The ghost of the Berlin Wall of 1989 and the crisis of 2011
 

Thomas Colignatus
October 16, 2011
 

In 1989 the Berlin Wall fell. At the Central Planning Bureau (CPB) in Holland this caused me to develop an analysis on unemployment. This analysis is of key importance again for the current economic crisis in 2011. This article gives a summary and relevant links.

Unfortunately my analysis was blocked in 1990 from discussion and publication, and in 1991 I was dismissed with untruths and an abuse of power. Since then I have been protesting against the censorship of science. The censorship started under CPB director Gerrit Zalm, the later Dutch minister of Finance and the current CEO of the ABN-AMRO bank. If my analysis had been processed according to the normal procedures of science, the economic transition of Eastern Europe and Russia could have looked quite different. Germany might have saved a lot of funds in the integration of East-Germany. And the current economic crisis might not have happened.

Let us first consider the analysis in 1989 and then its relevance for the crisis in 2011.

With respect to 1989

My 1989 reaction to the fall of the Berlin Wall resulted in the 1990 paper and internal CPB memo: "After 20 years of mass unemployment: Why we might wish for a parliamentary inquiry". The paper uses Dutch unemployment as the key case and translates the results for Eastern Europe as a corollary. The point is that Holland creates unemployment in its home economy because of a wrong structure of taxation, labour market and welfare system. Holland resolves this unemployment by following a low wage driven export policy. Effectively it exports unemployment. One quote from 1990: "How does this relate to other countries ? Well, very simply, those countries are not so rich. Especially in the Eastern European nations the change to a mixed economy appears to be difficult partially because of the threat of mass unemployment. It will obviously not do, to suggest that one could learn from the Dutch model as an example of the ‘paradise’ that is far ahead for everybody. We have to present a serious alternative." If the liberated Eastern European countries have to compete with the cheap Dutch exports they stand little chance. My solution suggestion in 1989 was that Holland would restructure its home economy, start importing from the East, and allow the East to earn funds to build up its economies. Another 1990 quote: "This solution to unemployment is obviously relevant for the process of European integration, for the reconstructing nations in Eastern Europe and the Soviet Union, and world mass poverty. It would help enormously when Holland would give the example of how things can be done properly."

Two other key points in the 1990 paper are: (1) An example of an effective system of taxation and regulations of labour market and social welfare, (2) A discussion of the structural error in Dutch economic policy making partly because of the CPB itself. Indeed, if the directorate of the CPB had allowed proper publication of the paper then this would have constituted a laudable instance where science is critical of its own role.

Dutch Parliament may have an inquiry where witnesses are heard under oath. This is called an "enquete" and the procedure is important to reduce the manipulation of the evidence. For example, Gerrit Zalm was a career bureaucrat at the Ministries of Finance and Economic Affairs before he was appointed at the CPB that is supposed to maintain standards of science but apparently doesn’t. Zalm did not fit the list of requirements that was compiled by the scientific staff at that time. There are very serious questions about that appointment and its relation to Dutch employment and export policies.

With respect to 2011 

Leading economic advisors in 2011 seem to regard Holland as a an ideal for the world. 

The IMF in its October 2011 Outlook page 63 presents Holland as a guiding example. It might present accurate facts on Holland but leaves out crucial details so that it arrives at a wrong conclusion. The IMF praises the Dutch low wage driven export policy and seems to suggest that all nations follow this example. But if everyone has an export surplus then there must be some magic sinking hole where all these surplusses are absorbed. A key cause for the problems in the EU is that the Germany and Holland out-compete Southern Europe. Instead, these countries should develop their home economies – as explained in 1990.

The 13th CEPR/ICMB Geneva Report on the World Economy of 2011 (where one of the authors Jeffrey Liebman is also a key advisor of President Obama at the OMB) presents on page 110 the Dutch Central Planning Bureau as a key example of a "successful institution". Clearly it isn’t, and it has been functioning somewhat disastrously in these topics. One reason why the CPB seems successful is that Holland has export surplusses such that it is easier to distribute the political pain of forecast errors. After the censorship by Zalm and his appointment to Minister of Finance the new directors have not managed to keep an open eye to the economic developments. Foreign economic scientists who have ‘inspected’ the bureau have neglected my protest against censorship (e.g. professors Blundell, Zimmermann and Hellwig). The Geneva Report neglects me too and refers to a single source, a paper by F. Bos of the CPB itself, while in another context I have shown that F. Bos already has been inaccurate with respect to national accounting and the environment.

Since 1990 I have developed the argument in a more extensive book, "Definition & Reality in the General Theory of Political Economy" (DRGTPE), first edition 2000, second edition 2005, and a third edition likely in 2011. Since I no longer have the full "Athena" econometric model available that I helped build at the CPB, I rely on definitions. The analysis and its results have the certainty of logic and the empirical relevance of the definitions in economics.

The application of DRGTPE to the crisis since 2007 resulted in a Plan for Europe. An accessible entry to that Plan is the interview by Protesilaos Stavrou. 

Conclusion

Mass unemployment has been repressed in the 1989-2008 period, in Holland because of the low wage export policy, elsewhere by the deregulations by Reagan and the monetary policy by Greenspan. Eastern Europe and Russia have made painful transitions, with the deaths in former Yugoslavia. Now that markets are becoming re-regulated again, mass unemployment shows up again. The ghost of the fall of the Berlin Wall now knocks on the doors of Wall Street. 

The sturdiest walls however are of mental origin and consist of the preconceptions and prejudices by policy makers. The only way to resolve these is by the scientific process. My advice to the world is to allow science to have its way. I would like to be restored to my office at the CPB and be allowed to discuss my analysis with the colleagues so that it can be properly published (in revised form if their comments would convince me). Perhaps this can be achieved by other economists studying my work and corroborating it. It is doubtful whether that is sufficient. Since Dutch society apparently has so little respect for science, I have been advising the world since 2004, and I repeat this now in 2011, to boycott Holland till the censorship is lifted. 
 
 

References

Colignatus is the name of Thomas Cool in science, http://thomascool.eu

Colignatus (1990), "After 20 years of mass unemployment: Why we might wish for a parliamentary inquiry", CPB internal note 90-III-38, http://thomascool.eu/Thomas/Nederlands/TPnCPB/Record/1990/12/18/index.html

Colignatus (2005), "Definition & Reality in the General Theory of Political Economy", Dutch University Press, http://thomascool.eu/Papers/Drgtpe/Index.html

Colignatus (2009), "The Old Man and the SNI. A review of advance and adversity in Hueting’s research in sustainable national income (SNI), economic growth and the new scarcity from the environment", June 2008 / January 2009, MPRA 12690, http://mpra.ub.uni-muenchen.de/12690

Colignatus (2011a), "High Noon at the EU corral. An economic plan for Europe, September 2011", http://mpra.ub.uni-muenchen.de/33476

Colignatus (2011b), "Boycott Holland", http://thomascool.eu/Papers/Drgtpe/Crisis-2007plus/2011-09-28-Boycott-Holland.html

Eichengreen, B., R. Feldman, J. Liebman, J. von Hagen, and Ch. Wyplosz (2011), "Public Debts: Nuts, Bolts and Worries", the 13th CEPR/ICMB Geneva Report on the World Economy, http://www.voxeu.org/index.php?q=node/6982

IMF (2011), "Regional Economic Outlook: Europe", 
http://www.imf.org/external/pubs/ft/reo/2011/eur/eng/ereo1011.htm

Stavrou, P. (2011), "A Plan for Europe – Interview with Thomas Colignatus", http://protes-stavrou.blogspot.com/2011/10/plan-for-europe-interview-with-thomas.html