Brad DeLong has a long meditation on policy that, surprisingly, includes some things I strongly disagree with. I guess I should start by saying that when he describes his fairly complacent view of macroeconomics on the eve of the crisis, he’s describing a view that many economists shared — but I wasn’t one of them. Japan’s troubles and the Asian financial crisis destroyed my faith that we had the business cycle under control; I wrote a whole book about the return of depression economics back in 1999.
But here’s where I think Brad is getting something wrong now: when he says that
It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves.
He’s referring to calls for the Fed and other central banks to raise expectations of future inflation as a way to get some traction in a liquidity trap — which is certainly something I and others support. But there are two crucial differences between us and the expansionary austerity types.
First, our expectations argument is a hope; theirs is a plan. I want the Fed, the Bank of Japan, etc. to target higher inflation, in the hope that it might help, but it’s a hope, and meanwhile we need to fight demands for fiscal austerity and even push for stimulus. The expansionary austerity types, on the other hand, are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized.
Which brings us to the second point: those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact. The austerians, on the other hand, have pushed directly destructive policies — fiscal contraction in depressed economies — in order to achieve their hoped-for shift in expectations.
So this is the difference between “Let’s try this possibly ineffective remedy, it might work and in any case won’t do any harm” and “Let’s do the opposite of what standard analysis says we should be doing, just trust me”.
One other thing: Brad takes fairly seriously the calls for higher interest rates to avoid bubbles, or something, essentially because low rates create moral hazard for the financial sector. Can we say that those moral hazard problems would have to be incredibly severe to justify contractionary monetary policy in a depressed economy?
And I can’t help noticing that the people now demanding that we raise rates to curb hypothetical bubbles are the same people who, a while back, were demanding that we raise rates to head off inflation. (I often make fun of Allan Meltzer for his inflation warnings, but had forgotten that Feldstein was doing the same thing at the same time). In other words, I don’t think we should ignore the evidence that some people always want higher rates, and just keep changing the justification.
Another Hungary post from my Princeton colleague Kim Lane Scheppele:
Beware of Hungarians Bearing Gifts
Kim Lane Scheppele
Saturday, 8 June 2013
Hungary’s foreign minister, János Martonyi, Friday offered to make peace with Europe. He explained in a press conference that the Hungarian government would propose two new constitutional amendments to address European grievances.
But beware of Hungarians bearing gifts. The proposed constitutional amendments do not fix problems that Europe has had with the new Hungarian constitutional order. The new amendments may remove some offending language from the constitution itself, but they won’t actually change the facts on the ground unless the provisions that will be removed from the constitution are also removed from the other laws, too. And, judging from the press conference, that is still in doubt.
The Fidesz government is eager to please Europe because, over the next few weeks, two important European representative bodies will have the opportunity to vote on sanctions against Hungary. And the European Commission is threatening more infringement actions. (Infringement actions are lawsuits brought at the European Court of Justice alleging violations of European Union law. Violations can be punished with heavy fines.)
The European Parliament’s Civil Liberties (LIBE) Committee is scheduled to vote on 19 June on a tough, accurate and fair report written by Portuguese MEP Rui Tavares. It calls for a rigorous monitoring regime to ensure that Hungary complies with the basic values of the European Union. If the report passes, it goes to the floor of the European Parliament for a debate and vote in the July plenary session. If Fidesz can kill the report in committee, the monitoring regime dies.
The Parliamentary Assembly of the Council of Europe is scheduled to vote on 25 June on a different report, also very critical and accurate. If it passes, a different monitoring regime would be established to ensure that Hungary remains a rights-protecting constitutional democracy. But here, too, the vote is expected to be very close.
On 6 May, the European Commission sent letters to the Hungarian government inquiring about three parts of the Fourth Amendment to the Hungarian constitution, a 15-page amendment to the 45-page constitution that passed in March. The Commission singled out the use of special taxes to evade paying legal fines from the state budget, the ability of the president of the National Judicial Office to move cases from one court to another, and the ban on advertising in the private broadcast media during an election campaign, implying that infringement actions were forthcoming if the Hungarian government didn’t bring these issues into compliance with European law.
In short, Europe – in its procedurally impeccable, lumbering way – is starting to do something serious about Hungary. So the Hungarian government is working like mad to placate it. Hence the announcement about constitutional amendments Friday.
But the Hungarian government’s actions are too little, too late.
The Friday announcement indicates that the Hungarian government is dealing only with the Commission’s three questions, and it is ignoring the parliamentary reports. The government’s approach to the European parliaments consists of conducting hate campaigns designed to discredit the authors of the reports. In addition, the government has been counting on the support of its party-compatriots in Europe, the representatives of the European People’s Party (EPP). The EPP has so far backed the Orbán government in the European Parliament and in the committees of the Parliamentary Assembly of the Council of Europe, though with a great deal of private grumbling and many individual reservations. The Hungarian government clearly thinks it can win in these parliamentary forums by politicizing the issue.
But the criticisms are not political, but factual. Purely expert bodies like the Venice Commission (formally known as the Commission for Democracy through Law) have consistently come down against the Hungarian government, most recently in its rapporteurs’ draft Fourth Amendment opinion, which accused Hungary in uncharacteristically blunt language of “an attack on constitutional justice and on the supremacy of the basic principles contained in the Fundamental Law of Hungary” and for adopting measures that “negatively affect” basic European legal principles of “the separation of powers as an essential tenet of democracy, the protection of human rights and the rule of law.”
The Hungarian government, though, is having none of this, and has been responding in minimal ways only to the European Commission’s three points.
Foreign Minister Martonyi on Friday proposed a constitutional amendment to fix the special taxes complaint. The Fourth Amendment had slipped in a “get out of jail free” card for the Hungarian government with respect to sanctioning decisions of various checking institutions. Under the Fourth Amendment, if the Hungarian Constitutional Court, European Court of Justice or any other body were to fine Hungary for failing to live up to its legal obligations, the government could impose on some targeted population a new and specialized tax to pay the fines, keeping the state budget free of the obligation to pay directly.
The European Commission signaled that it didn’t think much of this trick. So the Hungarian government now appears to have backed down. But, in fact, it hasn’t.
According to the MTI, the Hungarian national news service, the government would remove the provision about special taxes from the constitution. But at the same time, it would slip this measure into a different law instead, the law on economic stability. As the government-dominated news agency explained, “The new law will say that if Hungary has to meet unexpected payment obligations, and there are no available resources, it may levy a contribution tax to cover its obligations.” The new law will just drop the explicit reference to courts.
This adds back in with the right hand what has been taken away with the left. The special taxes are not in the constitution, but they are still in the law. And the special taxes are not just in any old law, but in the law on economic stability, which is a “cardinal law” that can only be changed by a two-thirds vote of the Parliament, almost as entrenched as the constitution itself. So much for change.
The other proposed new constitutional amendment appears to alter the system through which the President of the National Judicial Office (NJO) can remove individual cases from the courts to which they have been assigned by law and reassign them to any other court in the country. This power was condemned in the strongest terms by the Venice Commission when the power first appeared in one of the cardinal laws on the judiciary. The Hungarian government added a variety of ornamental constraints on this power last fall, but the Venice Commission was still not amused, registering that it “strongly disagrees with the system of transferring cases because it is not in compliance with the principle of the lawful judge, which is an essential component of the rule of law.” The Venice Commission was even less amused when the Hungarian government used the Fourth Amendment to put this power to move cases into the constitution itself.
Martonyi’s press conference seemed conciliatory on this point. According to the MTI, “the Government has decided to delete the passage [about the transfer of cases] from the Fundamental Law.” But even if the power of the President of the NJO to move cases is removed from the constitution, that very same power remains in Article 63 of the Law on the Structure and Administration of the Judiciary, another cardinal law. And the government has so far said nothing about that. Removing from the constitution the power to move cases doesn’t mean that the power has disappeared from the law. Only if the government removes the power from all places in the law where it is referenced will it really have addressed Europe’s concerns.
Demoting legal provisions from the constitution to cardinal laws does signal one important improvement. Cardinal laws can be reviewed for constitutionality by the Constitutional Court while constitutional provisions cannot except in purely formal terms. So the Hungarian government can say now that the Constitutional Court’s power to keep the legal system in line with constitutional principles is restored, which should bring Hungary into compliance with the rule of law.
Not so fast. The Fourth Amendment, which took away the Court’s power to review constitutional amendments on substantive grounds, passed when the government had placed only seven of the 15 judges on the Constitutional Court. At the time, the Court was striking down one law after another and had asserted the power to declare constitutional amendments unconstitutional. Since that time, however, the government has been able to name two more judges to the Court, and so the math makes it unlikely that the Court will act to threaten this government’s plans any longer. In fact, the Court’s first major decision with nine Fidesz judges on the bench was a decision denying that the Fourth Amendment had been passed in violation of the procedure set out in the constitution. The ombudsman had argued that the incoherence introduced into the constitution by the Fourth Amendment was a procedural violation, but the Court rejected this argument. This new decision signals that putting a law within range of constitutional review is not much of a risk for this government any longer.
Even with Martonyi’s conciliatory appearance on Friday, the Hungarian government still asserts firm limits on the compromises it will make for Europe. The Commission’s third item of concern – that the government reconsider the ban on political advertising in the private media during election campaigns – was met with a firm “no” from Budapest. Martonyi indicated that the government will change nothing in its restrictive laws on campaign advertising, laws that the opposition parties believe will damage their chances to get their platforms before the voting public in the Hungarian and European elections next year.
The Hungarian government desperately wants to avoid sanctions from Europe. It will therefore appear to tinker endlessly with its laws in order to give the impression that it is still in a “dialogue” with European bodies. But by now, Europe should see what the Hungarian government is doing. The government has made small adjustments to the laws before, attempting to fool Europe again and again into thinking that Hungary is a reasonable partner that shares European values. But appearances are deceiving. Fidesz knows that if it can just stay a step ahead of Europe by proposing one legal change after another, triggering one more earnest European evaluation after another, it can avoid the day of reckoning.
But Europe should see by now that the Fidesz inner circle is full of “belts and suspenders” kinds of guys. They love redundancies. Altering clauses here and there in the giant legal edifice that Fidesz has constructed may appear to respond to Europe’s complaints. But the changes Fidesz has made in the past were only for show and there is every reason to suspect that the same is true again. They have let nothing important slip from their control. At some point, Europe will have to stop accepting the Hungarian government’s endless minor proposals and realize that Fidesz has no intention of releasing its iron grip on power without a much bigger fight.