Cohen and Krugman

In “Politics Upended in Britain and America” Mr. Cohen says that Corbyn, Trump and Sanders are the authentic outsiders riding anger at politics as usual. It’s a season of radical discontent.  Yeah, Roger, Bernie Sanders is an “outsider,” having been a Congressman from 1991 – 2007, and a Senator since then.  Putz.  In “A Moveable Glut” Prof. Krugman explains what happens when too much money is chasing too few investment opportunities.  Here’s Mr. Cohen:

Very little appears to link Jeremy Corbyn, who has emerged from nowhere to become the favorite to lead the British Labour Party, with Donald Trump, the equally surprising front-runner for the Republican nomination.

Corbyn is a slight, quiet, parsimonious radical leftist who is anti-money, anti-meat, anti-war and pro-nationalization of banks. He has, to put it mildly, deep misgivings about America. Trump is a large, loud, self-promoting businessman who is pro-money, pro-market and wants to “Make America Great Again” by unleashing its animal entrepreneurial spirit and putting the red meat back in political discourse clogged by political correctness. He has spoken approvingly of John Bolton, hawk of neocon hawks among Republican foreign policy officials.

But the two men do have a couple of things in common. Both opposed the Iraq war (Trump thought Mexico might be a more sensible target). More importantly, both speak their minds at a time when a lot of people in Britain and the United States have had it with politics as usual and the mealy-mouthed, finger-to-the-wind calibration of the political persona.

Rupert Murdoch recently tweeted that Corbyn would probably triumph in the Labour Party leadership election for this reason: “Corbyn increasingly likely Labor winner. Seems only candidate who believes anything, right or wrong.” The result is to be announced Sept. 12 (elections in Britain are not multiyear affairs as in the United States).

This is a season of radical discontent. People believe the system is rigged. They have good reason. Rigged to favor the super-rich, rigged to accentuate inequality, rigged to hide huge increases in the cost of living, rigged to buy elections, rigged to put off retirement, rigged to eviscerate pensions, rigged to export jobs, rigged to sabotage equal opportunity, rigged to hurt the middle class and minorities and the poor. Increasingly unequal societies have spawned anger, an unsurprising development. The anger is diffuse, in search of somebody to articulate it, preferably in short declarative sentences.

It’s the same anger, in many respects, that produced the leftist Syriza government in Greece and the rise of the rightist National Front in France. Enter Corbyn and Trump and, of course, Senator Bernie Sanders of Vermont.

Corbyn has been described as “attractive in a world-weary old sea-dog sort of way.” He’s against everything Tony Blair stood for: the slick, centrist makeover of the Labour Party that allowed it to win election after election, and also allowed Peter Mandelson, a guru of New Labour, to declare that he was “intensely relaxed about people getting filthy rich.” Corbyn wants to go back to socialism. So does Sanders, a socialist in America who is drawing huge crowds.

As my colleague Jason Horowitz wrote of Sanders: “For someone who has always had a sweepingly macro, if not entirely Marxist, critique of America, having the largest crowds of the election cheering each description of income inequality, and each proposal to eradicate it, amounts to the validation of a career spent in relative obscurity. Mr. Sanders’s grumpy demeanor, his outsider status and his suspicion of all things ‘feel good’ are part of the attraction.”

On both sides of the Atlantic, grumpy is good in politics. Outsider is good. Plain talk is good. Trump’s “Deal with it,” is the phrase du jour.

Sanders wants to expand Social Security, take America to a single-payer European-style national health system, invest massively to restore America’s crumbling infrastructure, make public college tuition free, get rid of “starvation wages” for workers, tax Wall Street trading, end America’s wars, and break up banks that are too big to fail.

His message is important. It’s resonating because it precisely reflects the current unease. Hillary Clinton cannot ignore it.

Trump is not going away. His base of support is broad. America always wants to dream of some riveting reinvention; he’s captured that longing for now. In polls of Republicans he leads among women, despite his denigration of them; he leads among evangelical Christians; and he leads among the college-educated, not an obvious constituency for his populist anti-immigrant message. He has people nodding their heads, as when he calls his rival Jeb Bush a “low-energy” guy.

Corbyn, however, may well be the only one of the three outsiders who wins anything. He’s likely to be the next Labour leader. That would be a disaster.

He has almost no support among Labour members of Parliament; no experience of running anything; has called Hamas and Hezbollah “our friends” (but says he was misunderstood); forgot (before remembering) that he’s socialized with a Lebanese extremist who called 9/11 “sweet revenge” and has since been banned from Britain; wants Britain out of NATO; and has a European leftist’s de rigueur view of America as the source of the world’s problems. If he’s chosen, Labour could disintegrate. It certainly won’t win an election.

But Corbynmania shows no sign of abating. It’s a new season in politics. Anything could happen, either side of the pond.

Now here’s Prof. Krugman:

What caused Friday’s stock plunge? What does it mean for the future? Nobody knows, and not much.

Attempts to explain daily stock movements are usually foolish: a real-time survey of the 1987 stock crash found no evidence for any of the rationalizations economists and journalists offered after the fact, finding instead that people were selling because, you guessed it, prices were falling. And the stock market is a terrible guide to the economic future: Paul Samuelson once quipped that the market had predicted nine of the last five recessions, and nothing has changed on that front.

Still, investors are clearly jittery — with good reason. U.S. economic news has been good though not great lately, but the world as a whole still seems remarkably accident-prone. For seven years and counting we’ve lived in a global economy that lurches from crisis to crisis: Every time one part of the world finally seems to get back on its feet, another part stumbles. And America can’t insulate itself completely from these global woes.

But why does the world economy keep stumbling?

On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength.

But these aren’t just a series of unrelated accidents. Instead, what we’re seeing is what happens when too much money is chasing too few investment opportunities.

More than a decade ago, Ben Bernanke famously argued that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a “global saving glut”: a huge excess of savings over investment in China and other developing nations, driven in part by policy reactions to the Asian crisis of the 1990s, which was flowing to the United States in search of returns. He worried a bit about the fact that the inflow of capital was being channeled, not into business investment, but into housing; obviously he should have worried much more. (Some of us did.) But his suggestion that the U.S. housing boom was in part caused by weakness in foreign economies still looks valid.

Of course, the boom became a bubble, which inflicted immense damage when it burst. Furthermore, that wasn’t the end of the story. There was also a flood of capital from Germany and other northern European countries to Spain, Portugal, and Greece. This too turned out to be a bubble, and the bursting of that bubble in 2009-2010 precipitated the euro crisis.

And still the story wasn’t over. With America and Europe no longer attractive destinations, the global glut went looking for new bubbles to inflate. It found them in emerging markets, sending currencies like Brazil’s real to unsustainable heights. It couldn’t last, and now we’re in the middle of an emerging-market crisis that reminds some observers of Asia in the 1990s — remember, where it all started.

So where does the moving finger of glut go now? Why, back to America, where a fresh inflow of foreign funds has driven the dollar way up, threatening to make our industry uncompetitive again.

What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.

Whatever the precise mix of causes, what’s important now is that policy makers take seriously the possibility, I’d say probability, that excess savings and persistent global weakness is the new normal.

My sense is that there’s a deep-seated unwillingness, even among sophisticated officials, to accept this reality. Partly this is about special interests: Wall Street doesn’t want to hear that an unstable world requires strong financial regulation, and politicians who want to kill the welfare state don’t want to hear that government spending and debt aren’t problems in the current environment.

But there’s also, I believe, a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.

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One Response to “Cohen and Krugman”

  1. Babs Says:

    It’s a cyclical wash. The only thing we’ll be reminded of are the street genius’ who made their fortune in less than a minute.

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