Migrants to the United States are a diverse population. This diversity, captured in various
migration theories, is overlooked in empirical applications that describe a typical narrative for an
average migrant. Using the Mexican Migration Project data from about 17,000 first-time
migrants between 1970 and 2000, this study employs cluster analysis to identify four types of
migrants with distinct configurations of characteristics. Each migrant type corresponds to a
specific theoretical account, and becomes prevalent in a specific period, depending on the
economic, social and political conditions. Strikingly, each migrant type also becomes prevalent
around the period in which its corresponding theory is developed.
To evaluate the distributional impact of remittances in origin communities, prior research studied
how migrants’ selectivity by wealth varies with migration prevalence in the community or prior
migration experience of the individual. This study considers both patterns, and examines
selectivity separately in low and high prevalence communities and for first-time and repeat
migrants. Based on data from 18,042 household heads in 119 Mexican communities from the
Mexican Migration Project, the analyses show that (i) first-time migrants in low prevalence
communities come from poor households, while repeat migrants in high prevalence communities
belong to wealthy households, and (ii) higher amounts of remittances reach wealthy households.
These results suggest that repeat migration and remittances may be mechanisms for wealth
accumulation in the study communities. Descriptive analyses associate these mechanisms with
increasing wealth disparities between households with and without migrants, especially in high
prevalence communities. The study, similar to prior findings, shows the importance of repeat
migration trips, which, given sustained remittances, may amplify the wealth gap between
migrants and non-migrants in migrant-sending communities. The study also qualifies prior
findings by differentiating between low and high prevalence communities and observing a
growing wealth gap only in the latter.
Ronald Reagan and Barack Obama have at least one similarity. They both were confronted by
great economic challenges when they became president.
Mr. Reagan's immediate challenge was that inflation and interest rates were out of control. He met this great test by allying with the Federal Reserve chairman, Paul Volcker, in accomplishing a return to price stability, even through the 1982 recession when the unemployment rate hit 10.8%.
Reagan's success is not in doubt. Inflation and interest rates were reduced dramatically, and the recovery from the end of 1982 to the end of 1988 was strong and long with an average growth rate of real GDP of 4.6% per year. Moreover, Reagan focused on implementing good economic policies, not on blaming his incompetent predecessor for the terrible economy he had inherited.
Mr. Obama was equally in position to get credit for turning around a perilous economic situation that had been left by a weak predecessor. But he has pursued an array of poor economic policies, featuring the grand Keynesian experiment of sharply raising federal spending and the public debt. The results have been terrible and now, two and a half years into his administration, Mr. Obama is still blaming George W. Bush for all the problems.
Friday's downgrade of the U.S. credit rating by Standard & Poor's should have been a wake-up call to the administration. S&P is saying, accurately, that there is no coherent long-term plan in place to deal with the U.S. government's fiscal deficits.
The U.S. Treasury could have responded in two ways. First, it could have taken the downgrade as useful information and then focused on how to perform better to earn back a AAA rating. Instead, it chose to attack the rating agency as incompetent and not credible. In this respect, U.S. officials were almost as bad as Italian Prime Minister Silvio Berlusconi, who responded to warnings from S&P and Moody's about Italian government debt by launching police raids on the offices of the rating agencies in Milan last week. The U.S. Treasury's response also reminds me of Lehman Brothers blaming its financial problems in the summer of 2008 on evil financial analysts and short-sellers.
The way for the U.S. government to earn back a AAA rating is to enact a meaningful medium- and long-term plan for addressing the nation's fiscal problems. I have sketched a five-point plan that builds on ideas from the excellent 2010 report of the president's deficit commission.
First, make structural reforms to the main entitlement programs, starting with increases in ages of eligibility and a shift to an economically appropriate indexing formula. Second, lower the structure of marginal tax rates in the individual income tax. Third, in the spirit of Reagan's 1986 tax reform, pay for the rate cuts by gradually phasing out the main tax-expenditure items, including preferences for home-mortgage interest, state and local income taxes, and employee fringe benefits—not to mention eliminating ethanol subsidies. Fourth, permanently eliminate corporate and estate taxes, levies that are inefficient and raise little money.
Fifth, introduce a broad-based expenditure tax, such as a value-added tax (VAT), with a rate around 10%. The VAT's appeal to liberals can be enhanced, with some loss of economic efficiency, by exempting items such as food and housing.
I recognize that a VAT is anathema to many conservatives because it gives the government an added claim on revenues. My defense is that a VAT makes sense as part of a larger package that includes the other four points.
The loss of the U.S. government's AAA rating is a great symbolic blow, one that would cause great anguish to our first Treasury secretary, Alexander Hamilton. Frankly, the only respectable reaction by our current Treasury secretary is to fall on his sword. Then again, "the buck stops here" suggests that an even more appropriate resignation would come from our chief executive, who, by the way, is no Ronald Reagan.
The Treasury can cry foul all it wants, but the decision by Standard & Poor’s to downgrade America’s credit rating by one notch last
Friday, and the subsequent plunge in the stock market, are serious
symptoms of a loss of confidence—an assessment that is fundamentally
political, not economic.
There is little question about the technical ability of America to make
good on its debts—but there are grave questions about the political
system’s ability to resolve our nation’s financial problems.
The debt-ceiling deal between President Obama and Congressional
Republicans merely staved off a crisis of confidence for the moment. It
does not address our immediate need to avoid falling back into
recession, or our longer-term need to raise enough revenue to pay for
the social spending Americans want.
Moreover, the deal sidesteps the fundamental challenge the country now
faces: who will pay to fix what was broken during the past decade by
irresponsible tax cuts, ruinously expensive wars, failures of regulation
and the resulting housing and financial booms and busts?
In the short term, the plan cuts a bit of discretionary nondefense
spending, a category that in fact has not grown particularly rapidly.
This is a mistake. With unemployment at 9.1 percent, and long-term
joblessness at record levels, we need more spending, not less. But the
agreement all but rules out new spending to boost the economy, at a
dangerous time. The chances of a double-dip recession are growing—and a
further slowdown will increase, not reduce, the budget deficit.
The longer-term spending and revenue commitments are no better.
Certainly spending, in particular on Medicare and Medicaid, needs to be
restrained. But the deficits cannot be reined in without tax increases,
and the “framework” does little or nothing in this regard. The S. &
P. decision to downgrade reflects, in large part, the expectation that
Republicans will not allow the Bush tax cuts to expire.
The recent skirmishes all dance around the central issue: the United
States is in the midst of the world’s largest debt crisis. The Treasury
now owes the public almost $10 trillion, including $4.5 trillion to
foreigners—and that doesn’t include what households and companies owe.
For decades to come, Americans will face the core problem of every
heavily indebted nation: who will bear the burden of adjustment?
Countries borrow for many purposes: canals and railroads in the 19th
century, factories and highways in the 20th, and in the last decade, a
housing and financial boom in Europe and America. When the projects
don’t pan out and the debtor country falls into crisis, what happens to
the accumulated debts? Who pays? Creditors or debtors? Workers or
investors? Rich or poor? The European Union is tearing itself apart over
this question, which divides creditor nations from debtor nations and
which divides groups within nations. The American variant of this
conflict is just beginning.
Perhaps, some Americans believe, we can shunt the adjustment costs onto
foreigners. Indeed, our creditors worry that the United States will
reduce its debt burden the old-fashioned way, by inflating it away. A
few years of moderate inflation, and a weaker dollar, would
significantly lessen the real cost of servicing the country’s debts—at
our creditors’ expense.
But adjusting to the reality of America’s accumulated debts will
inevitably require sacrifices at home. The battle over who will be
sacrificing has already begun, albeit under veils of rhetoric. The
Republicans seem unconcerned about stimulating recovery, and primarily
concerned that none of the long-term costs of balancing our budget be
paid by upper-income taxpayers. No surprise: unemployment among the
one-third of Americans with the highest incomes is barely 4 percent,
while for the lowest third it is more than four times that level.
The Democrats, for their part, seem content to insist that the
adjustment burden not fall on beneficiaries of government spending,
whether public employees or recipients of social spending. This reflects
their base in the labor movement, the public sector and the poor.
We lost the first decade of the 21st century by squandering our wealth
and borrowing as if there was no tomorrow. We risk losing this decade to
an incomplete recovery and economic stagnation.
An economically responsible, politically feasible distribution of the
costs of working our way out of the crisis will require higher taxes, a
more efficient tax code, and restrained growth of social spending,
particularly Medicare. To ignore these realities, and the contentious
choices they entail, is merely to postpone the inevitable day of
reckoning—and probably to make it worse.
The recent debt deal will slash the defense budget over the next decade.
And if Congress can’t agree on an additional $1.5 trillion in cuts, the
law’s “trigger mechanism” will lead to deeper reductions in military
spending. The initial cuts will not imperil America’s national security,
but the deeper cuts could.
The administration of George W. Bush nearly doubled the defense budget
following 9/11. With the winding down of Mr. Bush’s two wars, we could
cut our ground forces to 1990s levels, reduce the planned purchases of F-35 Joint Strike Fighters,
make greater use of cheaper drones and other technologies, and deal
with the escalating costs of the defense health care system — without
serious damage to national security. Indeed, President Obama’s budget
had already planned for $400 billion in defense savings by 2023.
But it is not enough to tinker with the defense budget. We also need to
rethink how we use our military power. Unlike the state of affairs
during the cold war, the United States and its allies today account for
over 70 percent of world military expenditure. The No. 1 power no longer
has to patrol every boundary and seek to police every country.
Opponents of defense cuts are raising the specter of isolationism and
the weakening of American power. But there is a middle way.
At the height of the cold war, President Dwight D. Eisenhower decided
against direct military intervention on the side of the French in
Vietnam in 1954 because he was convinced that it was more important to
preserve the strength of the American economy. Today, such a strategy
would avoid involvement of ground forces in major wars in Asia or in
other poor countries. While it will take time to extricate ourselves
from Mr. Bush’s post-9/11 strategy, we must start, as the National Security Strategy of 2010
states, “by recognizing that our strength and influence abroad begins
with the steps we take at home.” Eisenhower could have said that — and
no one could accuse Ike of being an isolationist.
Counterinsurgency is attractive as a military tactic but it should not
lead us into a strategy of nation-building in places where we do not
have the capacity to engineer change. The maxim of avoiding major land
wars in poor countries does not mean withdrawing our military presence
from places like Japan and South Korea, or ending military assistance to
countries like Pakistan and Egypt. Some analysts call this “off-shore
balancing,” but that term must mean more than just naval and air force
activity. For example, in Japan and South Korea, our allies pay a
significant portion of the cost for basing American troops there because
they want an insurance policy in a region faced with a rising China and
a volatile North Korea.
Over the course of this century, Asia will return to its historic
status, with more than half of the world’s population and half of the
world’s economic output. America must be present there. Markets and
economic power rest on political frameworks, and American military power
provides that framework. Military security is to order as oxygen is to
breathing: underappreciated until it becomes scarce. That is why the new
bipartisan Congressional commission must provide the revenues that
allow America to continue to play this vital role while avoiding the
trap of overly ambitious nation-building.
Such a strategy is also sustainable at home. The British historian Niall
Ferguson, an enthusiast for empire, lamented at the time of the Iraq
war that the United States lacked the capacity for empire because of
three domestic deficits: personnel (not enough boots on the ground);
attention (not enough public support for long-term occupation); and
financial (not enough savings and not enough taxation relative to public
expenditure). He was correct.
Lacking a stomach for empire or colonial occupation is one of the
important ways in which American political culture differs from that of
imperial Britain. Americans like to promote universal values. But rather
than succumbing to the temptation to intervene on the side of “the
good,” we can do it best by being what Ronald Reagan called “a shining
city on a hill.”
The alternatives we face today are not an untouchable defense budget or
isolationism. A smart strategy for preserving America’s power and global
role will depend on wisely tailoring our foreign policy to fit the
cloth we have. Eisenhower knew this well.
The global crises of financial and housing markets are now being superseded by new crises of governments. The fiscal challenges for the weaker members of the eurozone are early warnings, as are analogous problems in American state governments weighed down by unfunded pension and healthcare liabilities. Without action, this new crisis of state competence could soon become just as damaging as its recent financial predecessor.
This week's US debt deal, along with the prospect of debate on fiscal solutions in the run-up to the 2012 elections, provides some room for optimism. But America's fiscal problems have deep roots. The recession of 2007-2009 stemmed from the unprecedented bust in the housing market, driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac. It is, however, important to recognise that this mistake is now understood and will not be repeated.
In the aftermath of the debt ceiling agreement there will be calls for further stimulus for America's economy. This would be a grave mistake. In the financial turmoil of 2008, bail-outs by the US and other governments were unfortunate, but necessary. However, the subsequent $800bn American stimulus package was largely a waste of money that sharply enlarged the fiscal hole now facing our economy.
President Barack Obama's administration has consistently overestimated the benefits of stimulus, by using an unrealistically high spending multiplier. According to this Keynesian logic, government expenditure is more than a free lunch. This idea, if correct, would be more brilliant than the creation of triple A paper out of garbage. In any event, the elimination of the temporary spending is now contractionary and, more importantly, the resulting expansion of public debt eventually requires higher taxes, retarding growth.
I agree that budget deficits were appropriate during the great recession and, for that reason, the kind of balanced-budget rule currently proposed by some Republicans should be avoided. However, since government spending is warranted only if it passes the usual hurdles of social rates of return, the fiscal deficit should have concentrated on tax reductions, especially those that emphasised falls in marginal tax rates, which encourage investment and growth.
Despite relief at the debt-ceiling agreement, America's fiscal situation remains deeply problematic. Any attempt to head off a crisis of government competence must begin with serious long-term reform. Reductions in the long-term path of entitlement outlays have to be put on the table, with increases in ages of eligibility a part of any solution.
We also need sharp reductions in spending programmes initiated or expanded by Mr Obama and his extravagant predecessor, George W. Bush. Given the inevitable growth of the main entitlement programmes, especially healthcare, increases in long-term federal revenue must be part of an overall reform.
So what, specifically, can be done? An effective future tax package would begin by setting US corporate and estate tax rates permanently to zero, given these taxes are inefficient and generate little revenue. Next, it would gradually phase out major "tax-expenditure" items, such as tax preferences for home-mortgage interest, state and local income taxes, and employee fringe benefits.
The structure of marginal income-tax rates should then be lowered. Marginal rates should particularly not increase where they are already high, such as at upper incomes. The bulk of any extra revenue needed to make up the difference should then be raised via a broad-based, flat-rate expenditure tax, such as a value added tax. A rate of 10 per cent, with few exemptions, would raise about 5 per cent of gross domestic product.
Of course, such a new tax would be a two-edged sword: a highly efficient tax, but politically dangerous. To paraphrase Larry Summers from long ago, we don't have VAT in the US because Democrats think it is regressive, and Republicans think it is a money machine. We will get VAT when Democrats realise it is a money machine, and Republicans realise it is regressive. Obviously, I worry about the money machine property, but I see no serious alternative for raising the revenue needed for an overall next-stage reform package.
The raucous debt-ceiling debate represents a good start in forging a serious long-term fiscal plan. Substantial additional progress will be needed, sadly much of which will probably have to await the outcome of the next US election. Yet progress must be made - or the impending crises of governments, signalled by possible downgrades of US debt, will make the 2008-2009 recession look mild.
The work of a Harvard history
professor has bolstered the case of a group of elderly Kenyans who are
seeking reparations from the British government for rape, castration,
beatings, and other abuses that they say were part of systematic
colonial-era efforts to suppress Kenya’s Mau Mau uprising.The case passed a critical milestone in July when a British judge
allowed it to move forward despite government arguments that, if the
abuses happened, the current government isn’t liable for colonial
transgressions.The Kenyans are former detainees in British prison camps set up
during the 1950s Mau Mau rebellion, which set the stage for Kenyan
independence in 1963. The plaintiffs allege that their abuse came at the
hands of British jailers in what was a systematic and
government-sanctioned campaign to break the rebellion.Though there had been talk of reparations for colonial atrocities for years, the case was given new life by Professor Caroline Elkins’ Pulitzer Prize-winning book, Imperial Reckoning: The Untold Story of Britain’s Gulag in Kenya.
The book, published in 2005, blended government documents and
eyewitness accounts to tell a compelling story of a horrific, systematic
campaign by the British colonial government to crush the rebellion not
only in the field, but through abuse of those held in camps around the
country.“Caroline’s work has been absolutely fundamental to the case,” said Daniel Leader, a barrister for the London law firm Leigh Day & Co.,
which is representing the former Kenyan detainees. “She was uniquely
responsible for beginning to change the public’s understanding of that
period in history….The victims are forever in her debt. She put their
stories on the map.”It was Elkins’ work, Leader said, that indicated that the abuse was
not only systematic, but known by the British government in London.George Morara, program officer for the Kenya Human Rights Commission,
which has worked to identify plaintiffs who could bring the case before
the courts, said that Elkins’ research built an important foundation
that allowed the case to move forward.“Without her seminal work,” Morara said, “this story wouldn’t have come to the fore.”Elkins’ critics, however, have charged that, though there may have
been abuses in the system, there was no systematic effort by the
government to abuse detainees.The July 21 ruling denied a motion to dismiss the case on the grounds
that the current British government has no responsibility for actions
by the colonial government in Kenya. While the judge didn’t rule on the
merits of the case itself, the decision represents a key victory for the
former detainees.“I have decided that the claimants have arguable cases, fit for
trial,” High Court Judge Richard McCombe wrote in a summary explaining
his judgment. “I emphasize that I have not found that there was
systematic torture in the Kenyan camps nor that, if there was, the U.K.
government is liable to detainees, such as the claimants, for what
happened. . . . I decided that the FCO [Foreign and Commonwealth Office]
have not established that the claimants are bound to fail.”The decision sets up a hearing on a second government motion to
dismiss the case, Elkins said, this one based on a statute of
limitations for such cases. The court can make exceptions to the statute
of limitations, however, and Leader said the plaintiffs will use
examples of other atrocities cases that have been prosecuted long after
the acts were committed to illustrate that a fair trial is possible.
Should the case clear that hurdle, expected in early 2012, Elkins
expects the trial itself to begin next spring or summer.In addition to revelations contained in “Imperial Reckoning,” Elkins
and two other historians acting as expert witnesses have submitted
lengthy reports to the court; they’re also reviewing thousands of pages
of previously undisclosed, colonial-era documents the government has
brought forward because of the case. Elkins said the experts’ review of
these documents has already yielded numerous memoranda that further
substantiate both her thesis of systematized violence and the witness
testimony she collected recounting abuse and torture in the camps.For Elkins, the court decision and the new documents substantiating
her work provide a bit of vindication. Though her book garnered a great
deal of praise in the U.S., winning the 2006 Pulitzer Prize for general
nonfiction, it was also attacked in both Britain and Kenya as inaccurate
and based on unreliable witness testimony.Elkins said she’s grateful for those at Harvard who stood by her
while, as a graduate student, she worked on her dissertation, which was
the basis for “Imperial Reckoning,” and when, as a junior faculty
member, she endured the attacks on her work.In 2006, Morara and the Kenya Human Rights Commission began
interviewing veterans in hopes of bringing a case to British courts.
Three men and two women were chosen, one of whom, Susan Ciong’ombe
Ngondi, has since died. The four remaining plaintiffs, Ndiku Mutua,
Paulo Nzili, Wambugu Wa Nyingi, and Jane Muthoni Mara, are all elderly,
in their 70s and 80s. The case was filed in 2009.The case itself seeks an apology from the British government for
abuse in the camps and establishment of a welfare system for former
detainees, some of whom, Leader said, were unable to have children due
to their treatment. In Kenya’s traditional culture, where children
provide for their elderly parents, detainees’ inability to have a family
leaves them with little means of support, he said.From a historian’s viewpoint, the case is one of what actually
happened versus what people say happened, Elkins said. The government
and its supporters have dismissed the firsthand testimony and eyewitness
accounts of those who suffered, compounding what occurred in the
detention camps decades ago.“It’s now a duel between colonial-inspired history and revisionist
history,” Elkins said. “On top of it all, some have called the people
who survived these horrific tortures liars. The British government
behaved badly in Kenya, and many have continued to do so in an effort to
conceal or minimize colonial abuses.”
Like corruption, crime, and asbestos, “inflation” is a word that many
Americans imagine in all-red capital letters, flashing across TV screens
amid warnings of crisis. For anyone who remembers the gloomy, scary
1970s, when the inflation rate in the United States reached double
digits, the word is shorthand for an economy that has spiraled out of
control, the dollar losing value and prices climbing feverishly.
“Inflation is as violent as a mugger, as frightening as an armed robber,
and as deadly as a hit man,” said Ronald Reagan in 1978, as nervous
citizens imagined the day when they’d have to push a wheelbarrow full of
cash to the grocery store in order to buy a loaf of bread.That
particular nightmare never came to pass, thanks to drastic measures
taken by the Federal Reserve. For the better part of the past 30 years,
the dollar has stayed stable, reassuring American families and the
nation’s trading partners, with the central bank standing guard over the
economy and doing everything necessary to keep inflation low.You
might say that Kenneth Rogoff has been one of the guards. As a research
economist at the Federal Reserve during the first half of the 1980s, he
helped ensure that the word “inflation” would never again flash across
American TV screens. His reputation as a conservative-minded inflation
hawk followed him from the Fed to the International Monetary Fund to his
current position in the economics department at Harvard.But then
came the financial crisis of 2008, and the ensuing slump. And as the
economy has continued to stagnate, Rogoff, 58, has become the
flag-bearer for an unlikely position: that as we struggle to help the
economy find its way out of the darkness, inflation could be the answer.
It’s time, Rogoff says, to put Reagan’s “hit man” to work for the good
guys.Over the past several years, Rogoff has emerged as one of
the world’s leading experts on the history of financial crises and how
they work, a unique perch that has given him a long view on what is
happening to our economy and what lies ahead. In the bestselling 2009
book “This Time Is Different,’’ he and Carmen Reinhart, currently a
senior fellow at the Peterson Institute for International Economics ,
laid out a detailed analysis of financial crises that have taken place
around the world going back 800 years, and they put forth an alarming
idea about our current predicament. What we’re going through, they
argued—what we’ve been going through ever since the subprime mortgage
crisis—has not been just a typical recession, as our leaders have been
treating it, but something much worse, something that demands
altogether different tools to stop it.One
of these tools, Rogoff believes, is a temporary burst of inflation. And
for the past several weeks, as the stock market has convulsed and
debate raged over the Fed’s next move, he has been making his case
publicly, through syndicated opinion columns, high-profile TV
appearances, and numerous interviews. It’s an argument that Rogoff
himself admits is “radical,” and one he says he’d rather not be making.
But as he sees it, what’s holding the country back from recovery is not
just a lack of consumer confidence or suppressed demand, as in a normal
recession, but an immense overhang of debt: thanks to the collapse of
the real-estate bubble, millions of American families owe so much to
banks that they’re focusing all their energy on paying down their debts
instead of spending their money on new investments. There will be no
recovery until the painful process of working through that debt is
behind us, Rogoff argues, and an increase in the annual inflation rate,
which has floated around 2 percent since the early 1990s,would make it
easier for debtors to pay down what they owe.“There’s
no penicillin for this,” he said in an interview. “There’s no quick
getting better. What you’re really talking about is taking the edge off
the downturn and coming back to normal growth somewhat faster.”Rogoff’s
call to raise inflation has come under attack from several different
directions. Some economists think it wouldn’t do any good—that trying
to raise inflation wouldn’t create demand or spur growth the way Rogoff
thinks—while others believe that, given that prices actually seem to
be in danger of falling at the moment, the Fed couldn’t make it happen
if it wanted to. But perhaps the biggest problem for Rogoff is that, for
most policymakers, elected and otherwise, the idea of courting
inflation on purpose sounds downright crazy—not to mention politically
disastrous.“Going around the country saying, ‘We need more
inflation’ is not going to be a big seller,” said Michael Mussa, a
senior fellow at the Peterson Institute and a former adviser to Reagan.
“Inflation means that the costs of everybody’s goods and services are
going up … And I believe it’s a substantial symbol of mismanagement by
the government and the central bank.”Rogoff, however, remains
convinced that as the situation grows more desperate, our leaders will
feel pressure to start considering their options with more open minds.
“As more and more people realize that we’re not quickly going back to
normal,” he said, “they become more flexible.”Though Rogoff speaks with unflinching steadiness, hearing him explain how
badly our leaders misdiagnosed the economy after the crash, one imagines
a doctor banging his fists against the door of a surgery ward, trying
to warn his colleagues that he has checked their patient’s chart and
realized they’re about to make a huge mistake.The mistake we all
made, as Rogoff sees it, was thinking this was going to be nothing more
than a regular recession, the same kind of thing that has happened in
the United States once or twice every decade for the past 150 years.
These cyclical recessions come and go, and we have a pretty reliable
playbook for dealing with them: usually, an increase in government
spending and lower interest rates to encourage money to flow. Recessions
tend to end after about a year, at which point unemployment starts to
fall and normal growth resumes.Far
less frequently, something more serious grips an economy: a financial
crisis that breaks the pattern, and from which it is much more difficult
to recover. Rogoff and Reinhart’s book suggests that such contractions
are characterized above all by severe, widespread debt, which leads to
long periods of economic stagnation and uncertainty. Rogoff puts our
current situation in that category, along with the Great Depression, and
he fears that if we do not act quickly and creatively to dig ourselves
out of it, we risk settling into a long-term slowdown along the lines of
what Japan has been going through since the 1990s. Mistaking this
crisis for a typical recession, he says, is like mistaking pneumonia for
a stubborn cold. “They’re very, very different animals.”The
animal we’re wrestling with today, of course, was born of the vastly
overheated real estate market that collapsed in 2007, temporarily
paralyzing the global financial system and taking some powerful banks
down with it. Today, its legacy is a towering mountain of consumer debt,
government debt, and millions of underwater mortgages that are gumming
up the economy and preventing it from coming back to life.“It’s
very unlikely that all these debts are going to get repaid in full,”
Rogoff said. Banks have loans on their books that people simply don’t
have—won’t have—the money to pay off, and expecting it to happen
means we’ll just stay frozen in place, waiting. What needs to happen,
Rogoff says, is “some transfer from creditors to debtors.” The ideal way
for that to happen, he says, would be through loan renegotiation,
whereby banks would forgive some homebuyers and strike repayment deals
with others. But that sort of piecemeal renegotiation has proved very
difficult to carry out.A
more viable way to start fixing the nation’s balance sheets, Rogoff
argues, is by inducing a temporary bout of inflation. If the Federal
Reserve raises its target inflation rate by several percentage points—up from around 2 percent, where it’s been for the past decade, to
somewhere in the neighborhood of 4 to 6 percent—and injects new money
into the economy until it gets there, then debtors will get some relief
and the wheels of the economy will once again start to turn.Rogoff
first laid out the argument for embracing inflation in one of his
columns in December of 2008—a move that came as such a surprise to
people who knew his reputation that he got letters from central bankers
who were sure they’d misunderstood him. Rogoff had worked at the Fed
under none other than Paul Volcker, whose mandate as Fed chairman was to
drive inflation down at any cost. Under Volcker’s watch, inflation fell
from 13.3 percent in December of 1979 to just 3.8 percent four years
later. And though Rogoff at the time was just starting out as an
economist—indeed, he was still transitioning from his first career as a
professional chess player—he soon became an intellectual force in the
movement to make central banks the economy’s first defense against
inflation. In 1985, he published what would become one of his most
widely cited academic papers in the Quarterly Journal of Economics,
arguing that healthy economies depended on central banks being reliably
committed to holding inflation down in all but the most extreme
circumstances.Rogoff says he hasn’t changed his mind on how
central banks should behave, and still thinks our fears of runaway
inflation are well-founded. He just thinks that right now, it’s a risk
worth taking. “There’s certainly some benefit in a society having a
very, very strong conviction about keeping low inflation,” Rogoff said.
“But I think right now it’s not helpful. You can have a very strong
conviction that you don’t want to take medicines … And I respect that,
but there are times when there’s really no choice.”Though
Rogoff’s idea about raising inflation has so far not gained much
purchase in the economics profession - Mussa, for instance, called it “a
hare-brained crackpot scheme”— he is not alone in his thinking.
Versions of the same call have been taken up by several prominent
economists across the political spectrum, including Olivier Blanchard,
the chief economist at the International Monetary Fund; Joshua Aizenman,
co-editor of the Journal of International Money and Finance; Harvard’s
Greg Mankiw, a former adviser to George W. Bush; and Paul Krugman, the
Nobel Prize-winning New York Times columnist.THOSE
WHO disagree with Rogoff cite several key objections. One is that
inflation can be hard to stop once it starts: if the Fed turned on the
spigot, there’s no guarantee they’d be able to turn it off before
inflation got out of hand. Another objection is that if the Fed does
raise its inflation target, pumping more money into the system and
allowing the dollar to lose some of its value, lenders here and abroad
will lose faith in the currency and respond by raising interest rates,
which would ultimately make it harder for Americans to borrow money. A
third objection is practical: that even if the Fed tried to trigger
inflation, it simply might not be able to. The problem with the economy
right now, some critics say, is a lack of demand for workers and
products, and blowing air into the money supply would not change that.“This
idea that there’s some separate policy instrument called ‘creating
inflation,’ I think, is a little problematic,” said Lawrence Summers,
the former secretary of the Treasury and Harvard president who also
served as the director of President Obama’s National Economic Council.
Increasing demand should be the primary goal, with inflation a possible
byproduct, Summers said. “I don’t think the idea that you could simply
get more inflation by saying you want more inflation is a promising
one.”Rogoff is not swayed by these arguments. He emphasizes that
the level of inflation he is calling for is very modest—and that
there’s no really no reason to think that the Fed would be incapable of
inducing it or reining it in at will. As for damaging the central bank’s
credibility, Rogoff reiterates the extraordinary nature of the present
circumstances. “This is a very exceptional situation—a once in
Halley’s Comet kind of phenomenon,” he said. As he wrote in his column
earlier this month, “These are times when central banks need to spend
some of the credibility that they accumulate in normal times.”Trying
to persuade central bankers to go for that plan involves a different
kind of problem: a political one. Inflation devalues the dollar and
makes things more expensive, making it an easy political target. Earlier
this month, as Wall Street and Washington waited to hear how the Fed
would approach monetary policy going forward, Texas Governor Rick Perry
more or less threatened Fed chairman Ben Bernanke with violence if he
“prints more money” before the next election. What he was talking about
wasn’t even inflation, but a policy called “quantitative easing,” in
which the Federal Reserve injects new money into the economy by buying
billions of dollars worth of Treasury bonds from banks. The Fed has
already tried this twice since 2008, and each time it has been
controversial. While Rogoff’s plan to raise the inflation rate target is
conceptually different from quantitative easing, it would involve the
same mechanism, and would push the same political buttons in an even
more extreme way.Underlying
that opposition is more than just patriotism: it’s also a moral
objection. Transferring the debt burden from borrowers to creditors,
after all, effectively bails out borrowers by punishing the banks that
lent them money, as well as devaluing the savings of their more prudent
neighbors. That kind of rescue plan strikes many as fundamentally
unfair.Rogoff understands this objection, and doesn’t dispute
that what he’s proposing is on some level unfair. But ultimately, he
argues, this contraction is dragging us all down together, and even
those lenders and savers will be better off if America’s debt overhang
is taken care of swiftly. Once that happens, and the economy starts to
recover properly, we’ll be able to focus on designing better policies
that will make us less vulnerable to financial crisis in the future. For
now, a little inflation might just be the cost of getting us to where
that might be possible.“One way or another,” said Rogoff, “we’re going to be doing things we would not dream we would ever do before this is over.”
Keynesian economics—the go-to theory for those who like government at the controls of the economy—is in the forefront of the ongoing debate on fiscal-stimulus packages. For example, in true Keynesian spirit, Agriculture Secretary Tom Vilsack said recently that food stamps were an "economic stimulus" and that "every dollar of benefits generates $1.84 in the economy in terms of economic activity." Many observers may see how this idea—that one can magically get back more than one puts in—conflicts with what I will call "regular economics." What few know is that there is no meaningful theoretical or empirical support for the Keynesian position.The overall prediction from regular economics is that an expansion of transfers, such as food stamps, decreases employment and, hence, gross domestic product (GDP). In regular economics, the central ideas involve incentives as the drivers of economic activity. Additional transfers to people with earnings below designated levels motivate less work effort by reducing the reward from working.
In addition, the financing of a transfer program requires more taxes—today or in the future in the case of deficit financing. These added levies likely further reduce work effort—in this instance by taxpayers expected to finance the transfer—and also lower investment because the return after taxes is diminished.
This result does not mean that food stamps and other transfers are necessarily bad ideas in the world of regular economics. But there is an acknowledged trade-off: Greater provision of social insurance and redistribution of income reduces the overall GDP pie.
Yet Keynesian economics argues that incentives and other forces in regular economics are overwhelmed, at least in recessions, by effects involving "aggregate demand." Recipients of food stamps use their transfers to consume more. Compared to this urge, the negative effects on consumption and investment by taxpayers are viewed as weaker in magnitude, particularly when the transfers are deficit-financed.
Thus, the aggregate demand for goods rises, and businesses respond by selling more goods and then by raising production and employment. The additional wage and profit income leads to further expansions of demand and, hence, to more production and employment. As per Mr. Vilsack, the administration believes that the cumulative effect is a multiplier around two.
If valid, this result would be truly miraculous. The recipients of food stamps get, say, $1 billion but they are not the only ones who benefit. Another $1 billion appears that can make the rest of society better off. Unlike the trade-off in regular economics, that extra $1 billion is the ultimate free lunch.
How can it be right? Where was the market failure that allowed the government to improve things just by borrowing money and giving it to people? Keynes, in his "General Theory" (1936), was not so good at explaining why this worked, and subsequent generations of Keynesian economists (including my own youthful efforts) have not been more successful.
Theorizing aside, Keynesian policy conclusions, such as the wisdom of additional stimulus geared to money transfers, should come down to empirical evidence. And there is zero evidence that deficit-financed transfers raise GDP and employment—not to mention evidence for a multiplier of two.
Gathering evidence is challenging. In the data, transfers are higher than normal during recessions but mainly because of the automatic increases in welfare programs, such as food stamps and unemployment benefits. To figure out the economic effects of transfers one needs "experiments" in which the government changes transfers in an unusual way—while other factors stay the same—but these events are rare.
Ironically, the administration created one informative data point by dramatically raising unemployment insurance eligibility to 99 weeks in 2009—a much bigger expansion than in previous recessions. Interestingly, the fraction of the unemployed who are long term (more than 26 weeks) has jumped since 2009—to over 44% today, whereas the previous peak had been only 26% during the 1982-83 recession. This pattern suggests that the dramatically longer unemployment-insurance eligibility period adversely affected the labor market. All we need now to get reliable estimates are a hundred more of these experiments.
The administration found the evidence it wanted—multipliers around two—by consulting some large-scale macro-econometric models, which substitute assumptions for identification. These models were undoubtedly the source of Mr. Vilsack's claim that a dollar more of food stamps led to an extra $1.84 of GDP. This multiplier is nonsense, but one has to admire the precision in the number.
There are two ways to view Keynesian stimulus through transfer programs. It's either a divine miracle—where one gets back more than one puts in—or else it's the macroeconomic equivalent of bloodletting. Obviously, I lean toward the latter position, but I am still hoping for more empirical evidence.
In Somalia today, there are ominous parallels with 1992: pervasive
fighting among rival clans, far too little rain, and an inability among
international peacekeeping forces to restore order or ensure that food
aid reaches those in need. Nineteen years ago, the result was the death
by starvation of 300,000 Somalis. Will it happen again?It doesn't have to. But everything depends on how the world responds.In
some ways, the current situation is more complicated. One reason lies
outside of Somalia altogether: the painful set of memories associated
with our attempts to help in 1992, particularly in the United States.
Then, the U.S. response was a forceful military intervention. President
George H.W. Bush dispatched 25,000 American troops to Somalia, allowing
food deliveries to resume, and preventing as many as 200,000 additional
deaths. But in October 1993, famously,
two Black Hawk helicopters were shot down in Mogadishu, 18 U.S.
soldiers died, and the body of one dead American was dragged
triumphantly through the streets. Public outrage forced President
Clinton to terminate the mission. As a consequence, it's unlikely that
U.S. policy makers will come close to taking similarly dramatic steps
today.Meanwhile, two factors on the ground in Somalia itself
threaten to make the current crisis more dangerous than the previous
one. First, the drought is much worse this time -- perhaps the worst of
its kind in 60 years. Second, there is now an Islamist militant
controlling the southern region of Somalia, where the drought has been
most severe. The 2 million people living in this region cannot get food
aid, because Al-Shabab's leadership, which brags about its close ties to
Al-Qaeda, distrusts food-aid workers as spies. The propaganda they
project among those living under their control is that it is better to
starve than to accept help from the West.Under these seemingly
intractable circumstances, what can those outside Somalia do to prevent
mass deaths on the scale of the 1990s? Setting up relief camps in
neighboring countries and waiting for starving Somalis to walk across
the border is not a good option, because many do not survive the trip,
and those that do become helpless refugees. Camps along Somalia's
borders with Kenya and Ethiopia already hold 500,000 destitute people.
Paying large bribes to Al-Shabab fighters could get some food through on
the ground, but it is obviously not a sustainable solution, among the
reasons being that the government agencies financing the aid will not
ultimately tolerate it. Dropping food from UN airplanes will help, but
not nearly on the scale needed to make a significant difference.The
best policy option that the international community has available to it
in Somalia is to support as much as possible the feeding operations now
underway in the sizeable territories not controlled by Al-Shabab. The
United Nations World Food Programme (WFP) is currently feeding 1.5
million people in Somalia, including 300,000 in Mogadishu itself, but
these operations are constantly in danger of running out of resources.
For the Horn of Africa as a whole, WFP is facing a funding shortfall of
$252 million, so those wishing to help can start by focusing on ways to
make up this shortfall.The international community can also do
things beyond Somalia, and indeed beyond the exigencies of emergency
food aid. Rich nations, including the United States, can start by
delivering the support they have promised to build Africa's own
food-production capabilities. Small farmers throughout sub-Saharan
Africa need help to boost their productivity. If you visit a typical
farming community in Uganda, or Kenya, or Cameroon, or Benin, most of
those you meet will be women, most will be illiterate, and most will be
living at least a 30-minute walk from the nearest paved road. As well,
most will be farming with hand hoes, no irrigation, no electrical power,
no modern seeds, and no veterinary medicine for their animals. These
women are hardworking and highly resourceful, yet the returns on their
labor are minimal because they have so little to work with. Their cereal
crop yields are only one-tenth as high as those in Europe or North
America, their average income is only $1 a day, and one-in-three of them
is undernourished.What these farming communities need, above
all else, is increased public investment in rural roads, electrical
power, irrigation, clinics, schools, and agricultural research. But in
recent decades, most African governments failed to make these
investments because of a lack of international support. Between 1978 and
2006, the share of World Bank loans that went to agricultural
development fell from 30 percent to only 8 percent.The United
States has also reduced its aid to small farmers since the 1980s. U.S.
official development assistance to agriculture in Africa fell from $400
million annually in the 1980s to only $60 million by 2006. The political
right promoted this abandonment of agricultural-development assistance
on the erroneous assumption that private investment alone could do the
job. The political left went along on the equally erroneous belief that
modernizing African farming might be bad for social justice and the
environment.As international donors walked away from long-term
agricultural-development efforts in Africa, per capita food production
fell, leading predictably to an even greater need for emergency food
aid. By 2006, perversely, the United States was spending 20 times as
much shipping free food to Africa as it was spending to help Africans
produce their own food.A shock of much higher world food prices
in 2008 finally led donors to promise revived support for Africa's
smallholder farmers. President Obama announced in 2009 that he would ask
Congress for a doubling of U.S. agricultural-development assistance
worldwide, up to more than $1 billion by 2010. Later that year, at a
summit meeting of the G8, he convinced the world's rich nations to
pledge $22 billion collectively over three years to promote food
security and agricultural development. By 2010, however, donors in
Europe were facing a debt crisis, opted for budget austerity, and began
backing away from these promises.In the United States, the right
- and the Tea Party movement, in particular -- began demanding budget
cuts as well. In fiscal year 2011, Congress accordingly cut the expected
U.S. contribution to a new Global Agricultural Food Security Program
from $400 million down to only $100 million. And now a House
Appropriations subcommittee has just cut FY 2012 funding for the Obama
Administration's Feed the Future program by 18 percent. Only about half
of 1 percent of our federal budget goes to poverty-focused foreign aid,
so cutting these programs will have no significant budget impact at home
-- only damaging humanitarian effects abroad.In Somalia, if
these effects are to be prevented from cascading into a full-scale
disaster of the kind the country suffered through in the 1990s, the
international community will have to focus as much effort as possible,
as quickly as possible, where we can be most effective. This will mean
covering shortfalls to protect current WFP feeding operations in the
Horn of Africa. But also, especially from the United States, it will
mean delivering on promised support for farming across Africa (which in
turn will depend on Congressional appropriations committees feeling as
much pressure as the U.S. public can muster that they deliver on this
promised support). Around the Horn of Africa today, roughly 11 million
people face food risks, while on the continent as a whole there are now
an estimated 390 million Africans consuming less than the nutritional
target of 2,100 calories per day. Most of these hungry people are
farmers. Understanding what they need for a sustainable response to the
food crisis they face, and responding to that need directly, will be the
pivotal challenge in alleviating African famine.
Despite all the recent talk of “grand bargains,” little attention has been paid to the unraveling of a truly grand bargain that has been at the center of public policy in the United States for more than a century.
That bargain—which emerged in stages between the 1890s and 1930s—established an institutional framework to balance the needs of the American people with the vast inequalities of wealth and power wrought by the triumph of industrial capitalism. It originated in the widespread apprehension that the rapidly growing power of robber barons, national corporations and banks (like J.P. Morgan’s) was undermining fundamental American values and threatening democracy.
Such apprehensions were famously expressed in novelist Frank Norris’s characterization of the nation’s largest corporations—the railroads—as an “octopus” strangling farmers and small businesses. With a Christian rhetorical flourish, William Jennings Bryan denounced bankers’ insistence on a deflationary gold standard as an attempt to “crucify mankind upon a cross of gold.” A more programmatic, and radical, stance was taken by American Federation of Labor convention delegates who in 1894 advocated nationalizing all major industries and financial corporations. Hundreds of socialists were elected to office between 1880 and 1920.
Indeed, a century ago many, if not most, Americans were convinced that capitalism had to be replaced with some form of “cooperative commonwealth”—or that large corporate enterprises should be broken up or strictly regulated to ensure competition, limit the concentration of power and prevent private interests from overwhelming the public good. In the presidential election of 1912, 75 percent of the vote went to candidates who called themselves “progressive” or “socialist.”
Such views, of course, were vehemently, sometimes violently, opposed by more conservative political forces. But the political pressure from anti-capitalists, anti-monopolists, populists, progressives, working-class activists and socialists led, over time, to a truly grand bargain.The terms were straightforward if not systematically articulated. Capitalism would endure, as would almost all large corporations. Huge railroads, banks and other enterprises—with a few exceptions—would cease to be threatened with nationalization or breakup. Moreover, the state would service and promote private business.
In exchange, the federal government adopted a series of far-reaching reforms to shield and empower citizens, safeguarding society’s democratic character. First came the regulation of business and banking to protect consumers, limit the power of individual corporations and prevent anti-competitive practices. The principle underlying measures such as the Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906) and the Glass-Steagall Act (1933)—which insured bank deposits and separated investment from commercial banking—was that government was responsible for protecting society against the shortcomings of a market economy. The profit motive could not always be counted on to serve the public’s welfare.
The second prong of reform was guaranteeing workers’ right to form unions and engage in collective bargaining. The core premise of the 1914 Clayton Act and the National Labor Relations Act of 1935—born of decades of experience—was that individual workers lacked the power to protect their interests when dealing with large employers. For the most poorly paid, the federal government mandated a minimum wage and maximum hours.
The third ingredient was social insurance. Unemployment insurance (1935), Social Security (1935), and, later, Medicaid and Medicare (1965) were grounded in the recognition that citizens could not always be self-sufficient and that it was the role of government to aid those unable to fend for themselves. The unemployment-insurance program left unrestrained employers’ ability to lay off workers but recognized that those who were jobless through no fault of their own (a common occurrence in a market economy) ought to receive public support.
These measures shaped the contours of U.S. political and economic life between 1940 and 2000: They amounted to a social contract that, however imperfect, preserved the dynamism of capitalism while guarding citizens against the power imbalances and uncertainties that a competitive economy produces. Yet that bargain—with its vision of balance between private interests and public welfare, workers and employers, the wealthy and the poor—has been under attack by conservatives for decades. And the attacks have been escalating.
The regulation of business is decried now, as it was in 1880, as unwarranted interference in the workings of the market: Regulatory laws (including antitrust laws) are weakly enforced or vitiated through administrative rule-making; regulatory agencies are starved through budget cuts; Glass-Steagall was repealed, with consequences that are all too well known; and the financial institutions that spawned today’s economic crisis - by acting in the reckless manner predicted by early twentieth-century reformers—are fighting further regulation tooth and nail. Private-sector employers’ fierce attacks on unions since the 1970s contributed significantly to the sharp decline in the number of unionized workers, and many state governments are seeking to delegitimize and weaken public-sector unions. Meanwhile, the social safety net has frayed: Unemployment benefits are meager in many states and are not being extended to match the length of the downturn; Republicans are taking aim at Medicaid, Medicare, Social Security and Obamacare. The real value of the minimum wage is lower than it was in the 1970s.
These changes have happened piecemeal. But viewed collectively, it’s difficult not to see a determined campaign to dismantle a broad societal bargain that served much of the nation well for decades. To a historian, the agenda of today’s conservatives looks like a bizarre effort to return to the Gilded Age, an era with little regulation of business, no social insurance and no legal protections for workers. This agenda, moreover, calls for the destruction or weakening of institutions without acknowledging (or perhaps understanding) why they came into being.
In a democracy, of course, the ultimate check on such campaigns is the electoral system. Titans of industry may wield far more power in the economic arena than average citizens, but if all votes count equally, the citizenry can protect its core interests—and policies—through the political arena. This makes all the more worrisome recent conservative efforts to alter electoral practices and institutions. Republicans across the nation have sponsored ID requirements for voting that are far more likely to disenfranchise legitimate (and relatively unprivileged) voters than they are to prevent fraud. Last year, the Supreme Court, reversing a century of precedent, ruled that corporate funds can be used in support of political campaigns. Some Tea Partyers even want to do away with the direct election of senators, adopted in 1913. These proposals, too, seem to have roots in the Gilded Age—a period when many of the nation’s more prosperous citizens publicly proclaimed their loss of faith in universal suffrage and democracy.
Given how much sway the Tea Party has among Republicans in Congress and
those seeking the Republican presidential nomination, one might think
the Tea Party is redefining mainstream American politics.
But in fact the Tea Party is increasingly swimming against the tide of
public opinion: among most Americans, even before the furor over the
debt limit, its brand was becoming toxic. To embrace the Tea Party
carries great political risk for Republicans, but perhaps not for the
reason you might think.
Polls show that disapproval of the Tea Party is climbing. In April 2010,
a New York Times/CBS News survey found that 18 percent of Americans had
an unfavorable opinion of it, 21 percent had a favorable opinion and 46
percent had not heard enough. Now, 14 months later, Tea Party supporters have slipped to 20 percent, while their opponents have more than doubled, to 40 percent.
Of course, politicians of all stripes are not faring well among the
public these days. But in data we have recently collected, the Tea Party
ranks lower than any of the 23 other groups we asked about—lower than
both Republicans and Democrats. It is even less popular than much
maligned groups like “atheists” and “Muslims.” Interestingly, one group
that approaches it in unpopularity is the Christian Right.
The strange thing is that over the last five years, Americans have moved
in an economically conservative direction: they are more likely to
favor smaller government, to oppose redistribution of income and to
favor private charities over government to aid the poor. While none of
these opinions are held by a majority of Americans, the trends would
seem to favor the Tea Party. So why are its negatives so high? To find
out, we need to examine what kinds of people actually support it.
Beginning in 2006 we interviewed a representative sample of 3,000
Americans as part of our continuing research into national political
attitudes, and we returned to interview many of the same people again
this summer. As a result, we can look at what people told us, long
before there was a Tea Party, to predict who would become a Tea Party
supporter five years later. We can also account for multiple influences
simultaneously—isolating the impact of one factor while holding others
Our analysis casts doubt on the Tea Party’s “origin story.” Early on,
Tea Partiers were often described as nonpartisan political neophytes.
Actually, the Tea Party’s supporters today were highly partisan
Republicans long before the Tea Party was born, and were more likely
than others to have contacted government officials. In fact, past
Republican affiliation is the single strongest predictor of Tea Party
What’s more, contrary to some accounts, the Tea Party is not a creature
of the Great Recession. Many Americans have suffered in the last four
years, but they are no more likely than anyone else to support the Tea
Party. And while the public image of the Tea Party focuses on a desire
to shrink government, concern over big government is hardly the only or
even the most important predictor of Tea Party support among voters.
So what do Tea Partiers have in common? They are overwhelmingly white,
but even compared to other white Republicans, they had a low regard for
immigrants and blacks long before Barack Obama was president, and they
More important, they were disproportionately social conservatives in
2006—opposing abortion, for example—and still are today. Next to
being a Republican, the strongest predictor of being a Tea Party
supporter today was a desire, back in 2006, to see religion play a
prominent role in politics. And Tea Partiers continue to hold these
views: they seek “deeply religious” elected officials, approve of
religious leaders’ engaging in politics and want religion brought into
political debates. The Tea Party’s generals may say their overriding
concern is a smaller government, but not their rank and file, who are
more concerned about putting God in government.
This inclination among the Tea Party faithful to mix religion and
politics explains their support for Representative Michele Bachmann of
Minnesota and Gov. Rick Perry of Texas. Their appeal to Tea Partiers
lies less in what they say about the budget or taxes, and more in their
overt use of religious language and imagery, including Mrs. Bachmann’s
lengthy prayers at campaign stops and Mr. Perry’s prayer rally in
Yet it is precisely this infusion of religion into politics that most
Americans increasingly oppose. While over the last five years Americans
have become slightly more conservative economically, they have swung
even further in opposition to mingling religion and politics. It thus
makes sense that the Tea Party ranks alongside the Christian Right in
On everything but the size of government, Tea Party supporters are
increasingly out of step with most Americans, even many Republicans.
Indeed, at the opposite end of the ideological spectrum, today’s Tea
Party parallels the anti-Vietnam War movement which rallied behind
George S. McGovern in 1972. The McGovernite activists brought energy,
but also stridency, to the Democratic Party—repelling moderate voters
and damaging the Democratic brand for a generation. By embracing the Tea
Party, Republicans risk repeating history.
On Sunday, I talked about about Wall Street's wild
week with two of the world's top economists. We discussed what the
market volatility means or doesn't mean, and what may lay behind it and
what lies ahead of us.Paul Krugman won the 2008 Nobel Prize in Economics, and he is a columnist for The New York Times. Kenneth Rogoff
is a former chief economist at the International Monetary Fund, now a
professor of economics at Harvard University. Here's a lightly edited
transcript of our conversation:Fareed Zakaria: Paul, let me start with you. The one
thing we saw over the week was markets up, markets down, but the one
trend that seemed persistent was there is a great demand for U.S.
treasuries despite the fact that the S&P downgraded it.You've been talking a lot about this. Explain in your view what does
it mean that in moments like this U.S. treasuries are still in demand
and what that does is push interest rates even lower than they are.Paul Krugman: Well, what it tells you is that the
investors, the market, are not at all afraid of what the policy elite or
people like Standard & Poor's are telling them they should be
afraid of.You know, we've got all of Washington, all of Brussels, all of
Frankfurt saying debt, deficits, this is the big problem. And what we
actually have in reality is markets are terrified of prolonged
stagnation, maybe another recession. They still see U.S. government debt
as the safest thing out there, and are saying, if this was a reaction
of the S&P downgrade, it was the market's saying, "We're afraid that
that downgrade is going to lead to even more contractionary policy,
more austerity, pushing us deeper into the hole."So it's a reality test, right? So we just had a wake-up call that
said, "Hey, you guys have been worrying about the entirely wrong things.
The really scary thing here is the prospect of what amounts toa
somewhat reduced version of the Great Depression in the Western world."Fareed Zakaria: Ken Rogoff, worrying about the wrong thing?Ken Rogoff: Well, I think the downgrade was well
justified. It's a very volatile world. And the reason there's still a
demand for treasuries is they've been downgraded a little bit to AA
plus. That looks pretty good compared to a lot of the other options
right now.It's a very, very difficult time for investors. There is a financial
panic going on at some level. Some of it's adjusting to a lower growth
expectations, maybe a third of what we're seeing. Two-thirds of it is
the idea no one's home – not in Europe, not in the United States.
There's no leadership. And I really think that's what's driving the
panic.Fareed Zakaria: But you wrote in an article of yours
that you think that this is part of actually a broader phenomenon which
is that people are realizing this is not a classic recession, this is
not a classic cyclical downturn. This is what you call a "Great Contraction". Explain what you mean by that.Ken Rogoff: Well, recessions we have periodically
since World War II, but we haven't really had a financial crisis as
we're having now. And Carmen Reinhart and I think of this as a great
contraction, the second one, the first being the Great Depression, where
it's not just unemployment, it's not just output, but it's also credit,
housing and a lot of other things which are contracting. These things
last much longer because of the debt overhang that we started with.
After a typical recession, you come galloping out. Six months after it
ended, you're back to where you started. Another six or 12 months,
you're back to trend.If you look at a contraction, one of these post-financial crisis
events, it can take up to four or five years just to get back to where
you started. So people are talking about a double dip, a second
recession. We never left the first one.Fareed Zakaria: So, Paul Krugman, what the
implication of what Ken Rogoff is saying is spending large amounts of
money on stimulus programs is not going to be the answer because, until
the debt overhang works its way off, you're not going to get back to
trend growth. So, in that circumstance, you'll be wasting the money. Is
that – is -Paul Krugman: No, that's not at all what it implies.
I think my analytical framework, the way I think about this, is not
very different from Ken's. At least I certainly believed from day one of
this slump that it was going to be something very different from one of
your standard V-shaped, down and up recessions, that it was going to
last a long time.One of the things we can do, at least a partial answer, is in fact to
have institutions that are able to issue debt - namely the government -
do so and sustain spending and, among other things, by maintaining
employment, by maintaining income, you make it easier for the private
sector to work down that overhang of debt.Fareed Zakaria: Ken, are you in favor of a – a second or a significant additional stimulus in the way that I think Paul Krugman is?Ken Rogoff: No. I think that's where we part ways on
this. I think that creates a debt overhang in the terms of future taxes
that is not a magic bullet because it's not a typical recession. I do
think, if we used our credit to help facilitate one of these plans to
bring down the mortgage debt in this targeted way, and it could involve a
significant amount - that I would definitely consider. I mean, that's
how I would do it.Now, obviously, things go from bad to worse, then you start taking
out more and more things from the toolkit, but I would start with
targeting the mortgages, then higher inflation, try to do some
structural reforms and, of course, if things are still going badly, I'm
open to more ideas.Paul Krugman: I would say things have already gone
from bad to worse. I mean, this is a terrible, terrible situation out
there. You know, we talk about it, we look at GDP, whatever. We have
nine percent unemployment and, more to the point, we have long-term
unemployment at levels not seen since the Great Depression. Just an
incredibly large number of people trapped in basically permanent
unemployment.This is something that desperately needs addressing. And I would be
saying we should not be trying one tool after another from the toolkit a
little bit at a time. At this point, we really want to be throwing
everything we can get mobilized at it.I don't think fiscal stimulus is – is a magic bullet. I'm not sure
that inflation is a magic bullet in the sense that it's kind of hard to
get, unless you're doing a bunch of other things. So we should be trying
all of these things.How did the Great Depression end? It ended, actually, of course,
with World War II, which was a massive fiscal expansion, but also
involved a substantial amount of inflation, which eroded the debt. What
we need - hopefully we don't need a world war to get there - but we need
this kind of all-out effort which we're not going to get.Fareed Zakaria: You say World War II got us out of
the Depression. This was a massive stimulus, massive fiscal expansion.
But aren't we in a different world?We are, right now, the United States with a budget deficit 10 percent
of GDP, which is the second highest in the industrial world. In two our
debt-to-GDP ratio goes to 100 percent. That strikes me as a situation,
which presumably has some upper limit. You can't just keep spending
money and incur these larger and larger debt loads.Paul Krugman: I think those numbers are a bit high, about the debt levels a couple years out. It takes longer than that.But the main thing to say is, look, think about the costs versus
benefits right now. Basically, the U.S. government can borrow money and
repay in constant dollars less than it borrowed. Are we really saying
that there are no projects that the federal government can undertake
that have an even slightly positive rate of return? Especially when you
bear in mind that many of the workers and resources that you employ on
those projects would be otherwise be unemployed.The world wants to buy U.S. bonds. Let's supply some more, and let's
use those bonds to do something useful which might, among other things,
help to get us out of this terrible, terrible slump.Ken Rogoff: Well, I think you have to be careful
about assuming that these low interest rates are going to last
indefinitely. They were very low for subprime mortgage borrowers a few
years ago. Interest rates can turn like the weather.But I also question how much just untargeted stimulus would really
work. Infrastructure spending, if well spent, that's great. I'm all for
that. I'd borrow for that, assuming we're not paying Boston Big Dig kind
of prices for the infrastructure.Fareed Zakaria: But, even if you were, wouldn't John
Maynard Keynes say that if you could employ people to dig a ditch and
then fill it up again, that's fine. They're being productively employed,
they pay taxes, so maybe the Boston's Big Dig was just fine after all?Paul Krugman: Think about World War II, right? That
was actually negative for social product spending, and yet it brought us
out. I mean, partly because you want to put these things together, if
we say, "Look, we could use some inflation." Ken and I are both saying
that, which is of course anathema to a lot of people in Washington, but
is in fact what the basic logic says.It's very hard to get inflation in a depressed economy. But if you
have a program of government spending plus an expansionary policy by the
Fed, you could get that. So if you think about using all of these
things together, you could accomplish a great deal.If we discovered that space aliens were planning to attack and we
needed a massive buildup to counter the space alien threat - and really
inflation and budget deficits took secondary place to that - this slump
would be over in 18 months. And then if we discovered, oops, we made a
mistake there aren't actually any space aliens.Ken Rogoff: So we need Orson Wells is what you're saying?Paul Krugman: There was a Twilight Zone
episode like this, which scientists fake an alien threat in order to
achieve world peace. Well, this time we need it in order to get some
fiscal stimulus.Fareed Zakaria: But Ken wouldn't agree with that, right? The space aliens wouldn't work -Ken Rogoff: I think it's not so clear that Keynes
was right. I mean, there have been decades and decades of debate about
whether digging ditches is such a good idea.And my read of the debate is when the government does really useful
things and spends the money in useful ways, it's a good idea. But when
it just dig ditches and fills them in, it's not productive and leaves
you with debt.I don't think that's such a no-brainer. There are people going around
saying, "Oh, Keynes was right. Everything Keynes said was right." I
think this is a different animal, with this debt overhang that you need
to think about from the standard Keynesian framework.Paul Krugman: I guess I just don't agree. I mean,
the debt overhang was an issue in the '30s, too - private sector debt
overhang. We came into this with higher public debt than I would have
liked, right? We're really, in some ways, paying the cost to the Bush
tax cuts and the Bush unfunded wars, which leave us with a higher
starting point of debt.But the thing that drives me crazy about this debate, if I can say,
is that we have these hypothetical risks. All those hypothetical things
are leaving us doing nothing about the actual thing that's happening,
which is mass unemployment, mass waste of human resources, mass waste of
physical resources.This is what's happening. We are hemorrhaging economic possibilities
and also destroying a lot of lives by letting this thing drift on. And
we're inventing these phantom threats (sometimes ghosts are real, I
guess) to keep us from acting.Fareed Zakaria: Do you think that the lesson from
history, Ken, in terms of these kind of great contractions - we have not
had something like this since the 1930s, but there have been other
examples - tells you that until you get these debt levels down, no
matter what the government does, it's not going to get you back to
robust growth?Ken Rogoff: I do, because what happens as you're
growing slowly, the debt problems start blowing up on you. That's
happening very dramatically in Europe. They had a philosophy and
approach of things are going to get much better - 'if we can just hang
on, we're going to grow really fast, the debt problems will go away.'Well, guess what? They're not growing fast enough. The debt problems
are imploding. That's slowing growth, and it's a self- feeding cycle.Paul Krugman: I guess I'm a little puzzled here
because, again, the thing that's holding us back right now in the United
States - although there are those peripheral European countries that
are having a very different kind of problem, partly because they don't
have their own currencies - but, in the United States, what's holding us
back is private sector debt. And, yes, we're not going to have a self
sustaining recovery unless that private sector debt could be brought
down.Fareed Zakaria: Just to be clear, Paul, what you mean by that is individuals have a lot of debt on their balance sheets?Paul Krugman: Yes, that's what's holding us back,
and we do need to bring that down - at least bring it down relative to
incomes. So what you need to do is you need to have policies to make
incomes grow.That can include government spending, which is going to add to public
debt, but it's going to reduce the burden of private debt. It can
include inflationary policies, and it can include deliberate
forgiveness.The idea that this has all faded, that we cannot do anything to grow
because we have to wait for some natural process to bring that debt
down, that doesn't follow from the analysis. There is a huge overhang of
debt, which is, at least as I see it, exactly the reason why we need
very activist government policies.
The way to restoring America's AAA credit-rating starts with President Obama moving beyond
blaming the economy on the admittedly inept George W. Bush.
Standard & Poor's recent downgrade of the U.S. government shows how far the world has moved into a crisis of governments.
The official reactions to the S&P action have not been promising. The Obama administration attacked S&P's competence, and the U.S. Congress has threatened hearings, apparently aimed at bullying S&P and the other agencies from further downgrades.
The main substantive criticism was that S&P made a $2 trillion mistake in its baseline projection of 10-year deficits. Of course, these projections came from the Congressional Budget Office, which lost its credibility in these matters when it scored President Obama's health care reform plan as reducing 10-year deficits - mostly because of the inclusion of phantom reductions in Medicare payments to doctors.
In truth, S&P's downgrade stemmed mainly from its legitimate concern that the U.S. government has no coherent medium- or long-term plan to eliminate budget deficits and stabilize the path of public debt. This judgment is accurate and courageous and goes some distance in offsetting the hit to S&P's reputation that came from the AAA ratings that it gave not so long ago to mounds of mortgage-backed securities built on subprime garbage.
Unfortunately, Obama's main response to S&P's downgrade and the economic crisis more generally has been to continue blaming almost everything on his admittedly inept predecessor, George W. Bush, and on the Republican Congress.
Another familiar theme is the unwillingness of the evil rich to pay more taxes. (I have one modest proposal that could save the President valuable time in this regard. Rather than continuing to repeat the long phrase "millionaires and billionaires," I suggest a merger: "mibillionaires." I know it looks funny and is hard to say on a first try, but after three or four repetitions it becomes strikingly mellifluous.)
The way forward to restoring our AAA rating begins with Obama taking seriously the surprisingly sound report by his recent bipartisan debt and deficit commission. Building on those recommendations, I have constructed a fiscal plan:• Make structural reforms to the main entitlement programs starting with increases in ages of eligibility and a shift to an economically appropriate indexing formula.
• Eliminate the unwise increases of federal spending by Bush and Obama, including added outlays for education, farm and ethanol subsidies, and expansions of Medicare and Medicaid.
• Lower the structure of marginal tax rates in the individual income tax.
• Pay for the rate cuts by gradually phasing out the main tax-expenditure items, including preferences for home-mortgage interest, state and local income taxes, and employee fringe benefits.
• Permanently eliminate federal corporate and estate taxes, levies that are inefficient and raise comparatively little money.
• Introduce a broad-based expenditure tax, such as a value-added tax (VAT). Depending on the structure of exemptions, a rate of 10% should raise about 5% of GDP in revenue.
The VAT system is present in most developed countries and can be highly efficient because it has a flat rate, falls on consumption and has built-in mechanisms for ensuring compliance. However, a VAT is also a magnet for criticism by conservatives - who worry about the promotion of a larger government.
I share this concern and would defend a VAT only if it can be firmly linked to the other parts of the reform package. But more fundamentally, given the projected path of entitlement spending, I see no reasonable alternative.
It is hard to imagine President Obama becoming the leader of this kind of broad fiscal initiative. Though he has endorsed some pieces of some of these components, the embrace has been halting. He is hedging, not leading.
Thus, as S&P observed, uncertainty about our fiscal path will likely not be resolved at least until the outcomes of next year's crucial elections.
The one person with the power to eliminate part of this uncertainty is the President, who could nobly decide not to stand for reelection, thereby following in the footsteps of Lyndon Johnson and Calvin Coolidge. Johnson was forced out by a different type of crisis, Vietnam, and he hung on too long, delaying his announcement until he saw his poor performance in the New Hampshire primary and in subsequent electoral polls. Coolidge is a more dignified model, as he opted out in 1927 while things were going fine. In fact, Obama could borrow Coolidge's memorable phrase, "I do not choose to run."
The desire for dignity is universal and powerful. It is a motivating force behind all human interaction—in families, in communities, in the business world, and in relationships at the international level. When dignity is violated, the response is likely to involve aggression, even violence, hatred, and vengeance. On the other hand, when people treat one another with dignity, they become more connected and are able to create more meaningful relationships. Surprisingly, most people have little understanding of dignity, observes Donna Hicks in this important book. She examines the reasons for this gap and offers a new set of strategies for becoming aware of dignity's vital role in our lives and learning to put dignity into practice in everyday life.Drawing on her extensive experience in international conflict resolution and on insights from evolutionary biology, psychology, and neuroscience, the author explains what the elements of dignity are, how to recognize dignity violations, how to respond when we are not treated with dignity, how dignity can restore a broken relationship, why leaders must understand the concept of dignity, and more. Hicks shows that by choosing dignity as a way of life, we open the way to greater peace within ourselves and to a safer and more humane world for all.
Two decades ago affairs between the United States and Cuba had seen little improvement from the Cold War era. Today, US-Cuban relations are in many respects still in poor shape, yet some cooperative elements have begun to take hold and offer promise for future developments. Illustrated by the ongoing migration agreement, professional military-to-military relations at the perimeter of the US base near Guantánamo, and professional Coast Guard-Guardafrontera cooperation across the Straits of Florida, the two governments are actively exploring whether and how to change the pattern of interactions.The differences that divide the two nations are real, not the result of misperception, and this volume does not aspire to solve all points of disagreement. Drawing on perspectives from within Cuba as well as those in the United States, Canada, and Europe, these authors set out to analyze contemporary policies, reflect on current circumstances, and consider possible alternatives for improved US-Cuban relations. The resulting collection is permeated with both disagreements and agreements from leading thinkers on the spectrum of issues the two countries face—matters of security, the role of Europe and Latin America, economic issues, migration, and cultural and scientific exchanges in relations between Cuba and the United States. Each topic is represented by perspectives from both Cuban and non-Cuban scholars, leading to a resource rich in insight and a model of transnational dialogue.
Rafael Hernandez is the editor of Revista Temas, Cuba's leading magazine in the social sciences. He has been professor and researcher at the University of Havana and the High Institute of International Relations; director of US studies at the Centro de Estudios sobre America; and a senior research fellow at the Instituto Cubano de Investigacion Cultural "Juan Marinello" in Havana.Loren Barberia is a program associate at the David Rockefeller Center for Latin American Studies at Harvard University.
They were abolitionists, speculators, slave owners, government officials, and occasional politicians. They were observers of the anxieties and dramas of empire. And they were from one family. The Inner Life of Empires tells the intimate history of the Johnstones—four sisters and seven brothers who lived in Scotland and around the globe in the fast-changing eighteenth century. Piecing together their voyages, marriages, debts, and lawsuits, and examining their ideas, sentiments, and values, renowned historian Emma Rothschild illuminates a tumultuous period that created the modern economy, the British Empire, and the philosophical Enlightenment.
One of the sisters joined a rebel army, was imprisoned in Edinburgh Castle, and escaped in disguise in 1746. Her younger brother was a close friend of Adam Smith and David Hume. Another brother was fluent in Persian and Bengali, and married to a celebrated poet. He was the owner of a slave known only as "Bell or Belinda," who journeyed from Calcutta to Virginia, was accused in Scotland of infanticide, and was the last person judged to be a slave by a court in the British isles. In Grenada, India, Jamaica, and Florida, the Johnstones embodied the connections between European, American, and Asian empires. Their family history offers insights into a time when distinctions between the public and private, home and overseas, and slavery and servitude were in constant flux.Based on multiple archives, documents, and letters, The Inner Life of Empires looks at one family's complex story to describe the origins of the modern political, economic, and intellectual world.
In 2009–2010, in conjunction with the Weatherhead Center for International
Affairs, the Harvard University Center for the Environment, and the
Initiative on Religion in International Affairs at the Harvard Kennedy
School, the Center for the Study of World Religions at the Harvard
Divinity School presented a series of programs to explore several
dimensions of an ecology of human flourishing—economic, sociological,
religious, ethical, environmental, historical, literary; how notions of
human flourishing, quality of life, and common good have been
constructed; and in the contemporary world, how they are illuminated or
are challenged by issues of distributive justice, poverty and economic
inequality, global health, and environmental sustainability.