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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What it’s like to be a Syrian refugee in Paris

“We fled from terror and it found us again here. It feels like it is always behind us, stalking us.”

Walid al Omari arrived in Paris a little less than a month ago. Having fled the slaughter of his homeland and undertaken the long and dangerous journey, like tens of thousands of other Syrian refugees, to western Europe, he was finally safe.

Ten days later, a wave of brutal violence tore through the French capital as gunmen and suicide bombers put an end to the lives of 130 people who had been out enjoying a drink, dinner, a concert or a football match.

“It felt like terrorism was everywhere,” recalls the 57-year-old Walid, a former small business owner and journalist from the suburbs of Damascus.

“We fled from terror and it found us again here. It feels like it is always behind us, stalking us.”

Syrian refugees, not just in Paris but across Europe and North America, have since found themselves caught up in a storm of suspicion. The backlash started after it emerged that at least two of the attackers arrived in Europe among refugees travelling to Greece, while a Syrian passport was found next to one of the bodies.

It has not yet been confirmed if the two men were really Syrian – all suspects whose identities have so far been made public were either French or Belgian – while the passport is widely believed to be a fake. But, already, several US states have said they will not accept any more refugees from Syria. In Europe, Poland has called for the EU’s quota scheme for resettling refugees to be scrapped, while lawmakers in France, Germany and elsewhere have called for caps on refugee and migrant numbers.

“I fear the worse,” says Sabreen al Rassace, who works for Revivre, a charity that helps Syrian refugees resettle in France. She says she has been swamped by calls by concerned refugees in the days following the attacks.

“They ask me if the papers they have been given since they arrived in France will be taken away, if they’ll be sent back to Syria,” she says.

Anas Fouiz, who arrived in Paris in September, has experienced the backlash against refugees first hand.

“One waiter at a bar asked me where I was from and when I said Syria he said that I must be a terrorist, that all Arab people are terrorists,” says the 27-year-old from Damascus, who had been a fashion student before leaving for Europe.

The irony is that the terrorist organisation that claimed responsibility for the Paris attacks, the Islamic State, is, along with Bashar al Assad’s army and other militant groups, responsible for the long list of atrocities that prompted many like Walid and Anas to flee their homes.

“As a man in Syria you have the choice of joining the Syrian army, the Islamic state or another militant group, or you run away,” says Anas.

He remembers seeing news of the attacks unfold on television screens in bars and cafés in the Bastille area of Paris – close to where much of the carnage took place – as he drank with a friend. Desensitised by having seen so much violence and death in his home city, he didn’t feel any shock or fear.

“I just felt bad, because I know this situation,” he says. “You just ask yourself ‘why? Why do these people have to die?’.”

Perhaps a more pressing cause for concern is how easily extremists in Europe can travel to Syria and back again through the porous borders on the EU’s fringes – as several of the Paris attacks suspects are thought to have done.

Both Anas and Walid speak of the lax security they faced when entering Europe.

“Turkey lets people across the border for $20,” says Walid.

“In Greece, they just ask you to write your nationality, they don’t check passports,” adds Anas. “It’s the same in Hungary and Macedonia.”

Nevertheless, and despite his experience with the waiter, Anas says he is happy with the welcome he has received by the vast majority of the French people.

In fact, at a time when fear and violence risk deepening religious and social rifts, Anas’s story is a heartening tale of divisions being bridged.

Upon first arriving in Paris he slept on the streets, before a passer-by, a woman of Moroccan origin, offered him a room in her flat. He then spent time at a Christian organization that provides shelter for refugees, before moving in with a French-Jewish family he was put in touch with through another charity.

He says the biggest problem is that he misses his parents, who are still in Damascus.

“I speak to my mum twice a day on the phone,” he says. “She asks me if I’m okay, if I’m keeping safe. She’s worried about me.”