2012-06-18

Economist Tyler Cowen says there is a lack of trust; socionomics says it's negative social mood; Hungary as test case of my theory

In Lack of trust is one reason why macro policy is underperforming, economist Tyler Cowen discusses his NYTimes article, Broken Trust Takes Time to Mend.

The point of his article is that politicians must first restore trust, before they can implement effective policies. He's only one step away from the answer: social mood!

Why is trust low? Socionomic theory posits that trust is just one factor that rises and falls along with the optimism and pessimism of society. Mood peaked in or around 2000 and has been in decline since then (in the developed world). Belgium had no government for more than a year; Japan has had six prime ministers in six years and their approval ratings begin to fall moments after taking office; the UK has a coalition government, the first since WWII; Greece cannot even form a government; EU states that launched the euro in a great show of unity at the start of the last decade, find more and more issues to disagree over; the United States similarly has a very divided electorate with a divided government.

Besides internal fighting, protectionist rhetoric and measures are increasing: the EU threatens to impound Chinese planes, China threatens to retaliate. European candidates are talking up protectionism and one just won (Hollande), as are U.S. politicians, most notably Romney (who stands about an even chance to win). Greece accuses Germany over the debt crisis, Germany accuses Greece.

Trust in things as basic as the money we use has decreased. To restore trust, politicians must realize that they are in such an environment and that extreme trust restoring measures are needed. However, mood is exogenous: policy makers must play with the mood given them, not the mood they want. Electorates are playing musical chairs with extreme parties and my prediction is that they will keep playing musical chairs until they land on extreme right wingers because the governments of the West are firmly left-wing (liberal) and so turning right represents real change (for example, U.S. right-wing foreign policy would be isolationist, anti-free trade, anti- mass immigration; there is basically no right-wing presence in the U.S. government). In the U.S., there will be the election of a paleo-conservative/libertarian president; the UK will see a similar result. In Europe, the right isn't so libertarian. Hungary already elected an extreme right-wing government and the opposition is coming from even further right!

That is the future, a hard tack to the right. Wisconsin is a foretaste of the future in America and the faster politicians tack hard-right, the faster they will restore trust in government and the better they will prevent more extreme outcomes by satisfying voter demand for change.

Here's a look at Hungary today: Crisis-weary Hungarians lose faith in government
The deepening economic crisis is taking its toll on Hungarian Prime Minister Viktor Orban’s government — two years after a landslide election victory his party’s support is crumbling and three-quarters of voters believe the country is on the wrong track.

Growing disillusionment can be felt across the central European nation, whose economy is sliding into recession again after a sharp downturn in 2009, with the rising living standards that Orban promised when his party won power failing to materialise. While still paying off a 2008 bailout from the European Union and the International Monetary Fund, the government is seeking a new financing backstop to shield the indebted economy from the neighbouring euro zone’s mounting debt crisis.

Negotiations with the IMF will be difficult, however, as Orban will be reluctant to give up or tweak his Fidesz party’s main policies, including a flat income tax and family tax breaks aimed to support the middle class, the party’s core voter base. Orban has been at loggerheads with Brussels over several laws that critics say served to cement his party’s strong powers beyond the end of his term, while huge windfall taxes imposed on banks and selected business sectors eroded investors’ trust.

......According to a survey by pollster Median, Fidesz’ support dropped to its lowest in a decade at 22 per cent last month, even though it still has a lead over the opposition Socialists, who stand at 16 per cent. Far-right Jobbik hovers around 11 per cent. The survey showed 76 per cent of the people are pessimistic about the country’s outlook while another recent poll by Ipsos showed this rate even higher, at 81 per cent.
Hungary tacked right, rejected the IMF and Brussels and saw popularity rise even as the economy weakened. Voters are upset and want a change, that must be good news for the socialists, right?

Hungary Lauds Hitler Ally Horthy As Orban Fails To Stop Hatred
From such hamlets to the halls of the neo-Gothic Parliament in Budapest, where the nationalist Jobbik is the second-largest opposition party, radicalism and its symbols are spreading as Hungary heads into its second recession in four years. Prime Minister Viktor Orban is seeking to obtain an international bailout after Hungary’s debt was downgraded to junk last year.

“Where there are economic problems, there are tensions between peoples and groups,” said Gabor Bognar, 47, Csokako’s deputy mayor. “If we don’t allow people to let their steam out by erecting a statue, then they’re not going to stop there.”

Nationalists are making gains across Europe as leaders struggle to avert prolonged economic turmoil.

What’s different in Hungary is that Orban is accused by Jewish groups and political analysts of including parts of the radical agenda in his own policies, a charge the government denies. Orban, 49, has condemned a flurry of anti-Semitic attacks in the past month, which the Jewish group Mazsihisz has called a “tide of hatred inundating Hungary.”
See also: Hungarians hail Horthy as recession fans nationalism

If you click the Hungary tag on this post, you can see previous coverage of the country. Viktor Orbán leads the right-wing Fidesz party. It is portrayed as extreme right-wing by the European media, with some truth, but the reality is also that Fidesz isn't the far right. There's no love between Fidesz and the more left-wing European establishment, but to the extent the European left weakens Orban, the result will not be to their liking. Instead of helping the Socialists retake power, they are increasingly likely to assist the far-right Jobbik party. One of the concerns of the party is the status of Hungarian minorities in other nations, if the parallels to the 1930s aren't clear enough.

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