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.
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 . . .
Read more: Tighten or Stimulate? British v. American Economics
In the May 6th Greek elections, the established ruling parties, the conservative New Democracy and the socialist PASOK were punished, unable to form a government. The voters blamed them for Greece’s debt crisis, and for destroying the country in their attempts to address the crisis.
The subsequent general elections of June 17 led to a flood of attention in the international media and blatant foreign intervention due to their potential economic implications for the Euro currency zone and the global economy. Observers were concerned that a Greek exit from the Euro would have a catastrophic impact on other ailing European states, damaging the US and the entire global economy. There was an unprecedented campaign orchestrated by the Eurocrats, the German government and the German media, which amounted to the blackmailing of the Greek electorate to vote against the parties that want to end the draconian austerity and neoliberal policies.
E.U. officials disregarded the norm of neutrality concerning an independent national election and expressed their opinion about their preferred outcome of Greeks’ vote, threatening “Grexit,” i.e., forcing Greece out of Euro zone, if the radical left wins. The intervention crescendo came on the eve of the election with an open letter of Germany’s Bild newspaper to Greek voters. The tabloid warned:
“Tomorrow you have elections but you do not have any choices….If you don’t want our billions, you are free to elect any left- or right-wing clowns that you want…For more than two years, though, your ATMs are only issuing euros because we put them there. If the parties that want to end austerity and reforms win the elections, they will be breaching all agreements and we will stop paying.”
But it was not only threats by the media and the Euro-area governments. After the May election results, part of Greece’s next aid payment (1billion Euros) was postponed as a warning to Greek politicians and voters to stick to the austerity program.
Repeated Eurocratic interventions over the month before the election of June 17 implied a deep disapproval of potential choices by free citizens. This began in February, when German Finance Minister Wolfgang Schaeuble made the incredible suggestion that Greece should hold off the election and allow the interim government . . .
Read more: The Greek Election, June 17th, 2012
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, . . .
Read more: It’s More Than the Economy, Stupid
I welcome Will Milberg’s response to my book and was pleased with his appreciation of how the case of Argentina challenges conventional wisdom in economics. His review adds to the debate about Argentina, highlighting one of my motivations for writing the book: to show how the Argentine experience since 2001 flies in the face of economic pundits, both in the academy and in the financial press, and that it is important to pay attention. Milberg’s message was seconded by Paul Krugman in a NY Times blog posting in which he directly identifies “conventional wisdom” as obscuring accurate perception of strong Argentine recent economic performance.
I would carry this further to the case of the recent re-nationalization of the Argentine oil company, YPF. The exaggerated external critique and prediction of economic doom once again for Argentina fails to see that this decision makes sense if the government is able to achieve its own institutional objective of making YPF a well-run enterprise serving the national interest by expanding energy production. Commentaries by The Financial Times and The New York Times, with the exception of Krugman, sound eerily similar to their alarmist predictions in 2002 that Argentina would fall off the tip of South America after the default on its debt. Conventional wisdom, I believe, as Milberg notes, is sorely in need to revision.
And while I very much agree with most of Milberg’s observations about the Argentine case, and accept his friendly critique of some parts of my book, I think that he is too easily accepting some external views, from the U.S. and Europe, that “the country is once more on the edge.” This is not true in terms of its growth, balance of payments, fiscal deficit, growing investments in infrastructure, and most importantly reduced poverty and inequality. Low unemployment continues despite some slowdown in the construction sector.
Recent policy decisions and major legislative victories by President Cristina Fernandez de Kirchner on critical issues of social policy and the reorganization of the Central Bank demonstrate . . .
Read more: Argentina Continues to Defy Conventional Wisdom: A Response to Milberg
It’s sometimes said that presidents don’t control the economic weather but rather it controls them. We have reached the moment, however, when magical powers are going to be attributed to the presidency, and the current incumbent, like the sorcerer’s apprentice, will be charged with incompetence in using them. One manifestation of this thinking is the Romney campaign’s recent claim that women have suffered more than 90 percent of the jobs lost since Obama became president, a blatant attempt to undermine his lead among women voters. This claim involves two distortions; and most of the mainstream media have caught what I view as the smaller one—namely, that the claim ignores the full history of the recession and the huge job losses borne by men when George Bush was president.
The larger distortion has generally gone unnoticed, indeed, it has been mostly accepted. According to it, some 740 thousand jobs have been lost on Obama’s watch. This claim is another expression of the Republican mantra about a “failed” presidency. And it involves some statistical crafting to fit the data to the argument, manipulating data in a way that we are likely to see a lot more of as the campaign proceeds, especially given the huge amounts of money available to hire “researchers” to come up with “facts.”
The Romney campaign arrives at the estimate by attributing to Obama all of the job losses since February 1, 2009, even though he had barely taken office at that point and there was not enough time for any of the new administration’s policies to have an impact. To understand how much timing matters in this case, recall that Obama entered the White House when the labor market was already in a swoon, and the number of jobs lost that February was more than 700 thousand, on a par with the losses for the final months of Bush’s second term. If we tally the jobs record of the current administration from March 1 instead of February 1, then the jobs deficit under Obama shrinks dramatically to 16,000 and, with any luck, will be erased in . . .
Read more: Phony Data on Jobs and the Obama Administration
Ideological clichés are deadly. In 1989, the end of the short twentieth century (1917 – 1989) with all its horrors, I thought this simple proposition was something that had been learned, broadly across the political spectrum . I was wrong, and the evidence has been overwhelming. This was my biggest mistake as a sociologist of the politics and culture.
When Soviet Communism collapsed, I thought it had come to be generally understood that simple ideological explanations that purported to provide complete understanding of past, present and future, and the grounds for solving the problems of the human condition, were destined for the dustbin of history. The fantasies of race and class theory resulted in profound human suffering. I thought there was global awareness that modern magical thinking about human affairs should and would come to an end.
My first indication I had that I was mistaken came quickly, December 31, 1989, to be precise. It came in the form of an op ed. piece by Milton Friedman. While celebrating the demise of socialism in the Soviet bloc, he called for its demise in the United States, which he asserted was forty-five per cent socialist, highlighting the post office, the military (a necessary evil to his mind) and education. He called for a domestic roll back of the socialist threat now that the foreign threat had been vanquished. Friedman knew with absolute certainty that only capitalism promoted freedom, and he consequentially promoted radical privatization as a solution to all social problems. This was an early battle cry for the neo-liberal assault of the post-cold war era.
The assault seemed particularly silly to me, and hit close to home, since I heard Friedman lecture when . . .
Read more: My Big Mistake: The End of Ideology, Then and Now
Not so long ago, during the first several decades of the post-war era, the American dream of a broad and growing middle class was a significant reality. But since the 1970s the shape of the American distribution of income has steadily become more like an hourglass: as the middle has collapsed, large numbers of workers earn very low wages and at the other end of the scale, very few take home gigantic sums.
Figure 1 shows the extraordinary reallocation of national resources from the bottom 80 percent of the population to the top 1 percent, while those in between (81st-99th) have, as a group, shown no change in their share of total income.
Source: CBO Report “Trends in the Distribution of Household Income Between 1979 and 2007″
Not surprisingly, over the last three decades many households in the bottom 80 percent have faced sharp declines in their standard of living as the costs of health care, higher education, food and energy have risen far faster than the wage check. The result has been the accumulation of unprecedented levels of mortgage, credit card, and student debt.
I have argued that the roots of the economic crisis can be found in the shift in economic thinking and public policy toward free market fundamentalism in the 1970-80s, which fueled the rise in debt, financial instability, and extreme inequality. We’ve seen a toxic mix of financial deregulation, evisceration of protective labor market institutions (like collective bargaining and the minimum wage), a political system corrupted by campaign contributions, and an increasingly polarized education system that performs poorly for most of those in the 80 percent and terribly for the most disadvantaged communities.
But this is not at all the conventional wisdom. Rather, it has become widely accepted that the government is the root cause of the economic crisis of 2008-11 and the decline in living standards for the vast majority. The problem in this conservative vision is too much regulation, too much taxation, too much encouragement of . . .
Read more: The Metrics of Protest: Extreme Inequality and the Payoff to College Degrees
I am on the road from Gdansk. It’s been an intense few days. Last Tuesday, I joined the Occupy Wall Street demonstration for a bit. By Wednesday, I was in the Gdansk shipyards, where Solidarity confronted the Party State in 1980, ultimately leading to the collapse of the Soviet Empire. I was interviewed for the Solidarity Video Archive, giving my account of the work I did with Solidarity and my understanding of the great labor movement. Immediately after which, I was taken to Gdansk University, where I gave my talk, this year’s Solidarity Lecture, “Reinventing Democratic Culture.” It opened the All About Freedom Festival. Over the weekend, I visited my family in Paris, and now I am flying over the Atlantic on my delayed flight to Newark, hoping I will get back to New York in time to teach my 4:00 class, The Politics of Everyday Life. It has been a packed week.
Unpacking my thoughts is a challenge. A new social movement is developing in the U.S., with potentially great impact. In Poland, a new generation is confronting the Solidarity legacy, trying to appreciate the accomplishments, while also needing to address new problems. Yesterday’s elections in France and especially in Poland were important. Yet, just as important for what was not on the ballot as for what was. Everywhere, there seems to be a political – society agitation and disconnect, with the politics of small things potentially contributing to a necessary reinvention of democratic culture.
I have many thoughts and will need more time to put them into a clear perspective. Here, just a start. I have a sense that things are connected: not falling apart, rather, coming together.
In the U.S., the central ideal of equality has been compromised in the last thirty years. From being a country with more equal . . .
Read more: Things Come Together: Occupy Wall Street, Solidarity, Elections and Khodorkovsky
“Power is the ultimate aphrodisiac.” Henry Kissinger, 1973
I recently returned to teaching selections from C. Wright Mills’s 1956 book, The Power Elite. The book was written in the midst of unprecedented prosperity in America, what economists Claudia Goldin and Robert Margo have called “the great compression,” when the levels of social inequality that peaked in 1929 and muddled through the next two decades were lowered and stabilized in the 1950s and 60s. It was the “good times” fifties. But Mills saw acutely that something had changed in America; that an unprecedented centralization of power “not before equaled in human history” had also been set in motion as the aftermath of World War II, whose continued development would undermine democratic institutions.
Mills claimed that “the Big Three” institutions—Corporate, Government, and Military—powered up into an interlocking directorate. Though he does not mention them, two coups of that era engineered by the CIA provide ample evidence of what Mills was describing. The overthrow of the Iranian government in 1953, which installed the Shah of Iran, was undertaken to secure British and American oil interests. Corporate oil, political, and military (particularly the burgeoning CIA) institutions realized their common interest in overthrowing the democratically elected regime of Mosaddegh. The long-term consequence was the empowerment of Islamic fundamentalism in the overthrow of the Shah in 1979.
In 1954 the CIA directed the overthrow of the democratically elected government of Guatemala, in order to keep the profits of United Fruit at their maximum. The secretary of defense, John Foster Dulles, his brother Allen Dulles, the head of the CIA, and the UN ambassador, Henry Cabot Lodge, Jr., all had investments in United Fruit, and as David Halberstam states in his book The Fifties: “The national security complex became, in the Eisenhower years, a fast-growing apparatus to allow us to do in secret what we could not do in the open. This was not just an isolated phenomenon but part of something larger going on in Washington—the transition from an isolationist . . .
Read more: The Megapower Elite
As Will Milberg anticipated, President Obama gave a speech last night that did not just involve political positioning. It was a serious Address to a Joint Session of Congress about our economic problems, proposing significant solutions. The address was also politically astute, and will be consequential. Obama was on his game again, revealing the method to his madness.
His game is not properly appreciated, as I have argued already here. He has a long term strategy, and doesn’t allow short term tactics to get in the way. He additionally understands that politics is not only about ends, but also means.
Many of his supporters and critics from the left, including me, have been seriously concerned about how he handled himself in the debt ceiling crisis. He apparently compromised too readily, negotiated weakly, another instance of a recurring pattern. In the first stimulus, healthcare reform, and the lame duck budget agreement, it seemed that he settled for less, could have got more, was too soft. But, of course, this is not for sure. I find that my friends who supported Hillary Clinton look at me, as an early and committed Obama supporter, differently now and express more open skepticism about Obama these days. But I think, as was revealed last night, that Obama’s failures have been greatly exaggerated. (Today only about political economic issues)
A worldwide depression was averted. The principle of universal health care for all Americans is now part of our law, the most significant extension of what T. H. Marshall called social citizenship since the New Deal. And, a completely unnecessary American induced global crisis did not occur. None of this was pretty. The President had to gain the support of conservative Democrats (so called moderates) and Republicans for these achievements. But it was consequential. In my judgment, despite complete, and not really loyal, Republican opposition to every move he has made, he has governed effectively, steering the ship of state in the right direction, despite extremely difficult challenges.
And during . . .
Read more: President Barack Obama: There is Method to his Madness