http://www.project-syndicate.org The highest quality commentaries and analysis from distinguished voices across the world en 2012-02-07T07:00:35+01:00 webmaster@project-syndicate.org webmaster@project-syndicate.org 1994-01-01T00:00:00+01:00 4 hourly http://www.project-syndicate.org/commentary/stiglitz148/English <a href=http://www.project-syndicate.org/commentary/stiglitz148/English>STIGLITZ: Capturing the ECB</a> <p>NEW YORK – Nothing illustrates better the political crosscurrents, special interests, and shortsighted economics now at play in Europe than the debate over the restructuring of Greece’s sovereign debt. Germany insists on a deep restructuring – at least a 50% “haircut” for bondholders – whereas the European Central Bank insists that any debt restructuring must be voluntary.</p><p>In the old days – think of the 1980’s Latin American debt crisis – one could get creditors, mostly large banks, in a small room, and hammer out a deal, aided by some cajoling, or even arm-twisting, by governments and regulators eager for things to go smoothly. But, with the advent of debt securitization, creditors have become far more numerous, and include hedge funds and other investors over whom regulators and governments have little sway.</p><p>Moreover, “innovation” in financial markets has made it possible for securities owners to be insured, meaning that they have a seat at the table, but no “skin in the game.” They do have interests: they want to collect on their insurance, and that means that the restructuring must be a “credit event” – tantamount to a default. The ECB’s insistence on “voluntary” restructuring – that is, avoidance of a credit event – has placed the two sides at loggerheads. The irony is that the regulators have allowed the creation of this dysfunctional system.  </p><p>The ECB’s stance is peculiar. One would have hoped that the banks might have managed the default risk on the bonds in their portfolios by buying insurance. And, if they bought insurance, a regulator concerned with systemic stability would want to be sure that the insurer pays in the event of a loss. But the ECB wants the banks to suffer a 50% loss on their bond holdings, without insurance “benefits” having to be paid.</p><p>There are three explanations for the ECB’s position, none of which speaks well for the institution and its regulatory and supervisory conduct. The first explanation is that the banks have not, in fact, bought insurance, and some have taken speculative positions. The second is that the ECB knows that the financial system lacks transparency – and knows that investors know that they cannot gauge the impact of an involuntary default, which could cause credit markets to freeze, reprising the aftermath of Lehman Brothers’ collapse in September 2008. Finally, the ECB may be trying to protect the few banks that have written the insurance.</p><p>None of these explanations is an adequate excuse for the ECB’s opposition to deep involuntary restructuring of Greece’s debt. The ECB should have insisted on more transparency – indeed, that should have been one of the main lessons of 2008. Regulators should not have allowed the banks to speculate as they did; if anything, they should have required them to buy insurance – and then insisted on restructuring in a way that ensured that the insurance paid off.</p> Joseph E. Stiglitz 2012-02-06T00:00:00+01:00 http://www.project-syndicate.org/commentary/zuma1/English <a href=http://www.project-syndicate.org/commentary/zuma1/English>ECON WEEKLY: Seizing Sustainable Development</a> <p>HELSINKI/JOHANNESBURG – The world is on an unsustainable path, and must urgently chart a new course forward, one that brings equity and environmental concerns into the economic mainstream. To do so, we must put sustainable development into practice now, not in spite of the economic crisis, but because of it. </p><p>Our challenges today are many. Economies are teetering, ecosystems are under siege, and inequality – within and between countries – is soaring. Taken together, these are symptoms that share a root cause: speculative and often narrow interests have superseded common interests, common responsibilities, and common sense. </p><p>As Co-Chairs of the United Nations’ High-Level Panel on Global Sustainability, we have been asked by UN Secretary-General Ban Ki-moon to work with 20 of the world’s most eminent leaders in grappling with these issues. Our task is clear: propose how to provide greater opportunity for more people with less impact on our planet. </p><p>A quarter-century ago, the Brundtland report, named for former Norwegian Prime Minister Gro Brundtland, called for a new paradigm of sustainable development. It stated that durable economic growth, social equality, and environmental sustainability are mutually interdependent. Human well-being depends on their integration.</p><p>We are convinced not only that this concept is sound, but also that it remains more relevant than ever. Now we need to put theory into practice by moving sustainable development into mainstream economics and making clear the costs of action – and inaction – today and in the future.</p><p>By 2030, as the human population swells and appetites increase, the world will need at least 50% more food, 45% more energy, and 30% more water. Our planet is approaching, and even exceeding, scientific tipping points. This has serious implications for how we manage the global commons – and for reducing poverty: if developing countries are to realize their legitimate growth aspirations, they will need more time, as well as financial and technological support, to make the transition to sustainability.</p> Jacob Zuma, Tarja Halonen 2012-02-06T00:00:00+01:00 http://www.project-syndicate.org/commentary/gabowitsch1/English <a href=http://www.project-syndicate.org/commentary/gabowitsch1/English>WEEKLY: A Strategy for Russia’s Snow Revolution</a> <p>POTSDAM – Nonviolent revolutions do not always remain nonviolent, as the examples of uprisings in Egypt, Libya, and Syria in the Arab Spring have shown. But peaceful movements for regime change often do succeed. They have toppled illegitimate rulers, as with the post-Soviet “color revolutions” in Georgia and Ukraine, and ended apartheid in South Africa, for example, or, before that, the Jim Crow system in the American South. Non-violent movements broke British rule in India and Malawi, and brought down authoritarian regimes in Chile, the Philippines, and Portugal.</p><p>On the surface, most of these cases seem so different from present-day Russia as to be irrelevant to the success or failure of the current protests against Vladimir Putin’s continued rule and the protesters’ call for free, fair, and competitive elections. But which differences are important?</p><p>The immediate outcomes of nonviolent movements for political change are not decided by macro-factors such as levels of education, unemployment, or the presence of a modern middle class. After all, civil resistance has succeeded in poor, backward countries, like India, and failed in rich, educated ones, like the Gulf states.</p><p>Nor do short-term windows of opportunity play a decisive role: no serious economic crisis was needed for Chileans to oust General Augusto Pinochet, and Panama’s Manuel Noriega survived a massive nonviolent protest movement, despite crippling economic problems and divisions within the ruling elite.</p><p>Recent research by the sociologists Erica Chenoweth, Maria J. Stephan, and Sharon Erickson Nepstad shows that one factor more than any other determines whether nonviolent struggles succeed: protesters’ decision to adopt nonviolence itself. Indeed, Chenoweth and Stephan have shown that peaceful protests are more than twice as likely as violent confrontation to bring about complete or partial regime change.</p><p>But the outcome of civil resistance also depends on the precise methods used. Challenging the regime’s legitimacy and withholding skills and material resources from it are important, as is creating free spaces for dissent and maintaining the movement’s unity and clarity of purpose. Most importantly, as Nepstad has shown, a protest movement aimed at regime change needs to win over critical parts of the police and armed forces.</p> Mischa Gabowitsch 2012-02-05T00:00:00+01:00 http://www.project-syndicate.org/commentary/gros32/English <a href=http://www.project-syndicate.org/commentary/gros32/English>GROS: Austerity under Attack</a> <p>BRUSSELS – Europe seems to be obsessed with austerity. Country after country is being forced by either the financial markets or the European Union to start cutting its public-sector deficit. And, as if this were not enough, 25 of the 27 EU member states have just agreed on a new treaty (called a “fiscal compact”) that would oblige them never to have a cyclically adjusted budget deficit of more than 0.5% of GDP. (For comparison, the United States’ budget deficit in 2011 was close to 8% of GDP).</p><p>But, as the European economy risks falling into recession, many observers are asking whether “austerity” could be self-defeating. Could a reduction in government expenditure (or an increase in taxes) lead to such a sharp decline in economic activity that revenues fall and the fiscal position actually deteriorates further?</p><p>This is highly unlikely, given the way our economies work. Moreover, if it were true, it would follow that tax cuts would reduce budget deficits, because faster economic growth would generate higher revenues, even at lower tax rates. This proposition has been tested several times in the US, where tax cuts were invariably followed by higher deficits.</p><p>In Europe, the concern today is instead with the debt/GDP ratio. The worry here is that the GDP drop resulting from “austerity” might be so large that the debt ratio increases. This matters, because investors often use the debt ratio as an indicator of financial sustainability. Thus, a lower deficit might actually heighten tensions in financial markets.</p><p>However, a lower deficit must lead over time to a lower debt ratio, even if this ratio worsens in the short run. After all, most models used to assess the economic impact of fiscal policy imply that a cut in expenditure, for example, lowers demand in the short run, but that the economy recovers after a while to its previous level. So, in the long run, fiscal policy has no lasting impact (or only a very small one) on output. This implies that whatever short-run negative impact lower demand may have on the debt ratio should be offset later (in the medium to long run) by the rebound in demand that brings the economy back to its previous output level.</p><p>Moreover, even assuming that the impact of a permanent cut in public expenditure on demand and output is also permanent, the GDP reduction remains a one-off phenomenon, whereas the lower deficit continues to have a positive impact on the debt level year after year.</p> Daniel Gros 2012-02-03T00:00:00+01:00 http://www.project-syndicate.org/commentary/schwarzenberg6/English <a href=http://www.project-syndicate.org/commentary/schwarzenberg6/English>H RIGHTS: Havel Lives</a> <p>PRAGUE – The death of Václav Havel, the former president of Czechoslovakia and the Czech Republic, has been marked with mourning around the world. For his friends, the loss is overwhelming, but we all take comfort from the fact that his courage and his ideas helped to change our world for the better, and are still continuing to do so.</p><p>Throughout his life, Havel was an unconquerable fighter for freedom and human dignity. He was the leader of the Velvet Revolution, which brought communism to a peaceful end in his homeland, a dissident intellectual who, by his unswerving conscientiousness and disciplined, down-to-earth idealism, led his compatriots in their struggle to overcome the totalitarian mindset in the years after they regained their freedom. Indeed, that mental liberation remains a living, essential part of Havel’s legacy.  </p><p>But Havel not only changed his society and Europe; he also set an example for all who struggle for freedom. That his words and ideas are now finding resonance not only in Europe, but also in Asia, Africa, and elsewhere attests to the cogency and rigor of his vision. Each day, it seems, the power of the powerless is confirmed anew.</p><p>Havel’s stress on truth, and on not collaborating in lies, may have been the deepest core of his thought. It is truth that makes us free. And our power as free people arises from our refusal to consent willingly to lies. The powerful cannot force us to lie, except by altering our minds.</p><p>Havel was undoubtedly a deeply thoughtful person, a citizen of the world, troubled by humanity’s indifference to its own future. His constant refrain, in and out of power, was to ask: “What kind of future should we be aiming for?”</p><p>It was in this context that in 1997 he co-created the highly successful series of international conferences, Forum 2000, which have addressed topics ranging from the state of democracy, rule of law, and human rights to interfaith dialogue, environmental sustainability, and the media’s role in modern society.</p> Karel Schwarzenberg, Desmond Tutu, Richard von Weizsäcker 2012-02-03T00:00:00+01:00 http://www.project-syndicate.org/commentary/benami62/English <a href=http://www.project-syndicate.org/commentary/benami62/English>BEN-AMI: The Decline of the West Revisited</a> <p>MADRID – Since the publication in 1918 of the first volume of Oswald Spengler’s The Decline of the West, prophecies about the inexorable doom of what he called the “Faustian Civilization” have been a recurrent topic for thinkers and public intellectuals. The current crises in the United States and Europe – the result primarily of US capitalism’s inherent ethical failures, and to Europe’s dysfunction – might be seen as lending credibility to Spengler’s view of democracy’s inadequacy, and to his dismissal of Western civilization as essentially being driven by a corrupting lust for money.</p><p>But determinism in history has always been defeated by the unpredictable forces of human will, and, in this case, by the West’s extraordinary capacity for renewal, even after cataclysmic defeats. True, the West is no longer alone in dictating the global agenda, and its values are bound to be increasingly challenged by emerging powers, but its decline is not a linear, irreversible process.</p><p>There can be no doubt that the West’s military mastery and economic edge have been severely diminished recently. In 2000, America’s GDP was eight times larger than China’s; today it is only twice as large. Worse, appalling income inequalities, a squeezed middle class, and evidence of widespread ethical lapses and impunity are fueling a dangerous disenchantment with democracy and a growing loss of trust in a system that has betrayed the American dream of constant progress and improvement.</p><p>This would not be, however, the first time that America’s values prevailed over the threat of populism in times of economic crisis. A variation of the fascist agenda once appeared in America, with Father Charles Coughlin’s populist onslaught in the 1930’s on Franklin Roosevelt´s “alliance with the bankers.” Coughlin’s National Union for Social Justice, whose membership ran into the millions, was eventually defeated by the American system’s powerful democratic antibodies.</p><p>As for Europe, the eurozone crisis has exposed democracy’s weaknesses in dealing with major economic emergencies, as well as the flaws in the European Union’s design. In Greece and Italy, technocratic governments have taken over from failing politicians. In Hungary, Prime Minister Viktor Orbán has pressed for an authoritarian “re-establishment of the state.” Such cases seem to point to the return of a European past in which democracy’s failures gave way to more “expedient” forms of government.</p><p>And yet, while Europe remains a question mark, economic growth and job creation, however fragile, are back in America. Moreover, even if China becomes the world’s largest economy in, say, 2018, Americans would still be far richer than Chinese, with per capita GDP in America four times higher than in China.</p> Shlomo Ben-Ami 2012-02-02T00:00:00+01:00 http://www.project-syndicate.org/commentary/jecohen1/English <a href=http://www.project-syndicate.org/commentary/jecohen1/English>SCIENCE: A Seismic Crime</a> <p>NEW YORK – Few people outside Italy are aware that six seismologists and a government official are on trial in the small city of L’Aquila. But the story has implications for scientists, engineers, administrators, and legal systems far beyond Italy’s borders.</p><p>L’Aquila was largely destroyed by earthquakes in 1461 and 1703. The city was rebuilt, eventually grew to more than 73,000 inhabitants, and remained stable for more than 300 years – until October 2008, when tremors began again. From January 1 through April 5, 2009, 304 additional tremors were reported.</p><p>Italy’s National Commission for Prediction and Prevention of Major Risks, which comprised the seven men now on trial, met in L’Aquila for one hour on March 31, 2009, to assess the earthquake swarms. According to the minutes, Enzo Boschi, President of the National Institute of Geophysics and Volcanology, was asked if they were precursors to an earthquake resembling the one in 1703. He replied: “It is unlikely that an earthquake like the one in 1703 could occur in the short term, but the possibility cannot be totally excluded.”</p><p>On April 6, 2009, a 6.3 magnitude earthquake struck L’Aquila and nearby towns, killing more than 300 people and injuring more than 1,500. The quake also destroyed roughly 20,000 buildings, temporarily displacing another 65,000 people.</p><p>More than a year later, in July 2010, prosecutor Fabio Picuti charged the Commission members with manslaughter and negligence for failing to warn the public of the impending risk. The trial began last September, and is expected to last for months, if not years.</p><p>After Picuti made the charges public in June 2010, Alan Leshner, Executive Publisher of Science, sent an open letter of protest to Italian President Giorgio Napolitano on behalf of the American Association for the Advancement of Science. He wrote that the “charges against these scientists are both unfair and naïve….[T]here is no accepted scientific method for earthquake prediction that can be reliably used to warn citizens of an impending disaster.” The American Geophysical Union and thousands of other scientists also objected.</p> Joel E. Cohen 2012-02-02T00:00:00+01:00 http://www.project-syndicate.org/commentary/tyson2/English <a href=http://www.project-syndicate.org/commentary/tyson2/English>TYSON: America’s Three Deficits</a> <p>BERKELEY – This year began with a series of reports providing tantalizing evidence that economic recovery in the United States is strengthening. The pace of job creation has increased, indicators for manufacturing and services have improved, and consumption spending has been stronger than anticipated. But it is too early to celebrate.</p><p>Output growth in the US remains anemic, and the economy continues to face three significant deficits: a jobs deficit, an investment deficit, and a long-run fiscal deficit, none of which is likely to be addressed in an election year.</p><p>Although output is now higher than it was in the fourth quarter of 2007, it remains far below what could be produced if labor and capacity were fully utilized. That gap – between actual and potential output – is estimated at more than 7% of GDP (more than $1 trillion).</p><p>The output gap reflects a deficit of more than 12 million jobs – the number of jobs needed to return to the economy’s peak 2007 employment level and absorb the 125,000 people who enter the labor force each month. Even if the economy grows at 2.5% in 2012, as most forecasts anticipate, the jobs deficit will remain – and will not be closed until 2024.</p><p>America’s jobs deficit is primarily the result of inadequate aggregate demand. Consumption, which accounts for about 70% of total spending, is constrained by high unemployment, weak wage gains, and a steep decline in home values and consumer wealth. The uptick in consumption in the last months of 2011 was financed by a decline in the household saving rate and a large increase in consumer credit. Neither of these trends is healthy or sustainable.</p><p>With an unemployment rate of 8.5%, a labor-force participation rate of only 64%, and stagnant real wages, labor income has fallen to an historic low of 44% of national income. And labor income is the most important component of household earnings, the major driver of consumption spending.</p> Laura Tyson 2012-02-02T00:00:00+01:00 http://www.project-syndicate.org/commentary/zingales13/English <a href=http://www.project-syndicate.org/commentary/zingales13/English>ROE/ZINGALES: Central Bankers in the Line of Fire</a> <p>CHICAGO – Central bankers should not only be above suspicion of wrongdoing, but also appear to be above it. So the decision in January by Philipp Hildebrand, Chairman of the Board of the Swiss National Bank (SNB), to resign over allegations relating to a suspicious currency trade made by his wife, is to be welcomed. But, while Hildebrand’s resignation should serve as a precedent to be followed by central bankers – indeed, all public officials – everywhere, the circumstances surrounding his departure smell much worse than what caused it.</p><p>On August 15, 2011, Hildebrand’s wife, Kashya, exchanged 400,000 Swiss francs into dollars. On September 6, Hildebrand announced that the SNB would cap the value of the franc against the euro, thus de facto forcing a depreciation of the franc vis-à-vis all other major currencies. As a result, the value of his wife’s investment soared by almost 20%. While Hildebrand claims to have had no knowledge of the transaction that day, he resigned because it was “not possible to provide conclusive and final evidence” that his wife, a former hedge-fund manager, traded without his knowledge.</p><p>A central banker should put his and his spouse’s money in a blind trust. Even if he did not know about the trade, Hildebrand committed an error of judgment in not reversing the transaction immediately. His resignation was warranted – as is enhanced disclosure of central bankers’ personal finances around the world.</p><p>Nonetheless, the circumstances of Hildebrand’s departure might be more worrisome than his lapse of judgment. Hildebrand was not just any central banker: he stood out for his independence, not only from political authority, but also from the banking sector. He spoke very early and strongly in favor of higher capital requirements for big banks, which also opposed his heterodox intervention in the foreign-exchange market.</p><p>Most importantly, together with the Swiss finance minister, Hildebrand introduced the “Swiss approach” to bank regulation. This approach demands much higher capital buffers for banks. Rather than going along with the new 8% reserve requirement adopted elsewhere, the SNB now demands equity capital equal to 19% of risk-weighted assets, of which 9% can be held in convertible capital, while 10% must be held in common equity.</p><p>Any economist would consider these policies wise, but they won him few friends in the business world. In an unprecedented attack, Switzerland’s major business magazine Bilanz accused him of having an “unsteady hand” on the central bank’s rudder. He was also attacked by a leader of the right-wing Swiss People’s Party (SVP).</p> Luigi Zingales 2012-02-02T00:00:00+01:00 http://www.project-syndicate.org/commentary/okonta12/English <a href=http://www.project-syndicate.org/commentary/okonta12/English>AFRICA: The Nigerian Crucible</a> <p>LAGOS – Nigeria’s president, Goodluck Jonathan, who was elected only eight months ago, is already swimming in a sea of troubles. On January 1, New Year celebrations were abruptly cut short when Nigerians woke up to learn that the government gasoline subsidy had been withdrawn. The country’s poor immediately hit the streets, already angry because their corrupt and incompetent government has been unable to repair state-owned refineries, thereby forcing Africa’s largest oil producer to import petroleum products. </p><p>To ordinary Nigerians, the fuel subsidy was the only advantage that they derived from the petrodollars that pour into the national treasury. Suddenly, politicians, civil servants, and their cronies were embezzling even that benefit.</p><p>What began as sporadic protests quickly ballooned into a show of people power in Abuja (the national capital), Lagos (the commercial capital), and Kano (the most populous city in the north), led by the civil-society organizations Joint Action Front and Save Nigeria Group. Other towns and cities also joined in the protests, and Abdulwaheed Omar, President of the Nigeria Labour Congress, called on workers around the country to strike until the government rescinded its decision to remove the subsidy. Millions complied, paralyzing the economy.</p><p>The Jonathan government had calculated that eliminating the subsidy in the midst of the New Year festivities, a time when most Nigerians travel to their home villages, would impede coordinated resistance, so the speed, ferocity, and scope of the demonstrations caught the authorities completely by surprise. When the protest leaders’ grievances expanded to include the 2012 budget’s lavish provisions for the president and top civil servants, the Nigerian National Petroleum Corporation’s shady deals, and government corruption, Jonathan realized that he had to back down.</p><p>First, he announced a 25% salary cut for all political appointees. This did not impress the protest leaders. Next, the government promised to eliminate social-services waste. Finally, in a humiliating retreat, Jonathan retracted his decision on the gasoline subsidy.</p><p>Even as Jonathan was struggling to defuse the rage in the streets, Boko Haram – the violent Islamic sect that has been terrorizing the northern part of the country since 2009 – escalated its attacks. The sect had bombed a church in Madalla, a town on the outskirts of Abuja, on Christmas Day, killing 45 worshippers, and its spokesmen then demanded that all Christian southerners residing in the north leave.</p> Ike Okonta 2012-02-01T00:00:00+01:00 http://www.project-syndicate.org/commentary/rogoff89/English <a href=http://www.project-syndicate.org/commentary/rogoff89/English>ROGOFF: Coronary Capitalism</a> <p>FRANKFURT – A systematic and broad failure of regulation is the elephant in the room when it comes to reforming today’s Western capitalism. Yes, much has been said about the unhealthy political-regulatory-financial dynamic that led to the global economy’s heart attack in 2008 (initiating what Carmen Reinhart and I call “The Second Great Contraction”). But is the problem unique to the financial industry, or does it exemplify a deeper flaw in Western capitalism?</p><p>Consider the food industry, particularly its sometimes-malign influence on nutrition and health. Obesity rates are soaring around the entire world, though, among large countries, the problem is perhaps most severe in the United States. According the US Centers for Disease Control and Prevention, roughly one-third of US adults are obese (indicated by a body mass index above 30). Even more shockingly, more than one in six children and adolescents are obese, a rate that has tripled since 1980. (Full disclosure: my spouse produces a television and Web show, called kickinkitchen.tv, aimed at combating childhood obesity.)</p><p>Of course, the problems of the food industry have been vigorously highlighted by experts on nutrition and health, including Michael Pollan and David Katz, and certainly by many economists as well. And there are numerous other examples, across a wide variety of goods and services, where one could find similar issues. Here, though, I want to focus on the food industry’s link to broader problems with contemporary capitalism (which has certainly facilitated the worldwide obesity explosion), and on why the US political system has devoted remarkably little attention to the issue (though First Lady Michelle Obama has made important efforts to raise awareness).</p><p>Obesity affects life expectancy in numerous ways, ranging from cardiovascular disease to some types of cancer. Moreover, obesity – certainly in its morbid manifestations – can affect quality of life. The costs are borne not only by the individual, but also by society – directly, through the health-care system, and indirectly, through lost productivity, for example, and higher transport costs (more jet fuel, larger seats, etc.).</p><p>But the obesity epidemic hardly looks like a growth killer. Highly processed corn-based food products, with lots of chemical additives, are well known to be a major driver of weight gain, but, from a conventional growth-accounting perspective, they are great stuff. Big agriculture gets paid for growing the corn (often subsidized by the government), and the food processors get paid for adding tons of chemicals to create a habit-forming – and thus irresistible – product. Along the way, scientists get paid for finding just the right mix of salt, sugar, and chemicals to make the latest instant food maximally addictive; advertisers get paid for peddling it; and, in the end, the health-care industry makes a fortune treating the disease that inevitably results.</p><p>Coronary capitalism is fantastic for the stock market, which includes companies in all of these industries. Highly processed food is also good for jobs, including high-end employment in research, advertising, and health care.</p> Kenneth Rogoff 2012-02-01T00:00:00+01:00 http://www.project-syndicate.org/commentary/boskin19/English <a href=http://www.project-syndicate.org/commentary/boskin19/English>TA: A Referendum on Obama</a> <p>STANFORD – Successful political candidates try to implement the proposals on which they ran. In the United States, President Barack Obama and the Democrats, controlling the House of Representatives and (a filibuster-proof) Senate, had the power to do virtually anything they wanted in 2009 – and so they did.</p><p>Obama and his congressional allies enacted an $800 billion “stimulus” bill that was loaded with programs geared to key Democratic constituencies, such as environmentalists and public employees; adopted a sweeping and highly unpopular health-care reform (whose constitutionality will be determined by the Supreme Court this year); imposed vast new regulations on wide swaths of the economy; embraced an industrial policy that selects certain companies for special treatment; engaged in borrowing and spending at levels exceeded only in World War II; and centralized power in Washington, DC (and, within the federal government, in the executive branch and regulatory agencies).</p><p>The last election that was followed by such a sweeping change in policy direction occurred in 1980, when President Ronald Reagan overhauled taxes, spending, and regulation, and supported the Federal Reserve’s course of disinflation. While the 1988, 1992, and 2000 elections were also quite consequential, the policy shifts were not nearly as large as in 1980 and 2008.</p><p>The country rebelled against Obama and the Democrats’ lurch to the left with historic Congressional election victories for Republicans in 2010. Since then, many Republicans have been deeply disappointed that the House of Representatives has been unable to roll back much of Obama’s agenda. But the US political system is set up to make it much harder to accomplish something than to block it. It is not easy to do a lot while controlling only one-half of one-third of the federal government.</p><p>The 2012 election is shaping up as a referendum on Obama’s policies and performance. The economy is improving slowly, but it remains in bad shape, with high unemployment and millions having left the labor force. Republicans are expected to retain control of the House and regain a majority in the Senate.</p><p>Former Massachusetts Governor Mitt Romney, the Republican frontrunner to challenge Obama in November, and the party’s other leading candidates, including former House Speaker Newt Gingrich, want less spending, major reforms of government programs, lower taxes, trade expansion, and less and more-targeted regulation than does Obama.</p> Michael Boskin 2012-01-31T00:00:00+01:00 http://www.project-syndicate.org/commentary/chellaney25/English <a href=http://www.project-syndicate.org/commentary/chellaney25/English>ASIA: No Escape from Empire’s Graveyard</a> <p>NEW DELHI – With the stage set for secret talks in Qatar between the United States and the Taliban, US President Barack Obama’s strategy for a phased exit from war-ravaged Afghanistan is now being couched in nice-sounding terms that hide more than they reveal. In seeking a Faustian bargain with the Taliban, Obama risks repeating US policy mistakes that now haunt regional and international security.</p><p>Since coming to office, Obama has pursued an Afghan strategy that can be summed up in three words: surge, bribe, and run. The military mission has now entered the “run” part, or what euphemistically is being called the “transition to 2014.”</p><p>The central objective is to cut a deal with the Taliban so that the US and its NATO partners exit the “graveyard of empires” without losing face. This approach – aimed more at withdrawing forces as soon as possible than at ensuring enduring peace and regional stability – is being dressed up as “reconciliation,” with Qatar, Germany, and the United Kingdom getting lead roles in facilitating a settlement.</p><p>Yet what stands out is how little the US has learned from the past. In critical respects, it is beginning to repeat its own mistakes, whether by creating or funding new local militias in Afghanistan, or by striving to come to terms with the Taliban. As with the covert war that the US waged in the 1980’s in Afghanistan against Soviet military intervention, so, too, have short-term interests driven US policy in the current overt war.</p><p>To be sure, any leader must work to extricate his country from a protracted war, so Obama is right to seek an end to this one. But he was not right in laying out his cards in public and emboldening the enemy.</p><p>Within weeks of assuming office, Obama publicly declared his intention to withdraw US forces from Afghanistan, before he even asked his team to work out a strategy. A troop surge that lasted up to 2010 was designed not to rout the Taliban militarily, but to strike a political deal with the enemy from a position of strength. Yet, even before the surge began, its purpose was undercut by the exit plan, followed by a publicly announced troop drawdown, stretching from 2011 to 2014.</p> Brahma Chellaney 2012-01-31T00:00:00+01:00 http://www.project-syndicate.org/commentary/fischer70/English <a href=http://www.project-syndicate.org/commentary/fischer70/English>FISCHER: The Chancellor Who Played with Fire</a> <p>BERLIN – German Chancellor Angela Merkel should be happy nowadays: her party’s approval ratings aren’t bad, and her own are very good. She no longer has serious rivals within the center-right Christian Democratic Union (CDU), while the left opposition is fragmented into four parties. Her response to the European crisis has prevailed – or at least that is the impression that she conveys, and that most Germans believe. So everything is fine and dandy, right?</p><p>Not so fast. Two issues could complicate Merkel’s re-election bid in the autumn of 2013. Domestically, her coalition partner, the liberal Free Democrats (FDP), is disintegrating. Even if the FDP survives the next election (which is by no means certain), the current coalition is unlikely to retain its parliamentary majority, leaving Merkel increasingly dependent on the Social Democrats (SPD). While this need not matter to her too much as long as she retains the chancellorship, in Sigmar Gabriel, the SPD’s leader, she faces – for the first time – an opponent whom she would underestimate at her peril.</p><p>But the real danger to Merkel is external: the European crisis. If she is unlucky, the crisis will come to a head at the start of the German election year, and all previous calculations could be moot, because, despite Germans’ frustration with Europe, the electorate would punish severely those who allowed Europe to fail.</p><p>The European Union’s economy is sliding into a severe and, in all likelihood, long-lasting recession, largely self-inflicted. While Germany is still trying to banish the specter of hyperinflation with strict eurozone austerity measures, the EU crisis countries are facing a real threat of deflation, with potentially disastrous consequences. It is only a question of time – no longer very much time – before economic destabilization gives rise to political instability.</p><p>Hungary, where democratic backsliding appears to be taking hold, provides a foretaste of a Europe in which the eurozone crisis and deflation persist. The mood in the Mediterranean EU members, as well as in Ireland, is heating up, owing not only to the tightening squeeze of austerity, but also – and perhaps more importantly – to the absence of policies that offer people hope for a better future. The explosive nature of current trends, which point to eventual re-nationalization of sovereignty from the bottom up, is greatly underestimated in Berlin.</p><p>The crisis has now reached Italy and is threatening to spread to France. With Mario Monti’s premiership, Italy has mobilized its best people, and neither Italy nor Europe will get a better government for the foreseeable future. If Monti’s administration is toppled – either in parliament or in the streets – the EU’s fourth-largest economy could come crashing down. Monti is urgently calling for help. Where is it?</p> Joschka Fischer 2012-01-31T00:00:00+01:00 http://www.project-syndicate.org/commentary/phelps14/English <a href=http://www.project-syndicate.org/commentary/phelps14/English>ECON WEEKLY: Blaming Capitalism for Corporatism</a> <p>NEW YORK – The future of capitalism is again a question. Will it survive the ongoing crisis in its current form? If not, will it transform itself or will government take the lead?</p><p>The term “capitalism” used to mean an economic system in which capital was privately owned and traded; owners of capital got to judge how best to use it, and could draw on the foresight and creative ideas of entrepreneurs and innovative thinkers. This system of individual freedom and individual responsibility gave little scope for government to influence economic decision-making: success meant profits; failure meant losses. Corporations could exist only as long as free individuals willingly purchased their goods – and would go out of business quickly otherwise.</p><p>Capitalism became a world-beater in the 1800’s, when it developed capabilities for endemic innovation. Societies that adopted the capitalist system gained unrivaled prosperity, enjoyed widespread job satisfaction, obtained productivity growth that was the marvel of the world and ended mass privation.</p><p>Now the capitalist system has been corrupted. The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system, however, is not capitalism, but rather an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.</p><p>In various ways, corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusiveness. It maintains lethargic, wasteful, unproductive, and well-connected firms at the expense of dynamic newcomers and outsiders, and favors declared goals such as industrialization, economic development, and national greatness over individuals’ economic freedom and responsibility. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, hedge funds, and much more has at some point been deemed too important to weather the free market on its own, receiving a helping hand from government in the name of the “public good.”</p><p>The costs of corporatism are visible all around us: dysfunctional corporations that survive despite their gross inability to serve their customers; sclerotic economies with slow output growth, a dearth of engaging work, scant opportunities for young people; governments bankrupted by their efforts to palliate these problems; and increasing concentration of wealth in the hands of those connected enough to be on the right side of the corporatist deal.</p> Edmund S. Phelps, Saifedean Ammous 2012-01-31T00:00:00+01:00