“Sometimes as I live upon my island,
Cut off from emotion and its pain,
That’s when I am tempted by the waters, the waters that can take me far away.”

So sang Gary Barlow in the title track of his 1997 debut solo album Open Road.

Well, the temptation eventually proved too great. The waters recently took the lyrical wunderkind and X-Factor arbiter far away to the Solomon Islands, The Sun reporting that he paddled by canoe for six hours to the “remote island of Malaita” during filming for a BBC documentary about his official diamond jubilee song.

We were all white men and there were only eight of us.

“I really did think, ‘They’ve taken us all this way up the river and they could kill us and eat us alive and no one would know’.

It’s conceivable that Tony Blair’s favourite tabloid made a rare misquote, but either way the article is almost unsurpassed as an exercise in dusty clichés about foreigners.

A “mob” “ambushed” poor Gary, armed with bows and arrows and spears.

The “clan” were wearing necklaces decorated with capitalised TEETH.

The helpless eight white men found themselves “surrounded” by a “tribe”. The whole tribe? Why is it that everyone outside Europe and north America always insists on “surrounding” visitors? Can’t they just stand in front of them, like normal people do?

In the wilderness years before he became the new Simon Cowell, Gary clearly had plenty of time to swot up up on his Conrad. Where else could black men have taken him other than up a river?

Where I suspect Barlow’s song-writing imagination ran away with him just a little was when he thought he’d end up as lunch. The last case of cannibalism in Melanesia was at least half a century ago. At least he’s in good company. When Prince Philip visited Papua New Guinea he famously asked a backpacker: “You managed not to get eaten, then?”

In the unlikely event that Gary came under attack, he’s right, no one would have known — except all the people who lived there, who’d have probably phoned the police on their mobiles and got him airlifted to hospital.

Mob, clan, tribe. Whatever. Happily it turned out that they were just a performance troupe who wanted to honour Phil’s wife on her special anniversary. The Take That frontman lived to sing another day.

When I went to Malaita, the most populous island in the country, I flew. From the capital it took about half an hour. I don’t remember feeling threatened unless you count these menacing individuals I encountered near the airport on the outward journey.

In Auki, Malaita’s capital, some pleasant government officials welcomed myself and a colleague into their offices and allowed us to interview them for the research we were doing, at length, in English.

We visisted an interesting village just outside town, with green fields irrigated by the river and tucked among lush vegetation. These subsistence farmers were trying to adopt a system of sustainable rice permaculture with the help of Japanese agricultural technologists.

Afterwards we wandered round town and spoke to some fishermen on the pier. On the whole people wore jeans and T-shirts. Most were keen to chat. Granted, the range of goods available in the shops was a bit limited and there wasn’t much to do.

People in far-flung places aren’t all that different. They gossip; show curiosity about strangers; go to the toilet; surf the Internet. They’re not spear-wielding cavemen intent on maiming the white man.

Elsewhere Barlow sang: “Whatever I said,
Whatever I did I didn’t mean it.”

On this occasion, I hope not.

To compensate for the resulting inequalities, the eurozone had no central authority that could redistribute funds. The strictures on government spending were so anal that not much could be done to stimulate demand or help the unemployed — but in any case the lack of law-enforcement meant that most governments periodically thumbed their noses at the rules. As I noted in this post, a paper by the Graduate Institute in Geneva found that France breached the spending limits in seven of the 12 years after the euro began and Germany five.

A low interest rate that helped the sluggish north was never going to suit the more volatile economies of Greece, Portugal, Ireland or Spain. Cheap money helped inflate housing bubbles and allowed governments to escape the need for proper tax systems.

In a kind of collective neoliberal wish-in, the eurocrats hoped blindly that their scheme would somehow work. They blame the Greeks, but it was always going to be one of the poorer fringe countries that would come off worst. The Germans and French like to forget their own misdemeanours.

Because the euro is so flawed in so many ways, it almost certainly can’t continue in its current form. Rachman’s probably right to call for an ordered break-up rather than a messy balls-up. “Better an end with horror, than a horror without end.”

I’m not convinced, though, about the extent of the horror. The FT writer says that:

the exit of Greece would unleash contagion, by making it clear that membership of the euro need not be permanent. Markets would inevitably round on the next vulnerable countries.

Yes, an unplanned exist would be disastrous, and one of the only predictable outcomes is higher borrowing costs for the remaining eurozone. But surely everyone can already see that membership isn’t permanent? In that mangling of language so beloved of financiers, pundits have been worrying for weeks about the ‘Grexit’.

Markets are already rounding on the vulnerable. Bond yields periodically surge to levels that can only be associated with a euro break-up. Hundreds of billions have already been whisked from Greece and Spain. Greek shares are lower than in 22 years, while the Spanish stock market is at its lowest level in nine years.

And as Rachman points out, the long-term costs of sticking with the euro for Greece, and maybe others, may outweigh the temporary catastrophe that accompanies exit. In a country like Spain, every week with the euro is another week of misery for the quarter of adults who have no job. It’s  more erosion of skills, one more young person’s potential squashed.

Germany and France could inflict as much austerity as they wanted in a smaller core eurozone — and they wouldn’t have to worry about bailing out the periphery. What the core eurozone leaders and bankers are really scared about when they talk of contagion is losing the money they’ve lent and having to pay a higher interest rate on their debt. They’d no longer benefit from the free money that’s washed around the continent for the last couple of decades.

Meanwhile a devalued south could default on its debts and work on restoring growth and building exports. Other recent defaulters and devaluers — Indonesia, Argentina, Russia — have rebounded quickly after crisis. Better to get the pain over with quickly than to inflict death by a thousand cuts, and better to think first of the poor rather than the bankers who got us into the mess in the first place.

Domestic rubbish reinforces the sea wall on Funafuti Atoll (Getty)

Vientiane seems busier every time I visit. The first time was in 2003, when it felt like little more than a village. The roads were rutted and the traffic was mainly tuk-tuks and noisy old bangers – unlike today, where Landcruisers roam the clogged streets.

There were virtually no banks, let alone cash machines. Now, curiously, they seem to everywhere. I noticed about four within 200m on the road outside the hotel.

It’s probably the one place i’ve been over a period of a few years that’s noticeably boomed. Most of the 7% average annual economic growth over the past decade has been concentrated in the capital, Vientiane, and much of it comes from a boom in hydroelectricity and mining.

Having visited several rural areas last year, the upturn isn’t mirrored throughout the country. As in so many developing nations, some people make it into the middle class and subsequently do all the things that Europeans or Americans take for granted like going to the ATM or fiddling with their iphones. Any backpacker who only sees Vientiane could be forgiven for thinking everything’s dandy.

But almost a third of people languish below the poverty line. Nutrition remains a  big problem, with around two-fifths of children underweight and a similar proportion stunted.

During a trek last year we visited a village of Lantan tribespeople near Luang Namtha in the north, emerging from the dark of the Jungle via a system of irrigation channels. We crossed a river on a tilting bridge made of vines then teetered on narrow paths cut between a series of rice paddies before coming to a fence where pot-bellied children with no trousers toddled toward us. A little naked girl held a wicker tray of wrist-bands, following us along a lumpy mud path to a hut which the tour company had built to house visitors.

A smiling lady brought out cokes and more wrist bands, motioning to me to buy one. We sat indoors eating vegetables from banana leaves on the floor while the ladies and children waited patiently outside. We bought three wrist-bands for 50p each.

We could hear coughing from inside the woven huts. Small men with their ribs showing wandered around. A water pump, built with German aid, was inscribed “April 2011”.

Like everywhere, it’s easy to be fooled by the journey from the airport into the capital. First impressions can be deceptive, and aggregates, especially gross domestic product, are sometimes almost meaningless.

People bleat on about various ‘isms’:  Keynes versus Friedman, or whether the solutions lie with market or state. Some say the government could rescue us from crisis single-handed. Others — notably that a whole stratum of middle earth England — seem to have bought the notion that the UK is fatally laden with debt and that anything other than fiscal rectitude of constipatory proportions will lead us the way of Greece and Spain.

I suspect that a lot of the ideological confrontation is false. For a start, a lot of folk don’t appear to understand how government bonds work. Osborne and Cameron induce a collective national flinch by comparing national debt with a household. The narrative is that we should all tighten our belts because Labour over-indulged.

That’s the wrong analogy.

The government isn’t in hock to some crowbar-wielding loan shark. It borrows off you and me. A lot of our bank savings get reinvested in government Treasuries, which are considered super safe even though returns are low.

A better analogy is probably a father lending to his daughter: yes, she probably doesn’t want to take too much advantage, and sooner or later she’ll want to stand on her own two feet, but most dads wouldn’t turn up at their daughter’s door with a large henchman demanding repayment at 1000%.

Here, Jonathan Portes, Director of the National Institute of Social and Economic Research, points out that some of the most moderate voices suggest that Britain should spend its way out of the bust. Even conservative chancellor Norman Lamont (for whom Portes wrote speeches) purposefully held off raising taxes and lowering spending during the last recession in the early nineties.

The IMF, normally a bastion of budgetary conservatism, says that the British government could boost the economy by balancing spending with tax hikes.

the Fund wants us … to spend more on infrastructure (and housing) and increase welfare benefits for poor people (who will spend them), and pay with it by taxing the rich (those with a lower “marginal propensity to consume”).  This would raise demand in the short term, without worsening the fiscal position.

Number 11 Downing Street can borrow almost for free to pay for the infrastructure precisely because the economy is floundering and there aren’t that many other places to invest. By buying government debt foreigners, too, are giving a vote of confidence in British standards.

But the current coalition has so committed itself to austerity that it can’t backtrack.

Of course, the Conservatives have ideological fixation with the free market. Some of their posh mates will stand to make millions out of the privatisation and contracting out that comes with shrinking the state. I’m not saying that ideology is dead. Debt is also high and needs to be paid down.

But Cameron and Osborne appear handcuffed in some Bullingdonian death pact in which they have to follow through their austerity until the rancid conclusion. It’s as if they’ve squeezed inside a sports bag, somehow padlocking it from the inside, and now they can’t get out.

The latest effluvia from Hugh Hendry, ‘contrarian’ Scottish fund manager, has it all:

[W]hat makes a great fund manager first and foremost is the ability to establish a contentious premise outside the existing belief system and have it go on to become adopted by the broader financial community. Bruce Kovner [whoever he is] expressed the idea more eloquently when he said, “I have the ability to imagine configurations of the world different from today and really believe it can happen. I can imagine…

Wait for it.

…that the dollar can fall to 100 yen”. I am sure you are nodding in agreement, except Bruce was saying this when the USDJPY was well over 200, not today’s rate of 80.

When it was above 200? Man the barricades! This is the currency-trading equivalent of Lenin arriving in St Petersburg to deliver the April theses. Contrarianism like this has the potential to rock the globe. I’ve long thought that we needed a new Keynes, but maybe he’s among us already, someone who can even conceive of a configuration of the world in which the Japanese exchange rate drops a bit.

Hold on to something stable, for it gets even more unnerving. Hendry himself has “the kind of imagination that can imagine the yen trading closer to 60″. Gosh, that kind of imagination, one that can even guess that the economies of Europe and the United States might grow differently to Asian ones.

You cannot make stuff like this up. It is simply too absurd.

The UK tax hikes and spending cuts were to be worth an extra 2.2% of GDP, or £40 billion, by 2014-15. On top of the cuts already promised by the previous chancellor Alistair Darling, the total austerity package amounted to 6.3% of GDP. George Osborne made another particularly silly mistake, promising that he’d keep many of Labour’s tax rises and even implement more in the form of a VAT hike, which further strangled growth.

It doesn’t take a genius to work out that if the British economy is worth about £1.5 trillion a year and you rip roughly £94.5 billion out of it over three years something’s likely to go banana-shaped. By shrinking the economy Osborne shot himself in his patent leather, calf-skin brogue. When businesses earn less or go bust and people don’t work, they pay less tax and you need to hand benefits to the jobless. So the government has to borrow more and tackling the deficit becomes harder.

Osborne and co. try to blame the Europeans, but everybody knew the world economy was faltering, and anyway British exports haven’t collapsed.

The financial press made a big noise on Wednesday about news of the so-called technical recession, but Britain’s economy was already depressed and it’ll keep floundering for a long time to come.

]]> http://emergenteconomics.com/2012/04/27/how-not-to-run-an-economy/feed/ 2 Dan UK austerity vs US growth http://emergenteconomics.com/2012/04/26/907/ http://emergenteconomics.com/2012/04/26/907/#comments Thu, 26 Apr 2012 11:25:09 +0000 Dan http://emergenteconomics.com/?p=907 ]]> Another telling graph. Since the crisis Britain’s economy has shrunk more than any G7 economy except Italy’s. (from Gavyn Davies in the Financial Times).

In development economics the researcher tests policies or techniques instead of drugs. One group, randomly chosen, receives the policy to be tested and one doesn’t, with an attempt made to keep all other circumstances equal. This avoids the problem of selection bias: the economist might distort the results by choosing a group which is particularly willing to take part or where she knows a technique will work well. It’s why the results of those pop surveys after you’ve visited a website aren’t to be trusted. The answers only come from the type of person who can be bothered to fill them in.

In a 2007 paper Benjamin Oken tried to measure ways of reducing corruption in Indonesia. He chose 608 villages in Indonesia where roads were to be built, splitting them into groups: ones without audit vs. those with audit; those featuring invitations to accountability meetings vs. those without; and ones with invitations to accountability meetings along with anonymous comment forms. Oken found that less money went missing in the villages with government audits  than in the ones featuring grassroots participation in monitoring. The conclusion: audits cut corruption better than the other methods.

Oken works at MIT’s poverty action lab, of which Esther Duflo and Abhijit Banerjee are directors. They’re the authors of a recent bestseller, Poor Economics, which uses experimental evidence to discover what methods best lower poverty. Over years they did more than 240 experiments in 40 countries.

Some of their conclusions run against received wisdom. Political corruption isn’t too bad. Microfinance (tiny loans for poor people) is no magic bullet.

Fans of randomised trials are right that there’s no big answer. Lots of development fads boil down to the researcher’s arbitrary preferences rather than to hard evidence. Development sometimes seems like a Roman arena in which big, shouty men try out different ways of stabbing each other. The actual subjects — poor people — are often forgotten.

Experimentalists are also right to deny that everything’s down to corruption. That’s often just a sloppy byword for blaming the poor for their own problems. If you didn’t tolerate kleptocrats, the argument goes, you’d be richer. But lots of corrupt countries aren’t democracies, and plenty of corrupt countries got rich (China springs to mind). Some reasonably graft-free nations continue to toil.

But i’m a bit wary of these sort of experimental approaches, which amount to tinkering rather than really changing underlying conditions. There’s no understanding of capitalism as a system and very little about the exploitation of labour by the wealthy. You don’t need to be a raving socialist to understand that what’s good for the poor often isn’t good for the rich. We get cheap Iphones because Foxconn holds wages so low.

As this review says, there’s little real understanding of power in development. It’s as if the world is gradually tiptoeing toward a better understanding of poverty, and by carefully applying a few well-founded scientific results we’ll eventually live as one happy tribe. Call me a cynic, but I think power relations play a bigger role than most people admit. It’s actually beneficial to have a multi-million strong pool of underpaid or unemployed people clamouring for jobs because it keeps wages down and lets us have cheap stuff.

Experiments may work in medicine, but they can be methodologically dubious in social science. The gist of philosopher Nancy Cartwright’s presentation at INET is that the sample size needed for a fully objective study can be so enormous as to be impossible. Researchers often draw completely unwarranted conclusions from these studies.As pointed out by Marx and others, ‘empirical facts’ are often distorted by their proponents. One person’s common sense is another’s ideology. I’d imagine that the sorts of questions asked by most middle-class academic Americans aren’t always the same as the sorts of things that many poor people themselves would ask.

Most of these trials also seem to fail to take enough account of context. What works in one culture might not be generalisable elsewhere. Cash incentives don’t work as well in the communitarian cultures of the South Pacific as they do in, say, Kenya. When people have plenty of food and are generally happy, they’re less likely to work hard for more pay.

Because humans are at the same time the architects of their own theories and its subjects, the problem of reflexivity emerges. The results of experiments may be valid in one situation for a short period of time but they can’t really be taken as hard fact for eternity in the same way as findings in natural science can. So most findings are only provisional and context-dependent. Such is the eternal dismalness of social science. This isn’t a body-blow to experimentalism in economics, but it does reduce its importance.