A good article about the IMF meetings at FT

Monday 26 Sep 2011

In today's FT Chris Giles has written what I think is both a pretty good article about the IMF meeting this weekend, and a pretty good example of elite journalism. I like the article because it seems to me to explore the philosophical issues underlying the crisis, and I think it's an example of elite journalism because it doesn't shoot from the hip in a dangerously inaccurate way, it seems to work backwards instead of forwards in a gentle cautious neutral way. I have reproduced the article below, I hope that when you read it you will feel as if you were hovering on the ceiling of IMF War Room looking into the minds of the leaders and examining the conflicts between them at a deep level. I think this is the sort of big picture journalism that historians might take an interest in were they to look back on this crisis in years to come, and it's very refresing to see an elite journalist looking past the superficial smoke rather than using it to pull the wool over our eyes.

These days there is a lot of criticism of elite newspapers, academics and bureaucrats flying around. For example, the UK Telegraph laid into the Financial Times last week describing it as a paper that had been hijacked by soft headed liberals who constantly call the future wrong. I think Matthew Parris of the UK Times summed up the prevailing anti-elite sentiment when he said "I find the arguments of my intellectual colleague Anatole Kaletsky frankly bizarre. He seems to suggest that this crisis occurred because the US authorities didn’t bail out Lehman Brothers or the Germans insisted on restructuring Greece. He makes it sound as if these financial events were like some kind of asteroid hitting our global economy from outer space, but the truth is we have been living beyond our means for years...  I’ve stopped deferring to professionals in the world of finance and economics, having found my own uneducated guesses no more deficient than theirs — so I’ll venture this: Short of some kind of incredible psychological change that I fear would be too cruel for any democracy to undertake, we in Europe and America must expect except this crisis to go on until we are about 25 per cent poorer than we are today. Not until then will things begin to settle down..."

Of course we all know what Matthew Parris & co are saying about intellectuals in smoke filled rooms, but that's why I want to draw your attention to this FT article, because it shows how we can depend on the elite to look after the complicated debates if they learn to use their brains. There is an article in the Guardian today called "If capitalism has failed, how the hell do we pay for our Shreddies?". I want to say to the journalist Charlie Brooker, it's great you are walking up, and it's great you're making enough noise about the rocks to wake the Captain up as well, but please don't try and navigate yourself! The sad fact about teaching philosophy is that as soon as someone has learned something we have tear it down again, it's a never ending journey. So on this blog I talk about waking up the clueless zombies, and then as soon as they start coming back to life I have to tell them to settle down! No wonder they put Socrates to death! No wonder he welcomed it!

So whilst Matthew Parris dishes out some justified dirt in his article, I have to point out that he ultimately misses the target himself. His article begins: "This spiralling downturn, we are told, is a failure of capitalism. Financial systems have seized up. Liberal market economics isn’t working. Someone should have intervened, now we must find ways to kick-start growth, recoup the losses we’ve sustained, and smooth away our debts. Adam Smith’s Invisible Hand has let us down. Rubbish! Adam Smith’s Invisible Hand is slapping us about, as we deserve and need. No pain no gain...". But these comments about capitalism are, of course, deeply unhelpful! Some people live by feeling for what truth is intuitively, and some people live by expert analysis of what truth is not, but we philosophers have to drive everyone crazy by forever begging people to live both ways.

The article is called Dark humour and hard talk at IMF meetings and runs approximately as follows:

Larry Summers, Barack Obama’s former chief economic adviser, said it was the gravest IMF meeting he had attended in his twenty year career. Policymakers said the world economy had entered “a dangerous phase” and that the eurozone is “at the epicentre of the crisis”.

The gloomy mood brought out some dark humour amongst the German Central Bankers. Axel Weber and Jürgen Stark joked about whether it was better to have no plan, US style, or a plan that lacked market credibility, European-style.

But most hoped the dangerous situation would galvanise action. Jean Claude Trichet said: “Democratically elected governments are unable to take tough decisions unless they are under extreme pressure.”

Everyone recognised that at the heart of the four-year crisis lay the unsustainable debts of households, banks and now governments. Mohamed El-Erian said the world had found itself "in the final phase of a serial contamination of balance sheets” in which the easy solution of rapid growth “is not available to Europe or the US”.

While market pressures rammed home the message that there was not much time left to find solutions, Christine Lagarde, IMF managing director, again caught the mood by insisting the priority must be “implementation, implementation, implementation” of existing plans for Greek deficit reduction and anti-contagion devices.

Everyone recognised that at the heart of the crisis there is a lack of confidence, preventing those with healthy balance sheets – emerging economies and large companies in the US and Europe – from spending.

It is here where agreement breaks down. None of the big players in the eurozone crisis or in the global economy had a unified view on what drives confidence. The question is: should the underlying debt crisis be addressed without fear in an sort of aggressive 'no pain, no gain' way, or is it better to tread softy buying time in the hope that the problems evoporate as economies grow?

Berlin is firmly in the former camp. The message from Germany could not be clearer than that delivered by Wolfgang Schäuble, finance minister, after a speech to bankers. “The main reason for the lack of demand is the lack of confidence; the main reason for the lack of confidence is the deficits and public debts which are seen as unsustainable,” he said.

The US fears that such insistence on fiscal probity will exacerbate the underlying bad debt problem by snuffing out growth and confidence. Now departed from the Obama administration, Mr Summers had licence to speak freely, but his sentiments are shared by US officials. “It is the central irony of the financial crisis – caused by too much confidence, borrowing and lending and spending – that it cannot be resolved without more confidence, more borrowing and lending and more spending.”

This fundamental disagreement infects the discussion over specific elements of the crisis, such as what to do about the periphery of the eurozone. For example, would the Greek economy be better served with the sort of extremely aggressive reforms which worked in Latvia and Ireland, or with a longer more humane phased in approach?

There was much agreement that the ultimate goal will be a monetary and fiscal union, something that George Osborne, UK chancellor, believes is underpinned by “remorseless logic”. Although a Euroskeptic not a cosmopolitan himself, Osborne is worried about the impact of the Eurozone's problems on UK growth, and is therefore urging the Germans to integrate more thoroughly with her neighbours so that she can provide them with aid and guidance.

Germany was on board. Mr Schäuble said: “I am convinced that, with the escalation of the crisis, time has come to accelerate the process of changing the political and institutional structures of the Union towards a political and fiscal union. Otherwise it will be extremely hard to convince markets of the eurozone’s long-term sustainability.”

But agreeing on the destination is not the same as unity on the mode of transport. Tim Geithner, US Treasury secretary, warned of “cascading default, bank runs and catastrophic risk” if Europe did not erect firewalls to protect others from the Greek-led turmoil. Germany frets that such barriers stand in the way of the fiscal discipline necessary for greater fiscal union.

Suggestions that monetary policy and the ECB could bridge the gap get short shrift.

“We won’t come to grips with economies deleveraging by having governments and central banks throwing – literally – even more money at the problem. You simply cannot fight fire with fire,” Mr Schäuble said.

The usual compromise in such predicaments is to establish a diplomatic process aimed at muddling through and keeping the show on the road. The current process culminates at the Cannes summit of the Group of 20 in six weeks. By then choices over Greece and the euro must be taken because market and social calls to find a solution are deafening. As Mr El-Erian said: “There are no more muddle-through scenarios.”

I think this article sums up what going on behind the scenes at the IMF rather well. Matthew Parris isn't part of the club, he doesn't write this kind of article, but it's a good article nevertheless. What we are getting here is an insiders view of the elite that ordinary papers can't give us. It's the sort of no holes barred truth that the people who buy the FT really want, but which the elite don't help the FT to write because it doesn't serve their purpose of projecting 'steady as she goes' confidence.

We rarely get to see this kind of honesty in politics or journalism or business. It's really hard to get a glimpse of what is going on inside of people because what they present to us is normally a sort of a mask. So if you get involved in a discussion with a person who has some reason to impress his audience, you have to try and read behind his words if you really want to understand him. I once met a homeless guy who claimed to be an expert on philosophy. He said his secret strength is that people don't try to impress him and he can't impress them, and because of that he isn't sucked into the conventional projections that rule society. Short of turning into what Gauguin called a "Noble Savage" eccentric, anyone who wants to self study philosophy should to go into exile for for the first few years (Socrates suggested five in The Republic). The student of philosophy doesn't have to live in a cave, just take a sort of vow of silence and refuse to engage in conversations, which allows him to self develop by observing and criticising society from a distance. The critical point is that he can discard his mask and live freely and truthfully.

Elected politicians are the most heinous example of this kind of deception in society. Was it Mark Twain who said "Anyone who can get themselves elected to public office shouldn't be allowed to stand!" In the article above Trichet says that "democratically elected governments are unable to take tough decisions unless they are under extreme pressure". But the truth is that as times get tougher the masks these politicians wear just get thicker and thicker. If you look at Greece today the quality of political debate is absolutely appalling, and we see the same thing developing in the United States. Where is the evidence that democracy can respond to crisis? Have these guys forgotten that big recession in the 1930s was followed by world war, and the little recession in the 60s/70s by fascism in tin pot countries such as Greece?

This political poison spreads out to journalists because they have to support certain parties to sell copy and they get paid to treat politicians seriously etc. Look at the Wall Street Journal's coverage of the Republic presidential candidate elections on its "opinion" pages, this so called elite newspaper churns out tragic articles which treat these nincompoops seriously. Likewise, until recently the FT used to have a weekly slot for UK Conservative ideas such as The Big Society. Behind the slick presentation, the articles were so obviously fallacious that they made the journalists at the Sun look like Socrates. So I fear Trichet is wrong, when society deteriorates the elite turn up the intensity of their dishonesty in a vicious circle which culminates in existential failure. So I think democracy can't respond and ultimately what comes about is a sort of reboot in which the power base changes - usually violently.

Now this train of thought brings me back to the great tragedy of this article about the IMF. Do you think the FT could have published exactly the same article two years ago? What I mean is do you see any sign of evolution here? In my opinion they are still stuck in the same old debate about how fast to cut spending which has being doing the rounds for years. What do you think?

I have written so many articles about the Eurozone crisis that it is begging to revolt me. But if we just cut to chase for a change, what do you think is at the real heart of the crisis? Matthew Parris doesn't say it's debt, he says the real issue we have to face is that "we have been living beyond our means". Stiglitz doesn't say doesn't say it's debt, he says the real issue we have to face is that "capitalism has failed and we need a whole new economic model".

If you look past all the smoke, my blog is all about that single great question: what is at the heart of this crisis? The FT article talks about confidence, but confidence is like debt, it is a symptom of the underlying philosophical issue not a cause. Down at the IMF they either still don't know what this crisis is really about or they can't bring themselves to talk about it even in secret. Everyday they refuse to take that mask off the symptoms, debt and confidence, get worse, and other symptoms threaten to erupt.

Matthew Parris's uneducated guess is more advanced. He says society needs to get poorer, he has clearly made his mind up on the 'no pain, no gain' vs 'stimulate and print' debate. So Matthew Parris is ready to attack vested interests on the left and shrink the people's wages and benefits even more aggressively than the Germans. Stiglitz's educated theory is also more advanced than the IMF position. He talks about building new economic models to both boost the shrinking pie and redistribute it more justly. As far as I can tell, the Germans are so busy arguing about pain with the Americans & French they haven't even noticed the need for a whole new growth model. I like the image of Axel Weber and Jürgen Stark making jokes about the stupidity of the debate, but the best jokes are made by adults who try to make the children see the bright side of their struggles, not by children who find the problem so hard their they try to make themselves feel better by pretending truth is impossible. You have to wonder whether their jokes are a sign of strength, or the sort of appalling elite German fatalistic stupidity that couldn't tell their populist tyrant Hitler, after his Russian defeat, that the war was hopeless and he had to surrender.

We philosophers can, of course, see instantly that the truth is deeper than both Parris and Stiglitz imagine. Beyond "living beyond our means", beyond "a new economic model", the fact is "democracy has failed". Mark my words, Greece will not be a democracy for long. Greek democracy is liquid death, it will either destroy the Eurozone or they will amputate it and let it destroy itself. Until Schäuble stops waffling about federalism and realises how serious the problem of democracy is this crisis is endless. If Schäuble's mind was clearer he wouldn't be dreaming about some kind of cosmopolitan nirvana, he would be thinking about pragmatic steps. For example, the European Parliament is spectacularly dysfunctional, god forbid we built a system around that. Instead Schäuble would take the small experimental step of imposing a non democratic government on Greece. One day in the not too distant future the masses are going to be openly taking about the failure of democracy, but we are still at the stage where our elite are so blind they can't even begin to talk about the elephant in the room. Matthew Parris is right really, the elite of today are following not leading. If you think about it, we are replaying the 1930s, the elite Germans couldn't face up to the problems of democracy, and millions upon millions died because of their lunacy. Germany is both the most brilliant and the most stupid power in Europe, over and over again the conflict between German populism and elitism plunges Europe into war.

What I say here about the failure of democracy is not complex philosophy, frankly it's bloody obvious even to Chinese children. If you read Plato, the democracy debate is one of the tools he uses to teach, just as I seem to find myself constantly chattering about the Eurozone crisis. Think of this crisis as like an onion, humanitarian socialism, vicious capitalism, and liberal democracy are not the heart of the problem, the analysis goes on forever and ever into the nature of good and beauty. Yet your big journey can't start until you bring yourself to realise that these three bedrocks of modern Western thinking are all completely and utterly worthless and mindless.