Monthly Archives: July 2015

Annals of the Great Recession XI.

Posted on by
Reply

I saw the Iraq War as an obvious act of stupidity from even before we attacked in Spring 2003. So, in 2008, I voted for the candidate who had opposed it, Barack Obama. I voted for him in spite of his obvious weaknesses: he was as green as grass in politics, he had never run anything, he didn’t know anyone much in Washington, and he had some dopey ideas. My assessment of President Obama’s failings is amply borne out by Ron Suskind’s scathing account of how the President and his advisers made economic policy in the first two years after he reached the White House.[1]

Undoubtedly, Obama inherited an economic disaster from the George W. Bush Administration. However, his background and range of contacts left him ill-positioned to deal with the immense problems on his plate. First, the president believed in the power of rhetoric; he almost seems to have believed that talk and action were identical. Supporters have argued that he’s the first president in a while to speak in full sentences and paragraphs, and that doesn’t mesh well with sound-bites. In reality, the trouble was that much of his discourse seemed to have been picked up in Chicago rec-league basketball. He disses people who disagree with him.[2]

Second, the president turned out to be a poor judge of people and had few close advisers to keep him from going into the ditch at the first opportunity. Rahm Emanuel, who served as his first chief of staff (and who recently squeaked through to re-elections as mayor of Chicago), and Lawrence Summers, who headed his National Economic Council (before going off to become President of Harvard until he vexed the faculty, were imperious), abrasive men who rubbed people the wrong way as a first order of business in any meeting. Tim Geithner, his first Secretary of the Treasury, was consistently suspected of mouthing the Wall Street view.

Third, unlike his immediate predecessor, President Obama could not pull the trigger on any issue. Instead of deciding, he sought consensus. Endless debates went on, but the President refused to choose one option and then to say “it’s my way or the highway.” Who ever crossed Richard Nixon without landing on the sidewalk with his suit in tatters? It’s a short list.

Many of his own subordinates saw through him from the start. Famously, Lawrence Summers, the head of Obama’s National Economic Council, told another official: “We’re home alone. There’s no adult in charge. Clinton would never have made these mistakes.” Geithner has been accused of out-right insubordination, but stayed at Treasury as long as he chose.

The “friendly opposition” within the Democratic Party would argue that, after the rough ride of his first two years, Obama began to understand how things should operate. He got rid of his early hires and started to make decisions. So they say. With a year and change to run on his second term, it isn’t clear that much has changed.

Still, what was the bigger disaster for America: Obama’s mismanagement of the economy or the Iraq War? Somebody in Washington needed to get drilled for the Iraq War, not just the men and women who fought there. John McCain and Hillary Clinton had to pay a price at the voting booth. What are we supposed to do? Let bygones be bygones after each new train-wreck engineered by the usual suspects who populate American politics?

Finally, has Obama learned anything? The answer to that question goes to the credibility of the Iran deal.

[1] Ron Suskind, Confidence Men: Wall Street, Washington, and the Education of a President (New York: HarperCollins, 2011).

[2] See: Stuff my president says.”

Annals of the Great Recession X.

Posted on by
Reply

Jeff Madrick, once a New York Times economics columnist, argues that America’s economic decline can be traced to the 1970s.[1] Beginning with the Great Depression, governments had imposed tight controls on American financial markets. These controls had made banking boring. That was a good thing for anyone who had ever lived through a financial panic (or watched that scene in “It’s a Wonderful Life” where Jimmy Stewart abandons his honey-moon to save the savings-and-loan when the town bank collapses. However, it also restricted the opportunities for profit in one sector of the economy. Economists at the University of Chicago, inspired by the writings of Milton Friedman, pushed an “extreme free-market ideology.” Embraced by greedy financial industry leaders, then by the Republican Party in the era of Ronald Reagan and later by Democrats as well, these ideas led to the de-regulation of the American financial industry. “And Hell followed with him.”[2]

Reckless lending became progressively ever more deeply entrenched among bankers. Successive crises of ever greater severity sprang from these practices: wild real estate speculation in the 1980s; the Latin American lending binge; the “dot.com” bubble; and then the nightmarishly complicated real estate investments that ended in the financial crisis of 2007-2008. The government repeatedly had to step in to bail-out reckless bankers in order to avert an even worse disaster for the whole economy. Thus, profits were privatized while losses were socialized. Not exactly what Milton Friedman had in mind.

To a historian, some of Madrick’s argument appears kind of rickety. He, among others, appears to believe that the American prosperity and global economic domination of the period from 1945 to 1975 was somehow “normal.” However, it is at least equally possible to regard this situation as “abnormal” and bound to end. The financial industry (or just “greed”) can hardly be blamed alone for the complex changes that have undermined America’s position.

Then, for purposes of analysis and argument, he separates out free-market thinkers and financial industry leaders. However, in real life they existed within and responded to an evolving context of beliefs and influences. Thus, the inflation of the Vietnam years intersected with government regulations on the interest banks could pay depositors. People wouldn’t keep money in banks unless they could get a higher rate of interest. So, the interest rate regulations had to be relaxed.

Then, he appears to believe that “greed” drives the elite, but that the same behaviors by people lower on the income pyramid are unexceptionable. In 1970, 381 major strikes hit American companies as workers drove for higher pay and benefits at a time when foreign competition had begun to exert heavy pressure.[3] Why is one act greed, the other not?

Then, a lot of the American economy was deregulated from the 1970s on. Takes airlines as an example. Between 1980 and 2009, inflation-adjusted air fares fell by fifty percent.[4] Air travel increased, but crashes did not increase. (I’ll grant you that the air travel experience now reminds of a trip I once took on a Mexican bus.)

So, the part is not the whole. Blanket statements about regulation don’t get us very far.

[1] Jeff Madrick, Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present (New York: Alfred A. Knopf, 2011).

[2] Revelation, 6:8.

[3] See: “American union, stay away from me uh.” March 2015.

[4] See: http://www.theatlantic.com/business/archive/2013/02/how-airline-ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506/

An Israeli Dilemma.

Posted on by
Reply

In 1958, Leon Uris wrote Exodus. While portraying the birth of the state of Israel, he imagined an Israel-yet-to-be: a secular, socialist-inspired Jewish state living on terms of amity with the Arabs. Today, Leon Uris’s vision seems far-fetched.

In the Six Days’ War of 1967, Israel over-ran the Gaza Strip, the Sinai Peninsula, the West Bank, and the Golan Heights.

What to do with the conquered territories? The Sinai was traded away in exchange for peace with Egypt. The Syrians lacked the strength to take back the Golan, even before the current massive uprising against the Assad regime. Gaza and the West Bank, however, were chock-full of Palestinian refugees from the creation of Israel in 1948. One of the founding illusions of Zionism had been that Palestine was “a land without people for a people without land.” In 1948, many Muslims had fled the fighting, or had answered an appeal from Arab leaders to clear the path for Arab armies, or had been driven out by Israelis by means of exemplary massacres. They had never been allowed to return. Now Israel had over-run the places where the Palestinians had taken refuge. What course would Israel follow? One option would have been to create a Palestinian state that consisted of the West Bank and the Gaza Strip.[1] Another option would be to extend Israel’s territory into the newly-conquered lands. The loudest exponents of this policy were to be found among ultra-Orthodox religious zealots. This was the course pursued by Israel through the creation of settlements. Settlements—both “legal” and illegal under Israeli law—began to proliferate. Many successive governments turned a blind eye to the settlements and to the disastrous impact of the settlements on Israel’s international situation. While Israel has not—yet—annexed the West Bank and has withdrawn from Gaza, both the settlements and the inferior legal status of the Palestinians living under what is effectively Israel’s rule give the country something of the appearance of Prussia on the Jordan.

Why? Leftist critics argue that the country has come to be dominated by right-wing voters who pander to religious parties and are deeply hostile to the Arabs, both Israeli-Arabs and the Palestinian Arabs; and that military officers lean ever more toward Orthodox Jews who have a right-wing political bent.[2] Implicitly, a return to Israel’s leftist roots would facilitate a solution to the problems facing the country.

Attractive though it is, this interpretation ignores some realities. A return to its roots by Israel will not undo the radicalization of opinion among many Muslims, whether Palestinian or not. Hamas displaced the elected Palestinian Authority from control of Gaza, then turned the enclave into a base for attacks on Israel.[3] Hamas does not accept the right to survive of Israel, regardless of where its borders are drawn. In the future, Hamas could achieve domination, or at least the tolerance by a sovereign Palestinian government, on the West Bank. In Lebanon, Hezbollah is an Iranian client. Egypt is teetering on the brink of a civil war between Islamists and authoritarians. It isn’t entirely clear what kind of inroads ISIS could make in Jordan. It would be hard for any military adviser to argue that Israel should surrender strategic depth in return for promises of future peace. Not all problems have solutions.

[1] Between 1948 and 1967, this had been an option available to Egypt and Jordan. However, it appears that Egypt and Jordan were more interested in maintaining the Palestinians in misery as a stick with which to beat Israel in the square of international opinion than they were in actually creating a Palestinian homeland. Now the ball was in Israel’s court.

[2] Gershom Gorenberg, The Unmaking of Israel (New York: HarperCollins, 2011).

[3] Last summer’s war began over rockets fired into Israel, but Israel’s response soon uncovered a network of tunnels driven into Israel for what could only be offensive purposes.

American Opinion and the Confederate Battle Flag.

Posted on by
Reply

In the 1950s and 1960s the Civil Rights movement reached one of its peaks. American public opinion turned against segregation, overt racism, and the violent defense of white dominance. This peak also coincided with the centennial of the Civil War. I haven’t seen (but maybe I haven’t looked hard enough) much scholarly work on how white Southerners sought to commemorate the “American Iliad.”[1] Were little Confederate flags placed on the graves of veterans in cemeteries? Were there speeches on the “Confederate Memorial Day”? Were more streets and highways named for Confederate generals? In any event, I conjecture that a Civil War Movement arose to counter the Civil Rights Movement. One aspect of that appeared in laws incorporating the Confederate battle flag into the state flags of some Southern states or to the displaying of the flag on government buildings.

Fifty years later, much had changed. In late June and early July 2015, the vast majority of Americans (64 percent) opposed having the Confederate flag fly over public buildings, while 21 percent thought that the flag should be allowed to fly over public buildings; and 21 percent weren’t sure.[2] However, most of the 21 percent who favored flying the Confederate flag over public buildings live in Southern states. Two weeks later, a majority (57 percent) of Americans accepted that the Confederate battle flag is a symbolic expression of “Southern pride,” rather than a racist affirmation. However, a majority of Americans still supported hauling down the flag on public property. Among that majority viewing the flag as a symbol of Southern pride were 75 percent of Southern whites. However, 75 percent of Southern blacks saw it as chiefly a racist statement. Deep divisions exist in the South over the Confederate flag.[3] However, lots of Southern whites appear to recognize that what is a symbol of pride to them is also deeply offensive to African-Americans. (See the statement by South Carolina governor Nikki Haley.) This might suggest an important, but hard to define, psychological shift among Southern whites. Still, opinion polls don’t always dig too deep. What did the other 25 percent of Southern whites believe about the flag, that it was a racist affirmation? If so, did they like that or did they hate it?

Why does “Southern” appear to mean “Southern and white”? Is there a regional culture shared by whites and blacks? Looking at Farm Security Administration photographs from the Thirties and Forties might lead you to think so. See the remarkable on-line exhibition at: http://www.loc.gov/exhibits/bound-for-glory/ So might the history of Zydeco.[4] See: https://www.youtube.com/watch?v=fa8vyTfugcI Shooting people in church might fall outside the pale in such a shared culture. Or perhaps it awakens memories of a fire-bombed church in Birmingham, Alabama many years ago.

There is no question of the Confederate flag flying over federal buildings, but each state has the right to choose what flags fly on state government grounds. Another problem left to later generations by the Founding Fathers. What did they expect us to do, figure it out for ourselves?

[1] Charles Roland, An American Iliad: The Story of the Civil War, 2nd edition (Lexington: University of Kentucky Press, 2004).

[2] “Poll Watch,” The Week, 3 July 2015, p. 17.

[3] “Poll Watch,” The Week, 17 July 2015, p. 17.

[4] See: https://en.wikipedia.org/wiki/Zydeco

Power Surge.

Posted on by
Reply

In 2003 the United States attacked Iraq. Swift defeat of Iraq’s conventional forces then gave way to misstep after misstep. An insurgency arose among the minority Sunnis deposed from their long dominance by the American invasion. The Shi’ite majority demanded that the Americans leave as soon as possible so that they could get to the business of governing the country and settling scores. Al Qaeda in Iraq sought to foment a civil war that would make Iraq ungovernable and force an American evacuation. Foreign fighters poured into serve with Al Qaeda. By 2007 a disaster of epic proportions loomed before the Americans.

Then things began to turn around. Lower level American commanders began buying-off Sunni insurgents in their areas of operation. Many of the Sunni insurgents got fed up with the Al Qaeda fanatics. Together, these forces led to the “Sunni Awakening” that markedly reduced the level of violence from early in 2007. American special operations troops focused their efforts on killing the Al Qaeda fanatics. Civilian and military casualties began to fall. If only in comparison to the chaos visited on the country between 2003 and 2007, Iraq began to move toward something like a functional state.

Then and later, considerable energy has gone into myth-making about the turn-around. The commonly accepted—because commonly told—narrative is that the Bush administration belatedly developed a coherent and workable plan for victory in Iraq; General David Petraeus helped develop and then implemented an effective counter-insurgency strategy; and the “surge” of troops greatly enhanced security so that some form of national reconciliation could take place.

In fact, the Bush White House’s “National Strategy for Victory in Iraq” had neither substance nor application. “Victory” had been redefined to mean bringing down the level of violence to a point where responsibility could be handed off to the government of Iraq with something approaching a straight face.

In fact, the administration and the Pentagon were in search of a “hero” to revive American morale. They found that hero in General Petraeus, adept at both war and image-management. The buying-off of Sunni insurgents and the increasingly effective work of the special operations forces were well underway before General Petraeus arrived in Iraq. He endorsed and broadly applied the methods already developed.

In fact, although Chelsea Manning has been sentenced to 35 years in prison for giving classified documents to WikiLeaks and Edward Snowden has been hunted across the globe for having revealed NSA spying on Americans, officials in the Defense Department appear to have provided favored authors with a trove of classified documents.

In fact, what the United States achieved in Iraq was not victory, but avoiding defeat. By avoiding defeat the United States has also avoided any honest reckoning with the causes and consequences of a disastrous adventure that spanned two different presidential administrations. “The fraud is that a 20 year military effort to determine the fate of Iraq yielded something approximating a positive outcome.”

So says Andrew Bacevich, a professor of political science at Boston University, a combat veteran of Vietnam, a retired Army colonel, a grieving father to a son killed in action in Iraq, and a bitter and clear-eyed critic of recent American foreign and military policies.[1]

[1] Andrew Bacevich, “Avoiding Defeat,” New York Times Book Review, 10 February 2013, pp. 20-21. Professor Bacevich reviewed Michael R. Gordon and Bernard Trainor, The Endgame: The Inside Story of the Struggle for Iraq, From George W. Bush to Barack Obama (New York: Pantheon, 2012); and Stanley McChrystal, My Share of the Task: A Memoir (New York: Penguin, 2013).

Terrorism 1.

Posted on by
Reply

How long will the current war against radical Islamism continue? Can we win? How will we know when/if we have won? These questions don’t get much discussion, so preoccupied are we with each surprising outbreak of insurgency and atrocity. Probably, government officials in democracies are not eager to tell the public that this could go on for a lot longer than the next election cycle. Back in 2009, two books offered counsel that still deserves attention.[1]

David Kilcullen saw a core struggle between radical Islam, on the one hand, and the Unbelievers in the West and Incorrect Believers in many Muslim countries, on the other hand. Swirling around both parties to the core struggle were many local movements that associate themselves in name with radical Islam (Al Qaeda then, ISIS now, something else in the future). The strength and the staying power of the local insurgencies vary greatly. Kilcullen thought that the Western countries had a pretty good sense of how to wage the core struggle against radical Islam, even if they botched the execution from time to time. Where they came up short is in managing the peripheral small wars. Indeed, having the local insurgencies pop-up seemingly out of nowhere is one of the things disturbing the public in the West. More recently, the “lone wolf” attacks in Britain, Canada, France, and the United States add to this unease.

According to Michael Burleigh, history tells us that we can and–almost certainly will—win. Terrorism has come and gone in waves: in the 19th Century, they were Irish Fenians, Russian revolutionaries, and European anarchists; in the later 20th Century, they were malcontent leftists in advanced countries (Weathermen, Red Brigades, Red Army Faction, IRA, ETA) and Third World rebels (PLO, South Africa); today they are radical Islamists (Chechens, Al Qaeda, ISIS). Wherever they go, the terrorists have left a trail of dead, maimed, and traumatized victims. In most cases, however, they had little in the way of concrete political achievements to show for their work.

How to defeat these threats? Focusing on the peripheral wars and insurgencies, Kilcullen recommends policies that protect local communities in remote areas from becoming penetrated by radical movements. This, rather than heavy hammer blows from the military, is most likely to stop an insurgency in its tracks. Problems abound with this solution. A lot of the world’s people live in small communities remote from central government authority. Who can tell where the next danger will arise? Is every Middlesex village and farm to be garrisoned “just in case”? Then, most armies train for conventional war against foreign states or for repression of dissent in unjust societies, not for policing or community protection.

Here, Michael Burleigh has some equally useful suggestions. Focusing on the core struggle, Burleigh argues that experience shows that winning the ideological debate through public diplomacy; promoting economic development to drain the swamp of poverty that contributes to radicalization; and developing intelligence capabilities before relying on brute force offers the best path forward. Burleigh’s strategy provides the framework for Kilcullen’s tactics. However, long debates in many languages on social media, nudging countries toward social justice and economic modernization, nurturing good governance in countries suspicious of Western meddling, and building language skills and cultural competence in intelligence agencies is going to take time. We’re in for a long war. People need to know this harsh truth.

[1] David Kilcullen, The Accidental Guerrilla: Fighting Small Wars in the Midst of a Big One (New York: Oxford University Press, 2009); Michael Burleigh, Blood and Rage: A Cultural History of Terrorism (New York: HarperCollins, 2009). .

Man Hunters.

Posted on by
Reply

Before the Second World War the United States possessed intelligence-gathering organizations that were derisory in comparison to those of the great powers. The War Department gathered information on the military capabilities of foreign states from military attaches; the State Department reported on political and economic developments; both War and State maintained signals intelligence (code-breaking) offices. However, the US possessed no “secret intelligence service” equivalent to the British MI-6 or the action services of other countries. During the Second World War, the US sought to make good this deficiency with the temporary Office of Strategic Services (OSS). After the Second World War, America’s new global role and the Cold War demanded an enhanced intelligence-gathering capability. In 1947, Congress created the Central Intelligence Agency (CIA) to fill this role. Filled with wartime OSS veterans, the new agency had a predisposition to clandestine action, not just to intelligence gathering. Confronting the brutal Soviet KGB around the globe, CIA played a rough game. Eventually, CIA fell afoul of changed national values. The Church Committee hearings led to restrictions on CIA action like assassinations. From the mid-Seventies onward, CIA concentrated conventional intelligence-gathering and analysis.

Then came 9/11.[1] The scales fell from their eyes, or they had a Road to Damascus experience, or whatever other Biblical reference occurs to you. An executive order from President George W. Bush overturned the limits on action. CIA agents lashed out at Al Qaeda operatives wherever they came within reach. Some were killed, either by a rapidly-expanded paramilitary arm of CIA or by drone strikes. Some were captured and subjected to “enhanced interrogation.” In 2003, the US attacked Iraq, only to see early triumph turn into a gory insurgency that seemed to have no end. Soon, there came a backlash against both big wars and the use of torture.[2] A new consensus emerged: killing terrorists is acceptable, but torturing them is not. Certainly, it is less likely to get people keel-hauled by a Congressional committee. According to Mark Mazzetti, CIA “went on a killing spree.” Drones and commandos struck Islamists[3] in Afghanistan, Pakistan, Yemen, and Somalia. While banning the use of torture, President Barack Obama has continued all the other programs begun by the Bush administration.

Arguably, the results have been as disastrous, if not quite so dramatic, for American intelligence as for the Islamists hit by Hellfire missiles launched from Predator drones. In an Econ 101 analysis, multiple needs compete for finite resources. Resources (money, manpower, attention) spent “man-hunting” can’t be devoted to other needs. Yet the US faces multiple current, latent, and potential threats.

The CIA already suffered from maladaptation between the end of the Cold War and 9/11. Its budget fell as part of the “peace dividend”; spending on new technologies further reduced the resources for human intelligence-gathering and analysis; and its former strengths in Soviet and East European issues could not easily be shifted to new areas. (Pashto and Polish both begin with a P, but there the similarity ends.)

America’s political culture is having a hard time discussing the choice between long-term trends and immediate action. The recent murder of five servicemen by what looks like an Islamist “lone wolf” will only make “man-hunting” seem more vital than ever.

[1] Mark Mazzetti, The Way of the Knife: The CIA, a Secret Army, and a War at the Ends of the Earth (New York: Penguin, 2013).

[2] In 2004, CIA’s Inspector General condemned some of the practices as “unauthorized” and “inhumane.”

[3] Including the occasional American renegade who declined to surrender himself to more formal American justice.

Pleven Plan.

Posted on by
Reply

You can think of the early Cold War as having had layers.[1] Between 1945 and 1947 the Soviets had it pretty much the way they wanted. The Red Army occupied Eastern and much of Central Europe. Chase away or kill the supporters of democracy in Eastern Europe. Stage a bunch of elections. (Run by guys waving pistols saying “Who is against? Raise your hands.”) The Western European countries were in ruins and bankrupt. The Americans cut off Lend-Lease aid as soon as Japan surrendered and they wanted to bring their troops home as soon as possible. The Communist Parties of France, Belgium, and Italy were under Soviet control, so most of the labor unions were under Soviet control as well.[2] Wait for the Americans to leave, use the unions to wreck the economy and the Communist parties to paralyze government, and march in.

From 1947 to 1950, the Americans changed their minds. You can imagine Henry Fonda going “Hey, wait a minute.” With a combination of money, technology, know-how, a basic decency that we used to possess, and that casual ruthlessness Americans adopt when they belatedly decide that they don’t like you, the US slapped the Russkies silly.[3] The Marshall Plan, the CIA, NATO, the Berlin Air Lift all followed.

Then, in June 1950, North Korea invaded South Korea. Apparently, the Cold War wasn’t just about politics and economics in Western Europe. It also was about being willing to die at a freezing dawn on some ridge in a wide spot in Asia. If it happened in a divided country in Asia, then it might happen in some divided country in Europe—like Germany. The Americans demanded that the Western Europeans prepare to fight the Russkies. If you wanted people who knew about killing Russkies, the natural place to look was Germany.[4] So, re-arm the Germans.

The French (and Italians and British and everyone else) went buggy over this idea. After the Blitz, after Oradour, after the Ardeatine Caves, the last thing any European wanted was the same Germans with new guns.

So, cut to another feature of post-war Western European history: “integration.” By 1947, uniting the nations of Europe “at the peak” hadn’t worked out, so an engaging schemer named Jean Monnet had proposed uniting “at the base.” In 1948 he got the French foreign minister, Robert Schuman, to pitch the idea of a European Coal and Steel Community. Every member country would pool its resources and an international authority would apportion them.

How about trying the same thing with the scary prospect of German soldiers? The Germans put in the soldiers, while the British, French, and whoever put in the officers. Jean Monnet got the French defense minister Rene Pleven to pitch this idea in late 1950. They called it the “European Defense Community.” No one liked it except the Americans. However, they were the ones with the money, so…

Years of negotiations followed. French resistance proved most important.[5] In August 1954 the French rejected the EDC. People said “It’s the end of the ‘European’ project.” Right.

[1] Rather like yon Shrek beastie.

[2] Sorry if this offends any progressive-thinking people. It’s just another “inconvenient truth.” Like androgenic climate change for Republicans. See: Franz Borkenau, The Communist International (1938); Stephane Courtois, ed., The Black Book of Communism: Crimes, Terror, Repression (1999). Just for a hoot, see Paul Hollander, Political Pilgrims (1981). While you’re at it, see Ronald Radosh, with Joyce Milton, The Rosenberg File (1983).

[3] There were probably old guys up at Standing Rock wondering what a Russian reservation was going to look like. Maggots in the flour, watering the cattle before weighing them, ministers with Bibles and “boarding schools.”

[4] Of course, Germans also knew a lot about being killed by Russkies, so they weren’t enthusiastic about this idea.

[5] In 1954, the CIA thought about bribing a majority of French parliamentarians to win passage of this EDC, but concluded that French politicians are like beer: you don’t buy it, you just rent it.

Why are the Germans so mad at the Greeks?

Posted on by
Reply

You can’t get blood out of a stone. The Greek debt will have to be “restructured”[1] for the crisis to end. Germany owns the largest single chunk of the debt[2] and is the dominant force in Eurozone decision-making. The Germans are obdurately refusing to restructure the debt, at least until the Greeks show a firm commitment to economic reforms. This position is opening a gap between Germany and other countries like France, and threatens to drive Greece right out of the Eurozone. Why are the Germans so determined to play the “bad cop”? Here it is worth thinking about two factors.   One is German formative experiences; the other is Greek behavior.

While journalists invoke the great post-WWI inflation as an explanation for German insistence on austerity and probity, a more immediate influence may be that of German reunification in 1990. An old Russian joke about Communism held that “they pretend to pay us and we pretend to work.” The same held true in the former East Germany. Inefficiency went hand-in-hand with feather-bedding. Massive shut-downs of uncompetitive eastern factories followed unification. West Germans bitterly complained of the poor work ethic of the “Ossies.” Unemployment doubled in the eastern territories between 1990 and 1995. Nevertheless, western Germans kept faith with eastern Germans. Wages and pensions doubled in the east,. One informed estimate of the total cost of German reunification between 1990 and 2010 runs to 2 trillion Euros, or 100 million Euros per year for twenty years.[3] Much of this came in the form of subsidies paid from western Germany to the eastern Germany. In the end, however, Germany emerged as the highly-competitive dynamo that dominates the European economy today. No one helped the Germans pay these costs. Two figures in this trauma were Angela Merkel and Wolfgang Schauble. Now they have the same prescription for Greece.

In contrast, the Greeks have behaved disgracefully from one end of this long crisis to the other. Anyone who lives in Britain, Canada, Australia, or the United States knows Greeks to be hard-working and entrepreneurial. Those aren’t the Greeks who were left behind by the great emigration. The Greeks of Greece can excite only contempt. They obtained much of the loans through outright fraud. They spent the money on artificially raising living standards (wages, pensions, public employment), rather than on productive investment that would allow Greece to repay its debts. They ignore the fact that a huge write-off of Greek debt already took place back in 2009. They have tried to prosecute the Greek official who revealed that Greece governments had been “cooking the books” for a decade. From first to last, they have resisted carrying out most reforms so that the economy could return to economic viability. They denounce being asked to pay their bills or to work for a living as “humiliation.” Lots of German tourists have seen Greeks ‘”at work”: for example, 2.3 million German tourists visited Greece in 2007.

The Germans are in the wrong on the need to restructure the Greek debt. The Germans fail to realize that Greece today is a much poorer country than was western Germany when it bailed-out eastern Germany by itself. However, the Greeks are just in the wrong. The Greeks of today are not the Greeks of the Peloponnesian War. Resolution, honor and self-sacrifice are not Greek characteristics today. Neither side seems to recognize the truth.

The truth is that the Greeks will not pay. Do the Germans want to destroy Europe and create a “humanitarian” crisis to make a point? What can be saved of and for “Europe”?

[1] The IMF has recommended a 30 percent reduction and a stretching out of the payment period to reduce annual payments and to allow inflation to further reduce the real value of the obligations.

[2] See the chart at http://www.bbc.com/news/world-europe-33426328

[3] https://en.wikipedia.org/wiki/German_reunification#Cost_of_reunification

Inequality 6.

Posted on by
Reply

Does economic inequality matter? Citing Thomas Piketty’s book Capital in the Twenty-First Century, Neil Irwin argues that there is a “deepening consensus…that rising inequality of income and wealth is an important trend over the last two or three decades.”[1] Eduardo Porter regards these social ills as “an existential threat to the nation’s future.”[2] NB: Is he correct? However, a “trend” isn’t either a problem or a solution. It is just an observed movement. People assign meaning to trends. The meaning assigned reflects the ambitions, fears, and beliefs of the people doing the assignment.

What has caused the stagnation in most incomes? Since 1973 productivity growth in the American economy has slowed dramatically.[3] That is the principal cause of the stagnation in most incomes. According to the most-recent Economic Report of the President, the failure to maintain the productivity-growth of the pre-1973 period means that the average American family now earns $30,000 a year less than it would have earned. In contrast, the increase in income inequality over the same period accounts for $9,000 a year for the same family.[4]

Regardless of the causes of rising inequality, liberals see a correlation between rising inequality and social problems. The teen-age birth-rate in the United States is about seven times as high as in France. More than one in four children lives with a single parent. More than twenty percent of Americans live in poverty. Seven out of every thousand adults is in prison.[5] A child born to a white, college-educated, married woman has the same chance of survival as does a child born to a similarly-circumstanced woman in Europe. However, children born to non-white, poor, single women have a much greater chance of dying young. Mental illness is more common among poor people than among wealthy people. Between 2009 and 2013, 9 percent of people with incomes below the poverty level reported “serious psychological distress,” while only 1.2 percent of people earning more than $80,000 so reported.[6] NB: Hard to get ahead if you’re mentally ill. On the other hand, 91 percent of people below the poverty level did not report “serious psychological distress.” Why not? Shouldn’t you be all wrought-up over your miserable situation? “People in low-income households don’t live as long [as people in high income households].”[7] By one measure, where there is a great disparity in income, upper income people live almost two days longer for every one-point increase in income disparity. In places with high inequality, you can live eleven days less than in places with low economic inequality. “But what causes the drop in life expectancy is debatable.”

Why this social disaster in the midst of so much other success? The conservative argument offered by Charles Murray and others is that the welfare state itself undermined the character of its beneficiaries. The liberal argument offered by Eduardo Porter is that Americans have been guided by a shared disdain for collective solutions and the privileging of individual responsibility. Therefore, America had relied on continuing prosperity instead of a welfare state. When long-term economic troubles hit, many Americans plunged through the cob-web of a “safety net.”

[1] Neil Irwin, “Things Bernanke Should Blog About,” NYT, 31 March 2015.

[2] Eduardo Porter, “Income Inequality Is Costing The Nation on Social Issues,” NYT, 29 April 2015.

[3] Tyler Cowen, “It’s Not the Inequality; It’s the Immobility,” NYT, 5 April 2015.

[4] This suggests that the policy prescriptions of Bernie Sanders target the smaller source of Americans’ discontent.

[5] That is three times the rate of 1975.

[6] “Noted,” The Week, 12 June 2015, p. 16.

[7] Margot Sanger-Katz, “How Income Inequality Can Be Bad for Your Health,” NYT, 31 March 2015.