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“The Forever Slump”: The Debate Between The ‘Too-Muchers’ And The ‘Not-Enoughers’

It’s hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. Many people, myself included, would like to move on to other subjects. But we can’t, because the crisis is by no means over. Recovery is far from complete, and the wrong policies could still turn economic weakness into a more or less permanent depression.

In fact, that’s what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience.

Before I get to the latest bad news, let’s talk about the great policy argument that has raged for more than five years. It’s easy to get bogged down in the details, but basically it has been a debate between the too-muchers and the not-enoughers.

The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now — within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who of Republican economists, investors, and pundits in a 2010 open letter to Ben Bernanke.

The not-enoughers — a group that includes yours truly — have argued all along that the clear and present danger is Japanification rather than Hellenization. That is, they have warned that inadequate fiscal stimulus and a premature turn to austerity could lead to a lost decade or more of economic depression, that the Fed should be doing even more to boost the economy, that deflation, not inflation, was the great risk facing the Western world.

To say the obvious, none of the predictions and warnings of the too-muchers have come to pass. America never experienced a Greek-type crisis of soaring borrowing costs. In fact, even within Europe the debt crisis largely faded away once the European Central Bank began doing its job as lender of last resort. Meanwhile, inflation has stayed low.

However, while the not-enoughers were right to dismiss warnings about interest rates and inflation, our concerns about actual deflation haven’t yet come to pass. This has provoked a fair bit of rethinking about the inflation process (if there has been any rethinking on the other side of this argument, I haven’t seen it), but not-enoughers continue to worry about the risks of a Japan-type quasi-permanent slump.

Which brings me to Europe’s woes.

On the whole, the too-muchers have had much more influence in Europe than in the United States, while the not-enoughers have had no influence at all. European officials eagerly embraced now-discredited doctrines that allegedly justified fiscal austerity even in depressed economies (although America has de facto done a lot of austerity, too, thanks to the sequester and cuts at the state and local level). And the European Central Bank, or E.C.B., not only failed to match the Fed’s asset purchases, it actually raised interest rates back in 2011 to head off the imaginary risk of inflation.

The E.C.B. reversed course when Europe slid back into recession, and, as I’ve already mentioned, under Mario Draghi’s leadership, it did a lot to alleviate the European debt crisis. But this wasn’t enough. The European economy did start growing again last year, but not enough to make more than a small dent in the unemployment rate.

And now growth has stalled, while inflation has fallen far below the E.C.B.’s target of 2 percent, and prices are actually falling in debtor nations. It’s really a dismal picture. Mr. Draghi & Co. need to do whatever they can to try to turn things around, but given the political and institutional constraints they face, Europe will arguably be lucky if all it experiences is one lost decade.

The good news is that things don’t look that dire in America, where job creation seems finally to have picked up and the threat of deflation has receded, at least for now. But all it would take is a few bad shocks and/or policy missteps to send us down the same path.

The good news is that Janet Yellen, the Fed chairwoman, understands the danger; she has made it clear that she would rather take the chance of a temporary rise in the inflation rate than risk hitting the brakes too soon, the way the E.C.B. did in 2011. The bad news is that she and her colleagues are under a lot of pressure to do the wrong thing from the too-muchers, who seem to have learned nothing from being wrong year after year, and are still agitating for higher rates.

There’s an old joke about the man who decides to cheer up, because things could be worse — and sure enough, things get worse. That’s more or less what happened to Europe, and we shouldn’t let it happen here.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, August 14, 2014

August 18, 2014 Posted by | Economic Recovery, Financial Crisis | , , , , , , , , | 1 Comment

“Meanwhile, Back In The Oval Office”: Why It’s So Idiotic To Complain When The President Takes A Vacation

There are a lot of stupid ways people attack presidents from the other party, but there can’t be that many as stupid as the complaint that he takes too many vacations. Since Obama is now on Martha’s Vineyard, despite the fact that there are things going on in the world, the volume of these complaints has grown, like the inevitable rise of the tide. Conservatives are in full on mockery mode (did you know he plays golf!!!), and the press is getting into the act as well. For instance, the Washington Post‘s Dana Milbank took on the vacation issue in a piece colorfully titled “Obama Vacations As the World Burns,” explaining that “Even presidents need down time, and Obama can handle his commander-in-chief duties wherever he is. But his decision to proceed with his getaway just 36 hours after announcing the military action in Iraq risks fueling the impression that he is detached as the world burns.” That pretty much sums up the problem with how the press discusses this issue. There’s no substantive reason why it’s a problem, it just “risks fueling the impression” that there’s a problem. But nobody’s holding a gun to any reporter’s head demanding that they write not about substance but about which impressions are being fueled. And what really fuels that impression? Why, articles like that one.

As everybody acknowledges, when the president goes on vacation, it’s not like he’s out of touch. He travels with a significant staff, is in communication with the White House constantly, and of course has close access to the nuclear “football,” should it become necessary to end all life on planet earth at a moment’s notice. And when it comes to giving himself vacations, Obama has been rather parsimonious. George W. Bush is the recent record-holder, and it’s not even close. He spent 879 days away from the White House during his eight years in office, including 16 full months at his “ranch” in Crawford, Texas.

At this point we should acknowledge that liberals used to talk plenty about Bush’s vacations when he was president. And it was ridiculous then too, not because we don’t want the president to be devoted to the job, but because of who was making the complaint. None of the things liberals didn’t like about Bush would have been improved had he spent more time toiling away in the White House. Nor would conservatives be happier with the policy choices Barack Obama makes today if he stayed away from Martha’s Vineyard or didn’t play golf as often.

And that’s the real reason the vacation complaint is so absurd. No one—not the opposition party, and not reporters—actually believes that the quality of a presidency has anything to do with how many hours the president logs in the Oval Office. Yes, it now seems weird that with the most important job in the world, Ronald Reagan worked basically 9 to 5 and didn’t come in on weekends. But was the sheer quantity of hours he worked the cause of his disconnection from the details of governing? No, it was just his style. There has never been a president about whom you can honestly say, “If he had pulled a couple of all-nighters, everything would have been different.”

The problem, I think, is that on some level Americans have a presumption that vacation is basically sinful, that the moment you leave work you’re indulging your selfishness and shirking your responsibilities. This assumption can be found throughout American society, but it’s particularly acute in Washington, where people believe that that the amount you accomplish is directly correlated with how late you stay at the office. I’ve encountered this in any number of workplaces, and I’m sure you have too. But there’s almost no reason to think it’s true.

As you may know, Americans take fewer vacation days than anyone else in the developed world, both as a matter of practice and as a matter of law. In pretty much every other advanced country, employers are required to give paid vacation and holidays, in quantities that ensure that their employees have the time to recharge, relax, and have a life. Here’s a graph from the Center for Economic Policy and Research comparing mandated paid vacation and holidays in OECD countries:

Paid Vacation and Holidays

That’s us over on the right, at zero. If you lived in Germany, for instance, a country with a high standard of living and extremely productive workers, you’d have 20 days of paid vacation and 10 paid holidays mandated by law. That’s 6 weeks off per year. Paid.

Of course, most Americans get some paid vacation and paid holidays. But it’s entirely up to the generosity of your boss. Incredibly, many workers don’t use the vacation days they have — as much as half of Americans’ vacation time goes unused. And the people who could use it the most—lower-wage, hourly workers—usually get little or no paid vacation or holidays at all. And most workers who do take vacation end up working while they’re vacating, like the president does.

So the next time you see someone criticize the president for taking a vacation — whether it’s a conservative criticizing this president, or a liberal criticizing the next Republican one — the question you have to ask is, “Do you think that if he were back in the Oval Office he’d be making the right decisions, but because he’s away from Washington he’s making the wrong decisions?” When the answer is no, as it inevitably will be, the logical response is: So what the hell are you complaining about?

 

By: Paul Waldman, Contributing Editor, The American Prospect, August 13, 2014

August 14, 2014 Posted by | Conservatives, Media, Presidential Vacations | , , , , , , | Leave a comment

“The Follies Of Overreach”: The Limits Of American Power; Judging Obama’s Foreign Policy

When I was young, a mantra among progressives was that America had to stop operating as global policeman. Vietnam was the signal episode of arrogant and ultimately self-defeating American overreach. But there were plenty of other cases of the U.S. government doing the bidding of oil companies and banana barons, and blithely overthrowing left-democratic governments as well as outright communists (or driving nationalist reformers into the arms of communists.)

As the late Phil Ochs tauntingly sang, “We’re the cops of the world.” Or as Randy Newman mordantly put it, “Let’s drop the big one and see what happens.

At the same time, I viewed myself as sensible left. I was the guy at the Moratorium demonstrations of the late 1960s and early 1970s (actually covering them for Pacifica) hoping to make prudent withdrawal from Vietnam a majority cause, not the guy chanting “Ho, Ho, Ho Chi Minh.”) I liked Norman Thomas’s line: Don’t burn the flag, wash it.

Overthrowing elected leaders like Chile’s Allende, staging coups against Mossadegh in Iran and Arbenz in Guatemala, blocking the elected presidency of Juan Bosch in the Dominican Republic—those were outrages. Yet the basic containment of Soviet expansionism seemed necessary and smart policy to me.

As a lapsed political scientist, I agreed with the received wisdom that global anarchy and American isolationism led to 20th century war and chaos. I thought people who preached world government were naïve. I was, if you will, on the left wing of the realist camp. Yes to benign use of American power, no to marginal Cold War adventures and corporate-led foreign policy. Pick your battles and don’t assume unlimited power; give colonies their liberty but with very limited forays into “nation building.”

I understood that much of the pent-up rage in the global South was a delayed reaction to earlier Western imperialism, both political and economic. But I did not romanticize every Third World uprising.

Later, I thought Bill Clinton got it about right with his intervention in the former Yugoslavia, warm embrace of Mandela, diplomacy in Northern Ireland, realistic anti-terrorism policies, and relative restraint generally. I applauded Clinton’s Mid-East peace efforts, but thought both parties were far too indulgent of Israeli settlement-building on the West Bank.

Today, the legacy of the Cheney-Bush regime has underscored the folly of overreach. Every place where America intervened under the Cheney doctrine, we’ve left a worse mess than the one we attempted to fix.

In a sense, the Left has gotten its wish. Events have made crystal clear that America can’t intervene everywhere. It’s not even apparent that we can constructively intervene anywhere.

Challenges to global peace and stability are hydra-headed and localized, not the work of a central conspiracy. Not even Henry Kissinger could cut a deal with non-state militias, and there’s not much to negotiate with the ISIS caliphate.

Despite the partial culpability of Western excesses during the last century, it’s hard to argue that Jihadists are therefore the good guys and Yankee imperialists the bad guys. On the contrary, radical Islam is at war against the Enlightenment, not to mention the rights of religious others, women, and basic political democracy. (So, for that matter, are ultra-orthodox Zionism and ultra-fundamentalist Christianity.)

Despite its omissions, limitations, and the central role of dead white Europeans, I’m rather fond of the Enlightenment. Its basic ideals are worth defending.

Many Jihadists would surely use nuclear weapons if they could get them, making the events of 9/11 look like a mere prologue, and requiring U.S. global vigilance.

So, Left friends, be careful what you wish for. America’s power today is humbled—and the world is more of a cauldron than ever. Even for lefties inclined to “blame America first,” as the Right likes to put it, U.S. intervention is often a lesser evil.

So if you were Czar, as the old saying went, exactly what foreign policy would you venture?

Given the limited options, is Obama getting it mostly right? Or is he pursuing the correct policies but somehow projecting weakness (as he surely does with Republicans at home)?

Where does it make sense to exit the game, even if the vacuum is filled by true crazies and sectarian wars, as in Afghanistan and Iraq?

Where must we conclude that we have little constructive role to play despite humanitarian outrages, because of limited resources and leverage, as in Syria?

Where are truly vital interests at stake (Ukraine, and China?) and what’s the possible policy? Where is robust diplomacy a substitute for brute force?

How do we deal with the true menace of nuclear proliferation, when it’s no longer feasible to police the world?

I’m a big fan of Elizabeth Warren. I hope she runs for president. However, several progressive Democrats, not unreasonably, have lately said to me: But she has no foreign policy experience. Do we have any idea of her views, or whom she’d appoint? With the world in crisis, would people vote for someone like Warren solely on pocketbook issues?

Well, Cheney and Rumsfeld had plenty of foreign policy experience, and look what it got us. Obama had none whatever, but Kerry and Biden seem to be doing about as well as anyone could, given the terrible hand that history has dealt them. Clinton, if memory serves, had been governor of Arkansas, a state without a foreign policy.

Here is one more story from my youth. At my Oberlin graduation, in 1965, the Commencement speaker was Martin Luther King, Jr. The College trustees, perhaps to balance Dr. King, were also giving an honorary degree to Secretary of State Dean Rusk, architect of the Vietnam escalation.

One faction of students wanted to boycott or picket Commencement, but that would have insulted Dr. King. Moderate lefties like me proposed a compromise. If Rusk would meet with us and listen to our proposal, we would not stage a demonstration. The meeting was duly brokered. The few far lefties groused that the student leaders had sold them out.

At the meeting, we pitched the following proposition. Ho Chi Minh was first and foremost a nationalist. His real enemy was China. South Vietnam was corrupt, non-democratic, and in any case not viable as a state. Why not allow Ho’s National Liberation Front to take power, as America should have done when Ho won his anti-colonial war with France in 1954, and guarantee Vietnam’s neutrality in exchange for Vietnam’s non-intervention elsewhere?

Rusk smiled indulgently. What did we know? We were a bunch of kids.

As events turned out, we were better realists than Rusk. Today, half a century later, the communist government in Hanoi prizes trade deals with America, practices semi-capitalism, does not threaten its neighbors, and relies on the U.S. as a counterweight to China. We might have had roughly the same outcome in 1965, with 50,000 fewer American combat deaths.

But I digress. Here are two concluding thoughts.

First, despite far-left fantasies, American can’t simply exit the world stage. There are too many menaces that require our constructive engagement. But America’s room to operate is very limited.

Secondly, better to have a thoughtful and well-read progressive leader with limited foreign policy experience than an experienced right-wing zealot like Cheney, or even a misguided experienced moderate like Rusk.

 

By: Robert Kuttner, Co-Founder and Co-Editor, The American Prospect; The Huffington Post Blog, July 27, 2014

July 30, 2014 Posted by | Foreign Policy, Middle East, U. S. Military | , , , , , , , | Leave a comment

“Doomsday Prepper Economics”: The Weird Obsession That’s Ruining The GOP

Call it doomsday prepper economics. For more than five years, many Republicans and conservatives have warned that catastrophe is nigh. Washington’s deficit spending and the Federal Reserve’s excessive money printing will lead to a financial crisis worse than the Great Recession, they prophesied. Inflation will skyrocket, the dollar will collapse, and the Chinese will dump treasuries, they swore. As Ron Paul, the libertarian former GOP congressman and presidential candidate, said back in 2009: “More inflation is absolutely the wrong way to go. We’re taking a recession and trying to turn it into a depression. We’re going to see a real calamity.”

Many GOP politicians have since echoed Paul’s prediction. But the Next Great Inflation never happened. The Consumer Price Index, including food and energy, has risen by an annual average of just 1.6 percent since 2008, below the Fed’s 2 percent inflation target. During the Great Inflation of the 1970s and early 1980s, by contrast, prices rose five times faster.

This information isn’t a secret. The Labor Department releases inflation data monthly on its website. Yet inflation fears still rage on the right. Those concerns are a big reason why Republicans continue to push for a balanced budget ASAP. They’re why the GOP wants to saddle the Fed with restrictive new rules.

Regardless of the potential merits of those policy ideas, the inflation alarmism driving them is taking a weird turn. Some Republicans and conservatives now argue that Washington is figuring inflation all wrong, maybe even intentionally. Better, they say, to trust independent outside sources such as the website ShadowStats, which “exposes and analyzes flaws” in government economic data. According to one set of ShadowStats calculations, the true inflation rate is nearly 10 percent today. The inflation truth is out there.

In a recent National Review Online article, conservative author Amity Shlaes approvingly cites ShadowStats as supporting her thesis that “inflation is higher than what the official data suggest.” Others fans include conservative intellectual Niall Ferguson, Sen. Tom Coburn (R-Okla.), and a good chunk of the conservative blogosphere.

ShadowStats’ popularity on the right is crazy — because the site’s methodology has been roundly ridiculed by both economists and business journalists. Critics also note that the subscription price for the ShadowStats newsletter has remained unchanged for years. Inflation for thee, but not for me. Beyond that, MIT’s Billion Price Project, which tracks prices from online retailers every day, puts U.S. inflation at just over 2 percent. And consider this: If inflation were really 10 percent, that would mean the real economy, adjusted for inflation, has been sharply shrinking — yet somehow still adding 2 million net new jobs a year.

If GOP inflationistas had their way, the weak U.S. recovery would almost surely be even weaker. Just look at Europe. Unlike the Fed, the inflation-phobic European Central Bank sat on its hands despite weak growth. The result has been an unemployment rate nearly twice America’s and a nasty double-dip recession. Of course, inflation is lower than in America — so low, in fact, that the region risks a dangerous deflationary spiral of falling prices and falling wages.

Why this GOP inflation obsession? Maybe it’s a legacy of how rapidly rising prices in the 1970s swept conservatives into power in both America and Great Britain. Maybe it’s how many conservative talk radio shows are sponsored by gold companies who stand to benefit from inflation hysteria. Maybe it’s a belief that every single economic metric must be a nightmare under President Obama.

But whatever the reason, the GOP’s preoccupation with phantom price increases is distracting it from the actual problems afflicting the U.S. economy — such as low social mobility, stagnant wages, and the decline of middle-class work. The price of not addressing those issues is rising every year. And that is the kind of inflation worth obsessing over.

 

By: James Pethokoukis, DeWitt Wallace Fellow at the American Enterprise Institute: The Week, July 23, 2014

July 24, 2014 Posted by | Deficits, GOP, Inflation | , , , , , | 1 Comment

“The Fiscal Fizzle”: An Imaginary Budget And Debt Crisis

For much of the past five years readers of the political and economic news were left in little doubt that budget deficits and rising debt were the most important issue facing America. Serious people constantly issued dire warnings that the United States risked turning into another Greece any day now. President Obama appointed a special, bipartisan commission to propose solutions to the alleged fiscal crisis, and spent much of his first term trying to negotiate a Grand Bargain on the budget with Republicans.

That bargain never happened, because Republicans refused to consider any deal that raised taxes. Nonetheless, debt and deficits have faded from the news. And there’s a good reason for that disappearing act: The whole thing turns out to have been a false alarm.

I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled — and the deficit scolds are, of course, still scolding. They’re even trying to spin the latest long-term projections from the Congressional Budget Office — which are distinctly non-alarming — as somehow a confirmation of their earlier scare tactics. So this seems like a good time to offer an update on the debt disaster that wasn’t.

About those projections: The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow — but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade.

Things are expected to deteriorate after that, mainly because of the impact of an aging population on Medicare and Social Security. But there has been a dramatic slowdown in the growth of health care costs, which used to play a big role in frightening budget scenarios. As a result, despite aging, debt in 2039 — a quarter-century from now! — is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II, or that Britain had for much of the 20th century. Oh, and the budget office now expects interest rates to remain fairly low, not much higher than the economy’s rate of growth. This in turn weakens, indeed almost eliminates, the risk of a debt spiral, in which the cost of servicing debt drives debt even higher.

Still, rising debt isn’t good. So what would it take to avoid any rise in the debt ratio? Surprisingly little. The budget office estimates that stabilizing the ratio of debt to G.D.P. at its current level would require spending cuts and/or tax hikes of 1.2 percent of G.D.P. if we started now, or 1.5 percent of G.D.P. if we waited until 2020. Politically, that would be hard given total Republican opposition to anything a Democratic president might propose, but in economic terms it would be no big deal, and wouldn’t require any fundamental change in our major social programs.

In short, the debt apocalypse has been called off.

Wait — what about the risk of a crisis of confidence? There have been many warnings that such a crisis was imminent, some of them coupled with surprisingly frank admissions of disappointment that it hadn’t happened yet. For example, Alan Greenspan warned of the “Greece analogy,” and declared that it was “regrettable” that U.S. interest rates and inflation hadn’t yet soared.

But that was more than four years ago, and both inflation and interest rates remain low. Maybe the United States, which among other things borrows in its own currency and therefore can’t run out of cash, isn’t much like Greece after all.

In fact, even within Europe the severity of the debt crisis diminished rapidly once the European Central Bank began doing its job, making it clear that it would do “whatever it takes” to avoid cash crises in nations that have given up their own currencies and adopted the euro. Did you know that Italy, which remains deep in debt and suffers much more from the burden of an aging population than we do, can now borrow long term at an interest rate of only 2.78 percent? Did you know that France, which is the subject of constant negative reporting, pays only 1.57 percent?

So we don’t have a debt crisis, and never did. Why did everyone important seem to think otherwise?

To be fair, there has been some real good news about the long-run fiscal prospect, mainly from health care. But it’s hard to escape the sense that debt panic was promoted because it served a political purpose — that many people were pushing the notion of a debt crisis as a way to attack Social Security and Medicare. And they did immense damage along the way, diverting the nation’s attention from its real problems — crippling unemployment, deteriorating infrastructure and more — for years on end.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, Julo 20, 2014

July 22, 2014 Posted by | Debt Crisis, Deficits, Federal Budget | , , , , , , , , | Leave a comment

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