## Tuesday, February 28, 2012 ... /////

### Debate with a chief economist

I just returned from a 2-hour public debate with Dr Tomáš Sedláček [Thomas Little Farmer], the chief economist of the Czechoslovak Business Bank (ČSOB), a member of the government advisory committee called "NERV[e]", which is a well-constructed acronym, and the only Czech who was invited to the 2012 economics conference in Davos.

The room was only half-full, less crowded than during a similar event featuring Mr Jakub Vágner, the fisher. Most people don't like these political and economical topics and/or find the fisher more charming. But the event today was fun, anyway. Mr Sedláček is a very talkative and intellectually stimulating economist.

Still, at the end, I found myself disagreeing with a large majority of his opinions.

It looked very different in the first quarter of his talk.

He would say that the Western economy or civilization doesn't really suffer from depression. It suffers from manic-depression i.e. the bipolar disorder. He would say that the government should regulate these cycles, i.e. make money more accessible when everyone and the GDP growth is depressed – both at the monetary level and the fiscal level (Keynesian spending in the times of recession) – while the attitude should be reversed in the manic phase. When the GDP grows, the governments should run budget surpluses and the interest rates should be high.

I couldn't agree more. Well, I am not a Keynesian but of course this balanced universal Keynesianism would be better than what we usually see – that Keynesianism is only used in the situation when it can justify higher spending but it is being forgotten in the opposite phase of growth. Mr Sedláček proposed that the overall fiscal decisions may be separated from the government and democracy much like this occurred to the monetary policy that is being decided by independent organs. Either some independent committees or strict laws about the allowed budget deficits or surpluses would have to be introduced. Maybe it would be a good idea. As Benjamin Franklin said, when people would be able to vote themselves money, that will herald the end of democracy.

However, at some moment, the percentage of his statements I could endorse dropped dramatically below 50 percent. You may be sure that when he began to imitate President Klaus – saying in a Klaus-like voice "No no no" to everything coming from the European Union – we were already well inside the phase of Mr Sedláček's talk that sucked from your humble correspondent's viewpoint. ;-)

Quite generally, we would hear lots of clichés how we must be obedient parts of the European Union and how everyone collapses if an organ – Greece – which may be either a toe or a leg – collapses. If the EU starts to disintegrate, we will be seeing the real crisis and so on. I just couldn't stand this rubbish. So I asked him whether he didn't see that the history shows that his alarmist fairy-tales about chaos following the splitting of countries or currency unions are upside down: the Velvet Divorce of Czechoslovakia was my key example.

Of course, he would say that Czechoslovakia was a one-part-in-a-million exception, and all such things, and continued with a long monologue about how everyone depends on everyone else, the kind of Brian Cox bullshitting. At some moment, when he said how remarkable the predictions of doom in 2009 had been (by some of the people who predict dooms 365 days a year) and how all the economists who claimed that economic subjects had been independent and not sensitive to the fates of others, I asked him whether they couldn't have been self-fulfilling prophesies.

My point was that the values of different assets in the whole world tend to be moving in unison exactly because people are being brainwashed by this dirty communist or "communitarianist" (as he would say, realizing that the adjective "communist" has been rightfully discredited, but his "communitarianism" is still structurally the same propaganda) stories about the whole world's being one large family and all this incredible junk which makes the people and traders unable to discriminate between different assets, unable to evaluate the value of different things on the market. In a proper world, everyone would realize that different economic subjects, different individuals, families, companies, and nations are responsible for their own fate and the economic demise of one of them simply influences almost no one else.

He would revert this whole argument and argued that there is a more typical type of prophesies than the self-fulfilling prophesies, the self-contradicting prophesies. If you predict an event, you can make it impossible. If someone could have predicted 9/11, the 9/11 terrorist attacks could have been avoided. So when he was finished, I told him that his doomsday predictions are ready for both possibilities. If the predictions work out and there is a depression, he would say that he was right and his predictions were precious. If the predictions fail, he would say that his warnings helped to avoid the bad events.

He effectively confirmed this description – and emphasized that he and similar economists know less about the economy than average artists. I had to fully agree with his self-criticism at that point. Indeed, when he got obsessed with painting our planet as a giant family with a single wallet, he knew almost nothing about the real economy. He also tried to claim that my argument may work upside down – that the doomsayers may also be punished in the cases of both possible outcomes. Except that this is manifestly not what's happening. While many people have been harassed for rosy predictions that turned out to be wrong – see e.g. what the Italian seismologists have to face when an a priori unlikely earthquake occurred in Italy – almost no alarmist has ever been hanged.

If the alarmists predicting wrong things were treated in the same harsh way as those who happen to make an optimistic prediction or two, the gallows would be full all over the world. But almost no one in a similar position as Mr Sedláček dares to offer any optimistic prediction even if it follows from the best (yet fuzzy) predictive frameworks on the market. Especially when it comes to the resiliency of the system, all of us are being told that the system isn't robust at all and this ideology is obviously a self-fulfilling prophesy, one of the main reasons why the system actually isn't too robust.

I won't discuss the euronaivism – although Mr Sedláček obviously is a hardcore euronaivist. But this euronaivism goes much deeper than that. He's really a hardcore "commutarianist", too. I asked him why he wanted to save Greece instead of sending the money e.g. to Kenya where I also have an adopted black sister (my dad contributes to teenager's textbooks or whatever it is). I meant it as an argument ad absurdum because everyone knows that we just can't afford to share our wealth with the people of Kenya and treat them as family. Instead, he started to argue that we should send all of our wealth not only to Greece but to Africa, too.

We were clearly living in different Universes. It's easy for him to send his money because he has much more than he needs and everything he has was sent to him in a similar way – as compensation for his bullshitting.

Mr Sedláček also mentioned many examples of environments that don't work on the basis of capitalism. In families, among friends, and sometimes inside companies, we often act as if no money existed, he said, adding some funny example of paying babies for their paintings, babes for their wine in advance, wives for the breakfast, and so on.

That's great but this sharing only occurs when the subjects may afford it and when they perceive that at some accuracy they "feel", they are getting something in exchange. Of course what they're getting is subjective, emotional, and doesn't have any well-defined value. Note that the price sticker attached to your girlfriend's smile at 4 pm doesn't exist exactly because this experience is subjective and there isn't a sufficient number of men – consumers –  who are competing for this product. Once the number of consumers starts to be large enough, the price sticker may be attached. That's how the numbers work in brothels, among other examples of businesses.

But if I return to those non-capitalist blocks, in all these "communitarian", family-like situations, the donors must be sure enough that their behavior won't destroy them, not even after a few more largely inevitable steps in which the bad situation may deteriorate because of moral hazard. If they become unlimited donors, it's clear that these donors – and consequently the whole "communitarian wholes" that they fund – will weaken or collapse. And when they collapse, they disappear from the world or its relevant part.

Inside companies, it doesn't make sense to observe the flow of every penny. The extra work, the bad feeling of "cops everywhere", and annoyances would be more costly than what these policies would save. However, at some moment, when a part of a whole obviously starts to abuse this "loophole", discipline simply has to be enforced – otherwise not only the "engines" of these blocks but the whole blocks are guaranteed to go down.

He also offered some strange anti-growth opinions. For example, he suggested that 30 years of zero growth in Japan isn't a problem. The number of iPods per family has reached a reasonable ceiling so there's no extra room for a reasonable growth. Fine, people could and should get happy with their lives if they're as rich as the Japanese people are. I have no problem with this statement. However, it's still true that the relative importance of Japan in the world is decreasing as other countries such as China enjoy a much higher growth rate. This is what the Japanese "spirit" should be annoyed by. So for Japan as a nation, those 30 years of zero growth simply have to be viewed as a problem. Another question is whether it is inevitable or not.

But I think it's obviously correct and kind of rationally inevitable that a national government tries to increase the GDP growth rate of the corresponding nation: it's their job to care about the national interests. The GDP isn't an "absolute figure" that is more important than everything else but of course that if all things are equal, a higher GDP growth rate is preferred.

One more example whose treatment looked strange to me was his discussion of the GDP growth in Poland in 2009, the crisis year in which the whole world went down. It was pretty clear that he knew the main reasons behind this anomaly. Poland was simply a nearly self-sufficient economy that doesn't quite rely on exports, that has its own currency that gets devalued in similar situations, and it didn't have an astronomical debt, either. When you think about these conditions, Poland is really an exception to the rule. Many Western economies were too interconnected. Hungary had its own currency but was tortured because of its very high debt. Czechia had its own currency and a low debt level but it relies on exports, and so on.

This is no exact science. One can't "exactly" attribute the Polish 2009 growth to various factors. And indeed, one may invent much more contrived theories for a single individual data point such as this one. But statistically speaking, it's insane if someone denies that mine are among the important reasons. This theory has a lot of empirical evidence that it works and it works for logical reasons, too.

At any rate, I think that his propaganda about everyone depending on everyone else and some of his "speculative" suggestions that the democratic capitalism may have to be superseded by something else – all these things are pretty insane and pretty dangerous, too. He would even say that China has more freedom to choose than we have because we're destined to live with the possibly collapsing democratic capitalism while China may still choose. You should understand this "choice" as the choice between capitalism and communism, a choice that will be made by the communist apparatchiks.

Holy cow. This is not what I consider "freedom to choose". I call it a "risk that one loses or never regains the freedoms".

Mr Sedláček, as a member of NERV, is also co-responsible for the pension reform. In general, a pension reform was needed but what has been sold under the trademark "pension reform" in Czechia of recent years has been a bad caricature of an economist's research. Things as unrelated to the pensions as the increase of the value-added tax rate were said to be "parts of the pension reform". Those behind it clearly have no clue what they're talking about and I am happy that I finally met one of them today. ;-)

Some of the people in the current Czech government are less talkative or inspiring but thank God for the government we have today, especially for its skeptical attitude to some of the insane constructs at the European level. The proposed ever closer Europe simply cannot work. The reforms that are vitally needed in Greece – and maybe not just Greece – are locally considered to be a part of the new German fascism. This can't lead to anything nice. Even though many people still love to say exactly the opposite, the reality is that the attempts to unify Europe and treat it as a family are among the biggest threats for the peace on the European continent – and of course, it's not the first time. Just look at the anti-German hatred in Greece, including Merkel in the Nazi uniforms, and you should get my point.

The number of old-fashioned 19th-century-style wars in Europe in which nations simply defended their own local interests could have been rather high. But the opposite goals – principles that would be valid in the whole Europe – have also started wars. Their number may have been lower but they have been much greater wars and the "wars for unification" have arguably killed many more people than the standard old-fashioned local wars driven by "finite" national interests.

The World War II was the largest war in the human history so far and it wasn't started by local interests of nations. It was really ignited by the tendency to unify the whole Europe under the name of the Third Reich. You could say that it was just a local war initiated by one nation, Germany, except that if a country has credible goals to homogenize a whole continent or two, you simply can't view it as a "war started by diverse local national interests". One may repeat hundreds of times that the EU is different than the Third Reich used to be. I agree it's different. But I disagree that the differences are so fundamental that they would guarantee that the current unification mania doesn't lead to the same tension that was driving the World War II.

The example of the 2009 Polish GDP growth is yet another reason to think that it is a very good idea to avoid the eurozone – and if and when things get worse, to exit the EU as well. (Most of the Poles are among those who completely fail to extract this elementary lesson out of the data point.) One may try to construct a single European nation, a large continental family. But everything suggests that it will be a pretty dysfunctional family. When Mr Sedláček talked about communism at the family level, he failed to notice that even at the family level, the degree of solidarity has some limits. If your family member were a chronic alcoholic addict who has accumulated €350 billion of debt and stubbornly refused all conceivable suggestions to solve the situation, most people could also sensibly think about disinheriting him or her in order to save their own skin. And that's exactly the situation of the family member called Greece in the family called the EU.

Even among friends or at a family level, one must feel that one is getting something in exchange and the general vacuous suggestion is "we're a part of the family" may fail to be enough.

German countryside terrorized by Czech telephones

I find this news report kind of cute although it may be unpleasant for some of the victims. From last Friday, many villagers who live in Oyten, a village near Bremen in Southwestern Germany, very far from the Czech borders, are being harassed by up to dozens of telephone calls from the Czech Republic. Why? ;-)

Well, the prefix of the village is 04207. (The German prefix is 0049 or +49 but you don't have to dial it to get the effect.) Well, this is not a terribly clever or safe prefix. The international prefix of Czechia is +420 or 00420 and the most frequent following digit is 7 – that includes your humble correspondent's cell phone number - which belongs to Czech O2 Telefonica, the operator that inherited what used to be the national state-owned monopoly operator decades ago.

Today, it's just one among 3 very comparable major operators, O2, Vodafone, and T-Mobile.

So +420 is either dialed as or misinterpreted as 0420 and because you almost always find someone who matches the following 7** *** *** number, some German peasants simply can't sleep! :-) The Czech callers are equally confused when they hear German peasants on the other side of the line but at least they don't get interrupted or awaken because you usually don't sleep right before you start to call someone. :-)

The main error may be on the Czech side of the network. But one must admit that the German numbering system is unsafe and literally inviting similar errors. In Czechia, we don't have any numbers with a leading single zero anymore, so we can't be victims of similar error. All of our numbers are simply (+420)*** *** *** or *** *** *** only (nationally), where the 9 digits uniquely distinguish any number, whether it's a free 800 *** *** number; or cell phones, usually starting with 6 or 7, or old-fashioned cable phones that start with 2 in Prague and 3 in Pilsen and elsewhere etc., and so on.

Nothing starts with a single zero. It's pretty convenient and a good gift, too. It's a silver lining of the event in which we had to expand the international prefix from +42 to +420 after Czechoslovakia divorced; Slovakia got +421. It was natural to reinterpret the 0 in +420 as the 0 we used to use to change the town, and that was why we abolished the 0* prefixes for towns altogether.