Monday Morning Reads

Good Morning!

Elections happened in Egypt and Greece.  Pro-Bailout Parties in Greece have taken the majority.  The Muslim Brotherhood candidate is ahead in the run off for the presidency in Egypt.

Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, official projections showed, easing concern the country was headed toward an imminent exit from the euro. The currency rose on the result.

The election would give New Democracy and Pasok 163 seats if they agree to govern together in the 300-member parliament, according to the official projection by the Interior Ministry in Athens based on 63 percent of today’s vote.

“For markets, a majority for an ND-Pasok coalition would be a relief,” Holger Schmieding, London-based chief economist at Berenberg Bank, said in a note today. “It would very much reduce the risk of a Greek euro exit.”

The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the 17-nation currency. The election threatened to dominate a summit of world leaders that starts tomorrow in Mexico.

Krugman’s Op Ed today has a nice, succinct explanation of the Greek situation.

Fifteen years ago Greece was no paradise, but it wasn’t in crisis either. Unemployment was high but not catastrophic, and the nation more or less paid its way on world markets, earning enough from exports, tourism, shipping and other sources to more or less pay for its imports.

Then Greece joined the euro, and a terrible thing happened: people started believing that it was a safe place to invest. Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble.

And then the bubble burst, at which point the fundamental flaws in the whole euro system became all too apparent.

Ask yourself, why does the dollar area — also known as the United States of America — more or less work, without the kind of severe regional crises now afflicting Europe? The answer is that we have a strong central government, and the activities of this government in effect provide automatic bailouts to states that get in trouble.

Consider, for example, what would be happening to Florida right now, in the aftermath of its huge housing bubble, if the state had to come up with the money for Social Security and Medicare out of its own suddenly reduced revenues. Luckily for Florida, Washington rather than Tallahassee is picking up the tab, which means that Florida is in effect receiving a bailout on a scale no European nation could dream of.

Egypt continues to see stand offs between the judiciary, military rulers, and the electorate.  It appears that Egyptian elections may put a Muslim Brotherhood candidate into office just as the military rulers  disbanded parliament due to a ruling by courts.  Final election results are expected on Thursday.

In a final run-off election marked by relentless fear-mongering and negative campaigning on both sides of the contest, many polling stations remained near-empty for much of the two-day ballot – with potential voters seemingly put off by scorching temperatures, which reached 40C in the capital, and the increasingly oppressive political climate of military-led manipulation and national division that has gripped the country a year and a half after the start of its ongoing revolution.

As ballot counting began inside more than 13,000 schools nationwide, the Brotherhood’s Freedom and Justice Party insisted that its candidate, 60 year old engineer Mohamed Morsi, was on course for a clear victory unless state-sponsored electoral fraud dictated otherwise. But local media reports and anecdotal evidence suggested a far closer race, with millions turning out to back Ahmed Shafiq, Hosni Mubarak’s final prime minister and a polarising emblem of the old regime, in a last-ditch effort to prevent political Islamists from taking power.

Egypt continues on its course of political uncertainty.

The high court ruled that some provisions of the electoral law, which allowed political parties to compete with independent candidates for some seats, violated the constitution.

The ruling invalidated the 508-member People’s Assembly, chosen during a six-week election which began in November. It also voided the constitutional assembly which members of parliament agreed to last week and appointed on Tuesday.

SCAF said it will announce its own assembly next week.

The ruling was a blow to the entire transition process, but perhaps most of all to the Brotherhood, which controlled nearly half of the assembly.

Mohamed el-Beltagy, a senior FJP politician, called the rulings a “fully-fledged coup” on his Facebook page.

The Brotherhood issued a statement late on Thursday night warning that the court’s decision would undo the gains of the revolution and push Egypt into “dangerous days”.

The Economist has some interesting analysis on what might happen if the Roberts SCOTUS throws out portions of the Affordable Healthcare Act. You have to remember this is written in England where our health care system is considered something out of a dystopian science fiction horror novel.

Yet for all that, it is possible that the Supreme Court, by throwing a spanner into the works, may actually help Mr Obama as much as hurt him. For a start, the Republicans would suddenly find that they have a mess of their own making to sort out. If the Supreme Court does indeed strike down the Affordable Care Act, many popular provisions would fall with it: the one allowing parents to keep their children on their insurance policies until they are 26, for instance, and the abolition of lifetime ceilings on what the sick can claim. Both of those are already in force, and a ban on insurance companies refusing to insure the unwell is due to come in from 2014. Generous subsidies will help not just those who lack insurance, but also some of those who have it and find it hard to afford. And Mr Obama’s cost-control mechanisms, imperfect though they are, have a fiscally useful role to play in bringing down the costs of government-provided insurance for the poor and the elderly.

Even if only the “mandate” requiring everyone to buy health insurance is struck down as unconstitutional, the consequences of that could cause other parts of the bill to unravel, and would certainly lead to big increases in insurance premiums. One big insurance company has already said it would endeavour to keep some of the popular provisions intact: but it might not be able to. The Republicans have long said that they want to “repeal and replace” Obamacare, but they have been remarkably coy about what they would replace it with. If you break it, as Colin Powell remarked in another context, you own it.

So the danger to the Republicans of a backlash should not be discounted. And there is another, greater threat to them. Should Obamacare be struck down or crippled, the Roberts court will be seen by many as politically slanted. Arguably that has happened already, thanks to its recision of gun control in Washington, DC and Chicago in 2008 and 2010, and to its decision in 2010 to scrap limits on corporate (and trade-union) donations to political-action groups. And judgments on other highly political cases, on positive discrimination and on immigration, are expected before the election. Like the gun-control and campaign-finance rulings, these are likely to be “partisan” 5-4 decisions. A poll on June 7th found that 76% of people think that Supreme Court justices are sometimes swayed by their political or personal views, and that only 44% approve of the court’s performance. It used to be by far the most popular branch of government.

Romney just told us all not to worry our pretty little heads about his economics policy yesterday on Face The Nation.  He doesn’t want to give us any specifics and we should just “trust him”.  Does this sound like the guy you dated once in high school that didn’t think of much anything but getting a blow job from you or what?

Romney repeatedly refused to say whether he’d repeal Obama’s order to halt deportations of DREAM-eligible youth. He confirmed that he would not agree to even one dollar in new revenues in exchange for 10 dollars in spending cuts. And he again reiterated that his response to the crisis would be to cut government, in order to “ignite growth,” even though economists say that more austerity now would make the crisis worse.

But I wanted to flag this exchange in particular, in which Romney seemed to confirm that he will not be detailing how he would pay for his proposed tax cuts for the duration of the campaign:

SCHIEFFER: You haven’t been bashful about telling us yo want to cut taxes. When are you going to tell us where you’re going to get the revenue? Which of the deductions are you going to be willing to eliminate? Which of the tax credits are you going to — when are you going to be able to tell us that?

ROMNEY: Well, we’ll go through that process with Congress as to which of all the different deductions and the exemptions —

SCHIEFFER: But do you have an ideas now, like the home mortgage interest deduction, you know, the various ones?

ROMNEY: Well Simpson Bowles went though a process of saying how they would be able to reach a setting where they had actually under their proposal even more revenue, with lower rates. So, mathematically it’s been proved to be possible: We can have lower rates, as I propose, that creates more growth, and we can limit deductions and exemptions.

Romney went on to pledge, as he has in the past, that under his plan, the wealthy would continue to pay the same share of the tax burden as they do now. “I’m not looking to reduce the burden paid by the wealthiest,” he said. In other words, the disproportionally larger tax cut the wealthy would get from the across-the-board cut in rates he’s proposing would be offset by closing deductions and loopholes the rich currently enjoy. But asked twice by Schieffer how exactly he would do this, Romney refused to say, beyond noting that this has been mathematically proven to be possible. And in his first reply above, he confirmed that the details would be worked out with Congress when he is president — which is to say, not during the campaign.

As you may recall, Romney made big news when he was overheard at a private fundraiser revealing to donors a few of the specific ways he’d pay for his massive tax cuts. Since then, details have been in short supply. And today, Romney seemed to confirm that he sees no need to reveal those details until he becomes president.

You know.  If we don’t give him what he wants his balls will turn blue and it will be all our fault.

What’s on your reading and blogging list today?


Monday Reads: Can we get back to real Economics now?

Good Morning!

It certainly has been a tough few years for reasonable people. We’ve had to endure a repeat of the same old things that didn’t end the Great Depression the first time remixed and put into failed policies in both Europe and the U.S.

The very act of believing something doesn’t make it real or true.  Yet, a group of so-called conservatives have been recently led by blind faith in tropes and canards.  They followed all the failed policies instead of  what we’ve learned that works when dealing with market economies and their cycles over the last 100 years.

It seems voters in a lot of countries are waking up and voting out all those second comings of Herbert Hoover.  Austerity economics hasn’t worked for the majority of us.

Paul Krugman has been outspoken about the wrong thinking that’s contaminated the political class here and Europe.  There appears to be a group of people out there determined to un-write the history of the 1920s and 1930s. His new book tries to outline what we’ve known since the Roosevelt years and why the plans foisted on us by so-called conservatives were bound to fail.  I have no idea why discredited economic thoughts were brought back into vogue by the banking classes, the investment classes, and pushers of bad pulp fiction narratives like Paul Ryan and his slavish Randian/Austrian ideology. Why do modern politicians pick up the economic version of flat-earth geology and then expect the economic equivalent of a successful launch of a rocket to Mars?

The Austerian desire to slash government spending and reduce deficits even in the face of a depressed economy may be wrongheaded; indeed, my view is that it’s deeply destructive. Still, it’s not too hard to understand, since sustained deficits can be a real problem. The urge to raise interest rates is harder to understand. In fact, I was quite shocked when the OECD called for rate hikes in May 2010, and it still seems to me to be a remarkable and strange call.
Why raise rates when the economy is deeply depressed and there seems to be little risk of inflation? The explanations keep shifting.

Back in 2010, when the OECD called for big rate increases, it did an odd thing: it contradicted its own economic forecast. That forecast, based on its models, showed low inflation and high unemployment for years to come. But financial markets, which were more optimistic at the time (they changed their mind later), were implicitly predicting some rise in inflation. The predicted inflation rates were still low by historical standards, but the OECD seized on the rise in predicted inflation to justify a call for tighter money.

By spring 2011, a spike in commodity prices had led to a rise in actual inflation, and the European Central Bank cited that rise as a reason to raise interest rates. That may sound reasonable, except for two things. First, it was quite obvious in the data that this was a temporary event driven by events outside of Europe, that there had been little change in underlying inflation, and that the rise in headline inflation was likely to reverse itself in the near future, as indeed it did. Second, the ECB famously overreacted to a temporary, commodity-driven bump in inflation back in 2008, raising interest rates just as the world economy was plunging into recession. Surely it wouldn’t make exactly the same mistake just a few years later? But it did.

Why did the ECB act with such wrongheaded determination? The answer, I suspect, is that in the world of finance there was a general dislike of low interest rates that had nothing to do with inflation fears; inflation fears were invoked largely to support this preexisting desire to see interest rates rise.

The Europeans have had it with the nonsense.  They’ve watched their economies and jobs be drained by bankers drunk on casino style betting in financial markets that pass their chits to taxpayers.  The first major European leader–Nicholas Sarkozy–has been replaced. Will the French be able to put the out-of-control financial sector back into its proper place?

Mr Hollande – the first Socialist to win the French presidency since Francois Mitterrand in the 1980s – gave his victory speech in his stronghold of Tulle in central France.

He said was “proud to have been capable of giving people hope again”.

He said he would push ahead with his pledge to refocus EU fiscal efforts from austerity to “growth”.

“Europe is watching us, austerity can no longer be the only option,” he said.

After his speech in Tulle, Mr Hollande headed to Brive airport on his way to Paris to address supporters at Place de la Bastille. His voice hoarse, he spoke of his pride at taking over the mantle of the presidency 31 years almost to the day since Socialist predecessor Francois Mitterrand was elected.

“I am the president of the youth of France,” he told the assembled crowd of tens of thousands of supporters, emphasising his “pride at being president of all the republic’s citizens”. “You are a movement that is rising up throughout Europe,” he said.

Mr Hollande has called for a renegotiation of a hard-won European treaty on budget discipline championed by German Chancellor Angela Merkel and Mr Sarkozy.

Robert Reich writes that this is a chance to reform capitalism.  It is highly unlikely that France will move to make public any private assets.  What it will do is turn its economic future to what works for growth for a country and not the enrichment of the wealthy and powerful few.  Financial Markets should not be turned into gambling casinos via government engineering.

During the Depression decade of the 1930s, the nation reorganized itself so that the gains from growth were far more broadly distributed. The National Labor Relations Act of 1935 recognized unions’ rights to collectively bargain, and imposed a duty on employers to bargain in good faith. By the 1950s, a third of all workers in the United States were unionized, giving them the power to demand some of the gains from growth. Meanwhile, Social Security, unemployment insurance, and worker’s compensation spread a broad safety net. The forty-hour workweek with time-and-a-half for overtime also helped share the work and spread the gains, as did a minimum wage. In 1965, Medicare and Medicaid broadened access to health care. And a progressive income tax, reaching well over 70 percent on the highest incomes, also helped ensure that the gains were spread fairly.

This time, though, the nation has taken no similar steps. Quite the contrary: A resurgent right insists on even more tax breaks for corporations and the rich, massive cuts in public spending that will destroy what’s left of our safety nets, including Social Security and Medicare and Medicaid, fewer rights for organized labor, more deregulation of labor markets, and a lower (or no) minimum wage.

This is, quite simply, nuts.

Krugman reminds us that Spain was a prudent and financially responsible government prior to the speculative mortgage bubble brought on by banks.  It did them no good in their current downturn.

For this is really, really not about fiscal irresponsibility. Just as a reminder, on the eve of the crisis Spain seemed to be a fiscal paragon:

What happened to Spain was a housing bubble — fueled, to an important degree, by lending from German banks — that burst, taking the economy down with it. Now the country has 23.6 percent unemployment, 50.5 percent among the young.

And the policy response is supposed to be even more austerity, with the European Central Bank, natch, obsessing over inflation — and officials claiming that the incredibly foolish rate hike last year was actually something to be proud of.

Greece too has voted against the Austerity Agenda.

Alexis Tsipras became the surprise package of the Greek election by telling Angela Merkel to get lost.
“The people of Europe can no longer be reconciled with the bailouts of barbarism,” Tsipras, 37, said on state-run NET TV late yesterday after his Syriza party unexpectedly came second in the country’s election. “European leaders, and especially Ms. Merkel, should realize that her policies have undergone a crushing defeat.”

Tsipras’s calls to tax the rich, delay debt repayments and cut defense spending struck a chord with voters angry at austerity measures imposed by the European Union and the International Monetary Fund in return for bailouts. As far as euro membership is concerned, Tsipras told voters that a Greek exit would put the currency itself in jeopardy and they shouldn’t feel “blackmailed” into more austerity.

The result put Syriza ahead of the Socialist Pasok party, potentially derailing efforts to implement the terms of the country’s financial lifeline. Syriza, which means Coalition of the Radical Left, won 16 percent of the vote, projections showed. That exceeded the 13 percent won by Pasok, one of the two pillars of the political establishment since 1974. New Democracy, led by Antonis Samaras, topped the poll with 20 percent.

Rachel Maddow borrows some analysis from Ezra Klein to show how the UK has been tanking its own economy with its austerity agenda and how closely our own problems resemble the UK government induced recession.

Once President Obama took office and the Recovery Act/stimulus began putting capital back into the economy, the U.S. economy began growing again. In the U.K., the economy started to improve, right up until British officials began implementing an austerity agenda — at which point the national economy stagnated and slipped back into a recession.

Obama rejected austerity, and as a result, American growth, while fragile and insufficient, is easily outpacing Europe’s and UK’s, where austerity measures have ruled the day.

Americans should care about this, if for no other reason because of interconnectivity of the modern global economy. But there’s also a purely political perspective to keep in mind: namely, the problem of Republican predictions.

In short, American conservatives got everything backwards. When Obama’s policies began, Republicans said they wouldn’t generate economic growth, but GOP officials got it backwards. When David Cameron’s austerity policies began, Republicans were not only certain they would work, they pleaded with American policymakers to follow the Tories’ lead.

And we now know GOP officials had this backwards, too.

The remarkable thing is, Republicans aren’t the least bit chastened by their track record of failure.

They said Clinton’s economic policies would fail miserably, but that’s not what happened. They said Bush’s economic policies would produce extraordinary prosperity, but that’s not what happened. They said Obama’s economic policies would make the Great Recession worse, but that’s not what happened. They said Cameron’s economic policies in the U.K. would work brilliantly, but that’s not what happened.

And now these same Republicans are saying they deserve Americans’ votes in 2012 because they have credibility on the economy.

Here’s one  last Krugman analysis of what the austerity agenda has done in the U.S.  Private employment has recovered to pre-recession levels. That’s not true for public employment.

Here’s a comparison of changes in government employment (federal, state, and local) during the first four years of three presidents who came to office amid a troubled economy:

That spike early on is Census hiring; once that was past, the Obama years shaped up as an era of huge cuts in public employment compared with previous experience. If public employment had grown the way it did under Bush, we’d have 1.3 million more government workers, and probably an unemployment rate of 7 percent or less.

Here’s evidence that Obama is not growing the public sector as Mittens claims. These numbers represent thousands of teachers, health workers, scientists, highway workers. and public safety officials.

Here’s one last thought from the Economist: “The election will determine whether a nasty dose of austerity can be avoided.”

AMERICANS have watched austerity sweep Europe with a certain Schadenfreude. But eight months from now they may get a dose of the same medicine. The political compromises that have produced much of America’s deficit of 8% of GDP are programmed to go into reverse at the end of the year, two months after the election. A stimulus package consisting of a payroll-tax cut, investment tax credit and enhanced unemployment insurance expires then, as do George W. Bush’s tax cuts (which have already been extended by two years from their original end-date of 2010). At the same time an automatic, across-the-board cut in domestic and defence spending, called a “sequester”, takes effect, cutting about $100 billion from government spending next year.

The economic impact of this fiscal cliff is a matter of some debate. The Congressional Budget Office reckons that the combined effects of the sequester and the expiring tax cuts would add up to 3.6% of GDP in fiscal 2013. But David Greenlaw of Morgan Stanley, which puts the total effect at almost $700 billion at an annual rate, argues that the calendar-year impact is much larger, at around 5%. Others think the effect would be smaller, noting that some people will not experience the full tax hit until they file their returns in 2014.

Even the lower estimates could easily be enough to tip the economy back into recession.

These tax cuts have not been as successful as other forms of fiscal policy might have been.  However, austerity measures taken in many states has been somewhat offset by these Federal Policies.  It will be interesting to see how long the economy will hold out under current conditions if and when these things expire. It’s simply been a mind boggling process to watch so many countries unleash unregulated financial innovations and low interests rates then bail out for the financial sector after its bets went bad.  It’s been even worse to watch the victims of this excess be forced to pay for the results of government supported speculative bubbles.  I’m wondering exactly what the results of these elections will bring to Europe and how our own electorate will act in the fall.

So, I depressed you with a lot of dismal science stuff today.  What’s on your reading and blogging list?