Sunday, May 5, 2013

Minority Treatment In Hungary

Macroeconomics is about well-being and quality-of-life. Politics is involved, not just for policy, but because restrictive political systems typically lead to bad outcomes for well-being and quality-of-life. Think: North Korea or Cuba.

On the other hand, restrictive political systems are often able to deliver short-term gains in well-being and quality-of-life to the majority (as in Nazi Germany) and long-term gains to the politically connected (as in “oil states” and contemporary China).

So, it was of interest in 2012 when Hungary started a system of labor camps, primarily targeted at Romani.

The justification was that the behavior of the minority was impacting the well-being and quality-of-life of the majority. I am usually dubious of such claims, and tend to regard them as a slippery slope.

More evidence of that popped up this week with news of increased anti-Semitism in Hungary.

Senior figures from the opposition Jobbik party, the third biggest … harangued the crowd with charges that Israeli President Shimon Peres had praised Jews for buying property in Hungary.

"The Israeli conquerors, these investors, should look for another country in the world for themselves because Hungary is not for sale," Jobbik chairman Gabor Vona told the rally near the neo-Gothic parliament along the Danube River.

"Our country has become subjugated to Zionism, it has become a target of colonization while we, the indigenous people, can play only the role of extras," Marton Gyongyosi, a Jobbik member of parliament, told the crowd.

Fear of foreign investors is a relatively common sentiment the world over. This is often nonsense produced by asymmetric thinking (one of the things that makes macro so hard). An example may help.

Investors in country A buy assets in country B. Typically we hear a lot about citizens and policy-makers in country B complaining about these foreign investors. The asymmetry is that we don’t usually ask what citizens and policy-makers in country A think about other citizens making foreign investments. There are two possibilities in country A: one is that they are glad that other citizens are taking their money out of their own country to buy up other country’s stuff, while the second is that they are upset that investors are sending their money out of the country instead of investing at home.

Now let’s put some names on things: country A is America, country B is Brazil, and the investor is Donald Trump. How often would you hear Americans say “I’m so glad Donald Trump is investing in Brazil instead of America”. My guess is … never … because Americans would think it indicated something wrong with themselves. And yet the Brazilians will say “I wish Donald Trump wouldn’t investor because he’s American”. There’s the asymmetry: both positions can’t be right. I tend to think that the first argument is usually correct, since Donald Trump’s voluntary investment decision does suggest that there’s something wrong with America because he thinks he can make more money in Brazil.

So, back to Hungary and Israeli/Jewish investors. The people that should be worried are the Israelis: clearly Israeli/Jewish investors are getting better returns in Hungary than Israel. And yet the Hungarians are worried about this. It’s unlikely they have a viable argument (thus all the emotionally-loaded words, like “conquerors”, “subjugated”, “target”, “colonization”, “extras”), and the probably outcome is that well-being and quality-of-life will not be as high in Hungary as they could be.

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