Governmental Austerity Does NOT Work In Times Like These

Paul Krugman Calls it:  The Austerity Debacle  And he is right AGAIN! Unfortunately Politics and ideology trump basic economics and common sense.

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

O.K., about those caveats: On one side, British unemployment was much higher in the 1930s than it is now, because the British economy was depressed — mainly thanks to an ill-advised return to the gold standard — even before the Depression struck. On the other side, Britain had a notably mild Depression compared with the United States.

Even so, surpassing the track record of the 1930s shouldn’t be a tough challenge. Haven’t we learned a lot about economic management over the last 80 years? Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”

How could the economy thrive when unemployment was already high, and government policies were directly reducing employment even further? Confidence! “I firmly believe,” declared Jean-Claude Trichet — at the time the president of the European Central Bank, and a strong advocate of the doctrine of expansionary austerity — “that in the current circumstances confidence-inspiring policies will foster and not hamper economic recovery, because confidence is the key factor today.”

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

Which is not to say that all is well with U.S. policy. True, the federal government has avoided all-out austerity. But state and local governments, which must run more or less balanced budgets, have slashed spending and employment as federal aid runs out — and this has been a major drag on the overall economy. Without those spending cuts, we might already have been on the road to self-sustaining growth; as it is, recovery still hangs in the balance.

And we may get tipped in the wrong direction by Continental Europe, where austerity policies are having the same effect as in Britain, with many signs pointing to recession this year.

The infuriating thing about this tragedy is that it was completely unnecessary. Half a century ago, any economist — or for that matter any undergraduate who had read Paul Samuelson’s textbook “Economics” — could have told you that austerity in the face of depression was a very bad idea. But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

….. PAUL KRUGMAN 1/29/12

Nile River Water War Inevitable

Water war

Egypt’s precious Nile water is wanted by outsiders

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An international water expert is claiming there are intensified efforts by an unnamed neighboring country to funnel off the waters of the River Nile after approaching scarcity in its water resources. Such an assertion, says Ahmed Diab, a global expert on water, is likened to attempts by the US to revive the idea of transferring the storage of water from its current location in Lake Nasser to any of Africa’s Great Lakes in the central African continent, where the water will then pool into a giant reservoir to be sold to whichever country wants it. The use of pipelines in transporting the water would be similar to that of the movement of petroleum.

The availability of fresh water is a serious concern in many parts of the world. Due to the shortage of available fresh water, nearly 40 per cent of the world’s population, mainly in the developing countries, is already facing serious water shortages. And more and more nations are gradually joining the list. “Accordingly, nations might be on the verge of a water war by the end of this century,” Diab said. This is in addition to the encouragement of the long-serving scheme of trying to divert the course of the River Nile in Ethiopia. Diab maintained that the US Bureau of Land Reclamation was currently working on the scheme.

According to an official source at the Ministry of Water Resources and Irrigation (MWRI) who spoke to Al-Ahram Weekly on condition of anonymity, these plans were close to being implemented but that was before the High Dam was built. The plan was for the Nile waters to be stored in Tana Lake in Ethiopia but now, according to the source, because of the High Dam there are merits to water storage. After the building of the High Dam, Egypt has been receiving continuous, observable and constant amounts of water. “According to these three elements Egypt has a historical right to save the water of the Nile in Lake Nasser and none of the continent’s countries or any other country has the authority to violate this right. Accordingly nothing will change and Egypt’s Lake Nasser is and will be the continent’s storage area,” the source confirmed.

Diab believes that water resources in Egypt are becoming scarce. Surface-water resources originating from the Nile are now fully exploited, while groundwater sources are being brought into full production. Egypt is facing increasing water needs demanded by a rapidly growing population, by increased urbanization, by higher standards of living and by an agricultural policy which emphasizes expanded production in order to feed the growing population. The population is currently increasing by more than 1.5 million people a year. “With a population of 80 million, Egypt is in dire need of revising its water resource plans in order not to suffer any water shortage in the future,” Diab said. According to Diab, by the end of 2008 Egypt will be consuming 11 billion cubic metres of water a year which means nearly 815 cubic metres per person annually. In contrast, individuals in other surrounding countries use up only 300 cubic metres. “Egypt’s actual requirements should be only three billion cubic metres per year. The remaining amount is being wasted and shed either in the Mediterranean or in small water canals,” Diab added. This requires good management of water and coordination with the countries of the River Nile Basin as well as the establishment of joint water projects, “such as clearing waterways of grass in return for increasing Egypt’s annual share of water and increasing it from 55.5 billion cubic metres to 85 billion metres per year,” Diab suggested.

The Egyptian government has long recognized upstream development of the Nile waters as a potential national security threat and has stated its readiness to go to war to preserve its access to fresh water. As the Basin’s governments come to understand the dynamics of the population-water relationship, however, advance planning and diplomacy may win out over saber rattling and armed conflict. Recently, representatives of the 10 nations of the Nile watershed met to review past agreements and consider possible future ones related to their use of this shared natural resource.

The main objective of water planning in Egypt has been to harness the highly fluctuating Nile flows, making them available for domestic and productive purposes. The means of fulfilling this objective have been to establish over-season storage, over-year storage, and flood control. These goals were basically achieved in the 1960s following the inauguration of the Aswan High Dam.

According to a water report issued by MWRI the growing interest in the region’s water issues is encouraging, but the challenge of reconciling competing claims on the Nile will continue to be complicated by political and economic concerns. The scope for water conservation and international cooperation is large, but the competition is unlikely to find permanent resolution until the region’s population approaches stabilization. the report stated that Lake Nasser can hold up to 162 billion cubic metres of water while the Toshka depression can absorb a further 90 to 120 billion cubic metres. At the peak of the flood season, Lake Nasser was receiving up to 750 million cubic metres of water a day. The total volume of water behind the dam currently stands at 153.91 billion cubic metres. “Increasing Egypt’s share of the Nile water and reducing the watershed are on top of Egypt’s agenda, to be discussed in the summit of African ministers of water resources within the next few weeks,” the report stated

The world’s population is currently increasing nearly 80 million people per year, resulting in an increasing demand for fresh water of about 64 billion cubic metres a year. With this phenomenal population growth, there is, in addition to the water requirements for domestic use, an increasing demand for energy generation, agricultural intensification and industrial production. As a result of the growth in the human population, the per capita water supply on the Earth was reduced to an average of 8,500 cubic metres in the early 90s, which is equivalent to 8,500,000 litres per year. According to hydrologists, if the annual per capita fresh water availability of a country goes below 500 cubic metres (500,000 litres), the country enters the category of “absolute water scarcity”.

China NET Exports Fell in 2011

China’s Currency reserves are no longer raising and the ATA points sometimes change faster than debating points. It is conventional wisdom that China’s export-led growth squeezes consumers at home and competitors abroad, even as it adds inexorably to the country’s huge foreign-exchange reserves. But figures released this month complicate these arguments.

China still runs a sizeable trade surplus. But its net exports fell in 2011 (in absolute terms) for only the third time since 2000, subtracting 0.5 percentage points from its growth. Thanks to home-grown spending, China’s economy still managed to expand by 9.2% in 2011, remaining surprisingly strong even in the fourth quarter. This growth owed an unusual amount to consumption (both public and private), which contributed over half for the first time since 2001. As a consequence, the share of consumption in China’s GDP edged up in 2011 after falling for ten years in a row.

The mainstay of China’s growth remains investment, on which its economy remains worryingly dependent. Indeed, when China’s critics are not bashing it for overexporting, they bash it for overinvestment in property. Its housing boom is, however, slowing markedly. China this week reported that the price of new homes fell in 52 out of 70 cities across the country in December, compared with the month before. Households are struggling to obtain mortgages; developers are finding it almost impossible to obtain a loan. The drying up of foreign funds is particularly dramatic, points out North Square Blue Oak, a research firm based in London and Beijing. Foreign capital fell by 65% in December, compared with a year earlier.

The flight of foreigners from property partly explains another unusual twist in the China story. Its foreign-exchange reserves fell in the fourth quarter for the first time since the height of the Asian financial crisis in 1998. The drop was small, from $3.2 trillion to $3.18 trillion, but also a little mysterious. China still exports more than it imports, and attracts more foreign direct investment than it undertakes. These two sources of foreign exchange must, then, have been offset by an unidentified drain.

The worry is that China’s capital controls have sprung a leak. “Hot money”, attracted by the country’s growth, may be flowing out as the property market falters. Some even speculate that China’s rich may begin to smuggle their new-found wealth out of the country en masse.

These fears are overblown, for now. Some of the drop probably reflects a change in the value of China’s euro holdings. Some does represent the departure of short-term money, but an ebb and flow of hot money is not unusual. Moreover, some kinds of hot money are more scalding than others, says Stephen Green of Standard Chartered. At one end of the thermometer, an exporter might delay the conversion of his legitimate foreign-exchange earnings. In other, warmer cases, an importer might illegally overstate the size of his purchases, so as to remit more money out of the country. Capitalists eager to take their money out also have other cards to play. Mr Green estimates that last year about $185 billion might have passed from mainland China through the VIP rooms of Macau’s casinos.

Victor Shih of Northwestern University reckons that China’s richest 1% hold $2 trillion-5 trillion in liquid wealth and property. If they were ever to smuggle that money out, the outflow would dent even China’s reserves. That would be a disaster for China’s economic management, putting heavy downward pressure on the yuan. At least China’s critics could no longer trot out another familiar accusation—that it undervalues the exchange rate.

A Brief History of “State Capitalism”

Something old, something new

A brief history of “state capitalism”

IN SEPTEMBER 1789 George Washington appointed Alexander Hamilton as America’s first ever treasury secretary. Two years later Hamilton presented Congress with a “Report on Manufactures”, his plan to get the young country’s economy going and provide the underpinnings for its hard-fought independence. Hamilton had no time for Adam Smith’s ideas about the hidden hand. America needed to protect its infant industries with tariffs if it wanted to see them grow up.

State capitalism has been around for almost as long as capitalism itself. Anglo-Saxons like to think of themselves as the perennial defenders of free-market orthodoxy against continental European and Asian heresy. In reality every rising power has relied on the state to kickstart growth or at least to protect fragile industries. Even Britain, the crucible of free-trade thinking, created a giant national champion in the form of the East India Company.

The appetite for industrial policy grew with the eating, and after the second world war intervention became a mark of civilization as well as common sense. The Europeans created industrial powerhouses and welfare states. The Asians poured resources into national champions.

This long era of state activism has left a surprisingly powerful legacy, despite the more recent fashion for privatisation and deregulation. The rich world still has a large number of state-owned or state-dominated companies. For example, France owns 85% of EDF, an energy company; Japan 50% of Japan Tobacco; and Germany 32% of Deutsche Telekom. These numbers add up: across the OECD state-owned enterprises have a combined value of almost $2 trillion and employ 6m people.

The new kind of state capitalism started in Singapore. Lee Kuan Yew, its founding father, was prime minister for more than 30 years and a tireless advocate of “Asian values”, by which he meant a mixture of family values and authoritarianism. He rivalled Beatrice Webb in his faith in the wisdom of the state. But he also grasped that Singapore’s best chance lay in attracting the world’s most powerful corporations, though he rejected the laissez-faire ideas that flourished in Asia’s other great port city, Hong Kong.

Singapore could easily have remained a tiny oddity but for a succession of earth-shaking events. The first was the oil embargo imposed by the Arab petrostates in the wake of the 1973 Yom Kippur war, quadrupling the price of oil and shifting the balance of power in the world economy. Arab governments tightened their control over the newly valuable oil companies and amassed growing financial surpluses. For them the economic shock was proof of the power of their oil weapon. For the Chinese it demonstrated the importance of securing a safe supply of oil and other raw materials.

The second event was Deng Xiaoping’s transformation of China. Deng borrowed heavily from the Singaporean model. He embraced globalisation by creating special economic zones and inviting foreign companies in. He espoused corporatism by forcing state enterprises to model themselves on Western companies. And he concentrated resources on national champions and investment in research and development. By doing all this, he plugged 1.3 billion people into the world economy.

The final event was the collapse of Soviet communism. This was initially seen as one of the great triumphs of liberalism, but it soon unleashed dark forces. Communist apparatchiks-turned-oligarchs grabbed chunks of the economy. Between 1990 and 1995 the country’s GDP dropped by a third. Male life expectancy shrank from 64 to 58. Once-captive nations broke away. In 1998 the country defaulted on its debts.

The post-Soviet disaster created a craving for order. Vladimir Putin, then Russia’s president, reasserted direct state control over “strategic” industries and brought the remaining private-sector oligarchs to heel. But just as important as the backlash in Russia was the one in China. The collapse of the Soviet Union confirmed the Chinese Communist Party’s deepest fear: that the end of party rule would mean the breakdown of order. The only safe way forward was a judicious mixture of private enterprise and state capitalism

As Romney so eloquently has stated  that there has been a frontal assault on Capitalism, we should begin this debate on how Capitalism has been  for centuries and later to discuss how it has evolved.  I do not think there is ANY candidate that does not believe we need to have capitalism at the core of our  society. It is how it has become perverted and has gone against the other cores of our society  those being humanity, equality and the protection of the health well-being and rights of all citizens of the United States is above all  … even CAPITALISM. We now must seek a balance  for all these values to peacefully coexist again.

It is my intention to bring this  need to the forefront of the rest of this presidential election cycle

Are Women Holding Back Our Economic Growth?

Admittedly the title sounds ridiculous… but is it rally?? Tell me after you read the article.

The New York Times reported earlier this month that consumer spending, while slightly up for the holidays, wasn’t as strong as many were hoping and ended up looking pretty depressed in 2011.

 Consumers’ unwillingness to open up their pocketbooks and go on credit-fueled shopping sprees portends dismal economic growth in the near future.

They have already cut back so far that there is “little room for a big increase in spending in 2012,” as the article puts it. And it reports, “Consumer spending makes up 70 percent of the economy, so until it ignites, general growth is likely to be sluggish.”

It’s no mistake that both the people interviewed for the article were women. There’s Sarah M. Manley from Minnesota, who has frozen crab legs she bought on discount stowed away for Valentine’s Day and now buys milk in plastic bags from the gas station instead of in cartons. There’s also Lynette Paudel of Ohio, who plans to drive her 2003 minivan until it breaks but was lucky enough to avoid being let go from her high school English teaching job. When it comes to talk of consumer spending, we might as well be talking almost exclusively about women. They oversee 80 percent of consumer spending, totaling $3.7 trillion. As long as they continue to suffer in the recession, the rest of the economy will sputter along.

Paudel is very lucky to have kept her teaching job. Since the recovery officially began in 2009, women have actually been losing jobs. They saw 46,000 disappear, while at the same time men made some gains, getting back 1.26 million. Women’s unemployment rate has also inched up while men saw a decline. And a large part of that trend is that women were big losers in public sector layoffs, losing 374,000 jobs. A lot of those came from public education jobs — elementary and high school teachers like Paudel.

That’s not the whole story, however. Men have also been making gains in the public sector while women lost, driven by huge job losses for administrative and secretarial positions. Men are even gaining in the traditionally female-dominated retail industry.

Even those women who are still employed are likely struggling with other factors. Housing debt is a huge barrier holding consumers back. The Times article reports, “with more than one in every five borrowers still owing more than their homes are worth, many homeowners feel too pressed to spend on much more than the essentials.”

But as the Consumer Federation of America found, women were 32 percent more likely to receive subprime mortgages than men across all product lines, even though they have similar credit profiles. Those high-cost loans, often pawned off on those who could least afford them, have led to a massive wave of foreclosures and put many homeowners underwater. And overall, women’s representation in the mortgage market has grown in recent decades — the number of single women homeowners, for example, grew by 4 million between 1994 and 2002. They’re likely to be struggling under heavy mortgage debt loads.

They also, of course, make less than their male counterparts for similar work. So while American workers’ wages have stagnated over the past three decades, women have yet to even catch up to men.

It’s likely that some of the women overseeing that 80 percent of consumer spending aren’t going it alone. Many are making decisions for their families’ spending, and if they are unemployed hopefully they can rely on income from an employed spouse. (Although in a recent poll almost a quarter of respondents had a family member who had experienced job loss.) But if consumer spending is going to continue driving the economy, and the economic recovery, what’s happening to women in the recovery period can’t be ignored. Things have been bad and show no sign of looking up.