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“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

July 7, 2015 Posted by | Austerity, European Union, Greece | , , , , , , , | Leave a comment

“Deliberate And Systemic”: Inequality Isn’t Inevitable, It’s Engineered. That’s How The 1% Have Taken Over

Who will look after the super-rich and think about their needs? It’s not easy for them: the 1% of the world’s population who by next year will own more global wealth than the 99%. Private security costs a fortune, and with the world becoming an increasingly unequal place a certain instability increases. It could be dangerous!

Very smartly, Oxfam International is raising such questions at the World Economic Forum at Davos, where the global elite gather to talk of big ideas and big money. Oxfam executive director, Winnie Byanyima, is arguing that this increasing concentration of wealth since the recession is “bad for growth and bad for governance”. What’s more, inequality is bad not just for the poor, but for the rich too. That’s why we have the likes of the IMF’s Christine Lagarde kicking off with warnings about rising inequality. Visceral inequality from foodbanks to empty luxury flats is still seen as somehow being in the eye of the beholder by the right – a narrative in which poverty is seen as an innate moral failure of the poor themselves has taken hold. This in turn sustains the idea that rich people deserve their incredible riches. Most wealth, though, is not earned: huge assets, often inherited, simply get bigger not because the individuals who own them are super talented, but because structures are in place to ensure this happens.

Most of us – I count myself – are economically inept. The economic climate is represented as a natural force, like uncontrollable weather. It’s a shame that the planet is getting hotter, just as it’s a shame that the rich are getting richer. But these things are man-made and not inevitable at all. In fact, there are deliberate and systemic reasons as to why this is happening.

The rich, via lobbyists and Byzantine tax arrangements, actively work to stop redistribution. Inequality is not inevitable, it’s engineered. Many mainstream economists do not question the degree of this engineering, even when it is highly dubious. This level of acceptance among economists of inequality as merely an unfortunate byproduct of growth, alongside their failure to predict the crash, has worryingly not affected their cult status among blinkered admirers.

Even the mild challenge of Thomas Piketty, with his heretical talk of public rather than private interest being essential to a functioning democracy, is revolutionary in a world which buys the conservative idea that the elixir of “growth” simply has to mean these huge extremes in income distribution.

That argument may now be collapsing. The contortions that certain pet economists make to defend the indefensible 1% are often to do with positing the super-rich as inherently talented and being self-made. The myth is that everyone is a cross between Steve Jobs and Bono; creative, entrepreneurial, unique. The reality is cloned inherited wealth and insane performance-related pay, eg the bankers who continue to reward themselves more than a million a year after overseeing the collapse of the industry.

There are always those who will side with the powerful against the powerless, and economists specialise in this. No wonder Prof Gregory Mankiw’s Harvard students walked out of his class following his ludicrous insistence that the system is not gamed for the rich. Such “theorists” flatter the rich by granting them some superpower, which is why they like rock star comparisons. In fact, international finance is peopled by interchangeable guys who are essentially just paying themselves double what they were 10 years ago. They may need to think of themselves as special. We don’t have to.

When we talk of neoliberalism, we are talking about something that has fuelled inequality and enabled the 1%. All it means is a stage of capitalism in which the financial markets were deregulated, public services privatised, welfare systems run down, laws to protect working people dismantled, and unions cast as the enemy.

Oxfam’s suggestions at Davos are attempts to claw back some basic rights, with talk of tax, redistribution, minimum wages and public services. But isn’t it rather incredible that a charity has to do this? The Occupy movement has dissipated, but we are seeing in Europe, primarily in Greece and Spain, a refusal to accept the austerity narrative that we appear to have wolfed down here in the UK.

Oxfam can appeal to the vanity of billionaires, but the truth is that’s not enough. The neoliberal project may fail not because of huge protest, but because reduced income means reduced demand. Never mind the angry proletariat, a disappointed middle-class is something all politicians fear. To stem inequality, it is imperative to stop seeing it as inevitable. It’s a choice. A choice very few of us have any say in. The poor are always with us. And now the deserving and undeserving super-rich are too? That’s just the way things are? No. This climate can also change.

 

By: Suzanne Moore, The Guardian, January 20, 2015

January 25, 2015 Posted by | Economic Inequality, Global Wealth, Plutocrats | , , , , , , , | 1 Comment

“Inequality Is A Drag”: There’s No Evidence That Making The Rich Richer Enriches The Nation

For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.

Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.

But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.

You might be tempted to dismiss this notion as wishful thinking, a sort of liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue. In fact, however, there is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy.

Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.

Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.

But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.

Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.

And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.

Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.

The same thing, I’d argue, will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity from Americans who are finally getting the health care they need, not to mention making better use of their skills because they can change jobs without the fear of losing coverage. Over all, health reform will probably make us richer as well as more secure.

Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, August 7, 2014

August 9, 2014 Posted by | Economic Inequality, Economy | , , , , , , , | 2 Comments

“Fight The Future”: Influential People Need To Stop Using The Future As An Excuse For Inaction

Last week the International Monetary Fund, whose normal role is that of stern disciplinarian to spendthrift governments, gave the United States some unusual advice. “Lighten up,” urged the fund. “Enjoy life! Seize the day!”

O.K., fund officials didn’t use quite those words, but they came close, with an article in IMF Survey magazine titled “Ease Off Spending Cuts to Boost U.S. Recovery.” In its more formal statement, the fund argued that the sequester and other forms of fiscal contraction will cut this year’s U.S. growth rate by almost half, undermining what might otherwise have been a fairly vigorous recovery. And these spending cuts are both unwise and unnecessary.

Unfortunately, the fund apparently couldn’t bring itself to break completely with the austerity talk that is regarded as a badge of seriousness in the policy world. Even while urging us to run bigger deficits for the time being, Christine Lagarde, the fund’s head, called on us to “hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability.”

So here’s my question: Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we’ll deal with fiscal issues of the 2020s, the 2030s and beyond?

No, it isn’t. And in practice, focusing on “long-run fiscal sustainability” — which usually ends up being mainly about “entitlement reform,” a k a cuts to Social Security and other programs — isn’t a way of being responsible. On the contrary, it’s an excuse, a way to avoid dealing with the severe economic problems we face right now.

What’s the problem with focusing on the long run? Part of the answer — although arguably the least important part — is that the distant future is highly uncertain (surprise!) and that long-run fiscal projections should be seen mainly as an especially boring genre of science fiction. In particular, projections of huge future deficits are to a large extent based on the assumption that health care costs will continue to rise substantially faster than national income — yet the growth in health costs has slowed dramatically in the last few years, and the long-run picture is already looking much less dire than it did not long ago.

Now, uncertainty by itself isn’t always a reason for inaction. In the case of climate change, for example, uncertainty about the impact of greenhouse gases on global temperatures actually strengthens the case for action, to head off the risk of catastrophe.

But fiscal policy isn’t like climate policy, even though some people have tried to make the analogy (even as right-wingers who claim to be deeply concerned about long-term debt remain strangely indifferent to long-term environmental concerns). Delaying action on climate means releasing billions of tons of greenhouse gases into the atmosphere while we debate the issue; delaying action on entitlement reform has no comparable cost.

In fact, the whole argument for early action on long-run fiscal issues is surprisingly weak and slippery. As I like to point out, the conventional wisdom on these things seems to be that to avert the danger of future benefit cuts, we must act now to cut future benefits. And no, that isn’t much of a caricature.

Still, while a “grand bargain” that links reduced austerity now to longer-run fiscal changes may not be necessary, does seeking such a bargain do any harm? Yes, it does. For the fact is we aren’t going to get that kind of deal — the country just isn’t ready, politically. As a result, time and energy spent pursuing such a deal are time and energy wasted, which would be better spent trying to help the unemployed.

Put it this way: Republicans in Congress have voted 37 times to repeal health care reform, President Obama’s signature policy achievement. Do you really expect those same Republicans to reach a deal with the president over the nation’s fiscal future, which is closely linked to the future of federal health programs? Even if such a deal were somehow reached, do you really believe that the G.O.P. would honor that deal if and when it regained the White House?

When will we be ready for a long-run fiscal deal? My answer is, once voters have spoken decisively in favor of one or the other of the rival visions driving our current political polarization. Maybe President Hillary Clinton, fresh off her upset victory in the 2018 midterms, will be able to broker a long-run budget compromise with chastened Republicans; or maybe demoralized Democrats will sign on to President Paul Ryan’s plan to privatize Medicare. Either way, the time for big decisions about the long run is not yet.

And because that time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, June 16, 2013

June 23, 2013 Posted by | Economic Recovery, Economy | , , , , , , , | Leave a comment

“The Double Reversal”: Why Did Romney Double Down On Anti-Palestinian Comments?

Mitt Romney has mastered the art of an impressive maneuver worthy of an Olympic gymnast: the double reversal. Within two days he has changed positions twice on why Palestinians in the Occupied Territories live in abject poverty.

After initially walking back his comments attributing Israel’s prosperity and its neighbors’ lack thereof to their respective cultures, Romney has decided to double down, posting an item on National Review’s website defending his statement.

It all started on Sunday, when Romney said the following at a fundraiser in Jerusalem:

The GDP per capita for instance in Israel which is about $21,000 and you compare that with the GDP per capita just across the areas managed by the Palestinian Authority which is more like $10,000 per capita, you notice a dramatic, stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.… Culture makes all the difference. And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things. One, I recognize the hand of Providence in selecting this place.

Naturally, some Palestinians took exception to the implication that they are culturally deficient or disfavored by God. Speaking to the Associated Press, Saeb Erekat, a senior aide to Palestinian President Mahmoud Abbas, said: “It is a racist statement and this man doesn’t realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation.”

Romney ignored the much more obvious culprits than culture, such as security restrictions, in suppressing Palestinian economic growth. As Ashley Parker wrote in the New York Times:

The Palestinians live under deep trade restrictions put in place by the Israeli government: After the militant group Hamas in 2007 took control of Gaza—home to about 1.7 million Palestinians—the Israelis imposed a near-total blockade on people and goods in Gaza. The blockade has been eased, and now many consumer goods are allowed in. But aid organizations say the restrictions still cripple Gaza’s economy. The West Bank, where 2.5 million Palestinians reside, is also subject to trade restrictions imposed by the Israelis.

The International Monetary Fund has observed the correlation between Israeli restrictions on trade and movement in the West Bank and Gaza and economic growth in the territories.

Even the people Romney was trying to compliment, Jews, might have been unnerved. Shalom Goldman wrote in Religion Dispatches, “It’s not only the Palestinian leadership that should be aghast at his remarks. Essentially, what the GOP’s candidate for president was saying is that ‘Jews are good with money.’… Students of Jewish history, and of Christian-Jewish relations, can’t help but being horrified by the tone-deafness of such language.”

Romney responded to the criticism by doing what he always does: he changed his position and lied about what he had said before. In an interview with Fox News on Tuesday morning Romney said, “I did not speak about the Palestinian culture or the decisions made in their economy.… That is an interesting topic that perhaps can deserve scholarly analysis but I actually didn’t address that. I certainly don’t intend to address that during my campaign.”

But by Tuesday night Romney had changed his mind again, deciding that the effect of culture on economic outcomes is, in fact, central to his campaign. At 8 pm National Review posted a commentary by Romney:

What exactly accounts for prosperity if not culture? In the case of the United States, it is a particular kind of culture that has made us the greatest economic power in the history of the earth. Many significant features come to mind: our work ethic, our appreciation for education, our willingness to take risks, our commitment to honor and oath, our family orientation, our devotion to a purpose greater than ourselves, our patriotism. But one feature of our culture that propels the American economy stands out above all others: freedom.…

Israel is also a telling example. Like the United States, the state of Israel has a culture that is based upon individual freedom and the rule of law. It is a democracy that has embraced liberty, both political and economic. This embrace has created conditions that have enabled innovators and entrepreneurs to make the desert bloom.

Romney redefines cultures to include precisely the external factors—democracy, the rule of law, economic freedom—that liberals would agree are sources of prosperity. So now the Palestinians’ lack of economic freedom, at the hands of the Israeli occupation, is categorized by Romney as somehow a failing of Palestinian culture.

There are countries under no foreign occupation that also lack democracy, the rule of law and economic freedom, and their economies suffer accordingly. But to describe that as a national cultural characteristic—sort of the inverse of American work ethic—is absurd. North Koreans aren’t poor because their culture abhors economic freedom, while South Korean culture celebrates it. They are poor because they live in a totalitarian state that restricts it.

It is hilarious to see Romney pretend that Israel is some Republican paradise of free market policies. While in Israel Romney praised Israel’s healthcare system for being innovative and far more cost-effective than America’s. Israeli healthcare is, of course, completely socialized.

Romney’s intellectual dishonesty aside, it is curious that he even chose to do this at all. Why would he want to extend the life what is widely considered a gaffe? I’ve come up with three possibilities.

§ He wants to show strength. Romney has a well-earned reputation for flip-flopping and lacking core convictions. The current issue of Newsweek features a cover story by Michael Tomasky arguing that Romney is a wimp. Perhaps Romney wanted to show that he is capable of confronting critics and defending his turf for once. The only problem with this theory is that he would have been much wiser to do so on an issue where he had not already backed down.

§ He really believes this. It’s hard to fathom, since Romney seems to believe so little. But it’s the answer I got from every political professional I asked. Perhaps Romney does not lack a political spine but simply has his in an unusual place. Romney clearly lacks convictions on social issues, foreign policy and regulatory questions, so he makes the most politically expedient pander. But he does show conviction on certain vague economic principles. For example, he will not back down from saying that corporations are composed of people and they are not some evil abstraction. Perhaps the idea that economic benefits accrue to societies that are blessed with cultural virtue, rather than advantageous circumstances, is a similarly deeply held belief for Romney. It would make a clear corollary to his view that his own vast wealth is attributable to personal virtue rather than luck or greed.

§ Conservatives really believe this, and so Romney is trying to excite them. Typically, Romney reverses himself under pressure from conservative pundits. In this case, while conservatives were defending Romney’s original statement, there had not been a right-wing backlash against him for going wobbly on it. But perhaps Romney realized that standing on this principle would energize his base. “This is something that conservatives actually believe,” wrote Soren Dayton, a Republican political strategist, in an e-mail. “And, in many ways, it is clear that Arabs do too, reading the UN’s 2002 Arab Human Development Report, in which Arab scholars ask the same question that Romney did. To run away under pressure from Saeb Erekat and the political correctness police would be intellectually bankrupt and counter to a decade of debate within the Arab world itself.” (You can find a summary of the report Dayton references here.)

As the late, great Senator Daniel Patrick Moynihan (D-NY) observed, “The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.”

 

By: Ben Adler, The Nation, August 1, 2012

August 2, 2012 Posted by | Election 2012 | , , , , , , , , | 1 Comment

   

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