There were five posts yesterday, four by him and one guest post. The first post was “Exchange Rates and Balance Sheet Effects:”
Neil Irwin writes about concerns that a rising dollar will damage developing countries where corporations have borrowed in dollars; as he says, this raises echoes of the Asian crisis of the late 1990s and the Argentine crisis of 2002.
He does seem to go slightly astray at one point, however:
The biggest difference this time around is that private companies, not governments, have incurred debt in a currency not their own.
Actually, this time is not different: the Asian and Argentine crises were also about private-sector debt, with Asian public debt, in particular, quite low before the crisis hit. And a number of economists, myself included, independently developed models of leverage, currency mismatch, and balance sheet effects to make sense of the Asian crisis.
This point matters, I think, for a couple of reasons. On one side, if you paid attention to Asia in 1997-98 you were pre-inoculated against the temptation to fiscalize crisis narratives – the urge to see everything that goes wrong as the result of budget deficits. (This is one reason I reacted to Irwin’s piece; there’s already been a huge effort to retroactively fiscalize the euro crisis, and we need to push back against attempts to do the same to Asia.)
On the other side, I sometimes hear people declaring that until the 2008 crisis struck, economists paid no attention to private debt as a source of economic problems. But everyone who worked on Asia 1998 was very well aware of the problems debt and leverage could create. If we didn’t realize how vulnerable the rise in household debt made America, that was a failure of observation, not a deep conceptual problem.
As I’ve tried to say on a number of occasions, the 2008 crisis came as a surprise but not, at least for me, as a shock – I realized almost immediately that what was happening fitted quite well into existing frameworks. We knew about bank runs; once you realized that something essentially the same as a bank run could happen with repo and other forms of shadow banking, it took about 30 seconds to make sense of the post-Lehman funk. We knew about balance-sheet effects, both from Irving Fisher and from Asia; it wasn’t hard at all to transfer that understanding to the aftermath of the housing bubble.
I mean, I wrote a book titled The Return of Depression Economics in 1999. Not too hard to take on board the fact that it was coming true.
Prof. Krugman’s last post yesterday was “Self-Justifying Swedes:”
The final post yesterday was a guest post by Kim Lane Scheppele titled “Hungary Without Two Thirds:”
A guest post from my Princeton colleague Kim Lane Scheppele, head of the Law and Public Affairs program:
Hungary without Two Thirds
Kim Lane Scheppele
17 March 2015
On 22 February, in a small by-election in a medium-sized Hungarian town, the governing party Fidesz lost its two-thirds parliamentary majority.
The loss of the Fidesz supermajority is a big deal because two thirds is a magic fraction in Hungarian law. With two thirds of the parliamentary seats, a party can change the constitution at will and therefore govern without constitutional constraint. But it’s not just constitutional change that requires a two-thirds vote. Over the last five years, Fidesz built so many required two-thirds supermajorities into so many different laws that it is nearly impossible to govern Hungary on a daily basis without two thirds. And each time it now confronts a two-thirds problem, Fidesz must get the support of someone – or some party – outside its own circle. This is the first political constraint that Fidesz has faced since it came to power in 2010.
What will Fidesz do without two thirds? It only took a little more than a week after the by-election for a tentative answer to emerge. A two-thirds vote appeared on the parliamentary agenda – and passed. Who put Fidesz over the top to get its two thirds? An MP from the far-right party Jobbik. The vote signaled that Fidesz may now be working in effective partnership with a party that Human Rights First has called “the bloody tip of the far-right spear in Europe.”
If this is true, then why hasn’t the European Union immediately launched crippling sanctions as EU member states did when the Austrian government included Jörg Haider’s far-right party in 1999? Because Fidesz learned a lesson from that example. In Austria, the coalition was public. In Hungary, a coalition can be secret.
The constitutional rules in Hungary permit Fidesz to keep its two thirds through strategic absences rather than affirmative votes. For most two-thirds votes, no member of parliament (MP) need visibly cross the aisle to vote affirmatively with the governing party. If an opposition MP is merely missing when a two-thirds vote is taken, Fidesz can still win.
In Hungarian constitutional law, not all two-thirds majorities are created equal. An absolute two-thirds majority requires the affirmative vote of two-thirds of all of the members of parliament. An absolute two-thirds majority is required to amend or rewrite the constitution or to ratify treaty change in the European Union. An absolute two-thirds majority is also required for electing constitutional judges, the president of the Supreme Court, the head of the State Audit Office, the head of the National Judicial Office, the public prosecutor and the ombudsman – or to declare a state of emergency. For Fidesz to gain an absolute two-thirds majority now, someone must to visibly cross the aisle and vote with the governing party.
But it takes only a relative two-thirds majority to do everything else – like amend the especially important “cardinal laws” or fill seats on the electoral commission or the media council. A relative two-thirds majority requires the affirmative vote of two thirds of the members of parliament who are present on that day in the chamber, given a quorum. Fidesz can therefore still win a relative two thirds with the votes of only its own party if all of its MPs are present while any non-Fidesz MP is missing. For the vast majority of two-thirds votes, then, Fidesz does not have to win an affirmative vote from an opposition MP. It only has to procure his absence.
On 3 March, Fidesz faced its first two-thirds challenge since it lost its supermajority. Two key items were on the agenda that day, both bundles of amendments to existing laws. Parts of each bundle were “cardinal” and thus required two-thirds votes while other parts were not and therefore required only a simple majority to pass. The governing party’s tendency to mix different sorts of amendments in the same parliamentary procedure is confusing for everyone, including MPs who have to vote by different majorities on each.
In the first package of amendments, child protection agencies, social security offices, employment centers, land administration agencies, environmental protection offices and more would lose their independent and separate spheres of action and become integrated parts of the regional offices of the central government as of 1 April 2015. The second package of amendments proposed to “enhance public trust in state officials” by requiring public sector workers to disclose to their employers if they are under criminal investigation.
At the time of the vote on both packages, all Fidesz MPs were present, but there was one opposition MP missing: István Apati from Jobbik. The cardinal bits in first package of changes passed, with 131 votes in favor (all Fidesz), and 65 against, with 196 MPs present – gaining the support of 66.8% of those present. This gave Fidesz just barely two thirds (above 66.6%). The cardinal bits in the second package of changes failed because only 130 voted in favor, 44 voted against and 22 (Jobbik MPs) abstained. Because only 66.3% of the MPs present voted for the law, Fidesz failed to clear the two-thirds hurdle by a bare one third of one percent.
What happened in the second vote? Lajos Kosa, a Fidesz stalwart, pressed the wrong button and accidentally voted against the package. His party promptly fined him 100,000 forints (about $343 USD) for having disobeyed a party order to vote along party lines. (Yes, in the Hungarian parliament, some political parties fine their MPs for failing to take direction on parliamentary votes!)
Fidesz castigated Kosa for making a mistake on the second vote. But, they said nothing about how the first package could pass. It gained the required two-thirds vote only because an opposition MP was missing. Had Kosa not erred, the second package would have passed as well.
Jobbik’s party leader, Gábor Vona, claimed to be furious with the missing MP Apati and fined him 100,000 forints for violating party discipline. Vona gave an interview shortly thereafter in which he threatened anyone who might claim that Jobbik was acting in concert with Fidesz on this vote.
But the whole story got curiouser and curiouser when Apati started explaining why he had been absent on that crucial day. He claimed he had to protect his family because he had gotten death threats from a member of a Roma gang. (Jobbik rode to popularity on an anti-Roma platform blaming “Gypsy crime” for many of Hungary’s ills.) While the threat occurred on a Saturday, he reported it to the police only on Monday, which was the day before the parliamentary vote. Journalists who interviewed many people in his town could find no one else who knew about a local “Roma mafia.” So the story just seems strange and conveniently timed.
Does this mean that Fidesz is working under the table with Jobbik? From this one incident, it is hard to say for sure. Jobbik’s leader has been at pains to claim that there is no secret coalition, and yet Vona was himself missing for another parliamentary vote on 15 December 2014 that had the same effect. At that time, Vona’s absence shored up the Fidesz relative two-thirds when a Fidesz MP, Jenő Lasztovicza, was absent due to illness. (He later died – so there will be another by-election in April.) The December vote sailed over the two-thirds hurdle with even more support than necessary because another MP, former Socialist Prime Minister Ferenc Gyurcsány, was missing as well. Fidesz was therefore already able to pass an amendment to a cardinal law (in this case, one that nationalized and regulated tobacco shops) when one of its MPs was dying – before the party definitively lost its two thirds in February’s by-election. In December, the Fidesz victory was made possible by missing one MP to the right and another MP to the left of the governing party.
When Vona’s December absence was noted in the brouhaha over the 3 March vote, he promptly fined himself 100,000 forints to show that he was even-handed about disciplining his party’s members. He then said he would donate the proceeds of this fine to charity, raising questions about whether, under Jobbik party rules, fines issued against MPs who don’t follow party orders go straight into the pocket of the party leader.
The theory that Fidesz is collaborating with Jobbik is not far-fetched, given the record. Since 2010, when Fidesz took office with its two-thirds supermajority, Jobbik has been the only parliamentary party whose MPs have voted with Fidesz on a non-trivial number of occasions. Jobbik supported many of Fidesz’s most controversial laws – for example, the extra taxes on banks, retroactive taxation of public sector severance pay, the elimination of time limits on pretrial detention and the approval of the recent deal with Russia on nuclear plants. Jobbik even backed two of Fidesz’s appointments to the Constitutional Court (Béla Pokol and Imre Juhász).
Not only has Jobbik already voted more often than any other party with Fidesz, but Fidesz has already borrowed many ideas from Jobbik . Before the by-election, Jobbik votes were not needed to get to two thirds and Fidesz did not have to take pages from Jobbik’s platform to get Jobbik’s votes. Jobbik regularly piled votes onto Fidesz initiatives and Fidesz regularly took ideas from Jobbik anyway. A secret collaboration at this point would only take underground what has already occurred in public. Perhaps what we saw on 3 March is a sign that Fidesz and Jobbik are already working together.
But the deniability of a working coalition is crucial to its success. Would the EU sanction the Fidesz government for collaboration with a far-right party when Jobbik MPs are simply missing in action at the time a parliamentary vote is called? Since there are so many reasons to be away from parliament on any particular day – “Roma attacks,” or perhaps a strategic illness, or a well-timed flat tire – missing MPs have plausible deniability that their absence was part of a plan. One can imagine that EU sanctions would dissolve without smoking-gun proof of coordination. In addition, Fidesz and Jobbik have every reason to deny working together in order to maintain their credibility with their own voters.
Jobbik is not the only source of a crucial missing MP. Any MP willing to put personal benefit ahead of party loyalty – or any MP who could be successfully blackmailed – could agree to be absent and allow a relative two-thirds majority to form without him. All Fidesz needs is one opposition MP to disappear on a particular day and the relative two-thirds votes will still sail through. Fidesz may find that it is even simpler to get an individual MP to break from a party than to convince a whole party to collaborate.
Of course, the fact that Fidesz could seek its procured absences elsewhere reduces Jobbik’s bargaining position. So, Vona could be right that there is no permanent coalition. But there may be an opportunistic collaboration on particular issues nonetheless. If Fidesz were really clever, however, it could hide such an opportunistic collaboration by procuring a strategic absence from both left and right on the same day, just to demonstrate its independence. We already saw that voting pattern in December. It would be fascinating to know what has been promised – or threatened – in exchange for absences. Or whether the absences were generated by one of the many perfectly innocent reasons why MPs go missing for crucial votes.
Figuring out what is happening in Hungarian politics from now on will require careful attention to missing persons. We probably will not have to wait long to see the new ways that Fidesz gets its two thirds because amendments to cardinal laws come up surprisingly often in the Hungarian parliament. Cardinal laws were originally only supposed to regulate matters of fundamental constitutional importance, but they now cover so many different subjects that two-thirds votes have become the “new normal” of political life.
The parliamentary records show that Fidesz has needed its supermajority almost every week – and sometimes even every day – that it has governed. In fact, one Hungarian law blog did the count: between September 2014 and January 2015, fully 50 matters before the parliament required two-thirds votes. In the year before that, two-thirds votes were required on 214 occasions. The law on economic stability alone was amended 20 times since its passage in 2011 and, since it is a cardinal law, each vote has required two thirds. (So much for economic stability!)
While Fidesz now claims that the loss of its two-thirds supermajority is not important because revolutionary changes are over and the need for the daily two thirds has passed, the statistics don’t lie. Prime Minister Viktor Orbán’s new constitutional order can’t operate smoothly without its two thirds.
Perhaps the best testament to the continuing importance of two thirds is the legal framework invented for last April’s parliamentary election. Orbán clearly thought that his two-thirds majority was so important that he stopped at almost nothing to keep it. In fact, Orbán actually needed every trick in the book to win his second two-thirds parliament. He also needed a trick that was not in the book. Fidesz won its two-thirds majority in April 2014 only by counting the speaker of the house in that total, and then the party discovered that the rules of parliamentary procedure prevented the speaker from casting a vote. So the Fidesz MPs quickly voted to change the “house rules” of the parliament to allow the speaker’s vote to count. And voilà! Fidesz retained its two thirds!
After February’s by-election, however, Fidesz no longer has its magic fraction. Given the party’s plunging popularity, it may well lose the next by-election in Tapoca on 22 April as well. The loss of two thirds is important, both practically and symbolically. But we will only be able to assess whether Fidesz’s wings are really clipped and whether Orbán has had to depend on strategic partners by closely monitoring every two-thirds vote from now on. If Orbán keeps achieving relative two-thirds majorities with only the votes of his own party, then we should wonder what price was paid for every empty seat in the room. In Hungarian politics now, out of sight should not mean out of mind.