Posts Tagged ‘Euro’

cr1grw

Special mention

tom-toro-daily-cartoon-for-tues-feb-71-1000 February 6, 2017

Trotman

Bob Trotman, “Business as Usual” (2009)

Is anyone else struck by the contradiction between what is actually going on in the world and the fact that, for those in charge, it’s just business as usual?

Consider, for example, the decision to drop the charges against the three remaining officers facing trial in connection with the April 2015 death in policy custody of Freddie Gray. In fact, according to Mapping Police Violence, “only 10 of the 102 cases in 2015 where an unarmed black person was killed by police resulted in officer(s) being charged with a crime, and only 2 of these deaths (Matthew Ajibade and Eric Harris) resulted in convictions of officers involved.” Charles Blow, for one, is appropriately “incandescent with rage”:

Bill Clinton, who I found more beguiling than many, apparently, took the stage and shifted the burden of dismantling oppression from the shoulders of the oppressors to the shoulders of the oppressed, saying: “If you’re a young African-American disillusioned and afraid, we saw in Dallas how great our police officers can be. Help us build a future where nobody is afraid to walk outside, including the people that wear blue to protect our future.”

How are the people without the power, the people against whom the power is being exercised, supposed to alter the perversion of that power if the abusers are not held accountable?

I am exhausted. I am repulsed. I am over all the circular dialogue. But I don’t know precisely where that leaves me other than in a hurt and festering place. America is edging ever closer to telling people like me that the eye of justice isn’t blind but jaundiced, and I say back to America, that is incredibly dangerous.

And during that same convention, as broad swathes of Americans continue to suffer from the Wall Street-engineered crash of 2007-08 (not just, as Barack Obama put it, “pockets of America that never recovered from factory closures”), hordes of financial industry executives (as well as drug companies, health insurers, and others) descended on Philadelphia.

While protesters marched in the streets and blocked traffic, Democratic donors congregated in a few reserved hotels and shuttled between private receptions with A-list elected officials. If the talk onstage at the Wells Fargo Center was about reducing inequality and breaking down barriers, downtown Philadelphia evoked the world as it still often is: a stratified society with privilege and access determined by wealth.

In fact, as Thomas Frank warns, Donald Trump might end up stealing the voters Hillary Clinton and the Democratic Party are taking for granted.

Let’s see: trade agreements, outreach to hawks, “bipartisanship”, Wall Street. All that’s missing is a “Grand Bargain” otherwise it’s the exact same game plan as last time, and the time before that, and the time before that. Democrats seem to be endlessly beguiled by the prospect of campaign of national unity, a coming-together of all the quality people and all the affluent people and all the right-thinking, credentialed, high-achieving people. The middle class is crumbling, the country is seething with anger, and Hillary Clinton wants to chair a meeting of the executive committee of the righteous.

When Democrats sold out their own rank and file in the past it constituted betrayal, but at least it sometimes got them elected. Specifically, the strategy succeeded back in the 1990s when Republicans were market purists and working people truly had “nowhere else to go”. As our modern Clintonists of 2016 move instinctively to dismiss the concerns of working people, however, they should keep this in mind: those people may have finally found somewhere else to go.

Meanwhile, the European Union is disintegrating and the euro zone continues to impose Draconian austerity measures. As Joseph Stiglitz explains in a recent interview, banks and corporate interests generally have been the only beneficiaries.

Q. In your telling, Germany has imposed austerity across Europe out of faith in a discredited economic idea, the notion that if policy makers concentrate solely on preventing budget deficits and inflation, the markets can be counted on to deliver prosperity. A lot of your book is devoted to demolishing this idea. Does the German elite still really believe in this philosophy, or is something else at play?

A. I’ve visited Germany often, and I’m shocked about how strong the belief is in this view that has been totally discredited elsewhere.

But the policies are mixed together with interests. When the Greek crisis broke out in 2010, what was really at risk were German and to some extent French banks. And there was an enormous bailout that was called a bailout of Greece but was really a bailout of German and French banks. Most of the money went to Greece and then right away went back to Germany and France. . .

Q. You argue that some European leaders secretly welcomed mass unemployment as a means of adjusting to the crisis because this was the only way they could see to spur investment — lowering wages. The strictures of the euro took other options off the table: Crisis countries could not let their currency fall or lower interest rates or expand government spending. Was unemployment really embraced as a fix?

A. They wanted to break the back of workers. Their view was that workers needed to accept a wage cut and we are going to change the bargaining rules to make it more difficult for them to resist. And if we need to add on a little dose of unemployment, well, that’s unfortunate.

Q. Doesn’t that goal predate the crisis?

A. It’s very clear that the euro was a neo-liberal project in its construction. Employers like low wages. They have broken the back of the unions in many of the countries of Europe. They would view that as a great achievement.

However ironically, it has fallen to the Boston Consulting Group [ht: sm] to sound the alarm about attempting to conduct business as usual:

Societies in the United States and Europe are being fundamentally challenged in ways we have not seen for decades—with nationalistic rhetoric and agendas from the far right and a deep distrust of business, globalization, and technology from the far left. Many worry that such a polarization of public opinion and policy making could introduce new risks and uncertainties that would deter investment (which is already far too low, judging by current interest rates) and undermine the basis for future prosperity.

Why this polarization? While there are many causes, and they vary from country to country, it reflects in large part widespread and growing dissatisfaction with entrenched economic and social inequality and greater personal uncertainty in a fast-changing global economy. It also reflects people’s mistrust of political and corporate elites, who are seen as the architects of this state of affairs. Economic inequality within our societies is a byproduct of the way we have managed the past three and a half decades of global economic integration. At the same time, technology—in particular, recent advances in robotics, machine intelligence, and distributed ledgers (blockchain)—could replace human labor in many areas, further compounding dislocation, inequality, and discontent.

Brexit was a watershed. The British vote to leave the European Union was motivated in large part by frustration with economic stagnation and inequality, and it has created fertile ground for nationalistic, anti-immigrant sentiment. The English West Midlands, the region with highest “leave” vote, has experienced stagnating median household incomes for nearly two decades.

The division between those who have captured the vast majority of the benefits from global integration and technological progress and those who haven’t runs between major cities and smaller communities, between young and old, and between people with different levels of education. And it’s not just Great Britain—70% of the US workforce has experienced no real wage increase in the past four decades. Similar patterns can be observed in Canada, Germany, and other European countries. Wealth concentration has also increased globally, with around 1% of people controlling 50% of the world’s assets.

follow-your-dreams

Major events, when business as usual is disrupted, are perhaps the best test for ideas and the people who hold them. Do they have anything useful to offer, either by way of making sense of what happened or in terms of repairing the damage and imagining new possibilities?

We all know that mainstream economists failed miserably after the crash of 2007-08, when they offered little if anything to enhance our understanding of the causes of the crash (it wasn’t even a possibility in their models) or to chart a new path moving forward (the best they could come up with is the old debate between fiscal and monetary policy, while millions were forced into the unemployment lines and inequality resumed its grotesque upward trajectory). They spoke and wrote a great deal but the best they could offer was to keep calm and carry on. Everything, they claimed, would eventually be sorted out—without any major change in their theories or policy proposals.

More than seven years later and, as we know, nothing at all (except, perhaps, for the increasingly bloated finance sector) has been sorted out.

What about now, after Brexit? Once again, we find that mainstream economists have nothing to offer, either in terms of insight or a path moving forward.

Consider the example of the so-called Resiliency Authors, literally a who’s who of U.S. and European mainstream economists.* It’s no surprise they consider the United Kingdom’s choice to leave the European Union a mistake. Their dream, like that of most mainstream economists, was to lower trade barriers and expand the space of free markets. (They even have the temerity to assert all is well in the eurozone, as “economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness”). But the Brexit decision, they recognize, was made and now the only issue is “damage control.”

So, what do they offer? Basically, in their view, all the pieces (what they refer to as the financial “architecture”)—bank supervision and regulation, recapitalization funds, and so on—are already in place. All that is needed is “to make sure that the rules in place can be enforced.” As for the rest, their major concern is with high public debt—and, as with the problem of bank defaults, all they can imagine is “a combination of good rules and market discipline.”

That’s it. They exhibit no understanding that, after the debacles of Greece, Spain, and Portugal, not to mention the wrenching adjustments in Iceland, Ireland, and Italy (and, of course, the list could go on), and now with Brexit, the expanding space of private markets and corporate-led growth (which has now become, at best, corporate-led stagnation) is being called into question. No sense that a European Union without a vibrant Social Charter has no meaning, at least for the vast majority of ordinary Europeans. No idea that, their preferred combination of “good rules and market discipline” imposes all the costs of adjustment on European workers.

Once again, it seems, after business as usual has been disrupted—after the crash of 2007-08 and after Brexit—the best mainstream economists can come up with is. . .more business as usual.

 

*The list of signatories includes the following: Richard Baldwin, Charlie Bean, Thorsten Beck, Agnès Bénassy-Quéré, Olivier Blanchard, Peter Bofinger, Paul De Grauwe, Wouter den Haan, Barry Eichengreen, Lars Feld, Marcel Fratzscher, Francesco Giavazzi, Pierre-Olivier Gourinchas, Daniel Gros, Patrick Honohan, Sebnem Kalemli-Ozcan, Tommaso Monacelli, Elias Papaioannou, Paolo Pesenti, Christopher Pissarides, Guido Tabellini, Beatrice Weder di Mauro, Guntram Wolf, and Charles Wyplosz.

ECB_cartoon_03.11.2016_large

Special mention

176636_600

176585_600

Special mention

March 9, 2016176621_600

176591_600

Special mention

176566_600 sbr031116dAPR20160310024639

1795

Special mention

167409_600 167435

tumblr_nrzx3b8IL51qf5yp8o1_1280

Special mention

9928 a80d2d4cf3fdd847a118a314fea34f51

wuc150724-1160

Special mention

huck1augCOLOR the_greek_burden__payam_boromand

germany-trade

As usual, the Wall Street Journal gets only part of the story: German exporters have certainly benefited from the euro.

The relative weakness of the euro versus a hypothetical Deutschmark is an advantage for Germany. In addition to the fiscal orderliness of Germany, the currency union also includes countries like Italy, Spain, France and Greece all of which haven’t been as successful as Germany in recent years.

This weighs on the euro’s strength, which helps German exporters. As is well known, exports are a key driver of Germany’s economy. A stronger currency would almost certainly make life harder for German exporters by making products more expensive on a global market.

graph

But then they forget the other part of the story: the role of wage repression in helping German exporting enterprises. The decline of real wages for German workers has massively increased German price-competitiveness in comparison to its Eurozone trading partners and has thus boosted exports—including, of course, to Greece.

It’s the combination of domestic wage repression and fixed exchange rates within Europe that have made German exports competitive and led to the spectacular growth of the trade surplus Germany has enjoyed during the past decade and a half.