Robert Kuttner

Europe: Old Austerity in New Bottles

In late July, European Central Bank (ECB) President Mario Draghi, speaking off the cuff in London, pledged to do “whatever it takes” to save the Euro, including massive intervention in bond markets to keep speculators from extending the Greek disease to Spain and Italy, where interest rates were ominously rising. This impressed money markets for a few days—until investors realized that Draghi’s commitment came with big strings. Strapped countries benefitting from these purchases would first have to double down on austerity. No thanks, said the leaders of Spain and Italy. On September 6, Draghi tried once more. After more than a month of consultations with his own board and national leaders, he declared that the ECB would make unlimited purchases of short term government bonds. He claimed “a massive majority of the [ECB] governing council for this concept.” But the council member who mattered most, Bundesbank President Jens Weidmann, remained adamantly opposed. A Bundesbank press...

A Good Convention, a Bad Jobs Report

The August jobs report of the Labor Department is not great news either for the U.S. economy or for the Obama campaign. The headline drop on the measured unemployment rate, from 8.3 to 8.1 percent, conceals deeper weaknesses. The economy generated only 96,000 jobs in August, far lower than the monthly average of around 200,000 in the spring. The nominal unemployment rate declined only because more people have given up looking for work. The ratio of employment to population declined by 0.2 percent. The Labor Department also revised the July and August monthly jobs numbers downward by about 20,000 each, leaving the 2012 job-creation performance below that of 2011. Average wages also declined. An important report released last week by the National Employment Law Project showed that the majority of new jobs being added pay less than $13.83 an hour, and that while low-wage jobs accounted for only 21 percent of jobs lost in the recession, they are 58 percent of jobs gained in the recovery...

Party Animals

(AP Photo/Jae C. Hong)
(AP Photo/Jae C. Hong) Delegates wave the signs during the Democratic National Convention in Charlotte, North Carolina. “I’m not a member of any organized political party,” Will Rogers famously declared, “I’m a Democrat.” Rogers would not recognize the 2012 Democrats. I’ve been attending conventions since 1964, when as a student I smuggled floor passes to the Mississippi Freedom Democratic Party insurgents in Atlantic City. And I’ve never seen anything as well choreographed and unified as night one of the 2012 convention. In the old days, we might have said that any such display of party unity represents party bosses suppressing dissenters. But I don’t buy that. With an incumbent threatened by a lunatic-fringe Republican Party, I’m all for as much party unity as the Democrats can muster. Besides, yesterday’s radical protesters are inside the tent and on the dais—and their message has become the party’s. Three things were impressive—even startling—about Tuesday night’s prime-time...

The GOP's Crazy Core

The pragmatic Republican establishment (despite the Tea Party, there still is one) is frantic to jettison Representative Todd Akin’s toxic comments on conception and rape, and to quarantine the scientifically-challenged congressman. Much of the commentary has been about how Akin’s clumsiness connects to Republican vulnerability on other issues important to women. But this raises a larger question: Why is the Republican lunatic position politically toxic only on this particular issue? The Tea Party position, after all, has become (or already was) the “mainstream” Republican position on at least a dozen other issues—denying climate change, rejecting evolution, embracing bogus science on homosexuality, destroying regulation of palpable harm to consumers, defending the right of assassins to bring AK-47s to schools, and on and on. So why is this lunatic fringe position different from all other lunatic positions? Here are some conjectures: Almost everyone is a feminist on the subject of...

Out of Work, Out of Luck

MIT Press
Back to Full Employment , by Robert Pollin. A Boston Review Book. The M.I.T. Press. 187 pages. $14.95 Achieving full employment has been at the center of the progressive project for more than a century. If work is available at decent wages for everyone who wants it, then the rest of the agenda is a lot easier. Opportunity proliferates. People feel a sense of dignity and worth. Human potential is fully utilized. In a virtuous circle, adequate purchasing power has a rendez-vous with the economy’s productive capacity. Tight labor markets give workers the leverage to bargain for decent wages. Social-transfer programs can be reserved for special needs rather than being strained to make up for the fundamental lack of decent income. As Robert Pollin writes in his important new book, Back to Full Employment , a society with jobs for all “is also the best tool for fighting poverty.” He reminds us that in the era of Lyndon Johnson’s Great Society, unemployment rates fell to below 4 percent,...

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...

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