August 26, 2015 archive


The Genius of Economics

(Note: This is a panel discussion from some time ago with Joseph Stiglitz and Paul Krugman, Nobel Laureates in Economics, and Thomas Piketty, Capital in the Twenty-First Century.  The interview with Christopher Beha of Harper’s Magazine referenced below took place recently at Book Culture book store in New York- ek)

Joe Stiglitz: The Dangerous Economic Thinking That’s Killing Greece and Threatening the European Union

By Lynn Stuart Parramore, AlterNet

August 21, 2015

Bad economic ideas inflict untold human suffering. When they come cloaked in a fog of Orwellian obfuscation, their poison and effects can spread with little hindrance. The public is misled. Power plays are hidden from view.

In discussing Greece’s Third Memorandum of Understanding and its draconian terms, Stiglitz observes that the MoU is really a “surrender document” that eclipses the country’s economic sovereignty and ensures that Greece’s depression – already deeper than America’s Great Depression – will get worse. An economy that is seeing youth unemployment reaching up to 60 percent is likely to lose another 5 percent in GDP. That is over and beyond the 25 percent plunge in GDP the country has suffered since the imposition of austerity measures.

Socially conservative Germans, Stiglitz warns, are doubling down on the discredited notion that austerity policies help economies recover in times of crisis. In reality, the insistence on keeping wages down, stripping bargaining power from workers, forcing small business owners to pay taxes a year in advance, and cutting pensions will only hamper demand and lead to a deepening spiral of debt. (Stiglitz emphasizes that hardly any of the money loaned to Greece has actually gone to help the Greeks themselves, but rather private-sector creditors, namely German and French banks).

In Stiglitz’s view, what’s behind the ill-advised economic schemes is a power struggle in which Germany and its supporters seek to undermine the Greek economy in order to push out a government (Syriza) they do not like. In doing so they are tearing apart families, snuffing out the hopes of young people and delivering humiliation and suffering to a country. History shows that such a policy does not turn out well for anyone.

Stiglitz reminded the audience that John Maynard Keynes once issued warnings about the Treaty of Versailles, the peace settlement signed at the end of World War I, which ordered Germany to pay massive reparations. Inflicting more pain on a weakened economy would send an already-battered nation into depression. Keynes turned out to be correct: resentment of the harsh terms and the resulting high unemployment led to the rise of Adolf Hitler. Far from restoring stability in Europe, the Treaty set the stage for an unprecedented disaster and unspeakable human misery.

Stiglitz warned that Germany, a major beneficiary of debt write-offs following WWII, had not learned the lesson of its own history. Officials are blind to the reality that debt forgiveness is necessary for Greece at a time when nearly everyone, including the International Monetary Fund (IMF), recognizes that the country simply can’t pay back what it owes. Instead of remembering the terrible consequences of mass unemployment following WWI, many Germans insist that it was hyperinflation that led to Hitler, and so they tend to support central bank policies that guard against that problem rather than the far more worrisome specter of joblessness.

As Stiglitz describes, the result of all this historical amnesia and economic blindness is a “Dickensian” nightmare that recalls 19th-century debtors prisons where people were punished for the inability to pay debts and locked (literally) into a situation in which paying them was, of course, impossible. Only now, the prisoner is an entire country.

Stiglitz notes the fundamental problem that eurozone leaders will not let individual countries like Greece, Portugal or Spain change economic policies, no matter how harmful they become. Extreme right-wing elements will benefit as trust in government diminishes. As Stiglitz sees it, flaws in the design of the euro, as well as flaws in the design of the European Central Bank, which is not equipped to address unemployment, hurt Europe’s prospects and yet are extremely difficult to address because they are embedded in treaties that require the unanimous agreement of member countries to alter. He pointed out that if you look at countries like Sweden, it appears that those that did not join the eurozone seem to be in better shape than those that joined. The eurozone has been stuck in persistent stagnation, whereas Sweden’s economy, for example, is brightening.

When an audience member asked whether forgiving Greek debt would lead to moral hazard – encouraging other countries to borrow beyond their means – Stiglitz responded that it was unimaginable that any country would want to go through what the Greeks are enduring. He noted that the lenders bear even more responsibility for the current mess than the borrowers. Goldman Sachs structured irresponsible deals that allowed the Greek government at the time of the Maastricht Treaty to hide its debt. Stiglitz concluded that if anything, moral hazard is a problem on the lender side, as there is little to discourage lending money to countries that are unlikely to be able to pay back. He also noted that the idea of the Greek government selling assets in the middle of a depression to pay back debt was a bad idea, because prices are so low this amounts to little more than a fire sale.

The real deficit in Europe, said Stiglitz, is a “democratic deficit.”

Michael Hudson on the China Crash

Michael Hudson (Research Professor of Economics at University of Missouri, Kansas City (UMKC) and a Research Associate at the Levy Economics Institute of Bard College, a former Wall Street analyst) is the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy.

“Casino Capitalism”: Economist Michael Hudson on What’s Behind the Stock Market’s Roller-Coaster Ride

Smoke and Mirrors of Corporate Buybacks Behind the Market Crash

On This Day In History August 26

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.

August 26 is the 238th day of the year (239th in leap years) in the Gregorian calendar. There are 127 days remaining until the end of the year.

On this day in 1920, The 19th Amendment, guaranteeing women the right to vote, is formally adopted into the U.S. Constitution by proclamation of Secretary of State Bainbridge Colby. The amendment was the culmination of more than 70 years of struggle by woman suffragists. Its two sections read simply:

“The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of sex” and “Congress shall have power to enforce this article by appropriate legislation.”

America’s woman suffrage movement was founded in the mid 19th century by women who had become politically active through their work in the abolitionist and temperance movements. In July 1848, 200 woman suffragists, organized by Elizabeth Cady Stanton and Lucretia Mott, met in Seneca Falls, New York, to discuss women’s rights. After approving measures asserting the right of women to educational and employment opportunities, they passed a resolution that declared “it is the duty of the women of this country to secure to themselves their sacred right to the elective franchise.” For proclaiming a women’s right to vote, the Seneca Falls Convention was subjected to public ridicule, and some backers of women’s rights withdrew their support. However, the resolution marked the beginning of the woman suffrage movement in America.

n January 1918, the woman suffrage amendment passed the House of Representatives with the necessary two-thirds majority vote. In June 1919, it was approved by the Senate and sent to the states for ratification. Campaigns were waged by suffragists around the country to secure ratification, and on August 18, 1920, Tennessee became the 36th state to ratify the amendment, giving it the two-thirds majority of state ratification necessary to make it the law of the land.

The package containing the certified record of the action of the Tennessee legislature was sent by train to the nation’s capital, arriving in the early hours of August 26. At 8 a.m. that morning, Secretary of State Bainbridge Colby signed it without ceremony at his residence in Washington. None of the leaders of the woman suffrage movement were present when the proclamation was signed, and no photographers or film cameras recorded the event. That afternoon, Carrie Chapman Catt, head of the National American Suffrage Association, was received at the White House by President Woodrow Wilson and Edith Wilson, the first lady.

The 26th of August was proclaimed “Women’s Equality Day” in 1971 when a joint resolution, that was introduced by Rep. Bella Abzug, was passed. Each year the President issues a proclamation recognizing women’s equality.

WHEREAS, the women of the United States have been treated as second-class citizens and have not been entitled the full rights and privileges, public or private, legal or institutional, which are available to male citizens of the United States; and

WHEREAS, the women of the United States have united to assure that these rights and privileges are available to all citizens equally regardless of sex;

WHEREAS, the women of the United States have designated August 26th, the anniversary date of the passage of the Nineteenth Amendment, as symbol of the continued fight for equal rights: and

WHEREAS, the women of United States are to be commended and supported in their organizations and activities,

NOW, THEREFORE, BE IT RESOLVED, the Senate and House of Representatives of the United States of America in Congress assembled, that August 26th of each year is designated as “Women’s Equality Day,” and the President is authorized and requested to issue a proclamation annually in commemoration of that day in 1920, on which the women of America were first given the right to vote, and that day in 1970, on which a nationwide demonstration for women’s rights took place.