Mark Harrison

Mark Harrison

W. Glenn Campbell and Rita Ricardo-Campbell National Fellow Mark Harrison is a professor of economics at the University of Warwick in England and a senior research fellow at the Centre for Russian and East European Affairs at the University of Birmingham. As an economic historian and specialist in Soviet affairs, he is currently working with Hoover fellow Paul Gregory on Hoover’s Soviet Archives Research Project.

In the 1985 Reith lectures, broadcast by the BBC, the OECD economist David Henderson coined the phrase “do-it-yourself economics.” These, he argued, were the practical ideas that ordinary people use to understand the economic world around them. In the world of DIY economics, he noted, public spending and exports are good because they create jobs; factories that produce things are more deserving of support than offices that produce intangible services; cheap goods made by foreigners threaten our jobs; and whatever is wrong, it is the government’s duty to do something.

DIY economics is alive and well in many countries. I’ll give three examples: hostility to banking, support for revenge taxation, and demands for more fiscal stimulus. Something of interest in all three cases is the length of causal chains. In the world of DIY economics there is never more than one step from cause to effect. This is one reason for its appeal. DIY economics is concrete and intuitive, and everyone can understand it.

HOSTILITY TO BANKING

The Occupy Wall Street and Occupy London movements have their roots in DIY economics. They contrast bankers’ bonuses with spreading unemployment among the people who make things with their hands. They blame banking for everything that has gone wrong since 2007. This is not an unrepresentative minority; a Pew opinion survey in October 2011 found that 39 percent of Americans supported Occupy Wall Street, more than would have supported the tea party at the time.

Continue reading Mark Harrison…

As Europe’s leaders leave Brussels with a new fiscal treaty, I found myself thinking back to last June when Nicolas Sarkozy said:

Without the euro there is no Europe and without Europe there is no possible peace and security.

It makes you wonder how we got to this. If true, it would make the well-being and security of all Europeans hostage to the future of the Euro. Yet the euro is a relatively recent invention. It was not around for the first half century of the postwar era. Europe was peaceful and the European Union was working effectively long before the euro was brought in.

Given the model was already working reasonably well without the euro, you could understand Sarkozy to mean that Europe’s architects willfully introduced a new feature that, if then removed one day, would bring it crashing to the ground. How dangerous is that!

Confronted by the possibility of eventual Eurozone disintegration, which the new fiscal treaty does not remove, I caught myself thinking:

If only Europe’s builders had stopped with the single market.

The single European market, enacted between 1987 and 1992, was a huge achievement. The single market eliminated physical, technical and tax-related barriers to free movement [of goods and people] within the Community. The single market was enforced by tough laws that improved competition. In turn, competition and free trade within the community raised average productivity and incomes.

The European economy wasn’t perfect. The common agricultural policy remained a blot on the European rural landscape. There was continual pressure on the member states to harmonize national social, employment, and fiscal policies. Within the single market itself there were still national currencies. The single market was marked by regional price differences arising from exchange rate fluctuations, currency exchange costs, and the lack of transparency associated with pricing in different currencies. The transaction costs alone might have been worth a few billion euros.

Continue reading Mark Harrison…

A Flood of Cheap Chinese Goods

Writing about web page http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1964156

Late in the Old Year, I listened to a radio interview. The question was: “What has the world gained from China’s emergence into global trade?” The response was something like this:

A few countries have gained by selling raw materials to China — Australia, Canada, parts of Africa.

What about the rest?

The rest of us have just had to face a flood of cheap Chinese goods.

To me this neatly encapsulated one of the central tenets of Do-It-Yourself Economics:

Production (and exports) good. Consumption (and imports) bad.

The mixed feelings with which the world’s media greets the deluge can be readily illustrated by Googling the search terms “flood” and “cheap Chinese goods.”

Continue reading Mark Harrison…

Help Me, Daddy

Writing about web page http://www.bbc.co.uk/news/world-asia-16239693

The death of Kim Jong-il, who ruled North Korea from 1994, reminded me of something a Korean friend told me a few years ago. My friend is an expert on North Korea and told me this "for a fact." Now, I also remember many things I was told "for a fact" in Moscow in Soviet times. This is a fact I’ve never had the opportunity to verify (and wouldn’t know where to look), so I’ll put everything in quotes as my friend told it to me.

In order to facilitate his system of personal rule, Comrade Kim Il-sung devised a subcommittee of the party politburo to help him take the most important political and military decisions. The subcommittee had five members, so it became known as the Committee of Five.

Initially, the Committee of Five consisted of Kim Il-sung himself, his son Kim Jong-il, and three other senior party figures.

Note. Kim Il-sung was North Korea’s first ruler, and the father of Kim Jong-il. The idea of a Committee of Five is very plausible. A key to the personal power of a totalitarian dictator is "divide and rule." One aspect of divide-and-rule is the compartmentalization of information and responsibilities, so as to minimize the number of people that have an overview of everything.

Continue reading Mark Harrison…

The Euro: What If …

Writing about web page http://blogs.ft.com/the-world/2011/12/eurozone-crisis-live-blog-19/#axzz1fweCvEJB

What if the Euro collapses? There’s already more than enough speculation about that. I’m wondering what will happen if the Euro survives.

Since survival is always conditional, let’s ask: What happens if the Euro survives the next three years, which should be enough to take us into the next upswing. Also, we know for sure that the Euro cannot survive in its present form, but let’s say there is just enough peripheral shake-out (say, a Greek exit), enough extra liquidity (a "wall of money" to shield the other vulnerable countries from contagion), and enough institutional reform (movement towards a fiscal union) that in 2014 a currency union is still in place with most of its current members.

What then? With all eyes focused on financial and fiscal turmoil, the underlying problem is being forgotten: The Eurozone is still not an optimum currency area.

Continue reading Mark Harrison…

Writing about web page http://www.themoscowtimes.com/news/article/5000-protest-duma-election-results/449327.html

The Russian parliamentary elections show that, whichever party Russians voted for, whether they voted under free and fair conditions or not, they voted overwhelmingly for a strongman. United Russia (one half of the vote) is for Putin. The Communist Party (one fifth) is for Ziuganov. The Liberal Democrats (one tenth) are for Zhirinovskii.

Neither liberal nor democratic, the Liberal Democrats’ favourite term of abuse for advocates of a free and competitive political system is der’mokraty, "shittocrats." The Communists have called for Russia to undergo "re-Stalinization." United Russia follows the hazy notion of "sovereign democracy," implying a non-competitive dialogue between rulers and ruled.

On the face of it, the outlook for democracy in Russia is hopeless. Apparently, nearly all Russians espouse one or another form of authoritarianism.

All the more surprising and encouraging that 5,000 Muscovites have taken the risky course of public demonstration against vote rigging and electoral fraud. But what do 5,000 demonstrators count, out of 65 million voters?

Continue reading Mark Harrison…

The Return of DIY Economics

Writing about web page http://www.ft.com/indepth/autumn-statement-growth-review-2011

Some years ago, David Henderson coined the phrase“do it yourself economics.” DIY economics, he argued, was made up of the practical models of causation that ordinary people use to understand the economic world around them. In the world of DIY economics, he noted, public spending and exports are good because they create jobs;industry is more deserving of support than services; cheap goods made by foreigners are a curse, not a blessing; and whatever the problem is, the government ought to do something.

DIY economics is clearly expressed in responses to yesterday’s autumn statement by the Chancellor. I’m going to comment on just one aspect: the length of causal chains. In the world of DIY economics there is never more than one step from cause to effect. I will give two examples, one concerning the burden of taxes and another concerning the housing market.

Continue reading Mark Harrison…

Plan B or not to B

Plan B was launched over the weekend to much fanfare. There was much excited analysis in The Guardian. In The Observer, one hundred economists told George Osborne that Plan A is failing.

I will focus on one small aspect, the Plan B critique of current fiscal policies. Behind Plan B is the idea that "current policies … may do the very opposite of their avowed intention, by actually increasing the deficit." The logic underlying this argument extends he Keynesian multiplier: public spending cuts put people out of jobs and reduce their incomes, so that they pay less in tax; if taxes fall by more than spending, the deficit will widen, ending in higher, not lower public debt. Turn this argument around and there would be scope, apparently, for Britain to spend its way out of debt.

Another idea behind Plan B is that "the UK national debt is not large by long-run historical standards." Judging from the historical record, it seems, Britain can easily afford a higher public debt. While debt reduction may sound virtuous, it is suggested, it is currently unecessary (and the policies designed to achieve it may be actively harmful).

Continue reading Mark Harrison…

Writing about web page http://www.bbc.co.uk/news/world-south-asia-15209793

Marking ten years since the coalition invasion of Afghanistan, former U.S. commander Stanley has said that the U.S. and its NATO allies are only a little better than half way towards reaching their war goals. He added:

Most of us — me included — had a very superficial understanding of the situation and history [of Afghanistan], and we had a frighteningly simplistic view of recent history, the last 50 years.

Respectfully, I disagree. The problem was not a lack of understanding specifically of Afghanistan’s history, or of recent history. The problem was a lack of history in general. They did not understand how our modern world has been created.

Continue reading Mark Harrison…