The ripples from the debates in the capitals of European powers concerning military intervention in an oil-producing Middle Eastern country run by an enigmatic dictator once thought to have a WMD program spread far. Accusations of military adventurism under the cloak of humanitarian intervention strain alliances. This could be a description of the relationship between the Bush administration and the United Kingdom on one side, and France and Germany in the 2002–03 buildup to the Iraq War.
But now the roles have changed. US Defense Secretary Robert Gates urged caution and limited goals and methods. French President Nicolas Sarkozy and Foreign Minister Alain Juppe recognized the Libyan rebels as the legitimate government and flew the first sorties against targets in Libya before the allies could agree on a proper course of action. Only Germany has remained constant by effectively withdrawing from not only the campaign in Libya, but from its Mediterranean NATO presence. What has changed?
The drama of the Surge, followed by the new administration in Washington, made uncertain the possibility of another military intervention in the Middle East or elsewhere. In the US and in France, Obama and the new French President Sarkozy opposed the war in Iraq and sought to rebuild their alliance. Although Sarkozy changed the direction of France’s foreign policy during the Chirac years, Rumsfeld’s label of Old Europe remained.
Sarkozy pushed and received parliamentary support for France's military mission in Afghanistan and, while holding the EU rotating presidency, spearheaded the effort to begin negotiations and a ceasefire for the Russia-Georgia War in 2008. France, from the opposition, began turning into a member of the “coalition,” leading up to a more aggressive role patrolling the Horn of Africa, conducting military operations in West Africa, and most recently in the Libyan and Ivory Coast interventions.
So what caused this change? New leadership in France, the United Kingdom and the United States? A spirit of multilateralism over unilateralism? Another period of UN activism, similar to the early 1990s—at least before the Somalia failure?
The legal explanation would be to assert that unlike the current campaign in Libya, the invasion of Iraq in 2003 had no direct and public support from the United Nations, the European Union, NATO, or the Arab League. However, while UN Security Council Resolution 1973 authorized a no-fly zone over Libya, France acted unilaterally, conducting offensive operations before the allies, both Atlantic and Middle Eastern, agreed to a course of action and the scope of operations. The public support of Arab states, absent in 2003, might have also added to the legitimacy of the French unilaterally beginning kinetic operations and recognizing the rebel leadership. The Tricolor can be seen waving in the streets of Benghazi.
But skeptics remain. Following a slow start getting in sync with the "Arab Spring," Sarkozy's charge in Libya comes from a desire to recover prestige lost in Egypt and Tunisia and hopes for his countrymen to rally around the flag during election season. A show of successful military intervention in the cause of humanitarian intervention can help in the polls. Still material determinists look to the oil refineries at Ras Lanuf or Brega and see an explanation there, but Ivory Coast is less of a clear-cut case.
While the true motivators for France’s “return” may remain unclear in perpetuity, a more assertive France has large implications for business-as-usual across Europe, the Middle East and Africa. When many European powers have contributed men and firepower to the mission in Libya, the European Union has been remarkably absent. When discussions of the Common Security and Defense Policy of the EU begin, the question "Where were you in Libya?" might be a difficult one to overcome.
Ironically, European states seem to take more action when the EU is not involved. Cathy Ashton, the bloc’s high representative for foreign affairs and security policy, was hardly central in the decision to intervene or the coordination of the multinational force. The unintended consequence of Sarkozy’s policy may be the erosion of the EU as a security policy-making institution. Until the crowds in places like Benghazi or Yamoussoukro cheer a flag with golden stars on a blue background, the Tricolor, the Union Jack, and the Stars and Stripes will continue to be the key players in international security.
Co-author Wilder Bullard is a research assistant at the Program on New Approaches to Research and Security in Eurasia.
During the three days that the Greek Parliament was discussing and voting on the latest round of austerity measures, 138 police officers were injured, more than 500 protesters were hospitalized with breathing problems caused by the use of tear gas by the police, Syntagma metro station resembled a wartime hospital, tens of protesters were wounded, while 46 demonstrators were taken to police stations and 11 of them arrested on June 29 alone.
The police brutality was unprecedented according to Skai news and many witness accounts. Through Twitter, Facebook, email, and text messages, the Greek protesters spread the word of indiscriminate police beatings.
A peaceful protester injured by the police called a radio station to express his consternation at the attack he suffered at the hands of the police, “who are supposed to be there to protect citizens.” He further argued that he was there to “protest for Greece and its rights, so why was I attacked by another Greek?” Another citizen claimed that he was almost beaten by motorcycle police while walking around recording the events with a camera and that what saved him was an old expired press pass. At the same time, families were calling in reporting brute force without any provocation on their part. Many citizens, especially older ones, claim that they tried to talk to the police officers and dissuade them from using chemicals against simple protesters but to no avail.
Amnesty International had already condemned Greece for the use of force against protesters on June 15. June 29 was much worse.
There are several possible explanations for why Greek police used such force. One view is that it was hard for them to tell which were peaceful demonstrators and which were troublemakers. The police might have felt threatened by the mayhem. They may have determined that if they did not strike first, the protesters would attack them.
An alternative explanation is that the government wanted to break the “Indignant” movement using force. The vast majority of protesters saw the events as a strategy employed by the state to keep them from protesting. After all, most protesters were family types who were not going to remain there under such circumstances. And as expected, they fled the scene.
The ones left were younger, more determined and enraged and, again expectedly, engaged in street fights with the police. Thus, what was a peaceful demonstration that challenged the legitimacy of the government, if not the Parliament as a whole, turned into the “usual” fight between the “known unknowns” -- as they are often referred to -- and the police forces.
On top of this, some believe the government planted provocateurs among the peaceful protesters to justify the escalation. Regardless of whether this hypothesis is true or not, the mere perception is damaging to the reputation of the government and the police. Let’s hope that these events have not killed peaceful protest.
All this violence was happening while those inside the Parliament had just voted in favor of the new austerity measures. Many think that it was much more convenient for the government that people were discussing police brutality rather than the midterm plan that was being voted on. Regardless of motivation, that was indeed the case. The next day, June 30, when the government had to vote on the implementation law of the plan, there was hardly anyone in the ruins of Syntagma Square and the discussion within the Parliament had turned into a discussion about the quality of democracy and the right of people to demonstrate freely.
Public Order Minister Christos Papoutsis, who is ironically now called the citizens’ protection minister, made an analytical distinction between governmental and police responsibility.
The head of the main opposition New Democracy party, Antonis Samaras, suggested that the scenes raised questions about the existence of state-sponsored provocateurs. However, ND deputy Manolis Kefaloyiannis later rushed to congratulate the police officers and, together with Health Minister Andreas Loverdos, repeated the high number of police officers wounded during the street battles.
The leader of the right-wing nationalist Popular Orthodox Rally (LAOS) party, Giorgos Karatzaferis, suggested that special recognition should be given to the Evzones presidential guards because they remained in position before the Parliament during the fighting despite the fact that tears were running down their faces due to the chemicals used against the protesters.
Dora Bakoyannis, the head of the Democratic Alliance political grouping who was expelled from the main opposition ND party in 2010, commented only on the destruction of Hania MPs’ offices by a raging crowd.
The parties of the left were furious and suggested that the democratic foundations of the political system have cracked.
Of course, in the end the vote passed.
The book offers a comprehensive account of how the world evolved to its
present state in which humans now exercise a powerful, in many cases
dominant, influence for global environmental change. It outlines the
history that led to this position of dominance, in particular the role
played by our increasing reliance on fossil sources of energy, on coal,
oil and natural gas, and the problems that we are now forced to confront
as a result of this history. The concentration of carbon dioxide in the
atmosphere is greater now than at any time over at least the past
650,000 years with prospects to increase over the next few decades to
levels not seen since dinosaurs roamed the Earth 65 million years ago.
Comparable changes are evident also for methane and nitrous oxide and
for a variety of other constituents of the atmosphere including species
such as the ozone depleting chlorofluorocarbons for which there are no
natural analogues. Increases in the concentrations of so-called
greenhouse gases in the atmosphere are responsible for important changes
in global and regional climate with consequences for the future of
global society which, though difficult to predict in detail, are
potentially catastrophic for a world poorly equipped to cope. Changes
of climate in the past were repetitively responsible for the demise of
important civilizations. These changes, however, were generally natural
in origin in contrast to the changes now underway for which humans are
directly responsible. The challenge is to transition to a new energy
economy in which fossil fuels will play a much smaller role. We need as a
matter of urgency to cut back on emissions of climate altering gases
such as carbon dioxide while at the same time reducing our dependence on
unreliable, potentially disruptive, though currently indispensable,
sources of energy such as oil, the lifeblood of the global
transportation system. The book concludes with a discussion of options
for a more sustainable energy future, highlighting the potential for
contributions from wind, sun, biomass, geothermal and nuclear,
supplanting currently unsustainable reliance on coal, oil and natural
Using the most comprehensive data file ever compiled on air pollution, water pollution, environmental regulations, and infant mortality from a developing country, the paper examines the effectiveness of India’s environmental regulations. The air pollution regulations were effective at reducing ambient concentrations of particulate matter, sulfur dioxide, and nitrogen dioxide. The most successful air pollution regulation is associated with a modest and statistically insignificant decline in infant mortality. However, the water pollution regulations had no observable effect. Overall, these results contradict the conventional wisdom that environmental quality is a deterministic function of income and underscore the role of institutions and politics.
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.
Agriculture on the American Great Plains has been constrained by historical water scarcity. After World War II, technological improvements made groundwater from the Ogallala aquifer available for irrigation. Comparing counties over the Ogallala with nearby similar counties, groundwater access increased irrigation intensity and initially reduced the impact of droughts. Over time, land-use adjusted toward water-intensive crops and drought-sensitivity increased; conversely, farmers in water-scarce counties maintained drought-resistant practices that fully mitigated higher drought-sensitivity. Land values capitalized the Ogallala's value at $26 billion in 1974; as extraction remained high and water levels declined, the Ogallala's value fell to $9 billion in 2002.
NEBR Working Paper #17625.Co-Author Pinar Keskin is a Professor of Economics at Wellesley College.Download PDF
Hosni Mubarak’s promise this week to initiate constitutional reform in
Egypt and then step down at the end of his presidential term in
September did little to mollify the anger of the demonstrators
protesting his rule. Many protesters seemed to agree with the assessment of the opposition leader Mohamed ElBaradei that it was “a trick” intended to buy time. With the regime-sponsored ugliness
now engulfing Tahrir Square, demands for Mr. Mubarak’s immediate
resignation have grown only more urgent, and the risk of a violent
conclusion appears to have grown.
But there may still be a chance to effect the “orderly transition” that
Secretary of State Hillary Rodham Clinton has called for. Paradoxically,
it requires that Mr. Mubarak stay on, but only for a short time, to
initiate the election of an entirely new Parliament that could then
amend all the power out of the presidency or even abolish it.
This would no doubt disappoint those who want to put Mr. Mubarak on the
next plane to Saudi Arabia, but there are two risks associated with his
leaving so abruptly. The first is that the demonstrations might diminish
or dissipate, leaving Mr. ElBaradei and his coalition trying to
negotiate with the military or Vice President Omar Suleiman without the
force of the crowds behind them.
The second risk stems from the Egyptian Constitution, which gives the
power to dissolve Parliament and call new elections only to an elected
president. Mr. Mubarak’s successor, as an acting president, would be
specifically prohibited from getting the parliamentary elections under
way. A new Parliament is crucial to democratic reform, because only
Parliament has the power to defang the Egyptian presidency, stripping it
of its dictatorial powers through constitutional amendment. The current
Parliament — bought and paid for by Mr. Mubarak’s National Democratic
Party — is not fit for that task.
Egypt’s next scheduled presidential election is only months away. If the
Constitution isn’t amended before it is held, the notorious Article 76,
which makes it difficult for independents like Mr. ElBaradei to get on
the ballot, will still be in place. More important, the new president
would have the same imperial powers Mr. Mubarak has had — the very
powers that the Egyptian public wants taken away.
The constitutionally sanctioned timeline would be this: Mr. Mubarak
dissolves Parliament, forcing a new election within 60 days
(international observers would be required to make sure the election is
fair). Once the new Parliament is seated, Mr. Mubarak resigns, and an
acting president, probably the new Parliament’s speaker, takes charge
until a new president is elected. The new Parliament would work around
the clock to amend the Constitution in ways that would put Mr. Suleiman
or any would-be strongman out of a job. The final step is a national
referendum on the amendments.
For American policymakers, the most frightening possibility is that the
Muslim Brotherhood would sweep the parliamentary elections and institute
a constitution based on Islamic holy law. This is unlikely. The
political momentum in Egypt is not with the Islamists. Moreover, the
Brotherhood’s members have never sought to compete for a majority of
seats in Parliament, and during the current protests have impressed
people across the Egyptian political spectrum with their
self-effacement. Brotherhood adherents know that a victory for them
could be used by the military as an excuse to short-circuit the birth of
democracy in Egypt.
A likelier outcome is that the Islamists would join a coalition slate of
candidates, becoming part of an ideologically diverse Parliament. The
greater danger now is that Mr. Mubarak would corrupt the electoral
process by unleashing the same thugs who are now attacking the peaceful
protesters of Tahrir Square.
One might wonder why, at this moment of change and tumult, anyone would
talk about amending a constitution that everyone recognizes as a
deformed confection of a corrupt regime. But by working with even a
flawed constitution, the opposition would be helping to entrench and
deepen a constitutionalist principle that has been steadily eroded. And
with its built-in deadlines, the constitutional route also makes it
harder for the military to draw out the transition and consolidate its
For any of this to happen, Mr. Mubarak must remain briefly in office,
and he must agree to the changes as an answer to his people’s legitimate
cry for democracy. The demand that can make him comply must come from
It has often been said in recent days that the United States can do
nothing to affect the progress of democracy in Egypt, but the military’s
dependence on American money and matériel suggests that this is untrue.
The more the United States can make clear that continued military
support depends on how the Egyptian Army conducts itself during this
transition, the more likely the military is to play midwife to
Much could go wrong, but finding an orderly way to get not just Mr.
Mubarak but also the armed forces out of political life should be a more
important priority than ensuring that Islamists don’t hijack the
revolution. All that is required of us is to remind ourselves that
democracy in Egypt, or any other part of the world, is not something we
This Article examines the conflict-management role conferred
upon the law within Western liberal democracies in the context of cultural
tensions involving religious minorities. The Article finds that a threatened
hegemonic Christian identity and secular illiberal sentiments disguised in
liberal narratives often motivated legislative and judicial actions curtailing
the freedom of religious minorities in leading liberal democracies. Based
on these findings, this Article challenges the shortcomings of existing liberal
scholarship to account for the potential bias presented in the liberal
preference to facilitate cultural conflicts through legal means. Yet, the Article
suggests that law’s limitations as a neutral vehicle in conflict resolution
does not necessarily counteract its ability to manage conflicts. The
continued attractiveness of law as the principal conflict-resolution device
in liberal democracies springs from its political nature, namely the recognition
that shifts in political power could translate into legal change.
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.
In this Series in The Lancet, we review the past 50 years of Japan’s universal health coverage, identify the major challenges of today, and propose paths for the future, within the context of long-term population aging and the devastating crises triggered by the March 11 earthquake. Japan is recognised internationally for its outstanding achievements during the second half of the 20th century, in both improving the population’s health status and developing a strong health system. At the end of World War 2, in Japan, life expectancy at birth was 50 years for men and 54 years for women; by the late 1970s, Japan overtook Sweden as the world’s leader for longest life expectancy at birth. Japanese women have remained in the number one slot for 25 years, reaching a life expectancy of 86.4 years in 2009 (while Japanese men slipped to fifth longest living that year, at 79.6 years).In 2011, Japan celebrates 50 years of kaihoken: health insurance for all. Universal health insurance was achieved in 1961, assuring access to a wide array of health services for the whole population. Since then, benefits have become more egalitarian while health expenditures have remained comparatively low: 8.5% of the gross domestic product and 20th out of countries in the Organisation for Economic Co-operation and Development in 2008. This achievement is all the more remarkable because the percentage of the population aged 65 years or older has increased nearly four-fold (from 6% to 23%) over the past 50 years.
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
In the wake of the Cold War, the United States faced an ongoing dilemma of superpower proportions: Should it accept the global policeman’s badge and use its military might to patrol the world’s trouble spots? In many cases, it did. Ironically, following a decade-long spending spree, the question is no longer whether the US should continue honoring this responsibility, but rather whether it can afford to do so.Trumpeting the benefits of economic interdependence around the globe, US policymakers have overlooked the potential costs of free trade and unrestricted capital flows that developing country politicians internalized years ago. Now U.S. officials are reminded that when economic interdependence turns into economic dependence, it creates a harsh reality where the politics of possibility can quickly become the politics of austerity. A growing foreign debt has not only changed US domestic politics, but also infused more of a multilateral tone into its global politics. Notwithstanding the US’s seismic economic and military strength, partisan conflict over domestic budgetary pressures exposes the fault lines of the post-Cold War hegemonic order.
Over the last decade, the US government adopted a strategy from the Latin American playbook, opting to use foreign funds to finance its budget deficits. In a management blunder of historic magnitude, George W. Bush swung the federal budget surplus deeply into the red. Borrowing trillions of dollars from foreigners, including China, the Bush administration funneled debt proceeds toward lofty tax cuts, a dual-front war in Iraq and Afghanistan, “global war on terror,” and homeland security spending. Shockingly, the Bush administration not only expanded national debt by one-quarter of its size in eight short years, but in doing so, became increasingly reliant on foreign creditors. This practice was a clear break from the past. By the end of Bush’s time in office, foreigners held about two-thirds of the government’s total debt.
In light of the dollar’s global reserve currency status, the US government should continue to readily attract foreign capital for the foreseeable future. However, the US suffers from a more immediate vulnerability. Against the backdrop of the Republicans’ mid-term election victory, spending cuts have again taken center stage. Reminiscent of the Contract for America, House Speaker John Boehner and his cadre of Republican peers are proposing billions in budget cuts that include foreign military and developmental aid. In his State of the Union address, President Obama similarly seized the “post-crisis” political window, emphasizing the need to reverse the country’s “legacy of deficit spending.”
The emergence of austerity politics in North America has important geopolitical implications. Is the United States’ ability for global leadership waning? While a wave of democratization and the proliferation of new states flourished in the 1990s under the watchful eyes—and active support—of the United States (and its allies), today this commitment may be wavering. The substantial drop in US foreign aid, investments and contributions toward weak states around the developing world could be seen as important signs of this trend. Pundits have commented on the US absence in the most recent wave of protests in the Middle East; part of this was dictated by the politics of austerity at home. Despite its low-profile and multilateral approach during the Libyan intervention, the Obama administration still met significant domestic resistance from across the political spectrum.
In the hopes of enhancing its geopolitical sphere of influence, the US government has often invested in the smallest nations (e.g. trading preferences, IMF financing privileges, military investments, and development aid). Indeed, although the economic rules of the game are skewed in its favor, the US sometimes changes these rules to benefit the smallest nations for political purposes. With the rise of austerity politics, however, the U.S. may not be as willing—or able—to extend such trade and finance benefits to smaller nations.
Cloaked in a rhetoric of economic nationalism and austerity, the US may withdraw support from small, strategically less important countries, like Djibouti, placing the latter’s economic and political survival at risk. The US urges developing nations to open their borders, yet it champions “Buy American” shovel-ready projects and its own protection for pharmaceuticals. Refusing to liberalize its agricultural sector, the US has left the multilateral Doha development round mired in a stalemate, instead aggressively negotiating bilateral deals with South Korea, Panama, and Colombia.
Faced with such economic institutional gridlock globally and higher budget constraints domestically, does the United States still have the political will and resources to preserve all of its spheres of influence? Is it willing to be the world’s sheriff, especially given its recent difficulties in Afghanistan and Pakistan?
There is a very real temptation for the United States to neglect the prosperity and security of the periphery. Mired in its own economic struggles, the US may contemplate withdrawing from its geopolitical commitments. But there is rarely a void in the international system. Other actors, such as Iran, Russia or China, may seek to fill it. Whether conflict is instigated internally such as in Libya or by the interference of stronger neighbors such as in Bahrain, political opportunism could quickly escalate into full-blown conflict. Like the slow plunging of ice shelves into the arctic, the vulnerabilities least visible from the center may be precisely those that most threaten the global system’s long-term viability.
Co-author Stephen B. Kaplan is an assistant professor of Political Science and International Affairs at George Washington University.
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.
In the era of Kennedy and Khrushchev, power was expressed in terms of
nuclear missiles, industrial capacity, numbers of men under arms, and
tanks lined up ready to cross the plains of Eastern Europe. By 2010,
none of these factors confer power in the same way: industrial capacity
seems an almost Victorian virtue, and cyber threats are wielded by
non-state actors. Politics changed, and the nature of power—defined as
the ability to affect others to obtain the outcomes you want—had changed
dramatically. Power is not static; its story is of shifts and
innovations, technologies and relationships.Joseph Nye is a
long-time analyst of power and a hands-on practitioner in government.
Many of his ideas have been at the heart of recent debates over the role
America should play in the world: his concept of "soft power" has been
adopted by leaders from Britain to China; "smart power” has been adopted
as the bumper-sticker for the Obama Administration’s foreign policy.
This book is the summation of his work, as relevant to general readers
as to foreign policy specialists. It is a vivid narrative that delves
behind the elusive faces of power to discover its enduring nature in the
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.
Surveying three centuries of economic history, a Harvard professor argues for a leaner global system that puts national democracies front and center.From the mercantile monopolies of seventeenth-century empires to the modern-day authority of the WTO, IMF, and World Bank, the nations of the world have struggled to effectively harness globalization's promise. The economic narratives that underpinned these eras—the gold standard, the Bretton Woods regime, the "Washington Consensus"—brought great success and great failure. In this eloquent challenge to the reigning wisdom on globalization, Dani Rodrik offers a new narrative, one that embraces an ineluctable tension: we cannot simultaneously pursue democracy, national self-determination, and economic globalization. When the social arrangements of democracies inevitably clash with the international demands of globalization, national priorities should take precedence. Combining history with insight, humor with good-natured critique, Rodrik's case for a customizable globalization supported by a light frame of international rules shows the way to a balanced prosperity as we confront today's global challenges in trade, finance, and labor markets.
Is the Greek crisis an isolated case or the first of a series of future failing developed states? The Greek financial crisis is not on the front page of the Financial Times anymore, but it is far from over. The financial crisis did not manifest itself in Greece alone. Ireland has also sought an equally large EU-IMF rescue plan. Portugal and Spain have been under the microscope of the media and credit rating institutions. Such other instances in the Eurozone’s periphery have repercussions for the currency as a whole as well as for the EU (Straubhaar, 2010). Greece, Ireland, Portugal and Spain are members of the Eurozone area, which means that they share the same currency with economic giants such as Germany and France.
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.
I survey the influence of Grossman and Hart's (1986) seminal paper in the field of International Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I also review empirical work suggestive of the empirical relevance of the property-rights theory. Along the way, I develop novel theoretical results and also outline some of the key limitations of existing contributions.
The man whom Indian nationalists perceived as the “George Washington of India” and who was President of the Indian National Congress in 1938–1939 is a legendary figure. Called Netaji (“leader”) by his countrymen, Subhas Chandra Bose struggled all his life to liberate his people from British rule and, in pursuit of that goal, raised and led the Indian National Army against Allied Forces during World War II. His patriotism, as Gandhi asserted, was second to none, but his actions aroused controversy in India and condemnation in the West.
Now, in a definitive biography of the revered Indian nationalist, Sugata Bose deftly explores a charismatic personality whose public and private life encapsulated the contradictions of world history in the first half of the twentieth century. He brilliantly evokes Netaji’s formation in the intellectual milieu of Calcutta and Cambridge, probes his thoughts and relations during years of exile, and analyzes his ascent to the peak of nationalist politics. Amidst riveting accounts of imprisonment and travels, we glimpse the profundity of his struggle: to unite Hindu and Muslim, men and women, and diverse linguistic groups within a single independent Indian nation. Finally, an authoritative account of his untimely death in a plane crash will put to rest rumors about the fate of this “deathless hero.”
This epic of a life larger than its legend is both intimate, based on family archives, and global in significance. His Majesty’s Opponent establishes Bose among the giants of Indian and world history.
The seeds of Mary Lewis’
fascination with France were planted early. Her father spent a few
years there as a young man, working in the offices of the Marshall Plan,
so she grew up hearing a steady stream of stories about that country.
“I had never been out of North America,” said the newly tenured
professor of history, “but when my father would talk about France’s
history, it sparked an interest that is still with me.”The geopolitically tense Reagan administration years were her
political coming-of-age, and the native Californian went to college
wanting to understand the Cold War, studying international relations
when she attended the University of California, Davis. She spent her junior year abroad in France, becoming increasingly interested in the diversity of its society.The final seed that would eventually bear Lewis’ intellectual fruit
was planted during a political science class she took upon her return
from studying abroad. It was November 1989, the month the Berlin Wall
fell.“We were discussing the theory of mutually assured destruction,” she
said. “A young man raised his hand and asked the professor, ‘Can we talk
about Berlin?’ The professor was completely thrown. The real world was
confronting his theoretical model, and he didn’t know what to do.”Lewis remembers the professor dismissing the question by telling the student to read The New York Times. That, she said, was the moment she knew she wanted to study history.“At that point, history had suddenly caught up to political science,”
she said. “I realized you really needed history to understand
politics.”After graduating from the University of California, Davis, and before beginning a Ph.D. program in history at New York University, Lewis spent two years working for the U.S. Department of Education in its Office for Civil Rights, an experience she said greatly affected how she studies and thinks about history today.“I learned a lot about bureaucracy and the layers of bureaucracy,”
she said. “If I wrote a letter, it would go through six different levels
of editing and end up with someone else’s signature on it.”“I got a sense of how policy and decisions are layered. It helped me become the kind of historian that I am today.”Lewis’ improbable interest in bureaucracy informed her first book, “The Boundaries of the Republic: Migrant Rights and the Limits of Universalism in France, 1918-1940”
(Stanford University Press, 2007), recently translated into French as
“Les Frontières de la République” (Éditions Agone, 2010). The book
demonstrates how local actions — far removed from Parisian edicts —
redefined the boundaries between French citizens and outsiders in the
early decades of the 20th century. By focusing on the limits of
legislation in a pluralistic society, the book challenges the common
vision of France as a highly centralized nation.“We tend to think of France as a centralized country with uniform
rights decreed in Paris,” Lewis said. “But the actions of immigrants
themselves in the provinces, by forcing officials to recognize that they
were going to stay in the country, instigated an expansion of those
rights. In a sense, today’s diverse French society is a product of that
history.”Today, Lewis’ studies are intersecting anew with current events: She
is working on a book about Tunisia, using the case of the little-studied
French protectorate there to study how imperial rivalry affected French
colonial governance from the 1880s to the 1930s. Pent-up public unrest
in the North African country exploded and brought down its government
last month.“Having researched my forthcoming book there, I was surprised that
the protests would lead so suddenly to a change in regime,” she said of
Tunisia’s overthrow of its president. “It’s a police state. People have
conditioned themselves to be very guarded in conversation when speaking
about politics because they know they’re being watched, so the fact
that they would have the nerve to protest as they did is remarkable.”Lewis is also planning a new research project on intercolonial movement by studying colonial passports.“We think of these societies as being hermetically sealed, because we
tend to study them from an imperialist point of view, but in fact
people were on the move, and we can see challenges to imperial control
based on these varied movements.”One of Lewis’ favorite parts of working at Harvard is interacting with students.“They make you think,” she said. “Even if you’ve taught a class
before, you’ll get something new out of it because of the student
participation. This is positive feedback on a whole other level.”
Election Law Journal: Rules, Politics, and Policy (ELJ) is the leading peer-reviewed journal for up-to-date coverage of this evolving area of specialization. The Journal offers timely perspectives on the growing global interest and questions surrounding election reform and design. Providing insightful analysis from the top scholars in the field, as well as perspectives from practitioners and elected officials, ELJ addresses federal, state, and local election laws and practices. This is the essential legal resource for election officials, campaign fundraisers, and political consultants at every level of government.
In 1763 an impecunious Scottish naval officer, George Johnstone, who
had served in the Seven Years’ War with a conspicuous lack of success,
was appointed governor of the new British colony of West Florida, which
had been ceded to Great Britain by Spain in the peace settlement of that
year. Not much was known in the British Isles about the newly acquired
colony, to judge from a letter sent some nine years later to the Gentleman’s Magazine
requesting “any curious gentleman, who lives in Florida, or any of the
adjacent parts, to acquaint you, whether there are any lions in the
forests of those places.” By that time Johnstone, who had been dismissed
by George III from his governorship in 1767
for “rashly rekindling the war between the Indians and his subjects in
North America,” would at least have been in a position to inform the
letter-writer that there were no lions in Florida.This information about the checkered career of George Johnstone comes from Emma Rothschild’s marvelous new book, The Inner Life of Empires,
and introduces us to one of its central themes: the uncertainties of
empire in the age of the Enlightenment, when the rapid expansion of
Britain’s overseas empire seemed to offer unlimited opportunities to
those who were determined to better themselves, and when the key to
success lay in the making of useful connections and the acquisition of
useful information in an age consumed with curiosity. As Rothschild
makes abundantly clear throughout her book, George Johnstone and his
contemporaries belonged to what Robert Darnton has called an
“information society.” The uncertainties of empire were compounded by
the uncertainties of information, ranging from the fate of relatives in
India to the nature of Florida’s fauna.The book is the outcome of
a remarkable archival discovery, of the kind of which every historian
dreams. Emma Rothschild, who is a professor of history and director of
the Joint Center for History and Economics at Harvard, tells us that in
the Edinburgh University Library she came across the letter book of
James Johnstone, whose younger brother, John, was a candidate in a
contested parliamentary election in 1774 in Adam Smith’s hometown of
Kirkaldy. This led her on an extensive transnational paper trail in
pursuit of the largely unknown and generally unremarkable Scottish
family of the Johnstones, whose family home, Westerhall, was in
Dumfriesshire, in Scottish–English border country. The paper trail seems
sufficiently exciting for one to wish that she had told us rather more
about it.The generation of the Johnstone family around whose papers and life
stories her book is constructed grew up in the 1720s and 1730s, and
consisted of the eleven surviving children, seven brothers and four
sisters, born to Barbara Murray and James Johnstone, both of them drawn
from the professional classes of the Scottish lowlands. It is not always
easy to separate out in one’s mind the different members of this large
family as the author weaves their individual life stories and
observations through her text, and there are moments when the reader is
hard pressed to remember whether it is Alexander or George who winds up
on the West Indian island of Grenada, or whether it is John or Gideon
who tries to make money selling the water of the Ganges to Indian
pilgrims. Miniature biographies of each of the siblings at the start of
the book act as a useful aide-mémoire, but a family tree would also have been helpful.The
Johnstone children were all educated at home or in the homes of tutors,
and became highly literate, to the great benefit of posterity. One of
the delights of this book is the multitude of brief extracts from the
family correspondence that pepper its pages. It was the unmarried Betty
Johnstone (1728–1813) who acted as the principal source of family
information, keeping the siblings apprised of each other’s fortunes and
misfortunes as they moved away from the family home, handling business
and legal matters for them in their absence, and proffering wise advice
in her always erratic spelling. There is an intimacy about her letters
and those of her brothers and sisters, often expressed in turns of
phrase that bring them vividly to life.In 1759, for instance, she
wrote to her brother William, who changed his name to Pulteney on
marrying an English heiress and was to become a prominent member of
Parliament, imploring him to visit the daughter of their sister Barbara
in her boarding school in Kent to break the news that her parents had
its a melancholy and disagreeable office at
the same time its an act of Charety as it might Shoock the Child Doubly
hearing it from any indifferent person.
elsewhere in the family letters, we enter a world both of human
affection and of eighteenth-century sensibility, with hints that the age
of Jane Austen is around the corner: “its an unlucky fancy for women to
get it into their head that they must have a Husband,” wrote the
Johnstones’ aunt, Anne Ferguson, on hearing that Charlotte Johnstone had
eloped with the son of the local minister.While
Emma Rothschild has turned up a treasure trove in the Johnstones’
letters and papers, it may reasonably be asked whether the life stories
of one generation of a fairly obscure and unimportant family justify a
book of three hundred pages of text and 150 pages of densely packed
endnotes. As the book proceeds, however, it becomes clear that a study
of the family affairs of the Johnstones gives us entry, with Rothschild
as our expert guide, into interconnected eighteenth- century worlds of
great historical interest and importance—the world of empire at a moment
of its making and unmaking, the world of the Enlightenment, especially
the Scottish Enlightenment, and the world of sentiments and inner
feelings.During the forty years, between 1763 and 1806, in which
members of the family were active in public life, they seem to have
collected between them a veritable Who’s Who of friends and
acquaintances. In Scotland, among the luminaries of Edinburgh society,
there were David Hume, Adam Ferguson, and Adam Smith; there were Robert
and James Adam, the architect brothers employed on building works by
William Pulteney; the artist Sir Henry Raeburn, who painted a family
portrait of John and Betty Johnstone with their grandniece Margaret; and
James Macpherson, the translator of the “Ossian” poems, who accompanied
George Johnstone to Florida as secretary of the province.Then
there was the circle of London politicians, ministers, and society
figures, of which Pulteney formed a part; there was Lord Clive, later
hailed as the founder of “British India,” who became John Johnstone’s
mortal enemy; and William Wilberforce, over whose views on slavery the
family was divided. Even Jane Austen’s uncle, an East India Company
surgeon, has a walk-on part, buying “15 Sheep and a goat” at an auction
in Calcutta at which John Johnstone makes the more elegant purchase of
twenty-three volumes of sermons and a silver saucepan.In the
face-to-face society of eighteenth-century Britain, connections were of
paramount importance, and it was by means of the exploitation of useful
connections that the male members of the Johnstone family sought to rise
in the world. Three main opportunities, Rothschild suggests, were open
at this time to those seeking social and economic advancement: military
(and naval) service, overseas commerce, and marriage—the latter
spectacularly achieved by William (Johnstone) Pulteney. It was, above
all, the rapid growth of British overseas trade and the no less rapid
expansion of the British Empire, with which commercial activity was
intimately connected, that gave the Johnstones their chance of
advancement, although not without constant petitioning along the way and
endless hanging around in the waiting rooms of London high society.Empire
meant opportunity in this eighteenth-century world, and in particular
for impoverished Scots. This was a people long accustomed to
emigrating—in particular to Ireland, Poland, and Scandinavia1—but
the Act of Union with England of 1707 opened doors to overseas trade
and imperial service that had previously been closed to them. In
addition, as Rothschild might have told us in the body of the text, the
appointment of a Scot, the Earl of Bute, as prime minister can only have
helped when it came to appointments, and George Johnstone’s surprising
nomination as governor of West Florida was surely a direct consequence
of Bute’s patronage.Having made the necessary connections and
enlisted the necessary support, the Johnstone brothers fanned out across
the world, with the exception of William and the solid eldest brother,
James, who settled with his wife in Norfolk after a period of service in
the British army. Alexander became a soldier, serving in Canada and
northern New York, and ended up as the owner of a West Indian sugar
plantation. George spent many years at sea before acquiring his American
governorship. Subsequently he became a supporter of ambitious schemes
to exploit the commercial possibilities of the Gulf Coast of Central
America, and in 1778 formed part of the Carlisle Commission to effect a
reconciliation with the United States, from which he was compelled to
return home precipitately after offering a bribe to ease the path of the
negotiations. Gideon, too, joined the navy and was constantly on the
move, whether as a merchant in Asia, an official of the East India
Company, a soldier in its army, or eventually as a naval officer in the
West Indies. John went to India in 1751 as a servant of the East India
Company, in which he rose to a position of eminence, making a fortune
along the way. His brother Patrick joined him there, and died in the
Black Hole of Calcutta when still only eighteen.This
was a family that saw much of the world, and it was not only the men
who traveled. One of the sisters, Margaret, was an active Jacobite who,
with her husband, followed Bonnie Prince Charlie in his travels around
Scotland during the 1745 rebellion, and then, after escaping from the
prison where she had been incarcerated following the defeat of the
rebels, lived in exile in France. Elizabeth Carolina Keene, who married
John Johnstone in Bengal, traveled to India with her sister in 1761,
apparently to join friends in Madras.Perhaps because it formed
such a part of the Scottish tradition, travel to distant parts seems to
have been accepted as nothing out of the ordinary by these people, even
if Betty Johnstone constantly worried about their health and well-being,
and waited anxiously for news of their activities in remote corners of
the earth. The world was their oyster, and for the Johnstones Britain’s
global empire became something of a family enterprise, with different
members of the family helping one another out when they needed
connections and especially money, as they generally did. What is not
clear from Rothschild’s account is whether the Johnstones were in any
way unusual as a family in the intensity of their determination to
extract the maximum benefit from the lucrative opportunities offered by
empire and overseas commercial expansion. Is it just the size of the
family that makes the range and extent of its activities so striking,
even if the results so often failed to come up to expectations? If not,
does the behavior of the Johnstones represent a distinctively Scottish
response to the opportunities of empire, or is it indicative of a more
general British reaction?What at least is clear is that the attitudes they adopted and their
modes of operation were characteristic of a thrusting, innovative
section of the wider British society to which they belonged. In Citizens of the World,
a fascinating account of the global activities of a group of London
merchants in exactly the same period, David Hancock portrays a set of
restless, opportunistic men on the make, just like the Johnstone
Acting loosely together as associates, they, like the Johnstones,
operated through a network of patrons, relatives, informants, and
dependents, and shifted from one form of activity to another as
opportunity beckoned. They, too, thought of ways to improve themselves
and society at large, and, like the Johnstones, they reaped their
rewards. “The history of the Johnstones’ fortunes,” writes Rothschild,
“is an unusual story of economic improvement,” and although only one of
the brothers, John, made a large fortune overseas, it was the existence
of the “British Empire,” as it gradually came to be known in the
aftermath of the Act of Union of 1707, that did much to make the
family’s social and economic improvement possible.In exploring
the character and impact of that empire through the lives of selected
individuals, Rothschild, like Hancock, is pursuing an approach to
imperial history that has become increasingly popular in recent years.
For a long time, the history of empire tended to be written as a history
of imperial institutions and of the policies and actions of the
metropolitan center. Then, in the wake of decolonization, the angle of
vision was reversed, and it became fashionable to view empires through
the eyes of the colonized. Now, however, in an age of self-conscious
globalization and of an interconnected world, the traditional dichotomy
of center and periphery has come to look excessively stark, and it is
the links—between rulers and ruled, colonists and colonized, Europeans
and non-Europeans—that are receiving the attention of historians.History seen as the history of connections has become pervasive in
the writing of the history of empire, as in the writing of many other
kinds of history. An important consequence of this has been to give a
fresh validity and impetus to individual case histories and to the life
stories of men and women whose travels and activities enabled them to
cross national, imperial, and cultural boundaries and form the
connections that made the world a smaller place by bringing its diverse
peoples into contact with each other.In a book whose very title, The Web of Empire,
evokes the theme of interconnection, Alison Games recasts the early
history of the British Empire through the study of sixteenth- and
seventeenth-century English “cosmopolitans”—merchants, soldiers,
adventurers, clerics, ambassadors, consuls—who traveled to foreign parts
and learned in the process how to adapt themselves to a variety of
environments and lifestyles in what was already a shrinking world.3 Similarly, in The Ordeal of Elizabeth Marsh,
Linda Colley has shed light on the twin themes of imperialism and
globalization by following the life of a woman who, like Elizabeth
Carolina Keene and the Johnstone brothers, eventually reached the India
of the East India Company after a series of extraordinary adventures and
of the dangers of the history of empire when it is treated as a history
of connections is that it may make us forget the degree of
institutional coercion and sheer brute force inherent in all imperial
enterprises. We are given vivid reminders of the brutality, however, in
Rothschild’s account of the degree to which slaves and slavery were
integral to the world of the Johnstones. As she tells us, “of the seven
Johnstone brothers who set out from the valley of the Esk in the 1730s
and 1740s, at least six became the owners of other people.” They may
have differed in their views of the morality of slavery and the slave
trade, but they possessed or inherited slaves in the West Indies and
Florida, and John Johnstone owned “Bell or Belinda,” a native of Bengal,
whom he brought back with him to his estates in Scotland. Her story is a
peculiarly poignant one, and it runs movingly through the book.
Convicted in 1771 of infanticide by a court in Fife, she was “to be sold
as a Slave for Life,” and shipped to Virginia where even Rothschild’s
remarkable detective work has failed to find any further traces of her.“Bell
or Belinda’s” case, however, turns out to be of historical importance
as marking the last occasion on which the state of slavery was
determined in a British court. But this was not the only time the
Johnstones had a brush with history. By an extraordinary chance one of
the most celebrated legal cases of the age turned on the petition for
freedom in 1773 of Joseph Knight, a slave whom John Wedderburn, the
husband of the Jacobite Margaret Johnstone’s daughter, had brought back
to Scotland from Jamaica. Knight’s petition was inspired by the verdict
in the famous case of James Somerset, the slave who ran away from his
owner in London, was placed in irons in a ship bound for Jamaica, and
was released on a writ of habeas corpus. Knight won his freedom, and
made history, when the high court eventually upheld the county judge’s
resounding decision that “the state of slavery is not recognized by the
laws of this kingdom, and is inconsistent with the principles thereof.”Rothschild
was no doubt lucky in that both these important cases turn out to be
intimately connected with the lives of the Johnstones, but here, as
elsewhere, she has shown remarkable skill, resourcefulness, and
historical imagination in pursuing the stories of even those who at
first sight might seem to be only bit players in her large cast of
characters. In doing so, she has sought to show how empire, in its
multiple forms, “extended into the deep interior of the English and
Scottish countryside, and into the interior of family life.” It was not
only human beings like Joseph Knight or “Bell or Belinda” who, as they
waited unobtrusively on the Johnstones and accompanied them on their
travels, must have been constant reminders of empire both to them and to
their acquaintances. So, too, were commodities from distant parts of
the globe, like the Indian muslins that John sent home from Bengal and
that gave rise to a bitter family quarrel. In Rothschild’s words, “the
lives of the Johnstone sisters and sisters-in-law, at home, were changed
by the new empire of things.”Her book, however, has an even more
ambitious aim than that of reconstructing the impact of empire on the
externals of Johnstone family life. The nature of her ambition is
revealed by her title, The Inner Life of Empires. She wants to
show us how the opening of the world to a family like the Johnstones
affected their thoughts, sentiments, and behavior, and is anxious to
recapture the day-to-day responses of people who had no idea, any more
than we ourselves have, of how the story in which they found themselves
caught up would end. Would the new republic of the United States
survive? Nobody knew for certain. At various
points in the book Rothschild stands back from what she is doing to
comment on why she is doing it, and the problems involved in the
enterprise. “The history of the mind,” she writes, “is enticing,”
because it gives us an understanding of events as they were seen by
individuals at the time. But if, as she argues, “the history of empires
in particular…is the history of thought,” how to enter the inner life of
the mind? As a historian, she lacks the freedom of the novelist and is
constrained by the evidence, even though, as she tells us, the history
of the Johnstones “has come close, in a number of respects, to the
historical novel”—a novel that, with its interweaving family destinies,
she describes at one point as being Balzacian in character. Her response
to the challenge of entering the life of the mind while rejecting the
opportunities afforded the novelist and respecting “the limits of
historical inquiry” is in part traditional, and consists of a close
reading of the text.The text in this instance is the Johnstone family correspondence. In some virtuoso pages of an earlier book, Economic Sentiments, Rothschild explored in depth and from every angle the concept of Adam Smith’s “invisible hand.”5
She applies the same technique to the Johnstones’ letters, circling
around words and themes, like the gift of the Indian muslins and their
disastrous impact on family relations, or returning to the same phrases
at different points in the book as she places them in different
contexts. For example, Betty Johnstone’s words to her nieces, “go on and
prosper,” appear first in a paragraph devoted to Betty as the fixed
point in the life of the family, and later in a passage designed to
illustrate how the ideas of the Enlightenment were giving women a new
sense of independence. The cumulative effect of these recurrences and
repetitions, which may at first seem irritating, is ultimately to make
us sense that we are somehow participants in the inner life of the
Johnstones and know what they are thinking and feeling.Rothschild
herself asserts, in one of the many authorial interventions that are
characteristic of her book, that the Johnstone family’s story told, as
she has told it, through a “multitude of views or glimpses,” as in David
Hume’s description of probability, makes “a new as well as an
old-fashioned kind of historical inquiry.” She goes on to say that this
was made possible by “the spectacular increase in information about
early modern individuals, which is the consequence of late modern
technologies of historical investigation.” The range of sources she has
consulted, the extraordinary wealth of detail she has unearthed about
even the most obscure individuals, and the quite unexpected connections
between them that she has uncovered fully support her claim. It is
wonderfully appropriate that a book that gives us so many new and
surprising insights into the new “information society” of the eighteenth
century should itself depend so heavily on new information technology,
drawing, as Rothschild puts it, on “a world of searchable databases and
digitized archive catalogues.”In doing so, it presents what I
suspect is a foretaste of a kind of history that will become
increasingly common in the years to come, even if, as I fear, not all
its practitioners will bring to it the historical imagination and
sensitivity of Emma Rothschild. This new-style history will deploy a
range of information, generated by electronic resources, that will
enable future historians to assemble in a matter of days vastly more
facts and figures that their predecessors could ever have assembled in a
lifetime of archival research. It will enable them, as Rothschild has
done, to evoke an age by relating the microhistory of even the
“uneminent,” as she likes to call them, to the larger historical
scene—national, imperial, global—that shaped the setting of their lives.
It will allow them, like Rothschild, to look at the same people and
events from a range of standpoints, encouraging them in the process to
introduce, for good or ill, the authorial first-person singular into
narratives that it has been the convention to treat as rigorously
impersonal.There will undoubtedly be losses as well as gains in this new kind of
history. Empire, after all, was more than simply a series of information
networks and webs of human relationships. It was shaped, too, by
political, economic, and social forces that swept individuals along in
their wake, even if they contributed to their making. E.M. Forster’s “only connect” may be the beginning, but it is not the end, of wisdom.
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.
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.