Saturday, August 1, my family will wing its way, DV, to Boston, MA.  From there we will trek on to Martha’s Vineyard to spend the month of August doing nothing in particular.  The combination of bad airport novels, adequate supplies of white wine (including, tell it not in Gath, vino verde) and the nearness of lots of family I don’t see enough of should enable me to recharge the nigh-depleted batteries.  Safe and sheltered in the company of other effete liberals and pointy-headed intellectuals, I hope to have the time to finally write the bad book (tentatively titled ‘Oi Oikonomiks!’) I have promised my agent. This blog will fall silent (not before time, I can hear you mutter) until September.

The only blight on the landscape of this holiday is that, once again, a US presidential family has decided to vacation on Martha’s Vineyard during the month of August.  From earlier visitations by the Clintons, I know that the arrival of the presidential hordes on the Vineyard represent a massive negative externality for all those who go there in pursuit of the same thing the president and his family seek: peace and quiet.  Whether the local economy gets a temporary or lasting boost, I leave as a project for Econ 101.

The presidential party (or presidential court) that tags along on any presidential journey, let alone a temporary relocation involving the entire presidential nuclear family, looks and behaves like an occupying army.  There are hundreds, if not thousands of persons charged with security, ranging from the secret service to the specially beefed-up state and local police forces.   Communications experts, specialist medical personnel, myriad advisers and countless other presidential hangers-on cause the Vineyard to sink at least a foot deeper into the sea.  The carbon footprint is bigger than that of the yeti.  The press corps and assorted other media camp out all over the island, competing with the presidential staff for first place in the hot air emission stakes.  Roads are blocked.  Traditional rights-of-way are suspended.  Beaches become inaccessible.

Whenever the cumulative effect of the daily observation, looking out of my window or into the mirror, of human inequity and wretchedness brings me to the point that I am convinced the human race is an evolutionary dead end, something incredible happens to restore my faith that a hunger for freedom and an unquenchable thirst for justice and fairness are part of our genetic code. Crowds often become mobs and mobs are mostly ugly and destructive. The sight of large numbers of unarmed people, most of them young, facing heavily armed police, regular army, militia or other armed thugs is awe-inspiring.

The spinelessness and moral cowardice of the Obama administration know no bounds.  The Bush-Cheney  team ordered the torture and abuse of prisoners in Guantánamo Bay Naval Base and assorted other locations abroad – offshore detention without trial as well as torture by US officials or persons acting under their instructions being permitted by Article VIII of the United States Constitution, as confirmed in the XXVIIIth Amendment to the US Constitution.

Candidate Obama declares he abhors torture and deplores what went on in Gitmo and in secret detention centres around the world, but President Obama decides that the Camp may have to remain open for another year, as he doesn’t seem to know what to do with the prisoners.  The right thing to do would have been to send a plane to Guantánamo Bay Naval Base on the day of his inauguration, to move all the prisoners to the US.

President Obama then also decides not to prosecute those who committed the crimes of torture or abuse of prisoners or were responsible for these crimes. The president’s excuse was was that he sought to turn the page on “a dark and painful chapter”.  It was a “time for reflection, not for retribution”, he said.

He is quite wrong.  Reflection complements the law.  It is not a substitute for it.  Those who can be charged with these offences should be tried and, if found guilty, punished according to the law.  If among the guilty parties are CIA agents and former vice-president Dick Cheney, then so be it.  If you cannot do the time, you should not do the crime.  This is not vengeance, it is justice – and it is the law.  Justice must be done and must be seen to be done before healing and reconciliation can start.

The problem

I agree with Greg Mankiw[1] that it is time for central banks to stop pretending that zero is the floor for nominal interest rates.  There is no theoretical or practical reason for not having the Federal Funds target rate and market rates at, say, minus five percent, if that is what your Taylor rule, or whatever heuristic guides your official policy rate, suggests.

Economics as a science and economic reality have never had problems with negative real (inflation-adjusted) interest rates.  So what is the problem with nominal rates?  In a word, it’s currency.

The moral turpitude and ethical spinelessness of the Bush administration over the Guantánamo Bay detention camp have also infected president-elect Barack Obama.  The offshore detention and torture camp still holds 248 detainees.  During his election campaign, Obama promised to close it.  His proposed time table does not impress, however.  While Obama is now expected to issue an executive order during his first week in office closing down Guantanamo Bay, the measure will not be implemented, that is, the camp won’t actually be closed, during the first hundred days of his administration.

Barack Obama’s lack of moral fibre on this issue is manifest from his own words.

“It is more difficult than I think a lot of people realise”.  Indeed, doing the right thing is often difficult and can be personally or politically costly.  Difficult decisions should not come as a surprise to the president-elect.  It’s what you expect to get on your plate when you run for president of the United States of America, rather than for dog catcher.

Automobile producers all over the world are in dire straits. Sales and production are plummeting.  Unsold inventories are building up on dealers’ lots.  Christmas is coming too soon for many workers whose normal end-of-year break has been extended by days or even weeks.  Losses are rising fast.  Bankruptcy is looming for quite a few household names.  What, if anything, should governments do?

The US government has just announced a $17.4 bn loan to the three American automobile producers GM, Chrysler and Ford, $13.4 bn up front, with the rest coming in February 2009 – on Obama’s watch. The loan is short-term, until the end of March, 2009.  The bulk of the money, if not all of it, is likely to be drawn by the two basket cases – GM and Chrysler.

This post will start with a report on a prima-facie parochial issue: whether to record student attendance at classes and seminars in British universities.  It ends with an issue that ought to be of general concern, in the UK and elsewhere: the hammering of yet another nail into freedom’s coffin in the UK, as the state requires universities and those that work in them to act as informers for the immigration authorities.

I have long held the view that our freedom, our civil liberties and human rights, and indeed our open society, pluralist political system and way of life are endangered more by the response of the UK and US governments to the threat posed by Al-Qaeda and other terrorist groups, than by the terrorists themselves.

A further reminder of just how assiduously the British government has been chipping away at our freedom is provided by the arrest of the opposition spokesman on immigration, Mr. Damian Green, by counter-terrorism officers, his questioning by these counter-terrorism officers for nine hours and the search of his home and office.  The ‘terrorist conspiracy’ being investigated concerned Home Office leaks.

According to the BBC’s website, among the recent leaks that got Home Office knickers twisted so viciously were the following:

How far will the real price of oil and other carbon-based resources rise? Experts (I am not one of them) differ widely in their medium-term and long-term predictions, but my reading of the evidence suggests that there is a fair chance that the sky is the limit. In the short run (the next 2 or 3 years) a global cyclical slowdown may provide some temporary relief from rising commodity prices in general and rising oil prices in particular. This temporary cyclical energy price comfort will be deeper and longer-lived if the key emerging markets that have let inflation get out of control (effectively all of them except for Brazil) tighten monetary and fiscal policies to bring inflation down to politically tolerable levels. The resulting cyclical slowdown in emerging market growth will be bad news for economic activity in the industrial world, but will put downward pressure on commodity prices. We will be unemployed but able to afford petrol.

Once global growth returns to its underlying trend, however, say three or four years from now, I expect the relentless upward march of commodity prices, including oil, gas and agricultural commodities, to continue. The reason is simple. Global demand growth is heavily biased towards energy-intensive production and consumption in emerging markets. Even if common sense breaks out in India, China (perhaps even in the Middle East and other oil and gas producers) and domestic oil and energy use is priced at its global opportunity cost, the energy-intensity of global production and demand will be rising for quite a while. At a horizon of a decade or more, high energy costs may reduce the energy intensity of production, investment and consumption, but total energy demand is still likely to rise even if global real GDP growth averages only 3 or 4 percent per annum.

A small step forward for humanity: another bastion of sexism has crumbled – the General Synod of the Church of England has decided to allow women bishops, 14 years after ordaining women priests. As a dyed-in-the-wool Protestant, I would have preferred a solution that did away with all priests and bishops, but if we are going to have them at all, let’s have them of either gender or none.

There are reported to be as many as 1333 clergy who have threatened to leave the Church of England if they are not given legal safeguards to set up a network of parishes that would remain under male leadership. I really don’t want these theological sad sacks to leave. They are misguided and deeply offensive in their insistence that women be barred from leadership positions in the Church of England, but the Church should be broad and tolerant enough to accommodate a small Conan-the-Barbarian wing. I actually doubt that very many would leave, even if they did not get their MCP reservation inside the Church, because they are unlikely to be sent on their way with a pro-rated share of the Church assets.

The next step will be a lesbian bishop in a committed relationship. Then a female Archbishop of Canterbury, straight or gay, with or without a beard. DV I will see the day. Progress is made one small step at a time.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

Willem Buiter's website