I wonder if Greece could use an alternative currency internally to boost the economy.
1930’s Germany was an economic basket case but printing money and using it for employment worked very well. Difference of Germany economically from 1933 – 1938 was profound. The policies of Hjalmar Schacht are well worth looking at.

Mefobills were a very innovative way of getting around treaties, when the bills from a shell, government-owned company were used as money
http://www.nakedcapitalism.com/2013/12/philip-pilkington-hjalmar-schacht-mefo-bills-restoration-german-economy-1933-1939.html

I wish economists would study economic history but they are not interested in learning how their policies don’t work. Unfortunately,they are also not interested in policies that might have some interesting lessons..

I know Ritchie hangs out with Colin Hines and his economics is quite a bit fascist. But I’ll admit that’s the first time I’ve seen Ritchie happy with overtly Nazi policies.

47 thoughts on “Most fun”

  1. It also looks like artificial avoidance of Greece ‘ s treaties to me. Doesn’t Murphy believe that we should obey the spirit of the law?

  2. Ve Nazis vos terrible people but, unt it iz a big but, ve had all ze sexiest uniforms!

    If Murphy does have fascist overtones, isn’t he more Mussolini? fat, pompous, preening, struting and ridiculous?

  3. “If Murphy does have fascist overtones, isn’t he more Mussolini? fat, pompous, preening, struting and ridiculous?”

    Where did the ‘if’ come from? If it wasn’t for the fact the ‘fascism is the most evil thing ever’ meme is hardwired into the left, Richie would be an enthusiastic supporter. Just about everything Richie writes has some level of a fascist worldview underlying.

  4. Just finished reading Adam Tooze’s The Deluge and Wages of Destruction, so for once I (somewhat) understand this Economics esoterica.

    And yeah, they were introduced using coercion, with of course the Nazi’s inimitable style and they can not be cherrypicked out of the obscene evil nastiness that made up the Nazi regime.

    They only thing he gets right is that they might have been innovative, in the same sense that Operation Barbarossa, Einsatzgruppen and the V1/V2 were innovative.

    I sometimes get bored by your pursuit of Ritchie, but it is a nasty job and somebody has to do it.

  5. So Much for Subtlety

    In fairness Hjalmar Schacht wasn’t much of a Nazi. He was a classical liberal who argued with Hitler over rearmament and so was forced out of government. He was tried for crimes against humanity and actually acquitted.

    The name is a bit of a give-away. Given his full name was Hjalmar Horace Greeley Schacht. And odd name for a Dane.

  6. Slightly OT, but what exactly is the free market libertarian solution to the Greece problem?

    Obviously the first thing to say is that like the man going to Cork, you wouldn’t start from here, but given we are here, and if the Worstall blog collective mind were given the reins of power in Greece, what would be the best way out of their predicament?

    Or have we reached a position where there are no good outcomes, or even not too bad outcomes, just shit ones and horrendously shit ones?

    Mine would be a) repudiate all the euro debts, and create new currency. b) Go to a low flat tax system of very simple nature, and hammer anyone caught trying to evade that. c) Abolish all regulations that prevent people doing business, and send home all the state employees that are no longer needed on 3/4 pay. Let them moonlight if they like. d) Legalise drugs and prostitution and tax them. e) As a last resort print money to prop up welfare spending to ensure that in the transition period people aren’t left starving in the streets.

  7. Jim

    I.am indeed going to start with “I wouldn’t start from here” because I wouldn’t. We free market liberals argued long and hard against the single currency. Now wanders like Murphy, Horrocks and Dickie are trying to rewrite history to present it all as a neoliberal project. Recent UK history tells us they are likely as not to have their lies believed.

    As regards what happens next: the German electorate has been lied to, the Greek debts have been mutualised, the Greeks will not be able to repay and the Germans and Austrians and Dutch and Finnish will pick up the tab. Of course Murphy and friends regard this as democracy. They will also refuse to acknowledge the German electorate in any discussion because that would expose their lies.
    But, if the Germans are going to pick up the tab – and they are – then they should get on with pushing the Greeks out of the Euro as an integral part of the solution. All the worries on Greetings begin with default. Once the ECB has accepted that default then the major risks have been dealt with.

  8. bloke (not) in spain

    I like Jim’s ideas.
    Problem’s as usual getting there from here. And standing in the way is the managerial/middle class/political/legal/finance cnuts, who got Greece in this state in the first place, who’ll be protecting their vested interests.
    It’d actually be easier to build a working economy in Cuba because it has a lot less of them.
    Maybe that’s a clue.
    Go Syriza! Go the whole way!

  9. Odd that this should come up, because I was wondering if Greece could have an internal currency in parallel with the Euro so that day least some more economic activity would happen.
    I was looking for flaws in the idea. Leaving aside the history, and the implicit cheating of the electorate, is it so impossible?

  10. @Ironman,

    I count myself as a raving free-market liberal and also general supporter of the single currency. Because it ties governments’ hands. The main problem as I see it, is not that a government might default (indeed Greece did just that not so long ago, so doing it again isn’t going to (a) be surprising or (b) cause widespread disaster). The problem is that in defaulting it can demolish an entire banking system. And without a payment system, with everyone else made illiquid by the government’s default while the mess is sorted out, you quickly end up back in the stone age,

    There’s a few ways out of that problem. A single European banking market might help, rather than “these are Greece’s banks”, “these are Germany’s banks” and so on. Since the USA hasn’t quite got there in over 100 years of currency union, I doubt we will soon either. So you’re left with the ECB having to act as lender of last resort, which it isn’t technically supposed to do. Which I find bizzare – surely that is one of the most important functions of a central bank.

    That, you could tie up with some regulation on Eurozone commercial bank holding of Eurozone government debt. That those banks as a whole may not hold assets of EZ securities of more than the Maastricht 60%, just to toss an idea out there. Anyone else wants to lend Greece money, above and beyond that can do so at their own risk. Maybe you can make the commercial bank holdings senior, to further discourage execssive indebtedness, but that would create some fun merry-go-round opportunities for spivs in investment banks.

    That Greece has to default and its creditors take the hit is obvious. That’s what you do with the insolvent. To enforce repayment of the current debts would be inhumane.

    Whether Greece leaves the euro at the same time (and do note, they didn’t last time we were here) is basically up to the ECB, which could decide tomorrow to stop shoring up Greece’s commercial banks. In other words, euro exit would be an unnecessary (and probably undesirable, though that is obviously arguable) side-effect of the government’s bankruptcy. The ECB is surely not the right place for the decision to be made.

  11. @JimW,

    I guess if Greece does Grexit you will have two parallel currencies in any case – New Drachma nominally at par, and euros will still circulate (and likely be vastly preferred to the New Drachma). Euro is in occasional to widespread use in non-EZ eastern Europe, Switzerland and so on, though not really as a “parallel” currency.

    The exit becomes inevitable if the ECB withdraws support for Greece’s commercial banks. Default and everything else does not make exit inevitable (we have cast iron proof from March 2012). If that were the case the government would have no choice but to create a new currency with which to recapitalise its banks – the alternative to that being the “stone age” scenario.

    Cheating of the electorate happens either way. But it’s the electorate whose money is on the table who voted for a government to spend beyond its means for years on end, and who benefitted from that spending. Which is why the widespread view in Germany is that the Greeks should eat the cake they ordered.

  12. It’s puzzling that everyone hates the IMF so. And equally puzzling why the IMF is involved in Greece.

    Whatever else it does the IMF helps with the process of national bankruptcy in three ways:
    Default (ok, call it restructuring if you like)
    Devaluation
    Labour and government reform.

    Default is officially off the table and quite obviously the moose on it.
    Devaluation is not possible within the euro.
    The bubbles have just elected a government committed to undoing reforms already carried out.

    IMF out out out!

  13. As I think I’ve remarked before

    Fexit would fix it. Better to have the solvent members of the euro leave from the top than the basket cases fall out of the bottom.

  14. Bloke in Germany said: “So you’re left with the ECB having to act as lender of last resort, which it isn’t technically supposed to do. Which I find bizzare – surely that is one of the most important functions of a central bank.”

    There is no requirement for the central bank to be a lender of last resort. It is a choice. Maybe you get higher average growth with a central bank as lender of last resort than if you had a more restrictive setup but it is still a choice.

    The lack of a lender of last resort in the Eurozone is a feature not a bug – not to promote more conservative and sustainable business and prevent governments forcing taxpayers further into debt because that was never going to happen – but because it was what was achievable at the time and was one more step towards ever closer union.

    Fudging things to save face while promoting ever closer union has worked so well for pro-EU politicians and bureaucrats, they aren’t going to change tactics in a hurry.

  15. It’s easy to be armchair-critical of making things up as you go along, but given we are in uncharted territory, there isn’t much of an alternative!

    Sure, the central bank doesn’t have to be lender of last resort, but we know what can happen when it isn’t – at least when it can only play that role to a very limited extent (1929 and all that). You want rules that don’t lead to the collapse of civilisation, or to failed states within the EU (or indeed anywhere), pace moral hazard and undesirables making out like bandits at the taxpayer’s expense.

    And lender of last resort really does mean sometimes propping up an insolvent (and not merely illiquid) bank, and yes, that does cost us money, via inflation, paying out explicit or implicit deposit guarantees and so on.

    Still, ensuring Greece doesn’t end up as a failed state and subsequently preventing it (or any other country) from being a serial offender are two separate issues. Euro exit by Greece certainly solves the latter problem, but might make the failed state scenario more likely.

    Can we start using this (and Japan) as examples of why massive deficit spending to “boost” the economy ultimately has the opposite effect?

  16. “1930’s Germany was an economic basket case but printing money and using it for employment worked very well.”

    No it didn’t. There might have been newsreels showing arms factories and Hitler driving down an autobahn, and yes, that created employment (duh) but it also created massive debt. Rationing of goods increased under the Nazis. The productive bits of the economy declined. Exports declined. If Germany hadn’t invaded its neighbours and started WW2, it would have probably have had a revolution, driven by communists.

  17. A comment from “Sal” on Ritchie’s post – I wonder if this is the same Richard Murphy:

    “Martin, Richard is one of the most welcoming and benign of all bloggers, particularly on the subject of finance and economics, where he tolerates the stumbling starters and strugglers, along with the opinionated know-it-alls, and he does it with good humour and civility. If you don’t believe me, just go through the archive. You will find a really positive, delightful place.”

    Satire’s not dead!

  18. Jim,

    1) Leave the EU (too much pointless, anti-business regulation). 2) Privatise every part of the state that isn’t a natural monopoly 3) Replace all taxes with land taxes 4) Legalise drugs and prostitution.

    They won’t do anything like that, not for a while, because more people support the state running things than the market (Pew research). Vietnam is at 95%, though, so there’s hope for the Greeks. They just need to go through a civil war, decades of disastrous, murderous communism and eventually, reform.

  19. As I understand it, the Germans are the ones who benefitted from the Euro, allowing them to export cars and other expensively manufactured products to basket case countries which could never have bought them had exchange rates been in place. And while the Germans were doing very well out of all this, they were sneering at the British for remaining outside the Euro and supposedly putting all our economy into “finance” instead of manufacturing like the clever Germans. So now the German electorate are going to feel the downside to this political project that was largely run for their benefit? Good. It’s about time.

  20. So Much for Subtlety

    Tim Newman – “As I understand it, the Germans are the ones who benefitted from the Euro, allowing them to export cars and other expensively manufactured products to basket case countries which could never have bought them had exchange rates been in place.”

    How does that benefit Germans? It benefits German companies. But otherwise that is all stuff Germans could have consumed being exported to other people who got to consume them instead. This is just the flip side of the “jobs are a cost” argument. It has been great for Audi. But not so good for Audi’s workers who have not seen their wages rise in decades.

    It has been good for the Greek people. As they have got to go on a shopping binge with Germany’s credit cards. That means all those Porsche 4×4 are on the streets of Athens. That is a big bonus for people who were shagging goats a generation ago.

  21. “Go to a low flat tax system of very simple nature,” – sadly, this is unlikely to be fair or effective. Tax has to be complicated because the world is so.

  22. BinG

    No sorry, I’m not accepting this “forgive all because it’s uncharted territory” any more than I will be quiet and accept “we are where we are”. We shouldn’t be where we are and some of us did indeed tell you so. There was no need for uncharted territory. The ECB doesn’t act as lender of last resort, at least not to nation states, because that was the only way the German electorate was ever going to sign up to it. It turns out that other Eurozone nations never intended to keep to their bargain with Germany.

    They’re not in this because of “uncharted territory”; we are here because this project is the deformed bastard child of the Dr Frankenteins in Brussels. The solution is to find the least bad way of killing it.

    You are one of the sharpest thinkers on this or any blog. A couple of months ago, however, I challenged you to offer real positive arguments in support of the Euro, in support of the EU; you couldn’t do it. If you can’t then nobody can.

  23. @johnny bonk: The Greeks aren’t in position to demand effective AND fair taxation. Given they’ve had an ineffective system for decades, they’ll have to get used to an effective one, even if its more unfair than what they’ve got. Maybe if the Greek State starts being more effective in getting in its taxes, the Greek electorate may be less inclined to vote for people offering to bribe them with other people’s money, as the only place the money for the bribes is coming from is their pockets.

  24. I do wish people would stop using “Germany” as a synonym for “the EU”.

    Kind of a clue as to why the Euro was a bad idea though.

  25. > That means all those Porsche 4×4 are on the streets of Athens. That is a big bonus for people who were shagging goats a generation ago.

    I’m now picturing people driving Porsches around Athens with goats in the passenger seats.

  26. But I’ll admit that’s the first time I’ve seen Ritchie happy with overtly Nazi policies.

    Well, you must be a lot less familar with Nazi policy than with Murphy’s politics then, Tim. I think you’d be hard pressed to find a Nazi policy — other than “Kill the Jews!” — that he’d have any significant objection to. Most of them he’d embrace.

  27. @Ironman,

    Concrete example.

    I’m honorary finance director of a nonprofit European professional association. We receive thousands of very small payments every year (e.g. membership subscriptions). Being able to bank in euro reduces banking costs by at least 15% of turnover, not to mention the timewasting arguments with subscribers over whether this month’s Peseta or Guilder rate is unfair.

    It saves us having to enrich speculators by means of currency derivatives when we host a conference in another country (even when we go outside the eurozone – with the notable exception of the UK – all suppliers prefer to be paid in euro than their local currency).

    As to why I’d have an EU, simply because it is, like all government, there to do things that have to be done (and like all governments, populated by politicians who want to do far more than that). I don’t adhere to the view that everything should be regulated locally. It can be mightily inconvenient to find yourself breaking the law by doing something that was legal two streets ago; but rather that different things belong at different levels. So we do need local authorities, national governments, maybe something in between, but there’s no axiomatic reason not to have some form of government over the national ones.

    The key problem is that we have the wrong competencies at the wrong levels, but that is true across all the layers of government. There is nothing unique about the EU in terms of the powers it does have but shouldn’t, or powers it doesn’t which would be better exercised at the EU level.

    All government is a necessary evil and needs to be actively stopped from mission creep at all times, but that doesn’t necessarily mean that abolishing one or other level thereof automatically makes us better off.

  28. > There is nothing unique about the EU in terms of the powers it does have but shouldn’t, or powers it doesn’t which would be better exercised at the EU level.

    Apart, of course, from that little question of where it gets those powers from. Agreed that a lack of democracy is not unique, but it is certainly aberrant when compared to the EU’s member states.

  29. Squander>

    I can’t imagine why you think Ritchie would object to ‘kill the Jews’. It’s clearly the starting-point from which his ‘economic’ ideas stem.

    I’ve been pointing out for a good while that Ritchie isn’t even a neo-Nazi, he’s just an old-fashioned Nazi trying to hide behind a very thin disguise.

  30. @SQ2,

    You vote for the European Parliament which has to approve all legislation. The shots are called by the Council of Ministers, all democratically-elected representatives of the national governments. And legislation is written by the Commission, all appointed by those democratically-elected national governments.

    Since the British house of lords is substantially less democratic than even the least democratic European legislative body (the Commission) may I assume you are petitioning for the abolition of the lords?

  31. In fairness to him he does not endorse the suggestion (unless permitting a comment is endorsing a view) and I am unfamiliar with the commentator putting it on the blog, so it’s a little unfair to imply in this instance that he is endorsing Nazi policies (although much of his output elsewhere has a totalitarian feel)

  32. bloke (not) in spain

    “It has been good for the Greek people. As they have got to go on a shopping binge with Germany’s credit cards. That means all those Porsche 4×4 are on the streets of Athens. That is a big bonus for people who were shagging goats a generation ago.”
    We’ve done this before SMfS.
    Costas & Androula (Maria’s sister) weren’t the Greeks who had the shopping binge or have the Porche. That’s been down to Greece’s middle/managerial/financial/political oh so well f****g university educated classes. But it’s Costas & Androula who’re being expected to enjoy most of the austerity, drags Greece out the mire. Unfortunately, thanks to the inconvenient democracy thing, they’ve just said whatever Greeks.say in this sort of situation. (I’ve heard the expression “mallaccas (sp?) used.) Forget it. Why should they worry? For that matter why should Klaus & Gitta worry? It’s Greek a*hole classes run up a debt with German a*hole classes. W#nk3rs the lot of them.

  33. SMFS

    Absolutely valid point as well – Schacht indeed caused major issues at Nuremberg – the failure of the prosecution to marshall what limited evidence there was against him led him to be recommended for acquittal. The first of three defendants who were not convicted. At the beginning of the trial of the major war criminals it was not thought that acquittal was even a possibility (those that the British and Americans thought might have been acquitted weren’t even selected as defendants) However, I don’t believe in fairness Murphy has either the historical knowledge, subtlety of argument or the ability to accept error to point out these nuances…..

  34. BIG,

    > You vote for the European Parliament which has to approve all legislation. The shots are called by the Council of Ministers, all democratically-elected representatives of the national governments. And legislation is written by the Commission, all appointed by those democratically-elected national governments.

    That’s a very roundabout way of saying that the “Parliament” has no say over the legislative agenda and that all the laws are written by a quango.

    There is also the point that the British electorate have never been allowed to vote for the ceding of sovereignty from Westminster to Brussels. If you were to create a new body in, say, China that got to write binding UK law and overruled Westminster, you couldn’t claim it was democratic just because the British electorate were allowed to vote for its members.

  35. @SQ2,

    Aside from the 1975 referendum, yes it has. The British public has voted at every subsequent election overwhelmingly for parties that were open about being willing to cede further competencies to Brussels and did so.

    Should the European Parliament be setting the agenda? Maybe. I don’t have a settled view myself. The current setup is however a sop to the nationalists rather than a stitch-up by the federasts.

    I’m afraid democracy is like that, like your China thing. Democracy is giving the people what they asked for, giving it to them good and hard. Democracy means tolerating the democratically-made decisions that you personally disagree with. Good job it has its limits, eh?

  36. BiG

    Utterly disingenuous – a worse argument than Murphy because of you being articulate and cogent. Because no party that was elected ran on a platform of withdrawal from Europe certainly does not mean the overwhelming bulk of the populace approved of the transfer of competencies from the national governments to the EU.

    A succession of scandals throughout the last two decades (Enlargment, the CAP, the CFP, Beef Ban, Destruction of the Abattoirs, Regional Funding. Large scale fraud, Accounts not being signed off for three decades, and so on) have drained confidence in Pan-European institutions and only restrictions on significant press exposure of them (the Sunday Times for example, tried to echo the Telegraph’s expose on MPs expenses by running a similar series on MEPs expenses – which was far, far more damning as less than 10% of the populace know who their MP is! -but it was spiked after one article), and severe curbs on the use of plebiscites (either through rerunning them after the ‘wrong vote’ has ensued or not allowing them to be run at all) have prevented major movements against Europe in at least half the countries currently in the organization…

    In no way can the EU be described as ‘democratic’ unless in the sense of the ‘Korean Peoples Democratic Republic’ or ‘German Democratic Republic’ – to describe it as such empties the term of any meaning.

  37. > The British public has voted at every subsequent election overwhelmingly for parties that were open about being willing to cede further competencies to Brussels and did so.

    Sorry, this is question-evading bollocks. First, what you’re describing there — as you well know — is all mainstream British political parties (though I’d argue about the degree of openness), so the electorate didn’t really have a choice. Note that, now they’ve been given a choice, we’re seeing one of the most impressive rises of a new political party in British history.

    Secondly, party politics and general elections are about multiple policies all jumbled up together and compromised. Sovereignty is a quite different order of thing. You may notice that a majority of Scots voting SNP was not enough to get Scotland independence — and quite right too, as the Referendum made clear there are plenty of Scots who vote SNP but want to stay in the Union. Puzzling, but that’s humanity for you.

    Ceding of powers is not a policy just like any other, as it concerns the framework in which those powers exist and may be wielded, so it necessarily requires a greater mandate to change. This is why we have constitutions.

    The power wielded by an MP is not the MP’s; it is their constituents’, and they are supposed to give it back to their constituents at the end of their term. The MP simply does not have the authority to give that power to anyone else, because it is not theirs to give.

    In an EU membership referendum, I might conceivably be persuaded to vote Yes. But that referendum is necessary; the UK’s EU membership has no democratic legitimacy without it.

  38. That’s democracy for you. If you don’t like it vote for a party that is promising withdrawal. That option is on the table in a few weeks time.

    The continued success of the pro-EU parties shows that there aren’t enough people that care about this enough to vote that way.

    Even when (some time ago now) you had the referendum party, people didn’t vote for it. The advantage there, they freely admitted they were a single issue party. They promised to have the referendum then resign and hand the reins back to the established parties, irrespective of the result of the referendum. And still no one voted for them.

    Don’t confuse lots of loud euroskeptics in the same place for a groundswell of widespread popular opinion (or the guts to vote that way on the day the referendum comes). As you brought Scotland up, you will note the loudest group with the biggest surge lost dramatically in the end.

    The UK doesn’t have a constitution. If it did, then like Germany, it could have a constitutional court that could (and does) rule European laws incompatible with the German constitution. And Europe can lump it because the alternative is kicking Germany out, which isn’t going to happen. Britain is in fact also that big but seems to throw away its clout in Europe every time it gets any.

  39. @Van Patten,

    Can you give me a link to the last time the British government had its accounts “signed off” please?

  40. To return to Greece, I don’t see how all of her voters can be blamed for the actions of the governments elected. This is particularly true of the Euro situation as policing of Eurozone governments was to be done at the European level.

    We might as well blame all Eurozone voters for not voting in governments that would take the Euro project seriously and abide by the laws enacted.

    Whether they liked goats or not.

  41. bloke (not) in spain

    Would it be worth pointing out, BiG, the UK electorate voted for a party undertook to hold a referendum on Europe, last time round. A referendum on the Lisbon Treaty, wasn’t it? And that party won the election.
    They’ve been there.
    Done that.
    No T-shirt, though.

  42. So Much for Subtlety

    Squander Two – “I’m now picturing people driving Porsches around Athens with goats in the passenger seats.”

    Wearing fishnet stockings or squirrel suits?

    bloke (not) in spain – “Costas & Androula (Maria’s sister) weren’t the Greeks who had the shopping binge or have the Porche. That’s been down to Greece’s middle/managerial/financial/political oh so well f****g university educated classes.”

    They might not have been buying 4x4s, but they did go on a shopping binge. Not all of this money was stolen by the ruling classes. They got free education, they got health care, they got all sorts of things.

    “But it’s Costas & Androula who’re being expected to enjoy most of the austerity, drags Greece out the mire. ”

    Indeed. That is the problem with electing kleptocrats.

  43. BiG

    I wasn’t aware it was a requirement for the UK to have its accounts signed off – it is part of the written constitution that you refer to for the EU in your previous post? Is that your argument – the UK budget is out of control so it’s alright for the unelected EU to also be out of control?

    You make the valid point that most people don’t think it a big enough issue to put it top of their list of concerns, and the only people that feel affected about it enough to vote for it are usual people (former fishermen or slaughterhouse workers and small farmers, for example) who have been unfortunate enough to encounter it first hand. However, the analogy with the communist states still told. You might have argued that the USSR and COMECON were ‘accepted’ because people were too oppressed and too desperately trying to survive to revolt. Doesn’t make it in any sense evidence of democratic consent…..

Leave a Reply

Your email address will not be published. Required fields are marked *