Reflections on the US Presidential Elections

Photo courtesy BBC

The outcome of the United States Presidential elections is too close to call.

Yet, three presidential debates reinforced the perception among informed voters that Mitt Romney is both a weak and most unpredictable candidate.  He does not grasp the complexities of the economy—a failing he obscures by refusing to be clear about his policies. His continual self-contradiction and his appeal to the fears of voters highlights an insincerity.

Mitt Romney’s small government is a travesty

Mitt Romney’s scapegoating of “big government” for all our economic and social woes is not backed by a meaningful definition of big government, nor does it seem to be based on an historically informed understanding of the government’s role in the economy and its implications for development. His five-point plan could not possibly address any of the issues he falsely attributes to big government. Romney even knocks policies that he admits are successful, if they have anything to do with the “big government” that he vehemently detests.

Romney’s idea of a small government is a dangerous caricature.  Romney’s corporate approach to the role of government, his sound bite complaints, and his five-point solution argued during the past two presidential debates deprived the voters of a space to think reflectively of the role of government. Instead his rhetoric instills a culture of fear of big government, deflecting criticism from the same corporations backed by Republican presidents and their lobbyists — the ones who continue to secure state power for the service of corporations.

The truth is that Romney is not against big government. His proposals will make the government even bigger by blurring the distinction between the roles of the government and corporations. Such a de facto government constrains the space for basic human freedoms because it deprives the people equal access to the basic necessities of life irrespective of their social and economic status. It is far more intrusive into all aspects of social life because its raison d’etre is to shift the role of government from one that creates a balance between social objectives and private economic objectives to one that focuses exclusively on private interests, hoping — against all evidence to the contrary — that the social benefits will automatically trickle down from the pursuit of private interests.

Romney is more than willing to expand government to support the military-industrial complex, to subsidize corporations with tax breaks and to bail out “too-big-to-fail” corporations. Given his disinterest in the 47 percent, it’s hard to believe he thinks those benefits will trickle down to the rest of us. He’s more than willing to reduce or deny social benefits to seniors, the unemployed, the sick, the young and many American women. Philanthropic business activities and recruiting more women to the Massachusetts legislature are certainly not evidence that he understands social inequalities and do not compensate for what his big-corporation policies have taken away from marginalized groups.

A “small government,” defined solely by the amount of taxes it collects and the size of the bureaucracy it maintains, gives rise to a powerful minority of elites at the expense of the public good, and its use of excessive non-material power and safeguarding of private interests far outweigh the benefits of lower taxes and subsidies. Increasing inequalities, corporate betrayals of society, military expenditures, foreign-policy manipulations, agricultural subsidies and currency manipulation are all examples of small government in action.

Romney’s small government actually resembles big government in the era of the Cold War. This concept marries corporate and government interests, precisely what motivated Dwight D. Eisenhower’s warning about the dangers of the military-industrial complex. The government has constantly grown bigger not only because of the necessity of meeting the security needs of the United States alone, but because it continues to bankroll and bail out the very corporations in the military-industrial complex that proved to cause the decline in U.S. competitiveness in today’s global economy.

Romney is oblivious to the fact that, historically, low inflation, low unemployment and high productivity were more common in the United States before globalization integrated our economy with the world market. Then, gains from economic growth were usually reinvested in the United States, and wealth stayed here. Responses to economic policies could be more easily predicted and managed because national boundaries were not forcibly opened to international trade. Few countries could compete with the United States in terms of wealth, resources, productivity and technical innovation, and it was rare for a U.S. corporation to abandon its home country in search of cheap labor and markets on foreign soil. The rest of the world simply had less ability to compete economically and politically with the United States. The kind of global corporatism presented by Romney, his foreign bank accounts and corporate off-shoring, is in large measure responsible for the decline of U.S. prosperity, our vulnerability to financial speculators and our lower standard of living compared with virtually all other developed Western nations. Today’s world is a different place, and the United States no longer enjoys the luxuries it used to.

When President Obama took the reins, he faced an economy wrecked by a financial sector run amok — one represented well by the machinations of Bain Capital. Economic crashes in global markets must be explained in terms of economic fundamentals that are beyond the control of any one president, and especially a president handicapped by an intransigent Republican party whose members in Congress moved heaven and earth to block virtually all actions intended to pull the economy out of a tailspin. Today, the unemployment rate has dropped to 8 percent, and the real estate sector is making slow progress toward recovery. Currently, the levels of employment and mortgage borrowing are flat, meaning layoffs have declined and there are few new hires, and low interest rates are finally beginning to stimulate borrowing. Given the intensity of the global crisis, no more could be expected, and Romney’s five-point plan is no different from the policies that got us into this mess in the first place.

One of Romney’s many misguided economic arguments is that further cuts in expenditures and taxes will encourage private sector investments in areas critical for future development. Historical evidence provides little support to this claim, and it is certain that the social costs of these cuts will outweigh any economic benefits. So far, the private sector has failed to respond to tax cuts and trillion-dollar government investments, and they are unlikely to change their tune. Nor does evidence suggest that increases in wealth due to tax cuts will automatically increase employment because the rich often invest in non-employment-generating investments such as financial markets that have brought us to the present crisis. The tax cuts, government investment guarantees and subsequent bailouts resulted in a shameful increase in the division of wealth in America, and yet, politicians like Romney have the audacity to blame the government for the crisis.

Romney was vague in his definition of small business, as he seems to think both Joe the Plumber and Donald Trump are small-business owners, and he appears clueless about the complex factors affecting the growth of small businesses. Tax cuts cannot conceivably grow small businesses and help them to add employees. Big corporations, not big government, have caused the collapse of small businesses, and giving more breaks to corporations certainly won’t bring small businesses back. Tax cuts won’t offset the cost of health care and other expenses or make it possible for small producers to compete with cheap imports. No amount of tax cuts will enable small businesses to invest in research and development, and it’s highly doubtful that big corporations will generously come forward to help them.

The crisis of the economy today is not due to a lowered capacity to produce; in fact, today’s crisis is about overproduction and lack of consumer demand. At one level, limits to spending are inevitable as societies develop. Consumers aren’t spending money because they don’t have money to spend. Debt, uncertain employment and lowered expectations are the new rule. Big government is not to blame for this; global capitalism is, and the best way for a nation to navigate the bumps of the world market is to have a good social support system — the right kind of big government — at home.

Returns from government investments do not materialize during a single presidential term. They take longer and include a great deal of uncertainty, particularly when the president’s party does not have majority control of Congress, and his policies are subject to the influence of corporate lobbyists. The public’s assessment of Obama’s potential for success during his second term should be based not on the policies of a previous government that once brought the “prosperity” that is now responsible for many of the nation’s economic and social woes, but on his ability to set the country on a course to sustainable economic recovery.

Reclaiming the government for the people is the voters’ responsibility as much as it is the president’s. Obama’s success depends on whether he has a Senate, House and broad-based social movements willing to embrace and support a radically different role of the government that is inconceivable under Romney’s leadership or his five-point plan. Without such support, a second Obama term is not likely to accomplish very much, as he would succumb to the powers of lobbyists who generally take over political agendas after election. But it is better than not reelecting him.

Foreign Policy

The third Presidential debate between Romney and Obama was boring and did not give much hope for the world to expect a change in the status quo. It seems that for both candidates the center piece of US foreign policy is Israel.  There was hardly any mention about Palestinians, certainly neither candidates called Palestinians or other Arab States “a true friend.”  For both candidates the foreign policy was not so much about foreign countries but about domestic interests of the United States.  Yet, Obama appeared to be far more reflective and have the patience to bring change bring about change in the status quo by following strategic diplomacy.  Romney dislike Obama for is patient and diplomatic approach, being critical of the United States, and associating with world leaders critical of the US policies or Israel.

Obama opposes military strike on Iran most appropriate option but holds is willing to use it if it is the only way to stop Iran from getting nuclear weapons. He rejects unilateral US intervention trouble spots like Libya and Iran, instead seeks international pressure against them.  At times he has also chastised Israel for continuing to build housing settlements in disputed areas and continue to demand for a new round of peace talks based on land borders established after 1967 Arab-Israeli conflict.  At the same time he also signed law to expand military and civilian cooperation with Israel.

Romney is all about threats to United States and need to take preemptive actions and has spoken in more permissive terms about Israel’s right to act against Iran’s nuclear facilities; although not explicitly approving military action against Iran would be last resort. Romney associate more closely with hardline Israeli Prime Minister Benjamin Netanyahu, has indicated more military assistance to Israel. For Romney Russia is still the “No. 1 geopolitical foe” of the U.S. and accused label China a currency manipulator in a move that could lead to broad trade sanctions, despite fact that Romney’s own company invests in China.  Obama also advocate penalties against China for unfair trade practices but opposes branding China a currency manipulator.

It is hard to see much difference between the recent racist and genocidal comments of Iranian President Ahmadjian against Israel and Romney’s comments about Palestinians. Romney’s comments (about what) could be far more lethal than the recent film that sparked protests around the world, even if he loses the election. Such comments are likely to affect United States’ relations not only with the Middle East but also the rest of the world because protesters do not attribute Romney’s words only to Romney but to American foreign policy and most Americans. Not electing him is perhaps the best way to control the damage.

Romney’s foreign policy appeals to the emotions of his constituency and includes unexamined beliefs that shaped US foreign policy during the Cold War. The fact that his campaign invokes the now globally discredited images of an “empire” runs the risk of isolating the United States from the global community, deprives it of playing a positive role, and even leads the country toward another war. Romney does not articulate a coherent foreign policy, but attacks certain isolated events during the Obama administration without considering their context and the fact that the origin of most of these events predates the Obama administration.

The Obama administration’s foreign policy approaches are more nuanced and seem to rely more on strategic intelligence and patience than “cowboy”-style emotional responses to international crises. Obama seems to understand and be sensitive to the complexity of the contemporary world and does not celebrate US achievements in the language of a “mighty empire,” which the Republicans are notorious for. Hillary Clinton has shown considerable skill, courage, and success in building consensus among otherwise difficult international states on vital human rights issues.   As with all economic strategies, Positive and sustainable le responses to these foreign policy initiatives take time beyond the period of a presidency, involve a degree of uncertainty, and require a citizenry to accept change.

One important challenge for the next US president is to lead Americans to develop a more critical perspective of the country’s role in the contemporary world, which is unlikely to happen under a Republican presidency. Based on the first presidential debate, there is no reason to trust Mitt Romney because he lied and contradicted what he said during the debate and on other occasions.

Sincerity and Ability to Govern

Romney failed to provide a coherent message and a clear road map to the economic change he espouses. His rhetorical and often factually-incorrect attacks on the Obama administration failed to provide any clear message as to how his policies would be different from those of previous Republican presidents. Also troubling was Romney’s statement to a closed-door fund-raiser that 47 percent of Americans see themselves as “victims” entitled to handouts and unwilling to take “personal responsibility” for their lives. The implication that these 47 percent are “lucky duckies” raises doubts about Romney’s knowledge of the economy and respect for his fellow citizens. These remarks are not simply “off-the-cuff” or “less elegantly stated” but revelatory insights into the true character of a man who is willing to say anything to collect votes.

Obama’s message was far more coherent. Rather than blaming the past, he acknowledged that he is not entirely happy with the economic recovery thus far and reiterated that there is a difficult road to changes in economic and political affairs and that tough choices are needed to make change possible.

There is an argument that Obama missed many opportunities in the first debate by not pointing to the lack of clarity and contradictions in Romney’s claims, hence making Romney a better candidate. These “missed opportunities” are, in fact, further demonstrations of Romney’s weakness and lack of sincerity and provide a better idea of what voters should expect from Romney if he is elected. Perhaps Obama thought it would be an embarrassment to all Americans to focus on the contradictions in Romney’s policies and his inability to provide any clarity of the many “reforms” he proposed and that it would not help the public to make an informed decision when they vote. Instead, Obama deliberately used the debate to educate the voters about his policies.

Change is a responsibility of voters as much as of the president, and they need to think beyond the rather theatrical, technology-affirmed “performance” during these debates. Voters need to keep in mind that they should not expect to reap the same globally-taxing benefits from favorable terms of trade that they enjoyed during the Cold War. Whether Obama can make a difference could be tested only if he has a Senate and the House majority willing to work with him as well as the willingness of the voters to embrace change. There needs to be a broad-based, active social movement after the election to support the president’s policies and override the powers of the lobbyists who generally take over political agendas after elections. Without such support, a second Obama term is not likely to accomplish very much, but it is still probably better than not electing him.  With all these Obama would have far more power to maneuver and implement changes that he has always wanted to make since he would not need to make decisions with the hopes of garnering enough support for the next election?

  • http://www.dregstudios.com Brandt Hardin

    If Obama loses this election, you can blame/thank the Right for bamboozling him. How is it ethical that an entire news network questions the President’s citizenship for four years to create doubt in voters while a fringe element of the far right demonizes and degrades him? Most of this is financed by the rich who want to keep their stranglehold on the flow of wealth in our country. Watch the white hands apply the Blackface to our first African-American President at http://dregstudiosart.blogspot.com/2012/10/bamboozling-obama.html

  • http://brainoil.wordpress.com sharanga

    Obama will win. The race isn’t as close as people think. Obama leads in Ohio, which means he’s ahead. In order to win, one needs to get 270 electoral votes. Obama will more than 300. Certainly more than 290. He’ll also win more than 50% of popular votes. That’s what I think will happen.

    Anyway, Obama needs to cut down spending and become a Clinton-like centrist democrat if he wants to improve the economy. His leftist economic policies just don’t work.

    Would’ve liked Romney more if he wasn’t a Mormon, and if the Republicans weren’t so backward on social issues.

    • Gamarala

      Sharanga,

      So your point is that you would have voted for Romney’s Laissez Faire economic policies were he not a Mormon and the republicans were, on average, not ignorant creationists? Why did you say Obama’s leftist economic policies just do not work, and on what basis do you believe Romney’s policies will work better? It would also be interesting to know what your rebuttal is to the points made by Jude on that exact issue.

    • Keynes!

      Sharanga,

      “Obama needs to cut down spending… if he wants to improve the economy.”

      Where did you learn your voodoo economics from?

      You sound like a person who will worry about the petrol mileage of your car as it rolls off a cliff.

      The objective, grasshopper, is to get out of the recession (and out of the car if I may.)

      • http://brainoil.wordpress.com sharanga

        Keynes,

        There’s a reason why no one anymore believes Keynesian economics. It just plain doesn’t work.

        It’s really simple. The US has to reduce debts and deficits. Not doing that is dangerous. The economy could collapse if this goes too far. It would take an utter idiot to say that they don’t have to reduce debts and deficits.

        Then the question is, how to do it. There’s two ways to do it. One is to cut spending. The other is to increase taxing. It’s this second thing that Obama wants to do. Tax the rich, tax the rich mantra. Oh right, tax the corporations, who create jobs, in the middle of recession. That seems like a good idea.

        • Gamarala

          Sharanga,

          I’m happy to be a keenly interested observer in your debate with Keynes. Hopefully it will shed some light, to those whose pet subject is not Economics – such as myself, whether Hayekian measures or Keynesian measures make more sense.

          What I’m really interested in, is your opinion on Romney’s plans to reduce capital gains tax, thus benefiting the uber rich and shifting the burden onto the middle class (The American/republican way???) vs Obama’s “socialist” politics ala Obama-care and increased taxation on the rich (dare I say, the Australian/Nordic/semi-socialist way?).

          Is your position that the former is inherently more virtuous than the latter?

          • http://brainoil.wordpress.com sharanga

            Taxes are bad, and need to be reduced as much as possible.

            Putting economics aside, there’s a pretty compelling moral argument against taxes. Imagine there’s an accountant, who works 40 hours per week. If the tax rate is 20%, then that means out of the 40 hours he worked, he has worked 8 hours for nothing. Do you feel like working 8 hours for nothing?

            Anyway, I’m not an extreme libertarian who thinks taxes are evil. Taxes have their purposes. Under the circumstances though (referring to US) it’s bad to raise taxes on anyone or any corporation.

            Reducing capital gains taxes on corporations doesn’t benefit only the rich. It benefits everyone. Who do you think creates jobs? If the tax rates are too high, corporations simply move their operations to other countries. Last year, Apple paid only 1.9% of their profits as foreign taxes. They handle their European operations from Ireland, which has considerably lesser tax rate than Britain. True, taxes aren’t the only reason corporations move jobs out of US. But it is one of them.

            Higher taxes also means that corporations can’t invest more. Corporate investments are critical to the economy.

          • Gamarala

            Sharanga,

            RE: “Who do you think creates jobs?”

            If the wealthy create jobs, the workers create wealth. Whose work do you think generates value in those jobs? Furthermore, who do you think consumes the products of these “jobs”, if the consumers don’t have money to buy items?

            To suggest that one is more important than the other, is a myth spread with fervour by those who stand to gain the most out of it, and one which the American public has bought into with earnest as a result of their brainwashing process (a process not dissimilar to ones used in Communist countries). It is partly a result of these beliefs that America sees such mind boggling inequality among its citizens.

            Developed countries are generally characterized by low income inequality. Therefore, those who suggest that the job creators should be taxed 15% while mere workers are taxed at 35%, need to square perception with empirical evidence. (http://www.youtube.com/watch?v=cZ7LzE3u7Bw)

            As this ted talk suggests, can you provide some evidence that there is a correlation between taxes on the rich and “job creation”?

            Last but not least, there is a compelling moral argument FOR taxes. Take your own example: “Imagine there’s an accountant, who works 40 hours per week. If the tax rate is 20%, then that means out of the 40 hours he worked, he has worked 8 hours for nothing. Do you feel like working 8 hours for nothing?”

            Now, take some billionaire – say Donald Trump or Paris Hilton or Bill Gates. How many hours a day can a billionaire work? 16 hours max? What is his/her hourly wage? Over a hundred thousand dollars per hour, assuming earnings of a billion an year, as in the case of Gates. Is it likely that Gates is single-handedly generating a hundred thousand dollars of work per hour of his time, every day? Where does the excess value come from?

          • Gamarala

            Sharanga,

            I couldn’t respond to this issue:

            “Putting economics aside, there’s a pretty compelling moral argument against taxes. Imagine there’s an accountant, who works 40 hours per week. If the tax rate is 20%, then that means out of the 40 hours he worked, he has worked 8 hours for nothing. Do you feel like working 8 hours for nothing?”

            This is no moral argument at all. It would be immoral for the accountant to not pay taxes unless the accountant is living in an isolated island of his own creation. As it so happens, maintaining public infrastructure and common property, caring for the sick and needy in society etc. are necessary moral obligations in a society.

            Indeed, it shows too. Notice that the societies which are most highly developed, and here I point to countries like Sweden, Norway, Australia etc., have high taxes and a great social safety net. The results speak for themselves.

        • Lester

          Sharanga,

          There’s a reason why no one anymore believes Keynesian economics. It just plain doesn’t work.

          Keynesian economics works. I will give you the extreme example of pre-World War II Germany. Between 1933 and 1939, Germany came out of a massive depression. Well before Hitler embarked on his military expeditions and mass murder campaign, Germany achieved zero unemployment (yes, it is possible). The key was not just government spending (which is at the heart of Keynesian economics) but achieving self-sufficiency . In economic terms, a large chunk of self-sufficiency would translate to net exports exceeding net imports (the greater the margin of difference, the better). You might find the following webpage rather interesting:

          http://en.wikipedia.org/wiki/List_of_countries_by_net_exports

          Why, for example, has the German economy remained so strong, while most of the rest of Europe and America have floundered? You can see from that chart that net exports still form a huge chunk of German GDP. Germany has not outsourced its manufacturing base to third-world nations. And this would answer the last question of why Keynesian economics has not worked in the States. Because there is no tendency toward self-sufficiency. The GDP is high, but the trade deficit is massive.

          • Keynes!

            Lester,

            Nice try. Your argument about the export-led miracle of Germany may go down well with those who subscribe to neo-keynesian economics. However, the post-keynesians will find it hard to swallow. May I?

          • Lester

            Keynes,

            Nice try. Your argument about the export-led miracle of Germany may go down well with those who subscribe to neo-keynesian economics.

            The logic is simple. Unrestrained government spending is not sustainable in the long-run. You need something else. The problem with the US economy is that real wages have not kept up with increases in productivity (a direct contradiction of classical economics). This problem has been around since the 1970’s. Outsourcing the US manufacturing base has only further exacerbated the issue. The only reason living standards have not declined is because of greater access to cheap credit. Now, if the US was a leader in net exports, these things would not be issues. And Germany is the prime example.

          • Keynes!

            Lester,

            “The problem with the US economy is that real wages have not kept up with increases in productivity (a direct contradiction of classical economics).”

            Spot on. It also dismisses the neo-classical meta-narrative that the marginal product of labour equals the wage rate. Indeed , this dubious equation has crept into Harvard University textbooks, such as the one by Greg Mankiw who is also Mitt Romney’s economic advisor, and is often used to justify the high pay for the c-suite. Joan Robinson nailed this way back in 1953 when she wrote:

            Moreover, the production function has been a powerful instrument of miseducation. The student of economic theory is taught to write O=f (L,C) where L is a quantity of labour, C a quantity of capital and O a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labour; he is told something about the index-number problem involved in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units C is measured. Before ever he does ask, he has become a professor,and so sloppy habits of thought are handed on from one generation to the next.

            As for the export-led approach for solving economic ills, consider the situation where there are only two countries in the world – Germany and Sri Lanka. If net exports is the panacea and if Germany is the leader in net exports, then it will be in Sri Lanka’s best interest to stop trading with Germany. To whom will Germany export to then?

            This export led mantra reminds of a study by Patricia Cross of the University of California, Berkeley. Her survey of university professors found that 94 percent believed themselves to be better teachers than the average at their institution. This is a statistical impossibility. It can be explained by the fact that individuals resist information that conflicts with positive self-assessments. Indeed, these unrealistically positive views of oneself are generally robust over time as easily demonstrated by Sharanga’s inability to shake off his god-given faith in laissez faire.

            The export led approach that was adopted in Sri Lanka during President JR’s tenure reached its zenith during President Premadasa’s (PP!) tenure and his frontment such as Kumar Dewapura were hailed as heroic exporters and honourable entrepreneurs (he!he!). The competiveness of Sri Lanka’s produce was achieved through the devaluation of the rupee. Thus, Paul Krugman was spot on when he labelled competitiveness as a dangerous obsession.

          • Lester

            Keynes,

            As for the export-led approach for solving economic ills, consider the situation where there are only two countries in the world – Germany and Sri Lanka. If net exports is the panacea and if Germany is the leader in net exports, then it will be in Sri Lanka’s best interest to stop trading with Germany. To whom will Germany export to then?

            Except that Germany is self-sufficient. The housing market (which caused so much pain in the USA) in Germany is a good example. Generally, people save for at least 10 years to buy a home. But more importantly, virtually every material that is used in the construction of the home is made in Germany , from the paint to the floor tiles. This allows many small businesses that specialize in just a single skill set to get a “piece of the action.” It also keeps revenue circulating inside Germany, as opposed to China. And of course, it keeps housing prices from fluctuating wildly, thereby preventing so-called “bubbles.” And I should also mention that since individual German home buyers take such a personal interest in building their own home (e.g. they themselves consult with the architects), they are less likely to sell the home after 4 or 5 years, as is often the case in the USA.

            Indeed, these unrealistically positive views of oneself are generally robust over time as easily demonstrated by Sharanga’s inability to shake off his god-given faith in laissez faire.

            In the German case, there is a lot of beauracracy, but there is also self-sufficiency. In the Sri Lankan case, there is a lot of beauracracy, and very little self-sufficiency.

            The export led approach that was adopted in Sri Lanka during President JR’s tenure reached its zenith during President Premadasa’s (PP!) tenure and his frontment such as Kumar Dewapura were hailed as heroic exporters and honourable entrepreneurs (he!he!). The competiveness of Sri Lanka’s produce was achieved through the devaluation of the rupee. Thus, Paul Krugman was spot on when he labelled competitiveness as a dangerous obsession.

            You have to put this into perspective. I would be willing to bet that the Sri Lankan economy grew during JR’s time, more so than at other any period since that time. Growth reflected in real projects with real tangible benefits, such as the Mahaveli Dam. If not for the war, we might infer that had JR’s open-market policies continued indefinitely, Sri Lanka today would be similar to Hong Kong. It would not be exporting just tea and cinnamon, but high-end electronics. Or it would be a major financial hub. The problem (as I see it in Sri Lanka) is that human capital has not evolved. After JR, there have been very few productivity “shocks.” Instead you have a brain drain.

    • http://brainoil.wordpress.com sharanga

      Being the only person who dared to predict this election, let me just say, for future reference of those who think I don’t know what I’m talking about, MY ELECTION PREDICTION WAS DEAD RIGHT.

      It’s funny that even the author thought the election was too close to call, when in fact Obama won more than 300 electoral votes pretty comfortably, like I said before the election.

      • Lester

        @ Sharanga,

        I presume you live a great distance from North America. Mitt Romney was expected to lose; it was never even close.

        • http://brainoil.wordpress.com sharanga

          Lester,

          Why are you saying, exactly what I was saying, to me?

  • Jason

    Jude, you should really rename this article to “Why I won’t vote for Mitt Romney.” This article is only a reflection on him.

  • http://brainoil.wordpress.com sharanga

    The USA always has had Laissez-faire economic policies. Romney is more pro-Laissez-faire than Obama, but that doesn’t mean Obama is anti-Laissez-faire. If Obama lived in Sri Lanka, he’d be one of the most vocal proponents for Laissez-faire. Laissez-faire is one of the biggest parts of the American success story.

    My point is simple. In order to improve the economy, they need to debt and deficit. One of the things you need to do to achieve that is to cut spending. It’s that obvious.

    I don’t think Romney’s economic policies would be better. Republicans haven’t been doing what they are supposed to do. The government has been growing even under the Republicans, contrary to their principles. Romney wants to spend more on defense, which is certainly not the right thing to do under the circumstances.

    Clinton, who was the last successful democrat president, was centrist who got the point.

    • Keynes!

      Sharanga,

      “Laissez-faire is one of the biggest parts of the American success story.”

      Let’s crunch the numbers on Google Public Data that is available at:

      http://www.google.lk/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=country:US&fdim_y=seasonality:S&dl=en&hl=en&q=us+unemployment+rate

      The graph plots the unemployment rate from Jan 1948 to Sep 2012. There are 10 unemployment peaks – Oct 1949, Sep 1954, July 1958… and so on.

      The coincidence is such that during every one of the major peaks in unemployment, save one, a Republican president was in office. The only exception, Oct 1949, during which the Republican Harry Truman was in office can be explained by a decrease in demand as a result of World War II coming to an end.

      I am now tempted to use Okun’s Law and turn the graph on its head to explore the relationship between a Republican Office (read laissez faire) and the GDP Growth Rate.

      You should do the math. The only option you have now is to invoke the Phillips Curve and argue that inflation is low when unemployment is high and thereby come to the conclusion that Republican offices promise low inflation!

      • http://brainoil.wordpress.com sharanga

        Why stop at Presidents? In the US, unlike in SL, Presidents can’t do much without the approval of the House and the Senate.

        The 83rd US congress, which met from January 3, 1953 to January 3, 1955, had 48 Republican senators versus 47 Democratic senators, and 1 independent. Hardly an invincible majority. The House had 221 republicans vs 213 democrats. Again, hardly invincible.

        The 85th US congress, which met from January 3, 1957 to January 3, 1959, was democratic. Democrats had 49 senators versus 47 republicans. More importantly, democrats had 234 in the House versus 201 republicans.

        So why didn’t you factor those into whatever argument you are trying to make? I mean, shouldn’t you first check how much power the Republicans had before you use the Okun’s Law to find faults with their policies, when in fact democrats were controlling both the House and the Senate?

        In any case, Republicans and Democrats used to be much more like each other few decades ago. Environment used to be Republican issue, for crying out loud.

        One more thing. As I said earlier if Obama lived in SL, he’ll be called an extreme fiscal right-wing-nut. Obama isn’t anti Laissez-faire. I mean, do you think Clinton was anti Laissez-faire??????????

        The problem is more simple.

        1. Do you agree that US needs to reduce its deficits and debts?

        2. How do you think they should do it?

        • Keynes!

          Sharanga,

          I am not claiming that Democrats are anti-laissez faire. It’s just that there is a general observable trend for Republican presidents in office and Republican candidates to be laissez-faire. Indeed, Ronald Reagan the Republican (Triple R!) epitomized what it is to be laissez-faire although the big spending on the military during his tenure tended to keep up demand in the economy.

          Let’s take the largest two depressions in the last 100 years. The Aug 1929 depression and the Dec 2007 recession were largely because of laissez faire policies.

          For the record, I would place greater blame on Bill Clinton than George Bush for the Dec 2007 recession. Extrapolating his Roaring Nineties, he went on to abolish the Glass Steagal Act and replacing it with the Gramm–Leach–Bliley Act prior to leaving office. Thus, it was Clinton who set the stage for the financial collapse during George Bush’s tenure.

          George, however, cannot be left off the hook. When Clinton left office, he left a budget surplus of 127 billion. When George Bush left office, he left a budget deficit of 459 billion. So, who do you think is better at fighting red ink?

          Indeed, by 2002, George Bush had run up a deficit of 157 billion. By 2004, it was 413 billion.

          Let’s take the spending spree of Obama. The following link provides a graphic and compares it with that of other presidents in recent history.
          http://articles.marketwatch.com/2012-05-22/commentary/31802270_1_spending-federal-budget-drunken-sailor

          Surprisingly, it is the Democrat Obama who comes last when it comes to spending.

          As for your questions on the need to reduce the deficit and how it could be achieved, all I can say is that U.S should not reduce the deficit at this point since the unemployment rate is at 7.8% as at Sep 2012. Obama stimulus package is inadequate because it is 1.5 per cent of GDP. Some components of the stimulus (like the tax cuts) are dubious. Moreover, his failure to deliver the stimulus package with ‘surgical precision’ (thank you to Joseph Stigliz) is another headache. Give a bigger and better stimulus (that can be worked out using the Keynesian Cross) and once the patient regains consciousness, we can get him to foot the bill.

          To sum up, I find a couple of things worrying: your obsession with the deficit; Jude Fernando’s obsession with competitiveness, a bug that has also bitten Indrajit Coomarswamy; and central banker W.A. Wijewardena’s (and Prof. Sisira Jayasuriya’s) recent article in the Colombo telegraph on why Keynesian policies will not work in an open economy.

          • http://brainoil.wordpress.com sharanga

            To say that Republican presidents had been more laissez-faire than Democrats is an utter falsehood.

            I’ll give you an example. Herbert Hoover, Republican US president from 1929-1933(right at the beginning of the Great Depression) was pretty explicitly anti-laissez-faire. Here’s something from Wikipedia, since I don’t want to type well known facts.

            Franklin D. Roosevelt blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs and blocking trade, as well as placing millions on the government dole. Roosevelt attacked Hoover for “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible.” Roosevelt’s running mate, John Nance Garner, accused the Republican of “leading the country down the path of socialism”.

            Hoover, to worsen the matter, had the following to say during 1932 presidential campaign.

            we might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action

            Only a person who has studied US history only up to 20 years ago would think that democrats are less laissez-faire and Republicans are more laissez-faire. Nothing wrong with that using that knowledge to predict what would a next Republican president do. But it’s not a good idea to use that understanding to hold anyone or anything responsible for depressions that happened decades ago.

            As for Obama spending less than other presidents, I didn’t check out the link you’ve given, since it is not against any of the claims that I made here. I pretty explicitly replied to Gamarala that I don’t think Romney would improve the economy because Republicans haven’t done what they claim to do: cutting spending. They spend as much as the democrats, and make the government bigger and bigger. If anything, this is an argument against your point that Republican presidents are more laissez-faire than democrats. Republicans have spent a lot trying to control things instead of hanging back and letting things happen.

            As for your idea that they shouldn’t reduce deficits, I almost forgot that you’re a Keynesian. I’ve tried in the past to convince Keynesians to balance the budget but they think thought I was just uttering neoclassical bull—t. There’s no point in going there.

            Except, with what are you going to payoff your debts? Or are you saying they shouldn’t reduce the debts either just like deficits and shouldn’t mind having to pay more interest?

          • http://brainoil.wordpress.com sharanga

            Read your link. That article is just ridiculous. It attributes the 2009 spending spree to Bush, saying that:

            The 2009 fiscal year, which Republicans count as part of Obama’s legacy, began four months before Obama moved into the White House. The major spending decisions in the 2009 fiscal year were made by George W. Bush and the previous Congress.

            Bull—t. The Congress, which was Democratic back then, only passed three of fiscal 2009’s 12 appropriation bills. They waited for Obama to win and passed the rest in 2009, and Obama signed them. He’s directly responsible, along with the Democratic Congress for 2009 spending spree.

            Please note that I’m not defending Bush here. Bush was a crazy spender. As I said, Republicans don’t do what they claim to do. They promise to cut spending and break all those promises, which is why they can’t get the economy right. But Obama is hardly any better. He’s a big spender.

            By the way, Clinton was the one who balanced the budget after a long long time, and during his era, the US was a prosperous country. All the more reason to balance the budget. Before Obama, the highest deficit was $400 billion something (I’m not going to check this out). Under Obama it is over one trillion. Being a Keynesian you must love this guy.

          • Keynes!

            Sharanga,

            “I almost forgot that you’re a Keynesian.”

            Wrong again. I am Post-Keynesian.

          • http://brainoil.wordpress.com sharanga

            Post-keynesian? As if that settles the matter.

            For one thing, post-keynesianism is all about going back to Keynes. For two, for the purposes of this discussion, it doesn’t matter.

            You are cool with big government spending. You don’t mind that it leads to bigger and bigger budget deficits. Okay, fine. Just tell me with what exactly you are going to payoff the debts? Or do you think debts are cool too, even though it means you’re going to have pay a damn lot of money as interest to China?

          • Keynes!

            Sharanga,

            Let’s say that the Government of Sri Lanka follows your policy prescription and balances the budget and pays off the public debt.

            Where then are the EPF and ETF monies to be invested?

            Investing such social security money in ventures such as Mihin Lanka, or in the stock market or in private firms does not guarantee repayment. They may as well be surefire ways of loosing the money.

            The only way that repayment can be guaranteed is through the issue of treasury bills and bonds.

            The day the government balances the deficit and brings down the debt to zero, social security will get privatized. Such a situation will lead to an increase in corporate cash flow, which is now beyond what is needed to pay off the debt since the debt is zero. All this becomes a good recipe for a banking bubble since bankers after are merchants of debt.

            I am sure you know what the result of a banking bubble is.

            This Financial Instability Hypothesis was put foward by the economist Hyman Minsky in 1992 and has stood the test of time. An excerpt from one his papers is reproduced below:

            “over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.”

            Thus, the good times that Bill Clinton’s budget surplus was an illusory lifeline that eventually turned into a noose as predicted by Minsky.

            Societies can live without budget deficits and public debt, but their lives will be far more difficult.

          • http://brainoil.wordpress.com sharanga

            Why don’t we, rather than thinking about the unlikely scenario of Sri Lankan government balancing its budget, ponder on the more likely scenario of Greece defaulting on its debt?

            So there’s this Greek government debt crisis. Greeks haven’t balanced budget for decades. Their debt to GDP ratio has been going up since forever, until now it was uncertain whether they could payoff the debts. This uncertainty among investors lead Greek government to be classified as junk bond. This lead bond yields up to incredible heights, until the Greeks needed to get a bailout from the IMF, under pretty neoclassical conditions, like reducing spending, and privatizing government assets… and then a second bailout.

            So let’s get this straight. The US is doing exactly what the Greeks were doing – spending like crazy. And you are not worried?

      • Keynes!

        Sharanga,

        The United States has monetary sovereignity. Greece does not.

        It’s difficult to add apples and oranges. The United States and Greece have to be looked at separately.

        • http://brainoil.wordpress.com sharanga

          So Greece wouldn’t have fallen into a debt crisis, if only they had stepped out of the euro zone few years before the crisis? Care to explain how that works out?

          • http://brainoil.wordpress.com sharanga

            @Keynes

            I’m still waiting for a response from you. In the meanwhile, I like to point out that even Paul Krugman, who is one of the most celebrated Keynesians there is, thinks that the reason for Greece’s debt-crisis was irresponsible public borrowing. He said so in the manifesto he wrote with Ricard Layard. Krugman isn’t Post-Keynesian. But his views are sometimes very close to that. So I’m astounded that you think irresponsible public borrowing and uncontrolled spending has nothing to do with Greece’s crisis.

            Greece was simply living beyond its means, long before they joined the euro. After it adopted euro, public spending rocketed. The rocket was already there. Euro just added more fuel. For example, public sector wages went up by 50% between 1999 to 2007, faster than any other euro zone country.

            This kept on happening for years and years. Overspending caused a budget deficit that only went up. So when the global financial downturn hit, Greece was already in trouble, so the hit was pretty bad. Germany, on the other hand, definitely the strongest economy in the eurozone, wasn’t hit like that. Why? Because Germany controls its spending and generates budget surpluses.

            So when someone mentions Greece, all the Keynesians can do is denying reality. Ridiculous government overspending and borrowing artificially boosted the country’s GDP back when the global economy was doing fine. But when things go wrong, you have a heap of debt you just can’t pay, and hundreds of thousands of moronic citizens and political parties who just don’t want to let go of their costly life-styles and don’t want to face reality. Seriously, there was this political party who did not want the IMF bailout because they didn’t agree with the neoclassical conditions that the IMF wanted impose on Greece. The whole world was watching the election, because if they did win the election, they would have not just ruined the Greek economy, they would have ruined entire Europe. Lucky they didn’t win.

            The fact of the matter is, Keynesian economics cannot work in practice even if it can in theory. Keynesians want to maintain a big deficit when the demand is weak. When the demand is low, you create demand by spending like there’s no tomorrow. Let’s forget about government corruption and inefficiencies. Let’s say that this works. But the other side of the coin is that you need to maintain equally large surpluses when the demand is strong. This is required by the theory itself. But this actually never happens in the real. Governments never maintain huge surpluses, equal to the deficits they run during bad times. So when the economy takes a hit, the government doesn’t really have a lot of money to spend. All they can do is borrow more money. They could always print money, but that isn’t really Keynesian, is it? You would rather kill pensioners.

            So whenever there is an stimulus (which will obviously never work), you get Keynesians saying that it won’t work because it is too small, just like you said Obama’s package is inadequate because it’s 1.5% of GDP. Well it’s $900 billion. Where exactly do they find more money? They don’t have it. All they can do is borrow more and go down the path of Greece. That kind of tactic would work during something like the World War when the government was able raise money by issuing bonds with negative real yields. But that was an extraordinary situation where patriotism ran very high.

            P.S. Still waiting for you to explain how Greece wouldn’t have fallen into the trap they fell in if they had monetary sovereignty.

          • Keynes!

            Greece may have still fallen into a debt-crisis if they had not got into the eurozone.

            Japan’s current debt ratio is at a whopping 233% whereas Greece’s debt ratio is at 152%. Guess what! S&P’s credit rating for Japan is AA- whereas Greece gets only a CC. Thus, debt ratios may sometimes be a poor indicator of a country’s performance on the economic front.

            Moving over to the increase in the debt-ratios of Greece and the United States between 2010 and 2012, I can say that the increase for Greece seems to have taken place largely because of the austerity measures that were put in place. The austerity has led to an increase in the unemployment rate (lower production) in Greece and thus the increase in the debt-ratio can be classified as ‘bad debt’ for convenience here.

            The increase in the debt-ratio in the U.S. is because of the stimulus package. This can be classified as ‘good debt’ for convenience here. I lodge a caveat nevertheless because Obama’s stimulus package is a curate’s egg. The stimulus package was only 1.5% of GDP after all.

            “The boom, not the slump, is the right time for austerity at the Treasury.” – J.M. Keynes

            Back to the Euro and the Greeks. One of the main requirements of the euro convergence criteria is that the debt-ratios of members must not exceed 60%. When Greece made a severe violation of this in 2010, the German mandarins in Brussels and the IMF began a morality play, which after all is not surprising since the oldest surviving morality play was written by a German.

            When excessive credit creation takes place in the U.S., the bankers are held responsible as was the case during the last crisis. In Europe, it’s the other way round. It’s the borrowers who are held responsible. When Germany began its excessive lending to the Greeks, possibly aided by the extra cash that their exports was bring in, the Germans were seen as thrifty and virtuous (Lester does the same thing here in the forum). When the crisis in Greece occurred, the Germans have started asking for the pound of flesh whereas Germany should have bailed them out. I thus believe that the Greeks have the moral upperhand now to make a repudiation and that they should go for it by making a formal declaration. If Germany wants war, so be it. It’s time the Greeks readied the phalanx to meet the Germans in Thermopylae.

            So much for German morals, thriftiness and their ability to export. The Post-Keynesians have a reminder for the Germans, the Japanese, the Singaporeans and the South Koreans who are all high falutin purveyors of their supply-side superiority and their ability to win the game of exports. All these miraculous performances, as the living legend Paul Davidson once noted, is at the expense of the rest of the world.

          • http://brainoil.wordpress.com sharanga

            More Keynesian reality denying.

            It’s true that Japan’s S&P credit rating is AA-. But you forget to mention that there outlook for Japan is negative. Further, Fitch actually downgraded Japan’s credit rating from AA- to A+ in May 2012. The reason was that they thought a political stalemate was dimming the chance of Japan curbing its increasing debt.

            ***

            You seriously think that the problem is austerity. Of course austerity causes problems in the short term (even though everyone who is not a Keynesian believes its the solution in the long-term), but is it the root cause of the problem? Even a Post-Keynesian can’t say that without losing his/her credibility.

            I like that quote from Keynes, because it pretty much summarize Keynesian theory. If you are running deficits when the demand is low, you need to suck demand out by running surpluses when the demand is high. But no country does that. What happens in reality is that countries run deficits when the economy is in a slump, and they run deficits when it is in boom as well. So when the economy takes a hit, we get Keynesians like you trying to get governments to spend more, except there the government doesn’t have the money to spend. So you either have to print money, which causes a series of problems, or you can borrow more and go down the path of Greece.

            *****

            Oh. So it’s not Greece’s fault that there moronic big government wanted to spend like there’s no tomorrow, do stuff like increasing the salaries of public servants by 50% in 8 years, by irresponsibly borrowing money from foreign countries. It’s Germany’s fault that they lent the money to the Greeks. The Greeks are utter imbeciles who know nothing about sensible fiscal or monetary policies. They are like children. They cannot be held responsible for their actions. So the responsibility must go to the Germans, who actually have a sensible economic policy where they don’t spend like crazy, don’t borrow like crazy, and run balanced budgets. If the Post-Keynesians want to put the blame on Germany for the mess Greeks are in right now, that’s like low-blow in a boxing match. It’s unfair and totally ridiculous.

            And in any case, isn’t the duty of the government to do what’s best for their country, and not other countries? So the Germans are doing what’s right for them, right?

          • Keynes!

            Sharanga,

            “Germans… have a sensible economic policy where they don’t spend like crazy, don’t borrow like crazy, and run balanced budgets.”

            But the Germans lend like crazy!

            By December 2009, German banks had claims of 704 billion dollars on Greece, Ireland, Italy etc., which was more than their aggregate capital. Irresponsible borrowers cannot exist without irresponsible lenders you gon part.

            ***

            The Maastricht Treaty has a cap of 60% on members’s debt ratio. Germany has violated this for the last ten years. How come this doesn’t stop you from bragging about German fiscal discipline?

            ***

            Even the IMF’s World Economic Outlook Report dated October 2012 quietly admits that its austerity medicine for Greece is not working. The rhetorical question on page 41 of the report reveals the IMF’s intellectual bankruptcy:

            “So a natural question is whether the negative short-term effects of fiscal cutbacks have been larger than expected because fiscal multipliers were underestimated.”

            What, then, is your solution to the crisis in Greece?

          • http://brainoil.wordpress.com sharanga

            IMF austerity medicine isn’t working not because austerity and fiscal consolidation is the wrong path to go. IMF certainly doesn’t believe that. What they screwed up were the fiscal multipliers, as they themselves now have realized.

            Read the part before the part you quoted.
            With many economies in fiscal consolidation mode, a debate has been raging about the size of fiscal multipliers. The smaller the multipliers, the less costly the fiscal consolidation. At the same time, activity has disappointed in a number of economies undertaking fiscal consolidation.

            They just miscalculated the multipliers. It’s implicit in their forecasts that they thought the multipliers were around 0.5, when in fact it should have been between 1 to 1.5. So IMF austerity plans turned out to be too aggressive and too costly to the Greek population.

            But that doesn’t mean austerity itself doesn’t work and fiscal consolidation isn’t the way to go. The answer is definitely not more government spending and more incurring of debt. That’s what got them into trouble in the first place. What you are suggesting is like trying to dig your way out of well you fell into, hoping you’d come out from the other side of earth.

            ****

            As for Germans, I don’t presume to say that their fiscal policy is perfect. The fact that the debt ratio has gone up to more than 80% from the 61% it was when euro was created itself is pretty bad. Still it’s way better than 160% of Greece and 120% of Italy. And as you mentioned, the face the risk of others defaulting.

            But the fact of the matter is, compared to the rest of those countries, Germany is strong and stable, and that in itself is testament to their fiscal discipline.

            By the way, you attacking Germany for violating Maastricht Treaty, and trying to use that to state Germans have been irresponsible is really not a good argument since there’s no proof that 60% mentioned in the treaty is a special value for debt ratios.

          • Keynes!

            Sharanga,

            “Read the part before the part you quoted.”

            Don’t put parts.

            I have been reading the parts that you and the IMF have been putting. Unemployment was at 12% when the Greek government announced its austerity measures in May 2010. By August 2012 it had gone up to 25%. Hundreds of thousands have lost their jobs taking economic misery to new levels. Yet, the IMF and you show no remorse whatsoever for the pain that has been inflicted on the people of Greece because of the miscalculation of the fiscal multiplier. You just brush aside this miscalculation as if it was some minor glitch at the IMF. The Germans, the IMF and you come across as sadists with a bizarre deficit-hawk fetish. You have gone astray. It’s time you took refuge in the Noble Triple Gem.

            In June 2011, the Office of the High Commissioner for Human Rights requested the IMF and the EU “to remain aware of the human rights impact the policies they design.” It’s high time that Germany and the IMF are hauled before the UN Human Rights Council for crimes against humanity.

            ***

            If Greece’s public debt was held domestically, would you still advocate for a reduction in the deficit?

            ***

            What would your response be if Sri Lanka, not Greece, were to go through such a situation where the Germans hold us to ransom?

            Would you not join the likes of Wimal Weerawansa, Udaya Gammanpila and Gunadasa Amarasekara and organise a farce fast in front of the German Embassy while the ambassador is tucking into his Kaiserschmarrn?

          • http://brainoil.wordpress.com sharanga

            Now you are taking the meaning of the word “irresponsibility” to new levels. You are seriously saying that the IMF should be held accountable for crimes against humanity? IMF must be saying WTF. What do you see here as human right? The right to borrow money from others and default on them? From where in hell did you pull that human right off?

            If you can’t pay it back, don’t borrow it. That’s true for individuals (I hope you do believe this, because otherwise your bank would be interested in your opinion), it’s true for corporations and there’s on reason to say that that’s not true for sovereign states. If you borrow money, you have to somehow pay it back. You don’t have a right to borrow money, and expect others to not ask it back.

            It’s just astounding that you still want the Greeks to borrow and spend their way out of the hole they are in, when that is what got them into that hole in the first place. It’s even more astounding that you expect lenders to not ask for their money back. Seriously, does Keynesian economics make such pathetic demands?

            ***

            The fact that IMF screwed up the multipliers isn’t a small deal. But again, the fact that they screwed up doesn’t disprove the truth that the way to go is austerity and fiscal consolidation. It’s still the way to go, because the way you are suggesting (borrowing and spending more), is just crazy.

            ***

            No. It wouldn’t make it okay for Greece to go on doing crazy deficit spending even if all the debts were domestic. You will still come to the point where you lose all your credibility when you find yourself unable to pay the money back, which would lead to bad things, obviously.

            ***

            I’m not quite sure where you trying to go with this Sri Lanka hypothesis. Suppose, that such thing happens, and I joined Weerawansha and Gammanpila to tell a foreign country back off and let us default on our loans. What does that prove? Does that prove that governments shouldn’t act on their own (country’s) self-interest? It doesn’t. Any government should act on their own self-interest.

            So let me turn the question around. What if we were the guys who had lent out money to Stupid-Country-A, about to go bankrupt? Would you not want to get our money back somehow? If you don’t, I imagine you can lend me some money that I can default on.

            P.S. I find it very unlikely that I’ll ever join Weerawansha and the likes even for a good cause. Not just because I despise their politics, but also because my activism doesn’t extend beyond my keyboard.

          • Keynes!

            Sharanga,

            “If you can’t pay it back, don’t borrow it.”

            If you know that the borrower cannot pay it back, then do not lend it!

            When the Greek Financial Audit took place in 2004, Eurostat refused to validate the data beacuse the possibility of creative accounting. Yet the Germans continued to lend to Greece until 2009 so that Greece could continue to import German exports. The German bankers were well aware that Greece will find it difficult to pay back.

            ***

            “From where in hell did you pull that human right off? ”

            Germany has ratified the ICESCR. I also recommend that a psychiatrist be brough in during the sessions to examine this Protestant fetish for lending.

            ***

            Germany’s behaviour is like Muhammad Yunus’s questionable Grameen Bank, which gives loans to uplift people out of poverty. Whenever a natural disaster in the form of floods hits Bangladesh, the first persons in the scene are not relief workers but Grameen officers asking for the money back.

            I am not saying that Greeks are without fault, but the issue is that the posturing and fretting by Germany pushed Greece to a point where they came up with a brinkmanship game in the form of a Grexit. Had the Grexit happened by any chance, countries such as Portugal, Italy and Spain would have followed suit with bank runs following. Germany’s economy would have slowed and Sri Lanka would have had a hard time since a considerable share of its exports such as tea, garments and gems go to Europe. Moreover, with the economic collapse in Europe, tourism in Sri Lanka would have been hard hit with our tourist touts and beach boys being unemployed.

            ***

            Angela Merkel has now blinked. Her visit to Greece last week shows that all who wander are not lost. Nevertheless, I would sound caution because of her belief in the protestant work ethic and the infralapsarianism viewpoint that her father has taught her to dearly hold onto.

            There are two options now. Germany should write off half the debt; or it should leave the Euro.

            ***

            “No. It wouldn’t make it okay for Greece to go on doing crazy deficit spending even if all the debts were domestic.”

            Assume that Greece is a closed economy, the debts are domestic and that they do not spend like crazy. Would it be alright to lift the economy through a fiscal stimulus?

          • http://brainoil.wordpress.com sharanga

            So I ask a Post-Keynesian, “what’s the cause of Greece’s financial crisis?”

            “Germany” he answered.

            I really cannot argue beyond that. It’s such a patently nonsensical answer that the only reply to it us to be dumbfounded. I just hope your bank doesn’t lend you a dime. The last thing we need is a horde of Post-Keynesians thinking they have a licence to default.

            But in any case, even though you rather pathetically to put the blame on the Germans, you still have to agree, according to what you have said here, that Country A borrowing excessively from Country B (you can think of it as Country B lending excessively from Country A, since you like blaming the Germans), create global scale financial problems. Since you don’t want that, you’re going to have advise governments to borrow excessively and get into trouble like the Greeks did. So for example, if GoSL is borrowing excessively from the Indians, you’re going to have to persuade your government to not do that. Because even though you’d put the blame on the Indians on a blog like this when they ask for their money back, it is your country and the government that is going to be in trouble. Of course excessive lending is bad too. But there’s no controversy there. No one tells the governments to lend money to countries that won’t be able to pay it back, unlike the case with borrowing, where we got a bunch if Keynesian big government people who want to borrow stuff from all sorts of places and spend it.

            ****

            Still no.

            I take that when you say they don’t spend like crazy, you mean they actually do the real Keynesian thing of running surpluses, equal in size to the deficits they run during slumps, during booms.

            Still, how exactly are you going to generate those excessive surpluses? Obviously you have to raise your revenues. How are you going to do that? You’re going to have to raise taxes. You’re not only going to have to raise taxes. You’re going to have to do it in record levels because you want to generate a huge surplus, that you’ll use to fund your fiscal stimulus during slump. So you’re going to be a total party pooper during a boom when you want to tax fast growing enterprises and limit their growth.

          • Keynes!

            The post-keynesians were probably the first to uncover the problems of the european monetary union. Way back in 1992, the economist Wynne Godley wrote a prophetic article which can be viewed at:

            http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that

            ***

            Let’s ask some Germans themselves as to what they think of Germany’s attempt to hold Greece accountable for the debt. The following are some excerpts from an interview Der Spiegel magazine had with the German economic historian Albrecht Ritschl:

            “In the 20th century, Germany started two world wars, the second of which was conducted as a war of annihilation and extermination, and subsequently its enemies waived its reparations payments completely or to a considerable extent. No one in Greece has forgotten that Germany owes its economic prosperity to the grace of other nations.”

            “Germany is king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century.”

            “The Greeks are very well aware of the antagonistic articles in the German media. If the mood in the country turns, old claims for reparations could be raised, from other European nations as well. And if Germany ever had to honor them, we would all be taken the cleaners. Compared with that, we can be grateful that Greece is being indulgently reorganized at our expense. If we follow public opinion here with its cheap propaganda and not wanting to pay, then eventually the old bills will be presented again.”

            It’s straight from the horse’s mouth. The full interview can be read at
            http://www.spiegel.de/international/germany/economic-historian-germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html

            ***

            J.M. Keynes once said “If you owe your banker a thousand pounds, you are at his mercy. If you owe your banker a million pounds, he is at your mercy.”

            No wonder that Angel Merkel blinked. He! He!

            ***

            ‘That governments almost never “pay back their debt” is not surprising, and should be no more alarming than the fact that Wal-Mart will always have some debt in its capital structure.’

            ***

            So much for the policies of free-market zealots and deficit-hawks. The economic misery that you’ll have brought to this world is shocking. It need not be this way. Post-Keynesian economists have deciphered the working of the economy reasonably well given the limited resources they have had in the past and the fact that have been excluded by mainstream economics.

            Keynes’ economics may have foiled the class struggle. That’s a different debate altogether.

            ***

            This debate has been long. Thank you Sharanga for having given me the opportunity to debate with you. Bruce Lee once quipped that “A wise man can learn more from a foolish question than a fool can learn from a wise answer.” Sharanga has taught me a lot.

            Thanks to GV and Jude Fernando for initiating this.

          • http://brainoil.wordpress.com sharanga

            Since you want to end the debate, this’ll be my last response as well, and I’ll try not to raise new points.
            **
            Obviously Bruce Lee never read Shakespeare.
            **

            J.M. Keynes once said “If you owe your banker a thousand pounds, you are at his mercy. If you owe your banker a million pounds, he is at your mercy.”

            Moral of the story: People should never lend a dime to Keynesian. He he.

            Except no, if you do that to a bank, you’re going to end up in jail.
            **

            It is depressing to think that when you ask what is wrong with Greece’s economy, the Post-Keynesian answer is “Germany.” I don’t mean this in a trivial way. This is really bad since we’re trying to make economics into a science as hard as physics. My only hope for Keynesians is that other Keynesians won’t give the same answer you gave when asked what’s wrong with the Greek’s economy.

            Your attempt to put the blame on the Germans for the Greek crisis is just plain pathetic. Morality aside, you should realize that once your country is in trouble because your government borrowed excessively from foreign countries, there’s no use in blaming those other countries for lending money to your government. In this case, Germans didn’t force the Greeks to borrow money. Greeks wanted the money, and Germany just gave it.

            Moreover, if you have such an attitude about borrowing, your bank should be seriously concerned about giving you house loans, or car leases.

            ***

            More important thing is this. You blame the Germans for the crisis. But that is an non-issue. Economics is not about deciding who caused the crisis, it is in this case about what action caused the crisis. So it is pretty clear, even according to you, the action that caused the crisis (or at lease worsened it), is the act of Greeks borrowing excessively (you can read that as Germans lending excessively, if you want. It’s still the same thing). So basically, none of this would have happened if Greece adopted the sensible policy of not running ridiculously high deficits, and not borrowing excessively to fund their crazy spending programmes.

            So, if the SL government is borrowing excessively from, say, China, you’d do a better service to your country and your government if you persuade it to not do that, instead of waiting to blame China when things get ugly.

            Thank you.

            P.S. Advice to others. Never lend in one rupee to Keynes. He’ll default on it and blame you for lending you the rupee.

  • Jude Fernando

    ‘In the long run, we are all dead’ Kenyes

  • Jayalath

    Dear Readers.

    Obama has reelected fr the second term , which Is great and delightful . But there is a huge question has been lain in the white world . Where is the world heading to ? It is worrying them . We did this magic not because we were capable of doing that , because we had most number of heads , unfortunately not most number of brains .

    This is my worry , we have not demonstrated yet that we are capable of doing things as good as whites , this is the truth , and facts . We can moan about the slavery and other discriminations , but it is not the right fact of past , all these took place and happened , because we had serious lack of ingenuity .so I’m still not very happy .

    We have to wait and see, as this is a new era .

  • Pragmatist

    Jayalath, your comment regarding “whites” is evidence that you suffer from a serious case of inferiority complex. I thought that all people who thought like you died many years ago with my grandfather’s generation. That makes me wonder how old you are, 140 yrs?