Europe’s appalling handling of a euro crisis that was always going to happen, given its faulty architectural design, has triggered an electoral result in the recent European Parliament elections that is a clarion warning that Europe is decomposing. And it is decomposing precisely because of the Left’s spectacular failure to intervene both during the construction phase of Europe’s economic and monetary union and, more poignantly, after the latter’s crisis had begun.
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After the United States had lost its surpluses, some time in the late 1960s, the system of fixed exchange rates and highly regulated capital movements, which had nurtured capitalism’s Golden Age, was condemned. Its inevitable collapse could not but push the dollar down, release the bankers from their thirty-year-old restraints, and wind back rights and services that labour had wrestled from capital since the war.
Mrs. Thatcher’s 1979 electoral victory was a pivotal moment in the post-Bretton Woods era. It marked a moment of truth when the establishment proved less (small ‘c’) conservative than the working class and the Left. Feeling its grip on power weakening, Britain’s bourgeoisie reluctantly, yet consciously, gave Mrs. Thatcher the green light to swing her wrecking ball through the steel industry, the car and lorry factories, the coalmines, the shipyards; though each and every work site where the “enemy within,” i.e. organised labour, congregated. The Left’s reaction was to defend livelihoods by seeking to defend a business model that business itself had no longer any interest in. It is small wonder, therefore, that the Left was mightily defeated, as the threat to strike becomes pointless when the capitalist is no longer interested in…production.
The Thatcher governments were not responsible for the tidal change that swept Britain’s industrial model overboard. The decline was evident before 1979 and, as we have witnessed in continental Europe ever since, labour and industry were on a losing streak everywhere. However, what Mrs. Thatcher did do was: (a) to create the ideology necessary to present de-industrialisation as a progressive, populist political project, (b) to nurture, foster and inflate a twin bubble (real estate and finance) that drove British capitalism at a time of industrial subsidence, and (c) to export her new-fangled ideology and her twin bubble to the rest of Europe.
“This is the story of the next half-century as we effectively become cyborgs.” – Joshua Foer, New York Times Magazine, May 18, 2011
It says much that one of the great technological achievements of the last twenty years is a creation emphasising the writing of 140 characters, the tailored, high-speed medium of communication that has effectively created a virtual community, with a set of virtual ethics and codes of misconduct. It has become the parasite of conversations – one doesn’t so much have conversations as fingering sessions on blackberries and iPhones. The real, a term that has ceased being popular, is left behind.
Twitter addicts are incapable of actually having a conversation beyond the cyber community they have constructed. Therein lies salvation, and perhaps destruction, for them. Then comes the other side, one of revolt against such tendencies. Either you stay off it or at the very least escape the Blackberry world. This is an option suggested by Gwyneth Paltrow. Go to Spain, she suggests, where she assumes that a relaxed life repels the need to be on the grid. The Spanish “don’t always have their Blackberrys on.”
With the House of Representatives approving a Senate bill to end the government shutdown and raise the debt ceiling, a dysfunctional 16 days has finally come to an end.
Among the negative effects of the shutdown was the furloughing of hundreds of thousands of government workers, delayed hiring, temporary closure of federal landmarks and parks, and about 24 billion USD of lost economic activity according to the ratings agency, S&P. One effect, which is strangely missing is a negative impact on global stock markets. One would expect prices to have suffered as they did in the run up to the last debt ceiling deadline in the summer of 2011, but equity markets around the world rallied in the days leading up to the October 17th deadline.
The last two debt ceiling crises ended in similar ways; default was narrowly avoided at the last minute after weeks of partisan politics devoid of compromise. The market reactions however, were very different. The average performance of five major global stock indices (Dow Jones Industrial Average, FTSE 100 in London, CAC 40 in Paris, DAX in Frankfurt, and Honk Kong’s HSI) in the five trading days before a deal was announced yesterday was a 2.72% increase in value. The average movement for the same indices in the five days leading up to a 2011 deal was a 2.20% decrease in value. What conclusions can be drawn from the two market reactions to the debt ceiling crises?
The subprime crisis – and the following global crisis – set in when a bank considered “too big to fail” was actually allowed to fail and go bankrupt. Despite five years of reform efforts, the too-big-to-fail syndrome is far from a memory, and it is imperative that economic decision-makers do not divert their attention from this issue so easily.
On the contrary, more research into analyzing the costs and benefits of various structural reform schemes would help monetary authorities put the world’s financial system back on the right track. Prior to the subprime crisis, 29 large global banks saw their ratings raised to just over one point by credit rating agencies because markets expected that they would be able to get state support. Today, those same behemoths benefit from hidden support of nearly three notches, and expectations of public funds support have tripled since the beginning of the crisis.
In real terms, this amounts to an enormous subsidy to the world’s largest banks at artificially low funding costs, ensuring greater profits. Before the financial crisis hit the world economy, tens of billions of dollars were put in big banks as reserves on an annual basis; today, it amounts to hundreds of billions. In other words, if we are to believe the financial market’s expectations, the regulations put in place by governments and international institutions have not prevented the “too-big-to-fail” syndrome.
Russian poverty is unnecessary. Like all poverty in today’s high-productivity age, it is the result of bad policy. There is no technological need for it, nor is Russia lacking in a full spectrum of natural resources and economic potential. So future historians no doubt will puzzle over how the nation was convinced to de-industrialize its economy and impoverish much of its population in favor of exporting fuels and minerals, and to impose more regressive taxes on labor and industry than existed anywhere in the West – having been assured that this would streamline growth, not stifle it.
Neoliberal advisors promised that Russia would become more efficient and affluent by following an almost diametrically opposite path from that which Britain, the United States, Germany, Japan and modern China took to raise themselves to industrial power – the policies that classical 19th-century liberals endorsed to reduce the power of rentiers over the economy and government. Instead, post-Soviet polarization between rich and poor over the past twenty years has seen falling living standards and a dismantling of manufacturing, education and public infrastructure go hand in hand with creation of a new class of instant billionaires at the top of a steeper economic pyramid than exists in Western industrial powers.
This polarization was implicit in the policy advice outlined in 1990, a year before the Soviet Union dissolved, at meetings with the International Monetary Fund, World Bank and other inter-governmental organizations in Houston, Texas. It is part of the worldwide dynamic of financialization centralizing planning in the banking sector – a combination of debt leveraging, privatization and dismantling government’s traditional role.
Looking at the latest US data, business sentiment and capital spending have been eroding, and given the lagged impact of capex, that trend looks set to continue for the next few months.
Against that, a number of consumer sentiment indicators remain upbeat and housing looks like it is in a firmly established uptrend, after a 5 year bear market. In fact, the existing home inventory to sales ratio is as low as it ever gets, and that is with still very depressed sales. If sales pick up further, given low inventories and with new housing starts still below the replacement rate, home prices could lurch forward.
That said, the markets have been fairly upbeat given the rising perception of a deal to avert the US falling off the ‘fiscal cliff’. But even a deal that drains, say, 1-1.5% of GDP will have negative consequences for the US economy. Bear in mind that the U.S. still has a very high ratio of private debt to GDP. Therefore any such fiscal restriction as contemplated by the two parties may result in a significantly lower economic growth rate than the average 3% rate of the last five quarters (which is what the revised economic data of the past few quarters will eventually show).
The White House currently confronts a rare coincidence of environmental and fiscal pressures.
Hurricane Sandy has raised the visibility of climate change as a national issue; the storm was the latest in a series of extreme weather events over the past ten years. Ocean surface temperatures have increased over the past few decades, and this trend contributed to Sandy’s gargantuan size and strength. Many scientists attribute this ocean warming to global climate change abetted by human activities.
Meanwhile, the imminent “fiscal cliff” threatens to end the U.S. economy’s recovery. “It’s unambiguously the case that these measures will slow down growth,” said Joseph Stiglitz, a Nobel Prize winner in Economics, in reference to the provisions mandated by the year-end budget agreement. Congressional leaders are scrambling for stop-gap measures, but are hesitant to commit to any one solution. A carbon tax, proposed by the White House, would address these grave concerns—helping the nation avert the fiscal cliff and stabilize its climate at the same time.
The Democrats could not have won so handily without the Citizens United ruling. That is what enabled the Koch Brothers to spend their billions to support right-wing candidates that barked and growled like sheep dogs to give voters little civilized option but to vote for “the lesser evil.” This will be President Obama’s epitaph for future historians.
Orchestrating the election like a World Wrestling Federation melodrama, the Tea Party’s sponsors threw billions of dollars into the campaign to cast the President’s party in the role of “good cop” against stereotyped opponents attacking women’s rights, Hispanics and nearly every other hyphenated-American interest group. In Connecticut, Senate candidate Linda McMahon spent a reported $97 million (including her earlier ego trip) to make her Democratic challenger look good. It was that way throughout the country. Republicans are pretending to wring their hands at their defeat, leaving the Democrats to beat up their constituency and take the blame four years from now.
Obama’s two presidential victories represent an object lesson about how the 1% managed to avoid rescuing the economy – and especially his own constituency – from today’s rush of wealth to the top. Future political annalists will see this delivery of his voters to his Wall Street campaign contributors control as his historical role. In the face of overwhelming voter opposition to the Bush-Cheney policies, the President has averted popular demands to save the economy from the 1%. Instead of sponsoring the hope and change he promised by confronting Wall Street, the pharmaceutical and health care monopolies, the military-industrial complex and big oil and gas, he has appeased them as if There is No Alternative.
The Republican Party is in a state of disarray and needs to change. Mitt Romney’s presidential campaign, and the extreme positions from which he is now trying to distance himself, provides insights into this situation.
It is not surprising that Governor Romney tacked hard to the right during the Republican primary and is now emphasizing a more moderate brand in his latest incarnation of himself. Nonetheless, I am concerned about a range of public policy issues: the deficit, a disastrously dysfunctional Congress and the rising cost of higher education. I am also worried that there is no overarching strategy that underpins American foreign policy today. Yet, as this election cycle painfully draws to a close, what bothers me the most is the current state of the Republican Party and its dismal prospects for the future.
During the next two years, the party leadership (and others) should think long and hard about the type of party they’d like to be and what that means given America’s irreversible demographic trends (towards a less white, more ethnically diverse electorate) and the way that peoples’ positions on social issues are shifting. The Democrats have their far-left crazies for sure, but I am worried that Republicans may be cornering the market on insanity.
“Deficits don’t matter” was the refrain from the previous three Republican administrations justifying their unwillingness to adhere to their fiscally conservative campaign platform and doling out corporate welfare to any company aligned with their interests. It was utilized as a means to defend the nation’s ballooning deficit: depicting it as a temporary consequence to ensure the countries domestic economic stability.
During the past twelve years, as the United States’ debt rose perceived economic stability collapsed. As a result, the population has become increasingly concerned as to whether Washington can keep its fiscal house in order. America’s optimism has ebbed and flowed in the past, and most reactions to these events were a result of declinist thought and an over-inflated perception of the state’s position in the world. These were primarily the result of fear-mongering, perpetuated by the country’s leadership and media personalities, as well as consequences from ill-conceived domestic policies. To clarify, debts matter and the economy’s growth is painfully slow, but the country’s economic collapse is not “imminent”.
The American people have consistently relied on past events to reinforce their beliefs on the nation’s strength in defending their way of life. It is no wonder that not a decade has passed in the modern era in which declinism has not taken root. Similar to the national leadership that changed its mind about the importance of the nation’s deficit – now that a Democrat is in the White House – Americans are grappling with two diametrically opposing views of the country: perceiving it as both the strongest and weakest nation in the world. Many have lamented Washington’s inability to create a secure and equitable country, while, nearly in the same breath, reference how the government aided in promoting policies that have led to a better, more vibrant nation.
Professor Jeffrey D. Sachs, director of the Earth Institute at Columbia University, was named among the 100 most influential leaders in the world by Time Magazine in 2004 and 2005. Sachs, the Quetelet Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is also Special Advisor to United Nations Secretary-General Ban Ki-moon. From 2002 to 2006, he was Director of the UN Millennium Project and Special Advisor to United Nations Secretary-General Kofi Annan on the Millennium Development Goals, the internationally agreed goals to reduce extreme poverty, disease, and hunger by 2015.
President Obama and the GOP Congressional leadership are at an impasse.
Failure to reach an agreement on the debt ceiling by Aug. 2nd carries the likely consequence that the U.S. will default on its financial obligations, resulting in unforeseen and unwanted consequences. For the U.S. to continue to borrow in order to pay its obligations, Congress must raise the nation’s debt ceiling of $14.3 trillion dollars. As economists from across the political spectrum urge raising the debt limit, Congress’s inability to do so largely hinges on disagreements between “pro-tax” Democrats and “anti-tax” and spending Republicans.
“[We] urge Congress to raise the federal debt limit immediately and without attaching drastic and potentially dangerous reductions in federal spending…Failure to increase the debt limit sufficiently to accommodate existing U.S. laws and obligations also could undermine trust in the full faith and credit of the United States government, with potentially grave long-term consequences. This loss of trust could translate into higher interest rates not only for the federal government, but also for U.S. businesses and consumers, causing all to pay higher prices for credit. Economic growth and jobs would suffer as a result,” 235 economists urged in a letter to Congressional leaders.
With just cause, a recent spate of journalism has deplored the absence of culpable Wall Street executives in federal jail cells across America.
Major investment banks perpetrated systemic fraud against the public and wrecked consumer confidence in the credit and housing markets, contributing to the 2008 financial meltdown; yet, their most complicit leaders still do business, uncounted, uncharged, and unpunished. Government regulators and lawyers often explain the delayed justice. Legal cases against major investment banks, they hold, require sharply drawn lines of evidence; common-law fraud claims, for example, require demonstration of criminal intent. Federal regulators, moreover, hate to approve bailouts to big banks and watch that recovery money pay legal fees rather than create new jobs. Prosecutorial zeal against mortgage-bundling banks also discredits the efforts of well-intentioned federal housing officials to boost home ownership rates.
Historically, few executive corporate malefactors have evaded justice as skillfully as the class of 2008. Enforcement and punishment has waned since the late 1980s, when prosecution of banks responsible for the saving and loan crisis sent more than 800 officials to jail. Syracuse University’s Transactional Records Access Clearinghouse records that in 1995, bank regulators referred 1,837 cases to the Justice Department; in 2006, that tally declined to 75; from 2006 to 2010, an average of 72 cases a year have been referred to Justice for prosecution. The 2002 Enron meltdown resulted in a twenty-four year jail sentence for company president Jeffrey Skilling.