Guess who said this:
“There are pockets of our society that are not just broken, but are frankly sick.
“It is a complete lack of responsibility in parts of our society, people allowed to feel the world owes them something, that their rights outweigh their responsibilities and their actions do not have consequences. Well, they do have consequences.”
You’re darn right! The global elites have gone too far! The banksters have stolen trillions from ordinary taxpayers, and then demanded and received massive government bailouts. Politicians have lost any sense of responsibility toward their constituents, only listening to their corporate masters and their lobbyists. Yes there are consequences and these wealthy elites will discover there are consequences for their corrupt and immoral actions.
Oh wait. That was Prime Minister David Cameron talking about the poor and jobless young people who have been rioting in the streets of London and other British cities for the past five days. I’ll bet he has absolutely no clue how ridiculous it is that he is chastising these people for looting after he and other global elites allowed banksters to steal and loot trillions with absolutely no consequences. From Raw Story:
The U.S. Federal Reserve gave out $16.1 trillion in emergency loans to U.S. and foreign financial institutions between Dec. 1, 2007 and July 21, 2010, according to figures produced by the government’s first-ever audit of the central bank.
Last year, the gross domestic product of the entire U.S. economy was $14.5 trillion.
Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows.
Additionally, asset swap arrangements were opened with banks in the U.K., Canada, Brazil, Japan, South Korea, Norway, Mexico, Singapore and Switzerland. Twelve of those arrangements are still ongoing, having been extended through August 2012.
Out of all borrowers, Citigroup received the most financial assistance from the Fed, at $2.5 trillion. Morgan Stanley came in second with $2.04 trillion, followed by Merill Lynch at $1.9 trillion and Bank of America at $1.3 trillion.
This scepticism toward the potency of democratic politicians – and therefore democratic politics itself – is oddly echoed by the looters themselves. Certainly no one outside the Iranian state media is calling them “protesters”, but even “rioters” seems the wrong word, carrying with it a hint of political purpose. For some, especially at the start in Tottenham, there was clearly a political dimension – with the police the prime focus of their anger. But many of the copycat actions across London and elsewhere have no apparent drive beyond the opportunistic desire to steal and get away with it. It’s striking that the targets have not been town halls or, say, Tory HQ – stormed by students last November – but branches of Dixons, Boots and Carphone Warehouse. If they are making a political statement, it is that politics does not matter.
Lambert notes that at least these looters didn’t steal $16 trillion from the U.S. Treasury.
And while the revulsion at the looting has been widespread and bipartisan – with plenty of liberals admitting to “coming over all Daily Mail” at the ugliness of the vandalism – that sense of the impotence of politics is widespread, too. One aspect of the phone-hacking scandal that went deep was its revelation that those we might think exert authority – police and politicians – were in fact supine before an unelected media corporation. The sheer power of News Corp contrasted with the craven behaviour of those we elect or entrust to look out for us.
But elected officials are supposed to protect all citizens–even the poor, the unemployed, and the elderly–aren’t they? Yet in the U.S. and Europe, the burden of the economic crisis is falling on those with the least ability to pay, while the wealthy continue to receive their government handouts. When people are pushed to the point that they feel they have nothing to lose, this is what happens. Why it is coming as such a surprise to the comfortable elites is the real mystery.
Let’s take a look at what some of the rioters themselves have said about the meaning of their actions. From Yahoo News:
The Conservative-Liberal Democrat coalition government, making deep cuts to public services to tackle a record budget deficit, has been quick to deny that the unrest was linked to austerity measures, calling the disorder “pure criminality.” [....]
Public anger over the widespread looting of shops appears to have strengthened the government’s argument, with stolen goods ranging from the expensive — televisions and jewelry — to the absurd — sweets and bottles of alcohol.
However, community leaders and rioters themselves said the violence was an expression of the frustration felt by the poorest inhabitants of a country that ranks among the most unequal in the developed world.
“They’ve raised rates, cut child benefit. Everyone just used it as a chance to vent,” one man who took part in unrest in the east London district of Hackney told Reuters.
Surprise, surprise. Cutting social services to pay for the bankers’ failures has real life consequences. Austerity measures create more unemployment, and people who don’t have jobs get hungry and scared. When you take everything from people who can least afford it, they get angry. What on earth do these people expect? What planet are they living on anyway? And no, I’m not condoning violence. I’m just saying that it’s going to happen when you push people too far.
Here are some quotes from two young women who participated in the British riots:
Two girls who took part in Monday night’s riots in Croydon have boasted that they were showing police and “the rich” that “we can do what we want”.
From The New York Times: London Riots Put Spotlight on Troubled, Unemployed Youths in Britain
“I came here to get my penny’s worth,” said a man who gave his name as Louis James, 19, a slightly built participant in the widening riots that have shaken London to its core. With a touch of guilt on Tuesday, Mr. James showed off what he described as a $195 designer sweater that he said he took during looting in Camden Town, a gentrified area of north London.
Politicians from both the right and the left, the police and most residents of the areas hit by violence nearly unanimously describe the most recent riots as criminal and anarchic, lacking even a hint of the anti-government, anti-austerity message that has driven many of the violent protests in other European countries.
But the riots also reflect the alienation and resentment of many young people in Britain, where one million people from the ages of 16 to 24 are officially unemployed, the most since the deep recession of the mid-1980s.
Don’t these politicians, police, and other observers understand that poverty and jobless *are* sociopolitical issues? Just because people are acting out of desperation or even opportunism doesn’t mean that their actions are not political. Just because someone is young and poor does not mean he or she isn’t aware that government and corporate corruption have caused much of their distress. Back to the NYT article:
In many ways, Mr. James’s circumstances are typical. He lives in a government-subsidized apartment in northern London and receives $125 in jobless benefits every two weeks, even though he says he has largely given up looking for work. He says he has never had a proper job and learned to read only three years ago. His mother can barely support herself and his stepbrothers and sisters. His father, who was a heroin addict, is dead.
He says he has been in and out of too many schools to count and left the educational system for good when he was 15.
“No one has ever given me a chance; I am just angry at how the whole system works,” Mr. James said. He would like to get a job at a retail store, but admits that he spends most days watching television and just trying to get by. “That is the way they want it,” he said, without specifying exactly who “they” were. “They give me just enough money so that I can eat and watch TV all day. I don’t even pay my bills anymore.”
Jonathan Portes, the director of the National Institute of Economic and Social Research in London, says that Mr. James’s plight reflects a broader trend here. More challenging students, Mr. Portes says, have not been receiving the attention they should as teachers, under pressure to meet educational goals, focus on children from more stable homes and those with greater abilities and social skills. Disillusioned, those who cannot keep up just drop out.
The Los Angeles Times in an opinion piece searches for the reasons for the violence and asks if it could happen here.
The Tottenham riots that blindsided Britain were sparked by the fatal police shooting of Mark Duggan, a 29-year-old black man. Over the past few days, they’ve continued and spread, turning into what has largely become youths’ looting and destroying parts of London. But no one is exactly sure why they’re doing it. Prime Minister David Cameron called it “criminality, pure and simple.”
But why have the riots continued day after day?
The riots are neither politically or racially fueled, wrote Doug Sanders of the Globe and Mail. They’re the result of a “lost generation” of youth under 20 who have little to lose and a bleak future. Here’s an excerpt:
Whether the thousands of rioters actually did express disillusionment — some did say they were angry at police or the world, but many appeared gleeful or greedy — it is clear that most had nothing else to do with themselves, and no reason to fear or feel responsible for the consequences of their actions.
This is a chronic problem in Britain, which has a “lost generation” of young high school dropouts far larger than most other Western countries’.
It’s so simple-minded to expect that youthful rioters are going to calmly explain their behavior in a reasoned, intellectual manner or that they are not going to act euphoric once they let go of restraint and begin acting out as part of a mob. None of that means that the reasons for their behavior are not political.
It seems to me that masses of young people who have “little to lose and bleak future” is in fact a powerful political issue for any society. And when people are powerless, there are few ways for them express their anger. Violence is one way to get attention from the powerful.
Can it happen here? You bet it can. As long as the President and Congress continue enacting austerity measures and ignoring unemployment and general misery among ordinary Americans, it’s guaranteed the U.S. will see riots in the streets–as we have in the past. When it happens here, will our elites be as dumbfounded and out-of-touch with reality as those in Great Britain? Probably.
I posted this in a comment yesterday, but I’m going to put it up again here. It’s an interview of writer and broadcaster Darcus Howe by a clueless BBC “journalist.”
That’s my suggested reading for today. What do you recommend?
UPDATE: I found a piece in the Guardian that reflects my thinking.
Seumas Milne: These riots reflect a society run on greed and looting
It is essential for those in power in Britain that the riots now sweeping the country can have no cause beyond feral wickedness. This is nothing but “criminality, pure and simple”, David Cameron declared after cutting short his holiday in Tuscany. The London mayor and fellow former Bullingdon Club member Boris Johnson, heckled by hostile Londoners in Clapham Junction, warned that rioters must stop hearing “economic and sociological justifications” (though who was offering them he never explained) for what they were doing.
When his predecessor Ken Livingstone linked the riots to the impact of public spending cuts, it was almost as if he’d torched a building himself. The Daily Mail thundered that blaming cuts was “immoral and cynical”, echoed by a string of armchair riot control enthusiasts. There was nothing to explain, they’ve insisted, and the only response should be plastic bullets, water cannon and troops on the streets.
We’ll hear a lot more of that when parliament meets – and it’s not hard to see why. If these riots have no social or political causes, then clearly no one in authority can be held responsible….If this week’s eruption is an expression of pure criminality and has nothing to do with police harassment or youth unemployment or rampant inequality or deepening economic crisis, why is it happening now and not a decade ago? The criminal classes, as the Victorians branded those at the margins of society, are always with us, after all. And if it has no connection with Britain’s savage social divide and ghettoes of deprivation, why did it kick off in Haringey and not Henley?
…To refuse to recognise the causes of the unrest is to make it more likely to recur – and ministers themselves certainly won’t be making that mistake behind closed doors if they care about their own political futures.
I always have to cover this topic in any introductory macroeconomics class I teach because usually one nutjob or another running for office always brings this up and people fall for it. The arguments are usually based on complete fallacies and misunderstanding of the math of economics, but hey, for some reason balanced budgets sound ‘reasonable’ when they are anything but.
I used to talk theoretically about how balanced budget amendments will kill state economies when the next real recession hits. Well, it hit a few years ago and we’re there. States continue to make their own economies worse day in and day out but there’s still those people that insist that if a family has to balance its budget, then so should the country. That’s even stupid considering most families have mortgages and car payments and probably student loans. Take Michele Bachmann as an example. She’s got all of the above plus farm subsidies and government grants. Even the President is guilty of that false equivalency. No person or family exists in perpetuity. No person or family can print money. No person or family has the power of taxation. Because of these three things, you cannot compare government to a family. Nor can you compare government to a business. Businesses exist to make a profit. Government exists to provide services and goods that the private sector will not provide or provides at an outrageous cost. It exists to administer justice and ensure level playing fields and fair play exists. Everything about a government is unique and is no way comparable to either businesses or households.
Macroeconomists know from years of study that the federal government can influence the economy at large. It does so through its spending and taxing priorities and policies. This is called fiscal policy. We have found several economic laws that guide the relationship between taxes and government spending and the behavior of Gross Domestic Product (GDP) which roughly measures all the legal and reported spending by households, governments, foreigners, and businesses. In our economy, household spending comprises about 68% of all GDP.
Investment or purchases by businesses is the smallest and most erratic component of GDP. Keynes said that it is easily spooked and subject to animistic spirits. Because it’s an unreliable source of growth, Keynes argued that in down turns, government should use its power to spend. Business investment usually only does fine in good economies. Please note, Keynes said deficit spend in recessions. Keynes’ prescription also said that Federal governments should run balanced budgets during times when the economy is fully employed and surpluses during bubble or boom times to relieve inflationary pressure. As usual, conservative politicians completely lie about the nature of Keynes and his highly proven and credible theories on fiscal policy. A lot of what we know about Monetary Policy comes from Milton Friedman, however, that is not the subject today. What I want to emphasize is that both men spent a lot of time analyzing panics and the Great Depression and are very much at the heart of accepted theory. We are seeing a classical lack of aggregate demand today. It is what’s driving the budget deficit. It is what’s driving the joblessness. It is what’s driving the slow recovery. Government must and will by automatic stabilizers be in a deficit position during downturns. It is simple math. More revenues come in during good times than bad. More safety net spending increases during bad times than good. We naturally run towards deficit in bad economies and towards surplus in good.
However, show me an economy that’s booming with high revenues and lower safety net spending and I will show you a group of politicians spending wildly. This tends to create inflation and can lead to bubbles. However, you never hear them complain at that point in time. That’s because it should be relatively easy to balance a budget then, but they do not do so or if they do its by expanding programs that cannot be sustained without borrowing during bad economies.
With that short explanation, let me cite you some folks that tell you why balanced budget amendments are bad policy. This first quote is from Simon Johnson who is the former chief economist for the IMF. He asks us to keep in mind that GDP is a measurement that is fraught with problems. He also mentions the fact that a balanced budget amendment makes the government make recessions worse.
Second and more seriously, imagine that this constitutional amendment were in place and that federal spending were roughly at its limit relative to the size of the economy. Then, what happens should the financial sector blow up again — either through no fault of its own (which, believe it or not, is the current prevailing myth on Wall Street about 2007-9) or because of some toxic combination of malfeasance and malpractice (the current predominant view of 2007-9 among many other people)?
The blame game is irrelevant when G.D.P. drops 10 percent; the issue is how to prevent a Great Depression. But note that with such a decline in G.D.P., a level of nominal spending that was 18 percent of G.D.P. is suddenly 20 percent, and now a constitutional crisis awaits – even before we get to the question of whether tax cuts or other forms of stimulus might be appropriate.
It makes no sense to take aim, as a matter of constitutional process, at two numbers that are both outcomes of deeper economic processes.
And to be frank, sometimes it makes a great deal of sense to apply an economic stimulus to an economy in free fall. One such moment was 1930 (and 1931 and 1932), when no stimulus was applied. Other moments were 2008 and 2009; both President Bush and President Obama initiated stimulus packages. When credit for and confidence in the private sector evaporates, do you really want the government sector to be forced to make quick cuts — or to raise taxes?
James Ledbetter at Reuters argues that even conservatives should oppose a balanced budget amendment (BBA). His reasons are more pragmatic. He argues that it won’t work.
Historically, conservatives have opposed extending government authority in places where it is not effective. You can find all the evidence you need to conclude that balanced budget requirements are useless by simply investigating the oft-repeated claim that 49 states have laws requiring a balanced budget. Leave aside the falsity of the claim and just consider the logic: if so many states are required to balance their budgets, why are so many states in the red?
The answer is that requiring state governments to annually balance their books simply encourages them to find clever ways to disguise debt and deficits. For example: California has both a Constitutional and a statutory requirement that its budgets be balanced. Would any sane person maintain that the state’s books have been anything resembling healthy for at least a decade? This year, after some brutal spending cuts, the governor’s office found that the state still had a short-term deficit of more than $9 billion and $35 billion in long-term debt. The governor’s budget report noted that California’s “massive budget deficits for most of the past decade…have been largely the result of a reliance on one-time solutions, borrowing, accounting maneuvers, and cuts or revenues that were illusory and therefore did not materialize.”
If that sounds familiar, it may be because, as Richard Quest pointed out on CNN Sunday evening, we’ve witnessed numerous Congressional attempts in recent decades to rein in federal deficits—including Gramm-Rudman in 1985 and the Budget Enforcement Act of 1990—all of which fell victim to legislative legerdemain. Why would a federal balanced budget amendment be any different?
Here’s something from The Economist on “Fiscal Rules”. Some fiscal rule–rather than a balanced budget amendment–would better stop congress from spending during booms and full employment cycles rather than balancing its budget via a BBA. This would be a rule that attaches the spending mandates to what’s going on in the economy. But again, I doubt they’d follow it since they’ve ignored a good portion of the Keynesian prescription for years any way.
It is difficult for Congress to tie its own hands. Any law that can pass Congress can later be undone or changed. In the rare cases that Congress puts together a near-perfect piece of legislation, that’s a bad thing. In the vastly more common occurrence that Congress passes highly imperfect legislation in need of significant future tweaks, that’s a very good thing. Support for an amendment to the constitution is a spectacular vote of confidence in the ability of a legislature to design near-perfect legislation, because the only thing rarer than an amendment to the constitution is a subsequent amendment undoing or clarifying a previous amendment.
I see the argument for a well-designed, over-the-business-cycle balanced-budget amendment. But the idea of enshrining this Congress’ pathologies into the constitution is terrifying. Let’s see Congress design some quality fiscal rules using the normal legislative process first, and then we can talk about adding those to the constitution.
Bruce Bartlett has some excellent analysis up for the current go round of balanced budget amendments. Mark Thoma explains how a BBA is a very bad idea. His analysis includes looking at the destabilizing effects that states’ BBAs have had on their economies. There’s a nifty graph that I did not include here if you’d like to go view it.
I’ve argued on many occasions that one of the big lessons we need to learn from this recession is that state-level balanced budget requirements are highly destabilizing. When a recession hits, spending goes up for social services and taxes fall as income, sales, property values, and other sources of revenue for state and local governments decline.
The result is a big hole in state and local government budgets, and that forces either increases in taxes or cuts in spending both of which make things even worse. And though some state and local governments were an exception to this, far and away the choice is to cut spending. We can see this in the state and local government employment statistics:
That’s not what we want to have happening when we are trying to recover from a recession. It would be much better if states had rainy day funds to rely upon, and if the rainy day funds fall short, the federal government could backfill the budget holes to prevent the destabilizing downsizing.
So have we learned the lesson? Nope, at least not if you are a Republican. They’d like to impose the same destabilizing rules on the federal government:
You really would have to search high and low for an economist that actually supports a BBA. The more conservative ones go for the fiscal rule that attaches spending to business cycles but even they believe that it would be unenforceable and easy to avoid. Can you imagine some District Judge trying to look over a complex macroeconomic model and figure out if the government forecast was correct or not?
A group of leading economists, including five Nobel Laureates in economics, today publicly released a letter to President Obama and Congress opposing a constitutional balanced budget amendment. The letter outlines the reasons why writing a balanced budget requirement into the Constitution would be “very unsound policy” that would adversely affect the economy. Adding arbitrary caps on federal expenditures would make the balanced budget amendment even more problematic, the letter says. The Economic Policy Institute and the Center on Budget and Policy Priorities organized the letter.
“A balanced budget amendment would mandate perverse actions in the face of recessions,” the letter notes. By requiring large budget cuts when the economy is weakest, the amendment “would aggravate recessions.”
The signatories of the letter are Nobel Laureates Kenneth Arrow, Peter Diamond, Eric Maskin, Charles Schultze, William Sharpe and Robert Solow; Alan Blinder, former Vice Chair of the Federal Reserve System’s Board of Governors and former member of the Council of Economic Advisors; and Laura Tyson, former Chair of the Council of Economic Advisors and former Director of the National Economic Council.
I’ll let former Reagan economist Bruce Bartlett have the last word here. He looks at the recent debate in Congress on the BBA.
Next week, House Republicans plan to debate a balanced budget amendment to the Constitution. Although polls show overwhelming public support, it is doubtful that many Americans realize that the measure to be debated is not, in fact, a workable blueprint to enforce a balanced budget. In fact, it’s just more political theater designed to delight the Tea Party.
We really need improved economic literacy in this country. I genuinely can’t get over what some of the morons in congress can get away with saying. Economists call them on it but it appears no one every listens.