Links for May 11

My dinner with Axel. Last fall, Arjun Jayadev and I had a series of conversations with Axel Leijonhufvud at his home in California; videos and transcript are now up at the INET site, along with a collection of his writings. I’m very grateful to have had this chance to talk with him; Leijonhufvud is one of two or three economists who’ve most influenced my thinking. He’s also a charming and delightful storyteller, which I hope comes through in the interviews. I’ll be writing something soon, I hope, about Axel’s work and its significance, but in the meantime, check out the interview.

 

The mind of Draghi. This speech by Mario Draghi offers a nice glimpse into the thinking of central bankers circa 2016. The fundamental point is the idea of a long run “real” or “natural” rate of interest, which policy cannot affect. This idea, and the corollary that the economic world we actually observe is in some sense a false, unreal, artificial or “distorted” sublunary version of the true ideal, is, I think, the central site of tension between economic ideology and economic reality today. But there are other particular points of interest in the speech. First, the frank acknowledgement that the big problem with zero rates is that they reduce the profitability of financial institutions. (By the same logic, Draghi should want to do away with public education since  it reduces the profitability of private schools, and with law enforcement since it reduces the profitability of private security firms.) And second, the claim that one reason for the problem of low interest rates is … excessive government debt!

A temporary period of policy rates being close to zero or even negative in real terms is not unprecedented by any means. Over the past decades, however, we have seen long-term yields trending down in real terms as well, independent of the cyclical stance of monetary policy.

The drivers behind this have been, among others, rising net savings as ageing populations plan for retirement, relatively less public capital expenditure in a context of high public indebtedness, and a slowdown in productivity growth reducing the profitability of investment.

Yes, for years we have been warned that excessive government debt is that interest rates will get too high, increasing borrowing costs for the government and crowding out of private investment. But now it turns out that excessive government debt is also responsible for rates that are too low. Truly, to be a central banker in these times one must be a Zen master.

 

Business cycle measurement ahead of theory … or heading in an entirely different direction. I’m very excited about a series of posts Merijn Knibbe is doing for the World Economics Association. They are on the incompatibility of the concepts used in the construction of national accounts and other macroeconomic data, with the concepts used in macroeconomic theory. I’ve wanted for a while to make the case for a consistent economic nominalism, meaning that we should treat the money payments we actually observe as fundamental or primitive, and not merely as manifestations of some deeper “real” economy. Knibbe is now doing it. The first installment is here.

 

Kaminska on “deglobalization”. Izabella Kaminska is always worth reading, but this piece from last week is even more worth reading than usual. I particularly like her point that the international role of the dollar means that the US is to the world as Germany is to the eurozone:

the dollarisation of the global economy … has created a sort of worldwide Eurozone effect, wherein every country whose own currency isn’t strong or reputable enough to be used for trade settlement with commodity producers is at the mercy of dollar flows into its own country. Just like Greece, they can’t print the currency that affords them purchasing power on the global market.

The logical corollary, which she doesn’t quite spell out, is that the US, thanks to its willingness to run trade deficits that supply dollars to the rest of the world, has fulfilled its international role much more responsibly than Germany has.

“Brazil in Drag”: Hyman Minsky on Donald Trump

Via Nathan Cedric Tankus, here is a recent JPKE article by Kevin Capehart on a 1990 lecture by Minsky that uses Trump as a case study of asset market bubbles in the 1980s. The lecture is fascinating, and not just as an odd historical artifact.

Here is what Minsky says about Trump:

One of the puzzles of the 1980s was the rapid rise in the financial wealth of Donald Trump, author of The Art of the Deal… Trump’s fortune was made in real estate. Many large fortunes have been made in real estate, since real estate is highly leveraged. Two factors made Trump somewhat unique — one was the he developed a fortune in the period of high real interest rates, and the second was that the cash flows on most of Trump’s properties were negative.

Trump’s wealth surged because the market value of his properties — or at least the appraised value — was increasing faster than the interest rate. Trump obtained the funds to pay the interest on his outstanding loans by increasing the draw under what in effect was a home equity credit line. The efficiency with which Trump managed these properties was more or less irrelevant — hence Trump could acquire the Taj Mahal in Atlantic City without much concern about the impacts on the profits of the two casinos he already owned. Trump was golden — he had a magic touch — as long as property prices were increasing at a more rapid rate than the interest rate on the borrowed funds.

The puzzle is that the lenders failed to recognize that the arithmetic of his cash flows was virtually identical with that of the developing countries [discussed earlier in the lecture]; in effect Trump was Brazil in drag. In the short run Trump could make his interest payments with funds from new loans — but when the increase in property prices declined to a value below the interest rate, Trump would become short of the cash necessary to pay the interest on the outstanding loans.

The increase in U.S. real estate prices in the 1980s was regional, and concentrated in the Northeast and in coastal California. … Real estate prices dipped in the oil patch, climbed modestly in the rust belt, and surged in those areas that benefitted from the rapid increases in incomes in banking and financial services — sort of a derived demand from the financial success of Drexel Burnham. In effect, those individuals with high incomes in financial services — and with the prospect of sharp increase in incomes — set the pace for increases in real estate prices.

Trump’s cousins were alive and well and flourishing in Tokyo, Taipei and Seoul especially in the second half of the 1980s. The prices of equities and real estate were increasing because they were increasing…

In any market economy the price of real estate will tend to reflect both its rental return and the rate of return on the riskless bond. … The price of land rises and the price of land sometimes falls — the relevant question is whether the anticipated increase in the price of land is sufficiently higher than the interest rate on bonds to justify a riskier investment.

….

The key question is why so many varied bubbles developed in the last several decades. The most general answer is that sharp changes in inflation rates and interest rates led to extremely volatile movement in asset prices. And once these price movements begin, then on occasion momentum may develop and feed on itself — at least for a while.

So in Minsky’s version of The Art of the Deal, there are three things you need to get rich like Trump. First, be an investor in NYC and New Jersey real estate in a period when land prices are rising rapidly there relative to the rest of the country. Second, be highly leveraged. And third — and this is critical — convert your equity to cash as quickly as possible to protect yourself from the post-bubble fall in prices. Picking the right individual properties doesn’t matter so much, and managing the properties well doesn’t matter at all.

In this analysis, the repeated bankruptcies of Trump-controlled properties don’t undermine his claims of business success, nor are they just an incidental footnote to it; they are an integral part of how he got so rich. Because the flipside of extracting cash from his properties through “what was in effect a home equity credit line” is that there was less equity left for the entity that actually owned them.

The trick to making money in an asset bubble is to cash out before it pops. Doing this by selling at the peak is hard; you have to time it just right. It’s easier and much more reliable to cash out the capital gains as they accrue; that just requires some way of moving them to a different legal entity. The precedent for Trump, in this reading, would be the utility holding companies that played such a big part in the stock market boom of the 1920s and were such a big target for regulation in the 1930s. Another parallel would be today’s private equity funds. To the extent that the funds cash out via so-called “dividend recapitalization” (special dividends paid by the acquired company to the PE fund) rather than eventual resale, an acquired company that doesn’t end in bankruptcy is money left on the table. It’s interesting, in this context, to think about Romney and Trump as successive Republican nominees: They may embody different cultural stereotypes (prissy Mormon patriarch vs womanizing New York vulgarian) but fundamentally they are in the same business of financial value extraction.

Draghi Makes His Case

A few unorganized thoughts on yesterday’s press conference. Video is here. Transcript is … do they even publish transcripts of these things?

Draghi’s introductory remarks didn’t mention Greece but of course that’s what all the questions were about. The big question were about liquidity assistance (ELA) to Greek banks and under what conditions Greek debt would be included in quantitative easing, a big expansion of which was just announced.

There’s no way to hide the hypocrisy of the simultaneous expansion of QE and continued limits on ELA. You can say, the markets don’t want to hold this debt so we need to reduce our holdings too, to avoid excessive risk — then you are acting like a private bank. Or you can say, the markets don’t want to hold this debt so we need to increase our holdings, to keep its yield down — then you are acting like a central bank. But there’s no basis for applying one of these logics to Greece and the other to the rest of the euro area.

There was also no explanation for the decision to raise the ELA cap by 900 million. Draghi kept repeating the formula “solvent banks with adequate collateral” but obviously this implies a bank by bank assessment, not a hard cap for the country as a whole. Anyway, the logic of a lender of last resort is that, if you are going to support the banks, you need to be prepared to lend as much as it takes. A limited program only makes the problem worse, by encouraging depositors and other holders of short-term liabilities to get out before its exhausted. Paul de Grauwe has the right analysis here:

The correct announcement of the ECB should be that it will provide all the necessary liquidity to the Greek banks. Such an announcement will pacify depositors. Knowing that the banks have sufficient cash to pay them out they will stop running to the bank. Like the OMT, such an announcement will stop the banking crisis without the ECB actually having to provide much liquidity to the Greek banks.

These are first principles of how a central bank should deal with a banking crisis. I would be very surprised if the very intelligent men (and one woman) in Frankfurt did not know these first principles. This leads me to conclude that the ECB has other objectives than stabilizing the Greek banking system. These objectives are political. The ECB continues to put pressure on the Greek government to behave well. The price of this behavior by the ECB is paid by millions of Greeks.

Logically, ELA should either be ended or else provided on the a sufficient scale to restore confidence and end the run. Draghi suggested that there was something moderate and “proportional” about choosing a course in between, but this is incoherent. I was also very struck that he felt the need to reject the accusation that “there was bank run deliberately caused by the ECB,” which no one there had made. Remember that old line, attributed to Claud Cockburn: Never believe something until it’s been officially denied.

Another thing I found interesting was how much he treated the Bank of Greece as an independent actor, frequently referring to decisions “taken by the ECB and the Bank of Greece” and even trying to pass the buck to them on questions like whether the additional ELA was sufficient (“we have fully accommodated the Bank of Greece’s request”) and when the Greek banks would be able to reopen. Establishing that the national central banks have independent authority will be important if they become a terrain of struggle in future conflicts between popular governments and the euro authorities.

On the question of when the Greek banks would reopen, after deferring to the BoG, he then said that they hold all this government paper (which isn’t actually true — the ECB’s own numbers show that Greek banks have the lowest proportion of government loans on their books of any major euro-area country) and their solvency and the adequacy of their collateral therefore depend on what’s going on with the government. “The quality of the collateral depends on the quality of the discussions” with the creditors was one way he put it, a more or less explicit acknowledgement that this decision is being made on political criteria.

Someone asked him point-blank how the Greek banks could be ineligible for assistance when the ECB’s own analysis had concluded they were solvent; someone else asked why a hard cap was being announced when this was never done for individual banks, precisely because of concerns wit would intensify a panic. At this point (around 40:00 in the video) he changed tack again. Now he said that this was a special case because it wasn’t about conditions at individual banks but about a “systemic” problem of a whole banking system, so the old rules didn’t apply. Which of course made nonsense of the “solvency and adequate collateral” formula, without doing anything to justify the ECB’s actions.

On the question of whether or when Greek bonds would be included in QE, Draghi’s initial non-answer was “when they become eligible for monetary policy.” Pressed by the reporter (around 56:00), he turned to vice-president Constâncio, who explained that if a country’s bonds were rated below investment-grade, they could only be purchased by the ECB if (1) there was an IMF program in place and (2) the ECB’s Governing Council determines that there is “credible compliance” with the program. [1] Here again we see how monetary policy is used to advance a particular policy agenda, and more broadly, a nice illustration of how market and state power articulate. The supposed judgement of the markets is actually enforced by public agencies.

One of the few departures from Greece was when Draghi got going — I can’t remember in response to what — about the need for deeper “capital market integration.” Which seems nuts. Who, looking at the situation in Europe today, would say, You know what we really need? More uncontrolled international lending. It’s just like Dani Rodrik’s parable:

Imagine landing on a planet that runs on widgets. You are told that international trade in widgets is highly unpredictable and volatile on this planet, for reasons that are poorly understood. A small number of nations have access to imported widgets, while many others are completely shut out even when they impose no apparent obstacles to trade. With some regularity, those countries that have access to widgets get too much of a good thing, and their markets are flooded with imported widgets. This allows them to go on a widget binge, which makes everyone pretty happy for a while. However, such binges are often interrupted by a sudden cutoff in supply, unrelated to any change in circumstances. The turnaround causes the affected economies to experience painful economic adjustments. For reasons equally poorly understood, when one country is hit by a supply cutback in this fashion, many other countries experience similar shocks in quick succession. Some years thereafter, a widget boom starts anew.

Your hosts beg you for guidance: how should they deal with their widget problem? Ponder this question for a while and then ponder under what circumstances your central recommendation would be that all extant controls on international trade in widgets be eliminated.

 

[1] I’m not sure but I believe these standards were established by the ECB itself, and not by any of its governing legislation. So the answer is evasive in another way. In general, watching these things makes clear how helpful it is in resisting popular pressure to have multiple, shifting, overlapping authorities. Any decision can be presented as an objective constraint imposed from somewhere else.

 

UPDATE: Nathan Tankus has some very sharp observations on the press conference.

 

“As If a Man Were Author of Himself”

A couple of years ago, I saw a performance of Coriolanus on the Boston Common. It was that rare experience of seeing a great Shakespeare play with no prior knowledge. I had only the vaguest idea of what the play was about, and didn’t know a single line from it. This is, to say the least, not the way we usually encounter Shakespeare.

You don’t appreciate this play until you see it performed. It is fast-paced, genuinely exciting, and often funny — qualities that do not come out on page. Some forgotten Shakespeare plays are forgotten for a reason. But this one, you have to wonder why it isn’t up there in the canon with Macbeth and Othello and Lear. Maybe because it lacks show-stopping monologues (something you miss less on the stage.) More likely because the central character is such a cipher.

So who is Coriolanus? He turns out to be, essentially, John Galt — or Mitt Romney, or Leung Chun-Ying. Which means that this is a play that speaks to our current condition. The connection was obvious when I saw the play, less than a year after the end of Occupy (which this staging clearly referenced) and a few months before the 2012 elections. I meant to write something about it then. But I got distracted with other things, and after Mitt Romney left the big stage it seemed less relevant. But as Paul Krugman reminds us,  Coriolanuses still walk among us. So I’ll belatedly set down my thoughts now.

* * *

The play opens with a riot, by the plebians of Rome against the patricians. The rioters are surprisingly articulate. Far more so than urban rioters in similar contemporary stories (like the plain people of Gotham in the Dark Knight Rises.)

FIRST CITIZEN. We are accounted poor citizens, the patricians good. What authority surfeits on would relieve us; if they would yield us but the superfluity… the leanness that afflicts us, the object of our misery, is as an inventory of their abundance; our suffering is gain to them. Let us revenge this with our pikes … the gods know I speak this in hunger for bread, not in thirst for revenge.

Note that their demand — repeated a couple times over the play — is to have wheat from the storehouses sold at a fair price. This demand that “engrossers” be required to disgorge their stores was, I beleive, a common demand in urban riots — indeed, traditional English law required it. The patricians in Coriolanus often speak as though giving in to the rioters would imply a complete social breakdown — but when Shakespeare has the plebians themselves speak, this is what they call for, not  aimless destruction.

To mollify the mob, the patrician Menenius explains to them that if they are the arms and legs of Rome, the nobility is the stomach. This metaphor might read differently then (like a fire that gives light vs. heat, a line that is always quoted backwards today) but it’s hard not see it as a sly acknowledgement that the mob is right.

MENENIUS. There was a time when all the body’s members
Rebell’d against the belly; thus accus’d it:–
That only like a gulf it did remain
In the midst o’ the body, idle and unactive,
Still cupboarding the viand, never bearing’
Like labour with the rest … it tauntingly replied
… I am the storehouse and the shop
Of the whole body…
The strongest nerves and small inferior veins
From me receive that natural competency
Whereby they live …

Menenius is a bit of a clown, a kind of Polonius figure. It’s Coriolanus himself who gets the best songs from the conservative hymnal — that the common people are under the control of their appetites, they are capricious, that they can’t govern themselves, they are liable to turn on each other without an authority over them.

CORIOLANUS: … your affections are
A sick man’s appetite, who desires most that
Which would increase his evil. He that depends
Upon your favours swims with fins of lead,
And hews down oaks with rushes. Hang ye! Trust ye!
With every minute you do change a mind
And call him noble that was now your hate,
Him vile that was your garland. What’s the matter,
That in these several places of the city
You cry against the noble senate, who,
Under the gods, keep you in awe, which else
Would feed on one another?

This is a central theme of conservative and reactionary politics — that ordinary people, left to ourselves, would be unable to solve our coordination problems, would fall into a war of all against all. This is always the story we’re told about urban riots, it’s the story that the purpose of Occupy was, in a sense,  to challenge. We heard  Coriolanus’s voice most clearly after Hurricane Katrina, when the reality of violence by the authorities and of mutual aid in New Orleans were transformed in the popular imagination (with help of some vile propaganda) into fantasies of anarchic violence by the people trapped in the city. Rebecca Solnit’s A Paradise Built in Hell is a good corrective to this myth.

To be fair, some of the common people in the play seem to accept this account of themselves:

FIRST CITIZEN. …  once we stood up about the corn, he himself stuck not to call us the many-headed multitude. 

THIRD CITIZEN. We have been called so of many; not that our heads are some brown, some black, some auburn, some bald, but that our wits are so diversely coloured; and truly I think if all our wits were to issue out of one skull, they would fly east, west, north, south; and their consent of one direct way should be at once to all the points o’ the compass.

But then that is how ideology works — to foreclose the possibility of alternative forms of coordination.

Meanwhile the patricians are discussing the situation. Coriolanus asks Menenius  what it is, exactly, that the common people want.

MENENIUS. For corn at their own rates; whereof they say
The city is well stor’d. 

CORIOLANUS. Hang ’em!
They say! They’ll sit by th’ fire and presume to know
What’s done i’ the Capitol; who’s like to rise,
Who thrives and who declines; side factions, and give out
Conjectural marriages; making parties strong,
And feebling such as stand not in their liking
Below their cobbled shoes. They say there’s grain enough!
Would the nobility lay aside their ruth
And let me use my sword, I’d make a quarry
With thousands of these quarter’d slaves, as high
As I could pick my lance. …
They said they were an-hungry; sigh’d forth proverbs,–
That hunger broke stone walls, that dogs must eat,
That meat was made for mouths, that the gods sent not
Corn for the rich men only:–with these shreds
They vented their complainings…

Even in Coriolanus’ hostile summary, the mob sounds kind of reasonable, no? Note that he doesn’t deny that the city’s storehouses have enough grain to feed the populace. (And it soon becomes clear they do.) Rather, he is outraged by the idea that ordinary people have any opinion on these questions at all. The violence of his response is remarkable — he’d like to slaughter thousands of Roman citizens — especially considering he is the notional hero of the play. But then indiscriminate violence is often the response when the social hierarchy is seriously threatened — consider the 20-30,000 Parisians killed in the ten days following the fall of the Paris Commune.

The concilatory faction among the nobility wins out, and tribunes are appointed to represent the plebians in government. In the production I saw, the tribunes really stole the show. Even if the text itself presents the tribunes mostly as half clowns, half villains, you have to love a play with a couple of communist agitators as central characters. Their costumes brought this out in the Boston Commons production, but it’s right there in the text.

Before the social conflict can continue, however, it’s cut short by war on Rome’s borders. Coriolanus is given command of some of the Roman troops fighting against the Volscian invaders. Not surprisingly, he regards his rank and file soldiers about as favorably as he does ordinary Roman citizens.

You shames of Rome! … You souls of geese
That bear the shapes of men, how have you run
From slaves that apes would beat! Pluto and hell!
… by the fires of heaven, I’ll leave the foe
And make my wars on you

Nonetheless, the Volscians are defeated; and after his wartime success, Coriolanus is a natural choice for consul. His fellow patricians urge him to accept the office. The catch is that Roman law requires the populace to approve new consuls. It’s just a formality, but one that — with the recent unrest — can’t be safely dispensed with.  Coriolanus wants the job but refuses to ask for it. His pride is expressed in a refusal to do anything that would seem to be asking for acknowledgement or reward.  This comes out specifically in the question of whether he will display his battle wounds to the public, apparently a relaible way of winning their admiration. He expresses unwillingness:

CORIOLANUS: I have some wounds upon me, and they smart
To hear themselves remember’d.

The funny thing is, no one has mentioned his wounds until now! Throughout the play, Coriolanus is a master of this sort of humblebragging.

Don’t worry, the other patricians tell Coriolanus, just show up and talk about your victories, and the people will approve you. They are weak-willed and easily swayed. But Coriolanus refuses. He hates more than anything else having to ask the masses for approval. Even if they’d give it, no problem, it infuriates him that they even get a say over their natural superiors like him. On behalf of the patrician class, Menenius begs him to suck up his pride and pretend, just for a moment, to want the people’s approval.

CORIOLANUS. Are these your herd?
Must these have voices, that can yield them now,
And straight disclaim their tongues?
What are your offices?
You being their mouths, why rule you not their teeth?
Have you not set them on? 

MENENIUS. Be calm, be calm. 

CORIOLANUS. It is a purpos’d thing, and grows by plot,
To curb the will of the nobility: Suffer’t, and live with such as cannot rule,
Nor ever will be rul’d. …
In soothing them we nourish ‘gainst our senate
The cockle of rebellion, insolence, sedition,
Which we ourselves have plough’d for, sow’d, and scatter’d,
By mingling them with us, the honour’d number

Of course, he isn’t wrong. Granting even symbolic authority to the plebs calls into question the inevitbility of the authority of their superiors. The greatest strength of the rule of a small elite is that no other possibility is even thinkable. So any symbol that renders it thinkable, is threatening.

Recall the judgement of Charles LeClerc, the general sent to reconquer Haiti for Napoleon: “We must exterminate all the blacks in the mountains, women as well as men… wipe out half the population of the lowlands, and not leave in the entire colony a single black who has ever warn an epaulette.” If it is possible for blacks to be officers, LeClerc reasoned, it is impossible for blacks to be slaves. There were similar reactions in the Confederacy to proposals to use blacks as soldiers.

Coriolanus thinks like LeClerc. And anyway, he personally is unwilling to acknowledge any dependence, even symbolic, on his  inferiors. He will be consul only thanks to his own natural superiority, not thanks to any kind of public approval.

Menenius begs him to reconsider:

MENENIUS. You’ll mar all: I’ll leave you.
Pray you speak to ’em, I pray you,
In wholesome manner. 

CORIOLANUS. Bid them wash their faces
And keep their teeth clean.
[Exit MENENIUS.]
So, here comes a brace:
[Re-enter two citizens.]
You know the cause, sirs, of my standing here. 

FIRST CITIZEN. We do, sir; tell us what hath brought you to’t. 

CORIOLANUS. Mine own desert. 

SECOND CITIZEN. Your own desert? 

CORIOLANUS. Ay, not mine own desire. 

FIRST CITIZEN. How! not your own desire!

CORIOLANUS. No, sir, ’twas never my desire yet to trouble the poor with begging. 

… 

CORIOLANUS. Better it is to die, better to starve,
Than crave the hire which first we do deserve.
 Why in this wolvish toge should I stand here,
To beg of Hob and Dick that do appear,
Their needless vouches?

When I saw the play in the fall of 2012, the parallel with the “you didn’t build it” pseudo-controversy was glaring. (It’s interesting also that Coriolanus refers to common people as “trades.”) The idea that the occupants of high positions might owe any of their success to those beneath them, is anathema. As Coriolianus warns his fellow patricians, hierarchy and democracy are an unstable mix:

You are plebeians,
If they be senators: and they are no less
When .. they choose their magistrates

… 

How shall this multitude digest
The senate’s courtesy? Let deeds express
What’s like to be their words:–‘We did request it;
We are the greater poll, and in true fear
They gave us our demands:’– Thus we debase
The nature of our seats, and make the rabble
Call our cares fears; which will in time
Break ope the locks o’ the senate and bring in
The crows to peck the eagles. 

The tribunes, though they often come across as clownish, clearly understand what’s at stake as well as Corolianus does. Here’s one of the tribunes:

BRUTUS: So it must fall out
To him or our authorities. For an end,
We must suggest the people in what hatred
He still hath held them; that to’s power he would
Have made them mules, silenc’d their pleaders, and
Dispropertied their freedoms; holding them,
In human action and capacity,
Of no more soul nor fitness for the world
Than camels in their war; who have their provand
Only for bearing burdens, and sore blows
For sinking under them.

In general, the tribunes’ line against Coriolanus is that he is proud, that he is using his (unquestionably genuine) accomplishments and virtues to set himself up above the people. This kind of jealousy and suspicion of successful war leaders seems to be a central theme of human egalitarianism, going back to the paleolithic.

It’s striking what tribune Brutus says to Coriolanus when he confronts him directly:

BRUTUS. You speak o’ the people
As if you were a god, to punish, not
A man of their infirmity.

Here is the central theme of the play: the idea of “superior” people that they are somehow outside of society, outside the common condition of humanity, versus the reality that they are as dependent, as infirm, as the rest of us.

Coriolanus also hates his opposite number, the Volscian general Aufidius. (I have no idea who if anyone this represents historically.) But there’s a difference in the  quality of hatred for an equal as against a social inferior. Here, Coriolanus asks a Roman diplomat about Aufidius.

CORIOLANUS. Spoke he of me?

LARTIUS. He did, my lord.

CORIOLANUS. How? What?

LARTIUS. How often he had met you, sword to sword;
That of all things upon the earth he hated
Your person most; that he would pawn his fortunes
To hopeless restitution, so he might
Be call’d your vanquisher.

CORIOLANUS. At Antium lives he?

LARTIUS. At Antium.

CORIOLANUS. I wish I had a cause to seek him there,
To oppose his hatred fully.
[Enter SICINIUS and BRUTUS.]
Behold! these are the tribunes of the people;
The tongues o’ the common mouth. I do despise them,
For they do prank them in authority,
Against all noble sufferance.

The one hatred involves a kind of admiration and attraction (“I wish I had cause to seek him there”); the other only contempt. Even opposing elites are closer to each other than to the people they rule.

The combination of his visible contempt and the tribunes’ urging the people not to acclaim him unless he shows some respect, result in Coriolanus being denied the consulship, and then accused of treason and exiled from the city.  As he puts it, “the beast with many heads butts me away.” It’s interesting how often the play uses this kind of language for the common people; it brings to mind Linebaugh’s Many-Headed Hydra. Linebaugh himself suggests that Shakespeare wrote the play in response to the Midlands revolt of 1607, a mass uprising against enclosures that, apparently, was the first appearance of “Levellers” in England. What’s interesting about the play as a whole is that it faces forward to this kind of class politics, rather than backward, like the history plays, to the older world of dynastic, feudal politics. It might be the only Shakespeare play that George Scialabba would approve. (It was also the only Shakespeare play that interested Brecht.)

After leaving Rome, Coriolanus seeks out his old enemy Aufidius and pledges his service to him and the Volscians if they will make a new war on Rome. Like Rand’s D’Anconia, he imagines he’ll leave Rome as he found it. (So maybe the tribunes’ accusations of treason were on the mark?) Aufidius, an aristocrat himself, is buying what Coriolanus is selling:

AUFIDIUS. … the nobility of Rome are his;
The senators and patricians love him too:
The tribunes are no soldiers; and their people
Will be as rash in the repeal as hasty
To expel him thence. I think he’ll be to Rome
As is the osprey to the fish, who takes it
By sovereignty of nature.

With Coriolanus and Aufidius sharing command, the Volscian army reverses its defeats and advances to the gates of Rome. The tribunes want to raise a new army (this is only mentioned in passing, but I thought it was an interesting detail). Meanwhile, the patricians send emissaries out, who know Coriolanus and perhaps can convince him to spare the city.  But Coriolanus turns them all away, even Menenius who, he says, was like a father to him:

CORIOLANUS. This last old man,
Whom with crack’d heart I have sent to Rome,
Lov’d me above the measure of a father;
Nay, godded me indeed. Their latest refuge
Was to send him…

As these lines suggest, the specific challenge Coriolanus faces here is denying the social ties that connect him to Rome — denying that he owes anything to anyone, that he is in any way dependent, enmeshed in a web of social obligations. Or as he puts it:

… I’ll never
Be such a gosling to obey instinct; but stand,
As if a man were author of himself,
And knew no other kin.

Coriolanus imagines himself as, precisely, a self-made man. But as Professor T. says, nobody is: The thing that libertarians always forget or ignore is the biological dependence everyone experiences, not least as children. It’s only possible to imagine yourself as an autonomous monad, author to yourself, if family life is rigidly walled off from civil society and, in general, if women are kept out of sight.

You think I’m reading that into the play? No no, Coriolanus says it himself:

Not of a woman’s tenderness to be,
Requires nor child nor woman’s face to see.

And that’s his downfall. Once Menenius returns in defeat, the Romans have one more trump to play. They send Coriolanus’ mother, wife and son to plead with him. (It’s a funny, proto-feminist touch that Menenius himself scoffs at this last attempt. If he, Coriolanus’ mentor, failed, how could these women and children have a chance?) Coriolanus tries to convince himself to ignore even these most primal ties:

the honour’d mould
Wherein this trunk was framed, and in her hand
The grandchild to her blood. But, out, affection!
All bond and privilege of nature, break!
Let it be virtuous to be obstinate.

But he can’t do it. The bond and privilege of nature wins out, and he refuses to continue with the attack. Alas for all our would-be Coriolanuses, everyone has a mother. Or as the defrocked priest warns Captain Bednar in the climactic scene of The Man with the Golden Arm, “we are all members of one another.” (I only discovered writing this post that it’s a bible quote, from Romans.)

And that’s it. Coriolanus returns in disgrace to the Volscian capital, where his former allies murder him, and then — guiltily and a bit incongruously — offer him a stately funeral, declaring that his is

…the most noble corpse that ever herald
Did follow to his urn.

(I read somewhere that the reason so many Shakespeare plays end with these funeral marches is that, since theaters of the time did not have curtains, some device was needed to get the “dead” actors off the stage.)

So what are we supposed to think about this person? The play is a bit ambiguous. Structurally, Coriolanus is the hero. But he hardly comes across as admirable. On the other hand, he is the object of various “most noble Roman” orations, right up to Aufidius’ closing lines. So maybe he is intended as a tragic hero? You might think so … except for one remarkable scene in the middle of the play (cut unfortunately from the movie version), where Shakespeare tips his hand.

Here, Coriolanus has just won a major battle against the Volscians, and captured one of their cities, which is being sacked by the Roman troops. Cominius, the overall Roman commander, offers Coriolanus his share of the loot:

COMINIUS: … Of all the horses,
Whereof we have ta’en good and good store, of all
The treasure in this field achieved and city,
We render you the tenth, to be ta’en forth,
Before the common distribution, at
Your only choice. 

CORIOLANUS: I thank you, general;
But cannot make my heart consent to take
A bribe to pay my sword: I do refuse it;
And stand upon my common part with those
That have beheld the doing.

That’s our boy, no loot for him. He’s too good for all that. But it turns out, he does have one favor to ask from the commander:

CORIOLANUS: The gods begin to mock me. I, that now
Refused most princely gifts, am bound to beg
Of my lord general.

COMINIUS: Take’t; ’tis yours. What is’t?

CORIOLANUS: I sometime lay here in Corioli
At a poor man’s house; he used me kindly:
He cried to me; I saw him prisoner;
But then Aufidius was with in my view,
And wrath o’erwhelm’d my pity: I request you
To give my poor host freedom.

COMINIUS: O, well begg’d!
Were he the butcher of my son, he should
Be free as is the wind. Deliver him, Titus.

LARTIUS: Marcius, his name?

CORIOLANUS: By Jupiter! forgot.
I am weary; yea, my memory is tired.
Have we no wine here?

COMINIUS: Go we to our tent:
The blood upon your visage dries; ’tis time
It should be look’d to: come.

Exeunt

And, scene! Nothing more is heard of the old man.

It’s an amazing scene. I couldn’t believe it when I saw it. This is black humor worthy of Joseph Heller. Here’s the noble Roman, making a noble request after his great victory: He doesn’t want gold or women, only mercy for an old man who treated him kindly when he was in need. Oh how noble! Except … he can’t remember the fellow’s name. Oh well. He was just a nobody anyway. Let’s go have some wine.

It’s tempting to call the play surprisingly modern. But the truth is, even in the 21st century it’s hard to find such an unflinching portrait of an overdog. Here is someone whose only idea of morality is an image of himself. He’s not interested in the effects of his actions on other people; the common people only matter to him as a backdrop for the stage on which he plays the hero. It must have been a type that Shakespeare knew well.

UPDATE: In comments, MisterMR supplies the historical context, from Livy.

Get Your Gaman On

The other day, I quoted Howard Davies explaining the big macroeconomic advantage of a country like Latvia over a country like Greece:

Latvia could make austerity work because they’d been in the USSR for 50 years, they were used to unpleasant and dramatic things happening. The population would accept incredible privation. 

As a sort of followup, here’s a letter from one Mr. Zachary Pessin, in yesterday’s FT:

I have often thought that acclimatisation to a depressed economic environment is a state of mind that the Japanese have adjusted to… I first went to Japan in 1995 to live for a semester, then lived there full-time from 1999 to 2002. I have been every year since, save the last two. So, for 15 years I have seen how a generation of Japanese lost pride in their country, lost hope of an inspiring life and came to terms with the drudgery.

“Yikes,” you’re probably thinking, “Lost pride, lost hope and drudgery? That sounds awful — we’d better figure out fast how to avoid it.” Well, if that is what you’re thinking, then you’d better think again. Losing hope is the whole point. The Japanese, Pessin says, are

a decade ahead of us in dealing with the world we now live in. … Perhaps you know the Japanese term gaman, which is effectively translated as “to persevere valiantly through pain or difficulty; stoic determination”. This too will be another import from Japan, because they have been living in the House of Gaman for almost 20 years now, and we Americans are just arriving. And make no mistake, the deleveraging that must continue across the US economy for at least another five to eight years at best will keep us walking the precipice of deflation for at least that long. There will be a need for gaman.

I don’t know how much pain or drudgery is in store for Zac Pessin personally, given that he is President and Chief Executive of the Distributed Capital Group; you can find him here crowing about double-digit returns on his investments in sub-Saharan Africa. But it’s nice of our masters to let us know about the sacrifices we will be expected to make on their behalf.

Those who take the meat from the table
Teach contentment.
Those for whom the taxes are destined
Demand sacrifice.
Those who eat their fill speak to the hungry
Of wonderful times to come.
Those who lead the country into the abyss
Call ruling too difficult
For ordinary men.

Davies on the Disorder in Europe

My friend Jen writes about informal labor markets in South Africa. She was telling me the other day about street vendors who make their living buying packs of a dozen pairs of socks and selling them pair by pair. In that same spirit of finding a niche in the very last step of the distribution network, I thought I would pass on some material from a talk I attended last week by Sir Howard Davies. It’s below the fold, with occasional comments from me in brackets. A lot may seem familiar, but enough was new to me — and Davies is high enough up in this world; he’d had dinner the night before with Charles Dallara — that I think it’s worthwhile to put down my notes in full.

There are six and half questions to ask about the Euro system. Is the crisis over? Why did anyone think it would work? Why did it take so long to fall apart? Are the responses to date sufficient? What more is needed? Why even bother? And the half question, what’s it all mean for the UK?

To question 1, no surprise, the answer is No.  “The ECB has been making really good policy for a country that doesn’t exist.” The fundamental problem of pan-European banks with no pan-European regulator or lender of last resort is no closer to being resolved; “some sticking-plaster has been applied,” that’s all.

On question 2, there were three reasons:

Some people said, “Yes, you will need a fiscal authority, but it will happen.” Europe policy in general has developed through a process of leap forward, then retrofit. And after all, it says right in the treaty “Ever closer union.”

Other people thought the stability and growth pact would ensure appropriate policy.

A third group of people, including Davies, believed something like, “Yes, these economies are very different, with different labor market institutions and so on, but without the option of devaluation they will be forced to converge.” Periodic devaluations had allowed southern European countries to avoid structural reform, but now everyone would have to behave like the Germans.

Well, all these views were wrong. Why? Three reasons:

– Maastricht turned out to be the high point of enthusiasm for federalism. Every single vote on additional federalism has said, No.

– The SGP turned out to be both too tight, in that it didn’t leave enough space for countercyclical fiscal policy, and too loose, in that it had no enforcement mechanism. [So it sounds like Davies would be on board with John Quiggin’s “hard Keynesianism.”]

– Lower interest rates were not used for fiscal consolidation. [This seems wrong to me, at least for Italy and Spain.] And there was no convergence to German levels of productivity.

On question 3, the first answer was that the first decade of the euro was, in Mervyn King’s unfelicitous coinage, NICE — Non-Inflationary with Consistent Expansion. And the ECB, while prohibited from buying government bonds directly, bought them in secondary markets at equal rates, meaning there was no pressure for fiscal discipline on member states. [Again, I’m resistant to this story, except for Greece and maybe Portugal.] Davies recalls talking to a Morgan Stanley bond dude, explaining how he marketed Greek debt: “A Greek bond is just like a German bund, except with an extra three points of interest.” There was a real market failure here, says Davies, and the banks that ended up holding this stuff (all European, by the way, American institutions have successfully elimianted almost all their exposure) deserve their haircuts.

[It would be interesting to explore the idea that an unsustainable current account deficit is precisely one that can only be financed with an interest rate premium.]

Question 4, the adequacy of the response. “The problem is that they are focused on the last crisis and the next crisis, but not on the current crisis.” By which he means that they are putting in place rules that would have helped if they’d already been in place years ago, while ignoring the ways in which “responsible” fiscal policy will exacerbate the current downturn. The problem right now is that austerity just makes the growth picture worse, and that the European “rescue capacity” is too small.

Question 5, what more is needed. In the short run, a better firewall is needed to prevent contagion from the worst-hit countries and institutions. In the longer run, Europe needs (a) some system for Europe-wide public borrowing (one idea would be for debt up to, but not above, the SGP levels to be backed by the community as a whole); and (b) a pan-European bank regulator and lender of last resort. But the Germans won’t go for it.

Which brings us to Question 6. Wouldn’t some countries be better off leaving? Greece’s departure is probably inevitable, he said. But it poses major challenges — even if you had an agreed-on procedure for converting Greek euros to the new Greek currency, which euros are the Greek ones? “If the coin says Greece, no problem. Greek government bonds, ok, those are Greek. And if you are living in Greece and have an account in a Greek bank, then that is probably a Greek euro. But, I have a boat in Greece and an account at Barclay’s in Athens. Are those Greek euros? I hope not. How about someone living in Athens but with a bank account in London, is that a Greek euro?” And beyond those technical problems, there are even worse political problems, that should make exit the last possible resort. Because, who will benefit from the failure of the euro, politically? In France, the fascists — Marie le Pen based her whole campaign around it. “In Greece, it would be the anarchists and the communists, they’re the only ones who have been against the euro.” [OH NOES the anarchists.] The communists in Hungary, Sinn Fein in Ireland, etc. “Only in the UK can you say that the Euro-skeptics are not mad people.”

Nonetheless, Greek exit is probably unavoidable. “My hunch is that Greece will not make it,” because they lack social capital. The Irish are stoic, they will accept lower pay and higher taxes. They say, ah well, we had a good few years but it had to end. Not the Greeks, they won’t pay taxes. [There was a shaggy-dog story in here about local officials in Spain and Greece competing to see who can waste more EU money.] Gas costs $6 a gallon in Greece because it’s almost the only thing the government can reliably tax. “Latvia could make austerity work because they’d been in the USSR for 50 years, they were used to unpleasant and dramatic things happening. The population would accept incredible privation.” The Greek population, sadly, will not.

And on the last half question: If the solution is “more Europe,” that will be a big problem for the UK. Cameron is a Euro-skeptic; it’s not just because he’s responding to popular opinion, but nonetheless popular opinion is heading that way. The UK is going to face increasing pressure to detach itself from the EU.

And a few other observations, from the Q&A:

“You can’t imagine Italy having an unelected government for long, but they are urgently engaged in some necessary reforms that would otherwise be impossible.”

There has never been a referendum in favor of the euro.

German wages have not gone up, German property values have not gone up, why should ordinary Germans feel like they are the beneficiaries of the euro and want to do more to save it? [Sounds like an argument for Thomas Jørgensen’s “Drink finer wines, drive nicer cars, and party harder!” platform.]

Most likely, Greece will have a disorderly exit, and that will concentrate the minds of European policymakers to take the necessary steps to prevent a repeat. Avoiding future defaults will require some kind of collective guarantee of Euro-area bonds, but Germans won’t accept that until it’s clear that the altenrative is catastrophe. So, “Greece may have to perform this service.”

The alternative is for Greece to do what Latvia did, structural reforms, get rid of anti-competitive policies. The problem is, you don’t have a full technocratic government in Greece, you still have elected officials with real power. [And that, I think, is what it all comes down to.]