politics

Over two weeks ago on the 30th of November I visited the annual Telders Foundation lecture. The Telders Foundation is the scientific bureau of a Dutch liberal political party, the People’s Party for Freedom and Democracy. It was conveniently located in the center of Utrecht where it was held in the Nicolaï church, where it started just a moment after my lecture for the course ‘Ideologies in the 19th and 20th century’ I’m following finished. That is a useful coincidence, because the Telders Foundation lecture was given by Deepak Lal, a development economist, who gave a classical liberal perspective on the global economic crisis. Thanks to the course about ideology I’m following I know the details about classical liberalism and social liberalism and other ideologies, so I can place it in perspective.

He explained what the causes, current issues and geopolitical consequences surrounding the global economic crisis are in his opinion. Basically, one of the primary causes were the bailouts of large ‘too big to fail’ companies. Long before the current crisis began LTCM was bailed out in 1998. LTCM was a hedge fund, yet they were still bailed out! He mentions many more examples of privatizing profits and socializing losses such as the Greenspan put. He thinks the promotion of home ownership in the USA was a cause of the crisis, how exactly I don’t remember, but Wikipedia gives an explanation for it too. In general Wikipedia’s article on the global financial crisis of 2007–2010 gives a good impression of what his other ideas are about the causes of the crisis. He argues that all the policy errors created a moral hazard, the bailouts for example created a wrong expectation for the market that the government would intervene in a crisis to save the system. He argues that the financial system has become too complicated and nontransparent, which exacerbated the problems. One of the more interesting causes which I had never heard about before was the abolition of the Glass–Steagall Act, which separated commercial banks from investment banks. Because the latter involves, in his words, ‘gambling’, the undoing of the separation contaminated the part of the financial sector which should not have been prone to the risks of investment banking. According to him the firewall should be maintained so investment banks can be set free.

When discussing the current issues he started introducing a lot of complex economic thought, which I could understand reasonably well but probably dazed others. He introduced Friedrich Hayek and Irving Fisher (I heard of the first economist, but the second was new to me) to give a theoretical perspective. I don’t remember exactly what the line of reasoning was after more than two weeks, but he came to the conclusion that quantitative easing (a complex word which simply means that the supply of money is increased by the government), the policy currently employed by the central banks of the USA the UK and the EU, is right. But quantitative easing needs a timely exit. And the USA has a problem that it’s deficit is rising, Obama’s health care Act is a cause. The UK was right to cut government spending, but wrong to keep it’s VAT rise and it’s 50% income tax rate. The European Central Bank is right to implement quantitative easing whilst demanding to cut government spending. In other words, the welfare state needs to be reduced because it is becoming unsustainable such as in certain places in Europe and the USA which is in denial with it’s expansion of health care insurance.

Regarding the geopolitical consequences of the crisis, it’s interesting he said that China’s share of the USA’s government debt won’t enable them to destroy the USA’s economy at will by selling the debt papers, as many people seem to think. A huge offering of those debt papers would make them worthless because supply would be greater than demand, so China would gain nothing. However, due to the crisis the USA may not be able to keep maintaining global order, which would lead to the erosion of global order which in turn would lead to the erosion of globalization.When Lal finished, Frits Bolkestein (the president of the Telders Foundation and a famous retired VVD-politician both in the Netherlands and Europe) joked that he was sure the audience had understood everything, but that it was now to ask questions. At this point I had to leave to catch my bus.

So what makes this vision on the financial crisis classical liberal? Lal doesn’t think the crisis marks the end of capitalism. The crisis was caused by primarily by wrong government policy. Better regulation is the remedy, if that requirement and others are met the capitalism could work properly without these financial crisis (my assumption he thinks that). There should not be companies which are ‘too big to fail’, and commercial banking and investment banking should be separated  so the latter can’t contaminate the former with it’s risk. But non-interference of the government is also the key, governments shouldn’t bail out failing companies and let the free market take out the rotten apples, the failing companies. Deficits are dangerous and can be solved by cutting government spending, through shrinking the welfare state which is not sustainable at this moment.

Classical liberalism is relative in this age, I doubt anyone calling themselves a classical liberal now would want to return to the night watchman state reminiscent of the first half of the 19th century by the abolition of the welfare state. Back then classical liberals advocated such a minimal state, but nowadays I don’t think they would want to reverse the development completely. I clearly see the distinction with social liberals because Lal didn’t even once mention the unemployment caused by not bailing out certain companies.

While refusing to bail out General Motors would have been right in the sense that GM would have gotten what it deserved – bankruptcy – it would have caused massive unemployment. Social liberals would be far more concerned with preventing unemployment than classical liberals. Also, some of these bailouts are profitable for the government, for example the USA’s government made a profit of 12 billion dollars when it completed the sale of all it’s shares of Citigroup recently. Also, the government imposed strict demands on the companies which were bailed out, such as cuts to bonus payments. If the ridiculous bonus payments have been reduced adequately is different question, but if you can prevent unemployment and can make a profit with bailouts, why would you not do it? I think principles and ideological tunnel vision should not be a barrier.

I agree that the ban on constructing minarets in Switzerland is plain discrimination. Understandably, this has led to indignation in the Islamic world. What I dislike however is the hypocritical holier-than-thou attitude of Iran’s Minister of Foreign Affairs Manouchehr Mottaki and the Egyptian mufti Ali Gomaa. According to Mottaki islamophobia is on the rise in Europe and the ban would have ‘far-reaching implications’. It gets ludicrous when he starts taking the moral high ground when he talks about human rights, an excellent example of the pot calling the kettle black. Switzerland’s ban on constructing minarets is nothing compared to Iran’s reputation with religious freedom.

Same goes for Mufti Ali Gomaa who called the ban an ‘insult’ to Muslims world wide. He should first criticize his own country as religious freedom in Egypt is at a very low level. A Coptic Christian righteously calls Gomaa’s comments an ‘insult to Christians’ living in Egypt.

Recently Afghanistan came in the spotlight again after a party of our coalition government voiced their desire to continue Dutch participation in the Afghanistan war. The other coalition partners do not approve of this idea, as the agreement was that the Netherlands would withdraw in 2010. According to a defense specialist in an article of the Algemeen Dagblad newspaper of yesterday (no English or Dutch link here to the article) the Netherlands would abandon it’s great international role if we left Afghanistan, and it would have consequences for our economy. The latter seems quite far-fetched, and he does not produce any arguments to prove why it is true. I can’t imagine how spending enormous amounts of tax money to participate in the ISAF-mission is less damaging to our economy than not participating.

Putting agreements to withdraw in 2010 aside, it’s better to think about how to solve the ‘problem’ Afghanistan. After 9-11 NATO-members claimed pompously that they were collectively at war because their ally, the United States of America, was attacked. But eight years later many NATO-members are more concerned about shifting the problem to others, possibly specifically the U.S.A. The Afghanistan war is unpopular with the electorate, and all the European nations would rather leave Afghanistan sooner than later.

Those who are in favor of withdrawing from Afghanistan merely seem to think about their own political and electoral interests, and dismiss the larger problem. I haven’t heard a solution to the Afghanistan problem from any of them. If the international community simply abandoned Afghanistan it isn’t hard to imagine that the Taliban and Al-Qaeda would take over soon and massacre the new government. Once again it would turn in a breeding ground for terrorists. I’m not sure what the European withdrawal advocates think what would happen if their nation would withdraw, but my guess is that they think the U.S.A. would simply take over. I’m not sure if that would work and the U.S.A. could handle it all alone, but I’m certain that it is not solidary.

The Afghanistan war isn’t just the U.S.A.’s problem. Unlike the Iraq war, which is a perfect example of American unilateralism, it’s the collective problem of the Western world and the Muslim world. The U.S.A. had 9-11, but the Netherlands had the Hofstad Network and the murder of Theo van Gogh by Mohammed Bouyeri. Spain had the 2004 train bombings in Madrid, the United Kingdom had the London bombings in 2005. There are more examples of Islamic terrorist attacks, and detailed lists of terrorist incidents in general. Take notice that Islamic terrorists have also committed terrorist attacks on Muslim targets, like the Casablanca and Sharm el-Sheikh attacks. The War on Terrorism definitely isn’t a war of the West versus the rest, as some seem to think. It seems like the electorate and the politicians have forgotten about these terrorist attacks already. Everyone should realize that the whole world is affected by the threat of Islamic terrorism, and losing the war in Afghanistan is not an option.

According to general McChrystal, the greatest problem the ISAF faces in Afghanistan is an insufficient amount of troops. To solve this problem I think the Netherlands should stay. However, I think that within the ISAF the burden isn’t shared equally. Let’s use Wikipedia articles describing the participants in the ISAF mission and the population statistics on each countries’ article to calculate the percentage of soldiers relative to total population. I realize it’s a comparison which is far from perfect, but it’s better than nothing.

As you can see, Germany, France, Italy and Spain contribute a relatively small amount of personnel. They should contribute thousands more. In an effort to win sympathy, I think it would be a great idea to try to get countries from the Muslim world to join the ISAF-mission.