World – Page 11 – thinking liberal

The private war of the jihadi terrorists

Last week’s bombing of the Boston marathon received blanket coverage here in the UK. In a world where there is still plenty of death and destruction, it seemed to be particularly shocking. But the strangest aspect of the episode to me was that nobody claimed responsibility. We were left to speculate as to whether it was Islamic jihadis, right wing extremists or some tortured loner. What’s the point if nobody knows why you did it? It turns out that it was the jihadis: but this still leaves us with the question of what their cause is all about.

Describing the jihadist enterprise as a war, as in “war on terror”, is controversial on the part of the western states that seem to be the main targets. Be that as it may, the jihadists themselves see it as a war. “I am a soldier,” said one of the London terrorists of July 2005 in the video released to publicise his suicide attack. But it is a strange sort of war.

Following the 19th Century philosopher of war Carl von Clausewitz very loosely, we can see war in terms of three elements: purpose (the political, rational element), strategy (the way the two sides try to outwit each other, which resolves to a game of chance), and will (the primordial hatred and drive to violence). The will is evident, and there is quite a bit of strategy too, as the jihadis spend quite a bit of time plotting their acts, while the authorities try to catch them. The problem comes with the political purpose. What is all this designed to achieve?

It did seem a bit clearer in September 2001. The scale of the attacks on New York and Washington was breathtaking, and there seemed to be a strategic driving force, based in Afghanistan. The Western media focused on the personality of Osama Bin-Laden, though what his personal role was in all of this I find it difficult to say; he was a convenient focus for the attacked nations. But if not him, there were other strategists and leaders in a global enterprise. We could make out some kind of purpose. There was something about establishing a global caliphate, and pushing the Western countries towards enlightenment and the Islamic path. The terrorist attacks would so disrupt western civilisation, whose foundations they believed to be very weak, that its economy would collapse and they would then be forced to consider their ways. With talk of escalating the violence towards nuclear and biological weapons and “dirty bombs”, you could just about see this as being rational, if deluded.

But those delusions became pretty obvious pretty quickly, and the jihadist campaign resolved to a few nasty pinpricks that could do little to undermine the fabric of western society itself. The Al-Qaeda leadership, so far as it exists, is focusing on maore local issues, in Iraq and Afghanistan, and expanding elsewhere in the Middle east and Africa. It is an armed part of a puritanical, fundamentalist Islamic political movement, operating in countries that are predominantly Muslim. They have no real interest in pursuing terrorist campaigns in the West, which might even harm their cause by getting Western securities services involved. Western countries don’t want to get themselves bogged down in messy wars in countries they don’t understand. The foreign jihadists might see some use in recruiting sympathetic residents of Western countries to act as foot soldiers in their wars, but that is probably the limit.

But terrorism in the West lives on. Not only are there the occasional successful attacks, like that in Boston, but many more plots that come to light before they are executed – such as a Canadian plot in the news today. But these are local affairs carried out by citizens or residents of the countries concerned, with little outside involvement. The plot of the US TV series Homeland is a fantasy. Does that mean that the US military effort against the terrorists, drone strikes and all, is purely a geopolitical game? Or is it successfully suppressing outside terrorism? It is impossible for us ordinary members of the public to know.

What we have is a very private war, carried out by isolated and frustrated members of minority communities, who feel excluded and alienated. Terrorism is some kind of release, but serves no wider goal. As one character in the BBC TV series The Village set in the First World War says in another context (I paraphrase from memory): “He thinks that by going to war and getting killed he will impress her; he forgets that the problem with being killed is that you are dead.” This was quite striking with the 7/7 bombings in London. It was perpetrated by a well-organised cell (compare their attacks with the ham-fisted ones that took place a week later), but it was a one shot weapon. Any military virtues died with them. The silence that followed the Boston bombings has something of the same disconnection with any wider objectives.

So what to we do to protect ourselves? The police and intelligence effort has to go on, even if we suspect those that lead it are playing the threat up, and hiding behind national security. But we also need to carry on the slow, awkward process of outreach and integration of minority communities: multiculturalism. We need at least to try to drain the hatred that drives these very private wars.

David Graeber’s Debt the First 5,000 years – the emperor has no clothes

One of the books I received for Christmas was David Graeber’s Debt, the First 5,000 Years. Mr Graeber is an American anthropologist, now working at Goldsmiths in London, who has been active in the anti-capitalist Occupy movement, and describes himself as an anarchist. The book promises to give some intellectual heft to the anti-capitalist case, by examining the origins and history of debt and money, and how we need to rethink it. So far so good. But after the book promised so much at the beginning, I can hardly contain my disappointment with its limp ending.

The book starts well enough. He immediately focuses on modern economics’s weakest point: the theory of debt and money. He may labour the nonsense of the economist’s creation myth of a barter a economy a bit too much: economists aren’t really interested in history after all. But economists’ confusion over the role and meaning of money is evident; personally I wouldn’t use the barter myth to illustrate this, but the way economists still talk about printing preses and helicopter drops when trying to explain monetary policy. Mr Graeber runs his hand across the soft underbelly of economics, but then, instead going in for the kill, he throws away the knife. He rejects the whole, quantitative, mathematical language of economics. He thinks that the discipline’s attempt to preserve moral neutrality is in fact condoning immorality and violence. Like it or not, numbers and mathematics are central to our society’s workings, and rejecting these tools out of hand leaves Mr Graeber’s arguments with very little purchase.

The full, awful implications of this are not immediately clear, however. Mr Graeber puts the question of money and debt into an anthropological context, and this is a good read. I found his categorisation of human interactions into three types very illuminating. These types are exchange, what he calls “communism” and hierarchical. The exchange relationship is the typical arms length commercial one: one item is exchanged for another, typically money, and there are no further implications for the relationship between the parties; it ends with the transaction. A communistic (or perhaps communal would be a less provocative word) transaction is typical of close communities: transactions aren’t exchanges, those who are able give to those who are in need, all a part of a wider, long term relationship. Relationship is also key to hierarchical transactions, but it is one of authority. A lower individual pays tribute to a higher one, while the higher one may cast beneficence to those beneath. Mr Graeber is careful to say that none of these is inherently superior to the others, and any society needs to use all three. But he complains that the modern world puts exchange relationships on a pedestal at the cost of communistic ones, costing the quality of human relationships.

All this leads into a broad historical narrative – the 5,000 years – of the Eurasian continent. Originally money develops as a credit relationship, and is not seen as a thing in itself: its accounting function is the critical element, and it is woven into the fabric of society, based on trust. But then the idea of precious metals, gold and silver in particular, becoming money in its own right rapidly took hold across the entire continent. The effect, in his telling, was malign. Money existed independently of states and relationships. Soldiers could loot money from one place as they destroyed it and spend the proceeds elsewhere. It facilitated both the running of armies and trading of slaves. Sinister, cynical empires came to dominate the world in Europe, India and China in the centuries before and after Christ.

These empires then broke down (or changed nature in China) as precious metal (bullion) money was drained from the system. In Mr Graeber’s telling this has much to do with the new world religions (Christianity, Islam and Buddhism) in what he calls the Middle Ages. His account is admirably even handed in its geography, rather than the customary focus on Europe. In this age Europe is a barbaric offshoot from the civilised worlds of the Middle East and China. Credit becomes central to commerce, which operates independently of the state, and is based on trust. This is something of a golden age to Mr Graeber, though not the European end.

This unravels in the Renaissance, with the Europeans leading the way. Gold and silver is looted in America and then traded with the Chinese. An age of violence and destruction is born, as trust is no longer required in trade and commerce. Then, in the 17th and 18th centuries the malign instruments of modern finance, bonds and shares, are invented in order to fuel society’s appetite for war. Meanwhile, the slave trade takes off, destroying African society amongst other victims. An age often portrayed by western historians as one of progress, Mr Graeber portrays as one of a descent into destruction. This is deliberately provocative, but he has a point: this is an age of war, colonialism and slavery.

And it is here, as the industrial revolution begins, that Mr Graeber’s account runs out of steam. All the building blocks for capitalist society are in place, and its evil roots clear; he almost says “and the rest is history”. He swiftly moves on to his final chapter, where a new era begins with the collapse of the Bretton Woods system, and with the inevitable collapse of capitalism in its wake. I was expecting to read an account of the era of economic growth, but there’s practically nothing there. And the awful truth dawns. Up to this point I had been giving Mr Graeber the benefit of the doubt, for all his provocations. But the emperor has no clothes. When it comes to describing the modern world he is utterly out of his depth and as a result anything of consequence he has to say (and there are some) seems a matter of random chance. An example is his idea that the purchase of US Treasury securities, which will always be rolled over rather than repaid, is in fact paying tribute to the primary military power. the USA. He spots a problem with this account: the Chinese are amongst the largest buyers, and they are power rivals. He then has to concoct a story that this is part of a long term Chinese game. This is really very silly. The Chinese are buying US Treasury stock because they are running a big trade surplus and there is nowhere else for its surplus dollars to go; the power transfer implied is minimal; but the trade surplus is an important element of the Chinese development strategy, which involves building up production in advance of consumption, and in the great scheme of things the dollar surplus isn’t that important to them; it’s only money – if they lost the lot in a crash tomorrow, how much does it really matter? The Chinese seem to have grasped Mr Graeber’s message about money rather better than he has himself. Mr Graeber’s lack of economic literacy has him floundering to comprehend what is happening around him.

His thesis is that modern capitalism is a typical bullion economy based on power and violence, and the absence of trust, with exchange and hierarchical transactions driving all else out. Most people in developed economies are little better than slaves, tied to their employers and struggling to pay off debt. Debt is used to enslave people. But this system is fundamentally unstable and is in the process of collapsing.

But after the emperor-has-no-clothes moment there is no aspect of Mr Graeber’s thesis that doesn’t look questionable. Is is really true to say that capitalist transactions are based on the ultimate sanction of force, and not on trust? Is it not trust that distinguishes advanced capitalism in say, Denmark, from the less developed versions in Russia and China?

And he misses the whole issue of growth. This process, driven mainly by increased productivity, has improved the lives of countless millions – and is genuinely popular with most people in both the developed and developing world. It is by no means evident that today’s workers can be compared to Roman and African slaves. And debt has played a critcal role in lubricating this growth process, by allowing investment: payment now for a later gain. The whole culture of investment is omitted from Mr Graeber’s analysis: debt for him has but one purpose: to enslave the debtor by forcing him to make a promise he cannot keep.

Mr Graeber’s failure is underlined by the absence of any practical ideas about how the world should change to make it better. His only idea is a Jubilee: a systematic forgiveness of debt. But he hasn’t thought about the social chaos that would result as all savings were wiped out. The modern way of doing a Jubilee is called hyperinflation. It is hardly evident that the phenomenon that created Nazism is necessarily helpful to the development of society and the empowerment of the poor.

Is there anything to be retrieved from Mr Graeber’s spectacular collapse when confronted with the modern economy? He happens to be right about an awful lot of things. Money is best regarded as an abstract concept, a social invention without underlying reality. Debt also is a social convention that can outlive its usefulness, and should not be treated as sacred promise. The exchange method should not be idealised as model for all life, as Chicago School economists do. And economic growth in the developed world does seem to have hit natural limits, whose consequences we still don’t understand. Capitalism may indeed collapse if it continues in its current form.

But the answer is not to condemn capitalism as the work of Satan, and hope for something better to turn up. Mr Graeber’s work is pure antithesis. Progress is made by synthesis: by taking capitalism and making it better. And you can’t do that by rejecting the discipline of economics, for all its manifest faults.

Abenomics: why it doesn’t look good for Japan’s economic experiment

A few years ago, as the Greek crisis unfolded, an Economist blogger suggested that its austerity programme would be an interesting experiment. Did the then fashionable idea of austerity growth have any validity? The answer to that experiment seems to be a clear no, though now doubt there are get out clauses. Now a very different economic experiment is taking place in Japan, after the election of Shinzo Abe and the Liberal Democrat Party last December. It is popularly referred to as “Abenomics”.

Abenomics, described by the Economist here, has three elements: increased infrastructure expenditure, looser monetary policy (through focus on a higher inflation target), and “supply-side” structural reform. This coordinated nature of the policy is one of its most important aspects. Here in Europe we are used to fiscal policy pulling one way, while monetary policy and structural reform pulls in the other. All this has “Keynesian” economists like Paul Krugman in raptures (I used the inverted commas because no self-respecting economist accepts that label, it’s just common sense after all, though their political supporters love it). Japan has been stuck in the economic doldrums for two decades, and these economists feel that at long last the country might be digging its way out. Better still, success in Japan will show that these policies can be applied in other developed economies. But this analysis is deeply flawed – a case of macroeconomic blindness, a sort of failure to see the trees for the wood.

Look again at Japan. Its unemployment rate is currently a shade over 4%, having fallen from a peak of 5.5% in 2009. Compare that to the UK’s rate, which has hovered around the 8% mark since 2009, compared to about 5% before the crisis. This does not suggest a huge amount of slack in Japan, even allowing for distortions in the way it measures its unemployment. Growth will have to come about either through productivity growth or new people entering the workforce (e.g. through immigration). There is plenty of scope for both. Japan may have some of the world’s most efficient companies, but these dominate its export economy only; there is a lot of inefficiency in domestic markets. Japan has long eschewed immigration as placing an unacceptable strain on its social infrastructure. All this depends on the third prong of Abenomics, structural reform. And yet the government already seems to be going slow on this, afraid that the public will disapprove, with bad consequences for upper house elections due later this year.

In fact what Abenomics really seems to be about is to make government debt more affordable through setting off inflation (specifically of incomes, and hence tax revenues). Japan’s inflation has been very low, and negative for much of the stagnant period. Even this may not work – economists understand little about how inflation actually comes about, assuming that it is some kind of endogenous variable in that depends on such things as aggregate demand and money supply. Instead the policy may simply lead to state bankruptcy – though that is no doubt a long way off.

What are the implications for the rest of us? The justification for “Keynesian” policies in most developed economies, including th UK, remains intact because our high unemployment shows that there is quite a bit of slack, though we don’t actually know how much (the 1970s stagflation crisis arose because economists too readily assumed that unemployment meant economic slack). But they are not the answer to raising long term growth rates. And Japan’s agonies with inflation and government debt may well foreshadow future dilemmas our own governments will face.

What arrogant economic commentators, like Professor Krugman, need to accept is that economies are the sum of freely made choices of individual citizens, excercised through both markets and the ballot box, as they try to shape the world they live in. They are not the creation of governments and policy makers playing with their economic toolkits to win prize for the biggest ~~d**k~~ growth rate. Japan’s stagnation is the result of choices that Japanese people are making about the sort of place they want to live in, one which consideres wider factors than monetary income. Get over it.

That speech: just a ripple on the surface of British politics?

Last week I commented on David Cameron’s speech on Britain and the EU, where he promised an in-out referendum, following a “renegotiation” if the Conservatives win the next General Election in 2015. For some days after I though this was a decisive moment in British politics, in which Mr Cameron seized the initiative, and the Labour leader, Ed Miliband, lost his chance to win the next election. A week on, the dust has settled and the news is dominated by other stories. Was is such a decisive moment, or a mere ripple, a failing prime minister making a promise he can’t deliver?

The weekend polls show no decisive shift, with the coalition parties trending up a tad, but Labour still comfortably ahead, following a trend already evident before the speech. One poll seemed to show a big advance by the Conservatives at the expense of UKIP – but on further examination it looks as if this has more to do with polling methodology than people changing their voting preferences. Mr Miliband’s calculation appears to be that the main issue for British politics is the economy, and so the best thing to do is to change the subject back to this issue. His line that the speech hurts the economy because it creates uncertainty, that old argument against any form of decisive leadership, seems to be carrying weight with the British public, according to a further poll published by The Independent – though this also showed Tory support rising. And in the ephemeral world of British political commentary that should be enough to say that this is just a small tactical victory for Mr Cameron, making his party less vulnerable to UKIP, and not much more. But I think two big things have changed, and a big problem has opened up.

Firstly, Mr Miliband has made a serious strategic error, even if its significance will not show up much before 2015. His strategy should be to focus the political debate onto a small number of subjects and overwhelm the opposition there. This is a strategy I have called “the same, only different” following a 20th Century advertising campaign for a product I have long forgotten. It was used by Tony Blair’s New Labour to devastating effect in 1997. Basically you shadow your opponent’s policies in almost every detail except for a small number carefully chosen issues, plus a big investment in mood music to make your party appear more caring and more competent. I remember the exasperation of Tories; whenever they came up with a new policy to try and get an edge on Labour, Labour promptly adopted it as their own. It prevented the other side from changing the agenda. This seems to have been what Mr Miliband is trying to do, albeit without actually committing to any policies just yet (again following Mr Blair’s example). He is not creating sharp policy differences with the government, and making the main focus of his attack the economy. He is trying to create the right mood music by painting the government as by turns gratuitously nasty, and shambolic and incompetant. This strategy was slowly paying off.

But Mr Cameron has hit Labour below the waterline. He has created a clear area of policy difference, where he is probably more in tune with the British public than Mr Miliband, and one in which he can guarantee coverage from Britain’s still-important press. But also the issue makes Mr Miliband look weak, indecisive and un-prime ministerial. That could be fatal. What Mr Miliband actually should have done was welcomed Mr Cameron’s speech and adopted his policies as his own. That would have taken the wind totally out of the Tory sails.

The second way that Mr Cameron’s move may be decisive is that it may have turned the advancing tide of British Euroscepticism, while at the same time unifying his bitterly Eurosceptic party. I have read Mr Cameron’s speech, and the most striking thing about it is how Europhile it is. He has well understood the arguments for Britain staying in, and put them forward. Britons are a suspicious, conservative bunch as the 2011 AV referendum showed. Leaving the EU would be a big step into the unknown, and the more people think about it, the more nervous they are likely to become. And yet the sceptics are happy because they have their precious in-out referendum.

Mr Cameron’s speech was a genuine act of decisive political leadership. There are risks, but there always are. There is also a risk that the EU needs to take forward a treaty change that we are forced to put to a referendum that is then lost. This risk has now been sidestepped, because we now have the opportunity to package it up with more popular changes and put it too an in-out referendum.

But there is a big problem with Mr Cameron’s speech, which I did not pick up last week. Aside from its tactical genius, it is intellectually vacuous. Its economics is based on a fatuous understanding of international competition and the fear of Europe falling behind the developing economies. Its analysis of how the EU needs to be changed is hot air with no concrete proposals. A single market without harmonised rules may sound good, but what does it mean in practice? I really don’t understand how this wishful vision breaks down into nitty-gritty negotiating points. Mr Cameron badly need somebody with intellectual heft to lead the negotiation – the job the Lord Cockfield did for Mrs Thatcher in developing the original European Single Market in 1992. The risk is that he will make no headway in the negotiations, and waste an opportunity to improve both Britain’s role with the EU, and the stability of the EU itself. That’s the big problem the speech opens up.

Cameron may yet win his gamble on the EU

This morning the British Prime Minister David Cameron gave his long awaited speech on the European Union. I didn’t listen to it, or read it, so you won’t get any light on the nuances of his argument here. I’m interested in the political dynamics, which, as usual, do not depend on exactly what he said. From the BBC report his speech was fairly much as the last two weeks’ briefing had suggested. We wants to “renegotiate” Britain’s terms of membership, and then offer the British public an in/out referendum, after the next General Election, by the end of 2017. Mr Cameron’s political reputation is mixed. He showed brilliant footwork when he first took over leadership of the Conservative Party, but rather fluffed the 2010 General Election with his incomprehensible idea of the “the Big Society”. He restored his reputation with the assured manner in which he put together the Coalition government with the Liberal Democrats. After that he seemed lack vision and grasp. Will today’s move restore his reputation? It might.

A couple of weeks ago I thought he was onto a hiding to nothing, and in the process of leading his party to defeat at the next election, set for 2015. Various shades of Euroscepticism seem to define the rank and file of the Conservative Party, right up to Parliamentary level. It seems impossible to satisfy them. On the other hand assorted Europhiles (in deed rather than word in most cases) amongst the deeply conservative British establishment don’t want to rock the boat. He risks isolation and an almighty mess. His own view seems to be that the UK is better off inside the EU, but it would be really nice if its institutions were less intrusive.

But Mr Cameron has two things going for him. First is that his personal view on the matter probably represents what most of the British public thinks: a very grumpy “well yes I suppose so” to the EU. From this he should be able to build a bond of trust, unlike other participants in the debate, whose firm views one way or the other are not shared by the public. And second, Mr Cameron is a vital swing voter in the debate. It is highly unlikely that either side can win a referendum without his support. The smart thing for the various players here and abroad is to build bridges with him, rather than try to isolate and vilify him. This could put him into the driving seat.

Things are now starting to get very interesting. In spite of the very long time they have been given to develop a party line, the Labour opposition is completely at sea. They are trying to paint a picture of a PM beholden to his backbenchers, and who, by creating uncertainty, is making things worse for the national interest. This is desperately unconvincing. The British public probably rather agree with what their PM is saying, while Labour are merely offering obfuscation and procrastination. Uncertainty over Britain’s future in the EU is already a fact of life.

Meanwhile, those who are in favour of the UK staying in the EU are at long last starting to stir. Their silence to date has been one of the main frustrations of the public discussion so far. The Eurosceptics have had the field pretty much to themselves, unchallenged. What these EU supporters – from outside and inside the country – have to say is pretty ugly, it has to be said. They aren’t trying to sell the EU as a positive vision. They are stoking fears about what life would be like outside. Real Europhiles, like me, really dislike this negative stuff, a lot of which is intellectually unconvincing. But elections are won on the ugly stuff – just look at the 2011 referendum on a fairly minor tweak to Britian’s electoral system, which was portrayed as the end to life as we know it. The Eurosceptic arguments are being given much greater scrutiny, and many will wilt.

The big problem for Mr Cameron is how the “renegotiation” will work out. I use quotation marks because ever since Harold Wilson used it in the 1970s (in my formative political years) I have felt it to be an sham concept, used by armchair commentators. Either you enter into an honest negotiation about matters that need fixing, or you are going back on your promises; you should be honest about which it is. The difficulty is that our existing treaty terms are a carefully balanced whole, and if you change one bit it unbalances others. The favourite Eurosceptic idea of opting out of the social standards bits we don’t like, and then use this to give British businesses a competitive edge over their foreign rivals, has a rather obvious flaw as a negotiating stance. What’s in it for them? The country’s European partners would mainly rather have us in than out, and we do have a trade deficit with them, but this does not add up to a strong negotiating position. Mr Cameron might simply do what Mr Wilson did: get a few token concessions and try to big them up. That would be risky for Mr Cameron’s reputation, though he might still win.

But Mr Cameron has set quite a long time frame for his negotiation. In that time it is quite likely that the EU will want to alter its treaties to make the Eurozone more stable. Under Britain’s “referendum lock” legislation this could trigger the need for approval by referendum in the UK anyway. If Mr Cameron can tie these treaty changes into his “renegotiation”, and then use his in/out referendum to endorse it as a package, then he does have something to negotiate with – and can paint himself as doing the EU a favour. The transfer of powers between EU institutions and the UK might actually be two-way traffic. If he pulls that stunt off, his political legacy will be secure, in my book anyway.

Hopeless in Gaza

The Gaza Strip isn’t a big place. You can walk across it in an hour or so. I know because I’ve done it. That was in 1979.

I had just graduated, and a group of us from Cambridge were volunteers at Kibbutz Be’eri on the edge of the strip. The kibbutzim largely ignored their neighbour, but we were curious, and talked about visiting it. One of the local Israelis suggested that we’d have our throats cut, but mainly I think the reaction was “What do you want to do that for?”. We dithered. Then one morning two of the girls in our group had enough and went on by themselves to the checkpoint nearby to walk into Gaza City. Half a dozen of us others decided that that was where they had gone, and that we had better follow them. And we went to the checkpoint, and walked all the way up to the beach, finding the two girls as we did so.

We were made to feel welcome, including the Jewish lad amongst us who did not conceal his Star of David pendant. I don’t remember much about what the Palestinian locals said, but we did meet at least one radical PLO type. I remember most clearly a lad on the beach asking me to “Tell them at home how it is here.”

How was it? It was a forgotten corner where stateless people lived, largely in poverty, and without much hope. But they were human beings like us. A lot has changed since, but not those essential characteristics.

I didn’t really fulfil that young man’s wish, certainly not in public. I have avoided saying much at all about the Arab-Israeli affairs. Opinions are so polarised that few would care to hear what I was actually saying, just try to decide whose side I was on.

Whose side are you on? That’s where the Israeli narrative starts. The world is divided between an “us”, the Western societies of Europe and America of which Israel is a part, and a “them”, assorted Arabs, Iranians and other Islamic nations, who wish “us” ill, and with whom we share little in terms values, culture and outlook. I’m sure that’s how most Israelis see the world, excepting those for whom “us” can only be Jews. It’s a view that seems to be accepted in America too. In Europe we struggle with it, having learnt, the hard way, that model of the world really won’t do.

And after that we get into a tangled web of claims and arguments. The Israelis ask, quite understandably, “What would you do if a neighbour kept firing rockets at you?” We have very little conception as to how we answer that question. It’s of quite a different order to the various terrorist threats we have faced in our own countries. Kibbutz Be’eri lives on, but under constant threat. In 1979 security was very discreet, and the sense of threat only in the far background. These Israelis did not gratuitously flaunt their weapons, as so may Israeli and Arab men do, then and now.

The rockets aren’t pocket terrorist weapons, they require a degree of state organisation to support, especially the bigger ones. Israelis must feel that Gaza civilians are to some extent complicit in allowing this to happen.

And the Palestinians point to a long history of injustice, which passes completely unrecognised in Israeli political life. They feel that all means of progressing their cause other than violence have been blocked. The Israels just want them to keep quiet so that they and the rest of the world can forget they are there. Again we can have no idea about the depth of frustration they are feeling – just as we cannot understand how random violence against the innocent is any way to progress your cause.

Both sides are in a bind. Hamas is spoiling for a fight, and they seem to be daring the Israelis to invade, so that they can bog them down in a horrible war. The Israelis know that a military solution requires just such an invasion. Both sides may draw back, but no ceasefire will tackle the fundamental issues that divide them.

Both sides seem addicted to the use of violence as the way to solve their problems – which only reinforces that conviction in the other side. Any individual leader, on either side, that tries to break free from that logic risks being undermined by those that disagree. I am a political optimist generally. But not here.

The US election -why does the world hate the Republicans?

I do not advise citizens of other countries how to vote. It’s very bad manners. But there’s something very striking about viewing today’s US elections from outside that country: how few foreigners support the Republicans.

This is unsurprising amongst my own contacts and Facebook friends – they are largely Liberal Democrats, with the odd Labour supporter. In the US these would be well within the Democrat family, with an outlok that largely fits the American understanding of the term “liberal”, a dirty word to Republicans. But a number of opinion polls show that support for the Democrats is widespread right across the world. In this instance Britain is very much at one with the rest of Europe, rather than part of some Anglo-Saxon block that some Britons suppose exists.

It is not immediately obvious why this should be so. It is true that Republicans are generally more socially conservative that those outisde America, or those that are politically aware, anyway…but that really is the Americans’ own private business. Mitt Romney is a perfectly intelligent and plausible presidential candidate, when looked at objectively, with much much more experience in getting things done than has Barack Obama, in the public sphere as well as in business. Furthermore, the Republicans believe in strong U.S. armed forces, something that the rest of the world has been free-riding off for a long time, though we might not like to admit it.

So what’s the problem? Perhaps it is economics. The Republican attitude to the US financial state defies mathematics – to think that its massive fiscal deficit and national debt can be tackled without rasing taxes. But I’m not sure how much people in other countries understand this debate. Something deeper does lie behind it though: the belief that the state should provide a minimal social safety net if anything. The idea of a welfare state is pretty much consensus in Europe, so this is a clash. Republican Americans are convinced that Europe is a basket case as a result – though things look different to us. To the extent that we think about the US, we would worry about the breakdown of social cohesion as a proportion of the population gets stuck in an underclass. But I don’t know how troubled Europeans are about this really. And non-Europeans may well be more sympathetic to the Republican view on this.

I think there is soemthing bigger going on. We associate the Republicans with a particular world view that combines a sense that the US has a wider mission in the world with an almost wilful ignorance of what is actually going on. Many Americans feel that it has carte blanche to interfere in other countries’ affairs to protect their interests and advance their view of civilisation. But that does not seem to imply making any attempt to understand the complexities of what is happening in the rest of the world: simply dividing the world into good guys and bad guys. Everybody will have some example of how this paradox has led to injustice and suffering. It might be George Bush’s “War on Terror”, or the Iraq war and, especially, its aftermath. Or else it is an unquestioning support for Israeli government policies, on little more than the idea that they are “people like us”…a situation that is drawing the world ever closer to a war with Iran.

Democrats get credit for trying a bit harder to understand to understand and respect the rest of the world. Bill Clinton and Mr Obama stand in clear contrast to George Bush Junior. Mr Romney’s campaign has not reassured non-Americans that he is any better than Mr Bush – though I personally believe he is head and shoulders above him.

There is an asymmetry about all this. America appears on our TV screesn and cinemas every day. American news is world news. A lot of people outside America feel that they know about America, even if they actually know a lot less than they think. But it is not true the other way around. Few Americans seem to care about the world outside their country, except to the extent that it is a nest of vipers posing a threat to their wellbeing. Fewer still will care what the rest of the world thinks about their election.

And yes, I too hope that Mr Obama will win, though I’m not as scared as many are of Mr Romney. I also hope that the Democrats will hang on to the Senate, and do well in the House of Representatives. Except that a small part of me wants the Republicans to win all three elections, and so have nowhere to hide from the impossibility of their policies, so that a t last America can start to move on.

The Greek elections – what actually happened?

The media coverage of yesterday’s critical Greek election has been truly appalling. The BBC and newspaper websites simply tell us that New Democracy has “won” and that Greece is now on course to form a government that is more accommodating to the EU. But New Democracy won last time, and this time Syriza did well. So why have things changed? Some of the websites give you the projected numbers of seats that each party has won. But they don’t well you how they compared with last time – i.e. how many seats each party gained or lost. The Economist, usually much better at telling you the relevant facts, is as yet saying very little. To find out what actually happened you have to go to Wikipedia.

So what did happen? New Democracy won an extra 21 seats. PASOK, the other establishment party, lost 8 – so there was a net gain of 13 for the establishment. Syriza gained 19 seats – but at the expense of a whole range of other anti-establishment parties. Last time the two establishment parties fell just two seats short of a majority in parliament – and as no other party would give them any leeway, no government could be formed. Now, between them, they have 162 seats in the 300 seat parliament – a majority. What’s more the one “centrist” party – the Democratic Left, which lost 2 seats – was too frightened of Syriza to join a coalition last time, but seems happy to talk this time. It has 17 seats, which would make up a comfortable majority, but even more importantly it would help give the government legitimacy – since the establishment majority only comes courtesy of the 50 seat bonus the Greek system gives to the leading party. The three parties together would have a majority without this bonus, though not if the bonus had gone to Syriza.

Hope that helps.

Is the US economy heading for a fall?

Most of the worry about the world economy is being directed towards Europe, and the Eurozone in particular. I am amongst a very small group of optimists on that front – but it is easy to see why people are worried. In fact it is only through a prolonged period of crisis that Europe will find an enduring solution. But meanwhile, should we be worried about the US too?

What prompted this thought was this article in Vanity Fair by the eminent economist Joseph Stiglitz (thanks to Marisha Ray for drawing my attention to this on Facebook). It’s subject is inequality, and why it is corroding the US economy, and why the elite (the top 1%) should worry. Judging by the FB comments, some readers saw this critique as applying to government thinking right across western world – the view that austerity economics is driven by an idealogical view of the role of government. But I took it as a very specific critique to the US.

Professor Stiglitz does not spend much time justifying the statement that inequality in the US is high and increasing. The problem is that almost all the benefits of growth are accruing to the top 1% of the population – and bypassing those on middle incomes. In other words the problem is not an underclass that is disappearing from sight – but a substantial majority of the population being left behind, with the creation of a fabulously rich elite. There are many ways of looking at the statistics on this, but for me one of the most important is the historically high level in national income that is taken up by business profits – the benefit of which goes overwhelmingly to the elite. This may or may not be outrageous in its own right, but Professor Stiglitz points out a number of practical problems that arise from this:

The very rich spend less of their income on consumption and save the rest. The more wealth that concentrates in their hands, the more consumption overall will fall as a proportion of the economy. Unless there are enough constructive channels for their savings then unemployment will result – unless alternative demand comes from somewhere. That alternative might be an investment boom (as with high tech in the late 1990s) or with big government deficits, propping up the economy now.
The rich elite use their power to protect vested interests and direct their energies to what economists call “rent-seeking”: activities that enrich the individuals themselves but not the economy as a whole. Under his analysis the finance industry is largely based on rent-seeking. As energies are diverted from genuine economic growth, the economy overall weakens. What is good for the profits of existing businesses is often not good for the whole economy – which needs new businesses to come forward.
The majority who are seeing their incomes stagnate, and find it more and more difficult to join the elite, get resentful, breaking down the trust that underlies all successful economies.

But there is a political puzzle at the centre of this. Why is the Republican Party both veering to the right and retaining substantial popularity? Surely the welling up of resentment against the elite should translate into overwhelming political pressure for a more egalitarian system? I think the American suspicion of government is to blame. I don’t think that the majority of American people are particularly happy with the way their living standards are being held back. But, incredible as it may sound to European ears, many of them think it is “socialist” government policies that are to blame. Shrink the government, cut taxes and the 99% will start to catch up with the 1%. Of course, huge funds from the elite are available to support this view in the media – through political campaigning and biased news coverage, such as Fox News. It hardly helps that a lot Americans seem to think they can have their cake and eat it: huge expenditure on entitlement programmes (especially Medicare) without the need for increased taxes.

If Professor Stiglitz is right then the US would be suffering from long term low economic growth, as the various toxic effects of its skewed income and wealth distribution gradually overwhelm the highly dynamic core economy. And indeed, measured per capita (i.e. taking into account population growth), the U.S managed annual growth of only about 1.4% in the first decade of this century (compared to the UK 1.7%, or Germany (1.9%) – though France only managed under 1% – figures from Wikipedia).

Still lacklustre growth won’t cause a crash. Italy has made an art of surviving such a challenge. But the proximate cause of a crisis is clear enough – the government’s budget deficit of 7.6%, and the lack of any political consensus in how to handle it. There are three ways in which this could cause a problem. The first is if the US government should hit the Spanish problem of being unable to borrow because of a loss of market confidence. This looks implausible. Investors have too few choices where to put their surplus funds. The second is expenditure cuts sucking demand out of the US economy, causing a prolonged recession. This could happen if the Republicans take control in this year’s elections. The third is political gridlock causing government funding to seize up, and causing technical default. This looks all too possible if the Republicans control either or both houses of Congress, as looks probable. Even if Mitt Romney should gain control of the presidency (and he’s doing well on fundraising), he may well run into trouble with Congress as he desperately tries to find practical answers to the deficit problem.

And what if the US survives the budget crunch in 2013? If growth continues to be lacklustre, and the top 1% continue to hog the benefits, surely US public anger will turn on the elite, as it did briefly in the last days of President Bush? I share the European view that a smaller government, reduced regulation and lower taxes will make the problem worse, not better. That will be a sight to watch from a safe distance.

Europe and the US: the tortoise and the hare

Comparing the European economy to that of the US reminds me of Aesop’s fable of the race between the tortoise and the hare. The US’s flexible labour and product markets, and decisive interventions in time of crisis, give it the ease of the hare. To US politicians you only have to mention Europe to conjure up a picture of stagnant, over taxed and socialist economies.

But the tortoise wins the race in the fable. And indeed, if you look beyond crude GDP growth statistics the race looks close, depending on the precise time frames and so on. GDP per head tells a different picture to aggregate GDP (this is regularly quoted by The Economist, though I haven’t found a recent example to link to). Other statistics on the incidence of poverty, life expectancy and so on, show Europe in a better light – though the US still does well in self-reported wellbeing, but not as well as Scandinavian countries.

All of which demonstrates how commentators, especially in the US and here in the UK (whom I shall collectively call the Anglo Saxons, following French practice – though this is a dangerous shorthand) don’t understand the dynamics of European economic policy. As the EU lurches into another round of crises, this is worth taking on board. Once again the US hare looks better placed than the European tortoise. But look closer, and it isn’t so clear.

This is not to underestimate the scale of the crisis facing the Eurozone in particular. Massive problems confront the economies of Greece, Spain, Italy and Portugal; the French economy is not in a place of safety either. But Anglo Saxon commentators tend to relentlessly focus on the short term problems, to the exclusion of longer term issues, which they assume best dealt dealt with at a later time. Europeans (from which I exclude the British, for now, though for most purposes the British are very much European) tend to look at the problem differently. A crisis is one of the few opportunities to tackle longer term problems, and fixing the crisis while neglecting the long term is criminal.

The southern European economies are inefficient by developed country standards, and uncompetitive within the current Euro structure, and can’t sustain the level of social benefits that their electorates have come to expect. This lack of competitiveness was not invented by joining the Euro – it predates it, and is based on decades of poor economic leadership. Joining the Euro gave these economies a boost by reducing government borrowing costs – but this boost was used to put solving the bigger problems off until later. Their northern European partners are to blame for going along with this, until a crisis threatened to engulf them all. When the Euro project was launched, its supporters advocated it on the basis it would force governments to confront the inefficiencies of their economies, rather than rely on devaluation to put the problem off – a strategy that ultimately leads to stagflation, and even hyperinflation. But somehow these supporters seemed think that the omelette could be made without breaking eggs. But Europe’s leaders are keenly aware of their mistakes now.

The position of the southern European economies is not unlike that of Britain in the 1970s. A massively inefficient and uncompetitive economy had been kept alive by a benign international economic climate, until the 1973 oil shock knocked it over. There was no quick fix, no macroeconomic palliative to ease the pain. A floating currency hindered rather than helped. The turning point came in 1976, when the Labour government had to call in the IMF. Then started a painful process of government cuts and market reforms. This wasn’t what the party had promised when elected in 1974, and the government was grudging in the reform process. They lost the election in 1979, with Margaret Thatcher being swept to power, redoubling the pace of the reform process through the 198os. This cut huge swathes through much of British industry – making the current economic crisis in the UK look like a picnic, whatever the GDP figures say. It took about a decade of pain from 1976 before clear benefits started to show.

A similar hard road awaits the southern European economies. Leaving the Euro and devaluing won’t help (during the Thatcher years, to continue the comparison, the pound stayed high), and is institutionally much more difficult than most Anglo Saxon commentators assume. Europe’s politicians know this, and so aren’t looking for quick fixes. They are looking at a process of near continuous crisis in which the institutions, and political culture, required to make the Euro work are gradually put in place. Greece may be a casualty – it faces a real danger of being expelled from the Euro and probably the Union as a whole (it’s difficult to disentangle the two). It is slowly but surely being isolated to make that option less and less of a threat to the zone as a whole. But unlike many British commentators assume, Greece will find life no easier outside the Euro.

Martin Wolf’s gloomy article in today’s FT illustrates the difficulty Anglo Saxon commentators have in viewing the scene – and Mr Wolf is no shallow commentator. He makes reference to the comparison with Britain, thus:

This leaves “structural policies”, which is what eurozone leaders mean by a growth policy. But the view that such reforms offer a swift return to growth is nonsense. In the medium run, they will raise unemployment, accelerate deflation and increase the real burden of debt. Even in the more favourable environment of the 1980s, it took more than a decade for much benefit to be derived from Margaret Thatcher’s reforms in the UK.

Structural reforms are dismissed as taking too long. But is there any other way that such necessary reforms can be taken forward? Surely the British case illustrates that miserable economic performance for an extended period is unavoidable?

How different from the US approach! By comparison, the US’s economic problems are nowhere near as great as those facing southern Europe: at the core the US economy remains wonderfully competitive. But they have a terrible problem of government finance and social justice, which neither politicians nor public want to confront. Instead we get a series of short term fixes, which look decisive, but which simply increase the scale of the problem that has to be tackled later. Americans have to choose between higher taxes and reduced Medicare and Social Security benefits, or some combination of both – and yet neither are seriously on the political agenda.

In the fable the hare loses the race because he is so confident he takes a nap. A similar misjudgement by America’s political class, abetted by British and American observers is in the process of unfolding.