“A Tonic For Progressive Economics”: Why Trudeau Matters More Than Gowdy
Which major event last week should have an important impact on the 2016 presidential election?
No, it’s not Hillary Clinton’s nine hours of testimony before the House Select Committee on Benghazi. She walked away with a smile, and for good reason.
Republicans on the committee, led by Rep. Trey Gowdy (R-S.C.), succeeded brilliantly in confirming House Majority Leader Kevin McCarthy’s (Calif.) burst of honesty: that the whole exercise always had bringing down Clinton’s poll numbers as one of its central purposes. Only right-wingers already convinced of her perfidy thought otherwise. She emerged stronger than she started by staying calm, cool and confident in the face of repeated provocations.
The consequential event occurred three days earlier. The Liberal Party landslide and the triumph of Justin Trudeau in Canada’s election last Monday was a tonic for progressive economics and a cautionary tale for parties on the center-left lacking the courage of their convictions. Trudeau proved that voters understand the difference between profligacy and necessary public investment.
The outcome also carried a warning for conservative politicians in diverse societies who court a backlash against religious and ethnic minorities. Conservative Prime Minister Stephen Harper played this card (around the issue of whether Muslim women could wear the niqab veil at their swearing-in as citizens), and it backfired badly.
Trudeau is the rare politician who came right out and promised to run deficits. They will be relatively modest — about 10 billion Canadian dollars (about $7.6 billion) annually over three years — with the goal of rebuilding Canada’s infrastructure. The Liberals popularized the term “infrastructure deficit,” and voters — particularly in rapidly growing urban areas — agreed that a time of low interest rates was exactly the moment to invest in the future. The hefty swing the Liberals’ way in Canada’s metropolitan areas helped power their sweep.
Already, conservatives in the United States are making the case that Trudeau will regret abandoning the fiscally cautious policies of the earlier Liberal governments headed by Jean Chrétien and then by Paul Martin. The Chretien-Martin Liberals were a middle-of-the-road lot who dominated Canadian politics from 1993 until 2006. Their budgetary prudence gave Canada nine straight surpluses.
But there’s a problem with this argument: None other than the fiscally responsible Martin himself endorsed the emphasis on investment. “You should be investing to pay for the kinds of things that are going to give your children a better life,” Martin said in defense of Trudeau. “And that’s what infrastructure is, what education is, it’s what research and development is.”
After the election, I spoke with Chrystia Freeland, a Liberal who won overwhelmingly in her Toronto district (and with whom I recently served on a think tank project on economic policy). She made the essential point: “It’s really important that people not approach economic policy as ideology or with quasi-religious convictions,” Freeland said. “Economic policy is about the facts and the circumstances.” A weakening Canadian economy strengthened the case for Trudeau’s approach.
In breaking the ideology of austerity, the Liberals, a traditionally centrist party, boxed in their main competitors for the anti-Harper vote. The New Democrats, known as the NDP, are usually to the Liberals’ left. But like the British Labour Party and social democratic parties elsewhere, the NDP under its leader, Tom Mulcair, felt that abandoning fiscal prudence would make the party look irresponsible to swing voters.
It was the wrong call, and Trudeau, who started the 11-week campaign running third, behind Harper and Mulcair, turned himself into the candidate of “real change,” which the Liberals embraced as their slogan. For good measure, Trudeau was unabashed in offering other proposals to push against growing inequality: a tax plan that would pay for a middle-class tax cut by raising taxes on those earning more than 200,000 Canadian dollars (about $152,000) a year, and a substantial increase in the child benefit for the poorest Canadians.
Paul Wells, one of Canada’s premier political journalists, observed in his post-election wrap-up in Maclean’s magazine that Trudeau “had to go big, or the Canadian voter would send him home.” By going big, Trudeau’s new home will soon be 24 Sussex Drive, the Canadian White House, where he lived when his dad, Pierre, was prime minister.
It’s true that the political and fiscal situations of Canada and the United States are different. But progressive politicians in the United States and elsewhere would do well to learn that if they let orthodoxies paralyze them, they will have little to say to voters who, as Trudeau declared on election night, are tired of the twin ideas that they “should be satisfied with less” and that “better just isn’t possible.”
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, October 25, 2015
“Greece’s Economy Is A Lesson For Republicans In The U.S.”: The Toxic Combination Of Austerity With Hard Money
Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.
But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.
To understand the real lessons of Greece, you need to be aware of two crucial points.
The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.
The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.
Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.
Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.
Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.
Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.
So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.
On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)
On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.
The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2015
“Ending Greece’s Bleeding”: Europe’s Self-Styled Technocrats Are Like Medieval Doctors Who Insisted On Bleeding Their Patients
Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.
Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.
But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.
What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.
But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?
The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.
Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.
Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.
In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?
I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.
Austerity hasn’t worked. Five years is enough! It’s time to try something new. The financial elites resist with an obduracy that defies…
Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.
Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?
Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.
And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 5, 2015
“Doesn’t Remotely Comport With The Evidence”: Why The GOP’s War Against Welfare Programs Is Both Cruel And Pointless
Why do people work?
That question is at the center of the conservative case against anti-poverty programs. Republicans like Rand Paul conclude that policies like disability insurance or the Earned Income Tax Credit take away a key motivation — putting food on the table — that propels people to look for work. Thus these policies must be reducing labor supply and economic growth.
Liberals often don’t confront this point head-on, arguing instead that it’s unjust for people to starve because they’re out of work. It’s an inevitability, given that conventional understandings of market capitalism require around one out of 20 people to be unemployed at all times.
This is a good point, but the conservative argument is worth confronting on the merits. While there is an inherent trade-off between work and economic output, the story is not so simple as conservatives make out. Austerity — which often requires cutting anti-poverty programs — also kills labor supply.
For an example of the conservative position, let’s go to Daniel Mitchell, who wrote up some new findings from the National Bureau of Economic Research:
The mid-1990s welfare reform apparently helped labor supply by pushing recipients to get a job. Disability programs, by contrast, strongly discourage productive behavior, while wage subsidies such as the earned-income credit ostensibly encourage work but also can discourage workforce participation for secondary earners in a household. [The Federalist]
There is some surface plausibility to this argument. Social Security reduced poverty among the elderly by 71 percent, but in so doing probably also reduced the number of old people working. On some margin, there is a trade-off between work and poverty reduction, because a lot of jobs suck and people will quit them if they can.
However, it leaves a great deal out. Most critically, it doesn’t consider the business cycle. At the bottom of the Great Recession, for instance, the ratio of job seekers to job openings was nearly seven to one. That means it was mechanically impossible for six out of seven unemployed people to get jobs then. In order for “pro-work” welfare reform to have a prayer of working, the jobs you’re pushing people into actually have to exist.
In other words, when there is a recession, fiscal and monetary stimulus is the way to preserve labor supply, and austerity is the way to destroy it. But if you refuse to accept the logic of aggregate demand, as Mitchell did back in the very pit of the Great Recession, you’re stuck arguing that soup kitchens caused the Great Depression.
The international context presents an even more obvious problem. The conservative account of anti-poverty programs straightforwardly implies that the larger the welfare state, the lower the labor force participation rate (that is, the fraction of people who are working or actively looking for a job). If people don’t have to work due to generous government benefits, then they won’t work.
This doesn’t remotely comport with the evidence. In point of fact, by developed world standards, the U.S. welfare state is extremely stingy and our labor force participation rate is quite low. Take Sweden, for instance. It boasts the welfare benefits of Ayn Rand’s deepest nightmares: universal health and dental insurance, 480 days of paid parental leave per child, a monthly child benefit of about $120 up through age 16, two weeks sick leave, government pension at age 65, and so on.
Overall, if we look just at market incomes, then Sweden has about the same market poverty rate as the U.S. — but its welfare benefits cut the actual poverty rate down to half that of the U.S. That’s the scale of transfers we’re talking about, and other Nordic nations do even better. Yet Sweden’s labor force participation rate was 64.1 percent as of two years ago, more than a percentage point better than the U.S. rate, which has been hovering below 63 percent for the last couple years.
Again, at some point there has to be a trade-off between work and output. In decades previous, the U.S. beat European nations in labor force participation, because those nations chose relatively more free time as they became richer, instead of maniacally ratcheting up GDP for its own sake.
But correct macroeconomic policy also matters a great deal. If there is a catastrophic collapse in aggregate demand that is not fixed for years and years, that’s also going to burn up labor supply — in a way that is both cruel and pointless.
By: Ryan Cooper, The Week, April 28, 2015
“Austerity’s End Strengthens U.S. Recovery”: Speechless, Republicans Fall Back To Peddling More Nonsense
For a variety of partisan and ideological reasons, the right finds it necessary to believe austerity helps the economy. Conservatives, on Capitol Hill and off, remain wedded to the idea that taking capital out of the economy and weakening demand will lead to more growth, all evidence to the contrary notwithstanding.
In an amusing twist, as the U.S. economic recovery gains strength, some on the right actually feel vindicated.
Grover Norquist would like Republicans to shut up about how bad the economy is, and instead take credit for the recovery.
The prominent anti-tax crusader hasn’t turned into a bullhorn for President Barack Obama’s economic policies; he still thinks they’re a drag on jobs and wages. But he’s also grown critical of his fellow Republicans for making poor strategic and messaging decisions on several key issues. Rather than tying the economic recovery to spending cuts ushered in by the sequester and to the continuation of 85 percent of the Bush tax cuts, he said, some in the party have insisted their own leaders fumbled those items.
It’s an interesting course correction for the right. In recent years, Republicans have said the combination of the Affordable Care Act, federal regulations, and higher taxes on the wealthy are crushing the economy. That argument obviously doesn’t make any sense in light of the strongest growth and job creation in over a decade.
So Norquist is suggesting his party flip the script: sure the economy is starting to soar, he says, but that’s only because deep spending cuts like “the sequester” gave the nation a big boost. Austerity took capital out of the system, some conservatives are now arguing, and just look at how great the results are!
It’s important to understand the degree to which Norquist has the story backwards. Recent developments haven’t bolstered conservative economic theories; they’ve done the opposite.
First, the national economy hasn’t improved as a result of spending cuts, but rather, the end of spending cuts.
For a long stretch, government spending cutbacks at all levels were a substantial drag on economic growth. Now, finally, relief is in sight. For the first time since 2011, local, state and federal governments are providing a small but significant increase to prosperity. […]
Across the nation, state and local governments, Democratic and Republican alike, are spending on projects that were stalled. Teachers, who were laid off in droves in recent years, are being hired again. Even federal spending in some sectors is on the rise.
The more the public sector starts to reinvest, as opposed to scaling back, the stronger economic growth becomes. This is the polar opposite of Republican economic theory, and yet, the laws of supply and demand don’t much care about politicians’ ideology.
Second, as Danny Vinik explained, “one of the big reasons that the economy kicked into gear in the latter half of this year is that the Murray-Ryan budget deal alleviated much of sequestration. Fiscal policy, finally, is largely not standing in the way of stronger growth.”
Paul Krugman last week seemed to anticipate Norquist’s argument, and preemptively destroyed it.
Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?
It certainly wouldn’t imply that hitting yourself in the head was a good idea. It would, however, be an indication that the pain you were experiencing wasn’t a reflection of anything fundamentally wrong with your health. Your head wasn’t hurting because you were sick; it was hurting because you kept hitting it with that baseball bat.
And now you understand the basics of what has been happening to several major economies, including the United States, over the past few years. In fact, you understand these basics better than many politicians and commentators. […]
[I]n America we haven’t had an official, declared policy of fiscal austerity – but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result.
I can appreciate the dilemma facing Norquist and his allies when it comes to explaining the sudden economic surge. Indeed, after the strongest economic growth in 11 years, Republicans greeted the news with total silence – literally.
And if I were in their shoes, I’d probably be speechless, too. But that’s no excuse for peddling nonsense – those hoping to credit austerity for a healthy recovery clearly have no idea what they’re talking about.
By: Steve Benen, The Maddow Blog, January 2, 2014
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