Running out of time

It's 4:45 AM and I just got back from the office. Of course, it's partially my own fault that I was there at such ungodly hours, but still, it strongly adds to the thesis that I am seriously deranged. One amazing facet was this working day and night was the video conference. It worked. At the first try. Nor did it disconnect for the entire hour. This is something of a record, as video conferencing my experience is one of those technologies that is not quite there yet. Virtually every video conference I have attended prior to this one resulted in dropped connections if we managed to connect in the first place.

The reason I am running out of time is that at 8 AM my flight leaves. The good news is that I am going on vacation (finally!). The bad news is that I still have to pack. Over the next ten days I'll be doing some serious skiing in the Colorado Rockies, or more precisely, in Vail. I will be taking a laptop with me, but blogging will be very light until I return in a refreshed state and without any broken limbs if possible.

And now I really have to run off to stuff my suitcase.

China's future

In the comments to my Breeze of change blog entry there are some interesting comments about de Gaulle and Roosevelt, defending the former and blasting the latter. I am not a big fan of Roosevelt's myself, but that's a topic I may explore at a later point.

One thing that I have been thinking of blogging about is China. Frequent commenter vaara points to The Coming Collapse of China by Gordon Chang. I haven't read the book and all I know about it is what I've read on Amazon. The book argues that the economic situation in China is nowhere near as rosy as the Chinese government would have us believe. The banks are in trouble, the State-Owned Enterprises (SOEs) are effectively bankrupt and the huge rural population is restive and discontent. Official statistics on the other hand show that the economy has been growing at a high rate over the last years. So what's going on there?

With 1.3 billion people, China is important simply because of the sheer numbers and getting the relationship with China right is going to be important geopolitically. It could set the tone for the next half century. My main problem with analyzing China is that I don't know enough about it. And that's not just in terms of hard data, but it extends to broader knowledge about the country, the cultural intangibles and the habits and customs. I don't speak the language and can't even read it. So China is a relatively big unknown. And gathering hard data on China is not easy either. With a secretive authoritarian regime in total control of economic data, it's hard to know what's real and what's not.

One of my usual sources for keeping up to speed with various economies are the sell-side brokers. Now, even in the best of times you have to take their crediblity with a grain of salt, but in the case of China the situation is worse. All the big investment banks who have equity research departments covering China tend to be positive. If they were to publish research that is too critical of the Chinese, their business would suffer. It's fairly obvious, but you do have to correct for that.

It is clear though that the Chinese economy is producing growth, it is exporting stuff, it is importing stuff and it is consuming stuff. And it is doing so in ever greater quantities. The Chinese can't fake the external accounts to the same extent that they might fudge domestic data, because all its trading partners are keeping track of the exports and imports as well. So there is something real going on, and the special economic zones such as Shenzhen look pretty spectacular. It takes capital and investment to build all those skyscrapers. However, if the developers don't get a return on their capital that is higher than their cost of capital, the building of skyscrapers is adding negative economic value. This applies in fact to all investments.

China's economy does face two big interrelated problems. One is the state of the SOEs, the other the state of the banking sectors. The SOEs are the old communist state enterprises which are adding no value whatsoever and should be allowed to go bankrupt. The Chinese government does not want this to happen too quickly as that would cause massive unemployment, so the strategy has been to let the enterprises go bust one at a time. Meanwhile the state-owned banks are forced to lend money to these SOEs, which has led to the effective bankruptcy of the big Chinese banks. But they're not allowed to go under either because that would cause massive problems for the Chinese economy. So while there are appears to be significant value and wealth creation in the private sector, the legacy of the state sector is still weighing heavily on China's economic prospects. Corruption within the communist party is also a problem that is exacerbating the situation, but the government has been trying to clamp down (or trying to be seen to be clamping down) on that by executing officials convicted of corruption.

The economic growth is China is very localized. In the high-growth zones there is a definite middle class emerging with all the trappings that one would associate with it. But the vast majority of Chinese still live outside these high-growth zones, working either in bankrupts SOEs or out in the countryside. Supposing that all the growth is real, there's still a big challenge ahead to ensure a transition from an agriculture-based rural economy to a modern industrial and service-based economy. But this is the challenge that all emerging markets face. If all the problems had been solved, then the market would no longer be emerging but emerged. I wonder whether a similar kind of book might not have been written about other emerging markets 10, 20 or 30 years ago. If you look at the current success stories like Chile and South Korea, you'll see that these countries also emerged from authoritarian rule through economic liberalization. In the most positive scenario, China would follow a similar pattern.

As always, many things can go wrong. I certainly would not rule out a breakup of the country into smaller states. The high-growth economic success stories could get fed up with central control, subsidizing the poor interior, feeling hampered and held back by a meddlesome bureaucracy hundreds, if not thousands of miles away in Beijing. From a more cynical geopolitical point of view, this might not be a bad thing, as it would break up the collective clout of a country of 1.3 billion people. But at this point I am on really thin ice, because I am speculating about things which I have too little information on.

One big issue will resurface again in China. The faster the economic growth, the sooner it will happen. It's human rights. The current government in Beijing may no longer contain the people directly responsible for the Tienanmen massacre, but the ideological legacy and ruthlessness lives on. The Chinese political leadership consists of odious people. Political dissent in China is still dangerous, and religious repression is routine. If you value your human rights, China is not a good place to live. As I mentioned earlier, the most positive scenario would be that China would follow the example of countries such as Chile and South Korea. Then again, Argentina is next door to Chile. But the human rights issue could also be the catalyst for a secessionist movement in the high-growth areas, and could yet derail the entire economic reform process.

The economic situation in China is improving, at least for a section of the population. The challenge is to spread the growth more widely while staying in control of any social unrest. Unemployment on the one hand, and permeating western values of human rights on the other could make life very unpleasant for the Chinese communists. I don't know how it will pan out, but I do know that whatever happens is going to be of major importance to us in the West.

State elections in Germany on Sunday

Now that the election in the Netherlands is over, there is more electoral drama coming up in Germany. Two states are electing a new parliament, and it looks like Chancellor Schröder is in for a drubbing. In the state of Hesse, the incumbent CDU-led government is going to coast to an easy victory. The latest polls even suggest it might take over 50% of the vote. Hesse used to be governed by an SPD-Green coalition until four years ago, when the poor start of the first Schröder government led to the CDU taking over in Hesse. Now that result is likely to be repeated. So this time around, no change in government is expected in Hesse.

The situation is more interesting in Lower Saxony, where the SPD is now in charge. The polls indicate that a change from the SPD to a CDU-FDP coalition is likely. Making such a defeat even more poignant is the fact that Lower Saxony is Schröder's home state. As prime minister of Lower Saxony Schröder launched his bid for the federal chancellorship five years ago. The image of a reformed, young, new kind of social democrat who's in tune with business helped him get elected at a time when the CDU was looking old and out of steam. Defeat for the SPD in Lower Saxony would be personally painful for Schröder. One key indicator to watch is the FDP vote. They need 5% of the vote in order to enter parliament, and if they fail that hurdle, a SPD-Green coaltion might yet be possible.

At the federal level the polls have stabilized with a massive lead for a CDU/FDP coalition.

Transport difficulties in Milan

When I arrived in Milan yesterday, I went into my usual autopilot mode and trundled over to the taxi stand. It turned out that the cab drivers were on strike and no taxis were operating. So there I was, stuck at Malpensa airport. In the end, I managed to get into town by various means, but it took much longer than planned. The strike extended to today as well, making my trek back to Malpensa eventful too. The reason the cab drivers were striking are the plans by the Milan city government to expand the number cab licenses. According to my Italian colleagues, the number of licenses has remained constant since the early 1980's, and the proposed increase is just 10% or so. I find it very hard to have any sympathy with the cab drivers in this instance. It's not like their business is going to be diluted dramatically as the city's economy has grown by much more than 10% in the last 20 or so years. And their protests were not winning them any sympathy from the Milanese either. Yesterday 2,000 cabs drove at walking speed from Linate airport to the center, snarling up traffic in the entire city for hours. Today they repeated the performance from Malpensa airport, also shutting down part of the beltway that encircles Milan. Not only is their cause rather weak (unless there are other facts which I am not aware of, but my cursory reading of Italian newspapers did not mention any), they're also alienating potential local support. Next time I am down there I am not going to be very generous with my tip, and I'll let the driver know why.

More travel

I almost forgot, I have to go to Italy today. I'll be back tomorrow night.

The breeze of change

Now that my cable modem seems to have recovered again after several days of intermittent service, I can go back to blogging. There is something very peculiar about writing these blog entries. Writing for the blog is deeply associated with the Movable Type interface, the web browser, the colors and the font. Somehow it puts me in the right frame of mind for writing here. I tried to write up some entries in word processors for posting later, but the daunting white emptiness of the page did not give way to the almost automatic writing here on the blog. There's also the association with the style of writing. Whenever I fire up Word, it is for work-related documents. The style is formal, the content has meet much higher standards than my writing here on the blog. Apparently that association runs deeper than I thought. I'm sure with sufficient mental effort I can overcome it, but I did not feel like spending the energy. I took the easy way out and hoped that the routing problems would soon resolve themselves. I am distinctily unhappy with chello, which is my ISP.

This is of course just a minor thing. It does show how the context of one's activities is determined by more than just the functional interface, but various less tangible factors play a role too. There's no technical reason why I should not be able to write in the same way in Word as I do in Movable Type. It's a small example of habit, or indeed conservatism if you will. The familiar is more comforting, easier to use than even a simple change. Again, in this instance it would have been relatively trivial to put myself to writing in Word. The context for our daily lives, from the personal all the way to the level of international politics is also influenced by habit and familiarity. Over time you start to take things for granted. The reason for the existence of an institution becomes less relevant, and it the acceptance simply coasts on the inertia and innate conservatism that most people (irrespective of their political outlook) exhibit.

Living in a state of constant change, constant revolution is not a good way to be either. But when circumstances change, the outlook must change too. Supporting institutions simply because they've always been there, and "that's the way things are" is no longer good enough. It is now obvious in hindsight that the fall of communism and the liberation of eastern and central Europe has taken the world into an era in which the very foundations of the geopolitical order are being redrawn. The old foundations of the post-World War II era are being washed away in this tide. Spoken in a different time of upheaval, Lincoln put it thus: "The dogmas of the quiet past are inadequate to the stormy present."

And despite the dangers that the world faced during the Cold War, the current present is much stormier than that era. The simple bipolar conflict with the threat of global armageddon is now replaced with the shifting sands of a more fluid conflict. The conflict itself and its outcome will shape the world that will come after this. But the first realization is that the Cold War structures have become obsolete. Much has been written about the demise of NATO in recent days, as the French and the Germans weasel out of the war against the Islamofascists. NATO is the quintessential Cold War institution, and it has served us well. Its role in post-communist Europe has always been a difficult one, but now we are very close to the point where we might as well have it close up shop altogether. I don't actually favor this, as there is residual value in maintaining the structures of NATO, but it would be better to transform it from its current form into a smaller organization where only those countries remain who are indeed true allies of the US, and not pusillanimous weasels of the Franco-German axis. Make NATO the alliance of the strong-willed, those who can and will defend themselves in the face of threat. Cut the others out.

Other institutions of the post-war era are also losing their significance. The Bretton Woods institutions have been grappling with their role since the collapse of fixed exchange rates in the early 1970's. Neither the IMF nor the World Bank are essential to the functioning of the world economy. More importantly, the biggest post-war contraption of them all, the United Nations is overdue for retirement. It has become a huge, unworkable, vastly expensive boondoggle. And that's the charitable reading of its role in the current world. I don't see why the US (or any other western country) should finance an organization where every tin-pot dictator of your average third world country should use our money to work against us. The UN needs to go too. The upcoming war in Iraq will add to the growing irrelevance of the UN, and the French and the Germans are doing us all a favor by accelerating the process. The sooner the UN collapses, the better. The new world that will emerge after the conflict against Islamofascism has been won will have some kind of successor organization to the UN, but it will be radically different. Even the European Union is faced with strong centrifugal forces as a result of the changing landscape. The accession of new countries to the EU will forever change the organization.

The obstructionism of the French and the Germans has the sole aim of undermining American power. There's nothing noble or high-minded about it. It's just a spoiler tactic, the kind of thing adopted by the weak and powerless who hope to ruin someone else's chances of doing good. They simply can't stand the fact that there's another kid on the block who has better toys, drives a nicer car and is smarter to boot too. So they try to trip him up, even if that means they'll be left unprotected against the bullies on the southern doorstep. Such the myopia of minds that have been perverted by envy. The French policy of hysterical anti-British and anti-American paranoia goes back a long, long way. Indeed, even during the second world war Charles de Gaulle was often virulently anti-British in his policies, even as the Brits were providing him with a base for his operations and help with his armed forces. At one point Churchill came close to stopping all cooperation with de Gaulle after he'd made some particularly absurd remarks. French policy has ever since been aimed at thwarting the Anglo-Saxons, irrespective of what the long-term effect would be on France itself. Spoiling is the goal, not the means. And since the French built the EU to suit their needs, it is not surprising to see this anti-Americanism carry over into that institution as well. It's become part of the chattering classes' Required Opinions.

The enmity is being ratcheted up by the Europeans in the current conflict. Judging the US to be a greater danger than the Islamofascists, they are ideologically oblivious to the real world. This will cost them dearly. The relationship between the US and Europe has benefited both enormously over the last half century, and it would be a tragedy if it were to become eviscerated. But it is happening, and the negative effects will be felt much more keenly in Europe than in the US. Simply put, the US is more important to Europe than vice versa. The American economy is healthier, the demographics are more favorable, the military is infinitely superior, the political system is more unified. In any conflict the US will win. And Europe will lose.

There's another aspect to this also, and that's the declining relative importance of Europe, and especially the Old Europe. The Eurosclerosis that has been gripping the economies of the Old Europe are wringing any long-term vitality from it. And the demographic tipping point is coming ever closer; by 2010 both Germany and France will be in deep demographic trouble unless they undertake painful reforms fast. Time is running out, and it does not look like they'll be able to pull off their reforms before then. With a stagnant prognosis for the European economy, the sources of growth must be found elsewhere. And the biggest one of all is China.

China's importance in world trade is growing dramatically. It's already the world's largest cell phone market, it's the world's fourth-largest car market and the fifth largest economy of the world. The per capita GDP is still very low, but with growth rates of 8-10% per annum, China will be by 2004 the world's fourth largest economy behind the US, Japan and Germany. And in relative importance to the US, it will be more significant than that. Already US exports to China are bigger than exports to Germany and France combined. The center of gravity of the world economy is shifting away from slow-growth Europe and moving to fast-growth Asia. (Japan being the obvious exception here). Few, if any of the policymakers in Berlin or Paris (or elsewhere in Europe) realize that they are steadily losing influence and clout. Perhaps they feel it subconsciously, which is why they are thrashing about so much, but fundamentally, they don't understand the reasons for the decreasing relevance to the United States. They think they're entitled to that influence and are hopping mad for losing it.

It's extremely sad to see this happening. Both the US and Europe have much to gain from continuing as allies rather than adversaries. But the Gaullist psychopathology that's driving Europe into conflict with the US is too deeply rooted at the moment for a different outcome. I can only hope that the Europeans come to their senses before it's too late altogether. The winds of change are not quite blowing at full force yet, but the breeze is definitely in the air. I'll close with more words by Abraham Lincoln:

The occasion is piled high with difficulty, and we must rise to the occasion. As our case is new, so we must think anew, and act anew. We must disentrall ourselves, and then we shall save our country.We cannot escape history. We will be remembered, in spite of ourselves. The fiery trial through which we pass will light us down in honor or dishonor, to the last generation.

Indeed. (Do any European politicians even know what honor means?)

Gretta in 1,000 words

Here's an excellent summary of Gretta Duisenberg's exploits.

(I'm still having routing problems which makes blogging difficult at the moment.)

Alienation

Frequent commenter Ralf Goergens writes in response to my election analysis:

I guess you aren't happy with that result, :

"For the establishment, tonight's result is a success. The foreign body of the LPF has been largely repulsed"

given what you think about your political establishment.

It's weird, but I had not even thought about it in those terms. I accepted the result with equanimity. Getting upset over it is just as effective as trying to stop the tide. Socialists win elections in the Netherlands. The lack of non-socialist parties pre-ordains that.

It's also because happiness is not something I associate with thinking about Dutch politics in general. Even when Pim Fortuyn was shaking the political landscape and the LPF won its victory last May, I was not really happy. I was gloating, but that's different from being happy. Fundamentally it boils down to a deep cynicism about the political establishment. I have become convinced that things simply aren't going to get structurally better. Sure, we might have governments on occasional that are less socialist than others, but the gap between what I think is desirable and what is politically feasible is too large to be bridged. It's just not going to happen. That's why I was not really disappointed or unhappy at the election result. I just accepted it as something that was going to happen anyway. I observe the elections and the result as if from afar, insulated from the actual reality that I live and work in the same country and that I am affected by the results. I feel detached. Sure, I use my blog to vent now and then, or poke fun at the goings-on, but there's always the subtext of not caring much anymore. In short, I have become alienated. This is not good. I fully realize that, and this is not a situation that can go on forever. I don't think I am in the danger zone yet though (denial is one of the warning signs, right?). So at some point there will have to come a resolution. Either I have to come to terms with my existence here, or find an alternative existence elsewhere.

That's more than enough about me. On to more interesting issues...

Connectivity problems

I've been having some trouble with my internet connection. The cable modem itself appears to be fine, but I was suffering 80% packet loss at my ISP yesterday. It seems to work normally again today although there are intermittent connection outages. They'd better have it sorted out by tonight.

A final update for tonight

With almost 86% of the votes counted, the projection for the final result is as follows:

CDA 44, Labor 42, VVD 27, LPF 9, SP 9, GL 8, CU 3, D'66 6, SGP 2.

More tomorrow on the final result.

Back to politics as usual

With the results stabilizing, it looks like the broad outline of the election result can now be forecast with a reasonable amount of certainty. The main headlines of tonight are the expected collapse of the LPF, the CDA holding on to the top spot and Labor almost doubling in size. The big shake-up of Dutch politics which Pim Fortuyn had intitiated has more or less petered out. Not much is left of the original impetus that he brought to the political landscape. Still, he does leave something of a legacy in the LPF. And the other big parties too have been marked by the Fortuyn effect as they started to campaign on his themes and his ideas, even if they did not believe in them. But looking back on tonight, the old Dutch political elites can pat themselves on the back on having apparently neutralized the Fortuyn-wrought threat to their pre-eminent roles. It's back to politics as usual for the most part.

The blame for squandering the Fortuyn legacy must fall to a significant degree on the LPF. Their internal disagreements which descended into utter farce destroyed the LPF in the opinion polls. It also gave their coalition partners, the CDA and VVD a good excuse to pull the rug out from under the government and call for new elections. They calculated, or rather miscalculated, that the disaffected LPF voters would turn to the CDA and VVD in any elections, thereby re-establishing something resembling the old order. The VVD especially would have been the natural home for LPF voters based on party platforms. It did not quite happen like that. The protest vote migrated first to the SP and was later absorbed by Labor, whose new leader Wouter Bos has been addressing the Fortuyn issues. According to Dutch TV tonight, about half of those who voted LPF last May have gone over to the VVD and CDA this time around. But about one-third did not even bother to vote. Overall turnout has been slightly higher today than it had been last May.

For the establishment, tonight's result is a success. The foreign body of the LPF has been largely repulsed, although with 9 seats in parliament it will remain a player and might even join the new government again. Even if we get a new CDA-VVD-LPF coalition, the mission for the established parties (CDA and VVD) has been accomplished; the upstart LPF has been reduced in significance. The actual Pim Fortuyn issues have not gone away though. The real test of how well Pim Fortuyn's message has been understood by the old parties will the test of time. If the issues of crime, delapidated health care, deteriorating education and unassimilated immigrants are not solved, the LPF will have another opportunity. Unless they become part of a government that won't or can't solve these problems.

Almost half the vote counted

With 47% of the vote counted, the CDA is still 5 seats ahead of Labor, so it's becoming more certain that the Christian Democrats will become the largest party in parliament, and that Prime Minister Balkenende will retain office. The question still remains who his coalition partners will be. VVD is now at 27, LPF at 9, so a CDA-VVD-LPF coalition is numerically possible, but the CDA-Labor option still seems to have the most momentum for now.

Projections stabilizing

There's just been a big jump in the number of votes counted to 22% now, although the projection has not changed much from the previous report. CDA is still comfortably ahead of Labor with the same 45-40 seat margin. The LPF loses one seat to go to 8 compared to the previous projection's 9 seats, and the SP gains one to move to 10.

CDA pulling ahead

With 8% of the votes counted now, the latest projection shows the CDA pulling clearly ahead of Labor with 45 versus 40 seats in parliament. It's still too early to consider this matter settled but Labor has an uphill battle from here if it is to become the biggest party. The VVD is now at 28, the LPF at 9. Still comfortably enough to renew the current coalition, which might yet happen. If these results hold, the first attempt to form a government will be the Grand Coalition of CDA and Labor, which would have a very comfortable majority. Depending on where the CDA wants to go, it might let these talks founder and go for a new coalition with VVD-LPF. It's too soon to tell, but ideologically it would be a better fit.

The good news tonight is that the far left parties have not done as well as had been forecast. The neo-stalinist SP stays stable at 9 seats (which I still think is a scary level of support for a totalitarian party) while the GreenLeft loses 2 seats on current projections. Overall there's still a center-right majority in the new parliament with CDA, VVD and LPF. The only question is whether they can form a government together.

Votes are being counted

The votes are being counted, and the first prognosis based on actual results has been published. It still puts CDA and Labor neck-and-neck with CDA ahead by one seat in parliament. The main shift compared to the exit poll is that both the VVD and the LPF do better (27 and 10 seats, respectively) while several left-wing parties come out worse. It still does not fundamentally change the arithmetic of coalitions though. The tenor of the commentary thus far has been that the most likely outcome will be a CDA-Labor coalition, as CDA-VVD did not get the mandate it asked for. Adding the LPF to the mix is becoming a bit more likely though, with a potential CDA-VVD-LPF coalition now projected to get 80 seats. If the LPF actually manages to get 10 seats it would be a victory of sorts for them, as they had been on the brink of extinction in October.

More projections later.

Exit polls results

The polls have closed, and Dutch TV has just shown the usual exit polls. The numbers are in terms of seats in parliament, and 76 seats are needed for a majority. In parentheses is the number of seats in the previous parliament.

CDA: 43 (43)
LPF: 8 (26)
VVD: 25 (24)
Labor: 42(23)
GreenLeft: 9 (10)
SP: 11 (9)
D'66: 6 (7)
CU: 4 (4)
SGP: 2 (2)
LN: 0 (2)

So it's a very close race for top spot here, and looks like a disappointing result for the VVD who had been expected to win more. There's nowhere near a majority for CDA-VVD, but with the LPF they might scrape through to a majority of 76. A long night ahead, and it's not at all clear what kind of coalition we'll end up with. Whatever happens, the CDA is likely to be part of any new government though.

See also yseterday's guide the elections. The first results from computerized voting districts should be coming in shortly.

Crime and Dutch punishment

Having established that the price to pay for murder is relatively low in the Netherlands, we now get another example of how utterly ludicrous Dutch sentencing has become. Six men between the ages of 18 and 28 have been convicted of attempted murder, two others of public violence and causing premeditated grievous bodily harm. On the 10th of September 2002, the group of masked men attacked two other men with truncheons and a machete causing serious injuries. It was supposedly a revenge attack for their victims supposedly hitting one of the group, but they ended up attacking the wrong men. In any case, it's a pretty gruesome case of wanton violence, and they have been rightfully convicted of attempted murder.

So what's the punishment for attempted murder? If murder only gets you 8 to 12 years, what's an appropriate level of punishment for attempted murder? Hang on to your seats: 30 months, of which six months are on probation. So effectively the longest amount of time these thugs will serve in prison is 24 months, probably less on good behavior. They tried to KILL SOMEONE for crying out loud!

I think I'll go bang my head against a concrete wall for a while.

Guide to the Dutch elections

The time of voting is nigh. The polls open tomorrow morning at 7:30 AM, and close at 9:00 PM local time (3 PM EST). If I manage to catch the early flight home (which I should be able to do), I'll have the exit poll results here as and when they're shown on television with regular updates throughout the night.

Since the fall of the Dutch government, the political circus has been traveling from town to town and monopolizing the airwaves. The situation is somewhat different from what I predicted in my original comment following the government's collapse. In the early polling the LPF seemed to be on the verge of extinction, but they managed to claw their way back to a low level of stable support. As campaigning wore on, the polls shifted in favor of scary-very-far-left Socialist Party (not to be confused with the Labor Party) which seemed to be picking up a lot of support. The biggest winner in all of this is the Labour Party, which might even end up being the biggest party in parliament. Before I go into the electoral arithmetic, here's a list of the parties which are likely to win seats tomorrow (current number of seats in parentheses, 76 needed for majority):

CDA: the Christian Democrats (43 seats now). Classic European middle-of-the-road consensus party. It's essentially conservative with a small c; averse to change, steady-as-she-goes. The CDA does still retain some of its religious roots, for instance in its opposition to euthanisia and abortion, but even this tends to be rather tepid. The current prime minister, Jan Peter Balkenende is the leader of the CDA. Current polls put it at around 40 seats.

LPF: List Pim Fortuyn (26 seats), named after its founder and leading light. Its internal wrangles and theatrics eroded its support very quickly and led to the fall of the government. Simply put, you just could not take the LPF seriously, and it looked like it was going to disintegrate completely. It's now polling at around seven seats, which is going to make the LPF the biggest loser of tomorrow's election. But considering how close they were to complete extinction, even the seven seats are something of a victory. Its platform is an extension of Pim Fortuyn's original election program, but the LPF is now becoming more of a traditional right-wing European party with an authoritarian streak in some of its ideas an law enforcement. The LPF had a unique opportunity to reshape Dutch politics and break the old elites' strangehold on power, but they screwed it up royally.

VVD: the Liberal Party (24 seats), more or less in the classical sense of the word. Well, if you look carefully with a microscope, you might find the classical Liberal heritage in the VVD, but it's now a slightly right-of-center party with a preference for less socialism and lower taxes, if possible. Some of their proposals on law and order would make any classical Liberal cringe. The LPF's collapse should have benefited the VVD, as it, of the "old" parties, is closest in program to the LPF. However, the VVD is polling at 29 seats, a pickup of just 5. It has not managed to attract the LPF voters, it seems.

PvdA: the Labor Party (23 seats), also known as the Social Democrats. If polls are to be believed, Labor will be the biggest winner tommorw, vaulting over the CDA to become the largest party in parliament with 42 seats. Part of this support must come from ex-LPF voters, who perhaps flirted earlier in the campaign with the SP. This indicates that the LPF's support was not as strongly ideological as previously might have been thought, since the LPF and SP programs are very, very far apart. In any case, the resurgence of the Labor party means a return to more politics as usual.

GreenLeft: (10 seats) the whacko enviroloony left, born out of various communist and radical parties of the past. Their program contains all the stuff you might expect from a party with this kind of name. Polls show them at 7 seats now.

SP:, the Socialist Party (9 seats), which is not far from being stalinist in its electoral program. At one point during the campaign it was slated to win over 20 seats in parliament, almost eclipsing Labor at the time. The fewer votes they get, the better; polls show them at around 11 seats now. I'd much rather see those votes go to less insane Labor party.

D'66: Democrats '66 (7 seats), usually referred to as Left Liberal, although a more accurate description would be that it's the party people used to vote for when they didn't know whom to vote for. It was often the third (small) party in a coalition of two bigger ones. It's a bland, safe, non-threatening somewhat left-of-center party whose main idea of referenda and direectly elected mayors has been stolen by many others, mostly based on Pim Fortuyn's advocacy of such issues. I have no idea how it differs from Labor. Opinion polls give it 6 seats.

ChristenUnie: now at 4 seats, it's the result of a merger of the GPV and RPF. Together with the SGP these parties used to be called "Small Right," because of their strongly religious conservatism and small national impact. They're the Dutch version of the Religious Right, although that's a slightly misleading way of describing them. They seem much more at ease with socialism than the religious loonies of the GOP ever could be. Polls give them 5 seats now.

SGP: at 2 seats it's the third "small right" party which couldn't bring itself to merge with the GPV and RPF based on disagreements on religious doctrine. I would not be able to tell their electoral programs apart, but to them it's a big deal apparently. Polls show them keeping their 2 seats.

LN: Liveable Netherlands (2 seats) was the original grass-roots party which tried to storm the elites' fortress. Pim Fortuyn was briefly its leader before they kicked him out again and he started the LPF. The LN party is now led by a teenager after a staggering string of internal disputes. Even the LPF has more credibility. They may retain one seat in parliament.

So there you have it. The electoral battle has been complicated by the fact that the Labor campaign leader (the one who's at the top of the party list) Wouter Bos has declared he will not seek the office of Prime Minister if Labor becomes the largest party. Instead, Labor only this weekend put forward the mayor of Amsterdam, Job Cohen as a prime ministerial candidate in case Labor get to supply the PM.

In terms of possible coalitions (76 seats are needed for a majority), the CDA and the VVD would like to continue to govern, but without their current LPF partners. Early on the in campaign both parties had said they would not form another coalition with the LPF. But that was when they were ahead in the polls and could form a government on their own. Now that the deadline nears, they're furiously backpedaling on their earlier statement and saying that perhaps a coalition with the LPF might be possible after all.

The left-leaning parties don't have the numbers to form a government based on the poll results. At one point, the specter of a Labor-SP-GreenLeft coalition began to loom (and immediate emigration for yours truly), but they're nowhere near the level of support they need. So the only viable alternative to a CDA-VVD-LPF coalition is a CDA-Labor coalition. There have been such coalitions in the past and if the numbers don't add up for other combinations, this looks like the most feasible majority.

Of course, all of this is based on opinion polls. We'll see in less than 24 hours how accurate they were. As I said, I will be posting exit poll numbers as soon as I get them off the TV tomorrow at 9 PM local, 3 PM EST.

Gretta's shady past

The furore over Gretta Duisenberg's idiotic remarks has died down a little but it's not yet slipped from people's radar. Nor should it. I received an email from someone who'd read my blog on Gretta's Nazi comparison, and then asked me in the ensuing email exchange whether Gretta is a classic pathological anti-Semite, or just very very stupid. That's a hard question to answer. But it did jog memories of an article I'd read in a Dutch newspaper some indeterminate time ago about Gretta's past. Through the marvels of Google I found Stop The Lie, a Dutch pro-Israel site which has been keeping track of such things. Even better, I found the link to the article I was looking for. It appeared in the daily newspaper De Telegraaf on June 6th, 2002 and carried the headline "Gretta Duisenberg had ties with left-wing activists."

That is a understating matters a little bit. I guess I'll just translate the relevant part of the article:

... Gretta Duisenberg had sympathized in the past with people in shady circles of left-wing activists. For instance Gretta Bedier de Nieuwenhuizen, as she was called at the time, had close ties with the Transnational Institute, based in Amsterdam. Member of the staff there was the Pakistani Eqbal Ahmad, who was suspected of terrorist activities. The TNI is a left-wing think-thank headed by Basker Vashee, an activist of the Rhodesian Marxist Liberation Front (ZAPU). Vashee counted Gretta amongst his best friends, as he stated more than once. His ZAPU fought a bloody war of independence in Africa against the regime of Ian Smith.

Before she married Duisenberg in August of 1987, Gretta was also a confidante of Philip Agee. This ex-CIA agent became public enemy #1 after he'd betrayed the identity of American secret agents in the Soviet Bloc. Some of them were them liquidated.

He lived in the TNI building on the Paulus Potterstraat in Amsterdam and was ultimately deported from this country. Before it came to that he asked Gretta to be a witness at his wedding with an American ballerina.

As a result of her colorful friends Mrs. Bedier de Praire came to the attention of the Secret Service when she had a relationship with Hans van Mierlo, who at the time was minister of Defense. Because he was responsible for all ongoing investigations of the military intelligence agencies in this country, the Americans were worried that information might leak to Agee and his buddies.

This goes slightly beyond being stupid. Somebody who's very very stupid might fall for Arafat's propaganda, or even the Soviets' propaganda. There were plenty of well-meaning idiots who were in the same boat, and who somehow always ended up supporting the side of unspeakable evil.

But Gretta takes it a step further. She's beyond the scope of the merely gullible. This woman has a history of consorting with the evil and depraved. As someone who frolicked with a traitor who was responsible for the murder of American agents in the Soviet Bloc, she has forsaken all moral right to speak out on behalf any oppressed. When people were being brutally oppressed by the evil of communism just a few hundred miles from where she lived, she was actively sympathized with the henchmen of tyrannical regimes. This is somebody who has no moral compass, no sense of right and wrong, not the slightest sliver of intellectual integrity. This woman is evil, pure and simple.

Evanescent time

Attentive readers may have noticed that the bloggin frequency has gone down a bit in the last week or so. Somehow my time has been evaporating around me with countless small things to attend to, as well as the suddenly increased pace of work at work. Certain days I've barely had time to read Instapundit, let alone produce new stuff here, and the list of blog-worthy items keeps on growing. Usually it's a sure sign of terminal decline when messages like this appear, but I will return in full force again soon.

Coming up later today will be a pre-election roundup and guide. Voting starts tomorrow morning.

Three single points of failure

2003 looks like it's going to become an interesting year for the world's major central banks. First up is the change at the helm of the Bank of Japan, where governor Hayami will be replaced in March. The process by which his successor is being chosen is appropriately arcane and Japanese. There are informal rules that the governorship alternates between appointees from the Bank of Japan internally and bureaucrats from the Ministry of Finance. It's now the MoF's turn to appoint a governor, but the final decision will have to be made by prime minister Koizumi. Hayami is often blamed for the delfation that has gripped Japan for the last ten years and he's often described as an inflation hawk. His refusal to print money to lift Japan out of deflation has meant that Japan is now in deep trouble, the critics argue. On the other hand, Hayami has argued that the problems lie elsewhere, in the rigid economic structures and the unwillingness of the politicians to push through economic reforms. The betting now is that the new governor of the Bank of Japan will be someone who's more in tune with the government's policies and will be more likely to the politicians' bidding. Whoever the new governor is, he's not going to be able wave a magic wand and restore the Japanese economy to health. The politicians aren't helping much either, as proposals have been floated recently to double the sales tax. This will hardly help Japan emerge from its slump.

The next big change will be at the European Central Bank, where Dim Wim Duisenberg will be riding off into the sunset. His term as governor is not yet up, but he premature departure is a result of an informal deal at the time of the ECB's creation. The French desperately wanted the governorship after the Germans had succeeded in moving the ECB's headquarters to Frankfurt. In the horse-trading that followed, Duisenberg emerged as the preferred candidate as he was seen to reconcile German central banking prowess with a concern for the smaller countries of the Eurozone. The French only accepted the deal because Dim Wim promised to step down halfway through his term, and that's going to happen this summer. His successor is very likely to be French, although the front-runner, Jean-Claude Trichet, has been caught up in a corruption scandal which could endanger his chances.

The entire process of selecting the ECB governor has thus been a perfect example of what's wrong with the structures of the EU. The gap between the level of institutional unification and the real level of convergence on the ground is huge. Putting your own countries' people in charge of EU institutions is seen as a goal in itself with the purpose being of imprinting whatever desired characteristics on the other countries. Despite the many affirmations of the European Ideal, the member countries still primarily look out for themselves. The French are obviously the best example of this. But this is only to be expected. It would not be so bad if the EU's structures were built to reflect this reality. Instead, the structures are built on the assumptions of currently unattainable unity of purpose.

It's hard to guess what changes there will be to the ECB's policy once Dim Wim is gone. It can hardly get worse, one would assume, yet the ECB's hands are tied to some extent. Its primary goal is to achieve price stability in the Eurozone, and that means a targeted inflation rate of 2% for the Eurozone as a whole. With the economies of the Eurozone diverging it faces the unenviable task of trying to contort the square peg of reality to fit the round hole of the European Ideal. The reins of monetary policy will likely be loosened a bit. Given the relatively sad state of the world economy, that's not likely to become a problem for the Eurozone. The stronger euro is keeping import prices down. With Germany stagnant, there is no great danger that the inflation rate of the entire Eurozone will spin out of control anytime soon.

The most intriguing possibility is the possiblity that Alan Greenspan will retire. He's now 77 years old and may feel he's done his bit for the keeping the US and world economies afloat. Having been first appointed by Ronald Reagan in 1987 just a few months before the equity market crash, he's now serving under his fourth President. His reign at the Federal Reserve has been marked by low macroeconomic volatility and deft intervention in times of crisis. His first big test was the crash of 1987, and he responded by expanding the money supply to avert any systemic risk from developing. This has been his tried and true method over the years, which was repeated during the Asian crisis, the Russian default, the failure of LTCM and the aftermath of September 11th. His critics argue he's just been postponing the inevitable final reckoning by inflating the economy, which led to the internet bubble and is now feeding a housing bubble. I don't think the US housing market has reached bubble proportions yet (in contrast to the UK housing market).

However, Alan Greenspan has become an iconic figure in international finance. Filling his shoes is not going to be easy with the kind of reputation he built up. And his job is the most important of the big three. So why would he resign this year? His age is certainly a factor, and at 77 he may just want to relax for the remaining years of his life. But there's also the political aspect. His successor will be nominated by the President, and then confirmed by the Senate. As an original Reagan appointee, he'd rather have a Republican President and a Republic Senate decide on who succeeds him. 2004 is too late, because that would come in the middle of a presidential election cycle (although it already seems to have begun with the Democratic candidates), and 2005 brings the uncertainty of who'll be in charge of the White House and Senate. Besides, in 2005 he'll be 79.

So it's going to be an exciting year in the world of central banking. But the reason is this is an important issue is also troubling. The central banks have a huge impact on the course of the world economy. They're the single point of failure that can sink an otherwise healthy economy. If they make mistakes, and they certainly do, the impacts are felt far and wide. Central banking is the last big bastion of centralized decision making in the world economy. It brings with it the inherent dangers of having a single centrally-directed policy. Get it wrong and the consequences are severe. In this age of fiat money it's hard to imagine a world without central banks. But the Federal Reserve system is less than 100 years old. This means this US economy managed to do just fine without a central bank at its helm for a long time. Of course, the economy has grown infinitely more complex since the Federal Reserve System was established.

But that would argue even more for decentralizing the decision making process of monetary policy. The greatest economic tragedy of the 20th century, the Great Depression was largely caused by wrong-headed monetary policy at the Federal Reserve. The ratcheting up of inflation during the 1970's was also a massive failure of central bank policy in an era of fiat money. It wasn't until the monetarist crackdown on inflation in the early 1980's that central banks found a semblance of competence. But it is a very fragile state of affairs. The central bank has to guess the appropriate amount of liquidity needed without the benefit of a decentralized, distributed price discovery mechanism. Even Alan Greenspan has repeatedly said that despite the successes of central banking in recent years (his critics would demur) one should not assume that we've now cracked the art of central banking. I think it's mostly a matter of time until some more serious mistakes are made in new and unforeseen circumstances.

A return to the gold standard is pretty much out of the question. That's just not going to happen, and I am not sure it's desirable in the first place (but that's another long story). The best way to lessen the dependence of the economy on the skill of the central bank is to decentralize the provision of liquidity, and the idea of using private providers of currency has seen some academic interest in recent years. This is also a very far-fetched possiblity, especially with Europe now actively moving towards more centralization rather than less. Mistakes made by private currency providers would affect their market share and thus their profitability. The best-managed currencies would have the biggest market share. One could imagine a situation in which one issuer uses gold as a store of value, giving those skeptical of fiat money the option of using "real" money again. With the advances in technology, conducting transactions in a world with many parallel competing currencies is now technically possible. In theory it should all work quite well, and indeed better than the current central banking paradigm. Competition can be introduced gradually, and indeed the first providers already exist.

Far-fetched? Yes, and I don't really see that happening either anytime soon. However, the current situation in which we are so dependent on a few central bankers' good judgment makes me very uneasy. We need a better solution for the provision of liquidity, which means some form of market-based feedback will be necessary.

The price of murder

The way in which serious criminals are punished in the Netherlands verges on the absurd. This is not something new as there is a general failure, and indeed in some cases unwillingness of the criminal justice system to go after criminals. Even then they are caught, tried and convicted, the punishment meted out is ridiculous. One recent instance is the murder of a four year old child, known as the Girl from Nulde, named after the beach where her head was found. She was beaten to death by her stepfather while her mother looked on. They then cut her up into small pieces and tried to get rid of them at various places throughout the country. A morbid jig-saw puzzle finally allowed forensic experts to reconstruct what happened.

So what's the punishment for this crime? The mother is sentenced to eight years in prison, while the stepfather gets twelve. The prosecutor had demanded fifteen. Of course, this is only the nominal sentence. On good behavior, they're likely to leave prison after three-quarters of their term has been fulfilled. The reason why the sentence is so light is because of extensive psychological and psychiatric reports which established the various mental shortcomings of both murderers. The mother was very dependent, lacked emotional independence and was conflict averse. The stepfather suffers from a severe form of paranoia. In his case, the court also imposed on him what's known as "tbs," which is psychological treatment after the sentence has been served. If he can convince the therapists that he's sane enough, he'll be free after his jail sentence.

I will admit that people who beat a 4 year old girl to death are insane and indeed evil. But once you start giving shorter sentences to people because they commit acts which are intrinsically deranged, then virtually any murderer will be able to get a reduced sentence. And that's all too common here in the Netherlands. It does lead to an interesting calculation if you're sufficiently bloody-minded but capable of rational thought. If you want to commit murder, the Netherlands may not be such a bad place to do it. Make the murder as gruesome as possible, get yourself certified as insane and spend six to eight years in prison for it. If you hate someone enough to kill him, the logic becomes disquietingly compelling.

The death penalty would have been more appropriate in this case. Although there is absolutely no chance that the death penalty will be reintroduced here, public opinion polls show significant (though not majority) support for it. And cases where murderers get away with such light sentences are stoking the fires of discontent. There is a big gap between the views of the man on the street and the prevailing practices of the criminal justice system. And with sentences like these, the gap is only growing.

Street gangs of Amsterdam-West

The area known as Amsterdam-West is one of the parts of town where street crime is a big problem. The street gangs have an interminable history of both petty as well as more serious crime. The situation is not as bad as in some of the more notorious inner city areas of the US, but living in Amsterdam-West is not exactly a pleasant experience. The Dutch daily Parool has a summary of a report (pdf) on the issue, available only in Dutch at the moment. The author, Frank van Gemert, writes that he intends to publish articles in English as well on his research into one particular street gang, the Molenpleingroup, named after a square in that part of town.

It makes for extremely depressing reading. There's a hard core of 24 gang members and they're about 18 years old, and there's a secondary group of about 40 to 50 followers. The hard core members have been involved with the police on average 33 times per person, while one of them managed to chalk up no fewer than 202 brushes with the law. They spend their time hanging around on the streets, uneducated, unemployed and completely wrapped up in their group identity. The gang forms their only frame of reference, and any outside influences are met with hostility and suspicion. Not only do they commit many crimes on outsiders, they're also perfectly happy to turn on their own. One example is a policeman stopping two boys riding a moped without a helmet and license plate. Other gang members used to opportunity to steal the moped from under the nose of the policeman and the putative owner. The policeman only managed to detain the driver by threatening him with pepper spray.

The report goes also into the details of group identity and dynamics. The report describes the siege mentality of "us against them," groupthink, how they create their own reality and version of the "truth," their complete refusal to accept any responsbility for their acts: it's all somebody else's fault, and by blaming the authorities for not giving them something to do or aspire to they don't have to accept responsbility. The report also points out that they're incapable of even listening to opposing points of view, because they're used to winning arguments by shouting others down.

A recurring theme is the inability of the law enforcement authorities and the criminal justice system to deal with the gangs. The identities of the group members are well known, and many are arrested on a regular basis. The report states on page 60:

A boy who ends up at the police station for some infraction of the law almost always will know the names of the others who were involved. To name them however would be treason and the rule is that the boys keep their mouths shut at the policestation. They've learned that often they'll be back out on the streets in a few hours. No matter how clear the evidence may be against them, the boys deny their involvement and cooperate as little as possible with the interrogation.

There's also a description of how the gang targets the "supervisory teams," who are not police officers, but work with them to try to contain violence. They're local people from the neighborhood and part of the community. When one of them admonished a gang member for his behavior, he was head-butted. So he filed a report with the police. The next weekend he was going for a night out on the Leidseplein, which is at the heart of the entertainment district of Amsterdam. A reception committee of gang members awaited him; they beat him up and threw him into a canal. The police quickly arrived on the scene and arrested the gang members. The report says, "A short time later they were sent home, even though the charges against them were of attempted murder and the gang members were well known."

The report also tries to address how to deal effectively with such gangs, but it is very much from a perspective of trying to reform the gang members and make them useful members of society again. But this is not a societal problem, it is a clear failure of the criminal justice system. The authorities know who the gang members are, they arrest them frequently for various crimes, they have evidence against them and yet they're still out on the streets. Locking them up would seem an obvious idea, but it does not appear to be on the menu when searching for a solution. Throwing them into prison is not going to reform them, but at least it will prevent them from committing further crimes. Protecting society against these serial offenders would be the main benefit of incarcerating them. The laws that would allow this are mostly there, but they're not being applied. One change that would make locking them up more effective is to incarcerate offenders for longer periods of time as they commit more crimes. It's unreasonable to throw somebody in jail for years on account a small act of petty vandalism, but by the time he's arrested for the third, fourth or tenth time, I have no problem with removing him from circulation for exponentially increasing periods of time. It would keep society safe from these incorrigible deviants, allow law-abiding citizens to take back the streets and remove negative role models for new generations of youths to follow. Right now young kids in those neighborhoods grow up in an environment where they see how their elders get away with openly flouting the law. In their eyes, no ill consequences come of breaking the law and in some cases actually can bring in a lot of money. They do not perceive that a life of crime leads them to marginalize themselves in society.

There is one final twist to this story which I have not mentioned so far, because it is not strictly relevant to the above. The gang, like many others, consists of Moroccan immigrants or immigrants' children. This adds another explosive dimension to the problem of the street gangs, as their highly visible criminal profile reflects poorly on the entire immigrant community. Such gangs would exist even in the absence of immigration if law enforcement would be as broken as it is now. It's not so much an immigration problem, as it is a law enforcement problem. The relevance of the ethnic origin does come into play when you look at secondary effects. To maintain their group identity, they fall back on their imported culture. The enemy, the evil people responsible for their current disenfranchised state are the Jews. The gang members latch on to anything that puts them into as much conflict as possible with "respectable society," and thus the gangs become a hotbed of anti-semitic, anti-western Islamofascist sloganeering and proseletyzing. It's not a big jump for such violent and inveterate criminals to be recruited by a bit of clever manipulation into full violent Islamofascist mold of anti-western terrorism. And that's another reason why we need a good dose of Guiliani-style zero tolerance policing to stamp out these gangs, quite apart from the general issue of maintaining public safety.

The joys of travel

So I'm finally back home after another mad dash to various cities around Europe, and I can't hear a damn thing. Just in time for this trip I developed cold. When I left, it was just a sore throat, but it duly developed into a wider afflictiong that has now reached my sinuses. It's nothing serious, and I can mostly function normally. Except of course for the fact that this particular trip included several speaking engagements for small audiences. My voice was mostly uncroaked and the frequency of coughs was thankfully low while I was at the lectern, but it was just enough to be annoying. And the spread of the cold to the sinuses has made aeroplane travel very unpleasant indeed. The pressure differences completely clog up my ears and it takes a few hours after landing for it clear up.

It's not entirely true that I can't hear anything. My hearing is just sufficiently impaired so that I can't follow a conversation very well or take phone calls, but it has no problems in picking up screaming children or annoying passengers. There's a corrolary of Murphy's Law in here somewhere.

I also managed to pick up an exchange between the passenger next to me and the stewardess. She asked what he'd like to drink, to which he replied "red wine." So asks, "Would you like the South African or the Chilean?" Unless every KLM passenger memorizes the exact wines they serve, distinguishing them only by country of origin gives very little useful information about the winesl. If it had been a question of Bordeaux or Burgundy it would make sense, or even Tuscany versus Piemonte. Of course, passengers react by furrowing their brow deeply, thinking a bit, and then gravely announcing their decision. "A wise choice, sir."

I need to get some sleep.

Light blogging

Work is keeping from doing much blogging at the moment, and I have a plane to catch fairly shortly. Normal blogging will resume probably late on Wednesday.

Shifts in the polls

With the election circus heating up ahead of polling day on January 22nd, the polls have shifted considerably since I last wrote about them in December. The biggest change is that the Labor party has been making big gains in the polls. The last elections were a complete disaster for them, when their parliamentary representation was cut in half. Now they seem to be making up for that and more. The latest daily tracker poll shows that Labor would now become the largest party in parliament, surpassing the Christian Democrats. This comes mostly at the expense of other left-wing parties, such as the hard-line communist SP and the enviroloony Green Left. Combined these three parties would have 62 seats, well short of the necessary 76 to form a government. So it's mainly a shift within the left-wing parties. The right-of-center Liberal party (VVD) has also been gaining some ground in the polls. It should have been the natural home of the disgruntled LPF voters, who could no longer put up with the farce that the LPF had become, but they don't seem to be attracting too many of them. It does not help that the VVD party leader, Gerrit Zalm is not particularly inspiring. He was also instrumental in bringing down the previous government, and I suspect that may play a role with ex-LPF-voters' reluctance to cast their ballot for him. Together the CDA and VVD would now have 70 seats, short of an overall majority. They both say they want to continue to govern, but right now they just don't have the seats. Add the LPF's 7 seats, and you might have a government, but neither the CDA nor the VVD is keen on having the LPF in a new coalition. I can't really blame them. It was the LPF's instability and farcical behavior that led to the fall of the Dutch government.

The most likely government, if thesee polls are accurate, would be a Grand Coalition of Labour and Christian Democrats. A new CDA, VVD coalition has been ruled out in advance, the left does not have sufficient support to form a government, so all that's left is the two biggest parties combining forces.

Whatever the outcome, I predict higher taxes.

The Nazi comparison

The most prominent Dutch idiotarian at the moment is without doubt Gretta Duisenberg who last Sunday wasted no time in blaming the Palestianian terrorist attack on Israel. Not content with that particular expression of her moral bankruptcy, she's been very chummy with terrorist leader Yasser Arafat, protectively wrapping her arm around him:

Appearing with Arafat, the ECB president's wife said she thought Israel should "give back the occupied territories" and said the PA chairman "hates killing."

"I think there should be peace and the military situation of the Israeli government should stop because their actions are terrible. You can't have peace when you have all these killings around. There should be dialogue and negotiations," she said.

Of course, the last time there were negotiations and dialog, Ehud Barak offered Yasser Arafat just about everything he wanted, but Arafat declined. Instead, he breathed new life into the terrorist campaign against Israel and help nourish the psychotic death cult that has now poisened the minds of many Palestinians. There is no reason to assume that any negotiations or dialog would have a different result now. Arafat, the Palestinians and the Arab world are still clinging to their fantasy of destroying the state of Israel. I know I've been overusing the term, but Gretta Duisenberg truly is Arafat's useful idiot.

But Gretta's on a roll. Her idiocy just compounds itself day by day. The latest revolting comments she made are causing another stir. She said today that the Israeli occupation of the Palestinian terrories is worse than the Nazi occupation of the Netherlands (with the exception of the Holocaust). History clearly isn't her strongest point. The Dutch never tried to exterminate the Germans, they did not carry out terrorist attacks on Germans, they did set up the Dutch Liberation Organization whose aim it was the destroy the German nation. Israel was forced to fight wars in order ensure its very survival, because the Arab nations surrounding have been trying since 1948 to destroy Israel itself. The Nazi comparison is all the more despicable because it being directed at the Nazis' victims, and Gretta knows that full well. It's a calculated act of callousness. And her parenthetical qualification that excepts the Holocaust from this comparison is just a superficial attempt to pre-empt criticism. You cannot compare anybody to the Nazis-ex-Holocaust. Anti-semitism and the deliberate extermination of the Jews is the very defining feature of Nazism. Gretta's attempt to have it both ways is disingenous and despicable.

But of course, she was not done yet. She also said:

The cruelty of the Israelis knows no bounds. It's really no exception that they blow up the houses of Palestinians. The Nazis never went this far during the occupation of the Netherlands.

Yes, in their "boundless cruelty" the Israelis blow up the houses with the people inside them, right? Oh wait, they give them a chance to leave and not be physically harmed. When's the last time a Palestinian terrorist showed this much consideration for an Israeli life?

Onward through Gretta's phantom world of saintly Palestinians and villanous Je.., eh Israelis. Showing yet more historical illiteracy, she happily skips on to Jenin which was the base for many Palestinian terrorist attacks in which many dozens of Isrealis were murdered. She says:

This wall that Israel is building, is many times worse than the Berlin wall. It is terrible. It is much higher and goes over land that was taken from the Palestinians

Yes, it was taken from them in one of those wars in which the Palestinians and their friends tried to expunge Israel from the face of the earth, remember? And Ehud Barak was willing to give it back to the Palestinians (who never really owned it in the first place, as it was part of Jordan before the Six Day War). But the Palestinians prefer to strap on explosives and murder and maim as many Israelis as they can, reveling in their death cult. For good measure she also mentions that the situation is worse than it ever was for blacks in South Africa.

Historical illiteracy, a stupendous dose of gullibility, a never-ending supply of idiocy, utter callousness towards the Jews of Israel and complete moral bankruptcy; these are the ingredients that make up our highly sophisticated European intellectuals. Truly revolting.

Of course, since the protection of free speech is less strict in most European countries than in the US with its First Amendment, we have laws on the books which can impose various penalties on people who say things which are hateful. In response to Gretta's blather, several Jewish organizations are now saying they're going to sue Gretta Duisenberg under these laws. The head of the "Federative Jewish Netherlands" organization has said that he wants the courts to prohibit Duisenberg from "expressing hurtful or offensive sentiments about Jews or the Jewish people." Much as I sympathize with them, I strongly prefer the American absolutist approach to free speech. Shutting people up by means of court orders is dangerous and wrong. Therefore I support even the right of the utterly reprehensible Gretta Duisenberg to say these offensive and hurtful things.

UPDATE: LGF is on it too. Lots of good comments there.

A Journal on Saturdays

Good heavens, the Wall Street Journal is considering publishing a Saturday edition! I'm all in favor of that, and that's coming from someone who occasionally still pines for the WSJ's old layout. The question is what the content on Saturdays would be, but the Financial Times is doing a pretty decent job of publishing for the weekend, so the WSJ should be able to pull it off too. I hope. The FT has been giving the WSJ a good run for its money though. And it's had pretty good guerrilla marketing too. In the aftermath of September 11th, many airlines had cut back on providing free newspapers on board, and the FT started to hand out free copies at airports. An excellent idea, and it worked really well. At least, in my experience it did. And on the flights from Amsterdam to London City (and vice versa) the infernal KLM still does not give us free papers. Fortunately the FT still dispenses free copies in Schiphol's D-Pier, so I can pick one up on my way to the gate. Smart thinking at the FT there.

Good thing I am not a news junkie anymore.

Next year: snow without the mullahs

Time is running out for the ayatollahs in Iran. The people of Iran have suffered through a generation of theocratic dicatorship which has brought them nothing but hardship and suffering. Michael Ledeen at NRO has been following the developments in Iran with frequent articles on the topic. So when I read stories like this, my sense is that it does not matter. The power struggle between the hardline theocrats and the slightly less hardline theocrats is becoming increasingly irrelevant. It's irrelevant because even if Khatami wins the political battles to push through the reforms he wants, it's going to be too little, too late to satisfy the people. It would have worked perhaps ten years ago, but by now the yearning for a complete break with the headlong dash down the theocratic cul-de-sac has become dominant. Khatami too will be swept away when the revolution comes, because the gap between what is achievable within the system and what the people now want has become too big. While Khatami is rearranging the deck chairs on his Titanic (or trying to, as he's being blocked by the harder hard-liners), the ship of theocratic dictatorship is going break apart on the iceberg of modernity.

A recent report in the Frankfurter Allgemeine Zeitung corroborates the general tone of the reports we've been seeing in the blogosphere. Under the title "the courtesy of the Persians," the report contains the anonymous quote, "The Iranian peopple know the that system is finished. But we Persians are a polite people. We're too polite to tell our rulers." The machinations of the ayatollahs reflect their growing alarm that they're losing control of society. Khatami is using this to further his own relatively reformist platform against the hardliners. According the FAZ he said, "The main reason for the fall of the regime of the Shah was his opposition to the demands of the students for more freedom and justice."

The article also depicts an interesting generational divide. The younger generation of westernized intellectuals seems confident that profound changes will take place, but without coming to the point of a second revolution. The older ones who lived through the Khomeini's revolution beg to differ, saying that shortly before the Shah's fall people were saying the same thing. Bu the most significant item in the report is the message that the people have lost their fear. Everybody from professionals in Tehran to farmers out in the boondocks are no longer afraid to call for a regime change. The meme doing the rounds is "Next year: snow without the mullahs." It was supposedly said by a child first.

The FAZ article ends describing a political debate by theocrats on a stage:

And while on stage they're preaching anti-Americanism, the audience is demonstratively drinking Coca-Cola. Occasional boos can be heard. Those on stage become nervous. "Look, they're booing us," they say and blame one another. But more and more spectators turn away disinterestedly, tiptoe quietly out of the hall mumbling apologies with the much-abused Persian politeness. [...] The hall empties. The debate on the stage becomes more intense. [...] It's as if their lives depended on it. But nobody's listening anymore.

The snow will return next winter. With a bit of luck the mullahs will be gone.

No need to panic just yet

I seem to be losing days. Or living them twice, I'm not quite sure. For most of the day today, I was under the firm impression that it was Wedneday. This even went so far that while I was staring at one of my screens and saw the US unemployment data roll in, I actually thought to myself, "that's weird, unemployment claims on a Wednesday." Then I immediately rationalized it away by reminding myself that last week had some holidays in it, and who knows that they do the data release schedules. Jeeeez. It was not until 5 PM or so when one of my colleagues managed to convince me that it was actually a Thursday. That'll teach me to leave my Palm Pilot at home. Apparently I've come to the stage where I can't even keep the days of the week straight. At least it was a positive surprise. It could have been Tuesday.

Policy response in a slow-growth environment

The world economy is still stuck in a slow-growth environment. Japan is in the doldrums, Europe is griding to a halt and only a few countries are showing any signs of growth. Australia, Canada and to a lesser extent Great Britain have been relatively well in the global economic growth league tables, but the world economy remains dangerously and depressingly dependent on the performance of the US economy. Growth in the US has been far stronger than in Europe, but there is a lingering sense of fragility to the current recovery. Unemployment may not be very high, but it hasn't started to come down yet. Consumer confidence is low, retail sales weren't as strong as expected, capacity utilization is very low, and capex is lagging the cycle. Despite all that, the economy is still growing at a pretty decent pace (and much more strongly that most European economies), but any of the aforementioned factors could become a more serious problem.

Faced with the slowdown in economic growth, the difference in policy response between the US and the Eurozone is striking. Whereas in the US both monetary and fiscal policy are aligned to boost growth, policy in Europe on both fronts is either paralyzed or even actively counterproductive. The Federal Reserve is fully on board in getting the economy moving again; Alan Greenspan is much more scared of deflation than of inflation. We know the cure for the latter; curing the former is much harder. President Bush's proposals for a $670 billion stimulus program over the next 10 years is bold and ambitious. The Democrats' program also aims to restore growth, although their proposals are far less likely to be effective. Be that as it may, there is broad consensus on the need for stimulating growth in the US even if there is disagreement on the means by which to achieve it. Double taxation of dividends is something that should never have happened in the first place, although the current proposals have problems of their own. Ironically it was President Carter who last tried to get rid of the double taxation of dividends in 1979, but it was corporations who lobbied against it, and I suspect many CEOs would prefer to keep the double taxation. Why? Because it encourages companies to retain earnings rather than pay them out as dividends, which means that CEOs have more money to play with. But the Bush plan also calls for $300 billion in other tax cuts as well, which will definitely help the economy. Given the timing of passing legislation and the structure of the tax cuts, the bigger boost is likely to come in 2004 rather than 2003, although the 2003 effect is also positive.

This will, of course, increase the budget deficit. The fiscal boost to the economy over the last two years has already been substantial mostly due to the Bush tax cuts and the increase in defense spending following September 11th. So how big a budget deficit is acceptable? Both total US government debt and the budget deficit will increase initially with the tax cuts. But, given the economic circumstances, if you're going to increase the budget deficit, this is the time to do it in order to generate support for the economy when it is weak. The growth it will generate will put the economy back into a positive cycle which will raise revenues from taxation again. The crucial mistake that Japan has been making for the last ten years is that they've been trying to spend their way out of trouble by pumping more and more yen into government programs. That has been shown not to work time and time again. The structural problems in Japan are also to blame. Tax cuts increase incentives in the economy and allow people to keep more of their own money which in a reasonably free and flexible economy will improve the long-term competitiveness and growth rate.

Contrast that with the situation in Europe where both monetary and fiscal policy are not helping very much. The European Central Bank is still obsessed with its 2% inflation target, while fiscal policy is actually counterproductive. At a time where growth is grinding to a halt politicians are planning massive tax increases in Germany in order to bring the budget deficit back down to under the 3% ceiling set in the Growth and Stability Pact. The deficit for 2002 is likely to reach 3.8% of GDP. And it's not just Germany that's in trouble with the Pact; France and Italy have also received a rebuke from the European Commission. The entirely situation is ludicrous but also sadly inevitable. The politics of the euro have created a situation which ties the Eurozone governments' hands behind their backs. They themselves are culpable too for not bringing their finances into order when times were good, but the problem is also that times weren't really that good in Europe in the 1990's. Nor in the 1980's. So the relentless momentum of the tragic euro-logic is tumbling ever onwards to a bigger crisis.

Things will come to a head one way or the other. The current situation was entirely predictable; at some point one of the Eurozone economies would end up with a deficit problem which then would need to be policed somehow. If it's a smaller country, then the big ones will twist its arm back into compliance. The European Commission can hand out hefty fines for countries which violate the rules of the Stability Pact. However with all of the big countries in the Eurozone now in violation (or being close to it) it's hard to see how any of this could be enforced or even imposed. The only reason countries would agree to pay any fines would be because of peer pressure. But with so many peers in similar problems, the peer pressure is going to be more of a gentle touch on the arm rather than the weight of a supertanker.

So a crisis will take place. Either the Commission refuses to impose fines on the violators, or the violators refuse to pay. Either way the very fabric of credibility which the EU has been trying weave for Monetary Union will be damaged. There is already substantial divergence in the EMU economies, and the odds are improving that we'll see a big crisis this year. I still don't think it's the most likely scenario, since the political capital that has been invested in Monetary Union is too big on all sides for it fall apart so soon. Some sort of economically nonsensical compromise will be reached.

Even as a crisis in EMU looms, the negative effects of the Stability Pact will still be felt in the Eurozone economies because politicians will trying to reduce their budget deficits. Even if they don't get the deficit fully into lines with the strictures of the Stability Pact, the effect on growth will still be negative at a time when Europe is desperate for growth. Of course, none of these short-term fiscal effects affect the longer-term structural problems of Europe, such as the rigid labor market, demographic troubles and lack of entrepreneurial spirit. Unless those problems start to get solved quickly, Europe's future is dismal.

The difference in response to slow growth on either side of the Atlantic is huge. The American authorities recognize the problem and are determined to avert them, even if this means storing up other problems for the future (inflation, for instance). It's the lesser of two evils, and a deflationary spiral in the US would be devastating for the world economy. In Europe the problem is compounded by the fact that EMU is a politically-driven creation that lacks fundamental economic legitimacy. With 12 governments each running substantially different fiscal policies (something the Stability Pact was trying to prevent) the ECB's already difficult task becomes even harder, especially considering the divergence that already exists in the economies. A fiscal blow-out in one of the bigger countries affects the entire Eurozone and there's not much anyone can do about that. The EMU could be seen as an another example of the Tragedy of the Commons. The euro is a common good that was supposed to bring lower interest rates and macroeconomic stability and credibility (for most countries anyway). This is a common good, but in order for it retain its beneficial qualities, the Eurozone countries need to exercise discipline. They're not doing so because why bother if you can get all the benefits without really having to maintain discipline? Unless the EU gets a united federal government (a prospect I dread), and one that can achieve real convergence in the economies without blowing itself up, then having a single monetary policy is going to remain highly problematic.

A new browser and an old problem

I am typing this in Apple's brand-new Safari browser which Steve Jobs introduced today during his keynote speech at MacWorld Expo in San Francisco. As usual with Jobsian events, the whole affair was massively hyped in the weird symbiosis between Apple and the rumor sites. Add the Jobs Reality Distortion Field and you end up with an entertaining show. As a long-time Mac user I can't possibly pass up a webcast like that. My first Mac wasn't a Mac at all. At the time I had an Atari 1040ST which had the same Motorola 68000 CPU as the Mac. This led various enterprising souls to build Mac emulators for the ST, since the ST was much cheaper than the Mac and had better hardware; the first emulator I used was Aladin. Later I switched to Spectre GCR which could use the 128K Mac ROMs. Aladin was limited to the older 64K ROMs. In any case, it's been much, much longer than I care to admit. I vaguely remember those days as the period when I was marginally less old and grumpy.

So the Jobsian keynotes provide great entertainment to inveterate Mac users such as myself. Today's keynote was true to form as Jobs managed to evoke enthusiasm for many new Apple products including amazingly enough a snowboarding jacket with built-in controls for the iPod. A lot of new software also saw the light of day, of which Safari is definitely the most interesting to me. I already have six browsers on my Mac OS X system alone, and adding another one can't hurt. My first impression is that it's ugly. The brushed metal interface just doesn't look right. On the other hand, it does appear to be the fastest Mac browser I've seen, handling CSS, Javascript and all the other crud quite well. I'll be using it for a bit to see how well it performs, but it might become one of my standard browsers. Best feature yet: it uses the spell-checking services of Mac OS X. Perhaps that'll cut down on the number of mistakes I make here. The creators of Movable Type also have posted their initial comments on Safari.

Despite all the new software, Apple still makes its money by selling hardware and Steve Jobs put the focus firmly on the PowerBook line with two new additions: a small 12" PowerBook and a huge 17" version. The latter has all sorts of interesting gadgets built-in, such as a backlit keyboard and light sensors that adjust screen brightness and the keyboard backlight automatically depending on ambient light conditions. There are many other improvements too, which I shan't list here.

The new focus on portable computers is partially driven by demand, but in Apple's case it's also out of necessity. The desktop line of Macs is beginning to lag perilously far behind the Wintel world. Rob Art Morgan, who runs the Bare Feats Mac benchmarking site, recently enumerated the "Missing Pieces" in Apple's line-up. On the desktop the difference between state-of-the-art on Wintel and Mac is becoming uncomfortably large, while on the portable side Apple can still compete. Lagging somewhat behind has never been a problem for Apple, since raw performance is not what people buy Macs for. (Photoshop is a notable exception). So Apple is making a virtue out of necessity by focusing on the PowerBook line. But Steve Jobs's Reality Distortion Field will eventually buckle if the performance gap is not closed.

If you're interested in following the ups and downs of Apple and the Mac, I heartily recommend As The Apple Turns, the first site really to comprehend what the Apple saga is all about (confused? tune in next week...). The writing is almost Lileksian at times.

I'll be trying to break Safari now.

UPDATE: It sort of broke on me as I was trying to save this blog entry. It took me straight back to the Movable Type login screen and never added the entry to the blog. Fortunately the Back command brought me back to my turgid prose. I had to log in to MT again before it would save the blog entry properly. Weird. It is still a beta after all... oh well...

Random searches on trains and roads too

With the election campaign in full swing in the Netherlands, the Christian Democrats have come up with the idea of extending the random searches that are now conducted in towns. The idea is that by randomly stopping and searching large numbers of people (including the cordoning off of areas of town) crime will be reduced. The first such searches have resulted in several arrests with the confiscation of guns and knives. There is no indication that this actually will reduce crime, but the measures are depressingly popular. Anybody can be searched; there's no need for probable cause or anything like that. There's no Fourth Amendment in the Netherlands. An "unreasonable search" is a search that the police decide is unreasonable.

So the Christian Democrats have come up with the idea of extending these searches to trains and highways too. The police would have the authority stop cars at random and search them for drugs and weapons. The first target area would be the Amsterdam beltway, the A 10, which has recently been the subject of other idiotic proposals, such as the ring-fencing of Amsterdam.

In the words the second-in-command at the Christian Democrats, "[this] is necessary for a safer society, for the protection of citizens." But if you're not creeped out about that, he added that the erosion of citizens' privacy is not an impediment. "The protection of society is more important than the privacy of the individual." That's a pretty scary sentiment to be coming from a prominent politician of a middle-of-the-road political party. One that is going to win the largest number of votes in the upcoming election no less. He's already received support from the Labour politician Van Heemst, who basically said "we thought of it first!"

It must be one of the sophisticated European things I don't understand. I guess I'm too simple with my cowboyish unilaterist insistence on privacy and such. With such widespread support, the practice of random searches is going to expand. Bear that in mind next time you travel to Europe. Or better yet, bear that in mind next time you hear the American Left glorifying life in Europe.

Blame the victim!

Gretta Duisenberg, the wife of European Central Bank president Wim Duisenberg is a fine example of the sophisticated European elite. Dripping with anti-semitism, she made the news in late 2002 when she made a despicable joke about the six million Jews who were murdered in the Holocaust. She's currently visiting her beloved Palestinian terrorist scum. After a visit to East Jerusalem, she blamed Ariel Sharon for the violence, claiming he's "provoking the Palestinians" and that his government is guilty of committing terror attacks.

Apparently she's a bit confused about what a terror attack is, but her Palestinian scum buddies can be counted on her refresh her memory. Shortly after she made those comments, the Palestinian vermin committed another terrorist atrocity: the deliberate and targeted murder of civilians in the most gruesome way they can pull off. That's terrorism. Undaunted, Duisenberg wasted no time in sinking even further into depths of moral depravity to join her Palestinian chums in the deepest cesspit of revolting moral disingenuity. The bodies of the murdered Israelis weren't even cold yet, the wounded were fighting for their lives in hospitals and she was already blaming Sharon. Not the subhuman Palestinian scumbags who murdered and maimed, but in true Euroweenie fashion she firmly blamed the Jewish victims. According to Gretta, Sharon has to "stop all that aggression."

Utterly, utterly despicable. At times like these I can fully identify with Steven Den Beste's emotional response, except that it extends to the likes of Gretta Duisenberg who are actively supporting this evil.

Wilders, a Dutch member of parliament for the Liberal Party (VVD) who is in Israel at the moment called Gretta Duisenberg's remarks "one-sided" and "disgusting." Speaking from Tel Aviv he said that "someone who a couple of hours after 26 people were brutally murdered by Palestinian terrorists points to Israel as the aggressor, is being one-sided and disgusting." I am glad to hear that there still are some European politicians willing to take a stance against this.

How people react in a storm

My apologies for the slow blogging over the last few days. I ended up spending too much time at work and had too little sleep. Moreover, the work included a ridiculous amount of writing, so I felt rather written out. I don't understand how anybody can write for a living like that; here at the blog, I can write about pretty much whatever I want whenever I want, but I don't think I could do this as a job. But just writing is one thing. Writing well is even more difficult, and I have the greatest respect for those can pull it off on a regular basis (Lileks and Den Beste spring to mind, each in a completely different manner).

The BBC broadcast tonight The Gathering Storm, a biographical movie about Winston Churchill from 1934 to 1939 when he was the proverbial lone voice in the wilderness warning of the danger of Hitler's ascent to power. Based on the eponymous first volume of Churchill's own memoirs, it was a fascinating glimpse into the period. I don't know enough about British politics in the years preceding the war, so I can't judge its historical accuracy (nor have I read Churchill's memoirs; it's on my ever-growing reading list). What I found most remarkable that the BBC would actually even broadcast this, the story of the man who had fought against appeasement and who had been proven right. With the current situation in mind, it is hard not to draw parallels between then and now. The arguments in favor of appeasement are eerily similar to those we hear now and the film is full of excellent one-liners that apply today as well as they did back then about the folly appeasement. Churchill publicized the military build-up of Nazi Germany from documents he had obtained from sources in the Foreign Office and the military. These facts were known to the government at the time, but weren't acted upon (unless you count appeasement as action).

Appeasement was politically convenient for a number of reasons. The memories of the First World War were still fresh in people's minds and averting a repeat of those horrors was were much in people's minds. The economy wasn't doing too well either as it was still suffering from the aftermath of the great Wall Street crash and the worldwide depression that had both the US and Great Britain in its grip. Rearmament would have been expensive, but as not as expensive as fighting the Second World War. But the biggest reason for appeasement was the capacity for self-delusion that idealism brings about. It is the belief that no-one could possibly be as evil and bloodthirsty as Hitler's enemies made him out to be. As long as that belief is firmly entrenched in people's minds, the facts themselves matter very little. All such facts can be explained away. Initially at least, because it gets harder as time goes on. Was building the Luftwaffe (initially Britain was even supplying Rolls-Royce aircraft engines to the Germans for "civilian purposes") enough to conclude Hitler was up to no good? The retaking of the Rheinland? Annexing Austria? Usurping Czechoslovakia? Invading Poland? That's the one that did it.

Once a grand policy theme has been established it develops a logic of its own. Whether it be the supreme folly of appeasement or innocuous local policies, once you commit yourself to it, the policy starts to take over. It's the "just one more" syndrome of compulsive behavior. Building the Luftwaffe was no proof of Hitler's evil plans, was it? Well, perhaps taking the Rheinland was a bit provocative, but we are to blame as well for the harshness of the treaty of Versailles, so we need more appeasement, not less. And so it goes. On a smaller scale you see this happening every day, where the policy becomes a goal unto itself and hold the policymakers in a stranglehold. Admitting you're wrong is a hard thing to do.

But the policy of appeasement would not have been possible without the self-delusion of the British electorate which drove the mood at the time. This is a fundamental problem that emerges in all conflicts between the decent and the ruthless (using the terms loosely). If you grow up and live in a society where "decency" is the norm, it is hard to imagine a completely ruthless opponent. Instead, you try to bring to bear the tools of your "decent" society on the errant opponent, because cannot and will not believe that he is fundamentally evil. There must be some way to come to a compromise, surely? Not if one side does not want a compromise. And that was the achilles heel of British public opinion in the 1930's, which was fueled by the memories of the First World War. The thought having to rearm, even to prevent another war, was just too painful and scary to contemplate. So instead you believe that "peace in our time" is possible with "Herr Hitler." (Obvious parallels to current situation left as an exercise for the reader.)

Fortunately, the message of the failure of appeasement has been learned, even if imperfectly. The Cold War was one long repudiation of appeasement. The West, led by the United States stood up to the Evil Empire and won. The opposite of appeasement is not war, but it's the refusal to back down. We stood our ground in the Cold War with the threat of being absolutely prepared to go to war if necessary. And it worked. Now a new war has been thrust upon us by the Islamofascists. Could we have prevented it or foreseen it? With hindsight, yes.

We are also fortunate to have a President in this war who will not back down, who understands the failure of appeasement. Thus far, we have been winning the war by being steadfast in our resolve to pursue and destroy our enemies. The next one in line is Saddam Hussein, and I am confident the President will see to it that we are successful in removing him as well. We in the Anglosphere, if not the entire West, are now embarked yet again on a policy of non-appeasement. And that is as it should be.

Policy rigidity is a symptom not unique to appeasement. Just as appeasement captured its proponents in the 1930's, the opposite policy has the same danger. Non-appeasement does not mean using military force in every instance. Even though it is the right policy with regards to Iraq, it's not necessarily the right policy elsewhere. The other members of the Axis of Evil can be dealt with differently. The Iranian theocracy is beginning to collapse under its own unpopularity, and there's an even chance that the ayatollahs will no longer be in power a year from now. North Korea can be isolated and/or dealt with China's help. Each of our other enemies, be it the Saudis, Syrians, Palestinians or others will have to be dealt with in their own way. The Islamofascist hardcore will have to be defeated in each case, but other tools stand at our disposal as well. Avoiding capture by a logic of military action for everything. This means that at times we'll have phases in which it'll appear the war has stalled or lost its focus while other tools are being used to further our cause. (Of course, the war effort could stall and fail, but that would be apparent only afterward.)

We are at war. If we do nothing, our enemies will kill more of us, and will keep doing so until they achieve their dream of an Islamofascist Caliphate. That's their goal; one only needs to read their statements. But in pursuing this war, we will need to keep our bearings. This can only occur if there is cogent and realistic criticism of the pursuit of the war effort, and that has been spectacularly lacking. The so-called anti-war movement has never managed anything better than regurgitating puerile slogans and the same old anti-American propaganda again and again.

Our storm has gathered. It is upon us. Whether our ship will sink or float depends on how we react to the storm, each and every one of us. But doing nothing is not an option.

An undeserved birthday

One of the people who recently celebrated an undeserved 75th birthday is the former Ugandan dictator Idi Amin. During his rule he murder an estimated 200,000 to 300,000 of his countrymen, a substantial percentage of the population. Most of his victim were Christians; he is a devout Muslim, of course. Sort of an Islamofascist avant la lettre. He also had warm ties with various terrorist organizations, such as the PLO. The hijacking of an Air France plane to Entebbe is one of the more infamous exploits of this unholy alliance. The Israeli rescue mission is one of the great successes of the fight against terrorism. (Hint: you kill them.)

It's not been 23 years since he was driven from power in Uganda, but Idi Amin is still alive. Not only that, he's alive and living in comfort, hosted graciously by our friends the Saudis:

The Saudi government pays his huge expenses, including cars, drivers, cooks, maids and a monthly allowance. In return, the Saudis -- who won't talk about their infamous guest -- demand silence and no political activity.

Let's hope this was his last birthday; yet another reason to bring the reign of the Sauds to an end.

There's no place like home

The Indonesian authorities have released from custody someone's who's lovingly described as a "Muslim militant." His name is Abdul Wahid Kadungga and he's suspected of having links with Al Qaeda and of being involved in recent terrorist attacks in Indonesia. He's on good terms with various Islamofascists in Indonesia, including Abu Bakar Bashir, the leader of the Jemaah Islamiah terrorist organization. According to the report:

According to a report by the International Crisis Group (ICG), Kadungga assisted Bashir in 1985 when Bashir fled Indonesia for Malaysia.

ICG said Kadungga "is believed to have had direct communication with al-Qaeda through his ties to the Egyptian-led Gama Islami".

The Gama Islami is a core group of Osama bin Laden's al-Qaeda network, according to ICG.

The research organisation said Kadungga is also associated with the Makassar-based Committee for Upholding Islamic Law.

He denies being involved in terrorism, of course. It's so good of the Indonesians to believe him like that. But since his arrest and release, Kadungga has developed a sudden yearning for his adopted homeland, the Netherlands. He obtained political asylum here in 1985 and became a Dutch citizen in 1991. The Dutch daily Parool reports how Kadungga gushes that "the Netherlands is democracy number one." Translated from Islamofascistese this means that the Netherlands is a good basis from which he can operated unhindered. It's touching to see how well he's assimilated into Dutch society and embraced the values of tolerance, freedom and democracy. A shining example of the success of our multicultural society.

Parool also reports that he's a big admirer of Osama Bin Laden's: "He's fantastic, one of a kind." Actually, he's not. He's more one of those kinds who've been pulverized by a daisy cutter. I'd be more than happy for Kadungga to join his hero in this rarefied status.

Kadungga's activities from his Dutch base have focused on supporting the Islamofascists' armed struggle. He says, "I'm an international activist. I travel from Europe to the Middle East and to Asia. I establish contacts with Islamic fighters everywhere. I dream of an Islamic empire."

I dream of the day he meets the daisy cutter on one of his missions in the Middle East.

The Taylor Rule and EMU

Happy new year everyone! The Wiener Philharmoniker are going through their New Year's tradition while I'm typing this. I just can't believe it's Nikolaus Harnoncourt conducting Strauss (any of them); I still associate him primarily with earlier composers. There is a guest appearance by Johannes Brahms this year in the form of his Hungarian Dances, which makes the Harnoncourt association somewhat more plausible. But in any case, with the effects of the fireworks dissipated and a whole new year to trudge through, how can I resist writing about monetary policy in the Eurozone?

I have written before about the stresses in the European Monetary Union, focusing mostly on the divergent inflation rates within the member states. Looking at real interest rates deflated by the harmonized inflation indices there is a huge difference between large member states of EMU such as Germany and Italy of almost 200 basis points. Trying to refine this analysis a bit further, I've been playing with Taylor-Rule implied interest rates.

The Taylor Rule was first formulated by economist John Taylor in 1993 with European Monetary Union in mind. The rule is fairly simple: it says that the nominal interest rate is determined by four things: the real equilibrium interest rate, recent inflation, the central bank's inflation target and the output gap. Conecptually it's one of those things that make good sense, but in practice it's hard to get much out of it. The problem is that out of the four quantities you need to calculate the nominal interest rate, two are hard to quantify. The real equilibrium interest rate is usually approximated by taking a long-run average of real interest rates in the past, which of course have been influenced by monetary policy. Inept monetary policy in the past will lead to higher real interest rates as a "credibility premium" that the market demands. Even hard to estimate (especially contemporaneously) is the output gap. This is the difference between actual growth and potential growth in the economy. Actual growth is simple to measure, but how do you come up with potential growth? This is usually again calculated by taking a long-term trend growth rate for the economy. Neither of these two approximations is perfect (or even close to it), but the Taylor has gained widespread currency as a rule of thumb for assessing monetary policy. Many of the practical problems are explored in this paper by Robert Hetzel of the Federal Reserve Bank in Richmond.

In the case of European Monetary Union, the Taylor Rule does a remarkably good job (pdf) in explaining central bank policy. Graph 2 on page 7 of the linked document shows the Taylor Rule interest rate set against the actual interest rate prevailing at the time. In order to see what the Taylor Rule is telling us now about the proper level of interest rates for the member countries of the European Monetary Union, I used the latest OECD data, which includes estimated output gaps, nominal interest rates and inflation rates. From this I calculated the average real interest rate over the 1994-2001 period and used that as the equilibrium value in the Taylor Rule, except for the EMU countries where I used the 3.55% value calculated in the BIS study linked above. As an inflation target I used 2% for EMU (which is the ECB's "reference value"), and 2.5% for the UK and the US. The Federal Reserve does not have an official inflation target though. The results are very interesting. This graph shows the Taylor Rule implied nominal short rates for most of the OECD countries, while this graph shows just the EMU data.

There are two immediate observations: first, the Taylor Rule comes up with much higher interest rates than the current ones in most countries and second, there is a very substantial dispersion in Taylor Rule rates for the EMU countries. The first phenomenon can be explained by the fragile state of the world economy. The threat of deflation is bigger than the threat of inflation, so the Federal Reserve is erring very much on the side of loose monetary policy. Curing inflation is easier than curing deflation. The ECB has grudgingly followed the Fed's lead, although the widespread perception still is that the ECB is still fighting the last war rather than the current one. This explains the very low interest rates that we're currently seeing. The equilibrium real interest rates that went into the calculation are higher than the currently prevailing nominal interest rates for both EMU and the US. Obviously the judgment now is that such high levels of real interest rates are inappropriate. Reducing the equilibrium real interest rate is a translation: all levels of Taylor Rule rates shift down by the same amount. If one were to assume that real rates should be 3% lower than the equilibrium used in the calculation, one should subtract 3% from the values shown in the graphs.

But as for the second phenomenon, why is there such a huge divergence within EMU countries when the BIS study showed that the Taylor Rule did such a good job explaining monetary policy? The reason is that the BIS study used a weighted average of EMU countries' economic data. This means that within that average, each country was able to fine-tune its monetary policy to the prevailing domestic circumstances. Having a single interest rate for all 12 EMU countries means that this fine-tuning of monetary policy to local output gaps and inflation is no longer possible. Thus the single interest rate set by the ECB is wildly inappropriate for a number of countries. The only ones within a 25 basis point range of the Eurozone Taylor Rule rate are Italy and the Netherlands. As noted above, this dispersion is not affected by assuming a different equilibrium real interest rate for the Eurozone. The dispersion would be affected if one were to calculate an equilibrium real interest rate for each of the countries, resulting in a lower rate for Germany and higher for Italy (a gap of 110 basis points). In other words, the Taylor Rule dispersion would be even bigger in that case, from 151 basis points to 261 basis points. Either one is a huge difference in monetary policy.

The Taylor Rule is not explaining current monetary policy very well, even if it has a decent track record in the Eurozone. Real interest rate are now much lower due to the balance of risks in the world economy. Whatever framework one uses, be it simple real interest rates or a Taylor Rule, the divergence within the EMU countries is still substantial and shows that having one interest rate for all the EMU countries is far from an optimal situation.