Friday, December 2, 2011

Depression 2.0

Paul Krugman is an unusual economist, a fan of the free market concerned deeply with inequality. He is, compared to op-ed writers both at the Times and in the rest of the mainstream press, knowledgeable and has an unfaltering understanding of what is true in Keynsianism. With the elimination of Bob Herbert and Frank Rich, he is now the one pretty reliable, insightful writer on the New York Times op-ed page (there are occasional good editorials on torture; Kristof occasionally has a good piece like the one yesterday on the wrong of TARP, guest writers occasionally, Dowd, in her ghetto, has a quip…). Already a very rightwing though sometimes intelligent paper and still within the context of a broadly speaking rule of law regime, the Times’s editorial page and the new Sunday Review are now moving toward vacuity and the authoritarian Right…

In the media and political elite, there is an ignorant claque for deficit reduction in a depression. It is spurred by reactionary – anti-the 99% - financing by the Koch brothers and other billionaires and has bought significant influence not only in the ordinary media ("He said" - the Koch brothers, the Republicans, George Bush think there isn’t climate change and the moon is made of yellow and black polka dots), she said - scientists disagree- “journalism”). Even though there was once widespread agreement among economists that the stimulus should be larger ($1.2 trillion roughly rather than $800 billion, only $600 of which was in spending on projects to employ the unemployed and the rest tax cuts though focused on the poor and remaining "middle class"), there is a significant cry for watching out for inflation (no danger at the moment, and a deflationary spiral is rather more likely if this crisis keeps going) and a denial of the obvious truth. Give money to poor Americans for work and they will spend in America while restoring infrastructure. Give money to the 1/10 of 1%, in the Republican or imperial authoritarian mantra, and they will spend it on a 7th vacation house in Monte Carlo, invest it in China (what Goldman Sachs did with its bailout money), or save it. Though the Republican word "artist" Frank Luntz has invented the false name "job-creators," the financial casino in which much of this elite resides creates no product, just speculates, though it did manage to wreck the world economy: more aptly, job-destroyers.

Investing in needed work by the unemployed leads to a multiplier effect, stimulating the American economy in real productivity. Alms to the 1/10th of 1% stimulates nothing (except perhaps China).

Super-patriots, starting with Ronnie Reagan, borrowed from China to pay for tax cuts largely for the rich coupled with military spending…If you want to understand why being a Republican Presidential candidate is an invitation to crazy (Ron Paul on foreign policy and civil liberties excepted, and to slight extent Huntsman), trying to cover up for stealing from the bottom 99% to foster the anti-patriotic, unproductive excess and criminality of 1/10 of 1% is a pretty good reason (some in the top 1/10% have been speaking out about how bad all of this is – doing something decent about the economy would probably save the sanity of quite a number, not to mention furthering a common good).

The Euro is about to collapse because, in spite of the central banks including the Fed greasing the wheels with large secret loans (the $7.7 trillion loan during the 2008 destruction of the world economy by the banks at 0.01% interest, not made known to Congress during the hearings on Dodd-Frank – see Jon Stewart here who along with Colbert and the Onion is more worth attending to, often, than the Times). Europe has a common currency but without a central bank with powers like the Fed and without a sufficient common labor market (students and immigrants move everywhere and are often protected, but this is not sufficient). Each economy is tied to the Euro and the demands of bankers (Goldman Sachs is in Europe, too) to have deficit reduction even where the impoverishment is, in certain ways , more extreme than here – Greece, Spain* - is devastating. There is no way out of desperate poverty for ordinary Hellenes and others if they stay in the Euro block. The Euro is increasingly hated from below and for moral reasons. It privileges the top 1/10 of 1% at the expense of everyone else; Occupy, as in Occupy Berlin and Occupy Amsterdam, is now a democratic internationalist movement from below….

2 million workers just had a general strike in Britain (the biggest since 1926). Even the "Labor" Party which opposes strikes did not blame the workers. There is a tectonic shift going on day by day…

Arab spring and Occupy have changed the discourse...

But the Democrats as well as the Republicans engage otherwise in a reactionary two step; the Republicans (imperial authoritarians inhabiting some other planet) move policy on war, on civil liberties and on the economy ever to the right, the Democrats, tied to them, a tad better but often acquiescing. Using the reactionary two-step, the immense war and prison complex, topped by a financial casino, what the American economy has been made increasingly over the last 30 years, is reluctant to give up its hold, and may have torpedoed – through the kind of publicity it creates, the ignorant, the deficit criers, citing other ignorant publicists and economists in a hullabaloo of political noise - well-known methods of “saving capitalism” from the worst.** The politics and punditry of the war complex and the casino make an even worse depression, unfortunately, very likely…

For instance, Obama’s proposals, hamstrung now by Republican and some Democratic blowhards, are decent but if entirely enacted, would cut unemployment about 1%. That is some millions of people - and would be good - but it is hardly putting America back to work. (Today, the government announced that the unemployment rate dropped from 9% to 8.6%. This is not much of a gain (in real terms, the unemployment rate is much higher, around 16% especially because while 120,000 jobs were created and the household survey reported a surge, many also dropped out of the labor force - those registering with an unemployment office as looking for work.. Still, it is good, however dark the general picture, to see movement in a decent direction).

It would take a great movement from below which we have in Occupy, constant civil disobedience, and a Democratic landslide (I include civil disobedience at the offices of Democrats, some 15 of whom led by Carl Levin, just put the tyrannical idea that the President can lock up and throw away American citizens under the allegation that they are “terrorists” into a Pentagon Bill,*** the Democrats, as we have seen, are on the Republicans' hook and when they had an electoral majority still crippled by the Senate (which purportedly and bizarrely requires a majority of 60 to pass anything,,,) and only a bit better than the Republicans; Democrats are obedient to and divided by the same economic masters) to get the simple truth in Krugman’s column below somewhat into policy, not prevent an even deeper, more catastrophic depression - that is probably no longer possible - but perhaps, in the next few years, abate it.

Of course, if the country “elects” Newt, now a possibility in an economic collapse, or Romney, Netanyahu may bomb Iran, setting off a further, catastrophic war in the Middle East, the American President will then be in a position to preside over the destruction on much of the planet before the depression can do its full damage. Even Obama and the Democratic think-tank experts are weak in trying to prevent this (this results from a general American political craziness, particularly reflecting the influence of AIPAC in Congress – though, of course, AIPAC does not represent ordinary jews, 80% of whom opposed a war with Iran before the recent press rollout in Israel), Would that this scenario were only black humor!****

Even commentators like Andrew Sullivan who think some short term stimulus is necessary but are also deficit hawks can’t fully get their minds around the seriousness of the situation, as Europe and the US slide into an abyss. Krugman’s words here sadly are true, the most forceful that could be slipped in as one intelligent opinion among fatuities (Bill Keller is the leader, now reprehensibly with an editorial column, David Brooks and Ross Douthat close behind) in the Times. If taken in, this column is frightening:

Killing the Euro

By PAUL KRUGMAN

Published: December 1, 2011

Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely

True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.

How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!

But the truth is nearly the opposite. Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse.

The story so far: In the years leading up to the 2008 crisis, Europe, like America, had a runaway banking system and a rapid buildup of debt. In Europe’s case, however, much of the lending was across borders, as funds from Germany flowed into southern Europe. This lending was perceived as low risk. Hey, the recipients were all on the euro, so what could go wrong?

For the most part, by the way, this lending went to the private sector, not to governments. Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.

Then the bubble burst. Private spending in the debtor nations fell sharply. And the question European leaders should have been asking was how to keep those spending cuts from causing a Europe-wide downturn.

Instead, however, they responded to the inevitable, recession-driven rise in deficits by demanding that all governments — not just those of the debtor nations — slash spending and raise taxes. Warnings that this would deepen the slump were waved away. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, then the president of the European Central Bank. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”

But the confidence fairy was a no-show.

Wait, there’s more. During the years of easy money, wages and prices in southern Europe rose substantially faster than in northern Europe. This divergence now needs to be reversed, either through falling prices in the south or through rising prices in the north. And it matters which: If southern Europe is forced to deflate its way to competitiveness, it will both pay a heavy price in employment and worsen its debt problems. The chances of success would be much greater if the gap were closed via rising prices in the north.

But to close the gap through rising prices in the north, policy makers would have to accept temporarily higher inflation for the euro area as a whole. And they’ve made it clear that they won’t. Last April, in fact, the European Central Bank began raising interest rates, even though it was obvious to most observers that underlying inflation was, if anything, too low.

And it’s probably no coincidence that April was also when the euro crisis entered its new, dire phase. Never mind Greece, whose economy is to Europe roughly as greater Miami is to the United States. At this point, markets have lost faith in the euro as a whole, driving up interest rates even for countries like Austria and Finland, hardly known for profligacy. And it’s not hard to see why. The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse.

I hope, for our sake as well as theirs, that the Europeans will change course before it’s too late. But, to be honest, I don’t believe they will. In fact, what’s much more likely is that we will follow them down the path to ruin.

For in America, as in Europe, the economy is being dragged down by troubled debtors — in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives.

So the next time you hear someone claiming that if we don’t slash spending we’ll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we’ll turn into Europe. In fact, we’re well on our way.

*There is tremendous youth unemployment in Greece and Spain. but education is paid for - the young are burdened with no comparable debt to drag down their lives – as is health care. Young people also have no special problem with the prison system, compared to the immense prison/probation complex in the United States and its focus on poor black and latin teenagers.

**Richard Gilbert, my father and the first Keynsian economist in the United States, serving in the Roosevelt administration, published an essay in a volume edited by Seymour Harris aptly called Saving American Capitalism.

***Mark Udall, to his credit opposed this, as did Rand Paul.

****This is reminiscent of Robert Frost’s poem:

Fire and Ice

Some say the world will end in fire,
Some say in ice.
From what I've tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.



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