Category Archives: political economy

When in Danger or in Doubt

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Congressman Mike Honda (D, CA) had this to say about the Stimulus Bill of 2009:

…was put together because we didn’t know what the hell was going on and you know, and we were trying to do things that we thought might help stimulate the economy[.]  We set aside quite a bit of money for what we call ‘shovel ready projects’ which we thought would create jobs right away but it didn’t.

Run in circles, scream and shout.  So, do even more of it.

It [The 99 Percent Act] will increase our deficit but we need to increase our deficit right now to make that investment and make that place so that we can get this thing started.

This is what the Congressional Progressive Caucus proudly says about the 99 Percent Act:

We need a law as big as the problem it’s trying to fix, and that’s exactly what this is.

Run in circles, make big government.

How very Progressive of them.

Anger in the EU

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But it’s misplaced, and perhaps driven by embarrassment.  Great Britain refused, a few days ago, to go along with a proposal to alter the fundamental European Union treaty to allow for the creation of a fiscal union, touted as a solution to the existing EU sovereign debt crisis.

The petulance of others of the EU leadership is illustrated with these examples:

Le Canard Enchaine (The Chained Duck) reports that French President Nicolas Sarkozy called Great Britain’s Prime Minister, David Cameron, a “stubborn child.”  Apparently, Sarkozy went on: Cameron had only one goal, that of “protecting the (London) City, which wants to continue to behave like a tax oasis.”  As if either of these—protecting his capital city, and maintaining a tax oasis (if that’s what he was doing)—were a bad thing.

And this: Guy Verhofstadt, the head of ALDE (Alliance for Liberals and Democrats for Europe), a liberal group in the European Parliament, spoke on the matter in his native Flemish Wednesday: he didn’t think English would be an “appropriate language.”

Others have insisted that Great Britain now must quit the EU.

But Cameron isn’t so alone (at least not yet) as his detractors insist.  Ireland has said that it must submit the matter to a national referendum.  Recall that the continent had a negative attitude toward the Greek government’s attempt to refer bailout terms to their people for consent or rejection.  Similarly, the Czech Republic and Sweden now insist on involving their respective parliaments in any decision to go along with a fiscal union.  Indeed, the Czech Republic has gone further, insisting that any union should apply only to members of the euro zone, and Hungary has joined them in this assessment.  Both the Czechs and the Hungarians also are on record as rejecting coordinating—”harmonizing”—national tax policies, a key parameter of a fiscal union.  Such a thing, they say, can “bring nothing positive, nothing good.”  The Czech Republic has gone yet further: they will discuss the matter, but they will take no decision for or against the union until they know the details of the pact—including those heretofore undefined “sanctions.”

Given that the proposed fiscal union cannot succeed and does not actually address the present crisis (it can only face the inevitable next one), and given that part of the demand for the treaty change involved demands for tax changes that would have hit Great Britain disproportionately, Prime Minister David Cameron was right to make the moves he did.

And given that the proposed fiscal union cannot succeed and does not actually address the present crisis, and these are becoming increasingly clear as other members of the EU share British concerns about the efficacy of the pact, the detractors are beginning to see the blunder they’ve committed with this “union.”  They’re expressing their embarrassment as anger and frustration—a sign, not of their obstinacy, but of their continued failure fully to realize their error.  That realization is only just beginning.

Joblessness

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Here are some data on Americans and our quests for work.

Financial Times‘ Ed Luce offers some statistics (the article may be behind a paywall):

In December 2007, the US economy employed 146 million people. Four years later, it languishes at 140 million.  At the current rate of job creation it will take another two and a half years to regain 2007 levels—taking the replacement cycle to as much as 78 months….  Even that understates the problem, since in that time the population will have risen by more than 10 million.

and

At the start of the recession, the employment-to-population rate was 62.7 per cent. The rate is now 58.5 per cent….  According to government statistics, if the same number of people were seeking work today as in 2007, the jobless rate would be 11 per cent.

Notice that last.  Here are some back of the envelopment calculations: in 2007, according to the US Census, the working-age population of the US (which I’ve unilaterally defined as men and women between 20 and 64 years old) was a bit shy of 181 million Americans.  Thus, that 4% drop in the employment-to-population rate represents a loss of some 7.25 million Americans from the labor force—7.25 million who have, with the terrible economy we’ve had for the last four years, given up looking for work.  If they still were looking, that’s what would run the “unemployment rate” up to 11 %.

In the last three years, the “official” unemployment rate has run from 7% to as high as 10%, stabilized at around 9% for most of these three years, and last month fell to 8.6%, a number that disguises the foregoing.  In all, some 2 million more Americans—that are still looking—are out of work today than at the start of 2009.

There’s one more interesting statistic.  This one does a better job of measuring the quality of the jobs available: the unemployed and underemployed combined rate is pushing 20 per cent.  This isn’t a number that says an American isn’t getting paid what he wants, or thinks he deserves—none of us are that—this is a number that says Americans don’t have as much work per day as we want—it includes all less than full time workers who want to be full time.

And there’s this from the Democratic National Committee Chairwoman and Congresswoman (D, FL), Debbie Wasserman Schulz in an exchange with Gretchen Carlson:

Carlson: Unemployment has gone up precipitously since [Obama] took office.

Wasserman Schulz: That is simply not true.

Among Luce, Carlson, and Wasserman Schulz, someone has lost track of the situation.

The European Union’s Deal

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The European Union agreed, last Friday, to the outlines of an arrangement that might leader to greater unity for the economies of the 17 nations of the euro zone plus six to nine additional members of the EU that are not part of the euro zone.  Only Great Britain has, for certain, demurred.  Leaving aside the question of the legality of the new terms (which arise because Great Britain has refused to go along, preventing the unanimity required by the EU’s governing treaties), what has actually been accomplished?

The EU other than Great Britain has agreed to a financial transactions tax.  This would be a fee that every investor, from an individual to the largest investment bank, would be required to pay on every financial transaction, from brokering a merger of large corporations to any individual buying—or selling—a single share of stock.  Britain couldn’t hack that because the financial industry is 10% of their economy, and they were concerned about the effect of such a large (in the aggregate) tax on their economy.

The biggie, though, was an agreement to more fully integrate the member nations’ economies, to the point of submitting national budgets to EU scrutiny.  Every nation, under this fiscal union, is bound to limit its budget deficit to no more than 3% of that nation’s GDP.  Failure to do so would bring virtually automatic sanctions (the sanctions could be waived on an individual basis, provided 5/6 of the fiscal union members agreed to the waiver).

This raises a critical question, though: what are those sanctions?  As I said, what’s been agreed is an outline, not anything of substance.  The specific sanctions are To Be Determined.  Further, if the negotiations of this (and other) detail hew to the schedule laid out by the fiscal union’s primary proponents, French President Nicolas Sarkozy and German Chancellor Angela Merkel, the deal must be done—and the sanctions identified and agreed—by next March, an ambitious schedule.  Also left unidentified is the or else should the deal not be done by then.  Mr. Market is likely to identify the or else in that eventuality.

There’s another critical question that’s left unanswered, also.  That’s how the fiscal union addresses the present problem of impending rampant sovereign debt insolvency.  The European Financial Stability Facility, the new European Stability Mechanism (which in the end replaces the EFSF; it does not complement it), and the IMF together aren’t enough to bail out Italy and/or Spain (assuming a bailout is appropriate in the first place).  And that’s a problem: the fiscal union sidesteps this question.  The EU is left to hope for the change of heart that will allow the European Central Bank to print euros and/or buy sovereign bonds in quantity and/or sell Euro Bonds.  The wisdom of any of these three ECB options is an open question.  Mr. Market is likely to forcefully express an opinion here, too.

There is yet another question.  How does the fiscal union address lack of homogeneity in the social, economic, and money imperatives of fiscal union members?  It does not; instead, the union attempts a Procrustean chopping and stretching to jam all the nations into a single, ill-shaped bed.

Layered on top of this is the EU leadership’s differing views of the EU’s  and the fiscal union’s role:

  • Merkel sees the EU as a political partner of the United States;
  • Sarkozy (ignoring the likelihood of Sarkozy’s defeat in next year’s elections) sees the EU as an independent power bloc competing with the United States.
  • Merkel sees the fiscal union (I’m reluctant to abbreviate this similarly) as a means of imposing extra-national discipline and control over national budgets;
  • Sarkozy sees the (structure of the) fiscal union as preserving an essential national sovereignty—most especially French sovereignty.
  • The existing EU governance power structures—the ECB, the European Commission, and the European Council—are allying with each other in order to preserve their own turf, power, and prerogatives against the (apparent) supremacy of Sarkozy and Merkel, of Germany and France, in the new fiscal union.  And they’re attempting to use Euro Bonds as their tool of artifice.

I remain not sanguine about the euro’s long-term survival as the common currency of 17 nations, nor am I sanguine about the long-term survival of the 26- or 27-nation European Union.  I’m also not convinced that a breakup of either is necessarily a bad thing.  A collection of four or five groups, each consisting of truly homogeneous nations, with Great Britain and France back in their traditional roles, and all operating in a grand free trade comity, will serve all the nations, and Europe as a whole, better.

Update: Withdrew an editorial note.

Democracy

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Paul Krugman wrote this in his The New York Times column yesterday:

Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons; Hungary isn’t on the euro, but it suffered severely because of large-scale borrowing in foreign currencies and also, to be frank, thanks to mismanagement and corruption on the part of the then-governing left-liberal parties. Now Fidesz, which rammed through a new Constitution last spring on a party-line vote, seems bent on establishing a permanent hold on power.

Krugman is talking about the current sovereign debt crisis in the European Union and its effect on Hungary, but there’s a ring to it.  Let’s see if it can be domesticized….

[The Democratic Party] won an overwhelming [Congressional] majority [in 2008], at least partly for economic reasons; [the US] isn’t on the euro, but it suffered severely because of large-scale borrowing…and also, to be frank, thanks to mismanagement and corruption on the part of the then-governing…parties. Now [the Democrats], which rammed through [Stimulus Bill of 2009, Obamacare, Dodd-Frank] on…party-line vote[s], seem bent on establishing a permanent hold on power.

Sound familiar?