DSK and Global Capitalism's Heart of Darkness

May 16, 2011Lynn Parramore

It's time for a new era at the I.M.F.

On Sunday morning, I opened my New York Times to find two stories which created a jolting juxtaposition considered together.

It's time for a new era at the I.M.F.

On Sunday morning, I opened my New York Times to find two stories which created a jolting juxtaposition considered together.

First item: A copious report of Dominique Strauss-Kahn's Saturday arrest for allegedly sexually assaulting a maid at New York's Sofitel Hotel. A man celebrated for his progressive approach to economics and his consideration of the rights of the world's poor and vulnerable stood accused of attempting to rape a woman -- an African immigrant maid -- in the luxurious rooms of a $3,000 a night suite in one of most expensive neighborhoods on Earth. (These are just allegations at the moment, but DSK's history and nickname as the 'Great Seducer', along with the fact that another woman now claims to have been attacked by the former I.M.F. chief, do not look good).

Second item: A brief account concerning one of the world's poorest countries, the Democratic Republic of Congo, where, according to a report issued by the American Journal of Public Health, a woman is currently raped at the rate of one per minute amidst an ongoing conflict where armed militias fight over lucrative minerals. The accompanying photo depicted a row of stricken women lying in hospital beds, illustrating what it means to live in a culture of generalized sexual violence. The smallish picture, arranged among the many other news items of the day, had the dual effect of condemning the atrocity while distancing me from its horror. It all seemed so far away.

And yet, less than a mile from me in New York City, one of the West's most powerful men was sitting in a jail cell on suspicion of committing a violent sex crime.

Soon after the story broke, the generalization of our own Western culture of violence became stomach-turningly apparent. European bloggers wasted no time in suggesting that DSK's arrest was just another example of American "puritanical" attitudes. Blogger Jacques Savary had this to say:

To tell the truth, everybody knows that Dominique Strauss-Kahn is a libertine; what distinguishes him from plenty of others is his propensity not to hide it. In Puritan American, impregnated with rigorous Protestantism, they tolerate infinitely better the sins of money than the pleasures of the flesh.

The "frisky' Frenchman was just doing what Frenchmen do, wasn't he? While it's fine to invoke cultural relativity in attitudes towards liaisons between consenting adults, there can be no gray area in judging the violent crime of rape. Such an act is barbaric, and to suggest otherwise is to capitulate to barbarism of the kind these same bloggers would not hesitate to condemn in a faraway land like the Congo.

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In our Western world, the vapors of money and power often intoxicate men like DSK and countless others who advertise their status by treating women as mere objects of consumption, utterly disposable. This pervasive trait comes close the Western Heart of Darkness: our capitalist frenzy of consumer-driven desire; the gaping maw that wants more-more-more and will rape and pillage to get it. In his derision towards America's Puritan roots, Savary ironically invokes one of the forces of restraint which, at least before the 20th century, would have made a man who sought society's respect hesitant to flaunt an unbridled appetite for either money or sexual gratification. That these Puritan echoes still reverberate in America, however problematically, at least gives us the sense that there are moral considerations that may serve to check our ravenous, violent capitalistic id. The images of Berlusconi's  "bunga bunga" parties, where underage women are mere items on the menu along with cocktails and cigars, suggest a European political culture in which women are just a stone's throw from violence. This is not charming hedonism and liberation, but cruel, money-and-power driven domination.

Ultimately, the struggle against violent domination is not a struggle against one demented or corrupt individual, but the authority represented by that individual. DSK represented the authority which controls a global system in which the few are privileged and the many are exploited. Partly because they have been subjected to the I.M.F.'s neo-liberal policies, developing nations have suffered rising inequality, environmental destruction, and weakened labor laws. The I.M.F. is not a democratic system in which each member country has an equal vote, but a system dominated by rich countries, with the U.S., Germany, Japan, France, and Great Britain exerting disproportionate control. Bankers, investors, and multinational corporations are usually the winners in the policies promoted. The world's poor are generally the losers -- like the people of the Congo, for example, who have been subjected to the I.M.F.'s push to privatize the mining sector, giving multinational corporations control of the country's resources. The minerals conflict is the main reason why the country is ravaged by war, and a big reason why women are increasingly ravaged by violence (rape as the violence of choice dates back to the days of colonial domination by Belgium).

In a Guardian article considering who might replace DSK, econ editor Larry Elliott explained how the chieftains of the I.M.F. are selected: "In a gentleman's agreement that dates back to the founding of the fund and its sister organisation, the World Bank, at the Bretton Woods conference in 1944, the Europeans have chosen the head of the fund while Washington has appointed the president of the bank."

Isn't it time to move beyond this "gentleman's agreement" --  often just an insider deal made among men who are not gentlemen at all to perpetrate economic assaults on the have-nots of the world? The majority of the Earth's inhabitants are likely ready for an entirely new face of the I.M.F. -- a non-Western face, like the Nobel Prize-winning Indian economist Amartya Sen. An appointment that breaks a bad tradition could restore faith in the I.M.F. and help cultivate a global culture where violence of all kinds is the exception, rather than the rule.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute, co-founder of Recessionwire, and the author of Reading the Sphinx.

**Follow Lynn Parramore on Twitter at http://www.twitter.com/lynnparramore

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Get Ready for a Global Growth Slowdown

May 3, 2011Marshall Auerback

Governments across the globe are headed for a disaster entirely of their own making.

Governments across the globe are headed for a disaster entirely of their own making.

Though capital markets remain strong, the global economic backdrop continues to deteriorate as fiscal retrenchment takes hold. Commodity markets have rallied in tandem with the fall in the dollar even though there are signs that growth in the emerging world is slowing. Japan’s economy is in the soup, the U.S. economy has failed to pick up as many thought (with a mere 2% growth rate expected to be released for Q1 shortly), and the European economy is overdue for its own slowdown. The U.S. stock market has also rallied despite the threat of a very high gasoline price, disappointing economic growth data, and a fairly mixed earnings picture.

The new theme in the market seems to be that the Fed, unlike other central banks, will stick with super easy money policies, hence the tendency to push the weak dollar, rising equity prices, and soaring commodity prices. But the news that real GDP growth has fallen sharply in the first three months of 2011 is evidence that the current policy mix, with its emphasis on public spending cuts, is not working. If gasoline prices spike as high as they did in June 2008, they will further weaken an already feeble economy. Consumers did not show up at Walmart at the end of the month because they ran out of money. House prices are still falling.

At the same time, the political debate is focused on the public debt limit, which expires in a few weeks. Conservatives are once again threatening not to extend this limit, even though no less a figure than Warren Buffett has said the failure to do so would be the “most asinine act" the U.S. Congress has ever committed.

The evidence of an increasingly imploding euro zone (which continues to embrace fiscal austerity with the zeal of a religious fanatic) does not seem to have shifted the debate much in this country. Many European governments are facing a fiscal crisis due to their failure to advance public purpose and raise the funds needed to maintain existing programs. Only the interventions of the ECB are saving the whole system from total meltdown, but the underlying solvency problem for the individual member states is getting worse as the days go by. The Euro bosses are failing, and with any luck, so is political resistance to rational economic policy.

Last week, we got a whopping negative surprise with real retail sales down 2.1% in Germany, Europe’s largest economy. Since analysts had been hoping for no change, this is troubling and suggests that the problems of the euro zone are now extending beyond the periphery problem children, like Ireland, Portugal and Greece, into the core countries. The stronger euro, slowdowns in some emerging economies, and fiscal tightening could all add up to weaker-than-expected German exports, and weak German household spending could lead to a significant disappointment in the rest of Europe.

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While Germany looms on the horizon, the euro disaster de jour is an eight percent year on year decline in Spanish retail sales. This in a country with a 21.3% unemployment rate. Their construction industry is probably still in decline, and there will be further government cutbacks. The Spanish trade account is now deteriorating and should continue to do so at this exchange rate, short of a disastrous decline in domestic demand. Spain was the domino that wasn’t supposed to fall in Euroland. So much for that idea.

Meanwhile, what is happening in Ireland makes a Samuel Beckett play look like a Restoration Comedy by comparison. The issue being faced there is akin to the problem faced by Iceland last year: should voters reject a taxpayer bailout of foreign creditors? Like Iceland, it faces a crushing debt because its government took on the liabilities of its oversized banks, who had lent indiscriminately throughout Euroland. However, unlike Iceland, Irish bank liabilities are denominated in the currency used in Ireland, the euro. Like every other country in the euro zone, the “Celtic Tiger” abandoned its sovereign currency when it joined the Euro. Effectively, it became like a U.S. state within Euroland, which means that it has little domestic policy space to use monetary or fiscal policy to deal with this crisis. The Irish economy continues to deflate into the ground, and default seems like an increasingly likely option unless debt relief is provided by the ECB or the EMU through some other entity. That is actually in the EMU's interests, since much of the bank debt guaranteed by Ireland’s government is held externally by EU banks, but huge political opposition in some of the wealthier EU states (e.g. Finland and Germany) makes this an increasingly unlikely scenario. Default and possible expulsion from the euro zone (and all of the attendant systemic problems this would pose for Europe) are increasingly likely possibilities.

In Asia, things are not much better. Japan’s industrial production is down far, far more than anyone imagined, as is household consumption. Destructive IMF-style thinking still predominates in Tokyo, where the government is in thrall to a gaggle of deficit terrorists who think they can’t afford to fund a proper reconstruction in the country.

The economic data coming out of China is so bad it is hard to assess what is happening, but there is enough evidence to suggest that the Chinese economy too slowed in the fourth quarter of last year and has slowed further in the first quarter of this year. It seems that there are two reasons to expect further slowing:

1. The Chinese keep tightening monetary policy in response to rising inflationary pressures. Unfortunately, hiking rates via direct rate rises is the wrong way to go about it, because the resultant rise in interest income for savers ADDS to aggregate demand through the interest income channels, making their inflation that much worse. In response, Beijing is also beginning to deploy credit controls, which do slow demand, as do automatic stabilizers that work through higher nominal growth, including reduced transfer payments and higher tax receipts. In general, this type of policy response constitutes a significant tightening of fiscal policy and leads to a very hard landing.

2. The ratio of Chinese fixed investment to GDP is so high it is very difficult to sustain. A rising real effective exchange rate is surely squeezing many companies and that should curb their fixed investment. There has been a big shift in the composition of Chinese fixed investment from profitable industries that can self-finance to local government projects which are highly debt-dependent and have minimal ability to self-finance. This shift to more debt-dependent sectors should have an adverse impact on fixed investment, though with some lag.

All in all, not a pretty global picture. It’s only made worse by the fact that virtually all economic debates remain heavily skewed to further cutting government spending at a time when growth rates are falling and unemployment claims are rising. In short, the human tragedy we are now experiencing is totally self-inflicted policy stupidity. But then again, when have the neo-liberals ever let facts get in the way of a good theory?

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

**For more on why cutting spending during an economic downturn is a bad idea, check out Arjun Jayadev and Mike Konczal's working paper, "The Boom Not the Slump: The Right Time for Austerity."

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In Cairo, Curses of the Past, Present and Future

May 2, 2011Lynn Parramore

For the next few days, I'll be sharing notes from a recent trip to Egypt (April 22 - May 1).

Last week at the Museum of Egyptian Antiquities in Cairo, I felt a chill peering at the mummies of pharaohs who specialized in laying curses on those who dared to disturb their remains.

But I also sensed the presence of more modern curses.

For the next few days, I'll be sharing notes from a recent trip to Egypt (April 22 - May 1).

Last week at the Museum of Egyptian Antiquities in Cairo, I felt a chill peering at the mummies of pharaohs who specialized in laying curses on those who dared to disturb their remains.

But I also sensed the presence of more modern curses.

The museum, which houses the world’s largest collection of Pharaonic relics, is air conditioned in but one room (that housing KingTut’s richest treasure). Guards are lackadaisical; visitors touch, lean against, and even sit upon priceless objects. When exiting, I must walk through a vast gift shop operated by Mubarak crony Zahi Hawass, the Minister of Antiquities, whose hawking of souvenirs at this plumb location is highly questionable, if not unlawful.

My tour guides smiles. “Corruption! All is the result of corruption.”

Here, as elsewhere, political corruption results in brimming pockets for well-connected individuals. My tour guide’s words echoed those of other Egyptians I met, who consistently blamed the country's woes on Mubarak and his long reign of cronyism. But political and economic systems are deeply intertwined, and it remains to be seen how one can be reconstituted without substantially reconfiguring the other. In the past decade, Neoliberal economic policies based on a belief in increased privatization were championed by the IMF and the World Bank around the globe, including Egypt. These policies have brought windfalls to wealthy individuals and corporations taking advantage of state-owned assets through no-bid contracts, fire sales during times of economic hardship, and monopolies. In Egypt, as elsewhere, Neoliberal policies work very well for a small and affluent slice of the population. But not so well for everyone else.

In the land of the Pharaohs, the visitor sees the Neoliberal curse most vividly operating throughout the tourism industry. But you also see it in the suppression of organized labor, in the public education and health care systems weakened by neglect and privatization; in the lack of basic public services, in stagnant and falling wages; in high unemployment; and in the lack of affordable housing. Most vividly, you see it in the yawning chasm between the haves and the have-nots. The former live in air-conditioned palaces. The latter live on heaps of garbage produced in those palaces. Literally.

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Economic policies are difficult for the ordinary person to understand, and so there is a tendency to blame problems on corrupt politicians (and, in Egypt’s case, the upper tiers of the military). But what we don’t see are the global forces – and the economic philosophies driving them -- that encourage this corruption. Neoliberal policies have produced pretty much the same results wherever they have been tried – including corrupt ‘reformers’ who carve fortunes out of free market fever. As Walter Armbrust put it recently in Al Jazeera (emphasis mine):

“To describe blatant exploitation of the political system for personal gain as corruption misses the forest for the trees. Such exploitation is surely an outrage against Egyptian citizens, but calling it corruption suggests that the problem is aberrations from a system that would otherwise function smoothly. If this were the case then the crimes of the Mubarak regime could be attributed simply to bad character: change the people and the problems go away. But the real problem with the regime was not necessarily that high-ranking members of the government were thieves in an ordinary sense. They did not necessarily steal directly from the treasury. Rather they were enriched through a conflation of politics and business under the guise of privatization. This was less a violation of the system than business as usual. Mubarak’s Egypt, in a nutshell, was a quintessential neoliberal state.”

The Mubarak regime has fallen, but 40 percent of the population still lives below the poverty line. The masses of economically marginalized Egyptians support sweeping changes to the country’s economic structures. As I was returning on May 1st, I heard about workers preparing to celebrate May Day and recent promises that they will be able to form independent labor unions. Workers across Egypt are demanding an increase in the minimum wage and caps on the salaries of executives. But those who are well-off are unlikely to break with the Neoliberal economics that benefit them. Some, indeed, may push to take over the vast parts of the economy that are controlled by the military. We have seen the profound resistance to rethinking economics at home in the United States. Despite a massive financial crisis that generated widespread public outrage and what appeared to be an opening window for economic policy change, we still have politicians either promoting or failing to challenge ways of thinking that led to the crisis in the first place. Privatizations of public properties -- right up to and including state capitols -- are increasing. The rich get richer. The poor stay poor.

It will take more than a revolution to lift the Neoliberal curse. It will take a bold new compact between the people and the government of the sort that FDR was able to forge in the New Deal. Until then, plus ca change...

Lynn Parramore is the editor of New Deal 2.0, Media Fellow at the Roosevelt Institute fellow, co-founder of Recessionwire, and the author of Reading the Sphinx.

**Follow Lynn Parramore on Twitter athttp://www.twitter.com/lynnparramore

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Oil-Soaked Politics: Secret U.K. Docs on Iraq

Apr 19, 2011Tom Ferguson

This just in: big oil companies and government ministers had discussions one year before invasion.

This just in: big oil companies and government ministers had discussions one year before invasion.

Revolution in the Middle East, nuclear meltdown in Japan, war in Libya, the U.S. budget crisis, the looming problems of the Eurozone -- some days it's all just too much. But today there's something no one can afford to ignore: The Independent, one of Britain's leading newspapers, broke a must-read story. In a nutshell, the story buries forever all claims that the US, the UK, and other governments did not have oil on their minds as they prepared to invade Iraq.

The story reports on a forthcoming book that draws on more than a thousand secret government documents. The excerpts the paper prints detailing meetings between the UK government and British oil companies in the run up to the war are devastating. They demonstrate that all the denials in London and Washington that policymakers were not concerned about oil as they invaded were as false as the famous cover story about weapons of mass destruction.

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The passages quoted in The Independent show that all the governments were negotiating over rights to oil long before the invasion and that they were working closely with their companies. But it is impossible from a single newspaper article to assess the full extent of oil's role in precipitating the invasion of Iraq. The book, obviously, will need a careful review; presumably the author realizes that he will need to make the materials he drew upon available on some website. But enough has already been revealed to make a compelling case for a Congressional committee to demand that all the relevant U.S. government documents now be revealed. Ever since a court ordered the release of some government documents in response to a suit Judicial Watch filed under the Freedom of Information Act, we have known that Dick Cheney's Energy Task Force was reviewing documents on Iraqi oil - well before the attack on 9/11. See here, for example.

It's time the rest of the story came out -- not because it is history, but because it is not. The U.S. is still in Iraq. Major decisions about the continuing presence of U.S. troops there loom just ahead. The major U.S. media have done little or nothing to investigate the story, though journalists working the U.K., notably Greg Palast, produced excellent reports on the subject. The endless chain of books about the Green Zone and corruption has not really gotten to the heart of the matter. As the U.S. deliberates about its next steps in Iraq, it is time somebody does.

Thomas Ferguson is Senior Fellow at the Roosevelt Institute and Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.

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We're Not Greece, But We Could Be the Next U.K.

Apr 15, 2011Marshall Auerback

We should put the recovery on solid footing by increasing wages and employment, not needlessly slashing government spending.

Just as everybody seems to be understanding the full implications of the UK government's approach to fiscal policy, we may be on the verge of embracing it here in the US. This a very negative development.

We should put the recovery on solid footing by increasing wages and employment, not needlessly slashing government spending.

Just as everybody seems to be understanding the full implications of the UK government's approach to fiscal policy, we may be on the verge of embracing it here in the US. This a very negative development.

Yes, we should eliminate wasteful and unnecessary spending (we can start with a large proportion of the defense budget). But when we are experiencing a shortage of aggregate demand (the total spending, private and public, that supports employment and output), it makes no sense to introduce further cuts by implementing fiscal austerity, which will simply drain more demand from the economy.

Current proposals from both the President and Paul Ryan for serious deficit reduction involve several trillion dollars of "savings" over the next few years. I put quotes around the word "savings" because the concept is largely predicated on the idea that cutting government expenditure axiomatically creates "savings" when in fact, such "savings" could well induce a greater economic downturn and therefore increase the deficit as a percentage of GDP, as the Irish experience is now demonstrating. The President's counter to the Ryan proposals will simply set the stage for a bidding war on fiscal austerity.

Ask your favorite economists what that does to GDP. My guess is that they'll tell you it will shave a few more percentage points off GDP growth. And maybe a 50% increase in unemployment as the output gap skyrockets from already insanely high levels. In other words, we could well see years of flat to negative growth unless the private sector (including non-residents) spending somehow increases at least by that much. AND THE DEFICITS WILL GO HIGHER AS A RESULT!

For household consumption or business investment to fill the current output gap in private sector spending, there would need to be an increase in that sector's debt (which is likewise measured as a drop in private sector savings). That got us into the mess we're now in.

Borrowing to spend on houses and cars -- the traditional engine of consumer growth -- rising to levels sufficient to close the output gap seems highly unlikely and cannibalizes tomorrow's growth because private debt (as opposed to public government debt) is externally constrained. Particularly when federal deficit reduction is cutting incomes and savings. We want a growth strategy that emphasizes growth in incomes, not credit.

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As many of us have tried to explain at the Levy Institute conference (see here and here), there is no magic formula that maintains growth. There are three sectors that can influence it: the private domestic sector (aka households and businesses, via consumption and investment); the government sector (aka government programs, via net spending) and the external sector (aka trade with other countries, via net exports).

So in theory, could we have government and private sector surpluses if we were able to export our way out of trouble with huge trade surpluses? In large part, export-led growth has to be driven by persistent attacks on wages and employment conditions in the name of increased competitiveness. The advocates of this type of growth don't think that it is better to increase a nation's competitiveness by taking the high wage-high productivity route. Rather, they are into the race to the bottom strategy -- drive down employee morale and wages so that unit costs fall. It is the low productivity path and will never support significant increases in the real standards of living for our citizens. So it's not impossible, but we can't all be exporters and, in any case, why should the US worker export his output? Shouldn't we embrace a high wage model that allows US workers to consume their own output, as Henry Ford realized almost a century ago?

So why is this happening? Why are we drinking the hemlock? Because both sides -- Democrats and Republicans -- have it all dead wrong. They both tend to agree the federal deficit is too large and is a dire threat to our well-being.

In reality, the opposite is the case. Our low output/high unemployment is telling us -- screaming at us -- that the federal deficit is actually too small. As contrary to current conventional wisdom as it sounds, Congress should be arguing over whether they should cut taxes and/or increase spending. Right now, we need federal government spending programs to provide jobs and incomes that will restore the creditworthiness of borrowers and the profitability of for-profit firms. We need a swift and detailed investigation of financial institution balance sheets and resolution of those found to be insolvent. We need to downsize "too big to fail" financial institutions, while putting in place new regulations and supervisory practices to attenuate the tendency to produce a fragile financial system as the economy recovers. We need to investigate fraud and jail the crooks. We need a package of policies to relieve households of intolerable debt burdens. In addition, given that the current crisis was fueled in part by a housing boom, we need to find a way to deal with the oversupply of houses that is devastating for communities left with vacancies that drive down real estate values while increasing social costs. And we've got to rein in the money managers who seem to be dictating policy.

The next crisis will come because we mistakenly continue to believe that we could be the next Greece and face a federal funding crisis. Instead, we're going to turn into the next UK.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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The Tragedy of Defensive Politics

Apr 8, 2011Jeff Madrick

The challenges the Obama presidency has faced are an opportunity to get mad, not to compromise.

The challenges the Obama presidency has faced are an opportunity to get mad, not to compromise.

A New York Times story today is titled, "On Budget Dispute, Obama Casts Himself as Mediator in Chief." To me this is chilling, if obvious. He has long been the mediator, as if he were a Sunday morning talk show host. The attitude that he must always appear calm, always work toward compromise and avoid at all costs appearing to be a rabble-rouser, is now taking an enormous toll.

Like today's media, he gives equal time to the opposition. Now we have someone representing the anti-gravity point of view, says the allegedly objective talk show host. Tell us, why do you believe gravity is a myth? Obama wants to compromise with the anti-gravity extremists rather than calling them out in a loud and angry voice, calling them what they really are.

Many of his supporters lament that Obama took the presidency in the face of a daunting agenda, from wars to a credit crisis. The truth is something of the opposite. All these were extraordinary opportunities. He could have come down hard on the banks, but he didn't. He could have wound down the war in Afghanistan, but he didn't. He could have closed Guantanamo, as he said he would, but he didn't. And on. He could have won the people's backing for real reform, a new day in America. He didn't even fully stick up for his original Obamacare program.

Has it been all bad? No. He did get the stimulus passed in early 2009. We do have something of a universal health care system, if one full of potential potholes. He has at least avoided a gung-ho American chauvinism about Egypt and Iraq.

But the so-called unprecedented number of hurdles were, as I say, the perfect opportunities to get angry, to tell Americans who was really undermining their dreams and security -- the perfect opportunity to get Americans angry at those who harm them.

Why didn't he get angry over the lightweight and damaging Paul Ryan proposals, which so many in the media called courageous? Why isn't he attacking Republicans hard for even the threat of closing the government?

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He has chosen the mediator path. This has always been his way. But the new element is the election campaign. He is playing defensive politics, and America is suffering badly as a result. Better I compromise than chance alienating some of those in the middle. At least if I lose some major battles I will keep a Republican from winning office.

Years ago, there was a good book published on how to manage investments. It took its lessons from tennis. If you are a club player, you will win if you play defensively. Don't go for winners, just avoid mistakes. That was also the best way, the author insisted, to manage a mutual fund, for example. Slow and steady, defensive, no big ambitions, don't try to beat the market badly. That's now the Obama game plan.

The budget confrontation is not about economics, of course. Budget cuts in the midst of a weak economy are dangerous and potentially tragic. The long-term budget deficit should be addressed when the economy is running strongly. And it should be addressed honestly -- rapidly rising health care costs are the issue.

The confrontation is simply the same old Republican game. Starve the beast. It is all about reducing government, nothing about economic health. It is about ideology, not prosperity. It is bad economics, in fact.

Will lower taxes produce economic growth sufficient to reduce the unemployment rate rapidly? No. It seems people can't get this simple fact in their head. After the Bush tax cuts at the start of the last decade, the U.S. economy grew more slowly than in any other expansion since World War II. If we had better data, it would be probably show that it was slower than any other expansion since the 1870s. This is between the end of the last recession and the beginning of the new one in 2007, when the economy was growing. It does not include the credit crisis debacle and Great Recession, for which Bush deserves plenty of blame.

The creation of jobs was unprecedentedly weak as well. Employment grew far more slowly than in any other expansion, as did industrial production. Even capital investment, despite rising profits, grew more slowly than in all but one previous expansion.

So this budget exercise, and a Paul Ryan budget plan of big tax cuts, is likely a disaster. And whatever you do, don't think this confrontation is purely about economics. It is entirely about cutting the size of government and those awful social programs. Down to the wire, we now know the Republicans' real strategy is to attack abortion and the anti-pollution regulation. It is not even about budget balancing.

Obama is again being outmaneuvered. As a close friend says, Obama is playing checkers, the other guys are playing chess. But the root causes are the insupportable strategy of being calm 24/7, avoiding angry attacks, and ultimately accepting compromise with those who don't believe in gravity. This is not leadership. I yearn for FDR more every day.

Roosevelt Institute Senior Fellow Jeff Madrick is the author of The Case for Big Government.

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Joseph Stiglitz: Reduce Deficit by Putting Americans Back to Work

Apr 7, 2011

Conservatives may warn against the perils of America turning into a socialist European state, but part of that may have already happened. On Democracy Now!, Roosevelt Institute Chief Economist Joseph Stiglitz notes that while "we used to think of the United States as the land of opportunity... we are worse than old Europe." In fact, it's Europe that provides greater opportunity to its citizens -- just look at our dismal education rates.

Conservatives may warn against the perils of America turning into a socialist European state, but part of that may have already happened. On Democracy Now!, Roosevelt Institute Chief Economist Joseph Stiglitz notes that while "we used to think of the United States as the land of opportunity... we are worse than old Europe." In fact, it's Europe that provides greater opportunity to its citizens -- just look at our dismal education rates.

Part of this story is not just that those in the top 1% are getting richer, but "they're gaining and everybody else is decreasing," Stiglitz points out. And where did the top get its wealth? "Not from hard work, not from innovation," he says, "but from good investments in Washington." Our government allows speculators to pay lower taxes than the rest of us. "Is there any principle in economics that says you should earn more money by speculating than by working hard? To me it makes no sense," he says.

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The good news is that the top 1% can help us reduce our deficit. "You have 25% of the income in the upper 1%, so you raise their taxes by a few percentage points and you get an awful lot of money." Oh yeah, and there's one other solution. As he puts it: "What's the best way of getting our tax revenue up? Putting America back to work."

But he explains why he didn't get behind the report issued by President Obama's deficit reduction committee: "I come to the conclusion that it's not going to make America stronger, it's not going to make our economy stronger."

For his plan to reduce the deficit while boosting the economy read his working paper "Principles and Guidelines for Deficit Reduction."

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David Cameron Has Something to Say

Mar 29, 2011

The latest news is in: the UK's fiscal austerity plans are working! If by "working" you mean business confidence falling to a two-year low. In response, David Cameron has something to get off his chest:

The latest news is in: the UK's fiscal austerity plans are working! If by "working" you mean business confidence falling to a two-year low. In response, David Cameron has something to get off his chest:

cameron_jollygood

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The Unfinished Business of Making the World's Women Citizens

Mar 29, 2011Allida Black

world-hand-200Recognizing Women’s History Month, New Deal 2.0 tells the surprising story of how women became citizens -- and how their economic lives have evolved along with their rights. Allida Black urges action on UN Resolution 1325, which ensures equal citi

world-hand-200Recognizing Women’s History Month, New Deal 2.0 tells the surprising story of how women became citizens -- and how their economic lives have evolved along with their rights. Allida Black urges action on UN Resolution 1325, which ensures equal citizenship for women across the globe.

The monumental elections of Presidents Ellen Johnson Sirleaf (Liberia), Roza Otunbayeva (Krygyzstan), Dilma Rousseff (Brazil), and Prime Minister Julia Gillard (Australia) and the game-changing appointments of Dr. Michelle Bachelet as Under-Secretary General of the United Nations and Executive Director of UNWomen and Hillary Clinton as Secretary of State proved that women can govern, run preeminent human rights organizations, set international policy, and place women at the center of diplomacy, development, and peace.

But the question remains -- if women can be president, why can't they be citizens? Article 1 of the Universal Declaration of Human Rights declares, "All human beings are born free and equal in dignity and in rights." Yet it took another twenty years after its signing to get the international conventions on political and civil rights and on economic, social and cultural rights -- and, in the United States, another twenty plus years for Congress to adopt legislation ensuring women's political and economic rights. It took another thirteen years for the United Nations to ratify (without the support of the United States) the Convention to End All Forms of Discrimination against Women. And in 2011, the US House of Representatives and other foreign governing bodies still toy with legislation essential to women's identities, ranging from limiting access to reproductive health services and marriage to crafting sentencing guidelines that treat girls and women as felons and charges those that have abducted and abused them with misdemeanors.

In a 1946 column, written before she joined the UN Commission on Human Rights, Eleanor Roosevelt urged women to "call on the Governments of the world to encourage women everywhere to take a more conscious part in national and international affairs, and on women to come forward and share in the work of peace and reconstruction as they did in the war and resistance." More than fifty years later, at the dawn of a new century, the UN Security Council -- pressured by a well-organized international women's lobby, Hillary Clinton, and other stateswomen and embarrassed by the rampant use of rape and genital dismemberment as tools of war -- adopted Resolution 1325. It urged "Member States to ensure increased representation of women at all decision-making levels in national, regional and international institutions and mechanisms for the prevention, management, and resolution of conflict."

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Now ten years later, the campaign -- indeed the struggle -- to enforce this resolution rages across the United States as much as it does across Egypt or the Congo or Afghanistan.

It is tempting to construct this resolution narrowly -- to see it as a tool of armistice rather than reconstruction, as a vehicle to protect women rather than empower them. To do so, to paraphrase Albus Dumbledore, would be to do what is easy rather than what is right.

UN1325 is on the front line in the campaign for women's citizenship. It is a battle to ensure that economic, social and cultural rights cannot be divorced from, or considered separately from, political and civil rights. It is the struggle to reclaim democracy promotion away from post-Cold War politics, self-interested development and the campaign against terror and place it at the heart of citizen participation.

Just as important, it is a campaign to ensure women's rights as citizens as much as it is a campaign to force governments to act responsibly to all its citizens. While equality and human dignity have no sex, policy designed without taking stock of gender differences often perpetuates discrimination.

As Eleanor Roosevelt would say, both citizens and governments must "recognize that the goal of full participation in the life and responsibilities of their countries and of the world community is a common objective" and one "which the women of the world should assist one another" in achieving.

Allida Black is a director of the Roosevelt Institute and founded the Eleanor Roosevelt Project.

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We Aren't Greece. But We Could Be Japan if Flawed Logic Persists.

Mar 28, 2011Marshall Auerback

We are the only ones who stand in the way of an economy recovery that puts Americans back to work.

Influential journalists are making persuasive cases that austerity is the wrong approach in fragile economies. That's good news. But discussions still get muddled in ways that can have perverse effects.

We are the only ones who stand in the way of an economy recovery that puts Americans back to work.

Influential journalists are making persuasive cases that austerity is the wrong approach in fragile economies. That's good news. But discussions still get muddled in ways that can have perverse effects.

Take the case of Japan. Last week Bill Mitchell wrote an excellent blog post discussing Martin Wolf's article on Japan's fiscal position following the earthquake. Wolf suggested that the "national insolvency" threat allegedly posed by the earthquake was vastly overstated. He argued that the sums involved were too small to matter. Mitchell agreed, but went further, challenging Wolf's implicit suggestion that the Japanese government faced a solvency risk of any kind:

The reality is that the Japanese government has no solvency risk at all in relation to its net spending position and the debt issuance that matches it (nearly). It is grossly misleading to leave the impression that it is just because the reconstruction sums are small that there is no insolvency risk.

As Mitchell put it, Wolf's assessment was so close to comprehension, and yet so far.

I had a similar sensation reading Paul Krugman's latest challenge to the prevailing fiscal austerity mania now gripping most of today's leading policy makers in the global economy. Krugman rightly exposes the central flaw inherent in the deficit reduction hysteria:

Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

The article moves along swimmingly until Professor Krugman invokes the dreaded example of Greece:

But couldn't America still end up like Greece? Yes, of course. If investors decide that we're a banana republic whose politicians can't or won't come to grips with long-term problems, they will indeed stop buying our debt. But that's not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

No, no, no! There is no debt crisis in sovereign nations such as the U.S., Japan, the U.K., or Canada. Barring a decision by Congress to give up the dollar and adopt, say, the Mexican peso, we can never end up like Greece. Nor will Japan, which does not need to "dip into its rainy day fund," as Carmen and Vince Reinhart wrongly suggested last week. To clarify, the nations of the European Monetary Union have given up their monetary sovereignty by giving up their national currencies and adopting a supranational one, the euro. By divorcing fiscal and monetary authorities, they have relinquished their public sector's capacity to provide high levels of employment and output. Non-sovereign countries are limited in their ability to spend by taxation and bond revenues, and this applies perfectly well to Greece, Portugal, and even countries like Germany, which continues to champion the cause of fiscal austerity under the respectable sounding guise of "sound finances."

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This distinction is key, but it gets lost in our economic debates. Happily, Dean Baker gets it, but for the most part our inability (whether through misunderstanding or ideology) to distinguish between issuers and users of currency continues to provoke perverse policy responses, notably in the countries that remain sovereign in regard to their monetary/fiscal operations, such as the U.S. As my friend Warren Mosler always likes to say, "Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan."

The only public debt problems that have emerged in the current crisis have been in non-sovereign countries. Even then, with appropriate "fiscal support," those crises were managed largely through the expedient of the ECB's ongoing purchases of PIIGS' debt in the secondary bond markets -- which amounts to a fiscal act within a flawed monetary system.

But blurring the distinction between sovereign and non-sovereign nations is the starting gate for this muddled discussion that persists when we invoke Greece as an example of what we could become.

Those of us who make the key distinction between a non-sovereign country like Greece and a sovereign one like the U.S. accept that the prevailing concern about Portugal, Ireland, Italy, Greece and Spain (PIIGS) and even other Euro nations is justified. But using PIIGS countries as analogues to the U.S. is a result of the failure of deficit critics to understand the differences between the monetary arrangements of sovereign and non-sovereign nations. Greece is a user of the euro. It is not an issuer. In that respect, it is more like California or even New York City, which are users of the U.S. federal government's dollar.

The hysteria, which Paul Krugman rightly decries, comes from a flawed understanding of how the monetary system works. It also partly explains why even in sovereign monetary/fiscal systems, conservatives continue to impose arbitrary constraints on our government's ability to provide policies that generate full employment. Which is precisely what we need right now.

Sovereign governments have been led to believe that they need to issue bonds and collect taxes to finance government spending and that good policies should be judged by their ability to enforce fiscal austerity. The guardians of the status quo know that the fear of rising public debt can be politically manipulated and demonized, and they do this to put a brake on government spending.

But there is no operational necessity to issue debt in a fiat monetary system. In fact, in the case of sovereign nations, it is a logical impossibility for households and nonbank firms to finance the budget deficit by paying taxes and buying government bonds. The private sector cannot create money (and bank-created money is not a net financial asset for the private sector, as the private deposit holders cancel out the private borrowers). The domestic private sector has to first earn the money by net selling goods and services (to the federal government) and net selling assets (to the central bank) before it is in a position to pay taxes or buy government bonds.

Mainstream economics has guided policymakers into imposing artificial constraints on fiscal policy and government finances, such as issuing bonds when running deficits, debt ceilings, forbidding the central bank from directly buying treasury debt, allowing the markets to set interest rates on government bonds, etc. This is a huge conceptual flaw that is currently paralyzing the Governor of the Bank of Japan, even as his country reels from its greatest disaster since World War II. It is also destroying the U.K. economy, as both Krugman and John Cassidy have recently highlighted.

All these constraints, sadly, are self-imposed and voluntary. As my colleague Randy Wray has put it, it is as if someone would tie his/her feet together and then complain about the inability to walk. It may seem petty to criticize otherwise strong critiques of the current thrust of self-styled deficit hawks. But we have to be on guard against conceptual confusion that can hamper our ability to act decisively to do what it is certainly in our power to do: namely to stop choking our economy and put Americans back to work.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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