European authorities still punishing Greece – Can they be stopped?

from Mark Weisbrot

Alexis Tsipras has a tough job.  He is leader of the Syriza Party of Greece, a left party that has risen meteorically in the past three years: from 4.6 percent of the vote in 2009 to 27 percent last June.  It is now the most popular party in the country and Tsipras could be the next Prime Minister.

Unlike most of the eurozone’s leaders, he knows what is wrong with Greece and the eurozone, and so does his party: austerity.  “We have become the guinea pig for barbaric, violent neoliberal policies,”

Japan’s fiscal stimulus: yes, there is such a thing as a free lunch

from Mark Weisbrot

Economists like to say there’s no such thing as a free lunch – this was even the title of a 1975 book by Milton Friedman. But sometimes there is a free lunch – in a vitally important sense – and now is one of those times for a lot of countries suffering from unnecessary unemployment and in some cases, recession.

Adam Posen doesn’t want to recognize that this is the case for Japan at present. Posen is president of the Peterson Institute for International Economics, which is probably Washington’s most influential think tank on international economics. Posen is not an “austerian” economist – in the second half of the 1990s he supported expansionary fiscal policy in Japan; and more recently, as a member of the Bank of England’s Monetary Policy Committee from 2009-2012, he supported expansionary monetary policy, including quantitative easing and very low interest rates.  

Five things we can do to help fix the US economy in 2013

from Mark Weisbrot

For much of America, it still feels like we are in a recession. We have recession levels of unemployment, with the headline rate at 7.7 percent; 14.4 percent if we count the underemployed and those who have given up hope.

Here are five things we can do to get the economy back on track in 2013:

1. Federal revenue for the states: State governments need money so that they can increase employment, which has been hit very hard since the beginning of the Great Recession. We have lost teachers, firefighters, and many other workers whose absence compromises or endangers our future. Since February of 2009 the number of state and local government employees has shrunk by more than 600,000, plus an equal or greater amount that would normally have been added.
   For those who worry that the federal government is too indebted, don’t believe the hype. The most important measure of our public debt burden is the net interest paid by the government on the debt. That is currently less than 1 percent of our national income, lower than it has been in the post-World-War II era. 

Employment – not deficit reduction – should be the first priority for federal government

from Mark Weisbrot

As the much-hyped “fiscal cliff” looms at the end of the year, there is talk about “comprehensive tax reform” as part of a deal to achieve deficit reduction. For Republicans and their allies who want to minimize the taxes paid by rich people, this is one strategy: keep tax rates on rich people at historic lows (or even lower them) while supposedly closing some loopholes. These loopholes may or may not be closed, or the changes may collect more revenue from people who are not in the top 1 or 2 percent, whom they want to protect.

But the whole debate misses the boat in so many ways that it is hard to list them all in this space.

Moody’s shows it has political agenda for U.S. fiscal policy

from Mark Weisbrot

Moody’s threat Wednesday to downgrade the U.S. government’s credit rating says a whole lot more about the credit rating agency than it does about the U.S. debt situation. It is really a way of telling the world that Moody’s is making a political statement, rather than an assessment of risk for investors who want actual information about U.S. Treasury securities. This is really an embarrassment for Moody’s – since they are supposed to be evaluating risk — although most of the media didn’t seem to notice.

How the ECB came to control the fate of the world economy

from Mark Weisbrot

World stock markets and European bond markets rallied last week in response to three words that came from the mouth of Mario Draghi, the head of the European Central Bank (ECB): The ECB would do “whatever it takes” to preserve the euro. This was widely interpreted as a promise to intervene in the sovereign bond markets to push down borrowing costs for Spain and Italy.

What does this all mean to the average person in the eurozone, or in Spain where unemployment just hit a record 24.6 percent? Or in developing Asia or Africa or Latin America – or even the U.S.? Most importantly, it means that the ECB has always had, and continues to have, the power to end the immediate crisis in the eurozone, but has refused to do so. Not for any of the economic reasons commonly believed – such as worries about sovereign debt or inflation. Rather, they have refused to end the crisis for a nefarious political reason: in order to force the weaker economies of Europe to accept a regressive political agenda – including cuts in minimum wages and pensions, weakening of labor laws and collective bargaining, and shrinking the state.

Expiration of Bush tax cuts for the 1 percent are a step forward, but not enough

from Mark Weisbrot

President Obama is currently confronting mostly Republican opponents over whether to extend the Bush tax cuts to the richest 1 percent of taxpayers. Between 1979 and 2007, the richest 1 percent received three-fifths of all the income gains in the country. Most of this went to the richest 10th of that 1 percent, people with an average income of $5.6 million (including capital gains).

So this is a no-brainer in terms of fairness: Allowing the Bush tax cuts to expire for the richest 1 percent of Americans would reverse some of the vast upward redistribution of income that has taken place since the late 1970s. However a couple of caveats are in order.

Wrong lessons from Latvia for the Eurozone

from Mark Weisbrot

Latvia, a Baltic country of 2.2 million that most people could not find on a map, has suddenly gotten more attention from economists involved in the debate over the future of Europe and the global economy. I responded in a column last week to remarks by Christine Lagarde, IMF Managing Director, who on June 5 said that Latvia’s policies in response to the economic crisis had been a “success story.” Paul Krugman has also weighed in several times, and has been joined by Harvard international economist Dani Rodrik, and now by the IMF’s Chief Economist Olivier Blanchard.

The reason it’s important to have an honest and realistic assessment of what happened in Latvia is that for the first time since the country suffered the world’s worst economic losses during the world recession (2008-2009), there are mainstream voices suggesting as Lagarde did, that it “could serve as an inspiration for European leaders grappling with the euro crisis.” Prior to the last week or so, it was only right-wing economists such as Anders Aslund who were willing to even consider this idea.

IMF Chief Praises Latvian “Success Story” – A Scary Speech for the Eurozone

from Mark Weisbrot

IMF Managing Director Christine Lagarde has made conflicting remarks in the last few months indicating that she might have doubts – shared by IMF economists — about the self-destructive economic policies that are pushing the eurozone deeper into recession and causing a financial crisis. This despite her comments that offended many Greeks two weeks ago, in which she appeared dismissive of the mass unemployment and suffering in Greece, saying that she worried more about poor children in Niger who “need even more help than the people in Athens.”

But this week she really flip-flopped over to the far-right side of the policy spectrum. In a June 5 speech in Latvia she praised the government’s economic policy as a “success story” that “could serve as an inspiration for European leaders grappling with the euro crisis.”

Spain’s government and European authorities bent on dismantling welfare state

from Mark Weisbrot

MADRID — I have argued for some time now that the recurring crisis in the eurozone is not driven by financial markets’ demands for austerity in a time of recession – as is commonly asserted. Rather, the primary cause of the crisis and its prolongation is the political agenda of the European authorities – led by the European Central Bank and European Commission. These authorities — which if we included the IMF constitute the so-called “Troika” that runs economic policy in the eurozone — want to force political changes, and particularly in the weaker economies, that people in these countries would never vote for.

This is becoming more obvious here in Spain, where the government – run by the right-wing Popular Party (PP) – shares the political agenda of the European authorities, perhaps even more than the IMF does. 

Argentina and the magic soybean: the commodity export boom that wasn’t

from Mark Weisbrot

One of the great myths about the Argentine economy that is repeated nearly every day is that the rapid growth of the Argentine economy during the past decade has been a “commodity export boom.” For example, The New York Times reported last week:

“Riding an export boom for commodities like soybeans, Argentina’s economy grew at an average rate of 7.7 percent from 2004 to 2010, almost twice the average annual growth of 4.3 percent in Chile, a country often cited as a model for economic policies, over the same period.”

Michael Shifter, the President of the Inter-American Dialogue and probably the most-quoted source on Latin America in the U.S. press, wrote in a disparaging article about Argentina this week that

“If the sales and price of soybean, Argentina’s principal export (mainly to China), remain high, then the country may be able to continue its path of economic growth. “

I haven’t seen any economists make the claim that Argentina’s remarkable economic growth over the past nine years – which has brought record levels of employment and a two-thirds reduction in poverty – has been driven by soybeans or a commodities export boom. Maybe that’s because it’s not true. 

Eurozone austerity faces increasing political challenges as economy worsens

from Mark Weisbrot

It has become a ritual: every six months I debate the IMF at their annual meetings, most recently represented by their Deputy Director for Europe. It takes place in the same room of that giant greenhouse-looking World Bank building on 19th Street in Washington, D.C. And the IMF’s defense of its policies in the eurozone is not getting any stronger.

Maybe it’s because most economists at the IMF don’t really believe in what they are doing. The Fund is, after all, the subordinate partner of the so-called “Troika” – with the European Commission and the European Central Bank (ECB) calling the shots. And most Fund economists know their basic national income accounting: fiscal tightening is going to make these economies worse, as it has been doing. Those that have tightened their budgets the most, e.g. Greece and Ireland, have shrunk the most – as would be predicted. The Spanish government, which today announced a 52 percent unemployment rate among its youth, has projected that the planned budget tightening for this year would by itself take 2.6 percentage points off of 2012 growth.

Argentina’s critics get it wrong again

from  Mark Weisbrot

The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press.

We have heard all this before. When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, the economy would spiral downward into deeper recession.

Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere. Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled.

Mélenchon could change French politics with strong showing

from Mark Weisbrot

France’s conservative President, Nicolas Sarkozy, ran for office in 2007 on a program of making the French economy more like that of the United States. He picked a bad time for that: the U.S. was on the brink of its worst recession since the Great Depression, and would help drag down Europe and much of the world economy as the American economy collapsed. He probably wouldn’t want to say these things today, after the U.S. has had four years with hardly any economic growth at all.

But Sarkozy did succeed in making the French economy more like the U.S. in some ways. After being one of the few high-income countries that didn’t have an increase in inequality from the mid-1980s to the mid-2000s, France has become more unequal since Sarkozy was elected. For example,

Do Environmentalists Have An Interest In Who Controls Oil Resources?

from Mark Weisbrot

Environmentalists seem to realize that they have some stake in a fight such as the Ecuador-Chevron lawsuit. In that case, which Chevron has recently moved to an international arbitration panel in an attempt to avoid a multi-billion penalty handed down by Ecuadorian courts, it is about whether a multinational oil corporation will have to pay damages for pollution, for which it is responsible. Most environmentalists figure that would be a good thing.

But what about fights between multinational oil giants and the governments of oil-producing states, over control of resources? Do people who care about the environment and climate change have a stake in these battles? It appears that they do, but most have not yet noticed it.

President Obama’s budget is disappointing

from Mark Weisbrot

President Obama’s proposed budget has a few interesting proposals for reforms over the next decade.  Among the best are the proposals to rescind the Bush tax cuts for households with incomes of more than $250,000 and to tax dividends for stockholders among this group as ordinary income.  These and a few other proposals would sum up to a small but significant step in the opposite direction from where this country has been going for the past three decades:  i.e. a vast upward redistribution of income to the rich and the super-rich.

But those concerned with the immediate future are likely to be disappointed.  Most Americans have to work for a living, but there are more than 25 million, or 15 percent of the labor force that are either unemployed, have given up looking for work, or are involuntarily working part time.  The main reason for that is quite simple: There is not enough demand for goods and services in the economy in order to employ them. 

Economists may contribute to a “lost decade” for America

from Mark Weisbrot

The American Economic Association’s annual meetings are a scary sight, with thousands of economists all gathered in the same place – a veritable weapon of mass destruction.  Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”

The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it.  Yawn.

Europe’s Crisis and Latvia’s “Success”

from Mark Weisbrot

In recent months some advocates of Europe’s austerity policies have been touting Latvia as a “success story” that shows how “internal devaluation” can work. This was the theme of a book published earlier this year by the Peterson Institute for International Economics, one of Washington’s most influential think tanks. The book was co-authored by the Institute’s Anders Aslund and Latvia’s Prime Minister Valdis Dombrovskis.

The case study is very relevant to Europe because there are important similarities between Latvia’s economic strategy since 2008 and that now being promoted by the European authorities – the European Commission, the European Central Bank, and the International Monetary Fund (IMF), otherwise known as “the Troika.”

Eurozone crisis enters new phase as ECB fights Europe for austerity

Mark Weisbrot

The house is on fire and the owners are arguing about what kind of safety regulations should be implemented in the future so as to prevent these types of fires.  That is what appears to be going on in the eurozone right now, as European leaders try to reach agreement on a series of measures that would impose “fiscal discipline” on member states in the future.

Protesters Reflect Vast Majority on 99 Percent of Most Major Issues

from Mark Weisbrot

The Occupy Wall Street movement that has spread to scores of cities claims to represent “the 99 percent.”  Do they?  Ninety-nine percent is perhaps too high a bar for public opinion.  But the movement does represent the vast majority – who theoretically should be an important constituency in a democracy. And on many issues, they really do represent the interests of the 99 percent.

The distribution of income is an obvious starting point, given what has happened to America over the past three decades.