Tighten or Stimulate? British v. American Economics

Broken Piggy Bank © 401(K) 2013 | flickr

In the ongoing American and British debates on the financial crisis and the best ways to bring the economy out of the woods, two opposite views repeatedly collide – the one represented by those who prioritize deficit reduction, the other by those who argue for recapitalizing the economy. The case of the United Kingdom shows that drastic cuts – if not supported by stimulus packages – instead of tackling the debt may actually inflate it. The American policy record on the other hand, proves that even substantial stimulus packages do not always lead to economic revival. It’s not enough to throw some extra money into the pool – equally important is what these resources actually fund and whether they are accompanied by structural reforms.

British clamps

Moody’s decision to downgrade UK’s rating from AAA to AA1 announced at the end of February was a serious blow to David Cameron’s government as it undermined the whole austerity program Conservatives embarked on precisely to regain the trust of both financial markets and rating agencies. Nonetheless, in a speech delivered on March 7th Prime Minister announced he would keep on the chosen course since – as his famous predecessor once asserted – for this policy “there is no alternative.”

Many British economists do, however, see an alternative, and their number grows as it becomes clear that the spending cuts introduced so far, instead of reducing the debt, have increased it (from 600 billion in 2008 to 1.1 trillion four years later to be precise). How is it possible to cut down on expenses and inflate the debt at the same time? Excessive savings lead to economic contraction, which in turn reduces state revenues and forces the government to continue on borrowing. “What truly is incredible” – argued Martin Wolf in his “Financial Times” column – “is that Mr. Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when . . .

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President Obama Goes to Asia: The View of a Pole in Oxford

President Barack Obama greets Burmese Opposition Leader Aung San Suu Kyi during a visit to her private residence in Rangoon, Burma, Nov. 19, 2012. © Pete Souza | WhiteHouse.gov

He was meant not to come and he didn’t. Barack Obama decided to make Burma, Cambodia and Thailand his first foreign destinations after his re-election, revealing U.S. foreign policy priorities in the next four years. The American president plainly doesn’t have time for Europe now. It’s not a surprise, but it does require serious European deliberation and critical self reflections.

Historic Visit

Of special significance is above all Obama’s trip to Myanmar – a country under military rule since 1960’s, which until recently invariably occupied the very far end of every possible civil liberties ranking. Myanmar’s position began to change rapidly in 2010 when the new president, Thein Sein, for reasons not entirely clear, initiated democratic reforms and freed thousands of political prisoners, including the most famous regime victim, Aung San Suu Kyi, put under house arrest in 1989 and kept in custody virtually ever since. Suu Kyi was not only allowed to go on a triumphant international tour – in Oslo she finally received the Nobel Peace Prize awarded in… 1991 – but also to run in parliamentary by-elections. In April 2012 her National Democratic League won 43 of 45 seats under contention, thus becoming the largest opposition party. Only a few months after the reforms started, non-governmental organizations and independent media began to operate in a country not so long ago deemed as an “outpost of tyranny”.

And though democratic transformation in Myanmar proceeds quickly, there are still significant problems. Millions of its citizens live in extreme poverty. Hundreds of political prisoners remain in jail. The northern part of the country is being devastated by a civil war against one of many separatist groups. A military coup is an ever-present possibility, and the authenticity of president’s commitment to democracy is still difficult to assess. For these and many other reasons democratic changes in this former British colony may collapse at any time.

That despite all these uncertainties Barack Obama decided to visit Myanmar – becoming the . . .

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It’s More Than the Economy, Stupid

One of the many dogs Pavlov used in his experiments with saliva catch container and tube surgically implanted in the dog's muzzle. © Rklawton | Wikimedia Commons

The jobs report on Friday was bad, as David Howell analyzed here. This immediately was interpreted across the board as good news for Mitt Romney and his party, bad news for President Obama and his. It’s the economy stupid, and bad news about employment means that Obama’s chance for reelection has declined precipitously. And things are worse then that. It’s now or never. It is in the summer that the public’s perception of the economy is locked in for Election Day. Even if things improve in the fall, there won’t be enough lead-time to change the public’s perception.

I know that this is based on solid evidence. Considerable scholarly research has demonstrated the strong correlation between the state of the economy and election results. But the way this research has been directly applied in daily political commentary is troubling, especially because it can become a political factor itself. As the “Thomas Theorem” posits: If people define situations as real, they are real in their consequences. I add, especially when they are doing the defining on television.

This concerns me as a scholar and as a partisan. As a scholar, I worry about the philosophic anthropology of this. The voting public is being depicted as simpletons, not capable of critical thought, of the most basic examination of the facts. There is a kind of economic determinism involved and the determinism is quite mechanical. People vote their pocketbooks and they don’t think critically about it. They don’t wonder about the causes of their economic woes and just vote the bums out. It amazes me how in the same broadcasts talking heads suggest both that the job numbers are a result of long-term trends beyond the control of the President and that Obama’s chances of victory have greatly diminished because of the state of the economy as indicated by the latest job report. They propose a simple Pavlovian stimulus and response vision of voters, . . .

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