Samsom en financiële onderdrukking

Eén korte opmerking van Diederik Samsom, in een interview na de Troonrede van de nieuwe koning, verbaasde mij. Hij beweerde dat het zo langzamerhand tijd werd om Nederlandse pensioenfondsen aan te zetten om hun geld in ‘BV Nederland’ in plaats van het buitenland te steken. Mijn verbazing berustte ten eerste op het feit dat Samsom hiermee de eerste stap naar ‘financiële onderdrukking’ zette en ten tweede op het gebrek aan een uitgebreide discussie in de (financiële) pers over dit, naar mijn mening, gewaagde voorstel.

De term financiële onderdrukking dankt zijn bekendheid voornamelijk aan een artikel van de economen Reinhart, Kirkegaard en Sbrancia. Zij identificeren het als een van de middelen om overheidsschuld te verminderen, naast economische groei, bezuinigingen, staatsbankroet en inflatie. Een precieze definitie wordt niet geopperd, maar men moet denken aan onder andere een hechte band tussen overheid en financiële instellingen, waardoor de overheid goedkoper kan lenen.

In tegenstelling tot de andere vier manieren om overheidsschuld te verminderen kan financiële onderdrukking op een veel subtielere manier plaatsvinden en onopgemerkt aan het publiek voorbijgaan. Dit is an sich al een slechte zaak: een overheid hoort niet de toevlucht te nemen tot ondoorzichtige praktijken, zelfs als dat in het belang van de burger is. Het grootste gevaar ligt echter in de mogelijkheid dat de overheid de burger schade berokkent, zonder dat de burger daar weet van heeft.

Deze kans bestaat als de overheid pensioenfondsen dwingt om meer investeringen naar Nederland te dirigeren. Als pensioenfondsen meer investeringen in Nederland een goede keus zouden vinden, dan was Samsom’s oproep niet nodig geweest. Dat er niet massaal in Nederland wordt geïnvesteerd betekent dus dat de risico’s er te hoog zijn ten opzichte van het verwachte rendement. Vanuit een zuiver financieel perspectief roept Samsom pensioenfondsen in feite op om slechte investeringen te maken – waar de daadwerkelijke eigenaars van de pensioenfondsen alleen maar de dupe van kunnen worden.

Voorlopig zijn gedwongen investeringen nog niet aan de orde. Samsom spreekt vooral over het ‘verleiden’ van pensioenfondsen, bijvoorbeeld door middel van belastingvoordelen. Dit is nog steeds een slecht idee omdat het de marktwerking verstoord. Daarnaast kan het ook voorkomen dat de voordelen zo groot zijn dat de extra inkomsten die worden gecreëerd minder zijn dan de kosten van het subsidiëren van de pensioenfondsen. Hierdoor gaat de staatsschuld juist omhoog.

Het is dus hoogst onverstandig om druk op pensioenfondsen te zetten – zij het door middel van een beroep op solidariteit, door verleidelijke voordelen of door regelrechte dwang – omdat het een marktverstorende uitkomst heeft die hoogstwaarschijnlijk zeer slecht uitpakt voor de Nederlandse belastingbetalers en de mensen die van de pensioenen hopen te genieten. Het is te hopen dat Samsom’s toespeling naar financiële onderdrukking slechts bij een toespeling blijft. Als financiële onderdrukking werkelijk plaats zou vinden dan zouden de gevolgen zeer nadelig zijn. Het is dus beter om eerst naar andere oplossingen te zoeken voor het stijgende begrotingstekort.

[submitted to Het Financieel Dagblad, a Dutch financial newspaper. A shortened version was published as a letter 10/9/13]

Na de troonrede kwam Diederik Samsom terug op een onderwerp dat hij al eerder in de Tweede Kamer had aangesneden: Nederlandse pensioenfondsen moeten meer in Nederland investeren, vindt hij. Voorlopig doelt Samsom op het gebruik van bijvoorbeeld belastingvoordelen. Een stap die hier volgens de economen Reinhart, Kirkegaard en Sbrancia historisch op volgt is ‘financiële onderdrukking’, het dwingen van bijvoorbeeld pensioenfondsen om een deel van hun fondsen in overheidsobligaties te beleggen.

Samsom’s ideeën zijn zorgwekkend. Er is een goede reden dat pensioenfondsen niet meer in Nederland investeren. Waarschijnlijk achten zij de verwachte rendementen te laag om de risico’s te verantwoorden. Samsom’s oproep houdt dus eigenlijk in dat pensioenfondsen slecht moeten investeren.

De Nederlandse economie profiteert op de korte termijn misschien van de investeringen, maar op de lange termijn zijn de pensioenen en de Nederlandse economie de dupe. Het gebruik van belastingvoordelen als lokmiddel verlaagt daarnaast de mogelijkheid dat het effect op de korte termijn voordelig is.

De Nederlandse overheid kan zich beter concentreren op structurele veranderingen in de economie als ze willen dat pensioenfondsen hier investeren. Allerlei trucjes om pensioenfondsen hierheen te lokken zijn hoogstwaarschijnlijk nadelig voor de Nederlandse economie, en des te zorgelijker omdat het opstapjes naar financiële onderdrukking zijn.

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While technology has lured millions to abandon books in favour of films, YouTube videos and Spotify, it has also made literature more readily available as keen readers are no longer cumbered by heavy books. They only need the appropriate gadgets to have an entire library at their disposal. Moreover, readers can get hold of their favourites in an instant, at a fraction of the price, or even for free in the case of Google Books. But has technology only facilitated an increased supply of literature, or does it affect the creative process as well? Technology has certainly had this effect on music, as mp3 has transformed the internet into a creative platform for musicians and a means to escape the hegemony of established institutions.

The free exchange of music through the internet, starting with Napster, has led to the point where music has joined the public domain. Almost any song can be found on YouTube or Spotify, without (for some) the guilt felt for allegedly robbing the artist or record company. Furthermore, the internet has become a forum for aspiring artists to show their work, collaborate with others, be reviewed, and hopefully be discovered.

Given that literature is now going through a similar process of proliferation, is it likely that the internet will become a free market of ideas, techniques and examples for literature too? Granted, creative writing has been around on the internet since its inception, notoriously in the form of badly written and occasionally disturbing fanfiction, but a revolution has never occurred. Publishing houses remain lord and master in their domain, while record companies are slowly withering away. Is the introduction of e-readers an indication that this might change?

As a medium, literature is noticeably slower than music. While pieces of music that last longer than three hours have left the mainstream over a century ago, books still take days to read. My mother or best friend might take the effort to read a book I have written, and since she loves me she will say it’s great. If I post it on the internet, however, I will most likely receive a short, dry review: ‘too long; didn’t read’. A publishing house cannot appeal to public verdict to see if a book’s well-written. A writer’s debut’s publication will depend largely on the readers paid to work through the ‘slush pile’, determining its quality. A good song, however, is easily recognisable and usually takes less than four minutes to listen to. Fans, be it in the local live-music café or a legion of YouTube subscribers, attest to the song’s quality.

So is technology’s greatest contribution to literature merely an increase in availability, as virtually any book has become available anywhere through an iPad or Amazon Kindle? Or does it have more to offer, as it provides a stimulus to the creative force behind literature, bringing forth new ideas, techniques and perspectives, new ways to be read, or new ways to read?

The internet is a great learning resource for both musicians and computer programmers. From guitar tablature to YouTube videos, learning a musical skill no longer requires expensive teachers or handbooks. For computer programmers, open source software – which allows a look inside the code that determines computer programs – has been an invaluable learning tool and has even lead to the development of new, free programs. As a result, there is a buzzing community that keenly looks forward to the next time Microsoft is forced to give up the secrets behind its programs due to competition regulation. There is a wealth of learning resources on the internet, like never before.

But books have always been easily accessible. The books that I can read on Kindle now have been in the library stacks for the past fifty years. If I wanted to learn from the master, I could read a book by Dickens, Hemingway or Tolstoy; I did not have to wait for some novel communication technology and the willingness of big companies to show the mechanisms underneath their finished product. Hemingway’s product, on the other hand, has always contained the underlying mechanisms. To a casual reader, A Farewell to Arms has as much learning value as the code that Mozilla Firefox uses; but to a writer, it is as much of a goldmine as the code to Windows is to computer fanatics.

It seems, then, that the internet and eBook readers have altered the consumption of literature at most. It’s now possible to take several books anywhere without too much hassle, but it seems unlikely that the way literature is produced and brought to people’s attention will go through fundamental changes like the music industry has. Two aspects of literature are candidates for some interesting developments, however. First, since the internet is not always the best place to go for an audience with a long attention span, short stories may become popular. In fact, this has already happened to some degree as humorous writers like Maddox and Tucker Max, who started out with websites, have become best-selling authors.

The second is an issue close to my heart. As a Dutchman, I have noticed that very few books by Dutch authors are translated into English, especially compared to books by Spanish, German and French authors. And, from my experience, if they are translated it’s usually done poorly. Perhaps the translation of books will take on the same form as the continuous improvement of free software by amateurs. Wikipedia’s multi-lingual efforts and Facebook’s recent campaign appealing to its users to translate it are all clues that this is not very unlikely – although it might fail due to copyright complications. Let’s hope not – it would be a pity if the internet’s only contribution is easier consumption. And believe me: some of those Dutch books are worth a read once they are translated well.
[Entry for a competition ran by Exposition, an Oxford student magazine]

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Scylla and Charybdis

Amidst all the Greek turmoil, the phrase “between Scylla and Charybdis” – in Greek mythology, seafarers could avoid only one of the two monsters when passing through the Strait of Messina – has hardly occurred. Despite the obvious link to the subject matter, the phrase has thus far been unnecessary because Greece’s best choice was clear: to stay in the Eurozone. The cost of continued membership, however, is on the rise and it won’t be long until prolonged Eurozone status appears as bad as returning to the drachma.

On Tuesday, Eurozone finance ministers agreed on a second bailout package. Greece will introduce further austerity measures, in exchange for a €130bn bailout. The plan is to reduce Greece’s debt from 160% of GDP to roughly 120% of GDP by 2020.

The measures face severe criticism as austerity tackles the debt, but risks reducing GDP growth. Unless the austerity measures are effective, limited growth in GDP means Greece’s debt as a percentage of GDP may not fall as quickly as anticipated. The current package assumes the austerity measures will be effective, that GDP returns to 2.13% growth in 2014 yet still requires an additional €50 bailout ten years from now. Investors have voiced concern that a confidential IMF report reckons Greece’s debt might equal 160% of GDP in 2020 despite all the austerity measures.

While the austerity measures’ effectiveness remains to be determined, its unpopularity is evident. The entire Greek crisis has been accompanied by unrest and rioting, and once the necessary austerity measures are in place – which has to happen before the end of February – more upheaval can be expected. This will only be exacerbated by the impression that the Greek government’s policy is dictated by the European Union.

While Scylla’s teeth –austerity, unrest, European diktat – have been bared for some time, little has been said about the perils of Charybdis. So far, leaving the Eurozone had not been considered realistic. This seems set to change. An article in last week’s issue of The Economist makes the case against leaving the Eurozone – which indicates that the option is now being seriously considered.

Leaving the Eurozone would be a mess, most of all. ‘Greek Euros’ would have to be distinguished from ‘real Euros’ as the former are converted into drachmae. Converting from the drachma to the Euro was tricky; doing the reverse will be more complicated still.

What is worse, though, is the effect on savings and loans. Because the drachma will definitely become worth less than the Euro, the value of savings will evaporate almost overnight while debtors will have to pay much less in real terms. Bank runs are a possibility if abandonment of the Euro looms large. Leaving the Euro can therefore cause enormous social unrest in Greece.

The consequences of leaving the Eurozone seem to display all the ingredients for anarchy, while the bailout package is at risk of only delaying this. Caught between Scylla and Charybdis, should Greece go through with the painful austerity measures, perhaps at the risk of making no progress, or should it leave the Eurozone now, regaining control over its policy?

To most technocrats, keeping Greece in the Euro appears the best option. But there are other reasons to support it. The most important reason is the solidarity the Eurozone countries are due to each other. Even if there are strong economic arguments to forcing or allowing Greece to leave, the Eurozone should continue to keep it in. The other countries let it in initially, and now have to protect the weaker member of the herd, not leave it behind to die. Likewise, the Greek government and the Greek people should do all they can to keep up. After all, they have been reaping the benefits of the Eurozone long enough to owe it to the rest.

This is not an encouragement to carry on with what has satirically been dubbed “the European experiment”, or a warning of the war that will inevitably break out on the continent if the Eurozone falls apart. Greece’s entry into the Eurozone was doubtless misguided, on both sides: Greece thought it could get away with faking the criteria, while overseers failed to find fault (or turned a blind eye to it, for political reasons). Both parties’ naivety is now being punished. Perhaps it even is naive to carry on trying to salvage what is left. But Greece and the other Euro countries have a duty to each other to stick it out. Entering the Eurozone was a mutual statement of trust, and this trust has to be honoured by both sides. Only when it becomes apparent that Greece cannot deliver its end of the bargain – e.g. if it fails to install the austerity measures – do the other Eurozone countries have a morally justifiable reason to leave Greece to its own devices.

(Article written for The Beaver, the LSE Student newspaper)

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No Second Troy

In one version of the Troy legend, the priestess Cassandra warns the people of Troy of the city’s impending doom and the perils of the wooden horse left to them as a gift. Her clairvoyance was a gift from the god Apollo in exchange for her hand in marriage. When she reneged on the agreement, he cursed her: no one would believe her predictions.

Many contemporary politicians and commentators must feel they have been struck by a similar curse. They warn of the dangers of Islamisation, mass immigration, lack of integration, and overdependence on state welfare. Their words are dismissed for their belligerent tone, unpleasantness, or lack of political correctness – just like Cassandra’s revelations were dismissed for their defeatist and unpatriotic attitude.

Ignoring these ominous prophecies won’t be the calamity it was for the Trojans, but it has done more harm than it has done good. Making certain topics de facto off-limits has had two disastrous consequences.

Firstly, it has engendered frustration and ill will in many moderate voters. The success of rightist parties across Europe shows this. The notorious Freedom Party in the Netherlands is a prime example. Its stance on immigration and integration secured it second place in parliamentary elections, in spite of an agenda that is weak and incoherent on other issues.

This is possible because the issue of immigration is close to the heart of many voters, but established parties refuse to address it. Electorates are like teenagers in this respect. They want to talk to their parents about the things that bother them; and if their parents turn a deaf ear, they will look for someone else. If they can find no one else, they may start acting up.

The formation of militia to defend ethnic Dutchmen (but also Dutch Indonesians, Surinamese and Antilleans) against North-African immigrants is a worrisome example. And Anders Breivik, who murdered over seventy people in Norway, stated in his manifest that it was the air of taboo over discussions of Islamisation that led him to his heinous deeds.

In Breivik’s case – or Bin Laden’s, or the Unabomber’s, for that matter – a deranged mind and a twisted ethical code lead to these atrocities, rather than anger at public debate. Regardless, the frustration felt by a large chunk of the electorate should be reason enough to change the terms of admission for debatable topics. Respecting such concerns is a democracy’s duty just as much as protecting minorities is.

The second consequence of keeping issues out of debate has been that the problems they contain could not be approached, so no solution has been found. The sensitive topics of today – islamisation, immigration, gang culture – encapsulate practical problems which require attention. Ignoring them is not an option. A doctor doesn’t let a wound fester because the prospect of a surgery unnerves his patient, either.

For example, organising remedial classes for immigrants’ children is seen as an insult to their intelligence. Yet they are undoubtedly at an academic disadvantage if their parents don’t speak the native tongue. It is common sense to give them the extra education they need so they can catch up with their native peers. In Ontario, Canada, schools with many immigrant pupils have been receiving extra help and the province is now renowned for its strong education. Those immigrant pupils would not have had the same chances in life if they were denied extra education out of a misplaced sense of egalitarianism.

Although no one in the western world risks imprisonment for speaking his mind, the mindless and reflexive contempt of his peers is a certain punishment. In his On Liberty, the philosopher J.S. Mill warns against the social consequences of using the right to free speech, because their menace mutes people just as well as the threat of harm does. Perhaps even more.

This social menace has been so effective that we are left with half of the electorate frustrated and an array of unsolved and unaddressed issues. And it is strange that we are, because it shows we have lost sight of another important function of the right to free speech that J.S. Mill pointed out. We need to let extremists, bigots or plain idiots speak their mind without interruption or ridicule on television once in a while. Nothing is as effective at exposing the weaknesses in their arguments, the flaws in their reasoning, and their delusional mindsets. But if you never let anyone see these weaknesses, then the attempts at muffling them only gives the impression that they’ve got something sensible to say.

Those who oppose discussing integration, Islamisation or any other sensitive issue do so to keep the wooden horse and its sinister contents outside the city walls. They believe they have left apartheid, Jim Crow states and Nazi Germany out to rot. It would be better if they did not look a gift horse in the mouth, and welcomed these topics for discussion. The actual underlying problems could then be approached; the electorate would be relieved; and the worst of the worst no longer have the loudest voice in these matters.

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European government?

Eurosceptics might see Merkel and Sarkozy’s proposal as a worrying step towards tighter European integration, but it is a necessary measure which sounds more dramatic than it is. Sarkozy glorifies a biannual meeting of the Eurozone countries’ leaders as an “economic government for the Eurozone”. A biannual meeting simply cannot be an effective form of government for the Eurozone and whatever one might think about the Eurozone leaders’ wisdom, they are well aware of this. Rather, this ‘European government’ seems more likely to become a replacement for the ill-made and ineffective Stability and Growth Pact (SGP).

The purpose of the SGP was to keep the expenditure of the Eurozone’s member countries in bounds. Besides being described as ‘stupid’ by Romano Prodi, the EU Commission President, the SGP was for the most part simply ignored. No country has ever been fined for transgressing the rules, primarily out of fear that a fine would dampen necessary fiscal stimulus. This reluctance has now led to Europe-wide panic and .01% quarterly growth in Germany. The SGP’s lack of authority and poor design has lead it to fail to achieve its purpose of ensuring stability and growth.

Described as “economic government”, the proposed biannual meeting seems set to take the SGP’s place. Both concern the Eurozone’s government’s fiscal policies, and the main difference resides in the absence of clear-cut rules for the proposed “economic government”.

By labelling it so gravely as a government, Sarkozy seems intent to give it an air of authority. This would hopefully allow the “economic government” to enforce its measures on Eurozone members, or at least more effectively than the SGP.

Whether the SGP rules remain in place is uncertain, but ideally they would be revised as well. One of the main criticisms of the SGP rules is that they are of a ‘one-size-fits-all’ variety. The several Eurozone countries are inherently different due to the structures of their economies (compare manufacturing-based Germany to construction-boom led Spain), and therefore their optimal levels of expenditure and debt will differ substantially. An “economic government” with sufficient authority and expertise can handle countries’ fiscal policy on a case-by-case basis and prescribe optimal limits to expenditure.

The move by Angela and Sarkozy is controversial. Although the Eurozone is desperately in need of fiscal coordination, the notion of a European government seems like an unashamed assault on the independence of Eurozone countries. Three things, however, need to be kept in mind.

Firstly, the Eurozone may have a bad reputation at the moment due to the PIIGS, but it can still be a force for good as it has been for some time during its existence. Eurosceptic clamour has never been so loud, but the trade-off between national sovereignty and economic stability will appear much fairer once order has been restored to the Eurozone.

Secondly, to maintain the Eurozone and the EU’s good aspects it is necessary that fiscal rigidity is imposed on any country that threatens to lose control over its finances. Those who object to a European government out of fears that their own economy will become a whipping boy for the fiscally imprudent ones must bear in mind the conditions that the “economic government” has borne out of. Then these worries appear unfounded as the European government appears to be a remedy for (or rather, a prevention of) the bailing out of imprudent member states.

Thirdly, although this government has been appointed without any mandate, its powers seem limited to popular mandate. So far it has only been stipulated as a biannual meeting of prime ministers and presidents (except for emergencies) to discuss economic matters. Its powers can therefore extend no further than what a country’s leader is willing to secede, and these leaders rule by popular mandate.

All that this “economic government” is, is a biannual meeting of Eurozone leaders. In my view, this meeting has been given a name that carries authority in order to give it the status necessary to credibly and effectively conduct its members’ fiscal policies. The current crisis has shown this measure is necessary, because the last attempt to control fiscal policy has evidently failed.

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