Imposing Law Upon the World, Two of Two (Economics)

So here is what the soccer article describes as the core German philosophical position as it relates to Greece:
Eucken's views are now known as ordoliberalism, and they're still very popular among German economists. A skepticism of debt is central to the philosophy, which many see influencing German policy today. As The Economist has explained in a brief history of ordoliberalism:
This is an offshoot of classical liberalism that sprouted during the Nazi period, when dissidents around Walter Eucken, an economist in Freiburg, dreamed of a better economic system. They reacted against the planned economies of Nazi Germany and the Soviet Union. But they also rejected both pure laissez-faire and Keynesian demand management.

The result was a school that was close both in personal contacts and in its content to the Austrian school associated with Friedrich Hayek. The two shared a view that deficit spending for demand management was foolish. Ordoliberalism differed, however, in believing that capitalism requires a strong government to create a framework of rules which provide the order (ordo in Latin) that free markets need to function most efficiently.

From the original ordoliberals sprang one big idea for state intervention when cartels dominated the economy: a muscular antitrust policy. A second was a strict monetary policy that focused rigidly and exclusively on price stability. A third was the enforcement of Haftung, which means not just liability but also responsibility. Germany has tougher insolvency laws than America or Britain, for instance.
This showed up after the financial crisis of 2008. The Germans wrote a "debt brake" in their constitution, the Economist noted, that seeks to balance state and federal budgets, and they have tried to bring the philosophy to other European nations as well.
Although this is presented as an alternative to Keynesian thought, both attempt to control what is really a natural process according to what are alleged to be 'laws of economics.'  They are both trying to treat something organic as if the rules of reason and logic apply to it the same way that they do to mathematical structures.  As D29 was pointing out just the other day, there is an important fact about Keynes' full position that gets lost. We all know about the 'pump priming' part, but people forget (willfully, perhaps) that Keynes believed this could only work coupled with at least some protectionist policies. After all, if I'm going to deficit-spend to prime my economy, I have to make sure the money I'm taking on debt to spend is going to create activity within my economy.  That requires control.  Otherwise, even if Keynes' General Theory works, we're just taking on debt to prime the Chinese economy. We're only hurting our own, even in principle.
...the Great Thinker actually came out for stringent protectionism and economic autarky six years before he published the General Theory and for good and logical reasons that his contemporary followers choose to completely ignore. Namely, protectionism and autarky are an absolutely necessary correlate to state management of the business cycle and related efforts to improve upon the unguided results generated by business, labor and investors on the free market. Indeed, Keynes took special care to make sure that his works were always translated into German, and averred that Nazi Germany was the ideal test bed for his economic remedies.

Eighty years on from Keynes’ incomprehensible ode to statist economics and thorough-going protectionism, the idea of state management of the business cycle in one country is even more preposterous.
I wouldn't say it was entirely fair to suggest a necessary tie between Keynes and Nazis, but we can see that the German philosophical outlook is primed to believe in this kind of approach. They are thinking about economics in terms of lawlike relations between actors.  They are thinking about it in terms of an artificial environment of economic activity in which the laws of the mind apply with full force in spite of the nature of things.  An important part of keeping economics lawlike and predictable is to control the entry of non-lawlike forces. What kinds of forces are not lawlike? Self-love was Kant's great example: that force that calls us to make exceptions for ourselves from the rules.

So from the German perspective, the article is alleging, the important thing is to enforce the lawlike relations that allow for orderly economic progress.  If that causes short-term pain (and boy is it doing that), that's too bad:  we must resist the urge to allow the Greeks to make exceptions arising from self-love (i.e., not starving or having their economy choked to death because they can't spend money across borders).

Of course, the other problem is Taleb's problem of antifragility:  just because the laws we think we see are really in us, and not in the economic activities to which we've assigned them, we often go wrong.  We think we are considering an economic system with rational laws.  In fact, there's just a bunch of human activities, which is governed not by rational laws but by (often irrational) human nature.  If we don't structure the risk of going wrong in the right way, we create situations of systemic collapse when things do go wrong.  That's our fault.

The article doesn't really say what it thinks the Greek philosophical position would be.*  The alternative it poses is described as "Anglo-Saxon," and is the utilitarian position:  the right thing to do is whatever it takes to avoid pain and restore pleasure in economic relations.  Utilitarianism takes pleasure and the avoidance of pain to be the basic standard for human ethics, including economic ethics.  The Greek suffering is a problem that cries out, on this model, for action to put an end to the suffering.

So, let's put all this together.  The economic system we've set up isn't a thing in its own right.  It doesn't have a nature, and therefore it doesn't have laws of its own.  Economics is just a human activity.

Thus, the relevant laws to economics seem to be our laws, that is, they are consequences of our nature.  Human nature includes the danger of starvation and the suffering of pain.  It also includes this dangerous incapacity to always cleanly distinguish between what our mind tells us about the world and the world itself.  Where we've set up a system that is fragile instead of antifragile, systemic collapse is our fault and should be our responsibility.  In this case, the Germans' outsized influence on the system suggests outsized German responsibility.  They have created much of this problem by acting as if it were possible to impose laws on economics that don't take account of human nature. All economic laws are located in us.

On the other hand, human nature also includes a robust self-love that corrupts us when we try to treat each other fairly.  Greeks have behaved in accord with human nature, but not wisely or well.  Making exceptions for those who have behaved unwisely is a serious business.  It has to be done in a way that doesn't make exception-seeking an attractive proposition for other nations (such as Portugal or Spain).

If that can't be worked out, then we should bow to human nature and let the Greeks take care of themselves -- out of the Euro, and out from under the control of its rules.  The rules are unwise, and the philosophy behind them likewise.  Because it mistakes the locus of the laws, it thinks you can have economic laws that are detached from human nature.  That can only lead to systemic collapses such as this one.  We should expect to see more, whether the Germans or the Greeks "win," unless the whole set of rules is re-examined to take account of human nature in its fullness.


*  One reason he doesn't give you the Greek philosophical position is that the Ancient Greeks didn't have one.  Economics is really a modern production, and its focus on laws and lawlike relations is thoroughly modern.  We get only a little talk about economic problems in Plato and Aristotle.  Aristotle thinks that the household is the seat of economic production, and thus he would suggest that the problem is too much specialization:  no family should put itself willingly in a position in which it can't provide for its basic needs.  At the present moment, that position is untenable (though it may become tenable again in a more automated future).  Specialization is necessary for economics as we practice it given our current technology.

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