Sunday, March 15, 2009

The Rain in Spain

I follow Paul Krugman's New York Times editorials, as well as his blog, The Conscience of a Liberal, as often as I can. For one thing he's not ashamed of being a liberal, which is refreshing. For another thing, he writes well. And for another, he does actually seem to know what he's talking about. Also, he cares about people as much as about numbers, formulas and projections, which is not the case for many economists, very sadly. I don't always agree with him, however, and in fact I think he's wrong in his assessment of how to "fix" the economy -- which imo will never and should never be fixed.

The latest entry in his blog concerns Spain and some especially disturbing aspects of its economy:
For much of the past decade, Spain had a huge construction boom, financed by vast inflows of capital: [here he's inserted a graph] Now that boom is over. But it left as its legacy a sharp rise in Spanish costs and prices relative to the rest of the euro zone (the chart below is Spanish unit labor costs in manufacturing relative to the EZ average, but it doesn’t much matter which measure you use): [another graph] How does Spain get out of this? No devaluation is possible — and no, I don’t think exiting the euro is feasible. So it has to do it with relative deflation, hard enough in normal times, when at least costs and prices elsewhere are rising a few percent a year. In the face of a depressed and possibly deflationary European economy … this is going to be ugly.
Devaluation isn't an option for Spain because it no longer has its own currency. It now has only the Euro. And as the man says, "exiting the euro" isn't really an option either, as it would be way too disruptive.

I wrote a comment to this post on Krugman's blog, but it still isn't up yet and may never get up ("Your comment is awaiting moderation"). So, just in case you don't follow the blog or just in case they don't post it, or just for the Hell of it, here's what I wrote:
There is a common thread to all these crises and the common thread is: money. How do we reconcile this monetary problem with that one, how do we deal with the threat of either deflation or inflation or both, or, as in the case of Spain, the need to devalue or revalue a currency one can’t control? How do we deal with the huge sums of money that are owed, all the bad investments of huge sums of money by companies too big to fail? How do we borrow enough money to cover all these debts, how do we deal with a situation where those whose money we’ve borrowed no longer want to lend more money — or worse want to pull their money out? We’ve woven a Gordian knot out of all these trillions of dollars worth of MONEY and are now desperately looking for some magic formula that will untangle it for us.
So why not, simply, take up the sword of Alexander, who was not called “Great” for nothing, and cut the knot? Kill the money. Let all the leaders of the most heavily invested, and therefor most at-risk, nations meet and agree to simply do away with money. Or, at least, money as we now know it. For far too long, this particular medium has been dominating the message, this particular tail wagging the dog.

In the past, such a recourse would be unthinkable, as it would result in a huge destruction of wealth worldwide. But that wealth has already been destroyed. All that’s left is a mountain of essentially meaningless debt that must be shuffled around endlessly so it can be “serviced” as part of a process that no longer makes any sense, like the automated kitchen appliances still meaninglessly going through their prescribed motions at the end of the Ray Bradbury story (”There Will Come Soft Rains”).


  1. Devaluation is not any solution in itself anyhow: the rich get more money, while the poor get stuck with their now devaluated income.

    It would be nice if the prices dropped in accordance to market but the offer is way to rigid (olygopolies) and home prices, as well as fuel prices, only drop slowly and that much. This rigidity of the offer is stagnating the crisis: instead of "automatically" (i.e. in few months) restoring the prices that the demand can afford, the olygopolies make everything in their hand to keep prices high even after the reasons for such peaks has vanished long ago. The state should intervene but it is in connivence with the corporative abusers.

    You say abolish money... but how? It needs more than just supressing money: it needs real nationalization or collectivization of all. Today's ecnomy is not anymore a farm economy of self-sufficiency: every single productive process is interdependent with too many others. I think that more important than abolishing money is to make corporate decissions democratic and accountable to the workers and the public in general. The primary goal is to abolish any kind of organization that doesn't work by the principle: one person, one vote. Including corporations and religious sects.

  2. Maju writes: "Devaluation is not any solution in itself anyhow: the rich get more money, while the poor get stuck with their now devaluated income."

    Yes, very true.

    "The state should intervene but it is in connivence with the corporative abusers."

    I wouldn't say "connivance," because I think there are many in all governments who mean well and want to do the right thing. The problem is that they share the same flawed mindset, the same ideology, as the abusers. No real progress will be possible until they pass through this "gateless gate."

    "You say abolish money... but how?"

    Well, this is the great question, isn't it? How indeed? For me this is more or less a Zen koan. It reminds me of the great koan about the dog: "A monk asked Chaochou, ‘Has the dog Buddha-nature or not?’ Chaochou said, ‘No.’" This response, this "no" is, for me, like the cutting of the Gordian knot. The koan may seem trivial but it is not, it is profound. It is also profoundly practical, thus belonging (also) to the realm of economics.

    For an excellent commentary, see The commentator, Melissa Blacker, quotes the Mumonkan" "What is the barrier of the ancestral teachers? It is just this one word, No, the one barrier of our faith." And she responds: "This one word No cuts through all of the many knots of thinking that make up the working of our minds." Later, she writes: "All of the mind’s constructions of reality have been acquired through a lifetime of learning how the world seems to work. These learnings are extremely useful in navigating the world of consensual reality, and without them we would be fairly helpless and would find it difficult to function. But they tend to obscure the actual workings of reality, especially if we trust them as real, rather than know them for what they truly are. To know that these constructions are representations of what is real but are not actually real is to be emancipated, to be freed to lead a life of bare attention to what is so."

    I'll be writing more about this extremely important topic soon, probably in my next post. Don't worry, it won't be as abstract as you might think. Zen is imo a very down to earth philosophy.

  3. You are right about the koan thing, after all money is just a concept, never as real as food or water or shelter for the winter. But...

    But the problem is that reality has also a virtual side: a facet that is made of our thoughts and ideas; and a social side too: a facet construed on how these thoughts transit through the social network and the more or less stable consensus that they form. They may be immaterial but they are real anyhow and that's the "magic" that priests, propagandists and salesmen have always exploited.

    I don't say that money can't be destroyed. Much less I am against such destruction, of course. What I say is that the psychology of the people, both individually and socially is strongly attached to a monetary value of things and work. It's many many generations of such learning. And that mindset is very difficult to alter radically. Even in the very especial circumstances of a total crisis, when radical changes are much more possible, to change the psychology of individuals and society is a most challenging task.

    Don't worry, it won't be as abstract as you might think. Zen is imo a very down to earth philosophy.

    I am not worried about Zen at all. Just that I know of no Zen society or economy: Buddhism is about personal illumination, it offers few or no clues on how humankind may organize socialism and be happy. It was never Buddha's concern.

    Via Zen you may understand how money is nothing and how god is a dog... but you won't be able to push a radical transformation in society, I belive. It's just not about that.

  4. As usual, I agree with you, Maju. I don't know of a Zen society or economy either, come to think of it. But there are moments in history, certainly, when a major paradigm shift occurs. After the Japanese defeat in WWII, the entire national consciousness changed, almost instantly. Germany also changed radically after the defeat of the Nazis.

    Unfortunately, it seems to take some sort of major upheaval with tragic consequences to get people through that "gateless gate" to a new awareness of the world and their own possibilities within it.

    I hope it doesn't come to that in the present situation. And I think there's a good chance it won't. What will happen may be more like what happens to someone wearing an expensive suit and tie when the sky opens up and rain pours down and he forgot his umbrella. He's going to get totally soaked, but he'll end up laughing, dancing and singing in the rain -- because after all what other choice will he have?

    At some point, possibly very soon, money will cease to have any meaning and there will be a huge destruction of wealth. My nest egg and that of all the billionaire oligarchs will be worth exactly the same: nothing. We will all be forced to come to terms with the new situation -- and the good news is that those of us with the least to lose will be much better prepared to cope.


Add to Technorati Favorites