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Alternative Economic Policy for Europe

by TGeraghty Mon Mar 20th, 2006 at 09:55:17 PM EST

ATinNM's shorts are frosted:

With the constant propaganda campaign being waged by the Neo-Con/Lib's where the hell are all these people and why aren't they speaking up?

Well, some of them have proposed an Alternative Economic Policy for Europe.

Their latest memorandum is entitled Democratic Policy against the Dominance of Markets: Proposals for an Integrated Development Strategy in Europe

From the memo:

The year 2005 has added to the long experience of economic weakness and social downsizing in the EU the clear perception of the obvious crisis of legitimacy and political acceptance by large parts of the public in the Union. . . .

A summary of the well-known economic problems:

The economic and social development in the EU is marked by the end of the weak recovery and by falling growth rates with rising unemployment and again lower wage shares which indicate a further deepening of inequality in Europe. The negative macroeconomic picture is to a large degree influenced by the weak performance of Germany and Italy while other countries fare much better. The particularly strong redistribution from wages to profits had the effect that real domestic demand in Germany in 2005 was lower than in the year 2000. Poverty, and particularly child poverty in the EU, is on average still at unacceptably high levels, with on the one hand the exception of the Scandinavian countries and, on the other hand, particularly scandalous figures for the United Kingdom.

They critique the conventional wisdom as embedded in the economic proposals of the European Commission:

In a move of apparent modesty the European institutions are now about to adopt a new kind of European minimalism:

  • Firstly, they launched a second version of the Lisbon agenda, the "new partnership for growth and jobs" which is considerably less ambitious, has less objectives and benchmarks, and concentrates almost exclusively on growth and jobs. The social quality of jobs and the ecological sustainability of growth in this agenda are pushed even more to the background than before.

  • Secondly, they declare the intention to cut back on red tape and reduce the number of European rules and provisions in the interest of citizens. Welcome as such removal of bureaucracy may be in theory, in practice it includes attacks on standards for health or environmental protection.

  • Thirdly, another important aspect of European minimalism is reflected in the determination to further reduce the already much too small European budget, allegedly to ease the tax burden for the citizens.

What remains after such correction of "over-ambitious visions" for Europe is the trust in open markets, deregulation, competition, and flexibility. In reality the new modesty in the current minimalist policy reflects and reinforces the core programme of neoliberalism.

What's their proposed alternative?

Against this narrowing of the perspective for European development we propose to broaden the perspective and enhance the ambitions towards a comprehensive European development strategy. This includes on the one hand a widening of the strategic scope to include with equal weight economic, social and ecological perspectives, and to establish a real - as opposed to rhetoric - balance between the economic, social, and ecological dimensions of social life and European integration. For economic policy on the other hand it means a broadening and enhancement of the range of measures and tools, which should include more intensive macroeconomic and structural intervention, stricter rules for capital, and a broader use of the public sector.

-- The objective of full employment should be maintained and instruments to achieve it should be:

  • a large public investment programme, of the size of 1% of EU GDP, primarily in the areas of ecological restructuring;

  • an extension of public employment in social services, education, utilities, and network services, and

  • a new effort for working time reductions.

-- A more employment friendly macroeconomic framework.

  • Monetary policy should be relaxed through a reduction of the central interest rate in the Eurozone by 50 basis points to 1,5%.

  • Monetary policy should be embedded into a democratic process of discussion and decisions of economic priorities.

  • Coordination between monetary and fiscal policies must be intensified.

-- The EU should reinforce its social policy and to this purpose:

  • enhance its tools and financial resources to fight poverty and social exclusion in the Union,

  • promote the adoption of - differentiated - minimum standards for social welfare throughout the Union, with strict barriers against the reduction of existing standards, and

  • use the open method of coordination to promote a public Pay-as-you-go system for pensions which ensures a decent standard of living for the elderly.

-- More proactive structural policies.
  • Regional policies must be reinforced to facilitate more rapid catch-up processes of weaker regions.

  • A necessary strengthening of industrial policies should ensure that interests of regions and workers are taken into account in European corporate restructuring.

  • A reform of the Common Agricultural Policy should give developing countries more access to EU markets while at the same time safeguarding the European basis for agricultural production.

  • On the basis of a broad debate about the main orientation of innovation and technological development policies should be considerably strengthened on a European level.

-- To respond to the increasing costs for traditional energy and to contain global warming the EU should act much more pro-actively to promote a new energy regime which is primarily based on renewable (solar) energy sources.

-- To enable the EU to launch relevant initiatives for the above objectives it is necessary to considerably raise the size of the European budget, while at the same time ensuring democratic procedures and transparency. We propose to increase the European budget from its present level of a little more than 1% of European GDP by 0,5 percentage point every year until it reaches about 5% of GDP. At the same time the revenue basis should be reformed to the effect that the main source of the EU budget would be a progressive GDP-related European income tax.

So here is one alternative proposal. Some questions:

  • What do ET'ers think of the general thrust of the document?
  • Of specific proposals?
  • Are there things we have been working on that could supplement this? (I'm thinking of Jerome's work on energy policy for example).
  • How can we better publicize this kind of endeavor to fight back against the free-market fundamentalists?

There is a list of signatories here. Is your favorite economist on the list?

Here are some names on the list:

Nicola Acocella, Italy
Philip Arestis, UK
Dean Baker, USA
Y. S. Brenner, Netherlands
James K. Galbraith, USA
Susan George, France
John Grieve Smith, UK
Robert Guttman, USA
Helen Ginsburg, USA
Bob Jessop, UK
Jonathan Michie, UK
Malcolm Sawyer, UK
Grahame Thompson, UK
Pascal Petit, France
Geoffrey Hodgson, UK

(No, the full list is not dominated by the UK and US, these are just people that I happen to have heard of, probably because they write in English).

(I suppose it is incumbent on me & my shorts to comment.)

There is too much to absorb at one sitting but it looks like the memo could be the basis for the start of a counter-attack to the Neo-Con/Lib agenda.

How successful have the writers been in getting their message out?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Mar 21st, 2006 at 01:14:08 AM EST
As far as I can tell, they haven't had any success at all at getting their message out. I can't find any news items anywhere mentioning them, just a few left-oriented websites do.

I just happened to stumble across their website myself.

by TGeraghty on Tue Mar 21st, 2006 at 02:21:23 AM EST
[ Parent ]
I wonder if they or some of 'they' would be willing to venture into the wonderful world of blogging?  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Mar 21st, 2006 at 12:30:10 PM EST
[ Parent ]
I think the major problem for the common European economy comes mainly from the trade liberalization and the influence of the competition from countries like USA, Japan, and the rise of Chinese industry. Except some sectors like agriculture or car industry the other sectors are prone to suffer losses. Not that I am supportive of full isolationism, which is obviously impossible, but for growth and lower unemployment the common economy should be regarded as still fragile union and be fostered through some protections.

I'm not ugly,but my beauty is a total creation.Hegel
by Chris on Tue Mar 21st, 2006 at 08:33:34 AM EST
...so I could cut down on work and start participating a little more...

This seems to be one of the so-many call for arms that are increasingly voiced on ET. I'm all for it, even whilee ET is drawing a relative small European crowd. Or perhaps that's an advantage, I can't say how that works in expanding internet communities.

Worthy of a frontpager or intense debate, this one. And definetely something to ponder on during my flight.

by Nomad (Bjinse) on Tue Mar 21st, 2006 at 03:57:15 PM EST
I'm not an economist; are any of the people working on this? For example, is there a mathematical model that supports the proposal for a "reduction of the central interest rate in the Eurozone by 50 basis points to 1,5%?"

One of the difficulties is that there is about 50 years of mathematical economics that presents a complicated but moderately self-consistent model of how economies work, and any proposal for a policy change has to be run against that model--or it will be trashed in the professional economics journals and thus by the political establishment...

You can't just wing this stuff.

by asdf on Tue Mar 21st, 2006 at 08:34:57 PM EST
complicated but moderately self-consistent model

complicated and jury-rigged, but moderately self consistent -- kind of like Ptolemaic solar system mechanics?  can one justify Keplerian mechanics in terms of the Ptolemaic model?

in other words, if a new paradigm is required to remedy the predictive and practical failure of the dominant paradigm, it is unlikely imho that it can be wrapped in the old paradigm tightly enough to keep the old guard happy...  so trying to keep things palatable to the old guard sounds to me prima facie like a recipe for not solving the problem.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Mar 21st, 2006 at 08:53:45 PM EST
[ Parent ]
Well, you're right, the theory (what little I know of it) is far from perfect. The point is that you can't just go around proposing 1% change to this and 1.5% change to that without a theoretical background. Where did these numbers come from?
by asdf on Tue Mar 21st, 2006 at 09:17:27 PM EST
[ Parent ]
excuse my asperity asdf, I was taking your post a bit out of context and my gripe applies as much to these (imho futile) tinkering measures as much as to an attempt to make said tinkering palatable to old turks.

imho all the economics we have is a potty attempt to build a grand unified theory on top of false fundamental premises.  the false premises are I think well known to all of us:  infinity of sources and sinks, the concept of "externalisation of costs," the notion that all goods are quantifiable, the quaint notion that human behaviour is rational, particularly in groups, and the even quainter neoHermetic notion of predictivity from the micro to the macro and vice versa.

if there's a way out it's surely through complexity theory, chaos theory, and social theory (i.e. indices which are tied in some way to concepts such as biotic diversity and robustness, and/or to human security and happiness, such as the Gini index, Solari index, and other attempts currently viewed by orthodox economists as "crackpot") ... and not through same old linear mechanistic fantasies.  I sometimes think of economists as denizens of Flatland trying desperately to conceptualise a Buckyball... but I digress as usual.

if we must remain within the terms of reference of wage labour, then we could start with the fundamental question of why employment is audited as a cost instead of a benefit;  this was touched on in an earlier thread.  if we take the neolib/trad line that employment is a cost to be minimised, then in a theoretically perfect world we end up with a maximally optimised economy in which no one is employed, which reduces labour costs to zero.  at which point there is no one to buy goods, so clearly the idea of constantly reducing labour inputs and driving down wages as a process of optimisation or "cost reduction" or "efficiency" is as bogus as the idea that stripmining the ocean floor is an "efficient" way to fish.

I write in haste, about to leave the office, so these are off-the-cuff rantlets and not developed ideas.  but tinkering with a system whose fundamental assumptions are flawed is not generally successful in the long run.  one ends up having to invent anti-phlogistone and so on.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Tue Mar 21st, 2006 at 09:36:14 PM EST
[ Parent ]
Hear!  Hear!

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Mar 21st, 2006 at 10:03:13 PM EST
[ Parent ]
I'm not sure what you are asking.

A basis point is 1/100th of a percentage point.  In your example above the Eurorate change was from 1.55% to 1.5%.

If you want to know how monetary policy is set in the Eurozone you can go to here to start your research.

If you want to know about monetary policy in general, and a bit about the mathematical underpinnings, there is a wikipedia entry that can start you off.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Tue Mar 21st, 2006 at 09:54:34 PM EST
[ Parent ]
But why 1.5% instead of 1.6%?
by asdf on Tue Mar 21st, 2006 at 11:08:09 PM EST
[ Parent ]
I agree we just can't wing it and expect to be taken seriously; one reason to invite these people to join the discussion.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Tue Mar 21st, 2006 at 09:00:42 PM EST
[ Parent ]
Yeah, no way you can wing this stuff.

Like, say cut taxes for the wealthy and pretend that the economy will grow so fast that you won't end up with a deficit?

Or, relentlessly push the meme that the only way to create jobs is to push more and more risk onto individual workers, with barely a shred of evidence to prove it.

Or, have a central bank dominated by a bunch of stodgy old Germans who think that another 1923 is just around the corner and the only goal of a central bank should be to zero out the inflation rate, jobs and wages be damned.

Look, since the problem in Europe is slow growth and high unemployment, one traditional way to deal with that is by cutting interest rates. That spurs investment and consumer spending and overall economic growth.

Sure, go ahead and plug this into the latest economic model and see what happens. I'm sure that the economists who wrote the draft have done that, and found that you get higher growth and more jobs and probably somewhat higher inflation by cutting rates.

Olivier Blanchard, a mainstream MIT macroeconomist, agrees that Europe needs a monetary stimulus. So does Nobel laureate Robert Solow, Harvard labor economist Richard Freeman, and others who are not wedded to neoliberal economic orthodoxy.

Is that good enough for you?

by TGeraghty on Tue Mar 21st, 2006 at 11:25:23 PM EST
[ Parent ]

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