increased losses in the banking system.  A lesson familiar from many emerging market crises (World Bank. 2001)!  On a first look, the Troika seemed eager to avoid this mistake in the case of Cyprus, forcing recognition and allocation of losses in the banking system early on without overburdening the sovereign debt position. However, the recession if not depression that is sure to follow in the next few years in Cyprus will certainly increase the already high debt-to-GDP ratio and might ultimately lead to the need for sovereign debt restructuring.

6. The Eurozone crisis — a tragedy of commons

The protracted resolution process of Cyprus has shown yet again, that in addition to a banking, sovereign, macroeconomic and currency crisis, the Eurozone faces a governance crisis. Decisions are taken jointly by national authorities who each represent the interest of their respective country (and taxpayers), without taking into account the externalities of national decisions arising on the Eurozone level. It is in the interest of every member government with fragile banks to "share the burden" with the other members, be it through the ECB’s liquidity support or the Target 2 payment system. Rather than coming up with crisis resolution on the political level, the ECB and the Eurosystem are being used to apply short-term (liquidity) palliatives that deepen distributional problems and make the crisis resolution more difficult. What is ultimately missing is a democratically legitimized authority that represents Eurozone interests.

7. Learning from the Vikings

In 2008, Iceland took a very different approach from the Eurozone when faced with the failure of their oversized banking system. It allowed its banks to fail, transferred domestic deposits into good banks and left foreign deposits and other claims and bad assets in the original banks, to be resolved over time.  While the banking crisis and its resolution has been a traumatic experience for the Icelandic economy and society, with repercussions even for diplomatic relations between Iceland and several European countries, it avoided a loss and thus insolvency transfer from the banking sector to the sovereign.  Iceland's government has kept its investment rating throughout the crisis. And while mistakes might have been made in the resolution process (Danielsson, 2011), Iceland’s banking sector does not drag down Iceland’s growth any longer and might eventually even make a positive contribution.

The resolution approach in Cyprus seems to follow the Icelandic approach. While the Cypriot case might be a special one (as part of the losses fall outside the Eurozone and Cypriot banks are less connected with the rest of the Eurozone than previous crisis cases), there are suggestions that future resolution cases might impose losses not just on junior and maybe senior creditors of banks, but even on depositors to thus reduce pressure on government’s balance sheets.  A move towards market discipline, for certain; whether this is due to learning from experience, tighter government budgets across Europe or for political reasons remains to be seen.

8. Banking union with just supervision does not work

The move towards a Single Supervisory Mechanism has been hailed as major progress towards a banking union and stronger currency union.  As the case of Cyprus shows, this is certainly not enough.  The holes in the balance sheets of Cypriot banks became obvious in 2011 when Greek sovereign debt was restructured, but given political circumstances, the absence of a bank resolution framework in Cyprus and — most importantly — the absence of resources to undertake such a restructuring, the problems have not been addressed until now.  Even once the ECB has supervisory power over the Eurozone banking system, without a Eurozone-wide resolution authority with the necessary powers and resources, it will find itself forced to inject more and more liquidity and keep the zombies alive, if national authorities are unwilling to resolve a failing bank.

9. A banking union is needed for the Eurozone, but won't help for the current crisis!

While the Eurozone will not be sustainable as currency union without a banking union, a banking union cannot help solve the current crisis. First, building up the necessary structures for a Eurozone or European regulatory and bank resolution framework cannot be done overnight, while the crisis needs immediate attention. Second, the current discussion on banking union is overshadowed by distributional discussions, as the bank fragility is heavily concentrated in the peripheral countries, and using a Eurozone-wide deposit insurance and supervision mechanism to solve legacy problems is like introducing insurance after the insurance case has occurred. The current crisis has to be solved before banking union is in place. Ideally, this would be done through the establishment of an asset management company or European Recapitalization Agency, which would sort out fragile bank across Europe, and also be able to take an equity stake in restructured banks to thus benefit from possible upsides (Beck, Gros and Schoenmaker, 2012).  This would help disentangle government and bank ties, discussed above, and might make for a more expedient and less politicized resolution process than if done on the national level.

10. A currency union with capital controls?

The protracted resolution process of the Cypriot banking crisis has increased the likelihood of a systemic bank run in Cyprus once the banks open, though even if the current solution would have been arrived at in the first attempt, little confidence in Cypriot banks might have been left.  As in other crises (Argentina and Iceland) that perspective has led authorities to impose capital controls, an unprecedented step within the Eurozone. Effectively, however, this implies that a Cypriot Euro is not the same as a German or Dutch Euro, as they cannot be freely exchanged via the banking system, thus a contradiction to the idea of a common currency (Wolff, 2013).

However, these controls only formalize and legalize what has been developing over the past few years: a rapidly disintegrating Eurozone capital market.  National supervisors increasingly focus on safeguarding their home financial system, trying to keep capital and liquidity within their home country (Gros, 2012).  Anecdotal evidence suggests that this does not only affect the inter-bank market but even intra-group transaction between, let’s say, Italian parent banks and their Austrian and German subsidiaries.  Another example of the tragedy of commons, discussed above.

11. Finally, there is no free lunch

This might sound like a broken disk, but the Global Financial Crisis and subsequent Eurozone crisis has offered multiple incidences to remind us that you cannot have the cake and eat it.  This applies as much to Dutch savers attracted by high interests in Icesave and then disappointed by the failure of Iceland to assume the obligations of its banks as to Cypriot banks piling up on Greek government bonds promising high returns even in 2010 when it had become all but obvious that Greece would require sovereign debt restructuring.  On a broader level, the idea that a joint currency only brings advantages for everyone involved, but no additional responsibilities in term of reduced sovereignty and burden-sharing and insurance arrangements also resembles the free lunch idea.

On a positive note, the Cyprus bail-out has shown that Eurozone authorities have learnt from previous failures by forcing an early recognition of losses in Cyprus and by moving towards a banking union, even if very slowly. As discussed above, however, there are still considerable political constraints and barriers to overcome, so that it is ultimately left to each observer to decide whether the glass is half full or half empty.


References:

Acharya, Viral, Itamar Drechsler and Philipp Schnabl. 2012. A tale of two overhangs: the nexus of financial sector and sovereign credit risks. Vox 15 April 2012
Beck, Thorsten. 2012. Finance and growth: lessons from the literature and the recent crisis. Paper prepared for the LSE growth commission.
Beck, Thorsten, Hans Degryse and Christiane Kneer. 2012. Is more finance better?
Disentangling intermediation and size effects of financial systems. Journal of Financial Stability, forthcoming.
Beck, Thorsten, Daniel Gros, Dirk Schoenmaker (2012): Banking union instead of Eurobonds — disentangling sovereign and banking crises, Vox 24 June 2012.
Danielsson, Jon. 2011. How not to resolve a banking crisis: Learning from Iceland’s mistakes  Vox, 26 November 2011
Gros. Daniel. 2012. The Single European Market in Banking in decline — ECB to the rescue? Vox , 16 Ocotber 2012
Levine, Ross. 2005. Finance and growth: theory and evidence. In Handbook of Economic
Growth, ed. Philippe Aghion and Steven N. Durlauf, 865–934. Amsterdam: Elsevier.
Wolff, Guntram. 2013. Capital controls are a grave risk to the eurozone. Financial Times 26 March 2013.
World Bank. 2001. Finance For Growth: Policy Choices in a Volatile World. Policy Research Report


Full article:
http://blogs.worldbank.org/allaboutfinance/cyprus-some-early-lessons


Thursday, February 21, 2013

Dealing with Private Debt Distress in the Wake of the European Financial Crisis - A Review of the Economics and Legal Toolbox

Dealing with Private Debt Distress in the Wake of the European Financial Crisis - A Review of the Economics and Legal Toolbox. By Yan Liu and Christoph Rosenberg
IMF Working Paper No. 13/44
February 20, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40326.0

Summary: The private non-financial sector in Europe is facing increased challenges in meeting its debt servicing obligation. In response, governments are revisiting legal tools and—in some cases—institutional arrangements to deal with over-indebtedness. For households, where the problem in some countries is large but no established best practice exists, reforms have generally sought to allow debtors a fresh start while minimizing moral hazard and preserving bank solvency and credit discipline. For the corporate sector, efforts have focused on facilitating debt restruturing (including through out of court mechanisms). Direct government intervention has been rare.


ISBN/ISSN: 9781475544305 / 2227-8885
Stock No: WPIEA2013044

Wednesday, February 13, 2013

A Banking Union for the Euro Area. IMF Staff Discussion Note

A Banking Union for the Euro Area. By Rishi Goyal, Petya Koeva Brooks, Mahmood Pradhan, Thierry Tressel, Giovanni Dell'Ariccia, Ross Leckow, Ceyla Pazarbasioglu, and an IMF Staff Team
IMF Staff Discussion Note 13/01
February 13, 2013
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40317.0

Summary: The SDN elaborates the case for, and the design of, a banking union for the euro area. It discusses the benefits and costs of a banking union, presents a steady state view of the banking union, elaborates difficult transition issues, and briefly discusses broader EU issues. As such, it assesses current plans and provides advice. It is accompanied by three background technical notes that analyze in depth the various elements of the banking union: a single supervisory framework; a single resolution and common safety net; and urgent issues related to repair of weak banks in Europe.

ISBN/ISSN: 9781475521160 / 2221-030X
Stock No: SDNEA2013001


Executive summary:
  • A banking union—a single supervisory-regulatory framework, resolution mechanism, and safety net—for the euro area is the logical conclusion of the idea that integrated banking systems require integrated prudential oversight.
  • The case for a banking union for the euro area is both immediate and longer term. Moving responsibility for potential financial support and bank supervision to a shared level can reduce fragmentation of financial markets, stem deposit flight, and weaken the vicious loop of rising sovereign and bank borrowing costs. In steady state, a single framework should bring a uniformly high standard of confidence and oversight, reduce national distortions, and mitigate the buildup of concentrated risk that compromises systemic stability. Time is of the essence.
  • Progress is required on all elements. A single supervisory mechanism (SSM) must ultimately supervise all banks, with clarity on duties, powers and accountability, and adequate resources. But without common resolution and safety nets and credible backstops, an SSM alone will do little to weaken vicious sovereign-bank links; they are necessary also to limit conflicts of interest between national authorities and the SSM. A single resolution authority, with clear ex ante burden-sharing mechanisms, must have strong powers to close or restructure banks and be required to intervene well ahead of insolvency. A common resolution/insurance fund, sized to resolve some small to medium bank failures, with access to common backstops for systemic situations, would add credibility and facilitate limited industry funding.
  • The challenge for policymakers is to stem the crisis while ensuring that actions dovetail seamlessly into the future steady state. Hence, agreeing at the outset on the elements, modalities, and resources for a banking union can help avoid the pitfalls of a piecemeal approach and an outcome that is worse than at the start. The December 2012 European Council agreement on an SSM centered at the European Central Bank (ECB) is an important step, but raises challenges that should not be underestimated. Meanwhile, to delink weak sovereigns from future residual banking sector risks, it will be important to undertake as soon as possible direct recapitalization of frail domestically systemic banks by the European Stability Mechanism (ESM). Failing, non-systemic banks should be wound down at least cost, and frail, domestically systemic banks should be resuscitated by shareholders, creditors, the sovereign, and the ESM.
  • A banking union is necessary for the euro area, but accommodating the concerns of non-euro area European Union (EU) countries will augur well for consistency with the EU single market.

Tuesday, October 23, 2012

Russia's Ex-Finance Chief Has Grim Outlook for EU. By Alexander Kolyandr

Russia's Ex-Finance Chief Has Grim Outlook for EU. By ALEXANDER KOLYANDR
The Wall Street Journal, October 23, 2012, on page A11

MOSCOW—Just over a year ago, Alexei Kudrin came out of the Group of 20 meetings in Washington warning that the U.S. and Europe weren't doing enough to head off economic slowdown. Now, no longer in government but still highly respected for his fiscal prudence, the former Russian finance minister doesn't have to mince words. His message is even more dire.

Alexei Kudrin, left, spoke with Russia's Deputy Finance Minister Sergei Storchak during the VTB Capital investment conference in New York, April 2012.

Keeping Greece in the euro zone? "Already impossible," he says in an interview. Spain and Italy next for the exit? "The probability is very high." And creditors beware—Mr. Kudrin sees both Greece and Spain defaulting on their sovereign debt.

"Everything should be done to avoid it, but I don't feel that the process is under control," says the man who shepherded Russia from default to financial stability.

As if that weren't worrisome enough, the 52-year-old who was named finance minister of the year by various publications on four separate occasions during his tenure says he now fears that Europe's economic problems may turn into political ones.

Democracies, he says, don't always survive when their citizens are asked to make the kinds of economic sacrifices that Europe now faces. Already, some analysts are comparing Greece's shocked polity to the Weimar Republic.

Mr. Kudrin is more cautious, but plans to participate next month in a conference at St. Petersburg State University, where he is now a dean, on the question of how economic hardships can lead to political upheavals. The case studies aren't inspiring—from Communist Poland to the Soviet Union to Latin American dictatorships.

Mr. Kudrin thinks that citizens of the Western countries aren't ready to accept the steep drop in living standards they face, but that if governments fail to cut spending they will get even deeper collapses.

"Russia faced that in the 1990s, but due to [Russian President Boris] Yeltsin we've passed it peacefully," he says. "I'm not sure the Western countries would be able to pass through such hardships; it may be very painful."

Mr. Kudrin sees the recent decisions of the European Central Bank as only a temporary relief because its funds aren't limitless. However, he says, the euro would survive dropouts.

Mr. Kudrin expects European economies to contract further in the short term, before growth resumes, and he urges governments to reduce debt in order to be prepared for growth.

His outlook for the U.S. isn't much better. While the looming "fiscal cliff"—tax increases and spending cuts scheduled to take effect Jan. 1—worries analysts and economists, he said the size of the U.S. deficit is the real longer-term risk.

No matter which party wins the White House, the outlook is tough. "Both are in a very difficult position," he says. Even so, the dollar's future is secure, he says.

"Trust in the U.S. dollar is not shaken yet. If the U.S. administration meets the task of the budget consolidation in several years, the dollar will be firm, but even if it weakens, there would be no other currency to replace, given its scale and importance."

Tuesday, October 16, 2012

Banking Union for Europe – Risks and Challenges

Banking Union for Europe – Risks and Challenges. By Thorsten Beck
http://blogs.worldbank.org/allaboutfinance/banking-union-for-europe-risks-and-challenges

Excerpts:

The Eurozone crisis has gone through its fair share of buzz words — fiscal compact, growth compact, Big Bazooka.  The latest kid on the block is the banking union [discussed by economists since even before the 2007 crisis]. But what kind of banking union?  For whom? Financed how?  And managed by whom?

A new collection of short essays by leading economists on both sides of the Atlantic — including Josh Aizenman, Franklin Allen, Viral Acharya, Luis Garicano, and Charles Goodhart — takes a closer look at the concept of a banking union for Europe, including the macroeconomic perspective in the context of the current crisis, institutional details, and political economy. The authors do not necessarily agree and point to lots of tradeoffs.  However, several consistent messages come out of this collection.
  • No piecemeal approach. Centralizing supervision alone at the supra-national level, while leaving bank resolution and recapitalization at the national level, is not only unhelpful but might make things worse.
  • A banking union is part of a larger reform package that has to address sovereign fragility and the entanglement of banks with sovereigns.
  • Immediate crisis resolution vs. long-term reforms. There is an urgent need to address banking and sovereign fragility to resolve the Eurozone crisis. Transitional solutions that deal with legacy problems, both at the bank and at the sovereign level, are urgently needed and can buy sufficient time to implement the many long-term institutional reforms that cannot be introduced immediately.
The push for a banking union stems from the realization that the financial safety net for the Eurozone is incomplete. Although the original Eurozone structure did not foresee it, the European Central Bank (ECB) is effectively the lender of last resort, but — as argued by Charles Wyplosz — it is ill-equipped to act as such. First, it has limited information about banks and no authority to intervene. Second, national authorities with the responsibility to intervene, restructure, and recapitalize banks procrastinate as long as possible, putting additional pressure on the ECB to intervene, but only when it is too late. Several authors criticize the sequential introduction of supervision and bank resolution, which might lead to less, rather than more, stability, as conflicts between the ECB and the national resolution authorities are bound to arise.

Banking union for whom?
One critical question is whether the banking union should be “just” for the Eurozone or for the whole European Union. In my contribution, I argue that the need for a banking union is stronger within a currency union, as it is here where the close link between monetary and financial stability plays out strongest.

The institutional details
Should the responsibilities for running the banking union be concentrated in the ECB?  There is certainly a strong argument for centralizing responsibility on the supra-national level. There are clear arguments to separate bank resolution and deposit insurance in an institution outside the ECB, to avoid conflicts between monetary and micro-stability goals and introduce additional monitoring (Dirk Schoenmaker). One argument for a supra-national supervisor is that it would help reduce the political capture of regulators that has been observed across Europe over the past years and became obvious during the current crisis. This lesson can also be learned from Spain, as Luis Garicano points out: “the supervisor must be able and willing to stand up to politicians.” In addition, there is a supervisory tendency to be too lenient toward national champions, while bailing them out is too costly, [and] Andrew Gimber argue, however, that the ECB might not necessarily be a tougher supervisor than national supervisors. It might actually be more lenient, because it is concerned about contagion across the Eurozone and it has more resources available. Tying its hands by rules might therefore be necessary.

Looking west across the Atlantic
This time is not different.  Studying history can be insightful, for both economists and policymakers. Accordingly, several observers have looked for comparisons in economic history for clues on how to solve the Eurozone crisis. Joshua Aizenman argues that the history of the United States suggests large gains from buffering currency unions with union-wide deposit insurance and partial debt mutualization. It is important to note, however, that it took the United States a long time to get to where it is now, and quite a lot of institutional experimentation and several national banking crises. And, as is currently being discussed in Europe, the United States had to address both banking fragility and state over-indebtedness. Fiscal and banking unions go hand in hand.

It’s the politics, stupid!
In addition to a banking, sovereign, macroeconomic, and currency crisis, the Eurozone faces a governance crisis.  Diverse interests have hampered the efficient and prompt resolution of the crisis. And as financial support for several peripheral Eurozone countries has involved political conflicts both between and within Eurozone countries, so the discussion on the banking union has an important political economy aspect, Geoffrey Underhill points out.  More importantly, there is an increasing lack of political legitimacy and sustainability of the Eurozone and for the move toward closer fiscal and banking integration. “Citizens in both creditor and debtor countries increasingly perceive rightly or wrongly that the common currency and perhaps European integration tout court have intensified economic risks.” A banking union can therefore only succeed with the necessary electoral support.

Monday, February 27, 2012

Economic crisis: Views from Greece

I asked some Greek professionals about the crisis in their country on behalf of Hanna Intelligence's CEO, Mr. Jose Navio:
dear sir, I got some questions for you, if you have the time:

1  could you please make mention of effects in the citizenry like more children abandoned in hospices because the family cannot maintain them?
2  do you know of lack of food/medicines or lower quality of them?
3  is it better in your opinion to get out of the Euro and use again the old drachma (or any other new currency)?
4  is it better in your opinion to default and to reject the troika bail-outs?

thank you very much in advance,

xxx

The answer of one of those professionals:

Date: 2/27/2012
Subject: RE: Greece and the economic crisis
Dear Mr xxx,

thank you for asking about my country's present; my comment should focus on two issues:

The first one refers to the huge "brain drain" that is in progress during this period in Greece, even to a greater extent than the period after the WWII, which was the greatest immigration period in Greek history. People of all ages and professions are migrating in foreign countries around the world seeking for a job and better living conditions, in all financial, communal and governance/ infrastructural terms.

The second one refers to the sharp rise of homeless people and unable to sustain their families' every day living, dignity and income, due to the unprecedented percentages of unemployment, wages' cuttings and increase of the prices of almost all commodities. In cooperation with the church and under the coordination of various entities and NGOs, citizens are gathering food and clothing to assist all those who suffer the "human insecurity" that prevails nowadays in Greece.

I can't say what could have been better for Greece in economic terms, since it's out of my area of expertise, and I don't want to follow the paradigm of all those who suddenly became experts in economic strategies, options, terms and conspiracy theories. I can confirm though that this situation is the result of bad Greek governance for the last thirty years and that although Greece didn't loose sovereignty through wars in it's modern history, it did through economic procedures and EU norms; in any case Greeks are experiencing a very hard austerity policy, humiliation from various (mostly) European governments and states, and most important, instead of facing a hopeful future and prospect, they see things getting worst every day, even after all this inhuman behaviors.

I don't know what the plan or EU's "Grand Strategy" might be for Greece, but definately the proud and cultural Greeks don't deserve what they experience during these years, not even what is yet to come. The civil society is a "boiling pot" due to the downgrade of the every day living standards, unpunished and "untouchable" politicians responsible for this situation,explicit inequalities and non-existing options for the future generations. Let's hope at least that we'll not experience also a bloodshed or Egypt-like uprisings..

I hope I gave you a brief and indicative picture of contemporary Greece, and been of some help to your questions.

Best regards,

xxx

Sunday, July 18, 2010

Deutsche CEO: West's Levies on Banks May Lift Asia's Role

Deutsche CEO: West's Levies on Banks May Lift Asia's Role. By ALISON TUDOR And PETER STEIN
WSJ, Jul 18, 2010

HONG KONG — Asia's already rising importance as a profit center for financial services could gain more momentum as governments in the U.S. and Europe levy new taxes on global banking profits, according to Deutsche Bank AG Chief Executive Josef Ackermann.

"The relative importance of Asia will even increase" as a result of regulatory moves against banks in the West, Dr. Ackermann said in an interview with The Wall Street Journal. "Asian countries would be well advised not to copy levies which are so popular in many other parts of the world."

The German bank's chief , who has become a prominent voice for bank interests in the wake of the financial crisis and heads the global lobby group Institute of International Finance, was in Hong Kong to attend the listing ceremony Friday for Agricultural Bank of China Ltd.

The levies cumulatively could translate into a substantial hit for lenders with branches in many countries, such as Deutsche Bank, which generates about three-quarters of its revenue outside of its home market, Dr. Ackermann said. Instead, he called for a home bias to the levies because the country of domicile was the one called on most to help out in the banking crisis.

Emerging markets could even take advantage of the backlash against banks in the West to grab market share in financial services, he said. "A lot of governments are determined, including the Chinese, to build up financial hubs at a time when other countries are more skeptical about the financial sector," he said, noting that Turkey and Russia are making similar advances.

Dr. Ackermann also warned that the war for talent in Asia is causing a bubble in bankers' compensation that is detrimental to the industry, even as he hired another rainmaker to keep business flowing.

Late Sunday, Deutsche Bank named Henry Cai its corporate-finance chairman for Asia as well as head of its corporate and investment bank in China. Mr. Cai is known as one of China's most consistent deal makers and is well-connected with the business and political elites in Beijing. He resigned from UBS AG in recent weeks as investment-banking chairman for Asia. It isn't known how much he will be making at Deutsche Bank.

Other senior banking executives in Asia complain that increasing competition for talent in the region is leading to excessive pay packages for bankers working in such areas as mergers and acquisitions and initial public offerings. Compensation, a key cost for banks, can cause serious problems for management when one division's or one region's pay is out of kilter with the rest. The buzz over bankers' pay in Asia comes at a time when governments in the U.S. and Europe are seeking to curb excesses that in recent years contributed to the worst financial crisis since the Great Depression.

"If the industry pushes compensation levels up by just poaching people from each other, in the long term it is not a sustainable model and not good for the culture of banks in the region," Dr. Ackermann said.

To combat this problem, Deutsche Bank has started recruiting more Asian graduates with the aim of steeping them in the bank's culture and later returning them to the region to run its businesses.

"It's not a short-term solution. It may take up to five years to see the first successes, but that is what we are working on," said Dr. Ackermann, who was also in Asia to give a speech at an International Monetary Fund conference in South Korea.

Like other banks weighing the prospects of the global economy, Deutsche Bank has made boosting its operations in Asia a top priority. "Europe's slow economic growth and the very competitive environment in the U.S. means Asia is a very attractive market, so it would be unwise not to do everything we can to be part of the market," Dr. Ackermann said.

The German bank is targeting four billion euros ($5.17 billion) in annual revenue from the Asian-Pacific region excluding Japan by next year, about double the amount it generated from the region in 2008.

Deutsche Bank already has a strong foothold, with operations in 17 Asian countries and over 17,000 employees.

Local regulators restrict foreign banks in ways that allow them to earn only about a third of their potential revenues, according to a recent report by consultancy McKinsey & Co., so the banks need to be careful not to compete in the same niches, such as high-profile underwriting deals in financial centers like Hong Kong. Deutsche Bank says only about 5% of its revenue in Asia comes from "public" deals such as initial public offerings.

One such deal that Deutsche Bank was involved in was the IPO for AgBank, which began trading Friday in Hong Kong. Clients like AgBank and Industrial & Commercial Bank of China Ltd., which Deutsche Bank also helped take public four years ago, are potential competitors as their business grows in scope and sophistication.

"I have no doubt [China's banks] want to first strengthen their domestic operations by moving towards more fee income then expand internationally gradually," Dr. Ackermann said. "We will also be confronted with stronger competitors coming from China."

Thursday, May 20, 2010

Privatization Can Help Greece - Keynesians warned against Thatcher's policies in 1981. They were proven wrong.

Privatization Can Help Greece. By ALLAN H. MELTZER
Keynesians warned against Thatcher's policies in 1981. They were proven wrong.
WSJ, May 21, 2010

What could the leaders of the International Monetary Fund and the European Union have had in mind when they agreed to lend Greece more than $100 billion in exchange for promises to restore stability? After initial relief, markets soon recognized that the program was not sufficient and not likely to be maintained.

When countries joined the common European currency, they gave up the right to use monetary policy to inflate or devalue. That left wage reduction and fiscal restraint as the only recourse in a crisis. With Greece's money wages and government debt too high, the IMF-EU relief effort does not add any new options. Instead it delays default by offering yet more debt as a solution to too much debt, and it gives the Greek government more time to do what it has been unable to do—lower public-sector wages by about 20% and reduce the budget deficit by 10% of GDP.

This only prolongs uncertainty and offers debt-holders a promise by the Greek government that will be hard to honor. No wonder markets are skeptical.

What would have worked? Much of Greece's industry and commerce, including much of the tourist industry, is owned by the state. It should be sold with the proceeds used to reduce public debt. That would make the remainder of the debt more sustainable and transfer workers to the private sector where competitive pressures for lower wages and increased productivity would more closely align employment costs and reality. If the socialist government returned more of the economy to the private sector, Greece would have a better chance of economic recovery.

Much of the Greek economy not owned by the state is "underground," in the so-called informal sector, where wages and incomes adjust quickly to the market. Greece also should offer an amnesty for unpaid back taxes to those who join the legal sector.

If after selling assets the remaining debt is still unsustainable, Greece will have to default (it will be called restructuring, but it is nonetheless default). To lessen the pain from losses borne by Greek and foreign lenders following default, the country should commit to fiscal policies monitored by the European Union. But it should reject the IMF-EU loan. More debt, even subsidized debt, is not the right answer.

The main benefit to Europe of the IMF-EU program is that the Spanish government has agreed to additional reductions in current and future spending. This was a difficult and unpopular political decision given the very high level of unemployment in Spain. A Spanish default would force France and Germany to choose either massive help to Spain or bailing out the losses on Spanish debt at German and French banks. German banks hold $240 billion of Spanish debt but only $43 billion of Greek debt.

Keynesians who think reducing public spending during a recession is a disastrous error should recall that they warned British Prime Minister Margaret Thatcher in 1981 that Britain would never recover if she continued with her tight fiscal and monetary policy during Britain's deep recession. Mrs. Thatcher declined to take their advice. Expectations about Britain's future changed for the better, and a long, productive recovery began soon after.

Greece's government should take heart from her example. The new government in Britain might remember this as well. And so might the Keynesians in the Obama administration.

Mr. Meltzer is a professor of economics at Carnegie Mellon University, the author of "A History of the Federal Reserve" (University of Chicago Press, 2004), and a visiting scholar at the American Enterprise Institute.

Thursday, August 20, 2009

The Swedish Model

The Swedish Model, by Richard W. Rahn
This article appeared in the Washington Times on August 18, 2009

Do you think America would be better off with a Swedish-type welfare state? This question tends to evoke strong reactions from both the left and right, yet few understand Sweden's economic history and the revisions it has been making to its welfare-state model in recent years. Sweden was a very poor country for most of the 19th century.

The poverty of those years caused many to emigrate from the country, mostly to the U.S. Upper Midwest. Beginning in the 1870s, Sweden created the conditions for developing a high-growth, free-market economy with a slowly growing government sector. As a result, Sweden for many years had the world's fastest-growing economy, ultimately producing the third-highest per capita income, almost equaling that in the United States by the late 1960s. Sweden became a rich country before becoming a welfare state.

Sweden began its movement toward a welfare state in the 1960s, when its government sector was about equal to that in the United States. However, by the late 1980s, government spending grew from 30 percent of gross domestic product to more than 60 percent of GDP.

Most full-time employees faced marginal tax rates of 65 percent to 75 percent, as contrasted with 40 percent in 1960. Labor-market regulations were introduced to make it very difficult to fire workers. Business profits were taxed heavily, and financial markets were regulated heavily. By 1993, the government budget deficit was 13 percent of GDP and total government debt was about 71 percent of GDP, which led to a rapid fall in the value of the currency and a rise in inflation.

These policies and outcomes greatly diminished the incentives to work, save and invest. Economic growth slowed to a crawl. Other countries that avoided the excess spending, taxing and regulation of Sweden grew more rapidly, leaving Sweden in the dust. Sweden is still a prosperous country, but far from the top, and its per capita income has fallen to just about 80 percent of that in the United States.

In the late 1980s and 1990s, Sweden began an economic course correction that continues today. Marginal tax rates were reduced for most of the population, and this trend is expected to continue.

The wealth tax and inheritance tax were abolished. Financial markets, telecommunications, electricity, road transport, taxis and other activities were deregulated. Privatization of industry was begun, and the current government is continuing the process. The generosity of some welfare and other benefits has been reduced, with the goal of making work more economically rewarding relative to government benefits. Also, trade liberalization has been expanded greatly. The result has been a pickup in economic growth, and Sweden is no longer falling further behind other developed countries.

One notable success has been pension reform. Sweden was the first nation to implement a mandatory government retirement system for all its citizens. Sweden, like the United States and most other countries, was faced with an increasing, unfunded social security liability as a result of low birthrates and people living much longer. After studying the problem in the early 1990s, the Swedes approved, in 1998, moving toward a Chilean private pension system, first developed by former Chilean Labor Minister Jose Pinera. (Seventeen countries have adopted variations of the Pinerian system, which has been very successful in Chile.)

The new Swedish pension system has four key features, including partial privatization, individual accounts, a safety net to protect the poor and a transition to protect retirees and older workers. The benefits have been substantial budgetary savings, higher retirement income and faster economic growth.

Those who wish to chase the Swedish model need first to decide which model they seek: The high-growth, pre-1960 model; the low-growth model of the 1970s and 1980s; or the reformist, welfare-state model of recent years. The irony is that the current Democratic Congress and administration are rapidly emulating the parts of the Swedish model that proved disastrous and rejecting those parts that are proving to be successful.

Most Swedes now understand that they still have a good distance to go to further strengthen the market economy to ensure continued growth. Thus, they continue to move toward reducing the size of government rather than increasing it.

If the Obama Democrats were wise enough to learn from the Swedes, they would be moving toward trade liberalization rather than away from it. They would be moving to at least partially privatize Social Security. They would not seek to prevent the abolition of the death tax. They would be reducing rather than increasing regulations. They would be reducing rather than trying to increase marginal tax rates on work, saving and investment. They would be reducing the corporate income tax as was done in Sweden.

Finally, the Obama Democrats would be reducing government spending rather than increasing it and not running deficits as large as those that almost sank the Swedish economy 16 years ago.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.