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September 26, 2011

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Paul Krugman: Euro Zone Death Trip

Posted: 26 Sep 2011 12:24 AM PDT

The end of the road for the euro?:

Euro Zone Death Trip, by Paul Krugman, Commentary, NY Times: Is it possible to be both terrified and bored? That's how I feel about the negotiations now under way over how to respond to Europe's economic crisis...
On one side, Europe's situation is really, really scary: with countries that account for a third of the euro area's economy now under speculative attack, the single currency's very existence is being threatened — and a euro collapse could inflict vast damage on the world.
On the other side, European policy makers seem set to deliver more of the same. They'll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don't seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe's stronger economies, all of their rescue attempts will fail.
The story so far: The introduction of the euro in 1999 led to a vast boom in lending to Europe's peripheral economies, because investors believed (wrongly) that the shared currency made Greek or Spanish debt just as safe as German debt. ... But when the lending boom abruptly ended, the result was both an economic and a fiscal crisis. ...
So now what? Europe's answer has been to demand harsh fiscal austerity,... meanwhile providing stopgap financing until private-investor confidence returns. Can this strategy work?
Not for Greece... Probably not for Ireland and Portugal... But given a favorable external environment — specifically, a strong overall European economy with moderate inflation — Spain ... and ... Italy ... could possibly pull it off.
Unfortunately, European policy makers seem determined to deny those debtors the environment they need. ... And I see no sign at all that European policy elites are ready to rethink their hard-money-and-austerity dogma.
Part of the problem may be that those policy elites have a selective historical memory. They love to talk about the German inflation of the early 1920s — a story that, as it happens, has no bearing on our current situation. Yet they almost never talk about a much more relevant example: the policies of Heinrich BrĂ¼ning, Germany's chancellor from 1930 to 1932, whose insistence on balancing budgets and preserving the gold standard made the Great Depression even worse in Germany than in the rest of Europe — setting the stage for you-know-what.
Now, I don't expect anything that bad to happen in 21st-century Europe. But there is a very wide gap between what the euro needs to survive and what European leaders are willing to do, or even talk about doing. And given that gap, it's hard to find reasons for optimism.

links for 2011-09-25

Posted: 25 Sep 2011 10:01 PM PDT

"Power Dynamics are What Matters Most"

Posted: 25 Sep 2011 10:35 AM PDT

Jared Bernstein:

Frames, by Jared Bernstein: As I've stressed in the past, I don't put a whole lot of weight on the importance of how issues are framed. It's important, for sure, but underlying power dynamics are what matters most, and history is littered with carefully, compellingly framed arguments that lost because one side had deeper pockets and greater access than the other. ...
In this regard, the most salient difference in this context between today versus the days of FDR is not just the rhetoric or framing. It's the underlying faith in American institutions, most notably government.
Greenberg's point is that absent that faith, a positive frame, even if it's based in fact (we really do have the right ideas re economic security and they really don't) will fail to resonate.
This means progressives have some heavy lifting to do. Our work must be to re-establish faith in the institution of government…the belief that this institution is a force for good in your lives and can be more so. And that has to come from explanation, evidence, and effective implementation of government programs.
It also underscores the importance of the current fight for fairness: if people continue to believe that government has devolved into an ATM for the wealthy, an enforcer of the inequality-inducing policy agenda, and a bailer-outer of the rich and the reckless, no frame will be smart enough to convince them otherwise.

It's not just framing. People believe that government policy has tilted toward the wealthy in recent years for good reason, and I agree that it will take more than framing to turn that around. People need to believe that government is working for them -- that their interests matter in the political process. The future of the working class has become more and more uncertain in recent years, and government has not stepped up with the help that is needed. The interests of the wealthy have been addressed, but when, the average person wonders, will government care about me?

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