Spending cuts and the threat to democracy

What America should learn from Europe and the Middle East.

The "sequester", which began on 1 March, is the American form of austerity, or cut-backs in government spending during a recession. Austerity, or stingy government in Europe has kept employment extremely depressed compared to what it would have been with government stimulus, as Paul Krugman argues.

On Saturday, there were massive protests throughout Portugal against Scrooge policies by the government, which have so destroyed the country’s economy that 2 per cent of the population has fled abroad for jobs in the past 2 years alone. On Friday, Greek workers staged a huge general strike. In Italy, anti-austerity feeling made grumpy comedian Beppe Grillo and his party the swing vote in the new parliament. Grillo may single-handedly destroy the eurozone. European newspapers rather amusingly demanded that Grillo now "take responsibility" and "tell us what he wants". He is a contrarian comedian. It would be like having Robin Williams or Tracy Morgan as the swing vote in Congress, with the press hounding them for their agricultural policy and asking them about the dangers of deflation. But Grillo's ascendancy, while less alarming than the resurgence of the Greek far right, is a manifestation of the rejection by the Italian public of the long dreary road prescribed by the "troika", (The International Monetary Fund, the European Union, the Central Bank), of further government cut-backs, reductions in minimum wage, high unemployment, no hope.

While for some odd reason the Middle East does not usually get analysed with the same social science tools as Europe, the political crisis in Egypt is related to the Muslim Brotherhood government’s austerity program. The latter, as Samuel Knight argues, is being pursued under pressure from the International Monetary Fund. Secretary of State John Kerry is in Cairo, also urging acceptance of the austerity program. Austerity is estimated to have reduced Egyptians’ real income by 3 per cent in January alone. Tunisia is doing better than Egypt economically, but the parliament, dominated by the religious Right, is also tempted by austerity measures, seeking to trim a point off the budget deficit this year while seeking 4.5 per cent growth. While letting the value of the Tunisian dinar fall would hurt consumers with regard to imported goods, it would make Tunisian textiles and tourism more affordable for those abroad. Tunisia's exports are hurt by European economic problems, and the country would do well to develop more Asian customers (Brazil has had success reorienting exports to the Pacific Rim). Likewise, although Yemen's economy improved in 2012 after a 10 per cent drop in the revolutionary year of 2011, if anything the government budget deficit of 5.5 per cent is not big enough to stimulate the economy properly.

Reducing the state budget at a time of economic contraction is the opposite of what the great economist John Maynard Keynes prescribed. When the economy is in the doldrums, the businesses are skittish about investing their money, and so keep it in the bank. The only force, Keynes argued, that can and will risk putting a lot of money into the economy during a deep recession is the government. Of course, the government has less money at that point, too, since tax receipts are reduced. So it will simply have to spend money it doesn't technically have, i.e. go into deficit and print extra paper money. The extra paper will, obviously, lose some of its value. But that loss can have benefits, too, since it will make the goods produced by the country less expensive abroad, and spur exports.

This argument is straightforward for most countries, and it is mysterious why European and some Middle Eastern governments reject it. It is complicated in the US by the position of the dollar as a reserve currency and by the fall of manufacturing to only 20 per cent of the US economy. The former means that large budget deficits don't necessarily reduce the dollar's value significantly, because the US only holds about a third of the world's dollars and there is a lot of confidence in its value. The latter means that even when the dollar falls against the yen or euro, the jump in exports is limited to a fifth of the economy and domestic services don’t get much of a boost. But actually these peculiarities of the US economy are not arguments for austerity; on the contrary, the reserve dollar allows the US to do stimulus without as much pain as one would otherwise expect.

Instead, the Tea Party has forced the US into an artificial crisis with the "sequester", taking $100bn a year out of the economy for the next ten years, which will cut half a point of economic growth and harm workers, keeping unemployment high – not to mention the harm it likely will do to medical research, higher education, etc. That this austerity is being pursued by the GOP in part in hopes of disillusioning voters with President Obama in his second term is fairly obvious, but it is also in order to protect the 2003 Bush tax cuts for the wealthy, 80 per cent of which have been retained. Sequester, as usual with these things in the US, is actually a tax on the middle classes to benefit the wealthy, since it preserves undeserved tax cuts for the latter by reducing government services for the former.

That austerity does not work economically should be clear. But that it creates populist discontents that are shaking southern Europe and could derail Middle East democratisation is even more alarming. The world needs stimulus, not Scrooge government if it is to pull out of the crisis kicked off by corrupt bankers in 2008.

This is a cross-post from Juan Cole's blog Informed Comment

Barack Obama holds a cabinet meeting at the White House on 4 March. (Photo: Getty.)
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Donald Trump's cartoon nuclear rhetoric draws on a culture of American jingoism

Senior Republicans avoided condemning Trump's incendiary speech, and some endorsed it. 

From recent headlines, it seems as though Donald Trump isn't content with his Emmy-by-proxy. The US president told the United Nations General Assembly this week: “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea.” Trump’s speech raised eyebrows for its bellicose tone, especially when contrasted with his predecessor’s endorsement of a war-averse approach. 

A widely circulated image of Trump's chief of staff John Kelly with his head in his hand might suggest that most listeners loathed the speech. But Trump said many outrageous things on the campaign trail and voters - at least a critical number of them - agreed. So how did his words go down at home? 

My contacts in international security were unwilling to go on the record condemning it. They were mainly Americans in their twenties, hoping for a government job one day, and fearful of saying anything that could be interpreted as "un-American".

The one person who would speak to me asked for their name to withheld. A former military analyst in the US Department of Defence, they told me that “the US has the military capability and legal responsibility to address threats to itself or allies". What Trump said, they suggested, should be seen in the context of the wider US institutions. "While Trump may have advocated for isolation in the past, the political and military forces he leads are built to enforce the adherence to international law and regional security," the former analyst said. "They provide a real counterweight to the bombast in Pyongyang.”

Trump's speech may have been colourful - his nickname for the North Korean leader Kim Jong-un, "Rocket Man", is a reference to Elton John’s mid-Cold War musical hit – but the speech should be seen as yet another reassertion of US military dominance. North Korea may boast of its Inter-Continental Ballistic Missile (ICBM) development,  but its arsenal is simply not well-equipped enough to present the same existential threat to the US that the USSR did at its peak. 

Rather than lacking comprehension, the analyst said of the speech: “Trump's rhetoric is intended to galvanise recognition that the current rules based order is threatened by North Korea's actions”.

Trump’s jingoism is not unique amongst the current American elite. Back in 1983, in his book, The Wizards of Armageddon, the liberal journalist Fred Kaplan characterised the hawkish US military strategy as simply ejaculating combative statements without a long-term plan. Kaplan quoted Herman Kahn, one of the early nuclear strategists, who called one proposal targeting the USSR a “war orgasm”. 

The US Senate recently passed a defence policy bill to increase military spending to $700bn, which includes $8.5bn for missile defence purposes. Overtly catastrophic language, meanwhile, has long been a staple of US foreign policy debates. In 2015, Trump's rival for the Republican presidential nomination, Ted Cruz, made headlines when he vowed to carpet-bomb Isis until he found out "if sand can glow in the dark". While most leading Republicans chose to stay silent after Trump's speech, a few, such as Paul Ryan and Rand Paul, publicly endorsed the message. Cruz, despite the rivalry, was among them. 

On social media, the American public are vocally divided. Some called for Trump to be denounced for his inflammatory speech, but others tweeted #MakeAmericaGreatAgain. Even some Trump sceptics agreed that the North Korea “nuclear summer” needed to be kept in check.

By contrast, overseas listeners have perceived the speech, and this administration’s foreign policy, as unnecessarily incendiary. Matt Korda, a Canadian research assistant on strategic stability at the UK-based Centre for Science and Security Studies,  told me: “Kim Jong-un perceives his nuclear weapons to be the only thing guaranteeing his regime's survival”.

“He will never give them up, no matter how much Trump threatens him," Korda added. “On the contrary: Trump's threat to ‘totally destroy’ the entire country (including millions of innocent and oppressed civilians) will only tighten Kim's grip on his nuclear weapons”.

The effects of Trump’s speech are yet to fully play out, but it is clear that his words have rallied at least a section of American society, and rankled everyone else. The Donald may seem to be mirroring the culture of nuclear recklessness his North Korean opponent helped to create, but this is also the kind of hostile and hyperbolic rhetoric which fuelled his rise to power. In reality, once Trump’s unpleasant vernacular is decoded, he can be seen to be echoing the same global view that has long pervaded the collective American consciousness. Trump's speech was not addressed at his UN doubters, but rather at his domestic fan base and his allies in the South Pacific. This is not a shift in US foreign policy - it is tradition with a spray-tan.

 

 

Anjuli R. K. Shere is a 2016/17 Wellcome Scholar and science intern at the New Statesman