Buying time with other people’s money

GIS* statement by Prince Michael of Liechtenstein

   The leaders of the G7, an informal bloc of industrialized democracies consisting of the United States, Canada, France, Germany, Italy, Japan and the United Kingdom, met last week in Ise-Shima, Japan. In their joint declaration, the seven heads of government, among other things, confirmed their commitment to Iraq’s unity and territorial integrity, pledging $3.6 billion to this task.

   For those who have been paying attention, it is already clear that the decision to create Iraq – taken by Britain and France after the Ottoman Empire collapsed – was a disaster. An artificial nation state was imposed on diverse ethnic and religious groups.

GIS-statement-dollars

   It is equally obvious that democracy cannot function in a multiethnic state – no matter how much the U.S. tried after the fall of Saddam Hussein – if the strongest ethnic group dominates the central government.

   The solution should have been either a far-reaching federalization or the dissolution of the country into new nation states. The G7’s decision shows that it is still committed to a failed structure and determined to prolong Iraq’s agony with money.

   Also meeting last week were the European Union finance ministers in Brussels. This time the recipient was Greece, which got 10.3 billion euros in bailout money.

Continue reading -> GIS Statement


*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defence, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyse the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyse and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Unkonventionelle Geldpolitik: Der Ausstieg ist machbar

Peter A. Fischer, Neue Zürcher Zeitung, 21. Mai 2016

Jeder Zentralbanker kennt die Taylor-Rule und John Taylor kennt die meisten Zentralbanker. Der US-Ökonom ist besorgt über die gegenwärtige «strategiefreie» Geldpolitik, hat aber eine Lösung parat.

    Schon Ludwig von Mises hat davor gewarnt. Der zusammen mit Friedrich A. von Hayek zu den Gründervätern der liberalen «österreichischen Schule» zählende Ökonom schrieb 1923, Regierungen und Bürokratien wollten mehr ausgeben, als sie den Stimmbürgern über Steuern zumuteten. Deshalb würden sie sich überschulden und suchten dann ihren Schuldenberg über eine hohe Inflation oder durch finanzielle Repression wieder loszuwerden.
Angesichts der seit der Finanzkrise in vielen Staaten explodierenden Verschuldung, den präzedenzlos tiefen Zinsen und der enormen Geldflut dominierten an der diesjährigen 12. internationalen Gottfried von Haberler Konferenz denn auch wohlbegründete Befürchtungen. Gewarnt wurde an der vom liechtensteinischen Fürstenhaus unterstützen Konferenz davor, dass es plötzlich doch noch zu hoher Inflation kommen könnte, eine drohende Monetarisierung der Staatsschulden die Sparer enteignen und die Altersvorsorge vernichten würde und dass der technokratische Charakter der europäischen Integration zu Demokratieversagen führe.
Optimistischer gab sich in Vaduz der in Stanford lehrende John Taylor. Er hat 1993 die nach ihm benannte berühmte Verhaltensregel für die Geldpolitik entwickelt. Die Taylor-Rule definiert den «richtigen» Zinssatz als gewichtete Summe des natürlichen realen (Gleichgewichts–)Zinssatz, der Abweichung der tatsächlichen Inflationsrate vom Zielwert und der Differenz zwischen Wirtschaftsleistung und Potenzialwachstum.

Weiterlesen -> Neue Zürcher Zeitung

Haberler-Konferenz legt Staats-, Banken- und Demokratieversagen offen

Bericht von der XII. Gottfried-von-Haberler-Konferenz in Vaduz
(Forum Freie Gesellschaft)

   In Liechtenstein scheint die Welt noch in Ordnung zu sein. Freundliche, offene Menschen leben in einer intakten Umwelt ohne Windkraftwerke. Wohlstand und ein sauberes, wohl geordnetes Fürstentum sind für Besucher augenfällig. Es ist kein Zufall, dass in Vaduz, wo Freiheit und Verantwortung, Marktwirtschaft und Herrschaft des Rechts hoch gehalten werden, nachzulesen in „Der Staat im dritten Jahrtausend, erfolgreich die nunmehr zwölfte Gottfried von Haberler Konferenz veranstaltet wurde. Durch das Tor zur Welt, das hier stets offen steht, strömten Freiheitsfreunde zum Austausch, zur Krisenanalyse und zur Verbreitung der besseren Ideen, die heute mehr Bedeutung denn je besitzen. Die Krisenakkumulation, verursacht durch ein mit hoher Geschwindigkeit in die Sackgasse fahrendes europäisches Führungspersonal nimmt allmählich bedrohliche Ausmaße an. Die Überforderung von Politik und Bürokratie ist nicht mehr zu übersehen. Ein Gravitaionszentrum bilden Zentralbanken, die in den USA und Europa eine verborgene Agenda verfolgen. Gerade in Europa gilt: Zentralismus und die politische Anhäufung von Befugnissen, Aufgaben, Zuständigkeiten geraten 25 Jahre nach der Implosion des realen Sozialismus in tiefen Widerspruch mit der Realität … Weiterlesen ->

Liechtenstein: Haberler Konferenz legt Staats-, Banken- und Demokratieversagen offen

Download Papers of 12th Gottfried von Haberler Conference

haberler conference 2016

Central Banks, Fiscal Policy
and the Betrayed Citizen

The XII. International Gottfried von Haberler Conference took place on May 20, 2016 in Vaduz, at University of Liechtenstein. Topic: “Central Banks, Fiscal Policy and the Betrayed Citizen” (German translation: “Über Zentralbanken, Schuldenpolitik und den geprellten Bürger”). The event was organized and hosted by ECAEF – European Center of Austrian Economics Foundation. Conference papers can now be downloaded here:

On Central Banks and the ‘Taylor Rule’
- John B. Taylor (USA)

Falsche Zentralbankpolitik, Konsequenzen und mögliche Alternativen
- Peter Bernholz (CH)

Über die Schulden-, Transfer- und Bankenunion - Tillman C. Lauk (ES)
 
Fiskalpolitik: Keynesians vs. Austrians - Thorsten Polleit (D)

Über Rechte und Freiheit des Bürgers - Henrique Schneider (CH)
 
Overdose! The Corrupting Effects of Easy Money - Johan Norberg (S)

Relevant literature also offered for sale at buchausgabe.de.

Excellence is Ordinary

by Raffaele De Mucci*

    To be sure, over the last years we have witnessed – especially in the media – an increasingly indiscriminate and misleading use of the term “excellence”, which is usually seen as the sole route towards modernization and social, political and cultural development. Yet it takes some qualifications and a bit of caution, if we are to employ the concept as it is largely employed nowadays, that is, to indicate situations or personalities which rank above what we consider the “élite” – something even beyond the logic of “meritocracy”, which is solely applied to competitive aristocracies whose members possess particular knowledge and skills which grant them some sort of supremacy.
To begin with, the ambiguity of the term is partly due to its etymology. “To excel” derives from Latin ex-cellere, literally “to take out”, but soon becomes synonym with “sublimity”. It was no chance that, until of late, the word commonly recurred in honorary and ornamental titles, such as “Your Excellency” or “His/Her Excellency”. In the past these titles were addressed to monarchs, especially during the age of Longobards and of Franks up to the fourteenth century, and then to ambassadors, high state representatives and archbishops.
In Italy, as in many other European countries, traditions and protocols still demand the use of the title, which also recurs, with a more strictly juridical connotation, in politics (for local ambassadors and, in official ceremonies, for chiefs of state and ministers), administrative (for local prefects), juridical (for presidents of the higher courts and general attorneys), religious, noble, and military – a routine which was consolidated and became compulsory under fascism.
[…] As it mainly consists in mechanisms to achieve a consensus based on the electoral majority, democracy is structurally inadequate to identify “excellence”. While democratic procedures are meant to allocate power and governmental positions, it is not to be taken for granted – as Aristotle knew pretty well – that in a democracy only the more capable and the more competent will succeed. On the contrary, the motives which orient electoral choices are so diverse and so often alien to merit – in its aristocratic meaning – that “democracy” and “meritocracy” are generally seen as contradictory locutions. Thus, relying on civic virtues is apparently not the best way to allow “excellence” to emerge, for popular consensus is largely built on irrational arguments, mostly explicable in terms of mass psychology. The moral and institutional supremacy of democracy lies – as Karl Popper knew well – in its emphasis on the choice not of those who rule, but of those who control (and can potentially remove) those who rule. And this is precisely what, according to the rule of law, is labelled “balance of power”.
Accordingly, the “original sin” of democracy – which is taken by some as a good reason to criticize the parliamentary system – is its fatal tendency to turn into the “tyranny of the majority”, i.e. a new sort of absolutism or totalitarianism under the appearance of modern omnivorous statism. And this in turn explains how a democratic system which neglects both the spirit and the practice of pluralistic competition can let the worst emerge, as Friedrich von Hayek lamented.
It is no coincidence that the most widely adopted antidote against such collateral effects of democracy, which mystify and mortify the very notion of merit, is technocracy. Once we have established that excellence is not, and cannot be, the basis of democracy, we may yet observe that other political systems are more compatible with excellence. Aristocracy, hierocracy, timocracy, paternalism, technocracy, and Plato’s kingdom of philosophers are likewise cases in point.
Among these systems, technocracy – i.e. the government of non-elected experts – is the most popular nowadays. Here’s a list of its main features: (1) power is held by men or women who are not politicians strictly speaking, but who can nevertheless coerce people into doing what they otherwise would not do; (2) such power is perfectly legitimate, being exerted by means of the state monopoly of coercion; (3) politics rules over society and economy. Technocracy is thus a true ideology having as its cornerstones competence and efficiency, which is what mass democracy is unable to achieve. It postulates an objectivistic conception of the common good, which can be rationally grasped by means of scientific method, after replacing political ideologies with a rationally sound view of reality which is supposedly immune from particular interests. It was Pareto who observed that “you may sin through ignorance, but you may also sin for interest. Technical competence may avoid the former, but can do nothing to avoid the latter”2. The risk of falling into corruption does not belong to politicians alone, but to whoever can exploit the public system at the expense of others. Also, the alleged objectivity of scientific method is yet to be proven, especially if we are to take seriously Popper’s epistemology, which “puts forward a view of science as open to falsification and not liable of conclusive demonstration”; “and this is why, while predicating the end of ideologies, technocracy is an ideology of its own”3. In addition, even if technocrats could get any closer to a criterion of impartiality, such criterion could solely pertain to the means and not the ends – as we know from Mises’ view of economics as science of human action in general, i.e. “science of the means”; means that’ll serve ends whose choice is always discretionary and arbitrary. In short, technical knowledge can only decide on the “how”, rather than the “what”, for the latter always implies a judgment of value.
Thus democracy, almost by definition, is not based on excellence. To talk about excellence is in fact misleading, since democracy – as Kelsen put it – is essentially a set of procedures, rules and conventions; or – as Schumpeter put it – a process of institutionalization of conflict by means of shared values and rules, the acceptance of which is not a barrier to the emergence of the “non-excellent” (the perfect representatives of the average electorate), let alone of the worst. And the criterion of inclusivity is precisely that which democracy consists in.
Crucial to democracy is also the rule of majority. In its simplest formulation, beside solely creating sum-zero games (where the sum of the utility created is always null, since those who win, win it all, and those who lose, lose it all – differently from the market which always creates positive-sum games, which make all the actors better off), this principle rules out the possibility of external evaluations or decisions, even if made in accordance with the principle of excellence. Thus, not only does excellence not lay at the foundation of democracy, but it is unable to, since any choice based on excellence is by definition a choice not based on the rule of majority.
[…] The notion of “excellence” is undoubtedly much more debated in the economic than in the political domain – both by public opinion and specialized literature. As to the latter, that notion is generally referred to the needs of firms of reaching their goals. After establishing its specific criteria, scholars then indicate the path to achieve it, as in the ambivalent title of the most popular book on the subject: Tom Peters and Robert Waterman’s In Search of Excellence. The focus here is on business performances, the big scale of the business, the quality of the working environment (cf. the international index “Great place to work”), the high levels of productivity, the working specialization, innovation and research investments, the quality of the product, customer satisfaction, customer care and business know-how, and also a definition of “total quality management”.
If we focus on the public debate rather than the academic literature, we notice that much of the emphasis on excellence comes from the media, often from those who are particularly touched by the issue. For instance, one of the domains where the issue of excellence frequently comes up is that of small enterprises. Thus, we can hear of a troubled country, Italy, which presents nonetheless some “niches of excellence” (i.e. enterprises selling quality products – e.g. Murano glass); we can hear of enterprises navigating against the tide, i.e. innovating and exporting more than others despite the crisis; we can hear of the excellence of “made in Italy”, rendered possible by a special managerial approach (i.e. the industrial districts). Behind these sorts of discussion there lay perhaps just a sort of boastfulness, if not the attempt to draw special fiscal attention.
Beside the role of excellence in the formation of a political system, there is a further dimension which is not to be overlooked: namely, the fact that within a political system actors do produce. By focusing on what a political system “does” rather than what it “is”, once again we are intertwining the issue of democracy with that of excellence, and we are thus wondering whether the latter can coexist with the former.
To speak of excellence is to focus on the tip of the iceberg. Those policies which are based on the idea of excellence are thus concerned with the higher levels of the observed category. Once the right target is identified, there can be different attitudes towards excellence: indifference, aversion, or approval.
In the first case, there is no action – either “for” or “against” excellence – for us to analyse, and we can thus ignore it. The second attitude is generally epitomized by the “levelling” action, variously defined, of egalitarian groups. The third and last attitude is the most widespread, as virtually no-one – and certainly no democratic regime – has ever officially declared him- or herself “against” excellence. Accordingly, there are two decisions that policy makers may take to favour excellence: they can assist them or set them “free”. In other words, they may either finance them or give tax cuts; they may either direct them – perhaps by assigning them to special duties or granting them special rights or juridical statuses – or let them do as they like. It is worth pointing out that such phenomenon does not solely belong to the economic field, but arguably also to the bureaucratic and the juridical. And yet it is still an economic phenomenon, for – as we know from Mises – not only every public decision, but also every action as such, has its own costs.
The notion of excellence is related that of “merit”, which is yet different from “meritocracy”. While “merit” is a dynamic phenomenon which naturally belongs to competition, “meritocracy” is often seen with suspicion – as a likely path to absolutism. Excellence, conversely, is not only a dynamic measure of quality but also a static attribute of honourability. By the same token excellence could refer us to (Montesquieu’s) timocracy, where excellence coincides with honour – that is, honorary attribution and static reverential presence, perhaps acquired by heredity or cooptation, rather than merit.
The policies aimed at promoting excellence may thus prima facie reward the “capable and deserving”. What is, then, the relation between the policies that promote merit and those promoting excellence? Are they similar, unrelated, or perhaps contradictory?
From this perspective the notion of merit seems to include that of excellence, being somehow broader: while promoting excellence means focusing on the top of the pyramid, meritocracy is also concerned with the bottom of the structure. Merit implies, in fact, both bottom-up and top-down social mobility. Policies in support of excellence – such as those aimed at containing the so-called “brain drain” – are (negatively) concerned with eliminating the barriers to the emergence of excellent people; conversely, meritocratic policies positively remove the privileges of the non-excellent (e.g. by intervening against corporations), sometimes with direct penalties: those who excel are to receive more than those who do not.
It is clear, then, how uncertain and tricky our very concept of “excellence” is, and how easy it would be to take for granted its meaning, let alone its actual existence in the world. Yet we would be wrong in assuming that everyone uses the term (the form) having in mind the same meaning (the substance). The sole way to avoid superficiality and reason scientifically is to begin with definitions. What is, then, excellence? The answer might seem easy if not tautological, commonsensical: “excellence is what everyone knows to be excellent”. Alternatively, some may provide an ex cathedra definition, given by an expert whose intention is not to describe what people do believe, but rather to prescribe what people ought to believe. As an expert, he/she would thus be establishing the criteria that others are supposed to follow. Quite obviously, both solutions would lead us to infinite speculations, which in turn would legitimise the experts themselves – the latter simply by assumption, the former because the analysis of what everyone thinks is necessarily an analysis of what “each” thinks. An endless series of variables which cannot be cut down but arbitrarily. And yet the matter has its own depth. When someone argues that something is or is not excellent, he/she is providing an evaluation. But all evaluations are subjective (we’re still in the field of social, rather than natural, sciences), as we know from both the Austrian School of Economics and the subjective theory of value.
Let us assume we are to define the notion of excellence for more than one person. Who is to define it? According to what criteria? Who is to decide the criteria? And who is to decide who is to decide? These are far from pleonastic questions. There are three possible solutions: (1) decisions are taken by one person; (2) decisions are taken by a majority vote; (3) solutions are reached spontaneously, as they emerge from the interaction of individuals, each making up their own minds. Behind these solutions, it is easy to see three different systems. The first can either reside in authoritarianism, dictatorship, statism, paternalism or technocracy, characterized as they all are by different forms of “abuse of reason”; the second is democracy; the third is represented by the market, according to a broader conception which does not discriminate between economic life and the rest of social life.
Obviously enough, these are but simplifications, for in reality we always find a mixture of these three models, whose dosage is given by our judgments of value.

______________________

*Raffaele De Mucci is Professor of Political Sociology and Comparative Politics at the Department of Political Sciences, Luiss-Guido Carli University (Italy), and Director of Luiss-Laps (Laboratory of Political and Social Analysis) in Rome. His original article ‘L’eccellenza è mediocre’ was published in il foglio, translated from Italian to English by Federico Morganti (LUISS-Labs).