The Euro-fundamentalist

National Review, February 21, 2019

The caustic reaction of EU Commission president Jean-Claude Juncker to a series of Brexit votes in the British parliament provoked a tweet from one Conservative Brexiteer describing Juncker in anatomical language un­printable in this magazine and — oh dear — of continental origin. Her fury was proof of sorts that Juncker is in the right job.

Jean Monnet, the most important founding father of what evolved into the EU, believed that only a united Europe could assure the continent’s peace and prosperity. In the absence of popular enthusiasm for such a union, it would have to be built, Monnet once remarked, “by zig and by zag,” obliquely, quietly, and by misdirection. “Of course,” observed Juncker years later, “there will be transfers of sovereignty. But would I be intelligent to draw the attention of public opinion to this fact?”

Sovereignty cannot be transferred to an idea. Monnet’s genius lay in establishing the essence of a government — a civil service (the commission), a court, and the precursor of a parliament — long before there was any state for it to run. The commission’s objective was to use the powers it had been given and then accumulate more, often with the connivance of politicians mistily supportive of “Europe” but unaware of the deeper significance of what they were agreeing to. As Juncker explained in a 1999 interview: “We decide on something, leave it lying around, and wait and see what happens. If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back.”

The three words — “ever closer union” — included in the EU’s defining treaties meant what they said. There is no reverse gear.

Two genuinely great Commission presidents were Walter Hallstein (1958–67), who set Monnet’s machinery in motion, and Jacques Delors (1985–95). Under Delors, the pace of integration picked up noticeably, not least with the establishment of the “single market” and the creation of a clear path to a shared currency. Since then, the principal task of the EU Commission’s president has been to steer rather than set the course, with plenty of direction — when it came to larger initiatives — from national leaders. Thus the Lisbon Treaty, the notorious pact that bypassed voter rejection of a proposed EU constitution, owed more to Angela Merkel than to José Manuel Barroso, then the president, a pattern repeated when the euro-zone crisis erupted in 2010. Merkel counted in a way that Barroso did not.

Juncker, too, counted. At the time, he was not only Luxembourg’s prime minister, a position he had held since 1995, but also its treasury minister. It was in that second capacity that he chaired the Eurogroup, a forum for the euro zone’s finance ministers, until 2013. He thus had a key role in the successful defense of the currency union against the financial pressures that could have fractured or even shattered it, a defense that, in its early stages, included — as his French counterpart admitted — violating “all the rules”: “The Treaty of Lisbon was very straightforward. No bailout.” What mattered more was keeping the euro zone intact, an example of how, throughout his career, Juncker has combined a certain — uh — flexibility with an unyielding dedication to ever closer union.

To be sure, the latter has been good for his career. The EU has handed Juncker a playing field that is far bigger than his native Luxembourg (which has a population of around 600,000). But his country’s geography and history, and, to the extent that we know much about it, the famously secretive Juncker’s background, are all reasons to think that his Euro-fundamentalism is sincere.

Luxembourg has three official languages, French, German, and Luxem­bourgish (a primarily Germanic language). It is lodged between Belgium and, more uncomfortably, France and Germany, both of which have lodged in it in the past — Germany, most recently, in both world wars. Luxembourg was incorporated into the Reich in 1942. Under the circumstances, it is unsurprising that Luxembourg was a founding member of what became the EU. Adding a personal twist, Juncker’s father, no Nazi, was drafted into the Wehrmacht and later taken prisoner by the Soviets. His father-in-law, by contrast, collaborated actively with Luxembourg’s German occupiers. Juncker was born nine years after the war, but his conviction that a federal Europe is a bulwark against a return to the horrors of the past makes at least psychological sense.

Juncker’s appointment to the Commission’s presidency in 2014 was a reminder that, however much Barroso may have been reduced to a secondary role during the euro-zone crisis, integration ground on. Juncker’s predecessors were chosen by the leaders of the EU’s member states, but this procedure was revised by the Lisbon Treaty with the addition of a proviso that they should “take into account” the results of elections to the EU’s parliament. This reliably federalist body, representing a European “demos” that doesn’t exist, used those words to try to snatch control of the nomination from the member states, asserting that the new president should be picked by the party that could summon up the necessary backing in the European parliament. That put Juncker, the nominee of the European People’s party, the parliament’s center-right bloc, in the pole position. Hungary’s Viktor Orban and, fatefully, U.K. prime minister David Cameron (backed by some of the more excitable sections of the British press) came out against Juncker. References in the Sun to Juncker’s family links to the “Nazi regime” were unlikely to turn the Luxembourger into an Anglophile.

Cameron and Orban distrusted Juncker’s Euro-fundamentalism. There were other concerns, too, and they were shared beyond the Anglo-Hungarian awkward squad even if those who felt them were not prepared to step so far out of line as to vote against Juncker. He was tainted by the memory of Jacques Santer, the last Luxembourgish commission president (handy intermediaries between France and Germany, there have been three in all), whose term ended in ignominy when he and his entire commission resigned amid widespread criticism and credible accusations of corruption against one of his team.

Juncker had served in government under Santer and had succeeded him as prime minister: Was he cut from the same cloth? Other worries included Juncker’s involvement in a scandal over the activities of — don’t laugh — Luxembourg’s intelligence service, which eventually led to his resignation from the premiership. Then there was his reputed love of the bottle. Wading through the euro mess might have driven anyone to drink, but it was a destination where Juncker had long since arrived. Allegedly.

None of this can have bothered Angela Merkel overmuch. She threw her support be­hind Juncker, and that, as usual, was that. Juncker took office in November 2014.

In normal times he would have been a suitable enough choice, amenable to accommodating the EU’s dominant Franco-German axis but otherwise devoted to the discipline of “ever closer union,” if, sometimes, rather late in the day. Almost immediately after assuming the presidency, Juncker came under fire when leaked documents showed how Luxem­bourg’s enviably relaxed tax regime had become even more welcoming during his years in office. Evidently shocked, shocked, by what had been going on, Juncker accepted only “political” responsibility for these “problems,” which could, he argued, be eased by the imposition of a “common tax base” across the EU of a type, further leaks a few years later revealed, he had previously opposed. Juncker, a climate warrior with a fondness for private jets, contains multitudes.

But these have not been normal times. Merkel’s decision to fling open Ger­many’s doors in September 2015 (and her subsequent demand that some of the new arrivals be relocated elsewhere in the EU) gave an additional boost to a populist revolt that had already been gathering momentum mainly, but not exclusively, in some of the countries most brutally affected by the procrustean economics of monetary union. Making matters worse still, even if they (for the most part) affected the U.K. only indirectly, the twin currency and migration crises reinforced many Britons’ belief that the EU was not only poorly run but also a menace, toxic sentiments with a Brexit vote in the offing. Even so, had Brussels demonstrated a little more flexibility in its negotiations with David Cameron ahead of the referendum, the Leave campaign, which secured only a 52–48 majority, would have lost.

Not all the blame or credit — far from it, in fact — for the referendum result lies with Junker. Nevertheless, his unbending loyalty to both Angela Merkel and ever closer union played a part in helping the Brexiteers past the winning post. To a lesser degree, the similar approach he is taking to the terms of Britain’s withdrawal is contributing to what is likely to be a damaging relationship with the U.K. after the divorce. Away from Brexit, Juncker’s robotic insistence that the answer to the EU’s wider problems — from its troubled currency to migration — is “more Europe” is stoking populist anger across the bloc, with possibly interesting implications for the EU’s parliamentary elections in May.

Juncker came into office promising a “highly political” commission, but, although he can boast of some technocratic achievements — such as this year’s trade deal with Japan — his political record, scarred by that rising populist challenge and, above all, Brexit, contains little to brag about. Brexit will, of course, remove the British brake on ever closer union, but that silver lining will accrue to a future president. The cloud is all Juncker’s.

A tin ear (fêting Marx’s 200th birthday was not a way to win over restless Eastern Europeans) and embarrassing public displays (his sporadically strikingly un­steady gait has, however, been blamed by loyal officials on sciatica rather than alcohol) have all contributed to an impression of growing disengagement from a job Juncker recently described as “hell.” All this has made all the more credible allegations that he has fallen under the sway of a German puppet master, Martin “The Monster” Selmayr, the authoritarian Euro­fundamentalist who was until recently his chief of staff. These fears were exacerbated when, in a charade rushed through in a few minutes and relying on a legally questionable technicality, Selmayr was appointed the commission’s secretary general (its top bureaucrat) in February 2018. Any opposition at the top of the commission was — it is claimed — muffled by talk of increased retirement benefits. After looking into the matter, the EU’s ombudsman expressed serious reservations last year. These were confirmed in a final decision issued on February 11: “Mr Selmayr’s appointment did not follow EU law, in letter or spirit, and did not follow the Commission’s own rules.” Meanwhile, in December, a vast majority of the normally docile European parliament had passed a resolution calling for Selmayr’s resignation. None of this has made any difference. Juncker will step down when his term ends later this year, but the Monster will continue to preside from his new lair.

This shady, secretive, and successful maneuver, which the EU’s parliament described as “coup-like,” is yet more evidence that the EU is sliding ever further away from democratic control. Despite the current turbulence, it will probably continue to do so, and there will be no shortage of Junckers to help it on its way.

Dat's Capital

Alan Greenspan and Adrian Wooldridge - Capitalism in America: A History

National Review, December 20, 2018 (December 31, 2018 issue)

New York City, March 1989 © Andrew Stuttaford

With 29-year-old “democratic socialist” and imminent congresswoman Alexandria Ocasio-Cortez widely seen as the harbinger of a future that, with luck, I may be too aged to see through to Caracas, Capitalism in America may come to be regarded as an obituary as much as a history. Not that its two authors, Adrian Wooldridge, political editor of The Economist — a magazine now closer to Davos liberalism than to the classical kind — and Alan Greenspan, who needs no introduction, would see it that way. Capitalism in America is a celebration — some of it should be read to music, Sousa, say, when the narrative reaches the Gilded Age — of the economic system that took the U.S. to the top of the world and could, maintain Greenspan and Wooldridge, still keep it there. They may warn of “America’s fading dynamism,” but they conclude that the country “is trapped in an iron cage of its own making,” to which it “has all the keys that it needs.” The question is whether it has the “political will” to use them. Indeed.

Messrs. Wooldridge and Greenspan possess a sharp understanding of the political foundations of American growth — as they must. There were, after all, other large countries blessed with rich resources and abundant land, and, as the 19th century drew on, the ability to exploit them. Argentina’s great liberal president, Domingo Sarmiento (1811–88), dreamt of emulating the developing colossus to the north. By the 1890s, Argentina was among the wealthiest places on earth (on one measure, briefly the richest), and European immigrants were pouring in. And yet the U.S. now stands where it now does, and Argentina is, well, Argentina.

“Anyone who regards economic history,” caution Greenspan and Wooldridge, “as history with the politics left out is reading the wrong book.” America’s economics would have been impossible without its politics, and the latter were, the authors emphasize, profoundly shaped by the happy timing of the country’s founding, born in the age of enlightenment. Although they do not explicitly say so, the variant of the Enlightenment that weighed most on the Founding Fathers, for ancestral as well as intellectual reasons, was British, the fruit of an incremental process dating back to (at least) 1688, rather than its more radical French alternative. Moreover, it was buttressed by having inherited what Greenspan and Wooldridge refer to as “many of Britain’s best traditions,” from the common law to a certain respect for individual rights. In that sense, “the American Revolution was only a half revolution.” The nascent republic was marked by a suspicion of both monarchical rule and unrestrained popular government. Commerce was able to slip through the gaps, helped by, as the authors explain, the insights of Adam Smith, the prohibition of internal trade barriers, and — a critical incentive for the enterprising — the strong defense of property (including intellectual-property) rights enshrined in the new Constitution.

This settlement was made easier to sustain by the United States’ birth in “an age of growth — an age when the essential economic problem was to promote the forces of change rather than to divvy up a fixed set of resources,” a summary that is on the crude side — fighting over the proceeds of growth can be ugly enough — but works well enough for a country that, more than anywhere else at that epoch, was a land of opportunity.

And what allowed America’s inventors, innovators, and entrepreneurs to make so much of this opportunity was the extent to which creative destruction (to Greenspan and Wooldridge, “the ‘perennial gale’ that uproots businesses — and lives — but that, in the process, creates a more productive economy”) was allowed free rein. In this heroic retelling — Howard Zinn, avert your eyes — of America’s expansion (the Gilded Age is rechristened “the Age of Giants”), creative destruction — the hammer in the invisible hand — is the mightiest hero of all, “the principal driving force of economic progress.” The government’s job, the authors note approvingly (did I mention that Alan Greenspan was a part of Ayn Rand’s circle?), was to protect property rights and the sanctity of contracts and then, rather than “tame” creative destruction, enable it and get out of the way. Less was more: “The old nations creep on at a snail’s pace,” wrote Andrew Carnegie. “The Republic thunders past with the rush of an express.”

While praising America “as a huge positive” not only for itself, but for what it has given the wider world, the authors don’t gloss over the darker side of “numerous disgraces” that have marred its rise. Slavery was a system resting “on foundations of unfathomable cruelty” that brought riches to the South but condemned it to economic backwardness as well as moral squalor. They also acknowledge that the state played a more active role in America’s economic explosion than it might be polite to mention in Galt’s Gulch. Railways, in many respects the Internet of the era (though, in a testimony to a time of remarkable innovation, there’s also the telegraph to think of), benefited — as, subsequently, did the Internet itself — from Uncle Sam’s largesse. Vast land grants offered railway companies the chance to risk a fortune building rails “in the middle of nowhere” in the hope of making a fortune by turning a “piece of nowhere into a part of the global economy.”

The authors write snappily and memorably, but not at the expense of subtlety. Thomas Edison’s “greatest claim to fame is arguably not as an inventor but as a systematizer of invention.” He created the first industrial laboratory and staffed it with “German PhDs, skilled craftsmen, and ‘absolutely insane men,’” the last category a preview, perhaps, of the pizza-munching Asperger’s army taking a (silicon) valley to fresh peaks.

By outlining the backgrounds of these economic pioneers, an impressively recurrent tale of creativity, social mobility, and sometimes uncontainable energy (Isaac Singer, of sewing-machine fame, sowed very widely, fathering at least 24 children, and, at one point, ran three households simultaneously), Greenspan and Wooldridge highlight the extent to which the American story was one of individual achievement. Those individuals did, Mr. Obama, build this.

But as the country grew richer, its politics changed, reflecting the growing electoral clout of those at the rough end of creative destruction, mounting alarm at escalating oligarchic and corporate power and its abuse (Teddy Roosevelt’s “malefactors of great wealth”), and a broader shift in opinion away from laissez-faire. This transformation in sentiment was accelerated by the Depression and two world wars but was well under way from the beginning of the 20th century, not least due to the size, complexity, and problems — “pollution,” relate Greenspan and Wooldridge, “on a terrifying scale” — of a country growing at an astonishing rate, a new kind of society that, it seemed self-evident, required steering by more than an invisible hand. There was also an early flowering of what has become an endemic phenomenon: “By producing prosperity, capitalism creates its own gravediggers in the form of a comfortable class of intellectuals and politicians” able to use the negative side of creative destruction to sell their own agenda.

The final two-thirds of the book details the evolution of American capitalism since the assault on laissez-faire first gathered speed. Adaptive, protean, and endlessly inventive, capitalism has proved to be more resilient than its early-20th-century champions might have expected. Government activism may have ebbed and flowed (this is not, incidentally, a book for FDR fans), but even if the Constitution acted as a restraint on the state’s encroachments, it never returned to low tide. Nevertheless, America’s private sector remained re­markably productive, famously through the 1920s, but again in the long post-WWII boom. Revived by Ronald Reagan after the stagflation of the 1970s, it flourished during what Greenspan and Wooldridge dub “the age of optimism” until the arrival of lean years marked by the dotcom bust, the runaway spending of the George W. Bush years, and the financial crisis, a catastrophe about which these authors have disappointingly (considering the identity of one of them) little that is novel to say.

Looking, however, beyond the proximate causes of the Great Recession, the authors are right to see signs of a deeper malaise in the economy, a creeping sickness that shows up in many ways, including lower productivity, declining social mobility, and unhealthy concentration in many industries. They attribute much of this to a decline in American exceptionalism. Creative destruction’s wild ride is being replaced by excessive risk aversion and overregulation. And they fret about swelling entitlements, both for their ultimate unaffordability and for the way they encourage consumption over the saving that is essential to fund productivity growth.

In an attempt to bring back a little cheer as their book draws to a close, Greenspan and Wooldridge observe that “America leads in all the industries that are inventing the future,” including artificial intelligence and robotics. But that future comes with a catch that they may have missed. Neither those industries nor their immediate digital predecessors, prime examples of creative destruction, are replacing the jobs or the wage rates to which they are laying waste. That could well account for more of America’s malaise than Greenspan and Wooldridge would care to admit, and may — Donald Trump, Bernie Sanders, or even Ocasio-Cortez could all be straws in a very different gale — herald an era of destruction with nothing creative about it.

Her Inner Brezhnev

National Review, November 15, 2018

There was a time when Angela Merkel, like many young East Germans, would don a special shirt (blue rather than brown; different dictatorship) and parade for the Party, sometimes (not everything had changed) by torchlight. On occasion, she and her Free German Youth comrades would have marched behind banners carrying the portrait of Leonid Brezhnev, the Soviet leader whose extended (1964–82) rule has more than longevity in common with her own.

No, no, Merkel is not a Communist. Nor does she order the invasion of other countries; she merely bullies them. She may have participated in the overthrow of Italy’s unruly and unacceptably euroskeptic Silvio Berlusconi, but no tanks were deployed, just “suggestions” made menacing by Italian fears of what the bond-market vigilantes might do.

Look deeper, however, and unsettling similarities come into view. That Brezhnev was no democrat is hardly a surprise. That Merkel, the bien-pensant “leader of the free world,” has repeatedly demonstrated her disdain for democratic propriety is, by contrast, disappointing. Perhaps it is a legacy of her East German upbringing, but, whatever the cause, it has poisoned both the politics of the country she leads and those of the EU, the misbegotten union that Germany dominates with a mixture of passive aggression, money, and size.

In the early 2000s, Brussels, compelled as always by the imperative of “ever closer union,” midwifed an ambitious draft constitution only to see it felled by French and Dutch referendums. When voters get a direct say on deeper European integration, they have a way of saying no.

That should have been the end of the matter, but Merkel used Germany’s tenure of the EU’s rotating presidency (it’s complicated) to cobble together the Lisbon Treaty, a sly pact that reproduced the spurned constitution in every material respect but was structured in such a way that pesky referendums could be dodged everywhere other than reliably awkward Ireland. No matter: The Irish rejected the treaty in one referendum but, engulfed by the financial crisis, were cajoled into changing their minds.

The treaty became law, but, not for the last time, Merkel had underestimated the consequences of paying so little attention to popular feeling. Lisbon, which helped pave the way for Brexit, reinforced many Europeans’ anxiety that the EU was slipping into post-democracy, a perception later bolstered by Merkel’s role in the euro’s long ordeal and, more recently, by her efforts to bludgeon other EU countries into accepting more of the migrants and refugees she so carelessly welcomed in 2015.

Some of Merkel’s actions in the latter two instances were a straightforward defense of German national interests. But her insistence on Lisbon was another reminder that, at some level, this supposedly pragmatic politician clearly believes that European integration is on the right side of history, a phrase, Robert Conquest wrote, with “a Marxist twang.” If so, she is not alone, but it is reasonable to ask whether in Merkel’s case this dubious proposition has been made easier to swallow by formative years spent in a land where Marxism was a part of the ideology of the state.

Merkel’s authoritarianism has taken an even more disturbing turn at home. Her instinctive dislike of dissent — the dark side of consensus politicians — curdled into something more sinister in the wake of that 2015 decision to throw open Germany’s doors. With mainstream media hymning the chancellor’s Wilkommenskultur, Germans uneasy about the influx into their country had nowhere to go but online, sometimes via the gutter, often not.

Infuriated, Merkel began by bullying social-media companies to clamp down on what she regarded as hate speech. When they did not, in her view, do enough, she looked to her parliamentary colleagues for assistance. The result, prompted also by scaremongering over “fake news,” the switched-on censor’s excuse du jour, was Germany’s social-media law — the notorious Netzwerkdurchsetzungsgesetz. It represents an attack on free speech so draconian (for example, if a social-media company fails to take down “manifestly unlawful . . . hate speech” or “fake news” within 24 hours of a complaint, it can be fined up to 50 million euros) that it has provided useful cover for Russian legislators looking to shut down undesirable talk online, a development that would have amused old Leonid.

When Mikhail Gorbachev launched his program to overhaul the Soviet Union, he attacked Brezhnev’s “era of stagnation,” a label encompassing political as well as economic inertia. While Brezhnev was appealing to a far smaller “electorate” — the party elite — than Merkel has done, the key to the length of their tenures was (obvious differences aside) sticking with consensus and maintaining stability. As a strategy, it worked, but the stagnation that ensued contributed to the Soviet collapse. As for Germany, it is too soon to say.

By ending the experimentation of the Khrushchev years, Brezhnev shrank the political and intellectual space within which the regime could safely operate. When his moment came, Gorbachev saw a relaxation of party control as inseparable from a desperately needed economic reset, but, after Brezhnev, it was too late to change direction. If the opening for reform within the system had ever existed, it had closed.

Germany is not, of course, lurching toward a Soviet-style implosion. That said, Merkel’s capture of the middle ground, inspired by both personal conviction and strategic savvy, is showing signs of backfiring in ways that, if events oblige, as they well may, will undermine the centrist order over which she has presided for so long. The middle ground ought to be a battlefield of ideas. That is not how it has been under Merkel. By moving her center-right CDU so far leftward, Merkel has occupied much of the territory that the SPD, the leading party of the center Left, once called its own. The SPD’s displacement was accelerated by its participation in coalition governments with Merkel between 2005 and 2009, as well as since 2013. As partners go, she has proved to be something of a black widow. Between 2013 and 2017, the SPD’s support fell by over a fifth, to 20.2 percent, half its level in 1999, and it is still falling. The SPD now trails the Greens, who are hipper, socially liberal, migrant-friendly, NATO-not-so-friendly, eurofundamentalist, but — and this is a major but — environmental issues apart, relatively centrist on economics.

Upheaval has come to the Right, too. Merkel’s agreement to the bailout of the euro zone’s casualties drove some classical liberals, skeptical about both the single currency and the steps being taken to preserve it, to set up “the professors’ party,” the Alternative for Germany (AfD) — its very name a protest against Merkel’s stifling consensus — in 2013. The AfD saw some early success but shifted into a higher gear, losing much of its former leadership in the process, when it also became a vehicle for social conservatives and immigration skeptics who felt that there was no longer a place for them in the CDU or the CSU (the CDU’s considerably more conservative Bavarian counterpart). This was particularly so after Merkel flung open those doors — and clamped down on those who dared to demur.

The AfD’s transformation has given it a rougher-edged nationalist following. After a string of provincial successes, the party made it into the federal parliament in 2017, cutting into the vote won by the CDU and the CSU. In this October’s elections in Bavaria, home of the CSU, it took 10.6 percent. When consensus hardens into an orthodoxy enforced by establishment parties, voters, when worried enough, ignored enough, and silenced enough, look elsewhere.

Brezhnev’s era of stagnation was also an era of squandered opportunity. The USSR’s vast oil reserves could have made a substantial contribution to funding the reorganization of its economy. But, isolated within an increasingly archaic consensus, the Soviet leadership renounced even modest reform, preferring to anesthetize the population with (very) modest prosperity. The windfall was frittered away on massive defense spending, hugely generous subsidies of allies and satrapies, and a futile attempt to prop up a command-and-control system that could not meet the demands of a modern economy. The reckoning was not long in coming.

Whatever the criticisms that can be made of Merkel, splurging on the defense budget is not one of them. Her slide to the left may not have involved an embrace of the neutralism that runs through so much of German politics (Merkel is no fan of Putin and pushed for sanctions in 2014), but she has been reluctant to challenge either neutralism’s consequences — the armed forces have been so badly neglected that their combat-readiness has been called into question — or its assumptions. To be sure, Merkel has undertaken to increase defense spending (currently 1.2 percent of GDP), but only to 1.5 percent of GDP (still far below NATO’s 2 percent target) and only by 2024. Throw in the prospect of increased dependence on Russian gas once the Nord Stream 2 pipeline is operational, and after 13 years of governments headed by the alleged leader of the free world, it is uncertain how effective and reliable an ally Germany really can be.

On a brighter note, the German economy is booming, rich, and the envy of most of the world. Nevertheless, it’s worth remembering that in the 1990s Germany was, by its standards, struggling. Quite what changed is fiercely debated. Explanations include labor-market reforms and tax cuts (the latter, tellingly, opposed by Angela Merkel, then the CDU’s new leader) introduced by the Social Democrats under Chancellor Gerhard Schröder in the early 2000s; the boost to Germany’s crucial export sector from a concealed devaluation (the switch from the deutsche mark to the euro); the easing of some of the strains associated with German unification; and, since the 1990s, the manner in which more-decentralized wage-bargaining has increased flexibility (and, with it, restraint) over pay. This turnaround gave Merkel the latitude to coast, but, given her own less-than-market-friendly views and her determination to command the center ground, she was never likely to build on the Schröder reforms. And she has not. Sometimes, such as by the introduction (in 2015) of a uniform minimum wage across the country, she has even subverted them. Business remains heavily regulated, a hurdle that goes some way toward explaining the relatively low levels of capital investment by German companies in their own country. That investment shortfall has, in turn, contributed to faltering productivity growth.

High taxation is another disincentive, and not only to investment. The writer of a recent article for the business daily Handelsblatt detailed how Germany had failed to keep pace with corporate tax cuts elsewhere. He blamed the complacency bred by the economy’s current strength, but that is only part of the story. Germany’s prevailing consensus has scant room for aggressive tax-cutting, something that Merkel has done nothing to change.

Meanwhile, a blend of panic after the Fukushima nuclear disaster in Japan (which triggered a German decision to speed up the planned phase-out of nuclear power) and an enormous and hugely expensive program of investment in renewable energy prompted by panic over climate change (another critical element in the politics of Germany’s middle ground) has meant a dramatic hike in energy costs for industry and, even more so, consumers, while — central planning being what it is — failing to yield the promised environmental return.

So long as Germany prospers, none of this may matter, but a cyclical downturn, perhaps exacerbated by trade tensions, could well be approaching. That may cause difficulty in the immediate future — and it will not help the absorption of all those migrants into the work force — but longer-term concerns are beginning to surface, too. The old Soviet economic model was unable to cope with the changed world of the second half of the 20th century, and there are signs that its (admittedly immeasurably more flexible) German counterpart might not be doing what it takes to keep up with the evolving digital economy. This is so with basic infrastructure — according to a 2016 OECD report, under 2 percent of German broadband connections were fiber-optic — but also, more subtly, with the adaptation of business practices or, for that matter, products that lie ahead: With autonomous vehicles coming down the pike, will Germany’s automakers soon be facing off against Google?

That will be a problem for someone other than Merkel to contemplate. After the disappointing general election was followed by setbacks for the CSU in Bavaria and the CDU in Hesse, Merkel stepped down as the CDU’s leader. She will continue, she says, as chancellor until the next election. Maybe, maybe not — but there’s a suspicion that she sees hanging on in office as the best way of securing the CDU leadership for Annegret Kramp-Karrenbauer, the party’s general secretary, a Merkel 2.0.

If “AKK” should win, the CDU will show that it has learned nothing from the failures of the Merkel years. Stagnation is like that.

A March of Folly

Ashoka Mody - EuroTragedy: A Drama in Nine Acts

National Review, July 26, 2018 (August 13, 2018 issue)

Near the beginning of his convincing, readable, and satisfactorily acid account of the rise and who-knows-what-now of the euro, Ashoka Mody cites basic monetary theory and grumbles that the European Union’s leaders “should have been aware that a single currency could not [by itself] deliver . . . prosperity.”

The EU owes its existence to the notion that Europe should avoid repeating the catastrophes of its 20th-century past. Yet by imposing a single currency on a large number of very different countries, it was blending elements of two lesser disasters — fixed exchange rates and central planning — into a combination that history (and some distinguished Cassandras) suggested would end very badly indeed.

No matter. Political ambition trumped economic risk on grounds that fail to persuade Mody. After all, the economic tensions built into a shared currency of such scope were more likely to divide than unite. But Mody overlooks the centrality of the three words “ever closer union” in the preamble to the 1957 treaty that paved the way to the EU. They set the course of the European project in only one direction — forward. To Brussels and its allies, the key attribute of monetary union was that it threw away the key: There was no easy way to check out. Under the circumstances, the governments signing up for the new currency should have paid more attention to flaws in its design that added to its already considerable risks. Perhaps most dangerously, in the absence of political support for a fiscal union to act as a safety net, the euro was launched without one. Once again, no matter: If a crisis developed, it would, enough of the right people evidently believed, overwhelm opposition to that fiscal union. The ratchet of integration would turn again.

This was not a novel idea. When the single currency was first formally proposed back in 1970, “falling forward” was to be “its guiding philosophy,” Mody writes. “Crises would make Europeans more determined to move forward. . . . Europe would emerge stronger and more vibrant.” This cynical strategy has worked well for Brussels in other areas, but, with the single currency, it was pushed too far. The EU emerged neither stronger nor more vibrant, but hobbled, embittered, and lopsided.

Mody, an economist and a visiting professor at Princeton, has worked at the World Bank and the International Monetary Fund. At the latter, his role included acting as a deputy director of its European Department, and he was responsible for the Fund’s relationship with Ireland during its euro-zone nadir. He is thus well equipped to describe the euro’s curious political and intellectually indefensible origins, as well as the new currency’s grubby gestation, the bubble the euro facilitated, and the bust that came close enough to breaking the euro zone apart. Mody recounts how the currency union was held together, before turning his attention to a recovery that may be no more than the calm between storms. Overall, he tells a tale of warnings ignored, of groupthink, of deception and denial, of both recklessness and an excess of caution, of myth, magical thinking, and technocratic illusion — and of reality’s relentless revenge.

For all Mody’s meticulous chronicling of events, he has room for broader themes too. These include a sustained attack — not without cause — on the German-led fixation on budgetary targets and, in particular, an overly emphatic insistence on “austerity” as the cure for the euro zone’s troubles. It is not an endorsement of fiscal profligacy to argue that, in certain cases, the screw was turned too tightly too soon. Compelling Greece, in essence, to try to deflate its way back to better days was already to ask a great deal. To be sure, the Baltic states (by then de facto members of the currency union) managed to do just that. But there were specific reasons that they could, just as there were specific reasons that Greece could not. And these were distinctions that could not be given the recognition they deserved, thanks to a one-size-fits-all financial regime that was taken far further in the euro zone — and, after the crisis erupted, applied more harshly — than sharing a currency would already necessarily imply. 

To understand why Berlin wanted the purse strings kept drawn so tight it is necessary to examine what lay behind what at first seems like purely habitual stinginess. Of course, it is unsurprising that German politicians thought that their successful homegrown model — a degree of frugality — was the right one to follow, but there was more to it than that. Berlin simply had no confidence that its partners (notably those in the south of the euro zone) had the willingness or ability to run their finances appropriately, a concern that Mody might have stressed more. This lack of trust may or may not have been merited, but it was a symptom of a monetary union flung together without enough regard for the psychological or political readiness of its member states for such a step. Even the requirement (reflected in the Maastricht Treaty) that they should converge economically turned out to be a joke, at best largely meaningless, at worst a sham.

Germany’s leadership was also nervous about the consequences of their voters’ having to pick up the tab for a currency union they had never wanted, a bill their politicians had assured them they would never have to pay. Mody is clearly conscious of these issues and, pointing to America’s experience during the Great Depression, highlights the fact that the U.S. government had both the “legitimate political authority and the concurrence of sufficient numbers of the country’s citizens” it needed to help struggling states. It still has. Its counterparts in Germany (and the euro zone’s other “creditor” nations) had scant justification for claiming that they had either. There was one other vital distinction: Americans were being asked to help their compatriots. Notwithstanding grand proclamations of a shared EU “citizenship,” the tie between Michigan and Missouri is infinitely more binding than that between Germany and Greece.

Meanwhile, the stakes for countries beyond Germany — especially in the euro zone’s hardest-hit nations — were raised by the legacy of Berlin’s stipulation that the European Central Bank (ECB), like the Bundesbank before it, should (at least nominally) be free of political interference and, unlike the Federal Reserve (which also has to foster employment), focus solely on price stability. That can work, as it did in Germany (where memories of Weimar’s inflation linger), with sufficient popular consent, but, in countries where that consent does not exist, it can be an invitation to radicalization when tough times come calling — and they did come calling. That invitation was made even easier to accept by the way that the unaccountability of the ECB is reinforced — as Mody demonstrates in some of the most disturbing passages in a frequently disturbing book — by the EU’s high-handedly technocratic ethos. It is an essentially post-democratic approach, and as Mody (without resorting to that adjective) shows, it bears no small part of the blame for the euro-zone fiasco.

The effects of this ruinous monetary experiment have not been confined to political radicalization (a phenomenon not reserved to the euro zone’s weaklings) or the stirring up of antagonism between the nations it was designed to bring closer together. The currency union’s laggards have suffered immense economic harm, and the damage, warns Mody, to their potential for growth may endure long after the current trauma has receded. This implies that the chance of genuine economic convergence within the euro zone — never much of a likelihood despite all the promises — will slip even further out of reach. The natural tendency of a currency union to draw economic activity away from its periphery (a topic discussed by Joseph Stiglitz in his 2016 book on the euro) could make matters worse still — not a pretty prospect when that periphery includes entire nations.

The euro-zone drama still has a long way to run. Some months after Mody’s manuscript went to press, a coalition government of populist Right and (sort of; it’s hard to explain) populist Left, with a suspicion of the euro and a distaste for Teutonic austerity in common, took office in Italy. Much larger than Greece, Italy is, Mody contends, the “eurozone’s fault line.” He may well be correct, but don’t expect a cataclysm quite yet. The most impressive thing about this misbegotten currency union is the political will to keep it in one piece.

Mody himself peers into the future towards the end of the book. One supposedly brighter vision features debt forgiveness, a loosening of the euro zone’s fiscal fetters, improved sovereign-bond issuance, and standard panaceas from education to technology. Much more intriguing is a suggestion tucked away in Mody’s description of a (more plausible) downbeat scenario in which, broadly, those steering the currency union do little to change course.

Amid dark talk of sluggish growth and vulnerability to new shocks — not to mention the cascading defaults that could follow an Italian exit from the euro zone — Mody floats the happier alternative that Germany might either readopt the deutschmark or form a new currency bloc with other like-minded “northern” countries. Meanwhile, those states remaining in the old euro zone would still be able to repay their debts in euros, thereby dodging default while benefiting from the increased competitiveness created by a currency that would undoubtedly devalue sharply once the virtuous had left the picture.

Put another way, the best way out of the euro-zone mess remains, as it has been for years, partition. Such a move, however, would represent more than a few steps backwards in what is meant to be a perpetually forward march.

And that would never do. 

The Red Broom

Anne Applebaum - Red Famine: Stalin’s War on Ukraine

National Review, November 27, 2017

Nearly 40 years ago, I met the parents of a graduate-school friend. They were exiles, Ukrainians, a people said not to exist, not really. Their son had told them that I took an unfriendly interest in Soviet history, and that I knew a little about their lost homeland.

The father asked if I’d heard about a famine there in the early 1930s. I had: something to do with collectivization.

“There was more to it than that.”

In Red Famine, Anne Applebaum, a prominent journalist and the author of fine histories of the Gulag and the Soviet subjugation of Eastern Europe, recounts just how much more there was. Red Famine is powerfully written, extensively researched, and, frequently, painful reading. It tells of a meticulous annihilation that tore a nation away from its traditions, its language, its morality, its past, its future, its everything: “A woman whose six children died over three days in May 1933 lost her mind, stopped wearing clothes, unbraided her hair, and told everyone that the ‘red broom’ had taken her family away.”

Her life had unraveled, her culture had unraveled — there’s accidental symbolism in that unbraiding — and she unraveled. The land around her unraveled too: once a breadbasket, now a wasteland, a domain of the dead and those waiting to die, Muselmänner, as they were known in Auschwitz.

Neighbor was set against neighbor, cannibalism was far from rare (yes, you read that right).

By the time — it took less than a year — the red broom had completed its 1932–33 sweep (there were smaller sweeps before and after), roughly 3.9 million Ukrainians were dead: a decimation, and more. Countless others were deported, many to a Gulag that had plenty of demand for slave labor. Large numbers never returned.

Some of this came with collectivization, Stalin’s decision to impose larger collective or state-owned farming across the USSR. Even Walter Duranty, the New York Times’ Moscow correspondent and a reliable shill for the Soviet dictator, admitted that collectivization had been a “mess”; still, he said, while there had been casualties, “you can’t make an omelet without breaking eggs.” And quite often those casualties were not unwelcome to the regime. Communism, like the millenarian movements it succeeded, rested on the notion of a great sorting between sinners and saved. Collectivization could be used to weed out enterprising, more successful private farmers, the relentlessly demonized “kulaks” (a category regularly expanded to include peasants who owned, say, a cow or a pig more than their fellow villagers), who were too smart to be won over by deceptive promises of the bounty that Communism would bring to agriculture: They were another of the Soviet Union’s disposable classes, “former people” in the sinister and, all too often, prophetic terminology of that era.

In Ukraine, the noose was drawn far tighter than anywhere else — a fact still denied by today’s Kremlin and its apologists. The millions who starved to death there, like those who died in famines elsewhere in the USSR at that time, were, it is maintained, the victims of a reckless agricultural experiment, nothing more. Applebaum agrees that the “chaos of collectivization helped create the conditions that led to famine,” but rightly goes on to argue that neither chaos, nor the weather, nor crop failure can account for the death toll in Ukraine, and especially that terrible spike in the spring of 1933. For that, the better explanation is a series of measures enacted by the regime that can only have been intended to kill. There’s a reason this famine is known to Ukrainians as the “Holodomor,” a term, Applebaum explains, derived from the Ukrainian words for hunger and extermination.

Stalin, writes Applebaum, “launched a famine within the famine, . . . specifically targeted at Ukraine and Ukrainians.” It was not enough to hit the region’s faltering farms with grain-production targets they had no chance of meeting and then to requisition what they had managed to grow. Seed corn was often seized too, as were livestock, potatoes, and, eventually, just about anything else that someone might have hoped to eat. Houses were repeatedly ransacked in hunts for any hidden scraps. Cooking utensils (and other goods) might well be taken, too. Tight controls were imposed to restrict movement out of the countryside into hungry cities (which were often unable or unwilling to help in any case), let alone out of Ukraine. Exports of grain, however, continued. Millions in hard currency were worth more than millions of lives.

Traveling to find work elsewhere was out of the question. Farms and villages judged to have fallen particularly short of production quotas — no small number — were “blacklisted”: burdened with yet more restrictions, confiscations, and prohibitions, and denied credit, essential services, and the right to barter or trade. The peasants were trapped, cut off. Not to be starving was a sign of guilt, inviting another search.

Applebaum records how a Polish diplomat crossing the border from rural Ukraine into an adjacent Russian province in May 1933 was left with the impression that he had crossed into “Western Europe,” so great was the contrast. Ukraine had, quite clearly, been singled out.

And the reason for that was Stalin’s recognition that Ukrainians’ belief that they were a people distinct from their Russian neighbors was authentic and thus potentially dangerous. The confused period that followed the Bolshevik Revolution had seen two attempts to establish a separate Ukrainian state as well as a massive peasant uprising that had evolved into a war of all against all — and a serious threat to the nascent Soviet regime. When the Bolsheviks finally secured their hold over the country, they first played, by their dismal standards, nice. Ukrainians were led to believe that their Soviet Republic would, in a real sense, be Ukrainian and, often, run by Ukrainians.

That was never likely to be a solution acceptable to Stalin, that paradoxical Georgian enforcer of Russian imperial control, a man who knew a thing or two about nations — and how to break them. When, in 1925, Stalin declared that “the peasant question is the basis, the quintessence, of the national question,” it was Ukraine that was on his mind. If Ukraine was to become “a true fortress of the USSR, a truly model republic,” which Stalin had said that he wanted, the uncomfortably large, uncomfortably independent peasantry, the repository of so much of Ukrainian tradition and, in some sense, Ukraine’s soul, would have to be ground down.

But Ukraine would have to be decapitated, too. Applebaum details the silencing and, often, destruction of much of Ukraine’s intelligentsia, and the purge of a Ukrainian Communist Party with a membership too prone, the Kremlin suspected, to go its own way.

The Holodomor is properly understood only when it is understood as part of a broader, deeper assault on the Ukrainian national idea. Applebaum records how, even as “the famine was raging, . . . Stalin’s de facto spokesman in Ukraine forced through a decree eliminating Ukrainian textbooks as well as school lessons tailored to Ukrainian children” — another warning that Moscow had not finished with Ukraine. Taken as a whole, Stalin’s multifaceted onslaught on Ukrainians as a peoplewould (as Applebaum points out) “certainly” pass the test established for genocide by Raphael Lemkin, the legal scholar who coined the term. Indeed, Lemkin acknowledged as much. Whether it would meet the narrower definition of genocide set out in the U.N. Convention on Genocide is, Applebaum contends (perhaps too cautiously), a different matter, but, as she notes, that convention was heavily influenced by a Soviet Union that had no interest in being asked to answer for its crimes.

The final stage of genocide or ethnic cleansing — call it what you will — is usually the replacement of the old population with a new one. Russian peasants started to move into the emptied villages, the beginning of what Applebaum describes as a “slow-motion movement of Russians into a depopulated Ukraine” that was to last for decades, further blurring the idea of a Ukrainian Ukraine in a way that helped the Soviets then, and helps Vladimir Putin now.

The Holodomor was unmentionable in the Soviet Union until just before the USSR’s collapse. And shamefully, indifference in the West played a part in greasing its transformation from a topic that was forbidden into one that came close to being forgotten. Applebaum rightly highlights the role played in the original Soviet cover-up by Times man Duranty, not least the way he so effectively smothered the reporting of Gareth Jones, a Welsh journalist who stepped off a train at a place he wasn’t meant to, walked for three days through the hell the Holodomor was creating, and told the world what he had seen.

Memory can sometimes outlast efforts to repress it. When, in the late 1980s, it finally became possible to talk about the Holodomor in the USSR, the long-buried memories of those years played their part in paving the way to Ukrainian independence in 1991. This was perversely acknowledged by the “Russian-backed separatists” who (Applebaum relates) destroyed a Holodomor memorial in the occupied eastern Ukrainian town of Snizhne in 2015. It was a desecration that also echoed the Kremlin’s attempts to escape the consequences of the past by evasion and denial, a would-be rewriting of history that makes this compelling book all the more timely — and all the more necessary.

Gods and Monsters

Erich Kurlander: A Supernatural History of the Third Reich

National Review, October 2, 2017

Adolf Hitler once argued that National Socialism represented “a cool and highly reasoned approach to reality based on the greatest of scientific knowledge and its spiritual expression.” If there are any people foolish enough still to fall for that, they will not enjoy this book. While the enthusiasm of some Nazi leaders, most notoriously Himmler, for the occult has been a staple of pop culture and the more disreputable corners of historical “investigation” for years, this volume shows that many others felt much the same way.

Kurlander depicts a Third Reich in which, despite uneven and often ambiguous efforts to rein them in, seers, magicians, and psychics flourished. Buddha was drafted into the master race, parapsychology “so long as it comported with ‘Nordic-Germanic feeling’” was recognized as legitimate, and the grounds were laid for an “Ario-Germanic” national religion as a syncretic (it wouldn’t all be Wotan) “substitute for Christianity.” Meanwhile, charlatan-historians and charlatan-folklorists hunted for proof that large swathes of Europe were part of an ancestral German homeland, charlatan-archeologists searched for evidence of “the Nordic origins of Asian civilization,” charlatan-doctors worked on monstrous human experiments, and charlatan-scientists struggled to develop weapons designed to draw on mysterious untapped electromagnetic forces. This arsenal was intended to include death rays, sound weapons, and anti-gravity devices — an absurdity and a waste made all the more grotesque by the contrast with the remarkably sophisticated technology successfully deployed by Germany during the war.

If the magical weapons proved harmless, the same cannot be said of the mix of superstition and pseudoscience that ran through the Nazis’ thinking about race, a mix that goes some way to accounting for both the intensity of their anti-Semitism and the meticulousness of the slaughter that followed. “Traditional” anti-Semitism rested on a distrust of difference reinforced by religious and then economic resentment. It generated exclusion, violence, and, as time went by, increasingly elaborate conspiracy theories. But the notion of Jews as perpetual enemies of an advanced “Aryan” race was a fairly new confection, dating back only to the mid 19th century.

Kurlander is an excellent guide to the complex and often conflicting “histories” of the Aryans’ origins, versions of which featured sex with angels, God-men from Tibet, a descent from heaven, moons made of ice crashing into the earth (the weirdly popular “World Ice Theory,” in which Hitler was one of numerous believers), and much more besides. These narratives also incorporated tales of a fall: The original Aryans had been scattered. Their racial integrity had been diluted by intermingling with “lesser breeds.” They had been preyed upon by — whom else? — the Jews, routinely smeared as parasitic and as a disease but also in terms that sometimes appeared to be more than metaphor: Hitler dubbed Jews the children of the devil and believed that forestalling the “Jewish apocalypse was our duty, our God-given mission.”

Kurlander contends that this supernatural dread was genuinely felt by “the Third Reich’s brain trust,” a claim that should be treated with some caution. When it comes to the supernatural, what people believe and what they say they believe are frequently very different — more so, indeed, than they might themselves understand.

When studying the translation of concepts of such malevolence into the deeds that became the Holocaust, it is easy to make the all too common mistake of treating the Nazis as a case apart, as an unparalleled eruption of evil. And, yes, there were aspects of the Third Reich — from the particular horrors it devised to an ideology that was as bizarre as it was sinister — that distinguished it from the other mass-murdering regimes of the last century. But take a step back and the similarities between National Socialism and its totalitarian counterparts on the left quickly become visible.

This is true of their shared “supernatural” dimension. All were essentially millenarian. Communist revolutionaries (nominally philosophical materialists despite a fundamentally mystical view of historical forces) would not have appreciated the connection, but it was there all right — the religious impulse is hard to discard — complete with the promise of a merciless sorting, after which the saved would march to a better world. Untethered to atheism, the Nazis could be more explicitly millenarian, referring to a “thousand-year” Reich. This number has, notes Kurlander (citing another author), “deep biblical overtones,” overtones to which he pays too little attention — a curious misstep in a history of this type, as is his relatively cursory handling of the Nazis’ knotty relationship with Christianity.

As Kurlander makes clear, the Nazis’ racial and occult obsessions did not come out of nowhere. The party that evolved into the National Socialists had roots in the Thule Society, a group formed in early 1918, focused on the occult, anti-Semitism, and, as Germany descended into defeat, politics. Its members sported a swastika in homage to the Aryans’ supposed Indo-European heritage — an important, if counterintuitive, theme that ran through much of esoteric German racism and was associated with the admiration for “Eastern” spirituality of the sort later felt by quite a few leading Nazis. The Thule Society (the name is a reference to a “Nordic” interpretation of the Atlantis myth) had in turn emerged out of a broader Germanic intellectual community that had wallowed in a swamp of Grenzwissenschaft (or “border science,” to give this nonsense — astrology, anthroposophy, “natural” medicine, parapsychology, radiesthesia, theosophy, and all the rest — a kinder name than it deserves), Aryan fantasy, and racial hysteria for decades.

There is no “right” side of history, no law that makes what we call progress inevitable. Other parts of Europe were also doing their bit to let the Enlightenment down. As Kurlander points out, it was a Frenchman, Arthur de Gobineau, who, writing some 40 years before the beginning of the Dreyfus Affair, did much to popularize the idea of a superior Aryan race. Anti-Semitism was far from being solely a Teutonic vice. Kurlander accepts that border science had scant respect for borders but maintains (without satisfactorily explaining why) that Germans were more despairing of the growing ascendancy of scientific materialism than most Europeans, and therefore more prone to succumb to the “re-enchantment” offered by border science. If that was true before 1914, it was even more so after a war that shattered any illusions about modernity — and a defeat that brought humiliation, chaos, and revolution in its wake. As Kurlander tells it, “hundreds of thousands of Germans and Austrians” bought “occult and New Age literature,” read “border scientific journals,” and participated in “astrological and theosophical societies, séances and spiritualist experiments.”

A key element in this collective derangement was the suspicion — still flourishing in the West today — that modern science had torn apart the harmony that had allegedly once existed between man, nature, and the divine, a breach that could be restored by a more spiritual, holistic approach. More often than not, the results — such as “biodynamic” agriculture (a more straightforwardly superstitious variant of organic farming) — were largely innocuous, but the fact that there was a biodynamic “plantation” on the grounds of Auschwitz is a reminder of where the retreat from reason can lead, a lesson that, judging by our own overly relaxed response to resurgent pseudoscience (the anti-vaxxers come to mind) or political attacks on the scientific method, has not been learned.

The dream of restoring a lost whole — even one that had never seen the light of day — was particularly toxic when applied to ethnicity. Imagining a heroic national past (even one with mythic or supernatural undertones) was not confined to Germans, nor was a sense of being a cut above other races, but in Germany, such prejudices were unusually intense. Kurlander never specifies quite why, but the comparatively late (1871) creation of a unified German state — a state then partly unraveled by the Treaty of Versailles — must have increased the pressure on Germans, including, in different ways, their kin in the multiethnic Austria-Hungary of Hitler’s youth or the truncated Austria that was left after World War I, to define who they were. Among the ways they responded was by emphasizing who was not German, most notably the Jews, reviled for the threat they were meant to represent to the unity of the Volk: They were an Other that could have no place in a nation that wished to survive as a nation.

Even if he might occasionally exaggerate the contribution of the specific outlandish beliefs he describes to the catastrophe that unfolded, Kurlander provides a careful, clear-headed, and exhaustive examination of a subject so lurid that it has probably scared away some of the serious research it merits. In remedying that, Kurlander offers a strikingly different and deeply disturbing perspective on the rise and subsequent trajectory of the Third Reich, and, most unsettling of all, on the numinous appeal of its Führer. Hitler both shared and channeled (some contemporaries referred to him as a medium) the discontents of a people so drastically detached from reality that they were seduced by a conjuring trick, albeit one in which the conjurer himself may well have believed. It was a dark magic so potent that it took an apocalypse to break the spell.

The Abolition of Cash

National Review, April 11, 2016

Government gathers power sometimes in great swoops, sometimes by stealth, and sometimes in slow, sly increments, foreshadowed by position papers, op-eds, and regulatory tweaks designed to address an “issue” that a careless citizenry has overlooked.

It’s this slower, slyer approach that is now in motion as Big Brother’s smaller brethren take aim at cash. An advance guard of regulation has paved the way. Deposit more than $10,000 in cash into a bank and the feds have to be told. Bring that amount into the U.S. and Customs has to be told. Get stopped by the police with “too much” cash (a conveniently elastic concept) and you risk watching it disappear into the swamp known as civil forfeiture. Meanwhile, the country’s Croesus bills have long since vanished — $10,000, $5,000, $1,000, even the $500 that bore the face of poor murdered McKinley. Under the circumstances, they might have let him keep his mountain. 

The cull has further to go. Writing in the Washington Post earlier this year, former treasury secretary Lawrence Summers called for a “global agreement to stop issuing notes worth more than say $50 or $100.” He praised a Harvard paper by Peter Sands, the former CEO of the Standard Chartered bank, in which Sands claimed that the arguments for eliminating notes with a denomination above the equivalent of $50 “could well be compelling at an even lower threshold.” An even lower threshold: The ratchet turns in only one direction.

Naturally, there are good reasons for this latest government grab. There always are. The anonymity of cash makes it the criminal’s friend, and there are (just to start with) the wars on drugs and terror to think of and, of course, tax evasion. 

In Europe, authoritarian creep creeps more quickly. Italy introduced a maximum limit of €1,000 for cash transactions in 2010 (the current prime minister has proposed raising it to €3,000). By taking aim at widespread tax-dodging, this was intended to bolster Italy’s finances during one of the euro zone’s uglier spasms. It was also designed to discourage Italians from withdrawing euros from banks in a period when there were legitimate concerns about banks’ stability and the possibility that money deposited with them would be converted overnight from euros into rapidly depreciating “new lire.” “Forcing” Italians away from cash would make it more difficult for them to reduce their exposure to those dangers. This was about more than tax evasion: It was about keeping Italians locked within a crumbling system.

The ratchet keeps turning. Germany has proposed a €5,000 limit on cash transactions. Mario Draghi, the president of the European Central Bank, has called for the scrapping of the €500 bill.

Meanwhile, in Scandinavia, a part of the world where governments are trusted and technology is advanced, digital payments are squeezing out cash. In Sweden, cash is now used in only about 5 percent of retail sales. Progress is progress: If people prefer to make payments electronically, that’s up to them, and if that entails a loss of privacy, that’s their choice.

But choice may well be followed by compulsion. Forget about doing away with the Benjamins; the technology now exists to kill off cash altogether. The will has been there for a while. Now there’s a way. The Danish government would like to abandon paper money altogether by 2030. Norway’s largest bank, the partly state-owned DNB, has called for cash to be phased out, moaning that 60 percent of the kroner in circulation are “outside of any [official] control.” The horror!

Excuse me while I adjust the tinfoil, but this is not (and will not be) just a Scandinavian thing: We live in an era when central banks have driven interest rates down to levels that bear little connection to economic reality. Certain key rates are now below zero in the euro zone, Sweden, Denmark, Switzerland, and Japan. This is a terrible idea, and its time has come. The question is not only how far negative interest rates will spread, but how low they will go.

In a speech last September, Andrew Haldane, the Bank of England’s chief economist, grumbled about the “constraint physical currency imposes” on setting negative interest rates. After considering various ways of dealing with this nuisance, he concluded that an “interesting solution” would be to “maintain the principle of a government-backed currency, but have it issued in an electronic rather than paper form.” This “would allow negative interest rates to be levied on currency easily and speedily.” Translation: Make people hold their cash in electronic form (and thus in banks); they will then have no means of escaping the levy on savings that negative interest rates effectively represent. 

Before dismissing this as a form of madness that only Europeans could embrace, check out what Harvard’s Kenneth Rogoff has been saying. Writing in the Financial Times in May 2014, he argued that replacing paper money with an electronic alternative “would kill two birds with one stone.” It would strike a blow against crime, and it would free central banks from a bind that has “handcuffed” them since the financial crisis. “At present, if central banks try setting rates too far below zero, people will start bailing out into cash.” Indeed, they will: To its credit, the central bank of Switzerland, one of the countries now burdened with negative interest rates, has made it clear that it has no plans to junk its thousand-franc bills. It accepts that these are used as a store of value, something that Rogoff, no friend of the saver, might regard as reprehensible but the sensible Swiss do not. There has been a 17 percent increase in the number of these bills in circulation in the last year. 

“Hoarding cash may be inconvenient and risky,” wrote Rogoff in a related paper, “but if rates become too negative, it becomes worth it.” He would clearly prefer to see that emergency exit locked and the key thrown away, leaving savers helpless in the face of whatever central bankers (and not only central bankers) might dream up.  

An open-minded sort, Rogoff did concede that there might be a problem or two with such a set-up, including the fact that “society may want to preserve the right for individuals to make anonymous payments in certain activities,” a telling choice of words. It’s not the rights of the individual that count, but what “society” (defined by whom?) “may want.”

Another Alpine nation, Austria, is aware of the menace to privacy that a cashless society could be. Its deputy economy minister, Harald Mahrer, has vowed to fight rules curtailing the use of cash: “We don’t want someone to be able to track digitally what we buy, eat, and drink, what books we read and what movies we watch.”

And this is more than a matter of books, movies, and meals. It’s worth noting that the German proposals to restrict cash transactions ran into opposition across the political spectrum, from the leftist Greens to the populist-right party Alternative for Germany on through to the classical liberals of the Free Democratic party. After Hitler and Honecker, Germans understand how totalitarianism works, and they know too that the slippery slope is all too real.

The abolition of cash is a notion that we should reject out of hand. It puts too much faith in technology, and it puts too much trust in the state. It eliminates privacy to a degree that ought to be unacceptable to any free society, and it leaves people dangerously exposed to having their savings confiscated by negative interest rates or, more traditionally, confiscated by government, by way of a savage wealth tax perhaps. It  leaves them with nowhere to hide.

To those making the case against cash or high-denomination bills, that, of course, is the whole point, but it is a point they are pushing too far. Their tightly controlled, fully tax-compliant society could easily, given a sufficiently malign government, be as dysfunctional as one where the “shadow economy” (not to be confused with the “criminal economy”) is flourishing. The ability to dodge the system acts as a brake on overreach by the system. For example, there’s no sense in pushing taxes so high that people decide it’s worth the risk of not paying them. Tax evasion should not be endorsed (I write, nervously aware of the IRS), but the potential, if somewhat paradoxical, benefit to society from the threat of tax evasion can be. Make tax impossible (or close to impossible) to dodge and there’s far less to hold back the demands of a greedy state.

And yes, there is cash’s role as crime’s discreet accomplice. Well, as I alluded to before, government already has a wide range of powers to combat that. To ask for much more seems excessive. To borrow a famous comment a wise man once made: “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”

That wise man? He is on the $100 bill.