Economists of the Hungarian Academy of Sciences speak out against the central bank’s “foundations”

Today is a special day. This is the 3,000th post to appear on Hungarian Spectrum. I wrote my maiden piece on June 27, 2007. 

♦  ♦  ♦

A couple of days ago an article appeared in Bloomberg about a protest by “a group of prominent economists at the Hungarian Academy of Sciences concerning the Hungarian National Bank’s educational programs.” The criticism was directed at foundations set up to support the teaching of “alternative” economics.

In order to understand what this is all about, we have to go back to August 2014 when it came to light that the Hungarian National Bank had embarked on the purchase of valuable properties in Budapest and elsewhere: a castle-hotel for the pleasure of the employees of the bank and perhaps the most expensive office building in Budapest, the eight-story Eiffel Palace for €57.5 million. In addition, the National Bank set aside €28 million for the purchase of art works that included Titian’s “Mary with Child and Saint Paul.”

These purchases are nothing compared to the €700 million earmarked by the Hungarian National Bank from its profits for foundations to support the teaching of economics, outside of the regular channels of higher education. The Bank set up five such foundations named after Pallas Athena, the goddess of wisdom, courage, inspiration, civilization, law and justice, just warfare, mathematics, strength, strategy, the arts, crafts, and skill. A perfect description of Hungary today! The amount the National Bank allocated to teach economics is one and a half times more than the Hungarian government spends a year on higher education.

In August 2014 Matolcsy made the following announcement: “We are creating a faculty of economics and finance at Kecskemét College, a faculty of finance in Marosvásárhely/Târgu Mureș (Romania), a doctoral school in the Buda Castle, and an intermediate financial training center in Pest.” The reason? “The already obsolete doctrines and mistakes of the neo-liberal school of economics continue to dominate Hungarian education in economics and finance.”

Pallas Athena by Charles-Marie Sarrabezolles

Pallas Athena by Charles-Marie Sarrabezolles

It is these five foundations that the Academy’s Committee on Economics finds objectionable. The Committee summarized its objections under nine headings. They consider the sum the National Bank spent on the Pallas Athena foundations public money. Hence it should be under the jurisdiction of the government, specifically the undersecretary responsible for higher education. There is no outside control of the foundations, and their activities and spending lack transparency.

These foundations, as was clearly stated when they were established, promulgate one specific economic dogma. This violates the principle of academic freedom and endangers the autonomy of the institutions that are supported by these foundations. The new institutions generously endowed by the Pallas Athena foundations will create asymmetry and tension. These new programs don’t have to meet the requirements of the Hungarian Accreditation Committee. These new “universities” will also have a negative impact on the currently functioning Ph.D. programs. The Hungarian National Bank boasts the “largest Ph.D. program” in the country even though it doesn’t have a graduate school. The foundations try to attract students by offering them stipends that surpass the salaries of associate professors with decades of teaching experience and academic achievements. In one of the institutions chosen to offer the Hungarian National Bank’s program, they accepted 62 Ph.D. candidates in a rather minor subfield of economics.

György Matolcsy’s reaction to the Academy’s committee was belligerent. “The Hungarian National Bank rejects the untrue statements by the Academy’s Committee on Economics and will take the necessary legal steps.” Instead of refuting the allegedly untrue accusations, Matolcsy attacked some of the members of the committee. He specifically mentioned those who have been publicly critical of the Hungarian National Bank. He singled out Péter Mihályi, who as editor of Acta Oeconomica receives a financial contribution from the National Bank; Lajos Bokros, who criticized the nationalization of the Budapest Stock Exchange; and Júlia Király, former vice-president of the Hungarian National Bank, who considered the bank’s loan program for small- and medium-size businesses economically harmful. Of course, he didn’t mention Attila Chickán, also a member of the committee, who served as finance minister in Viktor Orbán’s first government. Moreover, as far as I know, there are thirty economists on the committee. Surely, they couldn’t all have been critics of Matolcsy and his bank because he would definitely have mentioned them.

I might add that Transparency International Magyarország has been trying for more than a year to find answers to the Pallas Athena foundations’ finances. The managing director of TI has been bombarding the National Bank with inquiries about these mysterious foundations, to no avail. Világgazdaság, a Hungarian daily newspaper that focuses on the economy, eventually went to court to receive information about the foundations. The court ruled in favor of Világgazdaság, but that didn’t inspire Matolcsy to give details of the financial dealings of three of his foundations: Domus Animae, Domus Concordiae, and Domus Scientiae. These foundations are supposed to finance building construction for the future “economic universities.” Matolcsy claims that “the money [used for these foundations] has nothing to do with the budget. The taxpayers didn’t have to pay an extra penny for them. The central bank is spending its own money, which was created by profit made on two-week deposits.”

Matolcsy’s shady dealings serve several purposes. One is to take public money from the common budget and hide it for who knows what purpose. At the same time he is strangling academic freedom by building “alternative institutions” unfettered by public scrutiny. Since Matolcsy thinks that mainstream economists in the country–and that means practically all respected experts–are wrong, and since he cannot get rid of them, he will build parallel economics departments that will teach his unorthodox economic theories. Just as the Orbán government needs an alternative Holocaust Museum, an alternative academy of artists, and an alternative historical institute, it also needs a new set of economists who will be the high priests of unorthodoxy.

January 24, 2016
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Guest

London Calling!

Congratulations Eva!

I give praise every day for finding your blog – and you helping me understand my partner’s strange country.

Long may you live long and blog forever!

Regards

Charlie

Guest
Part if my role in regulatory finance was to raid the premises of the prime miscreant in conjunction with the police. One such raid related to a Ponzi scheme where the ‘charismatic’ fund manager managed to fool investors in giving him £14m. The raid on his house revealed an amazing collection of ‘star wars’ merchandise still in its packaging in row upon row of display cases. He insisted it had already trebled in value. He regarded the collection – purchased with investor’s money – as his own. He had lost touch with reality. Matolcsy regards the Bank funds as his own, and believes – truly – that these artefacts have been purchased with the ‘profits’ generated by currency movements. “The strengthened currency values are mine – the ‘weakened’ values belong to the state.” Like the star wars Ponzi scheme this is Matolcsy’s version. Mad economics – not unorthodox – corruption. He truly believes the money is for his and his family’s use. They gained their access to the country’s cash till by being part of the elite communist hierarchy in ‘better’ days – with the concomitant attitude. When the day of reckoning comes it will be interesting to see what… Read more »
Guest

Well it amused me: what Matolcsy is engaged in is Quantitive Easing.

Very high quantities of personal-financial easing!

Mad mad mad.

Member
Well Matolcsy hasn’t lost touch with reality, he never was in touch with reality. Here is a central bank chief who does not know – genuinely does not know! – that seigniorage profits owe to the central banks monopoly over the issuance of interest free currency against interest bearing securities. A chief who does not talk to the press and avoids any public scrutiny and debate like a car the water, as his incompetence would become apparent even to people without any familiarity with monetary economics within minutes. A chief who abuses millions of public money for the teaching of ‘alternative economics’ as he fails to grasp the very basics of mainstream economics. Under Gyorgi Suranyi or Andras Simor, the Hungarian National Bank was an outstanding place where the best and brightest Hungarian economists tried to maintain monetary and financial stability in a place where all other macro policies -notably fiscal – had gone out of control. Today it is headed by an unbelievably incompetent group of cranks and cronies, and operated by a desperate staff that tries to avoid or at least contain the most egregious mistakes. This said, also among staff what is left are the opportunists, the… Read more »
Guest
Thank you hkaspar for this insight. It is certainly true that Matolcsy only talks to the public on his terms and very rarely. With no transparency for his policies. He relies heavily on Bank of England press notices and used to have a courier to whip them along to the embassy – they’re accessible online now. The names of his ‘initiatives’ always bear a resemblance to BofE strategies. His use of a PC in one video when trying to deliver a speech was pure comedy. Have a look at this video in 2012 when he was still finance minister – if you’ve seen it apologies – it has Hungarian subtitles for others. https://youtu.be/6UGdjQcF_Ag It’s a hoot! If it didn’t have such ramifications for the people of Hungary. By 2013 Hungary was to be the ‘hub’ of the Central European zone – at the centre of Asian and American commerce! He calls it the Hungarian fairy tale! He’s not wrong there! In addition Orban said in 2013 that Hungary will be the engine that will drive the EU out of recession. Orban also said in – 2012 – that he would have created 1,000,000 jobs by 2020. That’s 125,000 per year… Read more »
Guest

You know I am not an macro economics expert but I certainly know when viewers can get ‘taken for a ride’. Mr. Matolcsy arguably would do better in presentation by not agreeing so much with his interviewer who also seems to know about the ‘ride’. Only thing missing from the vid is the ‘kutyak and the ponies’. And that would illustrate the kind of economic ‘show’ it was.

Latefor
Guest

Congratulations Eva! And thank you for allowing me to comment and to promote my books!

Member

Congratulations Eva!
As for Latefor’s thanks for “letting her promote her books”: somehow, this reminds me of the recent story of an elderly lady, a somewhat naïve and ardent admirer of Viktor Orbán. She maintains (at least) one of the Orbán fan groups on Facebook and is one of the main “deliverers” of material for the satirical (or public-shaming) Tumblr site “Szeretlek Viktor!”, on which some cruel people repost inadvertent humor produced by Fidesz true believers. In her recent contribution, she suddenly turned to thanking her “enemies” and the “Trumbli” site for giving her publicity and “putting me on Google so that anybody will find me as soon as they just type in my name”. Somebody had found her contributions and liked them – they had even asked for her permission for performing her poems publicly, and a blogger had invited her to write guest posts.
I wonder if Eva’s blog is doing the same to Latefor? (Judging by what I have read, I don’t really feel tempted to read her books, and I don’t think many of Eva’s readers will. But who knows…)

Latefor
Guest

@ “Sentrooppa-Santra: “I wonder if Eva’s blog is doing the same to Latefor? (Judging by what I have read, I don’t really feel tempted to read her books, and I don’t think many of Eva’s readers will. But who knows…)”

You’d be surprised!
By promoting my books here, I’ve learned so much about human nature! I know where you are coming from (I remember printing out THAT post about two years ago) somehow I don’t think that my books are for you . . . really . . . what were you thinking when you read into them? My books are for beautiful souls!
You all have a personal agenda when commenting on Eva’s post. Mine is to promote my books time to time. So what? I’m NOT trying to create a coup d’etat in Hungary, am I?
RELAX and concentrate on the bigger issues!
Just for the record: From the commentators on this blog, I have learned that by kicking and verbally abusing others will only get you more determined people to fight for what they believe in.

Guest

Congratulations Eva for performing a wonderful public service with your blog, which also provides your readers with a superbly moderated forum to comment [and in my case at least, to pompously pontificate, at times to everyone else’s no doubt deep annoyance. . . . :-))) ].

As to Matolcsy, looks to me that he is the combined Michurin and Lysenko of Hungarian economics.

The recent relatively good results in the Hungarian economy have nothing to do with anything “unorthodox” and everything with having made smart short term calls perfectly in line with “orthodox” economics.

The theoretical superstructure of Matolcsy-style “unorthodox” economics, which supposedly suspends the laws of economic gravity, is merely another Hungarian example of Rákosi-style attempts to grow oranges on the Hungarian plain, or that of the mumbo-jumbo of a mountebank at a country fair to divert the attention of his marks whilst tricking them out of their money.

Guest

In other words, there is (1) economic action, which must be rational (or else!) and thus perfectly “orthodox,” and there is (2) “unorthodox” economic theory (a mere körítés or side-dish to the main course) which is at once irrational, irrelevant and completely redundant.

And the twain shall never meet . . . .

Guest

The Gregorian calendar is based on obsolete doctrines and mistakes. Hungary needs a new calendar with June 27, 2007 as day one.
Congratulations.

BritinBudapest
Guest

I am sure you know, but your unrelenting commitment, day in, day out, to understanding Hungary and revealing what is going in makes a huge difference. Your blog actually helps me understand what is going on, and I am here in the middle of it all!

Guest

Congratulations and thanks from me too, dear Eva!
I’m still trying to understand what’s going on in Hungary and your blog is one of the few sources for info that I trust – and that includes (most of …) the comments.

These guys like Matolcsy have really strange ideas …

Guest

Congratulations from me too Éva! I don’t know how you do it, day after day, informing and enlightening us with such detailed accounts of the shenanigans of Orbán and Co.
Many thanks.

Arthur Nádas
Guest

Dear Éva,

3000 congratulations! You are a breath of badly needed fresh air. Thank you for all you do and please don’t stop!

Arthur Nádas

webber
Guest

OT- Népszava has a small piece today wondering whether Orban will call early elections. This is because, according to Népszava, the national elections board has put out a tender for the purchase of ballots, and has never done so this far from elections before.
On topic: Thank you, Éva.

GyGy
Guest

webber: atlatszo.hu broke the news about a month ago, and this tidbit about the public procurement of ballots was repeated here too. Then Istvan Ujhelyi of MSZP called attention to the possibility of a snap election mentioning that the opposition is totally unprepared (which is true).

My hunch is that Orban is indeed preparing (in Serbia the snap elections are also coming), he wants to be in a position to be able to call the elections at any time if he wants to. He might cut energy prices further a bit.

I think it is more likely than not that he will call elections in the next few months.

Also we always had general elections in April and May but Orban may want to hold them in July/August so that disciplined fideszniks would surely vote but otherwise, less enthusiastic people would be on vacation.

Also my feeling is that MSZP is currently divided between pro-Fidesz/crpyto-Fidesz types and genuine opposition figures like Ujhelyi and Ujhelyi might’ve he heard about the pro-Fidesz faction already preparing for the elections (ie. preparing to support Fidesz from within MSZP just as MSZPniks did it in 2014).

webber
Guest

Not that it matters: I am a fan of Ujhelyi’s. I think it’s a terrible shame that he’s in Brussels, where he cannot easily build a base in his own party.

Henrik
Guest

This is the best Hungarian news analysis site in any language. Thank you and congratulations!

Guest

And I’ll just add probably one of the best for insightful overall political analyses. Prof, your knowledge is prodigious and it is no wonder many are keen for your opinions. And really I think it would be great if out of all those ‘harom ezer’ (whoa!) posts some of your best essays get published. There are gems there. Thank you for your hard work. Like I said I wish I had you as professor when I was at university…;-)…

spectator
Guest

That’s the very thing I was about to add too!
HS is much more than a ‘blog’, in spite of the form!
Thank you Eva!

Guest

Re: Pallas Athene

The Greeks invested her with great powers as she protected the Athenian polis. Also, the Parthenon, one of the greatest monuments of human civilization and genius, was dedicated to her. The ruin today speaks of beauty and freedom.

Unfortunately though it is difficult to see reverence for those ideals in some personages in Hungary today. Rather than ‘building’ this looks to be the order of the day. Athena has to weep. Freedom as the Greeks knew is a precious thing.

comment image

Guest

She may have tried to protect the polis – but she didn’t bargain with Lord Elgin.

Let’s hope it’s emblematic of Matolcsy’s ‘foundations’ crumbling.

Corruption Central

Guest

OT…. And speaking of those grand ‘marbles’ I’ll never forget our visit to the British Museum where some of them reside. To be in front , walking around and looking at the objects is incredible. Nothing like certain hard stones to define the ‘abstract’ existing in all of us. We were there for hours surrounded by those beautiful ruins. Time to go back!

AnAn
Guest
Eva, congratulations on the 3000th post! Wow. The best English language blog about Hungarian politics, if not the best blog about Hungarian politics overall. Thank you for all the dedication and hard work you put into this! As for the national bank making profit…I’d love to understand how exactly this profit comes about. Matolcsy is only giving a very curt explanation, and I’m sure that the intricacies behind these money movements are not as benevolent as he makes it sound. Recalling my past education in economics (which wasn’t very advanced but earned me a degree long time ago), central banks don’t really make profit in the traditional sense, as this is not (and shouldn’t be) their main goal. Profit and loss may come about as they operate fulfilling their public mandate. At times this would be profit, other times a loss depending on the monetary goals they are trying to achieve. So it makes sense that when they make a profit they’d pay it back to the taxpayers (for example by putting it into the central budget) so that the central budget can account for the loss in those years when loss is generated. From this it also follows that… Read more »
petofi
Guest

@Anan

I’m in agreement.

Matolcy’s claim that bank profits are not subject to public report is, of course, the confession of a pirate. He has let his pants down. What he has revealed of himself and Orban’s government (since the government has not admonished Matolcsy) is the bedrock of the Fidesz mentality of corruption.

petofi
Guest

Dear Eva,

I wish to add my congratulations on your 3000th…and for allowing a Diogenetic miscreant like myself to cast his venom on the evil doers that
have the country in the grips of a violent choke hold…

Guest

OT once more re Members/Guests:
I just realised that we seem to have only guests – me included, though WordPress greets me with \”howdy\”.
So I just logged out and back in – let\’s see what happens now!
Update:
I\’m still a guest, but I can edit!
Has anything been changed in the definitions?

petofi
Guest

I’m just a Guest.

Why should I belong to any group willing to have me?
(Apologies to Groucho.)

Guest

And soeaking of the zany very zany fellow, he was a great political ‘scientist’:

‘Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies’

Groucho would seem to have pegged Magyarorszag down to perfection.

Observer
Guest

Test editing.

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