Home > Uncategorized > Paul Krugman, Brexit, and unaccountable government

Paul Krugman, Brexit, and unaccountable government

from Dean Baker

Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further.

If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union.

The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank’s 2.0 percent. (For those arguing that this was the bank’s exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank’s job to maintain financial stability and promote growth.)

Not only were Trichet and his colleagues not fired, there was not even any talk of it. No one even seriously proposed some sort of cut to Trichet’s pay or some other penalty for f**king up just about as much as is possible for a central bank president. This is unaccountable government.

Of course the story in the United States is not much different. Ben Bernanke was sitting at the helm of the Fed when the bubble burst. In fairness, most of the run-up of the bubble had taken place before he took over in January of 2006, but he had already been in top economic roles for several previous years, first as a member of the Board of Governors and then as President Bush’s chief economic adviser. If he had been awake he should have been able to see the growth of the bubble and the risks associated with its collapse.

Nonetheless it was considered outrageously rude to suggest that Bernanke or any of his colleagues should be fired for their failure. Usually the idea was treated as an unfunny joke. Then it would be attributed to some sort of personal vendetta. (For the record, I don’t really know Bernanke, but from all accounts, I hear he is a very decent person.)

Anyhow, there is a real problem of unaccountable government in both the EU and the United States and it is ingrained very deeply in elite culture. If we can’t fire people at the top when they mess up horribly, then there is no accountability. As it stands, we can’t even talk about it. (Did anyone see any columns in a major newspaper calling for firing Bernanke for his failure to see the bubble and to take steps to counteract it? And I don’t mean raising interest rates.)

This gets back to the famous dirty toilet problem. If the custodian doesn’t clean the toilet properly, he gets fired. Everyone understands that. But if the central bank president sinks the economy, costing millions of people their jobs and their homes, well, who could have known. Yes, there is a really big problem of accountable government in the EU, and here.

  1. Bill
    June 18, 2016 at 5:25 pm

    There is also the ridiculous decision to adopt the euro which is in essence a paper gold standard. It is bad enough that Mundell was given a Nobel Prize for his academic promotion of the single currency. We academics tend to love in unreal worlds. What was horrendous was that after having understood that the gold standard had a major role in much of the misery of the Great Depression, EU bureaucrats and Member nation politicians pushed for adoption of the euro.

  2. louisperetzperetz
    June 18, 2016 at 5:54 pm

    Brexit should be the best, because you need to quit the boat when it is going to sink.

  3. June 18, 2016 at 6:05 pm

    Bill, that’s right, but things are so stupid every time. We only understand ex post. And not every body. Most people doesn’t know the correlation Great Depresion-II WW. Keynes saw the political risks of economic malaise, and he was famous for it (he gets t a lot of money for “The Economic Consequences of the Peace”) but few political people listened to him. After, we use to read the history as a if there were no alternative.

  4. Alan
    June 19, 2016 at 3:06 am

    sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further. If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired.

    Hilarious that the English, and it is the English, not the ‘British’, who are complaining about Brussels given that Westminster is worse. The current government was elected with a majority with only 36% of the vote. This is fairly typical of Westminster politics. Guess what happens if you lose your seat in the Commons because the voters didn’t like you? You are appointed by your party to sit in the House of Lords with a fat expense account. So much for being fired. And both the main parties are completely uninterested in reforming this corrupt system.

    The referendum is all about settling (wishful thinking) an internal Tory Party power struggle. The appeal to English nationalism (and the glorious past of Empire, etc. etc.) and scapegoating Brussels is very much a way of covering up for the ruling party’s economic incompetence. The Scots aren’t wildly in love with Brussels but they’d rather be in the EU and out the UK than the reverse. The voters in Northern Ireland seem similarly inclined. If Brexit happens expect to see the break up of the UK, sooner rather than later.

  5. June 19, 2016 at 3:58 am

    About 10,000-15,000 years ago humans began to experiment with living in more or less permanent settlements, domesticating plants, trying out such agricultural techniques as slash-and-burn. This was a radical change from forager living. And many people were not happy about the changes. Emerging village and city leaders began to look for ways to help people accept the changes. One of these was adding more ceremony and permanent religious elements to everyday life. Many anthropologists believe for example that Stonehenge was constructed about 5,000 years ago as a sort of symbol for the importance of the tribes in Britain that were going through these changes. Another part of this change was the invention of the economy and economics. Really no need for any such before this time. With permanent settlements, growing populations, more centralized leaders who eventually became monarchs, and production of food and other resources for both ones tribe and for barter came economics. A set of arrangements that rose to preeminent influence over the next 5,000 years is debt, used in the broad sense to include obligations, duties, responsibilities, and payment of money. Krugman’s and Baker’s comments are infused with debt – with obligation, accountability, duty, and the failure of all of these. Not much has changed in 5,000 years about how to create, satisfy, justify, and fail to honor debts. But what has changed is the size of the world’s population, the level of economic inequality, the overuse of resources, and the many theories of economists that fall like layers of opaque paper over peoples’ actions obscuring almost everything. If economists had been around 10,000 years ago the first agricultural revolution would have never happened, since the economists would insist on being in charge of it and then spent endless hours debating why and how to do it. Ultimately with no consensus.

  6. Larry Fauci
    June 27, 2016 at 4:02 pm

    I admire the Brits for having the foresight (even as the Euro currency was being implemented decades ago) that their sovereignty would likely be at stake at some future point if they adopted the Euro as their currency.

    Fast forward to the Brexit referendum vote — I admire the Brits even more today because of their “LEAVE” preference. Yes, there will be some short term financial chaos.

    But, they will emerge stronger then ever — if they can convince the Scots and Ireland to realize that the dominant socialist countries of the European Union — (France and Germany) have gone way, way overboard with “political correctness” and immigration policies that cause their own citizens to “lose their jobs” and even results in “terrorist activities”.

    Good Luck to the Brits and the UK — you’ve had the courage and wisdom to buck the trend.
    Now, can America summon up the courage to do the same as the Brits?

    • wereatheist
      June 30, 2016 at 1:44 am

      the dominant socialist countries of the European Union — (France and Germany) have gone way, way overboard with “political correctness”

      ‘Socialist’ my ass. Some libertard ‘merican showing off his being a moron.

  7. David Chester
    June 27, 2016 at 4:58 pm

    A few months ago David Cameron was saying that regardless of the result of the referendum, he would continue to lead his government and respond to what ever decision is made. Now he wants to resign. Is there any chance that there really will be a brexit made and if so how are we, the electorate to know it for the truth?

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