Robert Kuttner

A Paralyzed G-20

(AP Photo/Andres Leighton) France's President François Hollande smiles at the end of a news conference at the G-20 summit in Los Cabos, Mexico, Tuesday, June 19, 2012. All the bland platitudes coming out of the Group of 20 Meeting in Mexico can’t disguise the absence of progress on the European crisis. German Chancellor Angela Merkel is totally dug in on the proposition that Greece, Portugal, and Spain need to stick to the austerity medicine that will only deepen the collapse and embolden more speculative attacks on government bonds. President Obama has just about no leverage in this situation. On Monday, the European Commission President, Jose Barroso, a conservative former Portuguese prime minister, and close Merkel ally, broke his diplomatic cool and declared that he was in no mood to be lectured by Americans on what Europe needed to do to restore growth. This crisis was not originated in Europe," Barroso said. "This crisis was originated in North America. Many in our financial...

Europe’s Tragic Farce

(AP Photo/Daniel Ochoa de Olza)
(AP Photo/Daniel Ochoa de Olza) Spain's Prime Minister Mariano Rajoy leaves after a control session at the Spanish Parliament, in Madrid, Wednesday, June 13, 2012. The interest rate Spain would have to pay to raise money on the world's bond markets continued to rise Wednesday amid worries that a planned bank bailout might not be enough to save the country from needing an overall financial rescue. Europe’s top politicians, led by German Chancellor Angela Merkel, seem determined to repeat the same mistakes over and over again. Last weekend, the financial crisis seemed to be contained for the moment when the Germans and the European Central Bank agreed to commit 100 billion euros through the European Union’s (E.U.) rescue funds to recapitalize Spain’s faltering banking system. The Spanish government bargained hard, and won an agreement that the bailout would not be tied to new austerity demands of the sort imposed on Greece and Portugal. But as more details emerge, it’s clear that the...

Germany's Tightrope Act

BERLIN —Germany, uniquely, is prospering while the rest of Europe sinks deeper into recession. And the recession is substantially the result of the very austerity that Chancellor Angela Merkel is imposing on the other member nations of the European Union. Why is Germany spared? One good reason and two bad ones. The good reason is that Germany promotes manufacturing, with sensible training and technology policies. Its industries have partnerships with effective unions. So Germany’s huge export surplus means that it can have tight budget policies at home and still have plenty of good jobs. A bad reason is that the same euro that is overvalued for Greece is undervalued for Germany. So Germany benefits from a tacit subsidy—an artificially cheap currency, which makes its exports cheap. The second bad reason is that as capital flees from weak economies, it comes to Germany, leaving Germans with artificially low interest rates—another subsidy at the expense of its neighbors. But even Germany...

The Austerity Experiment

(Press Association via AP Images)
BRUSSELS—Depending on whose narrative you believe, the deepening economic crisis in Greece proves (a) that the dysfunctional and dissolute Greeks just couldn’t get their act together and keep the reform commitments that they made in exchange for debt relief from the European authorities; or (b) it only proves that austerity breeds more austerity. Cut public spending and wages, and raise taxes in a recession, and you just dig yourself a deeper hole. Since only about 20 percent of the Greek economy is exports and less than 40 percent of export costs are wages, slashing wages just doesn’t produce much of a bounce, especially when the rest of Europe’s economy is contracting too. Greece is a lousy test of the austerity-as-cure hypothesis, because left, right, and center agree that Greece has an encrusted system. When I recently interviewed former Prime Minister George Papandreou, he referred to Greece as a “clientist” state—meaning government by crony constituency. When the right governs,...

Actually, it’s Greece’s Election

ATHENS —To hear the leaders of the European austerity party and a lot of commentators tell it, the upcoming Greek election will be a “referendum” between keeping Greece’s austerity commitments and staying in the Eurozone—or recklessly walking away. A vote for a centrist coalition, supposedly, is a vote for staying in; a vote for the left is a vote for throwing caution to the winds and destroying Greece. But viewed from Greece, that framing is totally wrong. The leftist Syriza party, actually a coalition of 12 (!) parties, substantially displaced social-democratic PASOK as the radical party in the deadlocked May 6 election, where no governing coalition could be formed. In the do-over election scheduled for June 17, Syriza is could well come in first with at least 25 percent of the vote. Under Greek law, where the top performing party gets a bonus of 50 seats in parliament, that should be enough to give Syriza in coalition with a couple of smaller parties a governing majority. In the...

The Issue Europe Won’t Face

(Flickr/Davide Olivia)
Europe’s leaders emerged far apart at their summit dinner in Brussels Wednesday night. They could not even agree on relatively easy measures to contain the escalating crisis, such as Eurobonds or a greater role for the European Central Bank (ECB). But at the core of the crisis is an issue that Europe’s leaders are even more reluctant to take on—the ease with which hedge funds and other speculators can drive a small economy into the ground. When the socialist government of George Papandreou took office in 2009, his people soon found that basic statistics had been fudged by its predecessor conservative government, and that Greek debt was higher than previously reported. But the Greek economy was still in relatively decent shape. A downgrade by credit rating agencies ensued, followed by massive speculation against Greek bonds by outfits like Goldman Sachs and Deutsche Bank as well as hedge funds. “Spreads”—the difference between Greek government borrowing costs and those of Germany—...

Merkel in the Minority

(Flickr / Environment Blog)
ATHENS —The European austerity caucus led by German Chancellor Angela Merkel is coming apart, but Germany retains the power to block the newly forming coalition for growth as a solution to the eurozone crisis. Tonight’s summit dinner in Brussels is unlikely to produce a breakthrough. But what a difference an election makes. Since Francois Hollande was elected President of France less than three weeks ago, leaders that had been bullied into siding with the Germans are breaking loose. Here in Greece, reckless talk by leaders of the European Central Bank that they might not back Greek banks if Greece tried to walk away from the terms of the austerity deal led to runs on Greek banks. Greek citizens lined up at ATM machines to convert their savings to cash before Greece was pushed out of the euro. Last week, that loose talk ended. ATM machines are quiet. The ECB promised that it would get some $25 billion euros to the banks, more than the amount that had been withdrawn in panic. Greek...

Time for a Financial Transaction Tax

Despite the Camp David G8 summit’s support for a shift from austerity to growth, there is no agreement among major western leaders on what growth requires. Here is an idea whose time has come: a Financial Transactions Tax. The tax would do two things urgently required by the crisis. It would take some of the profit out of the pure speculation that has created such hardship for countries like Greece, Portugal, Spain, and Ireland whose economies have already been pummeled by recession and by perverse demands for belt tightening. And a tax on financial trades could raise some serious revenue, which could be put back into green investment and other forms of economic stimulus to help the economies of Europe revive. This week is crucial for the fate of the FTT. Europe’s leaders are gathering for an emergency growth summit in Brussels. And the European Parliament will be debating a report from its Economic and Monetary Affairs committee, which has recommended enactment of such a tax. The...

Is a Vote Against Austerity Enough?

(AP Photo / Michel Spingler)
The voters in France and Greece have rejected the parties of austerity. But it is not yet clear that the party of growth can deliver the recovery that the citizenry wants. On both sides of the Atlantic, the obstacles are more political than economic. In Europe the conventional wisdom, enforced by Germany and the European Central Bank, still holds that the path to growth is budget restraint. Unfortunately, the more that budgets are tightened, the more economies shrink and the more revenues fall. No large economy has ever deflated its way to recovery. Meanwhile, frustrated voters in nation after nation are turning away from the center-left and center-right parties that support the European project. Only governments can resolve the economic crisis, but governments are losing legitimacy with their citizens. With fragmentation of protest comes political paralysis and deepening recession, and the cycle worsens. All over Europe, left parties are making gains, but because of the multiple...

Hard Times, Scary Prospects

F or the first time in the history of the American republic, the far right has captured one of our two major parties. Whether the issue is denial of science, restriction of fundamental rights and liberties, the substitution of big money for the vote, the destruction of the middle class, or the wreckage of even modest social supports, we live in ominous times. Unfortunately, it is also a precarious time for one of America’s core progressive institutions—this magazine. As a founding editor of The American Prospect , I have never written a column like this one, and I hope never to write another. The Prospect could cease publication if we don’t bridge a serious funding gap. Specifically, we need half a million dollars, and we need it by the end of May. We are pulling out all the stops on an emergency fundraising drive. We are cutting costs significantly and have notified our staff that, unless we raise this money, the July/August issue could be our last. So in addition to seeking...

The Joys of Recession

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The Social Security Trustees have just projected that the date by which the system will no longer be able to meet all of its payouts has been moved up three years from 2036 to 2033. This has prompted the usual clucking about the need for drastic benefit cuts of partial privatization right now. What nobody seems to have noticed is that the primary reason for the pessimistic forecast is the lousy economy, particularly the high unemployment and depressed wages. Social Security is of course financed by payroll taxes. There’s no better way to put the system into the red than to have a recession and to have 93 percent of the gains to go to the top one percent (whose payroll taxes are capped). In the late 1990s, when we had full employment, in one three-year period Social Security’s Year of Reckoning was set back by eight years, from 2029 to 2037. Full employment would solve all the system’s problems. And if wages rose with productivity growth, as they did until the late 1970s, Social...

Summers' Colleague Criticizes Kim

(AP Photo / Michael Dwyer)
Larry Summers has been unnaturally silent on President Obama’s surprise decision to pass him over for the World Bank presidency in favor of Dartmouth University president and public health hero Jim Yong Kim. Well, one of Summers’ closest chums at Harvard’s Kennedy School, Lant Pritchett, has now gone public with a scorching blast at Kim. Pritchett told Forbes magazine, “It’s an embarrassment to the U.S. You cannot with a straight face say this person is the most qualified to lead the World Bank.” It was Pritchett, while working under Summers at the World Bank in 1991, who drafted the embarrassing memo that Summers signed on the supposed economic benefits of exporting polluting industries to third world countries. Pritchett later contended that the leaked parts of the memo were doctored to omit his ironic intent. The full memo never surfaced. Pritchett took the fall for Summers’ embarrassment when he was up for the presidency of Harvard. So, it’s fair to say these senior and junior...

Jobs versus JOBS: Obama’s Mixed Message

(AP Photo/Charles Dharapak)
More mixed signals from the Obama administration on jobs: A craven capitulation on regulation in the name of job-creation, and a surprisingly good speech by a top official on the importance of American manufacturing. President Barack Obama will shortly sign the so-called bipartisan “JOBS” Act. The law is neither about creating jobs, nor is it bipartisan. The law exempts an estimated 80 percent of new publicly traded corporations from the Securities and Exchange Commission’s (SEC) usual disclosure requirements for up to five years after their initial public offering (IPO). The law was promoted by investment bankers, venture-capital firms, and the Republican leadership, who were all alarmed that IPOs (not surprisingly) have declined in today’s distressed economy. The remedy? Gut investor protections, the better to promote new stocks. The premise is that by facilitating new stock offerings, the law will create jobs. Mainly, it will create jobs for one set of lawyers working to exploit...

A Surprise World Bank Pick

(AP Photo/Haraz N. Ghanbari)
President Barack Obama startled handicappers by selecting Dartmouth President Jim Yong Kim as the U.S. candidate to lead the World Bank rather than the reported front-runner Larry Summers, Obama's former National Economic Council director. The Korean-born Kim is a medical doctor, anthropologist, and MacArthur fellow, best known for his pioneering work to fight HIV and tuberculosis in the Third World. Kim helped develop treatments for drug-resistant TB, and then successfully pushed to reduced the cost of anti-TB drugs. He is close associate of Dr. Paul Farmer, the lead founder of Partners in Health and subject of Tracy Kidder’s 2003 book, Mountains Beyond Mountains. While Third World leaders had pushed for an alternative to Summers, Kim was a total surprise. The appointment is a two-fer in the sense that it gives the job both to an American and to an Asian, as well as a welcome breakthrough in that the presidency goes to someone with on-the-ground work fighting poverty and disease as...

Single-Payer and the Supreme Court

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When the Supreme Court begins its extraordinary three days of hearings on the constitutionality of the Affordable Care Act, one of the oddities will be an amicus brief challenging the act’s individual mandate from 50 doctors who support national health insurance. They point out the inconvenient truth that, contrary to the administration’s representations, the government did not need to require citizens to purchase insurance from private companies in order to meet its goals of serving the health-care needs of the populace. Congress could have enacted a single-payer law. Since the Constitution unambiguously gives Congress the power to tax, there has never been a serious constitutional challenge to our tax-supported systems of health insurance, Medicare, and the services of the Veterans Health Administration system. In the words of the brief: Amici thus submit this brief for the purpose of disputing the primary tenet of the Government’s position, that Congress cannot regulate the...

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