After years when young Americans yearned only to be occupied on Wall Street, suddenly they have taken to occupying it. It’s easy to scoff at this phenomenon. I know, because I have.
This is certainly not America’s answer to the Arab Spring—the Bobo Fall perhaps, unmistakably both bohemian and bourgeois. But it’s still worth taking seriously. What is it that makes evidently educated young people yearn to adopt leftist positions that are eerily reminiscent of the ones their parents adopted in 1968?
Check out the protesters’ website, which on Monday featured a speech by Slovenian critical theorist Slavoj Žižek. At first I thought this must be some kind of parody, but no, he really exists—red T-shirt, Krugman beard, and all: “The only sense in which we are communists is that we care for the commons. The commons of nature. The commons of what is privatized by intellectual property. The commons of biogenetics. For this and only for this we should fight.”
Yeah, man. Property is theft. Ne travaillez jamais. And all that.
There are three possible explanations for this retrogression to the language of ’68. 1. Increasing inequality exemplified by Wall Street is worth protesting against.2. So is the fact that only a handful of bankers have been prosecuted for their part in the financial crisis.3. Demonstrating is way cool.
Yet if I were a young American today, occupying Wall St. would not be my objective. Just reflect for a minute on the unbridled economic mayhem that would ensue if the protesters actually succeeded. The headline “Goldman Sachs Under Control of Hip Teenage Revolutionaries” would be the last straw for an already fragile economic recovery.
Now ask yourself what the financial crisis really means for today's 15- to 24-year-olds. Not only has it raised the probability that they will be unemployed after graduation. More seriously, it has massively increased the debt that they will have to service when they do get jobs.
Never in the history of intergenerational transfers has one generation left such a mountain of IOUs to another as the baby boomers are leaving to their grandchildren.
When you do the math, there is only one logical political home for today’s teens and 20-somethings ... and that is the Tea Party. For who else is promising to slash Medicare and Social Security and keep the tax burden at its historical average?
Let’s just remind ourselves of the report of the Trustees of the Social Security and Medicare trust funds back in 2007, which projected a rise in the cost of these two programs from 7.3 percent of gross domestic product to 17.5 percent by 2030. The trustees warned that to achieve actuarial balance—in other words, solvency—for these two programs would require (for Social Security) an increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent. For Medicare we are talking a 122 percent increase in payroll taxes or a 51 percent cut in spending.
As Laurence Kotlikoff and Scott Burns pointed out in The Coming Generational Storm, by 2030 there will be twice as many retirees as there are today but only 18 percent more workers. Unless there is really radical reform of entitlement programs - especially Medicare - the next generation of American workers will be paying roughly double the taxes their parents and grandparents paid. This is what Kotlikoff and Burns mean by “fiscal child abuse.”
Of these harsh realities the occupiers of Wall Street seem blissfully unaware. Fixated on the idea that they somehow represent the 99 percent of people who scrape by on 80 percent of total income, they fail to see that the real distributional conflict of our time is not between percentiles, much less classes, but between generations. And no generation has a keener interest in slashing future spending on entitlements than today’s teens and 20-somethings.
So occupying Wall Street is not the answer to this generation’s problems. The answer is to occupy the Tea Party—and wrest it from the grumpy old men who currently run it.
Call it the Iced Tea Party.
This essay is not about Steve Jobs. It is about the countless individuals with roughly the same combination of talents of whom we’ve never heard and never will.
Most of the 106 billion people who’ve ever lived are dead—around 94 percent of them. And most of those dead people were Asian—probably more than 60 percent. And most of those dead Asians were dirt poor. Born into illiterate peasant families enslaved by subsistence agriculture under some or other form of hierarchical government, the Steves of the past never stood a chance.
Chances are, those other Steves didn’t make it into their 30s, never mind their mid-50s. An appalling number died in childhood, killed off by afflictions far easier to treat than pancreatic cancer. The ones who made it to adulthood didn’t have the option to drop out of college because they never went to college. Even the tiny number of Steves who had the good fortune to rise to the top of premodern societies wasted their entire lives doing calligraphy (which he briefly dabbled in at Reed College). Those who sought to innovate were more likely to be punished than rewarded.
Today, according to estimates by Credit Suisse, there is approximately $195 trillion of wealth in the world. Most of it was made quite recently, in the wake of those great political and economic revolutions of the late 18th century, which, for the first time in human history, put a real premium on innovation. And most of it is owned by Westerners—Europeans and inhabitants of the New World and Antipodes inhabited by their descendants. We may account for less than a fifth of humanity, but we Westerners still own two thirds of global wealth.
A nontrivial portion of that wealth ($6.7 billion) belonged to Steve Jobs and now belongs to his heirs. In that respect, Jobs personified the rising inequality that is one of the striking characteristics of his lifetime. Back in 1955 the top 1 percent of Americans earned 9 percent of income. Today the figure is above 14 percent.
Yet there is no crowd of young people rampaging through Palo Alto threatening to “Occupy Silicon Valley.” The huge amounts of money made by Jobs and his fellow pioneers of personal computing are not resented the way the vampire squids of Wall Street are. On the contrary, Jobs is revered. One eminent hedge-fund manager (who probably holds a healthy slice of Apple stock as well as the full array of iGadgets) recently likened him to Leonardo da Vinci.
So the question is not, how do we produce more Steves? The normal process of human reproduction will ensure a steady supply of what Malcolm Gladwell has called “outliers.” The question should be, how do we ensure that the next Steve Jobs fulfills his potential?
An adopted child, the biological son of a Syrian Muslim immigrant, a college dropout, a hippie who briefly converted to Buddhism and experimented with LSD—Jobs was the type of guy no sane human resources department would have hired. I doubt that Apple itself would hire someone with his résumé at age 20. The only chance he ever had to become a chief executive officer was by founding his own company.
And that—China, please note—is why capitalism needs to be embedded in a truly free society in order to flourish. In a free society a weirdo can do his own thing. In a free society he can even fail at his own thing, as Jobs undoubtedly did in his first stint in charge of Apple. And in a free society he can bounce back and revolutionize all our lives.
Somewhere in his father’s native Syria another Steve Jobs has just died. But this other Steve was gunned down by a tyrannical government. And what wonders his genius might have produced we shall never know.
Estimating the mechanisms that connect explanatory variables with the explained variable, also known as “mediation analysis,” is central to a variety of social-science fields, especially psychology, and increasingly to fields like epidemiology. Recent work on the statistical methodology behind mediation analysis points to limitations in earlier methods. We implement in Stata computational approaches based on recent developments in the statistical methodology of mediation analysis. In particular, we provide functions for the correct calculation of causal mediation effects using several different types of parametric models, as well as the calculation of sensitivity analyses for violations to the key.
Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this “informal taxation.” Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We discuss various explanations for and implications of these observed stylized facts.
During the past decade, a variety of intermediaries have emerged to facilitate the trading of patents: brokers, non-practicing entities (NPEs), defensive aggregators, online platforms, auctions and unique entities such as Intellectual Ventures. We discuss the fundamental causes for the lack of liquidity in the IP market and analyze the merits and shortcomings of the various business models used by patent intermediaries. A key conclusion is that platform-type intermediaries (who facilitate transactions without taking possession of assets) have struggled, whereas merchant-type intermediaries (who acquire patents and seek to monetize them directly) have reached significant scale and influence in the technology industries that fall under the incidence of their assets. We also discuss some efficiency issues raised by the growing prominence of patent merchants.
We study patterns of FDI in a multi-country world economy. First, we present evidence for a broad sample of countries that firms direct FDI disproportionately to markets with income levels similar to their home market. Then we develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for FDI, consistent with the patterns found in the data.
Co-author Gene Grossman is a professor of economics at Princeton University. Co-author Pablo Fajgelbaum is an assistant professor of economics at the University of California, LA.Working Paper 17550, National Bureau of Economic Research, October 2011. Download PDF
Novelists have a better track record than economists at foretelling the future. Consider then Gary Shteyngart’s timely comic novel Super Sad True Love Story (Random House, 2010), which provides a rather graphic vision of what lies in store for the world economy. The novel takes place in the near future and is set against the backdrop of a United States that lies in economic and political ruin. The country’s bankrupt economy is ruled with a firm hand by the IMF from its new Parthenon-shaped headquarters in Singapore. China and sovereign wealth funds have parceled America’s most desirable real estate among themselves. Poor people are designated as LNWI (“low net worth individuals”) and are being pushed into ghettoes. Even skilled Americans are desperate to acquire residency status in foreign lands. This is sheer fantasy of course, but one that seems to resonate well with the collective mood. A future in which the US and other advanced economies are forced to play second fiddle to the dynamic emerging economies in Asia and elsewhere is rapidly becoming cliché. This vision is based in part on the very rapid pace of economic growth that emerging and developing economies experienced in the run-up to the global financial crisis of 2008-2009. Latin America benefited from a pace of economic development that it had not experienced since the 1970s, and Africa began to close the gap with the advanced countries for the first time since countries in the continent received their independence. Even though most of these countries were hit badly by the crisis, their recovery has also been swift. Optimism on developing countries is matched by pessimism on the rich country front. The United States and Europe have emerged from the crisis with debilitating challenges. They need to address a crushing debt burden and its unpleasant implications for fiscal and monetary policy. They also need to replace growth models which were based in many instances on finance, real estate, and unsustainable levels of borrowing. Japan has long ceased to exhibit any growth dynamism. And the eurozone’s future remains highly uncertain—with the economic and political ramifications of its unraveling looking nothing less than scary. In such an environment, rapid growth in the developing world is the only thing that could propel the world economy forward and generate increasing demand for rich-country goods and services—the only silver lining in an otherwise dreary future. The question I address in this paper is whether this gap in performance between the developed and developing worlds can continue, and in particular, whether developing nations can sustain the rapid growth they have experienced of late. I will not have anything to say on the prospects for the advanced economies themselves, assuming, along with conventional wisdom, that their growth will remain sluggish at best. My focus is squarely on the developing and emerging countries and on the likelihood of continued convergence.
Does democratic governance expand wealth and prosperity? There is no consensus about this issue despite the fact that for more than half a century, rival theories about the regime-growth relationship have been repeatedly tested against the empirical evidence, using a variety of cases, models and techniques. To consider the issues, Part I of this paper reviews and summarizes theories why regimes are expected to influence economic growth directly, either positively or negatively. After considering these debates, Part II discusses the technical challenges facing research on this topic and how it is proposed to overcome these. Part III presents the results of the comparative analysis for the effects of democratic governance on economic growth during recent decades. The descriptive results illustrate the main relationships. The multivariate models check whether these patterns remain significant after controlling for many other factors associated with growth, including geography, economic conditions, social structural variables, cultural legacies, and global trends. The evidence supports the equilibrium thesis suggesting that regimes combining both liberal democracy and bureaucratic governance are most likely to generate growth, while by contrast patronage autocracies display the worst economic performance. The conclusion considers the implications.
We document the behavior of trade prices during the Great Trade Collapse of 2008–2009 using transaction-level data from the US Bureau of Labor Statistics. First, we find that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of non-differentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among non-durables, prices in both categories barely changed. Third, despite this lack of movement in average price levels, the frequency and magnitude of price adjustments at the product level noticeably changed with the onset of the crisis.
Co-author Oleg Itskhoki is a professor of economics at Princeton University. Co-author Brent Neiman is at the
Booth School of Business at the University of Chicago.Download PDF
Culture counts has long been a rallying cry among health advocates and policymakers concerned with racial disparities in health care. A generation ago, the women s health movement led to a host of changes that also benefitted racial minorities, including more culturally aware medical staff. Many health professionals would now agree that cultural competence is important in clinical settings, but in what ways? Shattering Culture provides an insightful view of medicine and psychiatry as they are practiced in today s culturally diverse clinical settings.Shattering Culture shows the human face of health care in America. Building on over a decade of research led by Mary-Jo Good, the book delves into the cultural backgrounds of patients and their health care providers, as well as the institutional cultures of clinical settings, to illuminate how these many cultures interact and shape the quality of patient care. Co-editor Sarah Willen explores the controversial practice of matching doctors and patients based on shared race, ethnicity, or language and finds a spectrum of arguments challenging its usefulness, including patients who fear being judged negatively by providers from their own culture. Seth Hannah introduces the concept of cultural environments of hyperdiversity describing complex cultural identities. Antonio Bullon demonstrates how regulations meant to standardize the caregiving process such as the use of templates and check boxes instead of narrative notes have steadily limited clinician flexibility, autonomy, and the time they can dedicate to caring for patients. Elizabeth Carpenter-Song looks at positive doctor-patient relationships in mental health care settings and finds that the greates successes in relationships are based on mutual recognition patients who can express their concerns and clinicians who validate them. In this book s final essay, Hannah, Good, and Lawrence Park show how navigating the maze of insurance regulations, financial arrangements, and paperwork compromises the effectiveness of mental health professionals seeking to provide quality care to minority and poor patients.
Few opportunities exist to enter the world of medical and mental health clinics and see how diversity on one hand and bureaucratic regulations on the other are influencing patient care. Shattering Culture provides a rare look at the day-to-day experiences of psychiatrists and other clinicians and offers multiple perspectives on what culture means to doctors, staff, and patients and how it shapes the practice of medicine and psychiatry.
Some of you knew Ted Forstmann much better than I did. Most of you knew him much longer. When Ted’s family and closest colleagues asked me to join Mayor Bloomberg and Charlie Rose in offering a eulogy to Ted, I must admit I was hesitant, not to mention humbled. What could be more presumptuous than for a British-born professor to try to do justice to one of the great American capitalists?
And then I remembered the side of Ted that I suspect relatively few of you saw. Teddy the philosopher. Teddy, my coauthor.
When I heard the news of Ted’s death—which we’d been dreading for weeks—my first thought was: he was the most American American I’ve ever known. Financier. Fun lover. Philanthropist. And a man who couldn’t abide cant—in both senses. Cant in the sense of insincere humbug. And can’t in the sense of “this can’t be done.”
And yet there was another side to Ted that was a little less classically all-American. He was, after all, a single parent. He was a man for whom the color line—for so long this country’s curse - was simply not visible.
He was also a matchmaker: a Cupid with a Gulfstream 5 instead of wings. He took a fatherly interest in my romance with Ayaan, whom he did so much to help after she was forced to leave the Netherlands, and who can’t be here for the very excellent reason that she’s about to give birth to our son. Ted was one of those people who didn’t advise her against me, and I’ll be grateful for that until the day I die.
What I really want to remember today, however, is Ted’s secret life as an intellectual. Ted was no ordinary master of the financial universe. He saw things differently. He was what the Germans call a Querdenker, which the English “lateral thinker” doesn’t quite translate.
From the moment we met, he and I talked about his fears for this country’s financial and political system. He had shared my foreboding about the excesses of the early 2000s. And he also shared my fear that when the crisis struck, people would leap to the wrong conclusions.
In a piece we wrote together for The Wall Street Journal back in April of last year, we made an argument that I believe still holds good: that in a mood of legitimate public anger at the consequences of the crisis, this country is drawing the wrong conclusions about its causes.
Unlike many people in the financial world, Ted Forstmann was not afraid to criticize Wall Street. (It was I who had to tone down his invective.) But what Ted dreaded was that the backlash that was bound to follow the crisis would lead to precisely the hypertrophic regulation we now see emerging over literally thousands of pages - as well as to demagogic calls for redistribution via higher tax rates and expanded federal programs.
Ted was convinced that any new regulation should focus strictly on excess leverage and the derivatives markets. Those, for him, were the root causes of the crisis.
With Ronald Reagan, he also passionately believed that enlarging the government was not the answer to the problem; often, it was the problem. That was why he wanted to see more disadvantaged kids going to private schools. His ideal was social mobility, not state-mandated equality. In this, as in so many ways, Ted was very wise.
A couple of years ago, two of my kids had the privilege of having lunch with Ted at one of his favorite restaurants, Harry Cipriani, just nine blocks from here. Last weekend I asked my younger son, who’s now 12, if he remembered the conversation. He did. Ted’s advice was this: “Don’t do the obvious thing. Don’t follow in anybody’s footsteps. Look around you and figure out what’s needed, what’s missing. Then do that.”
I hope my son heeds that advice. I hope his whole generation heeds it. I know, Everest and Siya, that you will.
I admit I was surprised by my own reaction to the news of his death. My first thought was: oh, no, now I won’t be able to ask Ted what he thinks anymore. What he thinks about the economy. What he thinks about politics. I won’t be able to get his take on the presidential candidates. And suddenly I felt really bereft.
That morning I had to write a column for Newsweek. I couldn’t help myself: I just sat down and addressed it directly to him. What’s your take, Ted? As I was writing it—and boy, did the words flow—I realized just how much I am going to miss his wisdom. Because I could never predict what Ted’s take would be. To a pedestrian, risk-averse academic like me, the way he thought about the world was full of surprises—and always illuminating ones.
Ted, you were in many ways the most American of Americans. You were the quintessential doer. But you were also a thinker. And we really do miss the unique way you thought.
Wisdom is in short supply these days. You took so much with you when you left us.
In the past 48 hours, Greek Prime Minister George Papandreou has succeeded in one thing: Stirring up the anger of nearly everyone around him. The European Union, his own party PASOK, the opposition party New Democracy and the Greek electorate are all pitted against Papandreou. The Greeks have a word for this special brand of rage—they call it “thymos.” This refers to the simmering resentment that arises when one's views are not recognized.
It’s little wonder Papandreou has had to back down from his initial call for a national referendum on the 50% haircut deal decided by the European Union heads of state on October 27.
First off, he failed to get the opposition to agree to the referendum. They called it blackmail, denounced Papandreou as an opportunist and asked for a grand coalition government or immediate elections. Main opposition leader Antonis Samaras’ consensus on Thursday was short-lived and with many conditions.
Meanwhile, the European leaders—French President Nicolas Sarkozy and German Chancellor Angela Merkel—called Papandreou’s bluff. 'Go ahead and make our day,' they told him. “Imagine what would happen if we called a referendum on the bailout in our countries?' The International Monetary Fund, for its part, threatened to freeze all of its loans to Greece.
Finally, for Papandreou’s party PASOK the situation is even more dire. Instead of shoring up support from his own party members, the referendum only emboldened cries for his resignation—including from his own Ministers and PASOK Parliamentarians.
Papandreou has recalled his decision for a referendum because he failed in all fronts and it’s become clear that he can no longer be part of the solution.
There are three possible ways the crisis will play out. First, Papandreou could refuse to resign and possibly win the no-confidence vote Friday. This is unlikely since his overall support has reached its all-time low. The second, more likely scenario is that Papandreou loses the vote tomorrow and the President of the Hellenic Republic, Karolos Papoulias, turns to the other political party leaders to determine if the existing Parliament could form a government. The final scenario, if these efforts fail to build a government, would be new elections, as called for by the Greek Constitution. But it is most likely that a one-party government will not emerge from these elections.
The only way out of these three scenarios is to form a Grand Coalition government. What is a Grand Coalition government? In multi-party parliamentary systems, sometimes one-party governments cannot form. In such instances, coalition governments are often formed including more than one party in order to secure a Parliamentary majority, manage to form a government and pass legislation.
Greece’s history with such governments in the late 1980s does not exactly inspire faith, and the global stakes were smaller then. A grand coalition would entail the cooperation of all the political parties that are in favor of a European future for Greece. They would be ready to support the austerity measures needed to balance the Greek budget and overcome the solvency problem, but most importantly they would be the the parties that can agree on the composition of such a government. This last feature of a Grand Coalition is particularly valuable at a time when consensus-building in the Greek parliament has become nearly impossible.
What remains left out of this discussion is the Greek people. They voted two years ago for a party running on an anti-austerity platform and this is not what they received. Perhaps the current political system is afraid to hear their message. "Thymos" may not be the best state of mind to make choices.
Regardless, the Greek political leadership's ownership of the austerity program and responsible governance are necessary steps toward resolving Greece's legitimacy crisis, which would then allow them to confront the Greek people with the responsibility they must take in order to end the financial crisis.
Co-author Thomas Meaney is a doctoral candidate in history at Columbia University and an editor of The Utopian.
This column is for Ted Forstmann: financier, fun lover, and philanthropist, who died on Nov. 20. But it’s not just for him. It’s to him.
Ted, I’m worried. I wish you were still around to help me get this right. The US is going nuts with populism. That’s always to be expected after a big financial crisis, I know. But this is dysfunctional.
On one side, there are conservative fundamentalists—the Tea Party—who think we can turn the clock back to before the New Deal, if not further. Some of them want to get rid not just of the Federal Reserve but of most of the federal government itself. I have more sympathy with these Teapopulists than with the other lot, the motley crew who want to Occupy Wall Street (call them the Occupopulists). But when it comes to practical politics, this Tea Party has more in common with the Mad Hatter’s than Boston’s.
To begin with, they’ve created a mood in the Republican Party that makes any kind of compromise on our fiscal crisis impossible. We just saw the ignominious failure of the supercommittee, which was supposed to come up with a plan to reduce the deficit. Predictably, each party blames the other side for this flop. Either way, the consequences are dire. First, the markets are spooked, just the way they were by the partisan dogfight over the debt ceiling earlier this year. Second, the country is now on course for more drastic spending cuts in 2013, which could not only slash our defense budget in an irresponsible way but also plunge the economy back into recession.
There’s another problem. Just like the populists of a century ago, the Teapopulists are drawn compulsively to disastrous presidential wannabes. I never asked you what you thought of Mitt Romney, Ted. But I am sure you’d prefer him over the other contenders. Bachmann, Perry, Cain, Gingrich—the one thing these people have in common is that they would lose to Barack Obama next year even if the unemployment rate were twice what it is now. Their appeal to the crucial center—to the independents and the undecided—is just too low.
What’s the case against Romney? That he’s a Mormon? Ted, you were a devout Catholic, just as I am a doubting atheist. But this is America. Religion and government are separate. And we tolerate all faiths, no matter how idiosyncratic, provided they tolerate ours too. That he’s changed his mind on hot-button issues? Well, so does any intelligent person. You often did. What is this, a dogmatism contest?
After reading about the Greek debt crisis for over a year now, you might think you understand what it’s all about. You’re probably wrong. International media focus on how the Greek government and people spend their money. But an equally important problem is the inability of the Greek state to collect revenues.The story constantly aired by various news outlets is simple enough. Greece, we are told, free-rode on the security offered by the rest of Europe to attract money from foreign investors, and then spent it lavishly on its bloated public sector. In case you don’t get it, BBC’s website has a recurring instructional slide show titled “What went wrong in Greece?” Apparently, Greece’s adoption of the euro “made it easier for the country to borrow money.... Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics.”This brief media lesson on Greek economics has proven very appealing to audiences abroad for two reasons. First, it rhymes with the stereotype of lazy Mediterranean people conning their hard-working North European partners and then shamelessly asking for a bailout. (Now that Italy may be heading the same way, there will be more of this coming.) It also resonates in the ears of the euro’s sworn opponents, above all in the UK.Unfortunately, it is only half the story. Greek public debt as a percentage of GDP did not dramatically rise right after Greece joined the euro. Greek debt actually accumulated back in the 1980s and early 90s, years before Europe got its common currency. The size of the Greek public sector (as a percentage of GDP or share of the labor market) is around or even below average compared to the rest of Europe. Greece did try to spend its way out of the global recession in 2008-2009 and ran large deficits; but so did most other developed countries, including the UK and the US.There are two sides of the public finance coin: expenditure and revenue. What is left out is that while Greek public spending and debt crept up, government revenue fell or remained constant in the years after Greece adopted the euro. Between 2001 and 2007 Greece’s average government revenues totaled 39.4% of GDP, whereas the EU average was 44.4%. Taxes are by far the largest component of government revenue. The issue is not unique to Greece. Declining tax revenues were observed in Ireland, Spain, and in the US after the Bush tax cuts kicked in.In Greece the culprit has been rampant tax evasion by corporations owing millions in taxes and self-employed professionals who can hide their earnings, unlike salaried employees and pensioners. Under international pressure to balance its budget, the outgoing Greek government axed salaries and pensions and slapped new taxes on the bulk of citizens who were not tax-delinquent. This only drove the country deeper into recession and insolvency, making it necessary for EU leaders to write off part of Greece’s debt in July and then again in October.Whether the government is reluctant to tax the very wealthy (as in the US) or lax in its duty to punish tax evasion (as in Greece), the results are similar. Revenues can’t keep up with expenditures and lenders become uneasy. Meanwhile, those who are taxed too leniently have an interest in shifting public attention towards cutting government spending. The bitter partisan quarrels in Washington and Athens lately have this much in common. Yet, this obvious point is conspicuously absent from reports on Greece in the English-speaking world.There is no denying that Greece overspent on security for its Olympics - they were the first games after 9/11. There is also no denying that the Greek public sector is very inefficient. But this has to do with how the money is used. Deep cuts will not make an inefficient public sector better. Other reforms, however, just might. Finally, there is no denying that the euro deprived Greece of the flexibility to devaluate its currency. However, Greece’s revenue collection problem has been perennial and is unrelated to the euro. The first reforms Greece’s new government should focus on are the tax and judicial systems.Casting the crisis ravaging Greece and closing in on Italy as a fundamental story of governments drunk on loans, doling out stacks of euros to their shortsighted citizens is a half-truth. It makes it easy to caricature on a national basis and to categorize Greeks, Italians, Germans or Americans as people who collectively live either within or beyond their means. It also masks the fact that there are differences within each country: Those who benefit the most from high-profile government contracts are the hardest ones to tax when the creditors come banging on your door.
Call it reckless, call it bold, but the Greek Prime Minister, George Papandreou, has attempted to transform a referendum on the European Union bailout plan for Greece into a referendum about whether the Greeks want to stay in the Eurozone or not. The last time Greece had a popular referendum was in 1974 to decide if the people wanted to keep King Constantine, a descendent of the Royal family that European Powers foisted on the Greek people in the 1860s.
This time around, the Greek Prime Minister has shocked the rest of Europe—and even his own Vice President—with his plans to call for a popular vote on whether to accept the 50% haircut deal that EU heads of state agreed on last week to manage the country’s spiraling debt crisis. It’s the latest in a series of Hail Mary passes by Papandreou to keep his hold on power, but the proposed referendum is really only a distraction from the no-confidence vote he faces, which is scheduled in Greek Parliament this Friday. As hard as the Europeans leaders may have fought to prevent a Greek default, they failed to take into account the dire state of domestic Greek politics. But even at this moment the solution to the crisis must be a European one.
The gravest threat facing Papandreou right now is from the Greek people. His government party, PASOK, was elected two years ago on an anti-austerity platform, but has since been forced into the position of calling for more austerity than any Greek government in the postwar era. The demonstrations across the country last weekend that disrupted the parades commemorating the Greek resistance in World War II culminated with the forced departure of the President of the Republic, Karolos Papoulias, from the parade in Thessaloniki. The current political system has been facing a legitimacy crisis for a while now. The social contract, based on patronage, established between Greek politicians and the electorate following the fall of the Greek Junta in 1974 is under severe strain.
The second problem facing Papandreou is the dissent and distrust he is experiencing from his own party, which—for the moment—holds a bare majority of 152 seats out of 300 in the Greek Parliament. This past summer in a cabinet reshuffling, Papandreou tried to smooth out the problems in his party by appointing his main internal rival, Evangelos Venizelos, Vice President. But this accommodation reached its breaking point yesterday when Venizelos declared he had not been informed about the referendum by Papandreou, who nevertheless called on him to deliver the bad news to EU leaders. Meanwhile, the opposition parties claim that the government is blackmailing the Greek people and suggest that the only solution is to have early elections.
The crisis of legitimacy reached its peak yesterday when rumors about tensions between the government and the military leadership of the country became credible when the minister of Defense called for the replacement of all the heads of divisions of the armed forces. It would be a controversial decision in the best of times, but one that’s nearly impossible to carry out for a government facing unprecedented unpopularity.
The European Union leaders are dead against three outcomes: the collapse of the Greek parliament, the ouster of Papandreou on Friday, and the negative result of any kind of referendum on the bailout—all of which would ultimately spell the ejection of Greece from the Eurozone and spur financial chaos on the continent. The solution must come from Europe. The meeting at Cannes Thursday—where Papandreou has been invited by Merkel and Sarkozy—is his last chance to appease his European patrons.
The real question is not whether Greece will proceed or not with the referendum, but rather who controls Europe? Is it the Germans who seem to be the only ones who can undo the European Central Bank policy about printing money? The French and the Germans together who want to keep the Euro strong? Is it the speculators, banks and their interests? Or is the EU open to more democratic control whereby the voters can have a voice?
Whatever the outcome, Greece is now up against the wall thanks to Papandreou. The predicament has suddenly changed from a financial catastrophe and austerity measures to a question about political identity: Do Greeks belong in the European Union or not?
Co-author Thomas Meaney is a doctoral candidate in history at Columbia University and an editor of The Utopian.
We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions—producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation—one, a uniform increase in import tariff and export subsidy, and two, an increase in value-added tax and a uniform reduction in payroll tax. When the devaluations are anticipated, these policies need to be supplemented with a reduction in consumption tax and an increase in income taxes. These policies have zero impact on fiscal revenues. In certain cases equivalence requires in addition a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union.
Co-author Emmanuel Farhi is a professor of economics at Harvard University. Co-author Oleg Itskhoki is a professor of economics at Princeton University.Download PDF
It is obvious that the Turkish foreign minister Ahmet Davutoglu’s “zero problems with the neighbors” policy no longer works, in the face of Turkey’s support for the Syrian defectors who oppose the Assad regime. The foreign minister must now deal with potentially hostile reactions by Syria and its closest ally, Iran, that could have destabilizing regional implications. Iran, for one, cannot afford to allow the Assad regime to fail. It provides Iran with a foothold in the Levant from which to support Hezbollah and threaten Israel on its Lebanese border.
Syrian and Iranian retaliation against Turkey can readily take the form of support for the Kurdistan Worker’s Party, or P.K.K. This group once again has become increasingly violent in its promotion of Kurdish separatism in the Turkish southeast. Syria, Iran and Turkey share a common cause in resisting demands by Kurdish opposition movements in their countries. Only months ago, all three were cooperating in suppressing the P.K.K. For Turkey, this was a welcome change from the 1990s, when Syria and Iran supported the P.K.K. in order to pressure Ankara for foreign policy concessions. Now Damascus and Tehran could again play the P.K.K. card.
To counteract potential Syrian and Iranian subversion and the separatist appeals of the P.K.K., Turkey needs to adapt its zero problems policy to its own southeast. In 2009, the prime minister, Recep Tayyip Erdogan announced a “Kurdish opening”—a bid at reconciliation with Turkey’s Kurds. However, he quickly closed it, leaving many Kurdish demands for economic development, political rights and cultural recognition unanswered. The Turkish foreign minister’s recent veiled threat to send troops across the Syrian border may be insufficient to deter Syria and Iran from subversively supporting the P.K.K. For a comprehensive resolution of the “Kurdish question,” Ankara also needs to implement effective policies that will over the long term improve the economic, political, and cultural life of Turkey’s Kurds.
Between 1876 and 1945, thousands of Japanese civilians—merchants, traders, prostitutes, journalists, teachers, and adventurers—left their homeland for a new life on the Korean peninsula. Although most migrants were guided primarily by personal profit and only secondarily by national interest, their mundane lives and the state’s ambitions were inextricably entwined in the rise of imperial Japan. Despite having formed one of the largest colonial communities in the twentieth century, these settlers and their empire-building activities have all but vanished from the public memory of Japan’s presence in Korea.Drawing on previously unused materials in multi-language archives, Jun Uchida looks behind the official organs of state and military control to focus on the obscured history of these settlers, especially the first generation of “pioneers” between the 1910s and 1930s who actively mediated the colonial management of Korea as its grassroots movers and shakers. By uncovering the downplayed but dynamic role played by settler leaders who operated among multiple parties—between the settler community and the Government-General, between Japanese colonizer and Korean colonized, between colony and metropole—this study examines how these “brokers of empire” advanced their commercial and political interests while contributing to the expansionist project of imperial Japan.
Seven possible nominal variables are considered as candidates to be the anchor or target for monetary policy. The context is countries in Latin America and the Caribbean (LAC), which tend to be price takers on world markets, to produce commodity exports subject to volatile terms of trade, and to experience procyclical international finance. Three candidates are exchange rate pegs: to the dollar, euro and SDR. One candidate is orthodox Inflation Targeting. Three candidates represent proposals for a new sort of inflation targeting that differs from the usual focus on the CPI, in that prices of export commodities are given substantial weight and prices of imports are not: PEP (Peg the Export Price), PEPI (Peg an Export Price Index), and PPT (Product Price Targeting). The selling point of these production-based price indices is that each could serve as a nominal anchor while yet accommodating terms of trade shocks, in comparison to a CPI target. All seven nominal anchors deliver greater overall nominal price stability in our simulations than the inflationary historical monetary regimes actually followed by LAC countries (with the exception of Panama). A dollar peg does not particularly stabilize domestic commodity prices. As hypothesized, a product price target generally does a better job of stabilizing the real domestic prices of tradable goods than does a CPI target. CPI-targeters such as Brazil, Chile, and Peru respond to increases in world prices of imported oil with monetary policy that is sufficiently tight to appreciate their currencies, an undesirable property. A Product Price targeter or PEP country would respond to increases in world prices of its commodity exports by appreciation, a desirable property.
Identifying causal mechanisms is a fundamental goal of social science. Researchers seek to study not only whether one variable affects another but also how such a causal relationship arises. Yet commonly used statistical methods for identifying causal mechanisms rely upon untestable assumptions and are often inappropriate even under those assumptions. Randomizing treatment and intermediate variables is also insufficient. Despite these difficulties, the study of causal mechanisms is too important to abandon. We make three contributions to improve research on causal mechanisms. First, we present a minimum set of assumptions required under standard designs of experimental and observational studies and develop a general algorithm for estimating causal mediation effects. Second, we provide a method for assessing the sensitivity of conclusions to potential violations of a key assumption. Third, we offer alternative research designs for identifying causal mechanisms under weaker assumptions. The proposed approach is illustrated using media framing experiments and incumbency advantage studies.