Czech leader: U.S. economic plan a 'way to hell'

Czech Prime Minister Mirek Topolanek shocked the normally civil European Parliament on Wednesday by warning that Washington's plans to fight the global economic crisis are "the way to hell."The apparently off-the-cuff remarks of the leader of a small Central European country might not normally make waves -- particularly since his parliament had pulled the rug out from under him just the night before.
But the Czech Republic currently holds the rotating six-month presidency of the European Union, making Topolanek, in some sense, one of the leaders of the 27-country bloc that is larger than the United States.
President Barack Obama plans to visit the Czech capital of Prague next week after stopping in London for the G-20 summit of leading industrialized and emerging economies.
So for Topolanek to attack the United States -- and its Treasury Secretary Timothy Geithner by name -- is a big deal.
"The path the United States has chosen is historically discredited," he said, advising Americans to "read dusty history books" so as to avoid repeating "the errors of the 1930s" and the Great Depression.
Czech analysts caution that the Topolanek quote getting the most attention -- "the way to hell" -- sounds worse in English than it does in Czech.
Czech Prime Minister Topolanek's comments come just days before a scheduled visit by President Obama.
"It means a little something different," said Jan Machacek, an economist and analyst for the Czech newspaper Hospodarske noviny. "This is an anti-religious country. When people say hell, they say it much more lightly than people do in America. It sounds like he listens to AC/DC," the heavy-metal band.
Jiri Pehe, the head of New York University in Prague and a leading political analyst, agreed that the remark "sounds a bit more sinister in English than it does in Czech." Watch more on Toplonek's comments »
But Pehe made no excuses for the Czech prime minister, who he said spoke out of both ignorance and political conviction.
"He doesn't really know very much about the U.S. stimulus package, (and) he is a self-professed neo-liberal who believes that government should not intervene" in the markets, said Pehe, a long-time critic of Topolanek's center-right Civic Democratic Party.
Free-market fundamentalism may be a valid stance for the head of a small country in the middle of Europe, Pehe said, but it was inappropriate for Topolanek to express when the Czech Republic holds the EU presidency.
"He is entitled to those beliefs, but when he says that on this kind of stage -- which means it's going to travel to the United States -- it's stupid. The vocabulary he uses is unfortunate," Pehe said.
Topolanek may have been flustered, said Machacek, because his government lost a confidence vote in parliament the night before -- by a single vote. That means he and all the ministers in his government must resign, which he said Wednesday he will do. Czech President Vaclav Klaus is expected to ask Topolanek to try to form a new government.
Machacek also said Topolanek's criticism of the U.S. stimulus plan may be based on purely local experience.
"His perspective is influenced by the Czech experience. This is a small open economy, where the stimulus would not be effective," he said. "With a stimulus here, people would save it or buy foreign goods -- (which would) stimulate (other countries') economies," rather than the Czech one.
"He should be much more careful, not speaking about the Czech experience, but speaking from the EU perspective," the economist added.
That said, Machacek argued, Topolanek's position is not completely outside the pale in the European Union.
"The Czech perspective doesn't differ that much from the German position," he said. "But the Germans would never be so undiplomatic."

Commentary: Emotions key to economic recovery

President Obama's National Economic Council head Lawrence Summers noted in his speech March 13 that the economic crisis has led to an "excess of fear" that must be reversed.
To understand the role fear plays in the current crisis, we must understand the role of human psychology.
John Maynard Keynes thought psychology was the major cause of economic booms as well as busts, though this aspect of his work is now largely forgotten. He said people's economic decisions, in both good times and bad times, are largely, ultimately, if indirectly, driven by animal spirits, primitive psychological tendencies.
In a recently published book, George Akerlof and I identified three animal spirits that played critical roles in the current economic meltdown. They are confidence, bad faith and storytelling.

Robert Shiller says basic psychogical factors led to excesses which have devastated the economy.
Let's first consider confidence and its dictionary meaning. Confidence means complete and secure trust. But trust goes beyond the rational use of information that is usually considered in economic theory. Trust is largely an emotion. Indeed we saw the role of vivid emotions in the stock and housing market booms that brought on our current problems.

Trust is a state of mind that is the opposite of vigilance. People were purchasing and selling complex financial instruments without looking carefully at them. This trust is broken.
The second animal spirit that came into play was bad faith. With so many trusting people, an uglier side of human nature became prominent. The temptation for smart promoters was overwhelming.
Questionable practices boomed, and regulators failed to step in, because of the view, taken from economists, that private markets would be self-policing. Investors would only put their money at increased risk if they were duly compensated by higher expected returns. Thus, there was little worry about laxity of regulation in securities and real estate markets.
But, this self-policing view did not consider that these investors might be overconfident.
There is a myth that capitalism produces what people really want, as long as firms can make a profit. But, instead, more generally, it produces what people think they want, as long as firms can make a profit.
True, unregulated capitalism will produce good medicines that cure our ills. But unregulated capitalism will also produce snake oil that people think they want, but does not cure our ills. (To guard against the production of such things, the federal government established the Food and Drug Administration in 1906.)
The problem of snake oil has special relevance for financial assets, which are only pieces of paper. Most investors can surmise their value only from what others, such as accountants and rating agencies, tell them. These accounting and rating agencies also have their own incentives. And those incentives have not been fully aligned with the public's interest. And so when people are overconfident, financial markets produce assets that take advantage of that overconfidence.
If unprotected by effective regulation, people will be sold snake oil assets. Just recently an industry arose, in Wall Street and beyond, to produce them.
A third animal spirit bolstered the previous two. People act and think and live according to stories, especially human interest stories, not usually abstract calculation. That goes for their personal decisions. But there is also always a story, usually with some grain of truth and human interest, about the economy.
These stories are often overly exuberant, on the one side, or overly pessimistic on the other. Ten years ago we had the story of the dot-com millionaires. Most recently we believed alchemists of financial engineering were packaging risky financial assets to make them safe.
People were overconfident. And markets took advantage of their beliefs to sell them what later proved to be snake oil assets.
These three animal spirits then explain how factors in human psychology play a key role in why the economy fluctuates as much as it does. The confidence comes and goes. The stories come and go. The snake oil comes and goes.
This explanation for economic fluctuations has implications for the role of government. The first role of government is, before the fact -- as with the Food and Drug Administration -- to protect the public from negative consequences of their animal spirits (and to let them prevail and even to encourage the positive consequences).
If, as now, the snake oil has been swallowed, it is the role of the government to restore our health. The government must aim to achieve full employment of the population by added spending to boost the economy and policies to make credit widely available.
It should fulfill the full-employment goals of the Employment Act of 1946. That means that producers who produce good products at a profit should have buyers who want to buy them; workers who have trained for productive jobs should be able to get them.
It also means that producers who can produce such products can get the credit to finance their production; and buyers who want to purchase these products can obtain the credit to purchase them. Why are such targets useful and necessary?
History tells us. In the Great Depression, both Hoover and Roosevelt had many pragmatic schemes to put people back to work and keep credit markets from falling apart. But for lack of a correct theory of the economy, and targets corresponding to that theory, their measures fell far short. Unemployment in the United States only fell below 10 percent after the start of World War II, in 1941.
Such targets are necessary for political reasons as well. Any effective plan to resolve our crisis will involve massive sticker shock. The two targets are necessary to justify and explain the tough and expensive measures that need to be taken.
The opinions expressed in this commentary are solely those of Robert Shiller.