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December 2, 2011

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Latest Posts from Economist's View


Paul Krugman: Killing the Euro

Posted: 02 Dec 2011 12:33 AM PST

"Deficit scolds and inflation obsessives" are leading us "down the path to ruin":

Killing the Euro, by Paul Krugman, Commentary, NY Times: Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely..., even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.
How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you're very likely to find some pundit declaring that if America doesn't slash spending we'll end up like Greece. Greeeeeece!
But the truth is nearly the opposite. Although Europe's leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse. ...
Warnings that this would deepen the slump were waved away. "The idea that austerity measures could trigger stagnation is incorrect," declared Jean-Claude Trichet, then the president of the European Central Bank. Why? Because "confidence-inspiring policies will foster and not hamper economic recovery."
But the confidence fairy was a no-show. ...
At this point, markets have lost faith in the euro as a whole, driving up interest rates even for countries like Austria and Finland, hardly known for profligacy. And it's not hard to see why. The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs, and general financial collapse.
I hope, for our sake as well as theirs, that the Europeans will change course before it's too late. But, to be honest, I don't believe they will. In fact, what's much more likely is that we will follow them down the path to ruin.
For in America, as in Europe, the economy is being dragged down by troubled debtors — in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives.
So the next time you hear someone claiming that if we don't slash spending we'll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we'll turn into Europe. In fact, we're well on our way.

"The Facts about Small Businesses and the Millionaire Surcharge"

Posted: 02 Dec 2011 12:24 AM PST

The millionaire surcharge would have very little impact of small business:

The Facts about Small Businesses and the Millionaire Surcharge, by Jenni LeCompte, Treasury Notes: This week Congress will vote on President Obama's proposal to extend and expand the payroll tax cut for working families and to add two new payroll tax cuts for employers. These tax cuts would benefit 160 million working Americans and their families, would lower taxes for employers, especially small businesses and those who are expanding their payrolls, and would provide the economy a much needed boost for the coming year.
These tax cuts can be fully paid for by asking the most fortunate Americans to pay a modest 3.25 percent surcharge on incomes over $1 million. Contrary to recent statements made by some in Congress, this surcharge would affect only a very, very small number of small business owners.
Specifically, a recent discussion paper by Treasury's Office of Tax Analysis shows that only 1 percent of all small business owners have adjusted gross income over $1 million and would be affected by this surcharge. Not only will the remaining 99 percent of small business owners be protected from paying this surcharge, they will receive a net benefit from the employer-side payroll tax cuts.
The percentage of affected taxpayers who earn a significant share of their income from small businesses is also much smaller than the opponents of the Senate Democratic plan claim. Critics of the plan often use a definition of "small business" that includes many investment managers, lawyers and extremely wealthy people who are not by any common sense definition small business owners. In fact, more than half of the top 400 earners – whose average annual income was $271 million – would qualify as small business owners under their definition.
Moreover, because the surcharge applies only to income above $1 million, even much of the actual small business income earned by these taxpayers would not be affected by the surcharge.
The fact is that the vast majority of small businesses would benefit from the President's proposals. The employee-side tax cut will support demand, which is the most important thing businesses need, and the employer-side tax cuts will give small businesses extra room to hire and invest. These benefits significantly outweigh the impact of the surcharge, which will affect only a very small fraction of the wealthiest small business owners.

Links for 2011-12-02

Posted: 02 Dec 2011 12:06 AM PST

Reich: The Rebirth of Social Darwinism

Posted: 01 Dec 2011 11:07 AM PST

Another busy day brings another quick post. This is Robert Reich:

The Rebirth of Social Darwinism, by Robert Reich: What kind of society, exactly, do modern Republicans want? ...
They're not conservatives. They're regressives. And the America they seek is the one we had in the Gilded Age of the late nineteenth century. It was an era when the nation was mesmerized by the ... ideas of William Graham Sumner, a professor of political and social science at Yale... Sumner brought Charles Darwin to America and twisted him into a theory to fit the times. ...
To Sumner and his followers, life was a competitive struggle in which only the fittest could survive – and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.
Listen to today's Republican debates and you hear a continuous regurgitation of Sumner. "Civilization has a simple choice," Sumner wrote in the 1880s. It's either "liberty, inequality, survival of the fittest," or "not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members." ...
Social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated ... was "merely a survival of the fittest." It was, he insisted "the working out of a law of nature and of God."
Social Darwinism also undermined all efforts at the time to build a nation of broadly-based prosperity and rescue our democracy from the tight grip of a very few at the top. It was used by the privileged and powerful to convince everyone else that government shouldn't do much of anything.
Not until the twentieth century did America reject Social Darwinism. We created the large middle class... We built safety nets to catch Americans who fell downward through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in ... public schools, public universities, public transportation, public parks, public health – that made us all better off.
In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.
But make no mistake: If one of the current crop of Republican hopefuls becomes president, and if regressive Republicans take over the House or Senate, or both, Social Darwinism is back.

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