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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There is one thing Donald Trump can't build a wall against

Muslim immigrants don't bring terrorism - ideology does. 

Rather than understanding the root of the Islamist extremist issue and examining the global scale of the challenge, one US presidential candidate has decided to pin his domestic security hopes on the demonisation of a particular group of people. 
 
The arrest of Ahmad Khan Rahami over the recent New York bombing, an Afghan-born naturalised US citizen, proved too tantalising an opportunity for the Republican presidential candidate Donald Trump to once again conflate terrorism and immigration. Taking aim at his rival Hillary Clinton, Trump claimed that she “wants to allow hundreds of thousands of these same people", people who he described as having hatred and sickness in their hearts.
 
It is unclear who exactly Mr Trump is referring to here, one can only assume that it is a reference to Muslims, more specifically those not born in the US, and their apparent deep-rooted hatred for all things American. These comments will no doubt strengthen support for his campaign among those who have remained supportive of his overtly anti-Muslim stance, but the reality is that Mr Trump is rather missing the point.
 
Trump’s insistence on profiling Muslims as a measure to curb terrorism is not merely offensive; it reinforces the "us versus them" rhetoric used by the very terrorists he is trying to defeat.
 
The attack on the Pulse nightclub in Orlando earlier this year was described as the deadliest mass shooting by a single attacker in American history. Omar Mateen, the perpetrator, was not an immigrant. Born in New York, Mateen was an American citizen by birth. This, however, did not stop him from killing dozens of innocent people and wounding many more. 
 
One of the most influential jihadi ideologues, certainly in the Western world, was in fact an American. Not a naturalised citizen, but a born American, Anwar al-Awlaki was a central figure in the propaganda output of al-Qaeda’s affiliate in the Arabian Peninsula. Awlaki’s ideas are reported to have been a significant factor in the radicalisation of the Tsarnaev brothers, the perpetrators of the deadly Boston Marathon bombing. 
 
Putting the spotlight on immigration as the most effective means to curb terrorism ignores the real problem; the ideology. The poisonous, divisive, and intolerant mindset that is at the heart of the matter is the real culprit. This ideology, which presents itself as a "true" reflection of Islam is nothing more than a politically motivated worldview that seeks to spread hatred and violence. 
 
Research from the Centre on Religion and Geopolitics has shown that those individuals who buy into this worldview come from a multitude of backgrounds. Some are from poor backgrounds while others are from more affluent ones, some are well-educated while others aren’t. The truth is that there is no prototype terrorist - the common denominator, however, is that they share an ideology. Focusing on immigration as a source for terrorists fails to acknowledge the wide and varied pool from which they recruit.
 
The ideology, which perverts the shared religious heritage that 1.6bn Muslims around the world hold dear, is not simply a threat to the US, but to the world over. There is no wall high enough, no trench deep enough, and no bomb big enough to destroy this ideology. 
 
While the focus on Isis conjures images of the Middle East, this year alone we have witnessed deadly attacks committed by the group including Indonesia, Bangladesh, France, Germany, and Belgium. The ideology that drives the violence is transnational; it’s a global threat that necessitates a global response.
 
The transnational appeal and threat of this ideology is evident with the recent phenomena of online radicalisation. Men and women, boys and girls, have been lured by these ideas from the safety of their own homes, with these powerful ideas moving some to join causes in lands they have never visited. 
 
Recent attacks in France, Germany, and indeed the US, have demonstrated how items that can be obtained ordinarily, such as vehicles and knives, are being weaponised to cause maximum damage. But would a ban on knives and trucks be the solution? The only effective means for defeating terrorists is by challenging and dismantling their ideological appeal, effectively sapping the substance that fuels the violence.
 
Mr Trump, who may become Commander-in-Chief of the world’s most formidable army, must recognise that we are engaged in a battle of ideas, similar to that of the Cold War. A battle in which opposing worldviews are key, words are important, and taking control of the narrative is paramount.
 
In this battle of ideas, Mr Trump is not only hampering the global efforts against groups like Isis and its ilk, but actually reinforcing the ideas put forward by the extremists. Our leaders should not mirror the intolerant attitudes of our enemies or echo their binary worldview. 
Though, when it comes to the Republican candidate, his past statements on the topic indicate, perhaps, that this aim is overly ambitious.
 
Our response must be clear and robust, but we must first acknowledge who, or what, the enemy is. Muslims coming to the US are not the enemy, Muslims born in America are not the enemy, the enemy is the poisonous ideology that has manipulated Islam.
 
Defeating this transnational ideology requires alliances, not alienation. Mr Trump has expressed his commitment to work with allies in the Middle East to fight terrorism, but it is just as important to foster good relations with American Muslims. They can, and should, play an integral role in defeating Islamist extremism at home.

Mubaraz Ahmed is an analyst at the Centre on Religion and Geopolitics. He tweets at @MubarazAhmed.