Archive for the ‘Krugman’ Category

Krugman, solo

August 3, 2015

In “America’s Un-Greek Tragedies in Puerto Rico and Appalachia” Prof. Krugman says the  differences between the European catastrophes and economic crises in the United States are a matter of a stronger union.  Here he is:

On Friday the government of Puerto Rico announced that it was about to miss a bond payment. It claimed that for technical legal reasons this wouldn’t be a default, but that’s a distinction without a difference.

So is Puerto Rico America’s Greece? No, it isn’t, and it’s important to understand why.

Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall.

What went wrong? There was a time when the island did quite well as a manufacturing center, boosted in part by a special federal tax break. But that tax break expired in 2006, and in any case changes in the world economy have worked against Puerto Rico.

These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards. And its island location puts it at a disadvantage compared not just with the U.S. mainland but with places like the north of Mexico, from which goods can be quickly shipped by truck.

The situation is, unfortunately, exacerbated by the Jones Act, which requires that goods traveling between Puerto Rico and the mainland use U.S. ships, raising transportation costs even further.

Puerto Rico, then, is in the wrong place at the wrong time. But here’s the thing: while the island’s economy has declined sharply, its population, while hurting, hasn’t suffered anything like the catastrophes we see in Europe. Look, for example, at consumption per capita, which has fallen 30 percent in Greece but has actually continued to rise in Puerto Rico. Why have the human consequences of economic troubles been muted?

The main answer is that Puerto Rico is part of the U.S. fiscal union. When its economy faltered, its payments to Washington fell, but its receipts from Washington — Social Security, Medicare, Medicaid, and more — actually rose. So Puerto Rico automatically received aid on a scale beyond anything conceivable in Europe.

Is Puerto Rico’s status as part of the U.S. all good? A recent reportcommissioned by the commonwealth’s government argues that its economy is hurt by sharing the U.S. minimum wage, which raises costs, and also by federal benefits that encourage adults to drop out of the work force. In principle these complaints could be right. In particular, even economists who support a higher U.S. minimum wage, myself included, generally agree that it could be a problem if set too high relative to productivity — and Puerto Rican productivity is far below mainland levels.

But the evidence that minimum wages or social benefits are really a problem is, as one careful if older study put it, “surprisingly fragile.” Notably, Puerto Rico’s low rate of labor force participation probably has more to do with outmigration than with welfare: when job opportunities dry up, young, able-bodied workers move elsewhere, while the least employable stay in place. You see the same phenomenon in Appalachia, where the disappearance of coal-mining jobs has induced many workers to leave, while the remaining population makes heavy use of the social safety net.

And how terrible is that, really? The safety net is there to protect people, not places. If a regional economy is left stranded by the shifting tides of globalization, well, that’s going to happen now and then. What’s important is that workers be able to find opportunities somewhere, and that those unable for whatever reason to take advantage of these opportunities be protected from extreme hardship.

There is, of course, the problem of maintaining public services for those who remain. Compared with Europe, America benefits hugely from having an integrated national budget – but it’s not integrated enough to deal with really big regional shocks. And Puerto Rico faces some risk of a death spiral in which the emigration of working-age residents undermines the tax base for those who are left, and deteriorating public services then lead to even more emigration.

What this tells us, in turn, is that even for a part of the United States, too much austerity can be self-defeating. It would, in particular, be a terrible idea to give the hedge funds that have scooped up much of Puerto Rico’s debt what they want — basically to destroy the island’s education system in the name of fiscal responsibility.

Overall, however, the Puerto Rican story is one of bad times that fall well short of utter disaster. And the saving grace in this situation is big government — a federal system that provides a crucial safety net for American citizens in times of need, wherever they happen to live.

As a personal aside, if anyone is here from a certain late and lamented blog greetings, and please feel free to comment, but I only check the comments once a day.  (And you’d be AMAZED at the amount of spam this wee bloggy thing attracts…)

Brooks, Blow and Krugman

July 31, 2015

In “Two Cheers for Capitalism” Bobo says a big coming debate will be over how much say government should have over business and income equality.  In the comments “David Henry” from Walden Pond says he’s given us “The same old GOP whine in a new bottle. No, Mr. Brooks. Without government “proposals” we would still have child labor, abuse of employees, and no benefits.”  In “The DuBose Family: Grieving But Determined” Mr. Blow says the siblings and mother of Samuel DuBose are struggling to deal with his killing by a university police officer.  Prof. Krugman, in “China’s Naked Emperors,” says the politicians in Beijing who have ruled during economic booms, not unlike many of their American counterparts, have no idea what they’re doing.  Here’s Bobo:

We are clearly heading toward another great debate about the nature of capitalism. Contemporary capitalism’s critics are becoming both bolder and more intellectually rigorous. Protests and discussions are sprouting up all over the place.

For example, this week I was attending the Aspen Action Forum, a gathering of young business and NGO leaders selected because of their work for social change. My friend and Times colleague Anand Giridharadas delivered a courageous and provocative keynote address that ruffled some feathers, earned a standing ovation and has had people talking ever since.

Anand argued that a rough etiquette has developed among those who work in and raise money for nonprofits. The rich are to be praised for the good they do with their philanthropy, but they are never to be challenged for the harm they do in their businesses. “Capitalism’s rough edges must be sanded and its surplus fruit shared, but the underlying system must NEVER be questioned,” he said.

Anand suggested that in these days of growing income inequality, this approach is no longer good enough. “Sometimes I wonder,” he said, “whether these various forms of giving back have become to our era what the papal indulgence was to the Middle Ages: a relatively inexpensive way of getting oneself seemingly on the right side of justice, without having to alter the fundamentals of one’s life.”

The winners of our age, he continued, may be helping society with their foundations, but in their business enterprises, the main occupation of their life, they are doing serious harm. First they are using political and financial muscle to enact policies that help them “stack up, protect and bequeath the money.”

Second, they offload risks and volatility onto workers. Uber’s owners have a lot of security but they deny any responsibility for their workers’ “lives, health, desire for career growth.”

Third, the owners of capital are increasingly remote from their communities. “In the old days, if a company C.E.O. suddenly dumped the defined-benefits pension, you knew who to go see to complain. Today it may be an unseen private equity fund that lobbies for the change.” The virtualization of ownership insulates the privileged from the “devastating consequences” of their decisions.

Anand’s speech struck me as deeply patriotic in its passion and concern. He didn’t offer a policy agenda to address these deep structural problems, but his description of them implied that government would have to get much more heavily involved in corporate governance and private-sector investment decisions than ever before.

Indeed, progressive economists are already walking down this path. Hillary Clinton’s new tax plan is based on the assumption that government officials are smart enough to tell investors how they should time their investments. Her corporate governance proposals are based on the idea that federal officials know better than executives how they should run their own companies. There will be much more of this in years to come.

This strikes me as a departure from recent progressivism. In the recent past progressives have argued for a little redistribution to fund human capital development: early childhood education, child and family leave, better community colleges.

But the next wave of thinking implies that it is not enough to simply give people access to capitalism and provide them with a safety net. The underlying system has to be reconfigured.

This is a bigger debate.

People like me will argue that it’s a wrong turn. First, government planners are not smart enough to plan complex systems in this way. The beauty of capitalism is that it takes a dim view of human reason. No group of experts is smart enough to allocate the resources of society well. Capitalism sets up a system of discovery as different people compete and adapt in accordance with market signals. If you try to get technocratic planners organizing investment markets or internal business governance, you will wind up with perversities and rigidities that will make everything worse.

Second, the attempt to tame the market will end up stultifying it. Everybody knows that capitalism’s creative destruction can be rough. But over the last few decades, a ragged version of global capitalism in places ranging from China to Nigeria has brought about the greatest reduction in poverty in human history. America’s fluid style of capitalism attracts driven and talented immigrants and creates vast waves of technological innovation. This dynamism is always in danger of being stultified by planners who think they can tame it and by governing elites who want to rig it. We should not take it for granted.

The coming debate about capitalism will be between those who want to restructure the underlying system and those who want to help people take advantage of its rough intensity. It will be between people who think you need strong government to defeat oligarchy and those who think you need open competition.

This will be fun.

Fun?  FUN?  Eff off, Bobo.  Go sit in your “vast spaces for entertaining” and STFU.  Here’s Mr. Blow:

Terina DuBose Allen had just gotten out of the shower when she answered the phone. It was her brother Aubrey DuBose.

Aubrey warned Terina, “You need to sit down.”

“I’m not sitting down,” Terina responded, sensing something wrong, and worrying maybe something had happened to their mother.

Aubrey said, “Sam is dead.”

Terina recalled to me over lunch Thursday in downtown Cincinnati, “I just screamed,” and she said she dropped to the floor. “Everything in my body went numb.” She continued, “I couldn’t get off the floor for three hours.”

Samuel DuBose was her brother, the second of five siblings. Terina is the oldest. Sam — no one called him Samuel, Terina explained — was a 43-year-old, unarmed Cincinnati man shot in the head and killed on July 19 by a University of Cincinnati police officer, Ray Tensing.

Terina struggled to explain the enormity of her and her family’s loss and her reaction to it: “I broke down because we had just lost a really good person, a person in the universe who always had your back.”

I spent much of the day Thursday with the DuBose family, “embedded,” as their lawyers called it. I went with them as they made the media rounds; I sat with them in the courtroom during the arraignment as they saw the man who killed Sam in the flesh for the first time; I ate with them; I was there when they laughed and when they cried uncontrollably in a hotel hallway. Grief comes in waves that keep crashing to shore.

I have had the honor and the solemn duty to be around many families with similar losses in the last couple of years, and there is something of an unsettling sameness: The feeling of being thrust into a harsh spotlight when you’d rather quietly grieve; being motivated by a sense of mission to fight for the person who is lost, all the while emotionally and physically running on empty; resisting the pull of a world trying desperately to reduce the man or woman you loved into a martyr it can champion or, conversely, a menace it can despise.

Tensing’s lawyer, Stew Mathews, said of Tensing: “He’s devastated by this, as is his family, and he is currently lodged in the Hamilton County Justice Center.”

Actually, if you want to see devastation, look no further than the DuBose family. As Terina said at the courthouse, “I wish my brother was in jail and not dead.”

But in addition to the staggering sense of loss is also a steel-spined determination, and no one in that family typifies that more than Terina. She has emerged as something of a spokeswoman and a warrior.

As she spoke to one of the lawyers on the sidewalk, I heard a man say over my shoulder, “She’s strong as hell,” to which a woman responded, “She’s my new idol.”

For instance, she has become a strong advocate for body cameras, although they are not perfect solutions. As she put it, in her brother’s case, they didn’t prevent the crime, but they prevented the cover-up.

Terina’s sister, Cleshawn DuBose, said of her: “We call her ‘Get-Right-Terina.’”

I got the sense of that statement immediately: If you were in the wrong, Terina would get you right.

Terina, who said she holds a graduate degree in strategic leadership and owns her own corporate consulting company, wanted to correct some of the “lies” about her brother.

According to both sisters, Sam wasn’t violent, and he wasn’t a heavy drinker. But, Terina said, “he wasn’t a monk” either.

As Terina said, “I’m trying to give you the real.” Cleshawn chimed in, “We don’t want Sam to be misrepresented.” Terina added, “for the better or the worse.”

Terina summed it up: Sam had been arrested dozens of times on traffic violations. Also, he smoked marijuana, and had years ago served time for selling it.

But as Terina put it, “That was the worst of it.”

Not only are none of those reasons to kill a man, or to say that he “deserved it,” none of those reasons have anything whatsoever to do with the incident that led to Sam’s death.

Sam was a human being — a man, a son, a brother and a father. “Sam was loved and Sam loved, hard,” Terina said.

Midway through the day, Sam’s mother, Audrey DuBose, joined the rest of the family on their rounds.

She was visibly drained, but still spiritually moored. She insisted that Terina and Cleshawn pray with her during one of our car rides: “We need to pray; we need the strength.”

I noticed the way she drew long breaths, the way the water in the bottle she was holding vibrated because her hand was trembling, the way she closed her eyes for long stretches, even when talking. It was the familiar fatigue that hangs on the mothers of killed children.

She confessed to me in a quiet moment: “All I want to do is just shut my door and cover up and never open it again.”

That is what devastation feels like.

And now here’s Prof. Krugman:

Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.

This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.

Start with the fundamentals. China is at the end of an era — the era of superfast growth, made possible in large part by a vast migration of underemployed peasants from the countryside to coastal cities. This reserve of surplus labor is now dwindling, which means that growth must slow.

But China’s economic structure is built around the presumption of very rapid growth. Enterprises, many of them state-owned, hoard their earningsrather than return them to the public, which has stunted family incomes; at the same time, individual savings are high, in part because the social safety net is weak, so families accumulate cash just in case. As a result, Chinese spending is lopsided, with very high rates of investment but a very lowshare of consumer demand in gross domestic product.

This structure was workable as long as torrid economic growth offered sufficient investment opportunities. But now investment is running into rapidly decreasing returns. The result is a nasty transition problem: What happens if investment drops off but consumption doesn’t rise fast enough to fill the gap?

What China needs are reforms that spread the purchasing power — and it has, to be fair, been making efforts in that direction. But by all accounts these efforts have fallen short. For example, it has introduced what is supposed to be a national health care system, but in practice many workers fall through the cracks.

Meanwhile, China’s leaders appear to be terrified — probably for political reasons — by the prospect of even a brief recession. So they’ve been pumping up demand by, in effect, force-feeding the system with credit, including fostering a stock market boom. Such measures can work for a while, and all might have been well if the big reforms were moving fast enough. But they aren’t, and the result is a bubble that wants to burst.

China’s response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. These are things you might do for a couple of days to contain an obviously unjustified panic, but they’re being applied on a sustained basis to a market that is still far above its level not long ago.

What do Chinese authorities think they’re doing?

In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market’s plunge could lead to defaults. This is especially troubling because China has a huge “shadow banking” sector that is essentially unregulated and could easily experience a wave of bank runs.

But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it’s ending up doing, of course, is shredding that reputation at record speed.

Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it’s hard to sell off assets you were never allowed to own in the first place.

So what have we just learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we’ve known that for a while. The big news here isn’t about the Chinese economy; it’s about China’s leaders. Forget everything you’ve heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they’re doing.

Blow and Krugman

July 27, 2015

In “At Sarah Bland’s Funeral, Celebration and Defiance” Mr. Blow says mourners praised the life of the young woman, whose death leaves unanswered questions.  In “Zombies Against Medicare” Prof. Krugman says arguments that have already been shown to be false are still used by conservatives to attack a program that has done rather well.  Here’s Mr. Blow:

Funerals are often predictably somber — a cloistering and culminating of grief and pain. Not Sandra Bland’s funeral. (Everyone called her Sandy, by the way.) Sandy’s was simultaneously celebratory and defiant.

Bland was the 28-year-old Illinois woman arrested after a traffic stop in Texas who died in a county jail. Her funeral was held Saturday at DuPage African Methodist Episcopal Church in Lisle, Ill., just outside Chicago.

Bland’s casket was white. Many in the family wore white. The pastor wore a white ministerial robe. This was not to be a dark day. The joyous music of the choir seemed to vibrate everything in the building. Bland’s mother, Geneva Reed-Veal, danced every time the choir sang. One of Bland’s cousins performed a praise dance, a choreographed dance set to religious music.

There were whimpers and tears, to be sure, but there was also laughter and praise. As the church’s pastor, James F. Miller, put it: “This is not a moment of defeat; this is a moment of victory.” He continued: “We’re not funeralizing a martyr or a victim; we’re celebrating a hero!” The crowd erupted.

Over a few days leading up to the funeral I interviewed a few of Bland’s fellow church members and friends. They described a complex person — in other words, a person — who had recently come into her own, realizing her life’s purpose (social justice), a person who to them appeared determined, settled and happy. None of them believe she committed suicide, or that it was even possible.

What I did hear during those interviews and during the funeral itself were words and phrases like these used to describe Bland: “Fearless.” “Activist.” “Life of the party, in a good way.” “Vibrant and full of life.” “Passionate.” “A strong woman; a strong black woman.”

It was abundantly clear to me that the people who knew and loved her loved her fierce-ly and loved her fierce-ness.

That was not to say that Bland didn’t have her ups and downs the way many young people do. But rather, she wasn’t afraid to admit it and wanted to use her testimony to help others. I spoke to a woman with whom Bland was working to start a women’s empowerment forum online, who said that Bland told her that she wanted to share her travails because “it takes a lot of will and resilience when you’re going downhill to stop yourself.”

The Rev. Theresa Dear, who spoke to me on the family’s behalf, said that sure, Sandy was a “mouthy person” and that she could imagine her “raising you know what” in her Texas jail cell.

But, like Bland’s other friends, Dear described this in ways that seemed less acerbic than courageous, less Sister Souljah than Sojourner Truth.

As Dear put it: “Everybody in their lives needs a Sandy Bland posture, a Sandy Bland voice.”

Bland didn’t demur and knuckle under. Some have criticized her for her stance during the traffic stop, suggesting that if she had behaved differently, with more respect for the officer, she might have avoided arrest.

Maybe. But, it must always be remembered that the parameters of “respectable behavior” are both raced and gendered. The needle moves to differing positions for different people. That is, I believe, one of the reasons that this minor traffic stop so quickly escalated.

How dare a woman not present as a damsel? How dare a black person not bow in obsequiousness?

The officer’s irritation seemed to build in direct response to Bland’s unwavering defiance. She refused to break, crumble and cry. She refused to express fear. She challenged his authority, his character and his expression of masculinity.

Now, it is clear to me that Bland’s allies are girding themselves to fight for her life and her legacy. As her mother said in a fiery speech during the funeral: “I’m going to take today and relax. I’m going to take tomorrow and relax. But Monday, it’s on!”

There are so many unanswered questions in this case and so many things that don’t, on their face, make sense. The public wants answers, but more importantly, the family needs answers. As her mother said, “I’m the mama, and I still don’t know what happened to my baby!”

The pastor extolled those gathered to “go online and shut down the Justice Department’s website, asking for a federal investigation.” Indeed, Senator Dick Durbin and Representative Bill Foster both said at the funeral that they’d each sent letters to Attorney General Loretta Lynch requesting such an investigation.

And both Bland’s mother and Pastor Miller took swipes at the media’s portrayal of Sandy.

Miller demanded that responsible media stop showing images of Bland’s scarred body, “lining your pockets with the blood of our child!” As Miller said, “You have stepped on the cat’s tail.”

Then he seemed to, for comedic and theatrical purposes, catch himself, musing out loud, “They want me to sit down because I’m going to get us in trouble.”

But he quickly followed: “I was born black in America; I was born in trouble.” The mourners signaled their agreement.

Now here’s Prof. Krugman:

Medicare turns 50 this week, and it has been a very good half-century. Before the program went into effect, Ronald Reagan warned that it would destroy American freedom; it didn’t, as far as anyone can tell. What it did do was provide a huge improvement in financial security for seniors and their families, and in many cases it has literally been a lifesaver as well.

But the right has never abandoned its dream of killing the program. So it’s really no surprise that Jeb Bush recently declared that while he wants to let those already on Medicare keep their benefits, “We need to figure out a way to phase out this program for others.”

What is somewhat surprising, however, is the argument he chose to use, which might have sounded plausible five years ago, but now looks completely out of touch. In this, as in other spheres, Mr. Bush often seems like a Rip Van Winkle who slept through everything that has happened since he left the governor’s office — after all, he’s still boasting about Florida’s housing-bubble boom.

Actually, before I get to Mr. Bush’s argument, I guess I need to acknowledge that a Bush spokesman claims that the candidate wasn’t actually calling for an end to Medicare, he was just talking about things like raising the age of eligibility. There are two things to say about this claim. First, it’s clearly false: in context, Mr. Bush was obviously talking about converting Medicare into a voucher system, along the lines proposed by Paul Ryan.

And second, while raising the Medicare age has long been a favorite idea of Washington’s Very Serious People, a couple of years ago the Congressional Budget Office did a careful study and discovered that it would hardly save any money. That is, at this point raising the Medicare age is a zombie idea, which should have been killed by analysis and evidence, but is still out there eating some people’s brains.

But then, Mr. Bush’s real argument, as opposed to his campaign’s lame attempt at a rewrite, is just a bigger zombie.

The real reason conservatives want to do away with Medicare has always been political: It’s the very idea of the government providing a universal safety net that they hate, and they hate it even more when such programs are successful. But when they make their case to the public they usually shy away from making their real case, and have even, incredibly, sometimes posed as the program’s defenders against liberals and their death panels.

What Medicare’s would-be killers usually argue, instead, is that the program as we know it is unaffordable — that we must destroy the system in order to save it, that, as Mr. Bush put it, we must “move to a new system that allows [seniors] to have something — because they’re not going to have anything.” And the new system they usually advocate is, as I said, vouchers that can be applied to the purchase of private insurance.

The underlying premise here is that Medicare as we know it is incapable of controlling costs, that only the only way to keep health care affordable going forward is to rely on the magic of privatization.

Now, this was always a dubious claim. It’s true that for most of Medicare’s history its spending has grown faster than the economy as a whole — but this is true of health spending in general. In fact, Medicare costs per beneficiary have consistently grown more slowly than private insurance premiums, suggesting that Medicare is, if anything, better than private insurers at cost control. Furthermore, other wealthy countries with government-provided health insurance spend much less than we do, again suggesting that Medicare-type programs can indeed control costs.

Still, conservatives scoffed at the cost-control measures included in the Affordable Care Act, insisting that nothing short of privatization would work.

And then a funny thing happened: the act’s passage was immediately followed by an unprecedented pause in Medicare cost growth. Indeed, Medicare spending keeps coming in ever further below expectations, to an extent that has revolutionized our views about the sustainability of the program and of government spending as a whole.

Right now is, in other words, a very odd time to be going on about the impossibility of preserving Medicare, a program whose finances will be strained by an aging population but no longer look disastrous. One can only guess that Mr. Bush is unaware of all this, that he’s living inside the conservative information bubble, whose impervious shield blocks all positive news about health reform.

Meanwhile, what the rest of us need to know is that Medicare at 50 still looks very good. It needs to keep working on costs, it will need some additional resources, but it looks eminently sustainable. The only real threat it faces is that of attack by right-wing zombies.

Remove the earnings cap.

Krugman’s blog, 7/24 and 7/25/15

July 26, 2015

There was one post on Friday, and two yesterday.  Friday’s post was “Fire Phasers:”

Jeb Bush doesn’t just want Americans to work more hours; he also wants to “phase out” Medicare, or so he told a Koch brothers backed group. What he’s talking about, presumably, is a Paul Ryan-type conversion of Medicare into a voucher system.

Fact-checking organizations please note, by the way. The next time Democrats say that Republicans want to destroy Medicare, and Republicans start screaming that this is a lie, remember that when talking to their own people like Jeb themselves call what they’re proposing a plan to, yes, end Medicare.

What’s interesting, in a way, is the persistence of conservative belief that one must destroy Medicare in order to save it. The original idea behind voucherization was that Medicare as we know it, a single-payer system of government insurance, simply could not act to control costs — that giving people vouchers to buy private insurance was the only way to limit spending. There was much sneering and scoffing at the approach embodied in the Affordable Care Act, which sought to pursue cost-saving measures within a Medicare program that retained its guarantee of essential care.

But we’re now five years into the attempt to control costs that way — and what we’ve seen is a spectacular slowdown in the growth of health costs, with the historical upward trend in Medicare costs, in particular, brought to a complete standstill. How much credit should go to the ACA? Nobody really knows. But the whole premise behind voucherization has never looked worse, and the case that universal health insurance is affordable has never looked better.

It’s amazing, isn’t it? Who could have imagined that conservatives would keep proposing the exact same policy despite strong evidence that they were wrong about the facts? Oh, wait.

The first post yesterday was “The Old Man and the CPI:”

I don’t watch financial news, but CNBC was on in the gym, so I was treated to a long ad from Ron Paul, who wants you to buy his video explaining the coming crisis brought on by loose money. And I found myself thinking about the remarkable fact that there really are people who will buy that video.

After all, Ron Paul has been making the same prediction year after year — in fact, he’s been making this prediction at least since 1981!— and has been wrong year after year. It’s hard to think of a doctrine that has been as thoroughly refuted by events as goldbug economics. For a while gold prices did go up, although not for the reasons the goldbugs thought, but now even that has gone into reverse. So why would anyone pay money for this guy’s analysis?

Of course, we know why: it’s the Bernie Madoff effect, a.k.a. affinity fraud. People believed Madoff because he was their kind of guy, never mind the implausibility of his claims; they believe Ron Paul for the same reason. True, there’s no reason to suppose that Paul is deliberately misleading his market – he probably believes his own nonsense. But in terms of the underlying dynamics that makes no difference.

So who are the people who feel a deep affinity with a crotchety crank? Um, crotchety white guys feeling cranky. The whiteness is, I believe, an important part of the story, as I’ll explain in a minute.

The basic mindset of the kind of people who pay Ron Paul for his economic advice is pretty clear: they’ve made some money over the course of their lives, they believe that all of it reflects their own virtue, and they think they know from that experience what it takes to create wealth. They hear that the Fed is printing money, and it sounds to them like a violation of both the laws of economics and morality — and they surely think of it as a plot to take away their completely earned gains and give them to Those People (hence the whiteness issue).

You can try as hard as you like to tell such people that monetary policy is mainly a technical problem, that the Fed isn’t giving money away, and that predictions of runaway inflation have been utterly wrong; it will make no difference. You can point out that they would have done a much better job of investing if they had listened to theMIT gang; sorry, we’re just not their kind of people.

I’d say it’s sad, but I find it hard to feel much sympathy for the marks of this particular scam. Then again, that’s probably why they will never, ever listen to what I have to say.

Prof. Krugman is much too polite to mention Charlie Pierce’s “Paul Rule,” which is that any member of the Paul family can make sense for 5 minutes, but that at 5:00:01 something will be said that makes you wonder if the speaker is from the Dagobah system.  Yesterday’s second post was “Uber and the New Liberal Consensus:”

You might not have thought that a taxi service would move onto center stage in our great political debates. But Uber actually is looking like a surprisingly important political issue. Why?

Well, Uber actually brings two things to the taxi market. One is the smartphone revolution, letting you tap a screen instead of standing out in the rain waving your arm, and cursing the guy who darts out half a block from you and snags the cab you were trying to hail.

The other is the company whose workers supposedly are free contractors, not employees, exempting the company from most of the regulations designed to protect employee interests. And it’s the second aspect that brings us into divisive politics.

On one side, Republicans are eager to dismantle as many worker protections as they can. So from their point of view Uber’s not-our-problem approach to workers would be desirable independent of the technology.

On the other side, we’re recently seen the emergence of the “new liberal consensus“, which argues (based on a lot of evidence) that wages are much less rigidly determined by supply and demand than previously thought, and that public policy can and should nudge employers into paying more. If that’s your policy plan, you really don’t want to see employers undermine it by declaring that they aren’t really employers.

It’s surely possible to separate these two issues, to promote the use of new technology without prejudicing the interests of workers. But progressives need to work on doing that, and not let themselves get painted as enemies of innovation.

Brooks, Cohen and Krugman

July 24, 2015

It’s too sweet for words.  Bobo is considering “The Minimum Wage Muddle.”  He babbles that mandates for better pay will certainly help some people, but hurt some, too.  The most terse comment came in the form of a question from “Ian MacFarlane” from Philadelphia:  “Could you, Mr, Brooks, live on the minimum wage?”  I’d pay good money to watch him try for a month…  In “Algeria’s Invisible Arab” Mr. Cohen says conflict is illuminated as the nameless murder victim of Camus’s “The Stranger” becomes a human being in a new novel.  In “The M.I.T. Crowd” Prof. Krugman says M.I.T.-trained economists have gained dominance in policy positions and policy discourse.  Here’s Bobo:

Once upon a time there was a near consensus among economists that raising the minimum wage was a bad idea. The market is really good at setting prices on things, whether it is apples or labor. If you raise the price on a worker, employers will hire fewer and you’ll end up hurting the people you meant to help.

Then in 1993 the economists David Card and Alan Krueger looked at fast-food restaurants in New Jersey and Pennsylvania and found that raising the minimum wage gave people more income without hurting employment. A series of studies in Britain buttressed these findings.

Today, raising the minimum wage is the central piece of the progressive economic agenda. President Obama and Hillary Clinton champion it. Cities and states across the country have been moving to raise minimum wages to as high as $15 an hour — including New York State just this week.

Some of my Democratic friends are arguing that forcing businesses to raise their minimum wage will not only help low-wage workers; it will actually boost profits, because companies will better retain workers. Some economists have reported that there is no longer any evidence that raising wages will cost jobs.

Unfortunately, that last claim is inaccurate. There are in fact many studies on each side of the issue. David Neumark of the University of California, Irvine and William Wascher of the Federal Reserve have done their own studies and point to dozens of others showing significant job losses.

Recently, Michael Wither and Jeffrey Clemens of the University of California, San Diego looked at data from the 2007 federal minimum-wage hike and found that it reduced the national employment-to-population ratio by 0.7 percentage points (which is actually a lot), and led to a six percentage point decrease in the likelihood that a low-wage worker would have a job.

Because low-wage workers get less work experience under a higher minimum-wage regime, they are less likely to transition to higher-wage jobs down the road. Wither and Clemens found that two years later, workers’ chances of making $1,500 a month was reduced by five percentage points.

Many economists have pointed out that as a poverty-fighting measure the minimum wage is horribly targeted. A 2010 study by Joseph Sabia and Richard Burkhauser found that only 11.3 percent of workers who would benefit from raising the wage to $9.50 an hour would come from poor households. An earlier study by Sabia found that single mothers’ employment dropped 6 percent for every 10 percent increase in the minimum wage.

A study by Thomas MaCurdy of Stanford built on the fact that there are as many individuals in high-income families making the minimum wage (teenagers) as in low-income families. MaCurdy found that the costs of raising the wage are passed on to consumers in the form of higher prices. Minimum-wage workers often work at places that disproportionately serve people down the income scale. So raising the minimum wage is like a regressive consumption tax paid for by the poor to subsidize the wages of workers who are often middle class.

What we have, in sum, is a very complicated situation. If we do raise the minimum wage a lot of people will clearly benefit and a lot of people will clearly be hurt. The most objective and broadest bits of evidence provoke ambivalence. One survey of economists by the University of Chicago found that 59 percent believed that a rise to $9 an hour would make it “noticeably harder” for poor people to find work. But a slight majority also thought the hike would be worthwhile for those in jobs. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

My own guess is the economists will never be able to give us a dispositive answer about who is hurt or helped. Economists have their biases and reality is too granular. It depends on what region a worker is in, whether a particular job can be easily done by a machine, what the mind-set of his or her employer is.

The best reasonable guess is that a gradual hike in high-cost cities like Seattle or New York will probably not produce massive dislocation. But raising the wage to $15 in rural New York will cause large disruptions and job losses.

The key intellectual upshot is that, despite what some people want you to believe, the laws of economic gravity have not been suspended. You can’t impose costs on some without trade-offs for others. You can’t intervene in the market without unintended consequences. And here’s a haunting fact that seems to make sense: Raising the minimum wage will produce winners among job holders from all backgrounds, but it will disproportionately punish those with the lowest skills, who are least likely to be able to justify higher employment costs.

Which will surely be proved out as NYC raises the minimum wage for fast food workers…  As if Bobo gave a crap about such peons.  Here’s Mr. Cohen:

At the core of any conflict lies invisibility. The enemy cannot be seen, at least not if seeing betokens the start of understanding. The other is there, a menacing and ineffaceable presence, but is invisible in his or her human dimensions.

Demonization blocks any glimmer of shared humanity or sympathy. Only when the nameless foe becomes a man or a woman confronted with the puzzle of life does the path to understanding begin to open. No gun was turned to plowshare without some form, however tentative, of mutual recognition.

This question of invisibility is the starting point of Kamel Daoud’s remarkable first novel, “The Meursault Investigation.” His core idea is of startling ingenuity. Daoud, an Algerian journalist, takes Albert Camus’s classic novel, “The Stranger” — or more precisely the “majestically nonchalant” murder of an Arab at the heart of it — and turns that Arab into a human being rather than the voiceless, characterless, nameless object of a “philosophical crime” by a Frenchman called Meursault on an Algiers beach 20 years before the culmination of Algeria’s brutal war of independence.

By inverting the perspective, and turning the anonymous Arab into a young man named Musa Uld el-Assas rather than someone “replaceable by a thousand others of his kind, or by a crow, even,” Daoud shifts the focus from the absurdity of Meursault’s act in the giddying sunlight to the blindness of the colonial mind-set.

The issue is no longer Meursault’s devastating honesty about the human condition — he does not love, he does not pretend, he does not believe in God, he does not mourn his dead mother, he does not judge, he does not repress desire, he does not regret anything, he does not hide from life’s farce or shrink from death’s finality — but the blood he has spattered on the sand with five gunshots into young Musa.

Daoud’s device is to treat the fictional murder committed by Meursault in 1942 as a real event and create a narrator named Harun who is the younger brother of the dead Musa, a flailing chronicler of irreparable loss. Harun cannot get over how Musa has been blotted out: “My brother’s name was Musa. He had a name. But he’ll remain ‘the Arab’ forever.” He was “capable of parting the sea, and yet he died in insignificance.” Daoud writes that the French “watched us — us Arabs — in silence, as if we were nothing but stones or dead trees.”

Musa is invisible even in death. If he had been named, Harun reflects, perhaps their mother would have received a pension. Perhaps life would not have consisted of an unrequited attempt to find the body, locate the murderer, understand the crime — even avenge it somehow.

The Arabs are sullen. They wait. Harun’s reflection on the demise of French Algeria is devastating: “I didn’t even fight in the War of Liberation. I knew it was won in advance, from the moment when a member of my family was killed because somebody felt lethargic from too much sun.”

At the moment of liberation, or just after it, Harun kills a Frenchman, Joseph Larquais: “The Frenchman had been erased with the same meticulousness applied to the Arab on the beach twenty years earlier.” But this reciprocal murder, committed without conviction in the blinding night rather than the blinding heat, brings no real respite — from the fury Harun feels toward his relentless mother who wants him to be his lost brother, or from the quandary of the Algerian condition.

Independence will only bring disappointment. Algeria drifts toward the suffocating stranglehold of religion that Daoud, like Camus, deplores. Vineyards are uprooted because of Islam’s strictures. Harun laments that his one ephemeral love, Meriem, embodies a woman who has “disappeared in this country today: free, brash, disobedient, aware of their body as a gift, not as a sin or a shame.” His words recall Meursault’s dismissal of all the priest’s entreaties before his execution: “None of his certainties was worth one hair on the head of the woman I loved.”

Religion, for Daoud’s hero, is “public transportation I never use.” Who is God to give lessons? After all, “I alone pay the electric bills, I alone will be eaten by worms in the end. So get lost!”

Of course, an imam from a Salafist group has issued a fatwa for Daoud to be put to death. The author, in turn, has called the absence of alternatives to Islamism “the philosophical disaster of the Arab world.” Much more such honesty is needed.

Daoud’s novel has sometimes been portrayed as a rebuke to the pied-noir Frenchman Camus. But there is more that binds their protagonists than separates them — a shared loathing of hypocrisy, shallowness, simplification and falsification. Each, from his different perspective, renders the world visible — the only path to understanding for Arab and Jew, for American and Iranian, for all the world’s “strangers” unseen by each other.

Now here’s Prof. Krugman:

Goodbye, Chicago boys. Hello, M.I.T. gang.

If you don’t know what I’m talking about, the term “Chicago boys” was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas.

But that was a long time ago. Now a different school is in the ascendant, and deservedly so.

It’s actually surprising how little media attention has been given to the dominance of M.I.T.-trained economists in policy positions and policy discourse. But it’s quite remarkable. Ben Bernanke has an M.I.T. Ph.D.; so do Mario Draghi, the president of the European Central Bank, and Olivier Blanchard, the enormously influential chief economist of the International Monetary Fund. Mr. Blanchard is retiring, but his replacement, Maurice Obstfeld, is another M.I.T. guy — and another student of Stanley Fischer, who taught at M.I.T. for many years and is now the Fed’s vice chairman.

These are just the most prominent examples. M.I.T.-trained economists, especially Ph.D.s from the 1970s, play an outsized role at policy institutions and in policy discussion across the Western world. And yes, I’m part of the same gang.

So what distinguishes M.I.T. economics, and why does it matter? To answer that question, you need to go back to the 1970s, when all the people I’ve just named went to graduate school.

At the time, the big issue was the combination of high unemployment with high inflation. The coming of stagflation was a big win for Milton Friedman, who had predicted exactly that outcome if the government tried to keep unemployment too low for too long; it was widely seen, rightly or (mostly) wrongly, as proof that markets get it right and the government should just stay out of the way.

Or to put it another way, many economists responded to stagflation by turning their backs on Keynesian economics and its call for government action to fight recessions.

At M.I.T., however, Keynes never went away. To be sure, stagflation showed that there were limits to what policy can do. But students continued to learn about the imperfections of markets and the role that monetary and fiscal policy can play in boosting a depressed economy.

And the M.I.T. students of the 1970s enlarged on those insights in their later work. Mr. Blanchard, for example, showed how small deviations from perfect rationality can have large economic consequences; Mr. Obstfeld showed that currency markets can sometimes experience self-fulfilling panic.

This open-minded, pragmatic approach was overwhelmingly vindicated after crisis struck in 2008. Chicago-school types warned incessantly that responding to the crisis by printing money and running deficits would lead to 70s-type stagflation, with soaring inflation and interest rates. But M.I.T. types predicted, correctly, that inflation and interest rates would stay low in a depressed economy, and that attempts to slash deficits too soon would deepen the slump.

The truth, although nobody will believe it, is that the economic analysis some of us learned at M.I.T. way back when has worked very, very well for the past seven years.

But has the intellectual success of M.I.T. economics led to comparable policy success? Unfortunately, the answer is no.

True, there have been some important monetary successes. The Fed, led by Mr. Bernanke, ignored right-wing pressure and threats — Rick Perry, as governor of Texas, went so far as to accuse him of treason — and pursued an aggressively expansionary policy that helped limit the damage from the financial crisis. In Europe, Mr. Draghi’s activism has been crucial to calming financial markets, probably saving the euro from collapse.

On other fronts, however, the M.I.T. gang’s good advice has been ignored. The I.M.F.’s research department, under Mr. Blanchard’s leadership, has done authoritative work on the effects of fiscal policy, demonstrating beyond any reasonable doubt that slashing spending in a depressed economy is a terrible mistake, and that attempts to reduce high levels of debt via austerity are self-defeating. But European politicians have slashed spending and demanded crippling austerity from debtors anyway.

Meanwhile, in the United States, Republicans have responded to the utter failure of free-market orthodoxy and the remarkably successful predictions of much-hated Keynesians by digging in even deeper, determined to learn nothing from experience.

In other words, being right isn’t necessarily enough to change the world. But it’s still better to be right than to be wrong, and M.I.T.-style economics, with its pragmatic openness to evidence, has been very right indeed.

Blow, Cohen and Krugman

July 20, 2015

In “Sandra and Kindra: Suicides or Something Sinister?” Mr. Blow says the deaths of two black women who died in police custody raise so-far unanswered questions.  In “Afghanistan, Empires and the Grateful Dead” Mr. Cohen discusses conflict and loss and a broken-down VW Kombi. He ponders what a long, strange trip it’s been.  Prof. Krugman, in “Europe’s Impossible Dream,” explains how fantasy economics led to disaster.  Here’s Mr. Blow:

Although the mantra “Black Lives Matter” was developed by black women, I often worry that in the collective consciousness it carries with it an implicit masculine association, one that renders subordinate or even invisible the very real and concurrent subjugation and suffering of black women, one that assigns to these women a role of supporter and soother and without enough space or liberty to express and advocate for their own.

Last week, the prism shifted a bit, as America and the social justice movement focused on the mysterious cases of two black women who died in police custody.

The first and most prominent was Sandra Bland, a black woman from suburban Chicago who had moved to Texas to take a job at her alma mater, Prairie View A & M University, a historically black school about 50 miles northwest of Houston.

She never started that job. After being arrested following a traffic stop, Bland was found dead in her jail cell. The police say she killed herself. Her family and friends doubt it.

As The New York Times reported last week: Bland “was arrested last Friday in Waller County by an officer with the Texas Department of Public Safety on a charge of assaulting a public servant. She had been pulled over for failing to signal a lane change.”

The Times continued:

“A statement from the Waller County Sheriff’s Office said that the cause of Ms. Bland’s death appeared to be self-inflicted asphyxiation. An autopsy on Tuesday classified her death as suicide by hanging, according to The Chicago Tribune.”

Indeed, the Waller County district attorney, Elton Mathis, told a Houston station last week: “I will admit it is strange someone who had everything going for her would have taken her own life.”

According to NBC News, Mathis also said: “If there was something nefarious, or if there was some foul play involved, we’ll get to the bottom of that.”

The F.B.I. has joined that investigation.

Then, there was the case of 18-year-old Kindra Chapman, arrested on Tuesday in Alabama for allegedly stealing a cellphone.According to AL.com: “Jailers last saw her alive at 6:30 p.m. She was found unresponsive at 7:50 p.m. Authorities said she used a bed sheet to hang herself.” According to the paper, she had been booked in the Homewood City Jail at 6:22 p.m.

The deaths seem odd: young women killing themselves after only being jailed only a few days or a less than a couple hours, before a trial or conviction, for relatively minor crimes.

And the official explanations that they were suicides run counter to prevailing patterns of behavior as documented by the Bureau of Justice Statistics, which has found that, on the whole, men are more likely to commit suicide in local jails than women, young people are less likely to do so than older people, and black people are the least likely to do so than any other racial or ethnic group.

That doesn’t mean that these women didn’t commit suicide, but it does help to explain why their coinciding deaths might be hard for people to accept.

Indeed, because state violence echoes through the African-American experience in this country, it is even understandable if black people might occasionally experience a sort of Phantom Lynching Syndrome, having grown so accustomed to the reality of a history of ritualized barbarism that they would sense its presence even in its absence.

We have to wait to see what, if any, new information comes out about these cases. But it is right to resist simple explanations for extraordinary events.

These black women’s live must matter enough for there to be full investigations of the events surrounding their deaths to assure their families and the public that no “foul play” was involved.

Women are not adjuncts to this movement for social justice and the equal valuation of all lives; they are elemental to it.

The same week that news broke about these black women found dead in their jail cells, Google celebrated the 153rd birthday of anti-lynching advocate Ida B. Wells with a Google Doodle image. There seemed to me a fortuitous righteousness in the timing, an aligning of stars, an act of cosmic symmetry: celebrating a black female civil rights icon at the very moment that black females were the singular focus of the present civil rights movement.

Wells once said: “Somebody must show that the Afro-American race is more sinned against than sinning, and it seems to have fallen upon me to do so.”

I think that this burden of proof remains, and in this moment has gathered onto itself an increased, incandescent urgency, “like the light from a fire which consumes a witch,” as James Baldwin once phrased it.

In this moment, it falls to many of us to take up the mantle and articulate and illuminate the balance of the sinning against, vs. the sinning, for both black men and women alike.

This week that means investigating the “suicides” of Sandra and Kindra.

Next up we have Mr. Cohen:

We had not planned to be in Afghanistan for the 1973 coup. In fact we had not planned much of anything. But that’s the way it turned out. When the Afghan king, Mohammad Zahir Shah, was ousted after a 40-year reign, we were in Kandahar in the courtyard of some hotel trying to learn how to ignore the flies. Another guest, who’d mastered the fly trick and attained imperturbability, had a short-wave radio. It picked up the BBC World Service news.

A coup? My two friends and I were on the hippie trail. This was not part of the deal, dude. Even Afghans seemed blown away. They of course had no idea that the overthrow of their monarch would presage decades of unrest in which the Soviet Union would find its quagmire and the United States discover the dangers of a short attention span.

They knew nothing of how the mujahedeen “holy warriors,” schooled in American-backed Wahhabi fundamentalism, would battle Soviet troops until they withdrew to an enfeebled Communist empire, how the Wahhabis would turn on their negligent American patron, how the Taliban would emerge to restore order, or how the United States after 9/11 would fight a long Afghan war with a disastrous Iraqi sidebar.

Nor did we. Afghanistan, even kingless, had majesty. Its coup seemed uneventful. We drove up to Kabul. I think we saw one tank.

The road to Afghanistan from London had led across a Turkey still impenetrable, where only the children smiled, the shah’s Iran, where Mashhad’s cobalt blue mosque made an indelible impression, and the dusty border near Herat, where we first became acquainted with the pride of the Afghan gaze.

Our VW Kombi was called Pigpen, named after the keyboardist of theGrateful Dead who’d died that year. The Dead loomed large, our sunshine daydream. “Truckin”’ was our anthem — until the cassette machine got stolen. Then we strained for the harmonies of “Uncle John’s Band.” In Kabul we had an Ace of Hearts painted on the front of Pigpen.

Up to Bamiyan we went and sat on the heads of the 1,500-year-old Buddhas, since destroyed by the Taliban as “gods of the infidels.” We gazed at the sacred valley. The peace seemed eternal; it would not be. Everything passes except the dream that it will not. In Band-e-Amir, the night sky was of a breathtaking brilliance. On my 18th birthday, I thought I found my star, blotted out the rest, and recalled the line from “Box of Rain” — “Maybe you’ll find direction around some corner where it’s been waiting to meet you.” Later, deep in the Hindu Kush, Pigpen broke down. Like so many before us, we limped out of Afghanistan but we brought the Kombi home. There is much to be said for journeys without maps.

So of course I had to resume the journey earlier this month at Soldier Field in Chicago, where the Grateful Dead sans Jerry Garcia regrouped on their 50th anniversary to bid farewell. I’d last seen them on a Haight-Ashbury pilgrimage in San Francisco in 1974. Well, we’d all changed. Peace signs had not won the day any more than time’s imprint could be effaced. A cynic would take the view that the dollar sign had prevailed. But the magic of the music, in its moments of improvised brilliance, precluded any such heartless reflection. Hugs and hopes of old and young filled the stadium. Phil Lesh, Bob Weir, Bill Kreutzmann and Mickey Hart still did their thing. Listen to “Friend of the Devil” and find yourself back on the road from Herat to Kandahar — four decades, a mere ripple on water.

A Palestinian friend and physician, Sahar Halabi, attended the concert with me. Her odyssey had taken her from Algiers to Liverpool and on to the Midwest. Later, she sent me something she had once written about her search for her family’s home, from which they were ousted in 1948 during Israel’s War of Independence, which Palestinians call their “Nakba,” or catastrophe.

She wrote: “The story of the old large house was a constant in my childhood, not because of the repetition, but because it was a palpable entity which I could almost touch with my imagination. To all of the Palestinian refugees in diaspora, the land of Palestine is not a physical place, only sheer longing.” On a visit to Israel in 2009, she goes back to the place where the house once stood and digs: “The old design of the intertwined blue and red curved lines of the tiles appear, and I understood. These were the tiles of the floors on which my mother took her first unsteady steps.” A fragment is now in her Chicago home.

Fragments, memories, conflicts, the intractability of understanding and the constancy of the Dead: What a long, strange trip it’s been. As Hart said, “I’ll leave you with this: Please, be kind.”

Now here’s Prof. Krugman:

There’s a bit of a lull in the news from Europe, but the underlying situation is as terrible as ever. Greece is experiencing a slump worse than the Great Depression, and nothing happening now offers hope of recovery. Spain has been hailed as a success story, because its economy is finally growing — but it still has 22 percent unemployment. And there is an arc of stagnationacross the continent’s top: Finland is experiencing a depression comparable to that in southern Europe, and Denmark and the Netherlands are also doing very badly.

How did things go so wrong? The answer is that this is what happens when self-indulgent politicians ignore arithmetic and the lessons of history. And no, I’m not talking about leftists in Greece or elsewhere; I’m talking about ultra-respectable men in Berlin, Paris, and Brussels, who have spent a quarter-century trying to run Europe on the basis of fantasy economics.

To someone who didn’t know much economics, or chose to ignore awkward questions, establishing a unified European currency sounded like a great idea. It would make doing business across national borders easier, while serving as a powerful symbol of unity. Who could have foreseen the huge problems the euro would eventually cause?

Actually, lots of people. In January 2010 two European economists published an article titled “It Can’t Happen, It’s a Bad Idea, It Won’t Last,” mocking American economists who had warned that the euro would cause big problems. As it turned out, the article was an accidental classic: at the very moment it was being written, all those dire warnings were in the process of being vindicated. And the article’s intended hall of shame — the long list of economists it cites for wrongheaded pessimism — has instead become a sort of honor roll, a who’s who of those who got it more or less right.

The only big mistake of the euroskeptics was underestimating just how much damage the single currency would do.

The point is that it wasn’t at all hard to see, right from the beginning, that currency union without political union was a very dubious project. So why did Europe go ahead with it?

Mainly, I’d say, because the idea of the euro sounded so good. That is, it sounded forward-looking, European-minded, exactly the kind of thing that appeals to the kind of people who give speeches at Davos. Such people didn’t want nerdy economists telling them that their glamorous vision was a bad idea.

Indeed, within Europe’s elite it quickly became very hard to raise objections to the currency project. I remember the atmosphere of the early 1990s very well: anyone who questioned the desirability of the euro was effectively shut out of the discussion. Furthermore, if you were an American expressing doubts you were invariably accused of ulterior motives — of being hostile to Europe, or wanting to preserve the dollar’s “exorbitant privilege.”

And the euro came. For a decade after its introduction a huge financial bubble masked its underlying problems. But now, as I said, all of the skeptics’ fears have been vindicated.

Furthermore, the story doesn’t end there. When the predicted and predictable strains on the euro began, Europe’s policy response was to impose draconian austerity on debtor nations — and to deny the simple logic and historical evidence indicating that such policies would inflict terrible economic damage while failing to achieve the promised debt reduction.

It’s astonishing even now how blithely top European officials dismissed warnings that slashing government spending and raising taxes would cause deep recessions, how they insisted that all would be well because fiscal discipline would inspire confidence. (It didn’t.) The truth is that trying to deal with large debts through austerity alone — in particular, while simultaneously pursuing a hard-money policy — has never worked. It didn’t work for Britain after World War I, despite immense sacrifices; why would anyone expect it to work for Greece?

What should Europe do now? There are no good answers — but the reason there are no good answers is because the euro has turned into a Roach Motel, a trap that’s hard to escape. If Greece still had its own currency, the case for devaluing that currency, improving Greek competitiveness and ending deflation, would be overwhelming.

The fact that Greece no longer has a currency, that it would have to create one from scratch, vastly raises the stakes. My guess is that euro exit will still prove necessary. And in any case it will be essential to write down much of Greece’s debt.

But we’re not having a clear discussion of these options, because European discourse is still dominated by ideas the continent’s elite would like to be true, but aren’t. And Europe is paying a terrible price for this monstrous self-indulgence.

Brooks and Krugman

July 17, 2015

Oh, sweet, sweet Baby Jesus on a pogo stick…  Bobo has extruded a turd entitled “Listening to Ta-Nehisi Coates While White” in which he gurgles that a new memoir provides a mind-altering account of the black male experience in America.  Two short comments are in order.  The first is from “Robert Eller,” who said this is “David Brooks’ Declaration of Incompetence and Irrelevance: This Week’s Edition.”  “Karen Garcia” from New Paltz, NY had this to say:  “Brooks praises Ta-Nehisi Coates with such faint damns that your head ends up clanging with his cognitive dissonance.”  The mind boggles that he had the stones to even consider writing this thing…  Prof. Krugman, in “Liberals and Wages,” tells us that workers’ pay can be raised without costing jobs.  Here, FSM help us, is Bobo:

Dear Ta-Nehisi Coates,

The last year has been an education for white people. There has been a depth, power and richness to the African-American conversation about Ferguson, Baltimore, Charleston and the other killings that has been humbling and instructive.

Your new book, “Between the World and Me,” is a great and searing contribution to this public education. It is a mind-altering account of the black male experience. Every conscientious American should read it.

There is a pervasive physicality to your memoir — the elemental vulnerability of living in a black body in America. Outside African-American nightclubs, you write, “black people controlled nothing, least of all the fate of their bodies, which could be commandeered by the police; which could be erased by the guns, which were so profligate; which could be raped, beaten, jailed.”

Written as a letter to your son, you talk about the effects of pervasive fear. “When I was your age the only people I knew were black and all of them were powerfully, adamantly, dangerously afraid.”

But the disturbing challenge of your book is your rejection of the American dream. My ancestors chose to come here. For them, America was the antidote to the crushing restrictiveness of European life, to the pogroms. For them, the American dream was an uplifting spiritual creed that offered dignity, the chance to rise.

Your ancestors came in chains. In your book the dream of the comfortable suburban life is a “fairy tale.” For you, slavery is the original American sin, from which there is no redemption. America is Egypt without the possibility of the Exodus. African-American men are caught in a crushing logic, determined by the past, from which there is no escape.

You write to your son, “Here is what I would like for you to know: In America, it is traditional to destroy the black body — it is heritage.” The innocent world of the dream is actually built on the broken bodies of those kept down below.

If there were no black bodies to oppress, the affluent Dreamers “would have to determine how to build their suburbs on something other than human bones, how to angle their jails toward something other than a human stockyard, how to erect a democracy independent of cannibalism.”

Your definition of “white” is complicated. But you write “ ‘White America’ is a syndicate arrayed to protect its exclusive power to dominate and control our bodies. Sometimes this power is direct (lynching), and sometimes it is insidious (redlining).” In what is bound to be the most quoted passage from the book, you write that you watched the smoldering towers of 9/11 with a cold heart. At the time you felt the police and firefighters who died “were menaces of nature; they were the fire, the comet, the storm, which could — with no justification — shatter my body.”

You obviously do not mean that literally today (sometimes in your phrasing you seem determined to be misunderstood). You are illustrating the perspective born of the rage “that burned in me then, animates me now, and will likely leave me on fire for the rest of my days.”

I read this all like a slap and a revelation. I suppose the first obligation is to sit with it, to make sure the testimony is respected and sinks in. But I have to ask, Am I displaying my privilege if I disagree? Is my job just to respect your experience and accept your conclusions? Does a white person have standing to respond?

If I do have standing, I find the causation between the legacy of lynching and some guy’s decision to commit a crime inadequate to the complexity of most individual choices.

I think you distort American history. This country, like each person in it, is a mixture of glory and shame. There’s a Lincoln for every Jefferson Davis and a Harlem Children’s Zone for every K.K.K. — and usually vastly more than one. Violence is embedded in America, but it is not close to the totality of America.

In your anger at the tone of innocence some people adopt to describe the American dream, you reject the dream itself as flimflam. But a dream sullied is not a lie. The American dream of equal opportunity, social mobility and ever more perfect democracy cherishes the future more than the past. It abandons old wrongs and transcends old sins for the sake of a better tomorrow.

This dream is a secular faith that has unified people across every known divide. It has unleashed ennobling energies and mobilized heroic social reform movements. By dissolving the dream under the acid of an excessive realism, you trap generations in the past and destroy the guiding star that points to a better future.

Maybe you will find my reactions irksome. Maybe the right white response is just silence for a change. In any case, you’ve filled my ears unforgettably.

Bobo should really just sit down and STFU.  Forever.  Now here’s Prof. Krugman:

Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton’s core message was that the federal government can and should use its influence to push for higher wages.

Conservatives, however — at least those who could stop chanting “Benghazi! Benghazi! Benghazi!” long enough to pay attention — seemed bemused. They believe that Ronald Reagan proved that government is the problem, not the solution. So wasn’t Mrs. Clinton just reviving defunct “paleoliberalism”? And don’t we know that government intervention in markets produces terrible side effects?

No, she wasn’t, and no, we don’t. In fact, Mrs. Clinton’s speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.

Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor — that is, wage rates — fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.

In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend, other than aiding low-wage workers via subsidies like the earned-income tax credit.

You still see commentators who haven’t kept up invoking this story as if it were obviously true. But the case for “skill-biased technological change” as the main driver of wage stagnation has largely fallen apart. Most notably, high levels of education have offered no guarantee of rising incomes — for example, wages of recent college graduates, adjusted for inflation, have been flat for 15 years.

Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution — that’s not too strong a word — brought on by a series of remarkable studies of what happens when governments change the minimum wage.

More than two decades ago the economists David Card and Alan Krueger realized that when an individual state raises its minimum wage rate, it in effect performs an experiment on the labor market. Better still, it’s an experiment that offers a natural control group: neighboring states that don’t raise their minimum wages. Mr. Card and Mr. Krueger applied their insight by looking at what happened to the fast-food sector — which is where the effects of the minimum wage should be most pronounced — after New Jersey hiked its minimum wage but Pennsylvania did not.

Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.

How can this be? There are several answers, but the most important is probably that the market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.

The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.

For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.

So there was a lot more behind Hillary’s speech than I suspect most commentators realized. And for those trying to play gotcha by pointing out that some of what she said differed from ideas that prevailed when her husband was president, well, many liberals have changed their views in response to new evidence. It’s an interesting experience; conservatives should try it some time.

Not going to happen.  They’re the mole people and are incapable of learning.

Blow, Cohen and Krugman

July 13, 2015

In “A Bias More Than Skin Deep” Mr. Blow says that despite evidence that racial differences are gradually blurring, racial preferences are very much still with us.  Mr. Cohen considers “The German Question Redux” and says the German model is good for Germans. But imposing it on all Europeans will destroy the union that saved Germany.  Prof. Krugman, in “The Laziness Dogman,” says Jeb Bush is firmly on the side of those who believe that workers must work harder, and affluent “job creators” should be taxed less.  Here’s Mr. Blow:

I will never forget the October 2013 feature on National Geographic’s website:

There was a pair of portraits of olive-skinned, ruby-lipped boys, one with a mane of curly black hair, the other with the tendrils of blond curls falling into his face.

The portraits rested above the headline: “The Changing Face of America: We’ve become a country where race is no longer so black or white.” It was about the explosion of interracial marriage in America and how it is likely to impact both our concept of race and the physical appearances of Americans.

As the Pew Research Center pointed out in a 2012 report: “About 15 percent of all new marriages in the United States in 2010 were between spouses of a different race or ethnicity from one another, more than double the share in 1980 (6.7 percent).”

People often think of the browning of America as a factor of immigration or racial/ethnic variances in birth rates, but it must also be considered this way: as a function of interracial coupling and racial identifications.

This freedom and fluidity is, on one level, a beautiful sign of societal progress toward less racial rigidity. But, at the same time, I am left with a nagging question: does this browning represent an overcoming, on some level, of anti-black racism, or a socio-evolutionary sidestepping of it?

As some make choices that challenge the rigid racial caste system in this country — one strictly drawn and enforced, at least in part, to regulate the parameters of freedom and enslavement — is everyone elevated in the process, or are those on the darkest end of the spectrum still subject to a discrimination that is skin-shallow and bone-deep?

How does blackness itself, the obsidian, ethereal blackness of the people who populated my world as a child, fit this shifting paradigm? Is the laughable “postracial” really some strange proxy for “postblack,” as Anna Holmes posited recently in The New York Times Magazine?

Biracial people can have their own challenges adapting to a world that adheres to the illusion of racial purity, in part because their very existence challenges the notion and reveals its ridiculousness.

That must be acknowledged. But what must also be acknowledged is that racial purity itself was an instrument developed for the protection of whiteness from “dilution,” and the furthest one could move from whiteness was blackness.

Blackness was denigrated in direct proportion to the degree that whiteness was preferred or valued as supreme. And on top of this issue of race as defined by color, there is an overlay of gender. In particular, how do women with darker skin fit this paradigm in a culture and world that seem to reflexively conflate lighter-skinned not only with beauty but often withfemininity itself?

I was reminded of this earlier this month when The Washington Post reported on a study about the popularity of multiracial people among online daters.

But even in this openness, there persisted a pro-white/anti-black bias. As The Post pointed out: “Hispanic women preferred men who identified as Hispanic-white above all else. Hispanic men were less selective — they liked Hispanic women, white women and Hispanic-white women about the same. White women responded to white men and Asian-white men the most, followed by Hispanic-white men and black-white men.”

Furthermore, among all groups, according to the study’s co-author, “Men didn’t play racial favorites as much as women did. Except when it comes to black women, who were responded to the least.”

While America’s history in skin-color politics is long and deep, this aversion to darkness — particularly dark femininity — and aspiration to lightness, or even whiteness, isn’t only an American phenomenon. It’s a global sickness informed by history and culture and influenced by colonialism and the export of popular culture.

In 2012, The New York Times ran an article about Chinese women wearing ski masks to the beach to keep from getting darker.

The Guardian reported in 2013 on “India’s obsession with fair skin” that incorporate the use of whitening cleansers that even include “vaginal washes.” As the paper put it: “Last year, Indians reportedly consumed 233 tons of skin-whitening products, spending more money on them than on Coca-Cola.”

And the BBC reported in 2013 that “a recent study by the University of Cape Town suggests that one woman in three in South Africa bleaches her skin”

It seems to me that we as a society — nationally and globally — must find some peace with dark skin itself, to not impute value and character onto color if harmony is truly to be had.

Until that is done, it often feels that we of darker bodies must resist the absorption of oppression and love ourselves defensively, as an equalizer. We must love our dark flesh as an antidote to a world that often disdains it.

Next up we have Mr. Cohen:

Europe, once again at a moment of crisis, faces the quandary of how to deal with German power. The German Question is back.

It has existed, in different forms, since 1945, that moment of complete self-annihilation the Germans call “Stunde nul,” or Zero Hour. How to rebuild the country while keeping it under American tutelage? How to ensure it remained a political pygmy even when it had grown from the ruins to become an economic titan? Whether to reunite it, and how to do so within the framework of NATO and the European Union? How to integrate Germany so completely in Europe that it would never again be tempted to stray down some wayward path, or “Sonderweg”?

By the early 21st century, these issues had been resolved. The United States had helped fashion the German Federal Republic and underwritten its security. The European Union had defused Franco-German enmity, Europe’s perennial scourge; a tacit understanding gave France political primacy even if Germany had the economic muscle.

German unification had been achieved without German neutrality at a moment of Russian weakness and American deftness. A common currency, the euro, had been introduced that obliged Germany to give up the Deutsche mark, revered symbol of recovery, and bound the country’s fortunes irrevocably to the rest of Europe. A united Germany, anchored in the West, its borders undisputed, existed within a Europe whole and free.

The heavy lifting was done. America could lay down its European burden. If a French intellectual had observed in Cold War days that he liked Germany so much he was glad there were two of them, now, slowly, Europeans were getting used to one of them.

But the euro was a poisoned chalice. Conceived to bind Germany to Europe, it instead bound far-weaker European countries to Germany, in what for some, notably Greece, proved an unsustainable straitjacket. It turbo-charged German economic dominance as Berlin’s export machine went to work. It wed countries of far laxer and more flexible Mediterranean culture to German diktats of discipline, predictability and austerity. It produced growing pressure to surrender sovereignty — for a currency union without political union is problematic — and this yielding was inevitably to German power.

Two other developments thrust Germany into the very leadership role its history has taught it to mistrust. France grew weaker. De Gaulle’s all-powerful presidency became an indifferent sort of office presiding over a country of sullen introspection. No fig leaf could disguise that the Franco-German partnership was no longer one of equals. Europe, perhaps to Henry Kissinger’s belated satisfaction, had a phone number — in Angela Merkel’s office.

The second development was that the United States decided it was time to leave Europe to the Europeans. In a matter of war and peace — President Vladimir Putin’s annexation of Crimea and his stirring up of a small war in Eastern Ukraine — Washington is not even a party to the Minsk accords that constitute an attempt to clear up the mess. Germany, of course, is. How times have changed.

Precisely the thing that Germans were most uneasy about, and their neighbors, too, has now occurred. Germany dominates Europe to a degree unimaginable even 15 years ago. When I lived in Berlin around the turn of the century, Germans were still debating whether they could ever be a “normal” country and whether they could ever feel “proud.” Now such rumination just seems quaint. Germany has decided it has no choice but to assume its power.

It wants to use it well. But its domination is stirring resentment, on a massive scale in Greece, where flip references to the Nazis are common; in France, where the feeling has grown that German severity with an already humiliated Greece is overblown; in Italy, where German-imposed austerity is resented; and in other countries of high unemployment and economic stagnation, where old anger toward Germany has not been entirely effaced by the passage of seven decades.

In Britain, the case for staying in the European Union has been complicated by the fact that, as a non-euro country, it will never be part of the inner sanctum of power, the German-dominated eurozone. Anti-European British politicians, not to mention the powerful anti-European Murdoch press, find plenty of fodder with this theme.

Yes, the German Question is back. Is German domination compatible with further European integration or will it prove a fracturing force?

Merkel has tried to tread a fine line between the rage at Greece within her center-right party and her determination to hold the euro — and Europe — together. She has resisted the many German voices saying, “To heck with Greece. Enough!” But, overall, she has erred on the side of the unforgiving imposition of rigidity, austerity and responsibility lessons. German methods are good for Germans. But if Berlin now wants all Europeans to follow those methods, the Europe that offered postwar Germany a path to salvation will break apart.

And now here’s Prof. Krugman:

Americans work longer hours than their counterparts in just about every other wealthy country; we are known, among those who study such things, as the “no-vacation nation.” According to a 2009 study, full-time U.S. workers put in almost 30 percent more hours over the course of a year than their German counterparts, largely because they had only half as many weeks of paid leave. Not surprisingly, work-life balance is a big problem for many people.

But Jeb Bush — who is still attempting to justify his ludicrous claim that he can double our rate of economic growth — says that Americans “need to work longer hours and through their productivity gain more income for their families.”

Mr. Bush’s aides have tried to spin away his remark, claiming that he was only referring to workers trying to find full-time jobs who remain stuck in part-time employment. It’s obvious from the context, however, that this wasn’t what he was talking about. The real source of his remark was the “nation of takers” dogma that has taken over conservative circles in recent years — the insistence that a large number of Americans, white as well as black, are choosing not to work, because they can live lives of leisure thanks to government programs.

You see this laziness dogma everywhere on the right. It was the hidden background to Mitt Romney’s infamous 47 percent remark. It underlay the furious attacks on unemployment benefits at a time of mass unemployment and on food stamps when they provided a vital lifeline for tens of millions of Americans. It drives claims that many, if not most, workers receiving disability payments are malingerers — “Over half of the people on disability are either anxious or their back hurts,” says Senator Rand Paul.

It all adds up to a vision of the world in which the biggest problem facing America is that we’re too nice to fellow citizens facing hardship. And the appeal of this vision to conservatives is obvious: it gives them another reason to do what they want to do anyway, namely slash aid to the less fortunate while cutting taxes on the rich.

Given how attractive the right finds the image of laziness run wild, you wouldn’t expect contrary evidence to make much, if any, dent in the dogma. Federal spending on “income security” — food stamps, unemployment benefits, and pretty much everything else you might call “welfare” except Medicaid — has shown no upward trend as a share of G.D.P.; it surged during the Great Recession and aftermath but quickly dropped back to historical levels. Mr. Paul’s numbers are all wrong, and more broadly disability claims have risen no more than you would expect, given the aging of the population. But no matter, an epidemic of laziness is their story and they’re sticking with it.

Where does Jeb Bush fit into this story? Well before his “longer hours” gaffe, he had professed himself a great admirer of the work of Charles Murray, a conservative social analyst most famous for his 1994 book “The Bell Curve,” which claimed that blacks are genetically inferior to whites. What Mr. Bush seems to admire most, however, is a more recent book, “Coming Apart,” which notes that over the past few decades working-class white families have been changing in much the same way that African-American families changed in the 1950s and 1960s, with declining rates of marriage and labor force participation.

Some of us look at these changes and see them as consequences of an economy that no longer offers good jobs to ordinary workers. This happened to African-Americans first, as blue-collar jobs disappeared from inner cities, but has now become a much wider phenomenon thanks to soaring income inequality. Mr. Murray, however, sees the changes as the consequence of a mysterious decline in traditional values, enabled by government programs which mean that men no longer “need to work to survive.” And Mr. Bush presumably shares that view.

The point is that Mr. Bush’s clumsy call for longer work hours wasn’t a mere verbal stumble. It was, instead, an indication that he stands firmly on the right side of the great divide over what working American families need.

There’s now an effective consensus among Democrats — on display in Hillary Clinton’s planned Monday speech on the economy — that workers need more help, in the form of guaranteed health insurance, higher minimum wages, enhanced bargaining power, and more. Republicans, however, believe that American workers just aren’t trying hard enough to improve their situation, and that the way to change that is to strip away the safety net while cutting taxes on wealthy “job creators.”

And while Jeb Bush may sometimes sound like a moderate, he’s very much in line with the party consensus. If he makes it to the White House, the laziness dogma will rule public policy.

Well…  Jeb! has had his 47% moment early…

Krugman, solo

July 10, 2015

In “Greece’s Economy Is a Lesson for Republicans in the U.S.” Prof. Krugman says economic policy promoted by American conservatives is how Greece got in severe trouble.  Here he is:

Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.

But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.

To understand the real lessons of Greece, you need to be aware of two crucial points.

The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.

The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.

Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.

Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.

So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.

On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)

On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.

Cohen and Krugman

July 6, 2015

In “Soften the Greek Deal” Mr. Cohen says give Tsipras what he wants and see how long he lasts. It’s the only way to stop this government using a German scapegoat to hide its incompetence.  Prof. Krugman, in “End Greece’s Bleeding,” says if Greece can’t live with the euro, it will be because the currency offers no respite for countries in trouble.  Here’s Mr. Cohen:

Syriza, the left-wing party governing Greece, was elected early this year to bring change to a country suffering one of the sharpest peacetime economic declines in modern history. Turns out doing things differently in a currency union that is not also a political union is almost impossible. So there is a fundamental question about democracy in the eurozone. The degree to which it exists is questionable.

None of the amateurish cavorting of Alexis Tsipras, the Greek prime minister, and his crew should be allowed to obscure this troubling fact.

Tsipras is now trumpeting his democratic mandate to negotiate a better deal after Greeks, in a hastily organized referendum, voted overwhelmingly to reject the austerity package that the European Central Bank, the International Monetary Fund and the European Commission insisted was needed to justify plowing further piles of public money into Greece. In essence, Greeks told Germany to get lost.

It is safe to say that Wolfgang Schäuble, the German finance minister who, unlike Chancellor Angela Merkel, has essentially had it with Greece, will be unimpressed by this democratic claim. A vote cannot undo a debt or obscure colossal Greek irresponsibility. Greeks were not asked in the referendum whether they wanted to remain in the euro (in which case they would certainly have voted “yes”), but the effect of their 61.3 percent “no” vote is to bring a Grexit much closer.

Should European leaders now allow this to happen — keep the cash spigot from the European Central Bank turned off, watch Greek banks become insolvent in short order, see medicines and imported foods disappear from pharmacies and supermarkets within a week or two, force Greece to start printing i.o.u.s or eventually drachmas that might allow the country over time to devalue its way back to competitiveness? Should Europe gamble that as this scenario unfolds — and Greeks see they were hoodwinked by Tsipras into voting on an austerity proposal when in fact they were voting on whether to keep the euro or not — the majority will rise up and throw out the leftist government for one more amenable to a deal?

Or should creditors, headed by Germany, now cave to Greece — persuaded at last that austerity has its limits and the Greek people have evidently reached theirs, that grievous mistakes have been made by all sides, that the euro may never recover from the loss of one its members, and that, as the International Monetary Fund concluded last week, Greece is almost certainly going to need some debt relief at some stage anyway? Should the troika swallow its pride and say to Tsipras and his ministers that — despite their incompetence, their amateurishness, their arrogance allied to childishness (fatal combo), their insults and their game playing — they have proved their point and won the day and more money is coming?

The decision is not easy. The abrupt resignation on Monday of Yanis Varoufakis, the finance minister, suggests that Greece may now be more serious about negotiation. Much hinges on how expendable Greece, which accounts for just 2 percent of the eurozone’s economic output, is seen to be. In the end currencies are more expendable than countries. Greece will survive without the euro, initially in great misery. The euro may survive without Greece. But, because trust is the foundation of any currency, and joining the euro was an “irrevocable” decision of all its adherents, the euro will have suffered a body blow. It will become little more than a fixed exchange rate system awaiting the next defector.

On balance, Merkel’s concerns about the destabilizing influence of a “Grexit” should prevail over the tough position of her finance minister. The troika should accept the Greek vote, however flawed, and ease the terms of a deal to include some debt relief. This gets back to my initial point about democracy. Europeans want something to give in the austerity that has been the response to the financial crisis since 2008.

Schäuble would see such a decision as surrender — and an open invitation to Spaniards, Portuguese and others to vote for populists who will in turn demand concessions from creditors. But it’s the only way to stop Tsipras blaming everything on his favored German scapegoat. If Greece gets a better deal, this incompetent government will have to prove to Greeks it is competent enough to turn the economy around. I doubt that will happen. Tsipras may not survive long.

The alternative — casting Greece to its fate — will see Tsipras turning Greece into Venezuela, railing against the Germans as Hugo Chávez used to rail against the Yankee imperialists responsible for all his country’s woes. Only this will be Venezuela-on-the-Med, with refugees flooding in from the Middle East and North Africa, and President Vladimir Putin doing his worst to suck Greece into his orbit.

It was a sentimental illusion to allow Greece into the euro in the first place, but sometimes terrible decisions have to be managed rather than brutally reversed. This is still such a case.

Now here’s Prof. Krugman:

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.

Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.

In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concludedindependently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.

Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?

Would Greek exit from the euro work as well as Iceland’s highly successfuldevaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.


Follow

Get every new post delivered to your Inbox.

Join 167 other followers