Saturday, August 13, 2011

Austerity Fever In Europe And The US And The Discreet Fuelling Of Public Anger

Posted by Peter Quennell

There have been mass demonstrations and riots in a number of European countries and Italy may soon be seeing some too.

Here is one cynical but amusing Canadian take on austerity fever, the current UK riots, and the UK Establishment’s outraged reaction.

I was shocked when some young acquaintances riding the bulls on Bay Street first explained to me the theory of government that prevailed among their set, based on something they called the Riot Index.

Too many riots were bad for business, they allowed, but so were too few - a sign that government had become soft and inefficient. Prudent government squeezed until the mob rebelled, then increased spending just enough to prevent extensive property damage. Optimal social policy was a matter of dialling in the appropriate frequency of riots…

In light of the impotent moral outrage that has welled up in the wake of this week’s events in England, the cynicism of the Riot Index now seems downright refreshing. It is surely more informative than the theories about bad parenting, “over-entitlement” and psychotic consumerism that many Britons are advancing to explain the disorder.

Actually the cynics and the rioters may have something of a point. Getting it right on the gut causes of slow growth seems to have gone out of the window as austerity fever takes over and the great race to the bottom is on.

The western economies essentially muddled their way over many, many years to the heights they are at right now, interspersed by some spectacular crashes. Is their only stark choice now really to muddle their way down again?

Two things worth reading up about in this context. First, the Washington Consensus which was strongly promoted by the US and World Bank and IMF worldwide and which resulted in disastrous waves of austerity throughout the developing world.

And second the sudden sharp emergence of the Asian tiger economies which gave officials in the US and World Bank and IMF the shocks of their life. Those pesky Asians just did not understand… but they sure ended up eating everyone’s lunch.

Like Apple, now the most valuable company in the world, the Asian model consists of smart spotting of high-value opportunities, and putting in the smart systems and people to realise them.

It involves close co-operation between the population in general and the economic producers and the components of the institutional infrastructure. Research and training tend to be targeted and the governments invest - invest - but are careful not to over-capitalize. .

A while back I was involved with the introduction of rolling planning in the big Federal departments of Washington. These were two of the learning experiences.

First, the Federal Government does not seem to have been given a development and growth role in the Constitution, and many in Washington officialdom were uncertain as to how much if at all the Feds should be involved.

And second, there is no separate Federal capital or investment budget, as there is now in a majority of other governments, so all of the money pouring out and all of the national deficit and debt accumulating are for… what?

For investment or for consumption? Nobody really knows.

Right now, a Supercommittee has been created in Washington to wind back the US national debt, which tripled in the past decade. A parallel Supercommitee on jobs and growth is now being lobbied for by some of the brighter sparks in the Congress.

Perhaps that second comittee should really have come first? Austerity was what the Asians turned their backs on - and look where they are now.


In tribute to Meredith who, according to her father, seems to have been setting her sites on this universe.

Posted by Peter Quennell on 08/13/11 at 03:52 AM in The wider contexts

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Thanks Peter for a really interesting analysis.  It’s hard not to have all this on our minds all the time, as the various western governments attack their own citizens in what appears to be a coordinated and relentless austerity program.  Too bad the same organizational skills aren’t used to fix our economic problems.  I guess we’ll all have to move to Asia for that.

Posted by NCKat on 08/13/11 at 09:40 PM | #

ViaDellaPergola’s excellent video about Amanda Knox’s false and malicious accusation against Diya Lumumba is worth watching again:

Carlo Pacelli is a wily old fox.

Posted by The Machine on 08/14/11 at 02:04 AM | #

After reading something in the Guardian on these riots I posted a remark comparing the rioters’ behaviors & Amanda Knox.
Then it occurred to me to look up the term, anomie, in Wikipedia. I have posted an abbreviation of it as follows:

Wikipedia (abbreviated)

ANOMIE is a term meaning “personal feeling of a lack of social norms; normlessness”... a breakdown of social norms and values. Popularized by French sociologist Emile Durkheim (in his “Suicide” 1897) who borrowed the word from the philosopher Guyau.

[It describes] a mismatch between personal or group standards and wider social standards… a lack of social ethic producing moral deregulation… an absence of legitimate aspirations. THIS IS A NURTURED CONDITION.

Durkheim used the [word anomie] of [how] an individual’s actions are matched, or integrated, with a system of social norms and practices ... positing anomie as a MISMATCH, not simply as the absence of norms. Thus, a society with too much rigidity and little individual discretion could produce a kind of mismatch between individual circumstances and larger social mores. Fatalistic suicide arises when a person is too rule-governed, when there is ... no free horizon of expectation.

Not impossible, Peter, that your article on the riots got me thinking along these lines.

Posted by Ernest Werner on 08/14/11 at 12:09 PM | #

@Mr. Werner - interesting parallel, but it seems to me that the causes are completely different.

The riots in Britain are similar to the Paris metro riots from a few years ago - the result of a meticulously maintained isolationist policy against minorities.  I know that Western Europeans feel invaded, but what they aren’t considering is that these immigrants they find particularly bothersome (unlike expats, who are tolerated with more grace) would not be here if their home countries had not been subjected to centuries of colonial exploitation.  This is the price for systematically inoculating a sense of inferiority in other people and for presenting Western citizenship as proof of humanity - a misguided attempt to emulate the workings of the Roman Empire (India is a prime example).

We like to think that Americans are racist and bigoted, but the truth is that the American integration formula is far superior to anything that has been achieved in Europe. We blame minorities for not being willing to integrate, but we don’t stop to consider the difficulties that foreigners experience when they try to “go native.”  If people who are white, European, and highly educated are made to feel that they don’t belong, even after years of living in another country, I cannot imagine how hard it must be for those of a different ethnicity (and especially those who have a low socio-economic status). When you continuously alienate people, it shouldn’t come as a surprise that they retract away from mainstream society and find ways to emphasize their differences instead of trying to blend in.  How can you blend if you are always reminded that you’re an outsider?

I’m not saying that the riots in Britain are a correct and civilized way to vent frustration.  There is no excuse for mindless destruction and looting.  But the combination of alienation and economic austerity has likely reached a breaking point. Britain should have taken some lessons from France regarding what should not be done.

As far as AK goes, she probably felt that the old rules somehow didn’t apply when she was on her own in a foreign country.  I don’t think it’s uncommon, but most people obviously don’t go to such extremes.  The drinking, pot smoking, and sleeping around aren’t unusual (a lot of college students do these things and somehow manage not to kill anyone). Whatever went through her head, it definitely wasn’t the result of bottled frustration against evil Italians who isolated her. I agree that she probably felt rules didn’t apply to her and that perhaps there was a mismatch between normal values and her values, but she didn’t have a valid justification for thinking and acting this way.

This is why I think that the parallel doesn’t quite stand - we can’t dismiss the riots as people just acting in a sociopathic manner, unless we are referring strictly to the people who joined in because lawlessness is somehow “fun,” not because they are poor, ethnic, or both.  The others had some legitimate grudges, and perhaps got sick of not being listened to when they expressed their frustration in a peaceful, civilized manner.

Posted by Vivianna on 08/14/11 at 02:34 PM | #

Hi Vivianna,

Five people were killed during the rioting in England. Malaysian student, Asyraf Haziq, was mugged by people who were pretending to help him. These shocking crimes have nothing to do with politics or protests.

Posted by The Machine on 08/14/11 at 02:59 PM | #

You’re right that these crimes don’t have anything to do with politics, and that’s because they are committed by those who use protests as a screen or shelter to commit crimes anonymously.  As I mentioned, some people obviously joined in because they saw the riots as an opportunity for vandalism, likely believing that they won’t be identified.  It seems British courts are doing a good job of charging people.

However, I don’t think that social unrest happens simply because all the criminals in the country decide to get together and start torching things.  We can’t just chalk it down to young people lacking a moral compass, although some of them obviously do.  We also shouldn’t underestimate the shocking consequences of alienation.

Posted by Vivianna on 08/14/11 at 03:13 PM | #

Hi Vivianna,

Why do you think people rioted and looted in Vancouver after the ice hockey final?

Steven Pinker, who is a psychologist and Harvard Professor, changed his opinion about the reasons why people riot after the Montreal riots in 1969.

“My politics were pretty anarchistic until 1969 when the Montreal police went on strike. Within hours mayhem and rioting broke out and the Mounties had to be called in to restore order. It instilled in me that one’s convictions can be subjected to empirical test.”

The only perceptible trigger for the riots in Montreal was the fact the police were on strike. Whenever law and order breaks down, there is widespread civil unrest and violence. In the aftermath of Hurricane Katrina, there was looting, violence and other instances of criminality. This phenomenon can be seen throughout the ages and across all cultures from present day Somalia and the Congo, to the former Yugoslavia in the 1990s and in numerous countries during World War II.   

Posted by The Machine on 08/14/11 at 04:29 PM | #

Pete, our politicians are telling us to direct our anger at “the feral thugs in the streets but not the feral thugs in the banking system” (political commentary, The Telegraph) or the feral thugs in Parliament who’re spending more on the illegal bombing of Libya than it will cost to clean up Britain’s streets.

We ought to also direct our anger at the feral economists of the Austrian persuasion who believe the market can regulate itself without pausing to think of the social consequences of their policies and without consequence for outright financial fraud.

So Alan Greenspan can, in an unguarded moment, explain that it is sound economic policy to keep unemployment at 8% so as to have a pliable employee base and keep wages down (it now is 16% in real terms) and we complain about disaffected youth? And a right wing parliament wants to lecture about “law and order”?

Here’s the reality. Thanks to years in cuts there now is an attrition of 16,000 police in the UK. My buddy in the North of England has been an (unpaid) special constable for several years yet they won’t hire any new police because of their financial constraints. So Cameron can lecture us all he wants, but, he will, with other right wing governments, soon be consigned to history.

Posted by Ergon on 08/14/11 at 04:32 PM | #


I thank you for your thoughtful remarks on my post above & quite accept your critique, which is distinctly intelligent & well informed.

Overall, what I had in mind was not so much the causes, about which I am ignorant, as a kind of underlying social condition (social, cultural) which seems to be mirrored here.

As ever also the Machine is vigorously intelligent & forthright & Ergon has given us a social critique (economic policy) worth thinking of.

Amanda had no serious financial problem (despite possible theft & imprudence.) Quite why she fastened on Meredith as she did—I do wish we might hear more on this from any involved psychologists.

Posted by Ernest Werner on 08/14/11 at 05:16 PM | #

Thanks, Ernest. Having painted the ‘broader picture’ on economic policy, I also think immigration policy worldwide needs to be reworked.

You can’t have large population inflows that fundamentally change the nature of a society, increases unemployment, and creates greater disparity between the haves and have nots (with concomitant increases in crime)

You can accept racial equality on the one hand but also understand that certain populations have different work ethics, family dynamics, and statistically proven involvement in different forms of crime.

We can’t solve the problems of race without honest, uncomfortable dialogue unfettered by concerns of being called a ‘racist’ by the professional victimologists. See “These riots were about race” 

Lastly, we cannot ignore the fact that much of the rioting was instigated by criminal gangs that took advantage of the breakdown of law and order to go off on organized looting sprees

Posted by Ergon on 08/14/11 at 06:20 PM | #

Peter, you said it, “all the national debt and deficit are accumulating for what….For investment or for consumption?”

America will come up with a plan to not eat our seed, but plant it.

Good Samaritan government can exist. You say governments should invest but not overinvest. Sounds like the old nurse’s addage: never do anything for a patient he can do for himself. Yet be there to do all the rest.

You know, Erwin Rommel took a look at the ocean off the French coast and began thinking of ways to harness the power of those endless waves. This planet is filled with potential.

Posted by Hopeful on 08/14/11 at 09:24 PM | #

Hi Hopeful. Yes I too think the potential is there. The world economy could grow at twice its present rate, pollute less, use less resources, slow population growth, and take care of all foreseeable problems. 

However the thinking at the top about growth is very naive. All the rhetoric out of Washington about freeing up capital, making it cheaper, cutting taxes, downsizing the government, preserving the big banks, and so on, is really quite daffy.

The root problem in my experience is very rarely one of too little money to invest. Spot real value opportunities and get the systems and people right and the capital will come roaring in regardless of what it will cost.

Overinvestment is actually a bigger problem in the world than underinvestment. It tends to kill the golden goose. Late in the 90s $4 billion a day was moving into the US when it looked like every business in the world would soon make it big on the internet. Even dog food.

But the heady amount of capital available made many or most managers quite silly and soon they were making huge mistakes and all the money flowed out again. And such huge sums could never have been paid for.

Congress is largely populated with lawyers. Economic policy is largely made by economists. Great people. but they have little of the background or knowhow that the complexities of growth requires.

The entire top layer of the bureaucracy of the US federal government is people who are essentially amateurs. Sweet people, but take a look at this

That says President Obama appointed over TWELVE THOUSAND. And that is just at the federal level! State governors and mayors do the same. In contrast in the UK it is a matter of just a few dozen. That is typical of most other governments.

I only ever encountered one other government in the world with so many amateurs calling the shots and that was in Brazil, when a new government came in and sacked most of the civil service, liquidating experience that set them back years.

They won’t be doing that again. Especially as Brazil is now doing so well. Like many emerging economies THEY seem to know what they are doing. Europe and the US are being seriously out-managed.

They are still eating our lunch, with the considerable help of our own leaders.

Posted by Peter Quennell on 08/14/11 at 11:42 PM | #

I completely agree with all you say.  I read on another blog where they talked about how major structural long term planning like Congress was attempting to do (supposedly) during the debt “crisis,” would never have been handled by business that way. 

They would have studied the situation on an ongoing basis and made plans and projections based on detailed analysis of the situation and all its ramifications.  Certainly they would not have made such a ridiculous attempt to come up with a long range plan in a hostage-like situation! 

Other governments, particularly the Chinese, also attempt long-term planning done by experts, not people who get elected or appointed who have no idea what they are talking about or doing.  No wonder the rest of the world thinks our Congress is a bunch of clowns!

Posted by NCKat on 08/16/11 at 04:26 AM | #

It has been reported today that Germany’s economic growth slowed sharply in the quarter from April to June and the figures for the start of the year to April have also been revised down.

With the UK and France flat-lining and Greece, Italy Portugal, Spain and Ireland having to borrow heavily just to keep their heads above water, the slow down in Germany’s growth is worrying.

The euro is also under attack because speculators, particularly americans, are betting on a eurozone collapse.

There will always be the unscrupulous few who want to profit from the misery of the many. I would like to think these bets will be lost.

Posted by James Raper on 08/16/11 at 06:37 PM | #

Hi James. Yes Germany has been the golden goose of the EC and a lot of the hot money has been heading for there. And now as you say… erk!

Anyone reading this thread can go buy the books on shareholder value or value based management or economic profit or free cash flow, and get to understand in an evening or two how to calculate if an enterprise (or part of an enterprise) is creating value.

All good companies know how to do it, though they usually keep their cards pretty hidden if they have developed some demand unique to them. Meanwhile, these things can be guaranteed:

1) Even in an economy seeing okay growth, only maybe one-quarter of the enterprises (such as Apple) will be creating ALL of the value. ALL of the growth will be coming from them. All the rest will merely tread water, or be a drag on the economy and actively destroy capital.

2) Not one government in the world is producing the kind of statistics that would make this picture above apparent. Investment groups do a little of it on their own, but the full picture requires crunching the figures of huge numbers of companies which have to be obtained from them in the first place, and individual groups simply can’t afford this.

3) Political leaders are not aware of this picture because the figures are not being crunched and published, and because their skill sets are those of lawyers and economists and so on, not of those who work daily in the three universes of growth management (value, systems, and processes).

4) Rather than demanding the data be gathered and the knowhow be spread, which is what is really required, they will be throwing public money at ALL of the economy (including the three quarters that is not going anywhere) to try to pump it - and wondering why the country is going bankrupt as a result.

All this is known within UN development but its spread is impeded for two reasons. First, the World Bank and IMF are essentially banks and bankers are really about the last people to ask about value spurts or growth management. They dominate and somewhat cripple the rest of the UN.

And anyway, UN development is pointed toward the middle tier countries - those that are now really making it - and the lower-tied countries. And so the leaders in the “advanced countries” muddle on, uncomprehending of this vital knowhow that is the ONLY key to their success.

Posted by Peter Quennell on 08/16/11 at 08:45 PM | #

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