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Posts Tagged ‘Financial Times

Is This Any Way to Run a Country?

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This week the Tunisian government fell as a result of corruption: too few people reaping financial gain while everyone else paid the bill. Compounded by high unemployment, the corruption became too much for the people. They were tired of getting the “fuzzy end of the lollipop.”

Statue of Liberty sitting and thinkingGoverning is about designing legislation that benefits the country, the economy, and the people. Too often those in politics think it is all about them so they say and do things which hurt the country, from inserting expensive tax expenditures to big donors into legislation to how these politicos discuss – and often distort public opinion on – important issues that effect the entire economy.

Politics is not a popularity contest. Nor is it about governing based on polls. It is about deep subject matter knowledge and pragmatic thinking, rather than rash, simplistic promises to an often little informed constituency.

As Clive Crook writes in the Financial Times:


All too memorably, the GOP has promised to cut $100bn from spending in the current fiscal year. The idea is to bring outlays back to 2008 levels, in effect cancelling out the Obama administration.

Nice line, except that you cannot also cancel out the recession, which has unavoidably increased demands on the budget. It is also a little awkward that Republicans want to protect spending on defence, homeland security, veterans’ affairs, Medicare, Social Security – most of the budget, actually. And, whatever happens, no more borrowing and no new taxes. This programme, if you can even call it that, is nonsense.

No budget or appropriations were passed in 2010 for the current fiscal year. A so-called continuing resolution keeps the government running until the beginning of March. Republicans opposed a full-year continuing resolution, aiming to put pressure on the administration to change fiscal course early in 2011. The pressure is now on them instead. Within weeks, the party will have to spell out its own spending proposals for the rest of the fiscal year, or back off and lamely pass a continuing resolution of its own.

Next, sometime in the spring, public borrowing will run up against the statutory debt ceiling. Congress must vote to raise it, or else the government will default. Again, Republicans thought to use this to intimidate the administration. Meet our demands on spending, or we shut you down. That was the idea.

Tea Party true believers may be salivating at the prospect of the coming Battle of the Debt Ceiling, but the GOP’s leaders are dreading it. Shutting down the government is a button they dare not press – not if they retain the least grip on reality. They did it once before, during the Clinton administration, and were slammed: the shutdown rescued the Clinton presidency. To do it in 2011, with the economy laid low and financial markets still twitchy, would be the limit of irresponsibility. It would be betting the recovery to make a point. This time, political annihilation might follow, and the party would deserve it.

Avoid this they must, but how do they retreat from their campaign positions without being seen to climb down? My advice to them is simple: they cannot. The Republicans need to moderate their zeal to cut discretionary spending too much and too soon; they need to make the case for measured, long-term reform of Medicare and Social Security; and they need to advance tax reform that will raise revenue without pushing marginal tax rates any higher. The sooner they start climbing down the better. Otherwise, they will fall and go splat.

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Written by Valerie Curl

January 18, 2011 at 7:14 AM

Cutting the deficit too soon could lead to a Depression

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Financial Times How to walk the fiscal tightrope

How to walk the fiscal tightrope

Highly respected senior economics and financial writer for Financial Times, Martin Wolf, argues against Niall Ferguson’s belief that the US must immediately cut spending to deal with the deficit. Martin writes:

Jumps in fiscal deficits are the mirror image of retrenchment by battered private sectors. In the US, the financial balance of the private sector (the gap between income and expenditure) shifted from minus 2.1 per cent of GDP in the fourth quarter of 2007 to plus 6.7 per cent in the third quarter of 2009, a swing of 8.8 per cent of GDP (see chart). This massive swing occurred despite the Federal Reserve’s efforts to sustain lending and spending. Similar shifts occurred in other crisis-hit countries.

If these governments had decided to balance their budgets, as many conservatives demand, two possible outcomes can be envisaged: the plausible one is that we would now be in the Great Depression redux; the fanciful one is that, despite huge increases in taxation or vast cuts in spending, the private sector would have borrowed and spent as if no crisis at all had happened. In other words, a massive fiscal tightening would actually expand the economy. This is to believe in magic.

…as the McKinsey Global Institute has also noted in a recent report: “Historic deleveraging episodes have been painful, on average lasting six to seven years and reducing the ratio of debt to GDP by 25 per cent”. The only ways to accelerate this would be via mass bankruptcy or inflation. If these are ruled out, what might support demand, while deleveraging continued? If fiscal policy is also ruled out, the only option would be foreign demand. But who is likely to offset contracting demand in the US and other hard-hit economies? Nobody, alas, is the answer.

This is the position I’ve argued for months, even though I’ve received criticism and arguments from my Libertarian friends. Yes, reducing the deficit is vital for the economy’s long term health, but it must be done in a measured way to prevent additional shocks to an already fragile economy. What Republicans have been advocating by immediate budget and deficit reduction is both economically irresponsible and would cause even more harm to American businesses and families.

Written by Valerie Curl

February 18, 2010 at 8:26 PM

Media talks panic: Swine Flu

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Over my morning cup of coffee, I turned on the TV to see what was going on in the world. The big news of the day – and apparently the only story of the day – was the swine flu. Even CNBC asked, “Will Swine flu derail the global economy?” The Swine Flu story leads the Washington Post and the Financial Times.

So, what happened in the markets? A drop. Nothing like a good panic to cause a sell off!

Reporters even non-stop peppered Robert Gibbs at the morning’s White House Press Briefing, asking if Pres. Obama was sick, and complaining that they weren’t getting enough information on the President’s health. A simple “the docs say he’s healthy and fine” wasn’t good enough. The flu became the only topic discussed.

The U.S has a population of over 300 million people. 40 cases of flu have been reported. Yet, one would think from the media hype that thousands of cases have been reported in the U.S.

Pardon me, but I’m getting just a bit sick of the “one topic” media story. Especially the non-stop, endlessly detailed reporting of stories such as this one which appears designed to cause as much panic as possible.

Yes, there is cause for concern and caution. But really now, fostering a panic? The media definitely has lost its way. The job of the media is to report the news, not create the news…which is exactly what the media has been doing for the last couple of years.

What would Cronkite or Brinkley say about the over-hyping of one story, the endless reporting of every minute or associated detail, as if that one story was the absolute only thing occurring on the planet?

Enough already.

Written by Valerie Curl

April 28, 2009 at 12:55 AM

FT: What will Capitalism look like in the future?

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If you didn’t see CSPAN’s Washington Journal this morning, you may not know of the terrific series being run in The Financial Times. For the next couple of weeks, FT will be printing articles and commentary on “The Future of Capitalism.”

Under discussion worldwide is the form which capitalism will take – and should take – once the current economic crisis has passed. As Amartya Sen writes in Adam Smith’s market never stood alone,

The question that arises most forcefully now is not so much about the end of capitalism as about the nature of capitalism and the need for change. The invoking of old and new capitalism played an energising part in the animated discussions that took place in the symposium on “New World, New Capitalism” led by Nicolas Sarkozy, the French president, Tony Blair, the former British prime minister, and Angela Merkel, the German chancellor, in January in Paris.

The crisis, no matter how unbeatable it looks today, will eventually pass, but questions about future economic systems will remain. Do we really need a “new capitalism”, carrying, in some significant way, the capitalist banner, rather than a non-monolithic economic system that draws on a variety of institutions chosen pragmatically and values that we can defend with reason? Should we search for a new capitalism or for a “new world” – to use the other term on offer at the Paris meeting – that need not take a specialised capitalist form? This is not only the question we face today, but I would argue it is also the question that the founder of modern economics, Adam Smith, in effect asked in the 18th century, even as he presented his pioneering analysis of the working of the market economy.

These articles and editorial commentaries seem propitious right now, as Ponzi-king Berney Madoff is led off to jail and the Republican Party has abdicated its intellectual thinking to Rush Limbaugh. The years of reckless ego-gratification spending and moral abstinence may finally be over as people grapple with a new notion – or discussion – of what the best form of capitalism is…and how it should function.

For all the economic pain and fear that envelopes the human psyche right now, it’s a great time to be alive. I’m looking forward to seeing what comes out this crisis. If Adam Smith and Maynard Keynes were able to synthesize quintessential economic theory before WWII began, surely some bright new economic genius can develop a whole new theory of economics that fits both the world economy and humane requirements. Or at the very least refine Smith and Keynes for this new era of global economics.

Good reading!

Written by Valerie Curl

March 12, 2009 at 7:43 PM

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