Apr 25 2012
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This is an Open Thread
Apr 25 2012
RIP: 1904 – 2012
Count me among those who do not mourn the passing of the childish fantasy of Confidence Fairies and Invisible Bond Vigilanties.
British Economy Slips Back Into Recession
By JULIA WERDIGIER, The New York Times
Published: April 25, 2012
Britain slid back into recession in the first quarter of the year, according to official figures released Wednesday, undercutting the government’s argument that its austerity program was working.
The British economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the fourth quarter of last year, the Office for National Statistics said Wednesday.
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The weak economic data in Britain comes as the outlook for the euro zone economies is deteriorating. The economy of the 17-nation euro zone, Britain’s largest export market, shrank 0.3 percent in the last quarter of 2011 and the European Central Bank said the regional economy might contract 0.1 percent this year.
Double-dip recession a terrible blow for George Osborne
Larry Elliott, Economics Editor, The Guardian
Wednesday 25 April 2012 05.44 EDT
Double-dip recessions are extremely rare in the UK. It is quite common for the economy to falter during a recovery with one quarter of negative activity but you have to go back to the mid-1970s, when the first oil shock of 1973-74 was followed by stagflation in 1975, to find a genuine double-dip downturn.
In the past, even during the 1930s, recoveries have been well under way by now. This time, despite the massive stimulus that has been chucked at it, four years into the deepest depression of the post-war era Britain is going backwards.
Output is more than 4% below its peak in early 2008, living standards are falling and there is no sign whatsoever of the much-heralded rebalancing of the economy.
IT’S OFFICIAL: Keynes Was Right
By Henry Blodget, Daily Ticker, Yahoo Finance
Tue, Apr 24, 2012 7:22 AM EDT
The “austerity” idea, you’ll remember, was that the continent’s huge debt and deficit problem had ushered in a “crisis of confidence” and that, once business-people saw that governments were serious about debt reduction, they’d get confident and start spending again.
That hasn’t worked.
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In other words, based on the experience of the last five years, it seems that Keynes was right and the austerians are wrong.
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In the aftermath of a massive debt binge like the one we went on from 1980-2007, when the private sector collapses and then retreats to lick its wounds and deleverage, the best way to help the economy work its way out of its hole is for the government to spend like crazy.
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(L)et’s face it: Austerity doesn’t work.
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The reason austerity doesn’t work … is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy. And when you further reduce tax revenue, you increase the deficit and create the need for more austerity. And that even further clobbers the economy and tax revenue. And so on.Basically, austerity puts you into a death spiral in which you keep trying to cut your way to prosperity, but all you end up doing is digging a bigger hole. And in the meantime, tens of millions of people are out of work, the economy is retrenching, and everything is generally miserable.
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Most of the debt mountain we’ve piled up is the result of what we did before the crisis, not after it. In the years leading up to 2007, our absurdly undisciplined leaders took a nice big budget surplus and then squandered it. And they created absurdly loose lending standards and encouraged the whole country to lever up and buy stuff we couldn’t afford. And they never said “no” to anything except tax increases, no matter what, and denied all the structural problems that were building up for decades.And by 2007, they had put us in one hell of a hole.
And, given that, it seems reasonable to think that, as Krugman has long argued, one of the problems with the economy now is that the original stimulus just wasn’t big enough.
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Austerians love to point at the 1930s as “proof” that Keynes was wrong. Look at the huge “New Deal,” they say. Look at all those expensive public works projects. Look at all the spending the government did to try to get us out of the Great Depression, and it never really worked. What got us out of the Depression, the Austerians smugly observe, was World War 2.But what was World War 2 if not an absolutely gigantic Keynesian stimulus?
The Federal deficit in World War 2 was massive–much bigger than any time during the Great Depression. And we built up a huge Federal debt load. And… we set the stage for two decades of amazing prosperity, in which we worked off those debts.
Europe’s elites feel the backlash
Ian Traynor, Europe Editor, The Guardian
Monday 23 April 2012 14.02 EDT
For over two years, the mainstream political elites of Europe have been battling to save the single currency, seeking its salvation in a German-scripted programme of austerity and legally enshrined fiscal rigour that curbs the budgetary sovereignty of elected governments.
In elections in France on Sunday, in the Royal Palace in The Hague on Monday, and on Wenceslas Square in Prague on Saturday, a democratic backlash appeared to be gathering critical mass as the economic prescriptions of the governing class collided with the street and the ballot box. The collision looks likely to bring down three European governments.
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The fall of Sarkozy, if confirmed, and the demise of the Rutte government after only 18 months in office add to the political wreckage littering the chancelleries of Europe.In the past two years, as a direct result of the debt and deficit crisis, the governments of Ireland, Portugal, Spain, Greece, Finland, Slovakia, and Italy have fallen.
“A majority of voters are kicking out incumbents,” said Thomas Klau of the European Council on Foreign Relations, in Paris, and the author of a book on the euro.
Europe Begins to Wonder About Austerity: Are We Doing This Wrong?
By: Scarecrow, Firedog Lake
Tuesday April 24, 2012 12:17 pm
Could it be that Europe’s financial and political elites are finally coming to a “d’oh!” moment, when an unbroken string of policy failures and the simple logic of “depression plus austerity = worse depression” finally begin to get through?
Half a dozen Euro nations are now officially in recessions, others nearly so, having accepted a common view that sustained austerity would breed confidence fairies that lead to growth and jobs. Instead, they’ve seen minimal or negative growth over the last two quarters, while their populations are facing depression level unemployment and impoverishment that show few signs of improving. Few theories have ever been so thoroughly tested and so thoroughly failed.
The destructive consequences of imposing austerity – depressing government and/or private spending in the middle of a serious recession – were predictable from standard economics text books and repeatedly predicted by Paul Krugman and many others, all still ignored prophets in their own lands.
In America, despite clear world-wide evidence their theories are a disaster, deficit hysterics still permeate both parties, religiously in one party, foolishly in the other, and unforgivably among the White House political advisers. (Why hasn’t a failing President with his reelection on the line fired this entire team?) Together, this ship of fools has effectively blocked all efforts to even examine the devastation wrought by state austerity measures and insufficient federal spending, worsened by flirtations with grand bargains, government shut downs and pending automatic spending cuts. Unfortunately, in America there is no one on the ballot arguing for any meaningful remedies.
In Europe, however, political leaders are paying a price for their indifference to suffering and logic. The political/financial elites insisted the confidence fairy would return as soon as they’d squeezed enough wealth out of the their own populations. When the anemic patient got even weaker, they applied even more leeches.
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The public generally doesn’t know what the technical economic solutions are, and the media keeps telling them, falsely, there are no good alternatives, because the deficit hysterics still control a conversation disconnected from the reality staring them in the face. But voters now know their elites don’t have a clue and don’t seem to care that the elite solutions fashioned mostly for banks and bond holders are worsening the human suffering without solving any underlying economic problems.
Herr Doktor Professor- I told you so!
The Big Wrong
April 25, 2012, 7:59 am
Recent election results in Europe seem to have raised consciousness in a way literally years of economic data couldn’t: the austerity doctrine that has ruled European policy is a big fat failure.
I could have told you that would happen, and sure enough, I did. Did I mention that after three years of dire warnings that the bond vigilantes are attacking, the interest rate on US 10-years remains below 2 percent?
It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case – that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks – was the Keynesian position. The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite.
And now the results are in: Keynesians have been completely right, Austerians utterly wrong – at vast human cost.
I wish I could believe that this would really be enough for us to move on and consider what can be done, now that we know that the ideas behind recent policy were all wrong. But that’s wishful thinking, I suppose. Nobody ever admits that they were wrong, and Austerian ideas clearly have an emotional and political appeal that is resilient to any and all evidence.
The Unbearable Slowness of Internal Devaluation
April 25, 2012, 8:11 am
The euro area’s economic strategy, such as it is, rests on two pillars: confidence through austerity, and “internal devaluation”. You know how the first is going; what about the second?
For the uninitiated, internal devaluation means getting your wages and other costs to a competitive position, not by devaluing your currency, because you don’t have one, but by reducing wages relative to those of your trading partners. This is essential in the crisis countries, which all saw much more rapid inflation than the rest of Europe during the good years, and now need to reverse the process. When the euro was being created, the claim was that reforms would produce “flexible” labor markets, aka markets in which wages could easily fall as well as rise.
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What we see is that even in Ireland, which has made the most progress, wages have fallen only slightly. Since wages have risen in the rest of the euro area (that’s the bar labeled EA17), the actual internal devaluation is bigger – about 5 1/2 percent in Ireland’s case – but still only a fraction of what’s needed.Oh, and Germany – which should be experiencing substantial internal revaluation, a rise in its relative costs – hasn’t.
Leveraging, Deleveraging, and Fiscal Policy
April 25, 2012, 8:26 am
It’s an awkward fact – for the fiscal responsibility types, anyway – that Spain and Ireland were running budget surpluses, not deficits, before the crisis. It was private borrowing, not public borrowing, that created the mess.
But, say some commenters, this was nonetheless malfeasance on the part of the authorities; they should have been running even bigger surpluses to offset the private credit bubble.
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But here’s my thought: do all the people who believe that it’s appropriate for governments to run big surpluses to offset rising private-sector leverage also believe that it’s appropriate to run big deficits to offset large-scale private deleveraging – which is what’s happening now? If not, why not? Why the asymmetry?
Cameron’s Remarkable Achievement
April 25, 2012, 10:07 am
When David Cameron became PM, and announced his austerity plans – buying completely into both the confidence fairy and the invisible bond vigilantes – many were the hosannas, from both sides of the Atlantic. Pundits here urged Obama to “do a Cameron”; Cameron and Osborne were the toast of Very Serious People everywhere.
Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s.
Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.
Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.
Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.
Apr 25 2012
Cross posted from The Stars Hollow Gazette
This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.
Find the past “On This Day in History” here.
April 25 is the 115th day of the year (116th in leap years) in the Gregorian calendar. There are 250 days remaining until the end of the year.
On this day in 1859, ground broken is for Suez Canal
At Port Said, Egypt, ground is broken for the Suez Canal, an artificial waterway intended to stretch 101 miles across the isthmus of Suez and connect the Mediterranean and the Red seas. Ferdinand de Lesseps, the French diplomat who organized the colossal undertaking, delivered the pickax blow that inaugurated construction.
Artificial canals have been built on the Suez region, which connects the continents of Asia and Africa, since ancient times. Under the Ptolemaic rulers of Egypt, a channel connected the Bitter Lakes to the Red Sea, and a canal reached northward from Lake Timsah as far as the Nile River. These canals fell into disrepair or were intentionally destroyed for military reasons. As early as the 15th century, Europeans speculated about building a canal across the Suez, which would allow traders to sail from the Mediterranean to the Indian Ocean via the Red Sea, rather than having to sail the great distance around Africa’s Cape of Good Hope.
The Suez Canal, when first built, was 164 km (102 mi) long and 8 m (26 ft) deep. After multiple enlargements, the canal is 193.30 km (120.11 mi) long, 24 m (79 ft) deep, and 205 metres (673 ft) wide as of 2010. It consists of the northern access channel of 22 km/14 mi, the canal itself of 162.25 km/100.82 mi and of the southern access channel of 9 km/5.6 mi.
It is single-lane with passing places in Ballah By-Pass and in the Great Bitter Lake. It contains no locks; seawater flows freely through the canal. In general, the Canal north of the Bitter Lakes flows north in winter and south in summer. The current south of the lakes changes with the tide at Suez.
The canal is owned and maintained by the Suez Canal Authority (SCA) of the Arab Republic of Egypt. Under international treaty, it may be used “in time of war as in time of peace, by every vessel of commerce or of war, without distinction of flag.”
Construction by Suez Canal Company
In 1854 and 1856 Ferdinand de Lesseps obtained a concession from Sa’id Pasha, the Khedive of Egypt and Sudan, to create a company to construct a canal open to ships of all nations. The company was to operate the canal for 99 years from its opening. De Lesseps had used his friendly relationship with Sa’id, which he had developed while he was a French diplomat during the 1830s. As stipulated in the concessions, Lesseps convened the International Commission for the piercing of the isthmus of Suez (Commission Internationale pour le percement de l’isthme des Suez) consisting of thirteen experts from seven countries, among them McClean, President of the Institution of Civil Engineers in London, and again Negrelli, to examine the plans of Linant de Bellefonds and to advise on the feasibility of and on the best route for the canal. After surveys and analyses in Egypt and discussions in Paris on various aspects of the canal, where many of Negrelli’s ideas prevailed, the commission produced a final unanimous report in December 1856 containing a detailed description of the canal complete with plans and profiles. The Suez Canal Company (Compagnie Universelle du Canal Maritime de Suez) came into being on 15 December 1858 and work started on the shore of the future Port Said on April 25, 1859.
The excavation took some 10 years using forced labour (Corvée) of Egyptian workers during a certain period. Some sources estimate that over 30,000 people were working on the canal at any given period, that altogether more than 1.5 million people from various countries were employed, and that thousands of laborers died on the project.
The British government had opposed the project of the canal from the outset to its completion. As one of the diplomatic moves against the canal, it disapproved the use the slave labor of forced workers on the canal. The British Empire was the major global naval force and officially condemned the forced work and sent armed bedouins to start a revolt among workers. Involuntary labour on the project ceased, and the viceroy condemned the Corvée, halting the project.
Angered by the British opportunism, de Lesseps sent a letter to the British government remarking on the British lack of remorse a few years earlier when forced workers died in similar conditions building the British railway in Egypt.
Initially international opinion was skeptical and Suez Canal Company shares did not sell well overseas. Britain, the United States, Austria, and Russia did not buy any significant number of shares. All French shares were quickly sold in France
Apr 25 2012
Cross posted from The Stars Hollow Gazette
National Security Agency whistleblower William Binney reveals he believes domestic surveillance has become more expansive under President Obama than President George W. Bush. He estimates the NSA has assembled 20 trillion “transactions” – phone calls, emails and other forms of data – from Americans. This likely includes copies of almost all of the emails sent and received from most people living in the United States. Binney talks about Section 215 of the USA PATRIOT Act and challenges NSA Director Keith Alexander’s assertion that the NSA is not intercepting information about U.S. citizens
This interview is part of a 4-part special. Click here to see segment 1, 2, and 4. [includes rush transcript]
Guests:
William Binney, served in the NSA for over 30 years, including a time as director of the NSA’s World Geopolitical and Military Analysis Reporting Group. Since retiring from the NSA in 2001, he has warned that the NSA’s data-mining program has become so vast that it could “create an Orwellian state.”
Jacob Appelbaum, a computer security researcher who has volunteered with WikiLeaks. He is a developer and advocate for the Tor Project, a network enabling its users to communicate anonymously on the internet.
Laura Poitras, an award-winning documentary filmmaker and producer. She is working on the third part of a trilogy of films about America post-9/11. The first film was My Country, My Country,” and the second was The Oath.
Senator Church’s Prophetic Warning
Senator Frank Church – who chaired the famous “Church Committee” into the unlawful FBI Cointel program, and who chaired the Senate Foreign Relations Committee – said in 1975:
“Th[e National Security Agency’s] capability at any time could be turned around on the American people, and no American would have any privacy left, such is the capability to monitor everything: telephone conversations, telegrams, it doesn’t matter. There would be no place to hide. [If a dictator ever took over, the N.S.A.] could enable it to impose total tyranny, and there would be no way to fight back.“
Now, the NSA is building a $2 billion dollar facility in Utah which will use the world’s most powerful supercomputer to monitor virtually all phone calls, emails, internet usage, purchases and rentals, break all encryption, and then store everyone’s data permanently.
The former head of the program for the NSA recently held his thumb and forefinger close together, and said:
We are, like, that far from a turnkey totalitarian state
So Senator Church’s warning was prophetic.
George goes on to extensively discuss:
This started in the 1970’s during the Ford administration when Dick Cheney and Donald Rumseld pushed for wiretaps without approval by a judge. It has expanded under each successive president, including the present occupant of the White House who was elected after lying about “fixing” FISA and the Patriot Act.
Apr 25 2012
Cross posted from The Stars Hollow Gazette
In an article for FDL Action, Jon Walker cites a Gallup Poll that there are 150 million people around the world who would immigrate to the United States:
WASHINGTON, D.C. — About 13% of the world’s adults — or more than 640 million people — say they would like to leave their country permanently. Roughly 150 million of them say they would like to move to the U.S. — giving it the undisputed title as the world’s most desired destination for potential migrants since Gallup started tracking these patterns in 2007.
The relevant worth of the poll, argues Jon,
[..] because the annual Social Security Trust Fund report should be released today. As a result there will likely be much hyperventilating about how the Social Security trust fund is projected to run out of money in roughly 25 years, even though continuing payroll taxes would still be able to fund a high level of Social Security payments given current assumptions.
While the Administrators try hard to make their projections accurate, any very long term projections are inherently going to be somewhat unreliable. Trying to guess how many working Americans there will be and their average incomes in the year 2030 is basically impossible.
While current demographic trends point in one direction, it is completely possible that at some time in the next decade we could adopt policies that would increase the number of working Americans – and the collection of payroll taxes to support Social Security – well above current assumptions.
Richard (RJ) Eskow gives us the headlines that we won’t see:
“Social Security Trust Fund Even Larger Than It Was Last Year”
“Growing Wealth Inequity Will Lead to Social Security Imbalance Later This Century”
“For-Profit Healthcare Poses Threat to Medicare, Federal Deficit, and Overall Economy in Coming Decades”
“Public Consensus Grows For Taxing Wealthy to Restore Long-Term Entitlement Imbalance”
He chastises Stephen Ohlemacher at the Associated Press for touting the standard doom and gloom spin on the state of Social Security and Medicare with this erroneous headline, “Aging workforce strains Social Security, Medicare”:
Ohlemacher’s article was occasioned by the latest report from the Trustees of the fund that handles Social Security and Medicare, which will be released today. He writes that “both programs (Social Security and Medicare) are on a path to become insolvent in the coming decades, unless Congress acts, according to the trustees.”
Unfortunately the piece provides no context for the use of the term “insolvent,” which most people associate with bankruptcy or running out of funds. As Sarah Kliff explains, nobody is suggesting that either of these programs will ever run out of funds. And when programs have ongoing sources of income, the temporary absence of a surplus isn’t the same as “insolvency” as that term is commonly understood.
In fact the report will clearly state that Social Security’s Trust Fund has grown to $2.7 trillion dollars, and that Social Security will be able to pay all its benefits in full for a quarter of a century. After that, if no changes are made, it will be able to pay 75 percent of scheduled benefits without changes.
Nor is the “aging workforce” the cause for any of today’s concerns, despite the millions of dollars in advocacy money meant to make us believe that it is. We’ve known about the baby boom ever since it ended in the 1960’s, and it was fully addressed in past adjustments to the program. That’s why the program was considered perfectly solvent for the foreseeable future after the Greenspan Commission raised the retirement age and made its other adjustments in the 1980s.
Media Matters points out the how the MSM gives a hand to the “Ponzi” lie ever since Texas Gov. Rick Perry “described the program as a “Ponzi scheme”:
Social Security is not a Ponzi scheme. People who call it a Ponzi scheme are not “wrong but partially right,” they’re not “called wrong by critics” — they’re just wrong.
A Ponzi scheme is a criminal endeavor that involves opaque financial dealings that promise investment returns when none or next to none actually exist. Social Security’s finances are crystal clear, and the interest generated by its trust fund is quite real.A Ponzi scheme eventually collapses. According to last year’s report, Social Security can continue as it is, paying full benefits for nearly 25 years, and 77 percent of promised benefits thereafter. [..]
The same false attack is likely to continue as long as newspapers insist on publishing “he said-she said” stories alongside conservative columnists intent on undermining Social Security for ideological reasons.
These false attacks are reinforced by much read and respected newspapers and on-line news sites who report comments by Social Security critics without ever challenging the reality if the accusations. Conservative hacks, like Charles Krauthammer of The Washington Post and syndicated columnist, John Stossel, continue to repeat this lie ad nauseum without correction by the editorial boards of their newspapers. Truth and facts merely get in the way.
As both writers and Media Matters point out, the solution to preserving Social Security and Medicare as we know it, is the increase the number of people in the work force (you know, real jobs), closing the income inequality gap, and either lifting the payroll tax cap or eliminating it altogether making all income subject to the tax. You know simple real solutions, not hand wringing, misleading spin and lies.
