About Time To Read Up On Franklin Delano Roosevelt?

This very interesting paper (in German) outlines the measures which FDR took, starting in 1933, to get the US economy out of its depression. FDRs first priority was, as any leader's should be, to kindle spirits, courage and optimism in the society ("the only thing we have to fear is fear itself"). He used the instrument of 'fireside chats' to bring his message across. Secondly, FDR stigmatized the financial sector as 'unscrupulous money changers' that needed to be brought under control. And, thirdly, he stressed that investment, and only investment, would get the US out of its dire straits.

I used to think that FDR was the champion of deficit spending. Far from it!

FDR embarked on the celebrated ‘New Deal’ after taking office in 1933. From 1933-37, nominal GDP rose 63% and inflation-adjusted GP rose 43%. Unemployment declined from 25% to 14%. However, the government’s share of the economy – contrary to all myths – remained flat during this time (revenues, expenses, budget deficit)!!! Public spending on consumption even declined from 59% to 56% of total public expenditures! What really prompted the turn-around was private sector investment which grew by 140% during the period in real terms. Obviously, government policy and FDRs fireside chats had a lot to do with the optimism which prompted the private sector to invest, but psychology is half the game in the economy.

The generally accepted school of thought nowadays is that, when in depression, no one other than the state can trigger the stimulus required to get the private sector going again. That may be true when there is no leadership around. 

If there is leadership à la FDR around, the private sector will undoubtedly live up to the role which it is supposed to play in a market economy --- not as a predatory tiger to be shot. Not as a cow that is to be milked. But, instead, as a healthy horse, pulling a sturdy wagon (paraphrasing Churchill).

Radical Views of a Benedictine Primate

Notger Wolf, 66, is, since 2000, the Abbots Primate of the Benedictine Confederation. His recent interview with the German magazine STERN suggests that he has strong political views and is not afraid to voice them. Below are excerpts.

STERN: How much support would you give long-time unemployed in Germany?
Wolf: In any case less than Hartz-IV (the government's unemployment insurance).
STERN: But that is only 345 Euros per month!
Wolf: I am sure that there are jobs for many which are unemployed in Germany today. I would ask each one of them: 'are you really ready to take on a job even if it doesn't earn you much more than Hartz-IV? Just to protect your dignity?'. Man is similar to a muscle. If it isn't used, it wastes away. People often don't realize how much psychological damage they do to themselves through their inactivity.
STERN: Suppose as 45-year old metal worker, head of a family, just fired, comes to ask for your advice. Would you advise him to take a cleaning job?
Wolf: Yes. That may sound cynical but changes in life offer opportunities.
STERN: But his friends and colleages would declare him as stupid!
Wolf: Of course, that requires self-confidence. But he could reply: "Don't make fun of me. The same thing might happen to you tomorrow. Now I have more time for my family".
STERN: Again, how much support would be adquate?
Wolf: There is a fatal socialist pattern in our mentality which suggests that politics is only good and human if it puts social justice and social equality above all practical reason. That is nonsense. To offer everyone the same opportunties is correct but we have to stop this ridiculous equality doctrine. Men are different. If I give one person 100 Euros today, he might turn them into 200 Euros by tomorrow. Another person might spend the money in a bar. The unstoppable expansion of the welfare state is the best example how one can turn social equality fanatism into one's own prison.
STERN: You also coach managers. What can managers learn from a Primate?
Wolf: They can learn that, in the long run, only humane management will be successful. An exclusively profit-oriented environment destroys the corporate culture. It undermines motivation of employees. It reduces performance.
STERN: What is your anser to those who believe that our economies are on the wrong track?
Wolf: We have subjected ourselves to the desire that the state should solve all of our problems. Society is under the tutelage self-annointed virtuous politicians who chase the myth of social justice. These politicians sell us the state as a make-you-feel-good institution. We force them to try the impossible.
STERN: What must happen?
Wolf: Three proposals. First, let us release the state from its responsibility for our personal happiness. That is our own responsibility. It is sufficient when the state intervenes where real need is. There is no human right for a comfortable life. Secondly, let's stop the centralist efforts to legislate happiness for everyone. And, thirdly, those who govern must demonstrate the moral competence to protect the basis of a human society which finds itself threatened by new technologies and economic pressures. We are talking about eternal values here.
STERN: You are extremely frank. As the Abbots Primate, don't you have to act politically correct?
Wolf: No one has to do that; honesty is much more important! What disturbs me about political correctness is that it puts everyone under the suspicion of being anti-foreigners or anti-women. Political correctness is a great nebulization, a program to achieve moral slavery.

Are the Chinese Smarter than the Europeans? (follow-up)

I take the liberty of publishing below the comment which the reader Lennard made to my recent article "Are the Chinese smarter than the Europeans?".

"Are the Chinese smarter than the Europeans?

They may well be in the long run, for sure they are a lot smarter than the Greeks. The crafty Greeks are considered to be master wheelers and dealers, but they can't hold a candle to the Chinese. I have during the last week's visit of the Chinese trade delegation watched and admired the virtuosi way the Chinese played the Greeks.

They have praised the ancient Hellene culture and by extension modern Greece. They have compared the ancient Hellene culture with the Chinese and not found it wanting. They have expressed that Greece is (at least) as important to the world as China. They have proven their friendship and confidence in the Greek economy by signing investment deals for USD 4.6 BIO (3.5 being loans to Greek controlled shipping companies located in other countries, for ships build in China. The remaining being Letters Of Intent or confirmations of previous deals like the Hellenikon). They have hinted that Greece will soon regain it's well-deserved important role in world politics and economics. They have hinted that Greece will become the all-important middle man for all future large transactions between China and Europe. They have pledged that they will invest in Greek government bonds, a promise they have repeated once a year since they said it to G. Papandreou in 2010, an easy promise considering the anonymity of ownership.

And did the suspicious Greeks swallow that? Hook, line and sinker, flattery will get you everywhere. Watch out Frau Merkel, we have powerful friends".

Samaras Vindicated; Finally!

Joking aside, this was one of the most exciting games of the tournament so far. I watched it on German TV. Towards the end of the game, the German commentator clearly took sides with the Greeks. In the subsequent discussion, there was clear happiness for Greece's having won. That says everything!

Congratulations!



PS: a commentator below pointed out that the text says: "New Dictatorship (with a swastica), we continue selling out (the country)". "We said we will raise the country higher. This is what we meant". Had I known this before, I would not have posted it (I just thought it was a funny picture). I apologize!

"Mikel" Coffee Shops Hit the News!

The first time I saw a Mikel coffee shop was about 2 years ago; in Katerini. A friend of ours, an interior designer, had shown it to us because he was doing the interior design for the franchise. The entire concept of this franchise seemed brilliant to me. From design to products to service - the whole package simply looked perfect. I then wrote this article about my Mikel-experience.

I now am happy to see (and most impressed!) that Forbes magazine has discovered this Greek franchise success. Two articles about one company in as many days is quite a feat:

http://www.forbes.com/sites/panosmourdoukoutas/2014/06/22/starbucks-is-cutting-coffee-prices-in-greece/
http://www.forbes.com/sites/panosmourdoukoutas/2014/06/24/mcdonalds-lost-the-greek-market-is-starbucks-next/

In as much as I once owned and was running a franchise in the US, I think I know quite a bit about franchises. Mikel clearly is tops! The fact that the entire concept was developed and implemented by Greeks in Greece only goes to show that there are indeed great business talents in Greek society. The only trouble is that they don't get the attention which they should get so that other Greeks could learn from and be encouraged by them!

Without Austerity, Greece Would Be in an Obvious Recovery By Now?

"The EU-imposed austerity program is the reason that Greece and Spain are experiencing a Great Depression now, rather than the obvious (if fragile) recovery that is well underway in the US. It is a classic own goal by the mainstream-economics-obsessed bureaucrats in Brussels".

This is the conclusion which Steve Keen draws in this article in the BusinessSpectator. It is a keen conclusion because it suggests, by implication, that Greece would be today in an obvious (if fragile) recovery if there had not been the EU-imposed austerity.

The debate about austerity is as old as the crisis and, to me, it is a bit of a futile debate because a member of the Eurozone can only avoid austerity if someone else lends it the money for it. As long as the EU was not prepared to provide Greece with more bail-out money than they did, the debate becomes academic. The academics may be right but the real world does not give a damn.

Clearly, anyone who argues that all that's needed in a country like Greece to achieve an economic turn-around is government austerity is somewhat single-minded. There has to be a strategic recovery plan and government austerity can be part of that. If the overall plan is good, the negative consequences of government austerity can be alleviated.

I will revert to an oversimplified narrative to illustrate my point. That narrative, which is unrealistically extreme, would suggest that the Greek economy had ceased to generate value on its own account. There was decent growth and employment until about 2008 because staggering amounts of capital flowed into the economy which allowed the economy to import all the products it desired. When the capital flows decelerated, that recycling process (borrowing money offshore to spend it offshore) decelarated even more rapidly. Collapsing growth and rising unemployment are the obvious consequences.

Obviously, the Greek economy had not ceased to generate any value on its own account. However, one decade of the Euro had taken a lot of value generation capacity, never large to begin with, out of the economy. Had one avoided government austerity and had the capital flows been kept alive, the only thing which would have been kept alive would have been the above-mentioned recycling process.

My sense is that government austerity had such terrible consequences for Greeks because no capital was directed towards the rebuilding of the economy's value generation capacity. And, above all, if that value generation capacity is not re-built (or rather: built up) any time soon, Greeks are in for many, many years of economic suffering.

Any national economy has something which, for lack of a better expression, I will call the national economic value generation capacity. I cannot explain how exactly one measures it but common sense tells me it's there. Common sense also tells me that, over time, the country's living standards will be a function of that economic value generation capacity. Excessive capital inflows or excessive austerity can distort the living standards temporarily (whereby 'temporarily' can be quite a long time). The living standards may, temporarily, be far higher or far lower than what the economic value generation capacity would suggest but, at the end of the day, one cannot fool reality. And reality says that if you don't generate any economic value, you won't get any, either. At least over time.

Are the Chinese Smarter than the Europeans?

China, as far as I know, has not had to participate in any of the rescue loans to Greece. Those rescue loans, funded by European tax payers, paid off Greece's debt due to foreign lenders; i. e. Chinese banks got their Greek bonds/loans paid by European tax payers. That's smart.

The Chinese Central Bank is not part of the ECBs Target2 settlement system. Target2 financed, among others, Greece's current account deficit of which China, together with Germany, was the largest beneficiary. Put differently, China's current account surplus with Greece was financed by the ECB. That's smart.

Finally, China, as this article from The Guardian reports, has been a very successful investor in the Greek economy since the crisis began with Cosco being the most prominent investment. Put differently, while European tax payers and the ECB have put money into Greece to pay off Greece's foreign creditors, including Chinese ones, the Chinese have put money into the Greek economy to earn a profit. That's very smart!

"No other country in Europe offers such potential," Captain Fu Cheng Qiu of Cosco sums up the magnitude of China's interest in Greece as cranes in constant motion move containers from ship to dock outside. "We believe that Piraeus can be the biggest port in the Mediterranean and one of the most important distribution centres because it is the gateway to the Balkans and southern Europe."

As the Chinese premier, Li Keqiang, arrives to conduct an official three-day visit to Greece, it will be the success of China's state-run shipping group at the forefront of talks. With Beijing hoping to further cement its foothold in a country viewed as offering the easiest entrance to Europe commercially, Chinese officials are eager to replicate Cosco's business model elsewhere. "The Chinese and Greek economies are mutually complementary," Li wrote on Wednesday in the daily Kathimerini. "Greece is accelerating privatisation and infrastructure construction. China will encourage its well-established enterprises to play an active part in this process."

The Chinese Premier will undoubtedly receive a warm reception in Greece for having supported Greece so much during the crisis. Chancellor Merkel and Finance Minister Schäuble, on the other hand, had to be given a lot of police protection when they visited Greece. The former can look forward to good future profits on the money they invested in Greece. The latter will sooner or later have to take losses on the money which they lent to Greece. Profits are smart; losses are not.

One wonders why Europeans cannot be as smart as the Chinese. At least smart enough to understand that one needs to make a weak borrower strong if one hopes to get loans back. Smart enough to understand that the greatest investment opportunties are often in economies which need re-building badly. Smart enough to understand that investing holds more profit potential than lending. Smart enough to understand that one gets more praise for investing and creating jobs than for lending and enforcing austerity.

"Our phones are ringing off the hook," says Li Ang, who heads the capital's Greek-Chinese Commercial and Cultural Association. "Investors want to buy five-star hotels, wineries and olive oil companies … people who left with economic crisis are flooding back. Greece is a great place to do business in and the prices are very good."

Well, it looks like by the time the Europeans will begin writing off their loans to Greece, the Chinese will start collecting dividends on their investments. Maybe it's time for the Europeans to get smart, too!