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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United States of Emergency: will the North Carolina riots stain Obama's legacy?

The latest flare up of violence in the US is a reminder that the election of the first black president did not herald a new age of post-racial harmony.

Last April I travelled to Baltimore the morning after the Governor of Maryland had declared a state of emergency in the city, following riots that erupted after the death of Freddie Gray in police custody. Time had just published a poignant article comparing images of disorder on America's streets in 2015 with those 50 years earlier, during the struggles of the civil rights era. However, the scene that greeted my companion and I as we looped round the I-95 into the inner harbour looked more like photos we had seen of Helmand in 2001, or Mosul in 2003. Except this wasn't Baghdad, it was Baltimore – the birthplace of Edgar Allen Poe, Babe Ruth and The Star Spangled Banner. And yet it was clearly a warzone, for how else could you explain the presence of 4,000 national guardsmen, either poking out of armoured vehicles or patrolling the streets with automatic weapons?

During the protests that have erupted in Charlotte, and elsewhere, following the shooting of yet another black man by the police, US Attorney General Loretta Lynch has warned against this kind of violence becoming the “new normal”. As North Carolina governor Pat McCrory declared a state of emergency on Thursday morning, the horrible truth was that the normalcy of it all was plain to see. Such is the frequency with which riot police and even soldiers have been deployed on America's streets over the past few years, that the “United States of Emergency” would not seem like an inaccurate rebranding. Of course all of this civil disobedience plays into the hands of a Republican presidential candidate who is making the restoration of “law and order” one of the central tenets in his bid for power.

It is not hard to see the desperation on Obama's face as he reaches the denouement of his own tenure. While the 44th President's political legacy will be debated for years to come, it is now obvious that one thing it did not herald was a new era of post-racial harmony. America's obsession with symbolism almost willed him to the White House but as so often is the case with US politics: the higher the pretensions, the harder the fall. 

Charlotte doesn't represent anything particularly unique in this long struggle against police racism. It's just another place name to be added to Ferguson, Baton Rouge, St. Paul and dozens of others that could form a particularly grim tourist trail. The horrible truth is that as long as there have been black men in America – especially in places like Charlotte – they have always been unfairly targeted by police. For decades in the South these same forces were the “thin white line” promulgating a form of apartheid against the black majority. The difference now is that 21st century technology allows witnesses to capture and disseminate proof of this worldwide. The power of images to expose racial violence is unquestionable. The campaigner Mamie Till, mother of Emmett, knew this when she published photos of her son's mutilated corpse in 1955. As did George Holliday when he filmed Rodney King's beating in 1991.

There is a kind of despair when it comes to trying to find solutions to America's devastating gun and racial problems. Unfortunately neither presidential candidate seems to offer much hope of significant change. One is perceived as being in thrall to big business (of which the gun lobby represents a significant part) and the other, well, it is not hard to imagine Trump's glee at further proof of how “broken” and disorderly the country is under the Democrats. Both of their reactions to this latest incident have been muted. If either of them care at all about fixing this problem they need to take action and it needs to be drastic. The late comedian Robin Williams once quipped that in Britain the police shout: “Stop! Or I'll shout Stop again”. In America that first “stop” is all too often followed by a much louder sound.

The problem is that whenever a “taskforce” is created to fix the problem – such as Obama's 21st century policing initiative – its recommendations are always non-binding. On top of this is the fact that there are nearly 20,000 distinct police departments in the US representing a myriad of vested interests and demographic differences, and all adhering to slightly different codes of conduct. American police need to revert from a militarised occupying force to a pacific consensual one, perhaps by sending officers out unarmed. Unfortunately the likelihood of this happening with either a Trump, or even Clinton, presidency is sadly close to none. 

Alexis Self is a writer based in New York City.