Merkel’s Eurausterity
Outgoing German chancellor Angela Merkel’s record as a champion of Europe has a nasty stain:
Like many national leaders, Ms. Merkel, time and again, catered to domestic political interests at the expense of broader European concerns, dismissing calls that Germany’s prodigious savings be put on the line to rescue debt-saturated members of the bloc…. She adamantly opposed debt forgiveness to Greece, even as it teetered toward insolvency, and even as joblessness exceeded 27 percent — a special source of outrage given that German banks were primary lenders in Greece’s catastrophic explosion of borrowing.
“She was at the heart of the design of the flawed Greek program, which not only imposed austerity, but most importantly resisted restructuring the debt in order to save the German and French banks,” said Joseph E. Stiglitz, a Nobel laureate economist at Columbia University in New York. “The rhetoric that she used suggested that the crisis was caused by irresponsible behavior by Greece, rather than irresponsibility on the part of the lender.”
Read more here.
Grexit time?
It’s time for Greece to exit the euro, if not the EU, writes Simon Jenkins in the Guardian:
Sometimes the small voice of economics should rise above the shrieking hysterics of politics. The laws of bankruptcy were invented by the Victorians not to stick plaster over capitalism’s wounds. Insolvency and limited liability lay at the core of commercial enterprise. Borrower and lender alike had to accept risk for capitalism to thrive. Greece within the eurozone was allowed to borrow riskily and was lent to riskily. Any fool (except a eurofool) knew it would end in disaster.
The IMF last week admitted Greece’s debts were “unsustainable”. But such is the political arthritis now afflicting Europe’s “technocratic” rulers that they ignored the fact. They concentrate on their one concern: somehow extending Greece’s repayments so German, French and British banks could have even larger loans underpinned. It is bankers, not Greeks, who are being “bailed out”. They want Greek taxpayers to go on paying interest even if the principal is as beyond reach as a tsarist bond.
Read his piece here.
Also Eduardo Porter’s recent New York Times piece on Germany’s own debt write-down after World War II.
Learning from history
A new animation sums up the differences between the “Golden Age”of 1948-71 and the “Great Moderation” of 1985-2007:
Source: http://www.nakedcapitalism.com/2014/05/myth-great-moderation.html.
“Do we invest in students, or millionaires?”
That’s the question posed by Senator Elizabeth Warren. She will introduce a bill to levy a minimum tax on incomes above $1 million (known as the “Buffet rule”), and devote the revenue to lowering interest payments on student debt:
Warren’s plan would allow students with outstanding student loans to refinance at lower rates. The cost of the change would be covered by a “dollar for dollar” effort where for “every dollar the Buffet rule brings in, we use that dollar to refinance student loan debt.”
Learn more here.
Trade deficit or budget deficit: which should worry us?
We hear a lot these days about the U.S. government’s budget deficit. But what we ought to be talking about is the country’s trade deficit, write Jared Bernstein and Dean Baker:
Running a trade deficit means that income generated in the United States is being spent elsewhere. In that situation, labor demand — jobs to produce imported goods — shifts from here to there.
Read their op-ed piece here.
Student loan profiteering
Senator Elizabeth Warren stands up for students:
Making billions and billions in profits off the backs of students is obscene.
Bankrupt politics hits Detroit
Robert Reich breaks down the local politics behind the Detroit bankruptcy:
Much in modern America depends on where you draw boundaries, and who’s inside and who’s outside. Who is included in the social contract? If “Detroit” is defined as the larger metropolitan area that includes its suburbs, “Detroit” has enough money to provide all its residents with adequate if not good public services, without falling into bankruptcy. Politically, it would come down to a question of whether the more affluent areas of this “Detroit” were willing to subsidize the poor inner-city through their tax dollars, and help it rebound. That’s an awkward question that the more affluent areas would probably rather not have to face.
In drawing the relevant boundary to include just the poor inner city, and requiring those within that boundary to take care of their compounded problems by themselves, the whiter and more affluent suburbs are off the hook. “Their” city isn’t in trouble. It’s that other one – called “Detroit.”
Read his blogpost here.
Tax students, or polluters?
From Robert Reich’s blog:
A basic economic principle is government ought to tax what we want to discourage, and not tax what we want to encourage.
For example, if we want less carbon dioxide in the atmosphere, we should tax carbon polluters. On the other hand, if we want more students from lower-income families to be able to afford college, we shouldn’t put a tax on student loans.
Read his post here.
Chomsky on student debt
From a wide-ranging interview with Noam Chomsky:
[O]ne of the main problems for students today — a huge problem — is sky-rocketing tuitions. Why do we have tuitions that are completely out-of-line with other countries, even with our own history? In the 1950s the United States was a much poorer country than it is today, and yet higher education was … pretty much free, or low fees or no fees for huge numbers of people. There hasn’t been an economic change that’s made it necessary, now, to have very high tuitions, far more than when we were a poor country.
Read Chomsky’s breakdown of the rich-country-indebted-student paradox here.
Student debt hits the fan
Jason Sattler writes that Senator Elizabeth Warren is asking a good question:
Why does the government give the big banks a better deal than it gives students?
It’s question so perfect that people can’t stop talking about it.
The first standalone bill from Senator Elizabeth Warren (D-MA) would not only prevent student loan rates from doubling, it would cut them down to the same rate the Fed charges banks to borrow money overnight for the next 12 months. And the idea has taken off like wildfire, with more than 400,000 people signing on to support the legislation.
Read more here.
