Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘Government Spending’ Category

Signs Of Global Slowdown

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There are growing signs that the global economy is slowly but steadily heading into another period of stagnation.

Global growth since the 2009 world financial crisis has largely been driven by the third world; developing Asia alone accounted for almost 60% of world growth over the period 2009 to 2014.

However, the economic fortunes of most third world countries, including those in developing Asia, are now being pulled down by weak core country growth.  And this development will in turn deepen economic problems in Japan, most Eurozone countries, and even the U.S.

For example, Asian growth has largely been fueled by exports to advanced capitalist countries, in particular the U.S.  However, as a result of core country economic difficulties developing Asian countries have seen their exports plummet. The following figure shows year-on-year export growth for developing Asian countries; the last data point (April 2015) is an average growth rate only for Korea, China, and Taiwan.

export growth rates

The next figure shows that all of Asia’s leading economies are suffering a similar fate, with their exports now barely growing in value compared with growth rates of over 40% in 2010.

NA-CA967_OUTLOO_G_20140427160604

The Wall Street Journal explains what is happening as follows:

For decades, Asia fueled its development by selling products to the West. That engine is now sputtering, threatening to sap the region’s economic expansion. . . .

Today, it is unclear whether exports can still provide that oomph. Overall growth is slowing in many Asian nations, forcing policy makers to ponder whether demand from their own consumers can fill the void.

“That model that Asia had of relying on the trade channel—that’s gone,” said Markus Rodlauer, deputy director for Asia and the Pacific at the International Monetary Fund in Washington.

The following figure shows aggregate exports by destination for six leading Asian economies: China, Hong Kong, Korea, Singapore, Taiwan and Thailand.  The declines in sales to Japan and the EU are especially striking.  However, even intra-Asian export growth has fallen, in large part because of China’s slowing economic activity.

asian-exports

To this point, Asian economic growth has not fallen as much as one might expect given the export trends highlighted above.  Perhaps the main reason is that China’s massive investment spending has, up to now, served to support Asian exports, although at a reduced rate.  But China’s investment first policy has largely run its course, leaving the country with a growing number of empty towns, shopping centers, theme parks, airports, and high-speed rail lines and its regional governments deep in debt.

Here is one illustration of the problem from the South China Morning Post:

When officials reopened the airport on the sparsely populated Dachangshan island off the mainland’s northeast coast after a US$6 million refurbishment in 2008, they planned to welcome 42,000 passengers in 2010 and another 78,000 in 2015.

However, fewer than 4,000 passengers – or just a 10 a day – passed through its gates in 2013, data from the civil aviation authority showed.

Since February last year [2014], China has approved at least 1.8 trillion yuan (HK$2.3 trillion) in new infrastructure projects to counter a slowing economy. The approvals come just as the full costs of the underused airports, expressways and stadiums built during the last spending binge are beginning to emerge.

While construction firms profited from the boom, it saddled provincial governments with US$3 trillion worth of debt, with the most over-exuberant seeing their local economies weaken and become imbalanced towards the building sector.

As noted above, some analysts believe that Asian governments are likely to try and compensate for the loss of demand from stagnate exports by supporting policies to boost domestic consumption.  However, this is extremely unlikely.

To put it bluntly, governments throughout the region remain committed to their export growth strategies.  This has left them locked in competition to attract and hold corporate investment and determined to keep labor costs as low as possible.  The Chinese government, for example, has decided to counter the recent rise in labor activism and wages by engaging in a massive push to replace workers with robots.

As the New York Times reports:

Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries. That may make it significantly more difficult for China to address one of its paramount economic challenges: the need to rebalance its economy so that domestic consumption plays a far more significant role than is currently the case.

Another indicator of global fragility is the decline in commodity prices.  Of course this trend is largely a consequence of the previous one.  Asia’s export decline has translated into a decline in regional manufacturing activity and a fall in the demand for as well as price of most commodities.  The following figures from the Guardian illustrate this trend.

gold

crude

platinum

aluminum

copper

iron ore

These sharp declines in commodity prices threaten to dramatically slash rates of growth in sub-Saharan African and Latin American countries, most of whom depend on exports of these commodities to finance the imports they need to support domestic production and consumption.

In brief, growth prospects in core countries are poor.  As a consequence, developing Asia faces the exhaustion of its export-led growth strategy.  And the same is true for sub-Saharan Africa and Latin America.  Compounding global problems is the fact that Germany and Japan continue to embrace their own export-led growth strategies and U.S. growth is unlikely to prove strong enough to ensure sufficient global demand.

In sum, without significant structural changes in most economies, changes that include support for policies designed to boost majority living and working conditions or said differently privilege people over profits, workers everywhere are in for a long period of economic hardship.

Lessons From A Defeat In Europe

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The Troika are celebrating the end of negotiations with Greece, proclaiming that thanks to their tireless efforts the Eurozone remains whole.  And why wouldn’t they celebrate.  They have demonstrated their power to crush, at least for now, the Greek effort to end austerity and its associated devastating social consequences.  Tragically, Syriza has not only surrendered, the nature of its defeat is likely to leave the country worse off, at least both economically and very likely politically as well.

At this point, one of the most important things we can do is try to draw lessons from the Greek experience.

  • Perhaps one of the most obvious lessons is that visions of a more humane Europe are not real.  European leaders were more than willing to pursue the complete collapse of the Greek economy in order to break Syriza and the movement that gave it power for fear of the demonstration effect a successful Syriza might have had on broader European politics.  Using the lever of a European Central Bank cut off of funding for Greek banks, the Troika pressed Syriza to the wall.

 Here is how a Guardian blog post described the nature of the discussions leading up to the final    Greek surrender:

Alexis Tsipras was given a very rough ride in his meeting with Tusk, Merkel and Hollande, our Europe editor Ian Traynor reports.

Tsipras was told that Greece will either become an effective “ward” of the eurozone, by agreeing to immediately implement swift reforms this week.

Or, it leaves the euro area and watches its banks collapse.

One official dubbed it “extensive mental waterboarding”, in an attempt to make the Greek PM fall into line.

An unpleasant image that highlights just how far we have now fallen from those European standards of solidarity and unity.

  • Second, the vicious nature of the European response to the Greek government’s initial offer of moderate austerity, symbolized by the stance of its dominant power Germany, reflects more than ignorance or petty mindedness on the part of European leaders.  It reflects the increasingly exploitive nature of contemporary capitalism everywhere.  Capitalists, pursuing profits in an increasingly competitive and unstable global system, demand ever greater power to intensify the exploitation of workers everywhere and that is how dominant states approach social policy in their respective countries and international institutions.
  • Third, class interests dominate so-called “economic rationality”.  A case in point: in the period before the July 5 referendum we learned that IMF staff believed that Greece would be unable to pay its debts under the best of conditions and that therefore any agreement with Greece had to include debt relief while at the very same time the head of the IMF was aggressively joining with European leaders to reject Greek government pleas for just such relief.
  • Fourth, since dominant powers will do everything in their power to block meaningful social transformation, those seeking to lead it must prepare people as best they can for the expected class struggle and opposition.  In this case Syriza can and should be faulted for not engaging people about the difficulty of achieving both an end to austerity and Eurozone membership under current conditions and doing its best to develop the technical and political capacities necessary for a break from the Euro on its own terms if and when the situation called for it.

Greeks elected a progressive government, voting Syriza into power in January 2015, on the basis of the party’s commitment to both anti-austerity and continuing Eurozone membership.  The leadership of Syriza never wavered from encouraging Greeks to believe that both were possible and most Greeks, for many reasons, were eager to believe that this was true.  Although the results of the July 5 referendum showed that the Greek working class has a strong fighting spirit, polling also revealed that most of those who voted No hoped that their vote against the European austerity plan would lead to a better deal from Europe, not a break from the Eurozone.  They no doubt felt this way because of government pronouncements.

For example, below are the results of polling done the day before the referendum:

consequencesNO

eurovsEU

Tragically, immediately after the vote the Greek government surprised everyone by returning to negotiations with the Troika with an offer to accept an austerity program much like the one that had been originally placed before the people and rejected.  The only meaningful addition was that it included the long held Greek proposal for debt relief.  This decision was a serious mistake for two reasons—it generated serious confusion on the part of the Greek population and perhaps even more importantly convinced the Troika that the Greek government was not prepared to use its new domestic support to challenge the status quo.  This only emboldened the Troika to proclaim that the referendum had changed everything and now that trust had been lost between the Troika and Syriza leaders, the austerity demands had to be intensified.

In fact, we have learned that Syriza’s leaders did not expect to win the referendum and were prepared to and in fact perhaps hoped to be able to resign and let more conservative forces negotiate and approve a new austerity package.  Here is part of an interview with James K. Galbraith, a strong Syriza supporter:

The recent Ambrose Evans Pritchard piece is very much on the mark (” Europe is blowing itself apart over Greece – and nobody seems able to stop it“). The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.

It all went downhill from there.  In short, Syriza leadership had no plan B.  The Troika knew that Syriza was unwilling to pursue its own break from the Eurozone, which meant that its leadership would do anything to remain in the Eurozone.  The following is from an interview with Yanis Varoufakis, the former Greek finance minister, that provides insight into the somewhat self-inflicted weakness in Syriza’s bargaining stance:

The referendum of 5 July has also been rapidly forgotten. It was preemptively dismissed by the Eurozone, and many people saw it as a farce – a sideshow that offered a false choice and created false hope, and was only going to ruin Tsipras when he later signed the deal he was campaigning against. As Schäuble supposedly said, elections cannot be allowed to change anything. But Varoufakis believes that it could have changed everything. On the night of the referendum he had a plan, Tsipras just never quite agreed to it.

The Eurozone can dictate terms to Greece because it is no longer fearful of a Grexit. It is convinced that its banks are now protected if Greek banks default. But Varoufakis thought that he still had some leverage: once the ECB forced Greece’s banks to close, he could act unilaterally.

He said he spent the past month warning the Greek cabinet that the ECB would close Greece’s banks to force a deal. When they did, he was prepared to do three things: issue euro-denominated IOUs; apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; and seize control of the Bank of Greece from the ECB.

None of the moves would constitute a Grexit but they would have threatened it. Varoufakis was confident that Greece could not be expelled by the Eurogroup; there is no legal provision for such a move. But only by making Grexit possible could Greece win a better deal. And Varoufakis thought the referendum offered Syriza the mandate they needed to strike with such bold moves – or at least to announce them.

He hinted at this plan on the eve of the referendum, and reports later suggested this was what cost him his job. He offered a clearer explanation.

As the crowds were celebrating on Sunday night in Syntagma Square, Syriza’s six-strong inner cabinet held a critical vote. By four votes to two, Varoufakis failed to win support for his plan, and couldn’t convince Tsipras. He had wanted to enact his “triptych” of measures earlier in the week, when the ECB first forced Greek banks to shut. Sunday night was his final attempt. When he lost his departure was inevitable.

“That very night the government decided that the will of the people, this resounding ‘No’, should not be what energised the energetic approach [his plan]. Instead it should lead to major concessions to the other side: the meeting of the council of political leaders, with our Prime Minister accepting the premise that whatever happens, whatever the other side does, we will never respond in any way that challenges them. And essentially that means folding. … You cease to negotiate.”

Of course, it is easy to call for a break with the Eurozone but in reality such a break would not be a walk in the park.  For example, Varoufakis makes clear that there were no certainties for what would happen if the government decided on a break:

“He [Tsipras] wasn’t clear back then what his views were, on the drachma versus the euro, on the causes of the crises, and I had very, well shall I say, ‘set views’ on what was going on. A dialogue begun … I believe that I helped shape his views of what should be done.”

And yet Tsipras diverged from him at the last. He understands why. Varoufakis could not guarantee that a Grexit would work. After Syriza took power in January, a small team had, “in theory, on paper,” been thinking through how it might. But he said that, “I’m not sure we would manage it, because managing the collapse of a monetary union takes a great deal of expertise, and I’m not sure we have it here in Greece without the help of outsiders.” More years of austerity lie ahead, but he knows Tsipras has an obligation to “not let this country become a failed state”.

To be a bit more specific, a break from the Eurozone would require nationalization of the banks—an act that would immediately draw the country into a serious legal test with Europe since the banks are technically under the control of the European Central Bank.  It would require the government to quickly issue new script as it prepared a new currency, and aggressively engage in an expanded public works program.  At the same time it was unclear whether the new script would be accepted and whether the country would have sufficient foreign exchange to maintain minimum purchases of key import items such as food and medicine.  Moreover, many businesses, holding debts denominated in euros, would likely be forced into bankruptcy necessitating government takeover.  And, all this would take place in a relatively hostile international environment.  No doubt some countries would offer words of solidarity, but it appears unlikely that any would or could offer meaningful financial or technical assistance.   Still, with proper preparation the possibilities for success could have been greatly enhanced.

Strikingly, Varoufakis mentioned that Syriza had established a small team to think about what a break would mean shortly after their January 2015 election, a team that no doubt was kept small because the government wanted to keep the planning secret.  But that was a mistake.  Planning should have happened on a large scale and in a visible way.  Discussions should have been held with international legal experts as well as with the Brics countries concerning possible use of their new lending and investment facilities.  There was no need to keep this planning quiet, quite the opposite—Eurozone leaders should have been made aware that Syriza was seriously studying its alternatives.  And the population should have been brought along—that the government would do all in its power to stay in the eurozone as long as this was consistent with an end to austerity.

As it was, Tsprias went back into negotiations unarmed, desperate for a bailout.  Once the ECB tightened its support for Greece’s banking system it should have been clear, if not before then, that a German-led Europe was only interested in total surrender on the part of Greece.  And as far as I can tell total surrender is what they got.

Greece has agreed to austerity program that is far worse than any previously rejected.  Here is the Guardian summary of what was agreed:

Greek assets transfer

Up to €50bn (£35bn) worth of Greek assets will be transferred to a new fund, which will contribute to the recapitalisation of the country’s banks. The fund will be based in Athens, not Luxembourg as Germany had originally demanded.

The location of the fund was a key sticking point in the marathon overnight talks. Transferring the assets out of Greece would have meant “liquidity asphyxiation”, Tsipras said.

As the statement puts it: “Valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means.”

The “valuable assets” are likely to include things such as planes, airports, infrastructure and banks, analysts say.

Some of the fund will be used to recapitalise banks and decrease debt, but analysts are sceptical about how much money there will really be to work with.

“Given the experience of the last few years’ privatisation programme, these targets appear overtly optimistic, serving as a signalling mechanism of Greek government commitment to privatisation rather than a meaningful source of financing for bank recapitalisation, growth and debt reduction,” said George Saravelos, a strategist at Deutsche Bank.

Pensions

Greece has been told that it needs to pass measures to “improve long-term sustainability of the pension system” by 15 July.

The country’s pensions system, and its perceived generosity relative to other eurozone states, has been a key sticking point in the past five months of negotiations with creditors.

The so-called troika of lenders believes that Athens can save 0.25% to 0.5% of GDP in 2015 and 1% of GDP in 2016 by reforming pensions.

Greece had wanted to draw out reform of early retirement rules, starting in October and running until 2025, when everyone would retire at 67. The EU wants the process to start immediately, by imposing huge costs on those who want to retire early to discourage them from doing so. The lenders also say Athens must bring forward the reform programme so it completes in 2022.

VAT and other taxes

Another source of contention in the months of failed negotiations that preceded Monday’s tentative deal, VAT is now also on the block for immediate reform.

The latest agreement demands measures, again by 15 July, for “the streamlining of the VAT system and the broadening of the tax base to increase revenue”.

One of the key objections from Greece’s creditors to its VAT system is a 30% discount for the Greek islands. Athens proposed a compromise on 10 July under which the exemptions for the big tourist islands – where the revenue opportunities are greatest – would end first, with the more remote islands following later.

The onus on Greece to “increase revenue” is likely to mean more items will be covered by the top VAT rate of 23%, including restaurant bills, something that had until recently been a red line for Tsipras.

Statistics office

Another demand for legislation by 15 July is on “the safeguarding of the full legal independence of ELSTAT”, the Greek statistics office.

Balancing the books

Greece has been told it must legislate by 15 July to introduce “quasi-automatic spending cuts” if it deviates from primary surplus targets. In other words, if it cannot cut enough to balance the books, it should cut some more.

In the past, the troika has demanded that Greece commit to a budget surplus of 1% in 2015, rising to 3.5% by 2018.

Bridging finance

Talks will begin immediately on bridging finance to avert the collapse of Greece’s banking system and help cover its debt repayments this summer. Greece must repay more than €7bn to the European Central Bank (ECB) in July and August, before any bailout cash can be handed over.

Debt restructuring

Greece has been promised discussions on restructuring its debts. A statement from Sunday night also ruled out any “haircuts”, leaving the €240bn Greece owes to Brussels, the ECB and the International Monetary Fund (IMF) on the books.

Angela Merkel, the German chancellor, said the Eurogroup was ready to consider extending the maturity on Greek loans. She argues that a delay in loan repayments and a lower interest rate act in the same way as a write-off, which is why many analysts point out that the Greek debt mountain is worth the equivalent of 90% of GDP in real terms and not the 180% commonly quoted. Merkel said that for this reason there was no need for a Plan B.

Radical reforms

Tsipras pledged to implement radical reforms to ensure the Greek oligarchy finally makes a fair contribution. The agreement thrashed out overnight would allow Greece to stand on its feet again, he said.

Implementation of the reforms would be tough, he said, but “we fought hard abroad, we must now fight at home against vested interests”.

He added: “The measures are recessionary, but we hope that putting Grexit to bed means inward investment can begin to flow, negating them.”

Liberalising the economy

The new deal also calls for “more ambitious product market reforms” that will include liberalising the economy with measures ranging from bringing in Sunday trading hours to opening up closed professions.

Greece’s labour markets must also be liberalised, the other eurozone leaders say. Notably, they are demanding Athens “undertake rigourous reviews and modernisation” of collective bargaining and industrial action.

Pharmacy ownership, the designation of bakeries and the marketing of milk are also up for reform, all as recommended in a “toolkit” from the Paris-based Organisation for Economic Co-operation and Development.

IMF support

The statement from the euro summit stipulates that Greece will request continued IMF support from March 2016. This is another loss for Tsipras, who had reportedly resisted further IMF involvement in Greece’s rescue.

Energy market

Greece has been told to get on with privatising its energy transmission network operator (ADMIE).

Financial sector

Greece has been told to strengthen its financial sector, including taking “decisive action on non-performing loans” and eliminating political interference.

Shrinking the state

Athens has been told to depoliticise the Greek administration and to continue cutting the costs of public administration.

The Guardian highlights one of the hidden landmines in the agreement:

Our economics editor Larry Elliott has been going through the details of this morning’s deal and concludes it will deepen the country’s recession, make its debt position less sustainable and that it “virtually guarantees that its problems come bubbling back to the surface before too long.”

He continues:

One line in the seven-page euro summit statement sums up the thinking behind this act of folly, the one that talks about “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”.

Translated into everyday English, what this means is that leaving to one side the interest payments on its debt, Greece will have to raise more in revenues than the government spends each and every year. If the performance of the economy is not strong enough to meet these targets, the “quasi-automatic” spending cuts will kick in. If Greece is in a hole, the rest of the euro zone will hand it a spade and tell it to keep digging.

This approach to the public finances went out of fashion during the 1930s but is now back. Most modern governments operate what are known as “automatic stabilisers”, under which they run bigger deficits (or smaller surpluses) in bad times because it is accepted that raising taxes or cutting spending during a recession reduces demand and so makes the recession worse.

At least according to press reports, Tsprias put up his greatest fight over inclusion of the IMF in monitoring the agreement and privatization.  The IMF is definitely in.  As for privatization or what the Guardian calls “Asset Transfer,” gains were minimal.  One can question in fact whether at least the latter area is one where Tsprias should have tried to draw lines.  At least on the face of it, it would seem that it would have made more sense to fight the demand to “liberalize” labor markets.  A victory here would have given the state freedom to encourage the development of a strong labor movement, regardless of ownership.

Moreover, as noted in the summary, Greece is still not guaranteed new loans or debt relief.  Its parliament has to pass all of the above and then the government gets to start negotiations again.

As the Guardian reports:

European leaders lined up to say Grexit has been averted, but this snappy soundbite glides over the fact the eurozone has simply agreed to open negotiations on an €86bn (£62bn) bailout. Although this is a step to shoring-up confidence in the euro, it is only a promise to have more talks with no guarantee of success.

Talks on the bailout plan are forecast to last around four weeks. “We know time is critical for Greece, but there are no shortcuts,” said Klaus Regling, the official in charge of the the European Stability Mechanism, the eurozone’s permanent bailout fund that Greece hopes to tap.

But these formal talks can only begin, if eurozone leaders avoid several political and financial tripwires. The Greek government has until the end of Wednesday to ensure that sweeping reforms to its pension system and VAT rates are written into law. If Greek lawmakers meet this eurozone-imposed deadline, the baton will pass to the creditors. At least five countries, including Germany, the Netherlands and Finland, will have to put the idea of opening negotiations on a bailout to a parliamentary vote.

Politics could be overtaken by financial deadlines. Athens faces demands to repay €7bn of debts in July, including €3.5bn due to the European Central Bank on Monday (20 July).

Eurozone officials are working round the clock to come up with emergency funds that will help Greece bridge the gap before a permanent bailout kicks in. “It’s not going to be easy,” said Jeroen Dijsselbloem, the hawkish Dutch politician, who was re-elected chair of the eurozone group of finance ministers on Monday. Several options were being discussed on bridge finance, but no one had found “the golden key to solve the problem”, he said, although he hopes to see progress by Wednesday.

The ECB will also continue to maintain a choke hold on the Greek economy perhaps for months, tightening if any deviations take place.

They told clients tonight that the European Central Bank is unlikely to cut Greece much slack until the third bailout is agreed.

We suspect the ECB will stall an ELA decision until Greece begins to legislate the new deal later this week.

Greece would still face a tight ELA cap, however. We expect the ELA cap will remain carefully calibrated and controlled at least until the new ESM loan is fully in place. Access to banks could be fully normalised only in the fall.

It is hard to see this agreement as anything but failure.  Clearly the main responsibility for this disaster rests with the leaders of Germany and the European Union.  They showed that they had no interest in meaningful, honest negotiations, fearing that they would likely lead to a real challenge to their power.  But unfortunately Syriza’s leadership did not make the best of the bad hand they were dealt.  They needed to talk more truthfully to the population about the political/class nature of and reasons for the difficult challenges they faced and do the maximum possible to strengthen their negotiating position and prepare the population for the failure that they thought likely.

Hopefully, the Greek people will find the time and space necessary to digest and learn the lessons from this struggle and successfully regroup. We all must.

Victory: Greece Over The Troika

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It seems certain that the political economy textbooks of the future will include a chapter on the experience of Greece in 2015.

July 5, 2015, the people of Greece overwhelmingly voted NO to the Troika’s austerity ultimatum.  According to the Greek government, “61.31% of the votes for the 5th of July Referendum voted “NO” whereas 38.69% voted “YES”.  There was also a 5.8% of invalid/blank votes.  Turnout was 62.5%.”

The Greek government, led by its prime minister, Alexis Tsipras, refused to accept Troika dictates.  Instead, recognizing how important the decision was, he put the Troika’s “take it or leave it” ultimatum up to referendum.  Win or lose, that was an inspiring vote of confidence in the Greek people.  And by the extent of their participation and choice in the vote the Greek people showed that his confidence was not misplaced.

Background To The Referendum

Greece has experienced six consecutive years of recession and the social costs have been enormous.  The following charts provide only the barest glimpse into the human suffering:

Infographics / Unemployment

Infographics / Unemployment

 

Infographics / Social Impact

Infographics / Social Impact

Infographics / Poverty

Infographics / Poverty

While the Troika has always been eager to blame this outcome on the bungling and dishonesty of successive Greek governments and even the Greek people, the fact is that it is Troika policies that are primarily responsible.  In broad brush, Greece grew rapidly over the 2000s in large part thanks to government borrowing, especially from French and German banks.  When the global financial crisis hit in late 2008, Greece was quickly thrown into recession and the Greek government found its revenue in steep decline and its ability to borrow sharply limited.  By 2010, without its own national currency, it faced bankruptcy.

Enter the Troika.  In 2010, the European Commission, European Central Bank, and the IMF penned the first bailout agreement with the Greek government.  The Greek government received new loans in exchange for its acceptance of austerity policies and monitoring by the IMF.  Most of the new money went back out of the country, largely to its bank creditors.  And the massive cuts in public spending deepened the country’s recession.   By 2011 it had become clear that the Troika’s policies were self-defeating.  The deeper recession further reduced tax revenues, making it harder for the Greek government to pay its debts.  Thus in 2012 the Troika again extended loans to the Greek government as part of a second bailout which included . . . wait for it . . . yet new austerity measures.

Not surprisingly, the outcome was more of the same.  By then, French and German banks were off the hook.  It was now the European governments and the International Monetary Fund that worried about repayment.  And the Greek economy continued its downward ascent.

Significantly, in 2012, IMF staff eventually acknowledged that the institution’s support for austerity in 2010 was a mistake.  Simply put, if you ask a government to cut spending during a period of recession you will only worsen the recession.  And a country in recession will not be able to pay its debts.  It was a pretty clear and obvious conclusion.

But, significantly this acknowledgement did little to change Troika policy to Greece.

By the end of 2014, the Greek people were fed up.  Their government had done most of what was demanded of it and yet the economy continued to worsen and the country was deeper in debt than it had been at the start of the bailouts.  And, once again, the Greek government was unable to make its debt payments, now to Troika institutions, without access to new loans. So, they elected Syriza in January 2015 because of the party’s commitment to negotiate a new understanding with the Troika, one that would enable the country to return to growth, which meant an end to austerity and debt relief.

Syriza entered the negotiations hopeful that the lessons of the past had been learned.  But no, the Troika refused all additional financial support unless Syriza agreed to implement yet another round of austerity.  What started out as negotiations quickly turned into a one way scolding.  The Troika continued to demand significant cuts in public spending to boost Greek government revenue for debt repayment.  Syriza eventually won a compromise that limited the size of the primary surplus required, but when they proposed achieving it by tax increases on corporations and the wealthy rather than spending cuts, they were rebuffed, principally by the IMF.

The Troika demanded cuts in pensions, again to reduce government spending.  When Syriza countered with an offer to boost contributions rather than slash the benefits going to those at the bottom of the income distribution, they were again rebuffed.  On and on it went.  Even the previous head of the IMF penned an intervention warning that the IMF was in danger of repeating its past mistakes, but to no avail.

Finally on June 25, the Troika made its final offer.  It would provide additional funds to Greece, enough to enable it to make its debt payments over the next five months in exchange for more austerity.   However, as the Greek government recognized, this would just be “kicking the can down the road.”  In five months the country would again be forced to ask for more money and accept more austerity.  No wonder the Greek Prime Minister announced he was done, that he would take this offer to the Greek people with a recommendation of a no vote.

Here is the New York Times version of events:

ATHENS — Last Friday morning [June 26], the Greek prime minister, Alexis Tsipras, gathered his closest advisers in a Brussels hotel room for a meeting that was meant to be secret. All the participants had to leave their phones outside the door to prevent leaks.

A week of tense negotiations between Greece and its creditors was coming to an end. And it was becoming increasingly clear to the left-leaning prime minister that he could not accept the tough economic terms that his lenders were demanding in exchange for new loans.

As Mr. Tsipras paced and listened on the 25th floor of the hotel, his top aides argued that neither Germany nor the International Monetary Fund wanted an agreement and that they were instead pushing Greece into default and out of the euro.

The night before, at a meeting of eurozone leaders at the European Union’s headquarters, Mr. Tsipras had asked Chancellor Angela Merkel of Germany about including debt relief with a deal, only to be rebuffed again.

This is going nowhere, the 40-year-old Greek leader said in frustration, according to people who were in the room with him. The more we move toward them, the more they are moving away from us, Mr. Tsipras said.

After hours of arguing back and forth about possible responses, Mr. Tsipras made a decision to get on a plane and go home to call a referendum, according to the people who were in the room. . . .

But a close look at the events of the last week — based on interviews with some of the participants and others briefed on the discussions — reveals an accumulation of slights, insults and missed opportunities between Greece and its creditors that led the prime minister to conclude that a deal was not possible, regardless of any concessions he might make.

Greece’s creditors see it differently, of course. In their view, Mr. Tsipras, who swept into power on a wave of anti-austerity support, was only interested in a deal that would go light on austerity measures and deliver maximum debt relief. He could not and would not comply with any agreement that required more sacrifices from the Greek people.

Still, for a week that ended with so much enmity, its start was auspicious.

That Monday, June 22, Greece’s technical team in Brussels submitted an eight-page proposal to their counterparts. The paper was an effort to bridge a six-month divide on how Greece planned to sort out its future finances.

For political reasons, the Tsipras government had said it would not cut pensions or do away with tax breaks that favored businesses serving tourists on the Greek islands. Instead, the new Greek plan envisaged a series of tax increases and increases in pension contributions to be borne by corporations.

The initial response seemed positive. Both Pierre Moscovici, a senior finance official at the European Commission who is known to be sympathetic toward Greece, and Jeroen Dijsselbloem, the head of Europe’s working group of finance ministers who is one of Greece’s harshest critics, said on Tuesday that the plan was promising.

The Greek team was elated. For the first time, the Greek numbers were adding up.

The next morning, though, that optimism evaporated.

Greece’s creditors — the I.M.F., the other eurozone nations and the European Central Bank — sent the Greek paper back and marked it in red where there were disagreements.

The criticisms were everywhere: too many tax increases, unifying value-added taxes, not enough spending cuts and more cuts needed on pension reforms.

The Greek team couldn’t believe it. The creditors had seemed to dial everything back to where the talks were six months ago. . . .

Instead of bending as the deadline neared for Greece to make a payment of 1.5 billion euros to the I.M.F., Germany and the fund appeared to be hardening their positions.

On Wednesday night, Greece was presented with a counterproposal. At the behest of the I.M.F., the tax increases had been reduced and, crucially, the government was told that it needed to increase value-added taxes on hotels.

Moreover, several requests by the Greeks to discuss debt relief had been rejected — you need to agree to reforms first, they were told.

On Thursday, Mr. Varoufakis and Mr. Tsipras agreed that they could not present this latest proposal to their cabinet back in Athens. In recent weeks, radical factions within the ruling Syriza party in Greece had become more vocal in opposing any deal that crossed certain lines on pensions and taxes.

Moreover, some within Syriza were even pushing Mr. Tsipras to walk away from Europe altogether and return to the drachma, an approach that the prime minister and Mr. Varoufakis had promised never to consider. . . .

Mr. Schäuble began criticizing Mr. Moscovici, the senior European Commission official, over his positive comments regarding the Greek offer.

Even the latest proposal from the creditors was too lenient toward the Greeks, Mr. Schäuble argued, saying that he saw little chance that he could get it past the German Bundestag, the national parliament of the Federal Republic of Germany.

The only solution here is capital controls, he said, his voice rising.

But Mr. Varoufakis persisted on the issue of Greece’s staggering debt load, ignoring the admonitions of Mr. Dijsselbloem and others.

Then Mr. Varoufakis turned on Christine Lagarde, the French director of the I.M.F.

Five years ago, the fund had given its blessing to the first bailout, doling out loans alongside Europe despite internal misgivings that Greece would be in no position to repay them.

Now the I.M.F. was pushing Greece to sign up to yet another austerity program to access more loans even though the fund had now concluded that their initial misgivings were correct: Greece’s debt was unsustainable.

I have a question for Christine, Mr. Varoufakis said to the packed hall: Can the I.M.F. formally state in this meeting that this proposal we are being asked to sign will make the Greek debt sustainable?

Yanis has a point, Ms. Lagarde responded — the question of the debt needs to be addressed. (A spokesman for the fund later said that this was not an accurate description of the exchange.)

But before she could explain, she was interrupted by Mr. Dijsselbloem.

It’s a take it or leave it offer, Yanis, the Dutch official said, peering at him through rimless spectacles.

In the end, Greece would leave it.

The Referendum

Almost immediately after the Greek government announced its plans for a referendum, the leaders of the Troika intervened in the Greek debate.  For example, as the New York Times reported:

By long-established diplomatic tradition, leaders and international institutions do not meddle in the domestic politics of other countries. But under cover of a referendum in which the rest of Europe has a clear stake, European leaders who have found Mr. Tsipras difficult to deal with have been clear about the outcome they prefer.

Many are openly opposing him on the referendum, which could very possibly make way for a new government and a new approach to finding a compromise. The situation in Greece, analysts said, is not the first time that European politics have crossed borders, but it is the most open instance and the one with the greatest potential effect so far on European unity. . . .

Martin Schulz, a German who is president of the European Parliament, offered at one point to travel to Greece to campaign for the “yes” forces, those in favor of taking a deal along the lines offered by the creditors.

On Thursday, Mr. Schulz was on television making clear that he had little regard for Mr. Tsipras and his government. “We will help the Greek people but most certainly not the government,” he said.

European leaders actually actively worked to distort the terms of the referendum.  Greeks were voting on whether to accept or reject Troika austerity policies yet the Troika leaders claimed the vote was on whether Greece should remain in the Eurozone.  In fact, there is no mechanism for kicking a country out of the Eurozone and Syriza was always clear that it was not seeking to leave the zone.   As the Guardian explained:

One day before Greece’s bailout ends and the country’s financial lifeline melts away, Europe’s big guns have lined up one after another to tell the Greeks unequivocally that voting no in Sunday’s referendum means saying goodbye to the euro.

There was no mistaking the gravity of the situation now facing both Greece and Europe on Monday. Leaders were by turns ashen-faced, resigned, desperate and pleading with Athens to think again and pull back from the abyss.

There were also bitter attacks on Alexis Tsipras, the young Greek prime minister whose brinkmanship has gone further than anyone believed possible and left the eurozone’s leaders reeling.

One measure of the seriousness of the situation could be gleaned from the leaders’ schedules. In Berlin, Brussels, Paris and London, a chancellor, two presidents and a prime minister convened various meetings of cabinet, party leaders and top officials devoted solely to Greece.

The French president, François Hollande, was to the fore. “It’s the Greek people’s right to say what they want their future to be,” he said. “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.”

Athens insists that this is not what is at stake in the highly complicated question the Greek government has drafted for the referendum, but Berlin, Paris and Brussels made plain that the 5 July vote will mean either staying in the euro on their tough terms or returning to the drachma.

In what was arguably the biggest speech of his career, the president of the European commission, Jean-Claude Juncker, appeared before a packed press hall in Brussels against a giant backdrop of the Greek and EU flags.

He was impassioned, bitter and disingenuous in appealing to the Greek people to vote yes to the euro and his bailout terms, arguing that he and the creditors – rather than the Syriza government – had the best interests of Greeks at heart.

Tsipras had lied to his people, deceived and betrayed Europe’s negotiators and distorted the bailout terms that were shredded when the negotiations collapsed and the referendum was called, he said.

“I feel betrayed. The Greek people are very close to my heart. I know their hardship … they have to know the truth,” he said.

“I’d like to ask the Greek people to vote yes … no would mean that Greece is saying no to Europe.”

In a country where the hardship wrought by austerity brought a sharp increase in suicides, Juncker offered unfortunate advice. “I say to the Greeks, don’t commit suicide because you’re afraid of dying,” he said.

Juncker’s extraordinary performance sounded and looked as if he were already mourning the passing of a Europe to which he has dedicated his long political career. His 45-minute speech was both proprietorial and poignant about his vision, which seems to be giving way to a rawer and rowdier place.

That was clear from the trenchant remarks of Sigmar Gabriel, Germany’s vice-chancellor and the head of the country’s Social Democratic party. He coupled the Greek situation with last week’s foul tempers over immigration and said that Europe faces its worst crisis since the EU’s founding treaty was signed in Rome in 1957.

Gabriel was the first leading European politician to voice what many think and say privately about Tsipras – that the Greek leader represents a threat to the European order, that his radicalism is directed at the politics of mainstream Europe and that he wants to force everyone else to rewrite the rules underpinning the single currency.

The unspoken message was that Tsipras is a dangerous man on a mission who has to be stopped.

Standing alongside his boss, Angela Merkel, as if to send a joint nonpartisan national signal from Germany, Gabriel said that if the Greek people vote no on Sunday, they would be voting “against remaining in the euro”.

Unlike Juncker and Hollande, who pleaded with the Greek people to reject Tsipras’s urging of a no vote, the German leaders sounded calmly resigned to the rupture.

For Merkel, it was clear that the single currency’s rulebook was much more important than Greece. In this colossal battle of wills, Tsipras could not be allowed to prevail.

Having whipped up popular fears of an end to the euro, some Greeks began talking their money out of the banks.  On June 28, the European Central Bank then took the aggressive step of limiting its support to the Greek financial system.

This was a very significant and highly political step.  Eurozone governments do not print their own money or control their own monetary systems.  The European Central Bank is in charge of regional monetary policy and is duty bound to support the stability of the region’s financial system.  By limiting its support for Greek banks it forced the Greek government to limit withdrawals which only worsened economic conditions and heightened fears about an economic collapse.  This was, as reported by the New York Times, a clear attempt to influence the vote, one might even say an act of economic terrorism:    

Some experts say the timing of the European Central Bank action in capping emergency funding to Greek banks this week appeared to be part of a campaign to influence voters.

“I don’t see how anybody can believe that the timing of this was coincidence,” said Mark Weisbrot, an economist and a co-director of the Center for Economic and Policy Research in Washington. “When you restrict the flow of cash enough to close the banks during the week of a referendum, this is a very deliberate move to scare people.”

Then on July 2, 3 days before the referendum, an IMF staff report on Greece was made public.  Echos of 2010, the report made clear that Troika austerity demands were counterproductive.  Greece needed massive new loans and debt forgiveness.  The Bruegel Institute, a European think tank, offered the following summary and analysis of the report:

On July 2, the IMF released its analysis of whether Greek debt was sustainable or not.  The report said that Greek debt was not sustainable and deep debt relief along with substantial new financing were needed to stabilize Greece. In reaching this new assessment, the IMF stated it had learned many lessons. Among them: Greeks would not take adequate structural reforms to spur growth, they would not sell enough of their assets to repay their debt, and they were unable to undertake sufficient fiscal austerity. That left no choice but to grant Greece greater debt relief and to provide new financing to tide Greece over till it could stand on its own feet. The relief, the IMF, says must be provided by European creditors while the IMF is repaid in whole.

The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith.  For months, a haze was allowed to settle over the question of Greek debt sustainability. The timing of the report’s release—on the eve of a historic Greek referendum, well after the technical negotiations have broken down—suggests that there was no intention to allow a sober analysis of the Greek debt burden. Paul Taylor of Reuters tells us that the European authorities worked hard to suppress it and Landon Thomas of the New York Times reports that, until a few days ago, the IMF had played along.

As a result, the entire burden of adjustment was to fall on the Greeks before any debt reduction could even be contemplated. This conclusion was based on indefensible economic logic and the absence of the IMF’s debt sustainability analysis intentionally biased the negotiations. . . .

But, of course, as the IMF now makes clear, if a country has to repay about 4 percent of its income each year over the next 40 years and that country has poor growth prospects precisely because repaying that debt will lower growth, then debt is not sustainable. If this report had been made public earlier, the tone of the public debate and the media’s boorish stereotyping of Greeks and its government would have been balanced by greater clarity on the Greek position.

But the problem with the IMF report is much more serious. Its claims to having learned lessons from the past years are as self-serving as its call on other creditors to provide the debt relief. The report insistently points at the Greek failings but fails to ask if the creditors misdiagnosed the Greek patient and continued to damage Greek economic recovery. Protected by the authority and respect that the IMF commands, it is easy to lay the blame on the Greeks whose rebuttals are treated as more hysterical outbursts of an (ultra) “radical” government. . . .

This is why the IMF’s latest report is disingenuous. The report says that growth in Greece has failed to materialize because Greeks are incapable of undertaking sustained structural reforms. There is so much that is wrong with that statement. First, my colleague Zsolt Darvas of Bruegel argues persuasively that the Greeks have, in fact, undertaken significant structural reform. He notes that the “Doing Business” index has improved materially and labor markets are now more flexible than in Germany. Second, the IMF had set unrealistically high expectations of structural reforms: productivity was to jump from the lowest in the euro area to among the highest in a short period of time and labor participation rates were to jump to the German level. Again, the IMF’s own research department cautions that the dividends from structural reforms are weak and take time to work their way through (see box 3.5 in this link). The debt-deflation cycle works immediately. If it has taken decades for Greece to reach its low efficiency levels, it was irresponsible to assume that early reforms would turn it around in a few years. Finally, when an economy spirals down in a debt-deflation cycle, demand falls and that, in itself, will show up in the less productive use of resources. So, it is even possible that productivity has increased more but is being drowned by shrinking demand.

 In other words, the leaders of the Troika were insisting on policies that the IMF’s own staff viewed as misguided.  Moreover, as noted above, European leaders desperately but unsuccessfully tried to kill the report.  Only one conclusion is possible: the negotiations were a sham.

The Troika’s goals were political: they wanted to destroy Syriza because it represented a threat to a status quo in which working people suffer to generate profits for the region’s leading corporations.  It apparently didn’t matter to them that what they were demanding was disastrous for the people of Greece.  In fact, quite the opposite was likely true: punishing Greece was part of their plan to ensure that voters would reject insurgent movements in other countries, especially Spain.

The Vote

And despite, or perhaps because of all of the interventions and threats highlighted above, the Greek people stood firm.  As the headlines of a Bloomberg news story proclaimed: “Varoufakis: Greeks Said ‘No’ to Five Years of Hypocrisy.”

The Greek vote was a huge victory for working people everywhere.

Now, we need to learn the lessons of this experience.  Among the most important are: those who speak for dominant capitalist interests are not to be trusted.  Our strength is in organization and collective action.  Our efforts can shape alternatives.

 

A Test Of Power in Brussels

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“Reports From The Economic Front” is moving.  For a short time it will appear at both its current location and future home.

There is a lot to learn from the standoff in Brussels between Syriza and the Troika (European Commission, European Central Bank, and the IMF) over whether the latter will release the last tranche of bailout funds to the former.  Perhaps the most important lesson is that “politics” triumphs “economics.”  Said differently, Troika leaders are determined to crush any movement, regardless of human cost, that threatens dominant capitalist interests.  In this case, the threat is a popular and successful Syriza and its demonstration effect on class awareness and movements in other European countries, especially Spain, Portugal, and Ireland.

Alex Tsipras, the Greek Prime Minister, understands this.  The following is from a Guardian story:

Greece’s prime minister has said the International Monetary Fund has “criminal responsibility” for the country’s debt crisis as it emerged Athens could miss a €1.6bn (£1.15bn) payment to the lender this month.

Speaking in the Greek parliament Alexis Tsipras called on creditors to reassess the IMF’s insistence on tough cuts as part of the country’s bailout.

“The time has come for the IMF’s proposals to be judged not just by us but especially by Europe,” he said. “Right now, what dominates is the IMF’s harsh views on tough measures, and Europe’s on denying any discussion over debt viability.”

He added: “The fixation on cuts … is most likely part of a political plan … to humiliate an entire people that has suffered in the past five years through no fault of its own.”

The Greek government is running big national budget and trade deficits and is deeply in debt to Troika institutions.  Making these problems worse is the fact that Greece no longer prints its own money, having adopted the euro as its currency in 2001.  Quite simply, as things stand, without a new infusion of funds the government will find it impossible to pay its international debts and support the country’s economic activity. It is this position of weakness that allows the Troika leadership to present Syriza with a “take it or leave it” ultimatum of more austerity, privatizations, and labor market liberalization in exchange for a new loan.

A Little History

Greece didn’t get into this mess overnight or on its own.  The country joined the euro area in 2001, after finally convincing the European Commission that it met the eurozone’s requirements of a budget deficit below 3% of GDP and a national debt below 60% of GDP.  In 2004, Greece finally admitted that it had fudged the figures and had continuously run a greater budget deficit than was allowed.  It was later revealed that Goldman Sachs was a key player in the chicanery.

The European Commission responded to this admission by placing Greece under monitoring and requiring the Greek government to slash public spending.  Greece, it is important to add, was not the only country to have busted these deficit limits—Germany and France, for example, also recorded deficits over the 3% limit–but it was, as far as we know, the only one to manipulate its data.

By 2006 Greece was growing again and in compliance with European Commission deficit rules.  However, the Greek economy remained fragile despite relatively high rates of growth over much of the decade.  Greek growth depended upon debt fueled housing construction and public sector spending.  Its industrial base remained weak as the country experienced an ever growing trade deficit, in large part a consequence of a German export offensive built on a common eurozone currency and wage suppression. In turn, a growing share of the borrowed funds supporting Greek growth came from German and French banks who recycled export earnings back to Greece.

When the global financial crisis exploded in 2008, the Greek economy quickly collapsed.  A sharp recession in 2009 pushed the country’s deficit to over 12.5% of GDP. Greek national debt also soared, leaving the country with the highest debt ratio in the eurozone, over 120% of GDP.

Greece was again put under EU supervision and its government pressed to again slash spending to reduce the public sector deficit and, by extension, its reliance on borrowed funds.  However, the rapidly expanding global economic crisis froze international financial markets, and by early 2010 it was clear that the Greek government would not be able to borrow enough to meet its debt obligations.  In April, after considerable delay due to German resistance, the European Commission finally agreed to establish a bailout fund for Greece with the participation of the IMF.  Eurozone countries agreed to provide 30 billion euros and the IMF an additional 15 billion if Greece accepted monitoring and a tough IMF crafted austerity plan.

This was too little too late.  In May, the European Commission, European Central Bank, and the IMF were forced to put together a much larger bailout package.  Here is the Guardian report of the deal:

European countries stepped into uncharted territory tonight, deciding on the first bailout of a single currency member state by agreeing a three-year package worth 110bn euros (£95bn) to rescue Greece from financial meltdown in return for pledges on the most drastic overhaul of a European economy ever attempted.

Finance ministers from the 16 countries using the single currency met yesterday in Brussels to seal the pact following months of sitting on the fence and two weeks of tough negotiations in Athens involving the International Monetary Fund, the European commission, and the European central bank . . . .

With Greece’s debt relegated to junk status and the country staring at Europe’s first sovereign debt default without the bailout, European leaders sought to put the months of foot-dragging and squabbling behind them to try to shore up the euro and prevent the debt crisis rippling across to Portugal, Spain and Italy.

Of the €110bn over three years, the other 15 euro countries are to supply €80bn in bilateral loans, while the IMF puts up the remaining €30bn. Rehn said that the “systematic, specific, and rigorous” bailout plan came with strings attached tightly, including quarterly monitoring of Greek austerity measures. He revealed the deal required Greece to slash its soaring budget deficit by 6.5% this year alone, a staggering feat if it can be achieved.

The deficit is currently 14% and is to be under 3% by 2014. Several countries need to take the rescue package through parliaments. This is to be done swiftly over the next week, said Jean-Claude Juncker, the Luxembourg leader and chair of the eurogroup, so that the first funds can be released before 19 May when Greece needs to redeem debt of €8.5bn.

It is uncharted territory. The euro rulebook proscribes bailouts of profligate member states and many leaders, foremost Angela Merkel of Germany, are queasy about coming to Athens’ rescue.

In return for the lifeline, Papandreou has committed to the most ambitious and draconian reshaping of Greece’s welfare state ever attempted. Spending cuts amounting to more than €36bn or 11% of national GDP are to be made over the next three years. Wages, pensions, and benefits in Greece’s bloated public sector will be cut, and large VAT and other tax rises will be imposed. The retirement age is to be raised. The savage program will inevitably deepen Greece’s recession.

The Greek government dutifully slashed spending in response to Troika mandates but the result was self-defeating.  Cutting spending in the midst of a recession only deepened the country’s decline, reducing government revenue and therefore doing little to narrow the budget deficit.  Greece’s economy contracted by -0.4% in 2008, -4.4% in 2009, -5.4% in 2010, -8.9% in 2011, and -6.6% in 2012.  Its budget deficit as a percent of GDP was -10.4% in 2010, -9.9% in 2011, and -9.4 in 2012.

In March 2012, the Troika was forced to extend its first bailout.  As the New York Times explains:

After months of tortuous and tense negotiations, a second bailout for Greece finally became a reality  . . . when euro zone nations formally approved the plan and authorized the release of the first multibillion-euro loan installment.

In a statement, Jean-Claude Juncker, who, as the president of the Eurogroup, leads the finance ministers of the 17 European Union members that use the euro, said the national governments had formally approved Greece’s second rescue, which is valued at 130 billion euros ($170 billion). “All required national and parliamentary procedures have been finalized,” he said. . . .

A first installment of 39.4 billion euros ($51.4 billion) in loans will be disbursed from the euro zone’s temporary bailout fund, the European Financial Stability Facility.

The board of the International Monetary Fund is scheduled to meet on Thursday and is expected to agree to contribute 28 billion euros ($37 billion) to the package.

Greece will not be handed a blank check. The bailout loans will be paid in installments, and each tranche of aid will be conditional on the government in Athens hitting goals and completing structural changes to its economy, including the privatization of state-owned assets.

If the reform program is successful, Greece’s debt level by 2020 could be slightly lower than once expected, according to the latest projections, though it would still equal 116.5 percent of gross domestic product.

In all, Greece is expected to receive almost 173 billion euros ($226 billion) from international lenders, taking into account the new bailout and loans from its first rescue package, granted in 2010.

This program was supposed to run through the end of 2014 but was extended again after the election of Syriza in January 2015.  It is the last payment from the 2012 bailout that is at the center of current talks between the Troika and Syriza.  The Troika is withholding this payment until Syriza agrees to abide by the same policies approved by the previous Greek government, which means that Syriza must agree to more budget cuts, privatizations, and labor market liberalization.  Without the money, Syriza will be unable to make its June payment to the IMF and July payment to the European Commission, an outcome that would likely force the country out of the eurozone and into uncharted waters.

Syriza, for its part, having been elected to office on its anti-austerity platform, has refused these terms, proposing instead a different plan of action, one which includes permission to increase both its public spending and taxes on the wealthy, strengthen labor rights, and support re-industrialization.  It also seeks an actual debt reduction to lighten the load that the sizeable debt payments place on the country’s recovery.  It argues that agreeing to continue with the same Troika policies that have been in place since 2010 will only produce the same result: economic decline and unsustainable budget and debt loads, necessitating yet more borrowing.

Trokia Politics

Germany and the IMF have taken leadership in demanding that Syriza toe the line. Angela Merkel and Christine Lagarde argue that their demand for austerity is based on sound economics, but history has shown the folly of their position.  In fact, even IMF staff acknowledge that Troika demands are counterproductive. As the economic journalist Ambrose Evans-Pritchard explains:

The IMF knows that Greece cannot possibly pay [down its debts] by draconian austerity – the policy already implemented for five years with such self-defeating effects – and the longer it pretends otherwise, the more its authority drains away. . . .

The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6pc contraction of GDP in 2010 followed by brisk recovery.

What in fact happened was six years of depression, a deflationary spiral, a 26pc fall in GDP, 60pc youth unemployment, mass exodus of the young and the brightest, chronic hysteresis that will blight Greece’s prospects for a decade to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP.

It is a public policy scandal of the first order. One part of the IMF has issued a mea culpa admitting that its own analysts misjudged the fiscal multiplier badly. Plaudits to them.

Another part of the Fund continues to push new variants of the same indefensible policies, demanding a combined fiscal squeeze from pension cuts and VAT rises equal to 1pc of GDP this year and 2pc next year even as the economy lurches back into recession.

Ashoka Mody, former chief of the IMF’s bail-out in Ireland, refuses to criticize his former colleagues on the European desk, but the meaning of [his] words are clear enough.

“Everything that we have learned over the last five years is that it is stunningly bad economics to enforce austerity on a country when it is in a deflationary cycle. Trauma patients have to heal their wounds before they can train for the 10K.”

“I am frankly shocked that we are even having a discussion about raising VAT at all in these circumstances. We have just seen a premature rise in VAT knock the wind out of a country as strong as Japan.”

“Syriza should recruit the IMF’s research department to be their spokesman because they are saying almost exactly the same thing as Syriza on the economics of this. The entire strategy of the creditors is wrong and the longer this goes on, the more is its going to cost them.”

The IMF’s Original Sin in Greece was to allow the urbane Parisian Dominique Strauss-Kahn to hijack the institution to prop up Europe’s monetary union and the European banking system when the crisis erupted in 2010.

The Fund’s mission is to save countries, not currencies or banks, and it certainly should not be doing dirty work for a rich currency union that is fully capable of sorting out its own affairs, but refuses to do so for political reasons.

It was of course a difficult moment in May 2010. The eurozone was spinning out of control. There were no backstop defences – due to the criminal negligence of Europe’s leaders and banking regulators – and fears of a euro-Lehman were all too real.

Yet leaked minutes from the IMF board meetings showed that all the emerging market members (and Switzerland) opposed the terms of the first loan package for Greece. They protested that it was intended to save the euro, not Greece.

It loaded yet more debt onto the crushed shoulders of an already bankrupt country, and further complicated the picture by allowing one large French bank and one German bank – no names please – to offload much of their €25bn combined exposure onto EMU taxpayers.

“Debt restructuring should have been on the table,” said Brazil’s member. The loans “may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions”.

Arvind Virmani, India’s member, was prophetic. “The scale of the fiscal reduction without any monetary policy offset is unprecedented. It is a mammoth burden that the economy could hardly bear,” he said.

“Even if, arguably, the program is successfully implemented, it could trigger a deflationary spiral of falling prices, falling employment and falling fiscal revenues that could eventually undermine the program itself.” This is exactly what has happened.

Pensions

The Troika have taken direct aim at Greek pensions, well-aware that Syriza has said that it will not accept any agreement that requires them to further reduce payouts, especially to those at the bottom of the income distribution.   The situation is well described by the economist Michael Roberts:

The callous disregard of the poverty of Greeks, particularly the old, is shown in the statement of IMF chief economist Olivier Blanchard in a blog post.  Blanchard blithely pontificates “we believe that even the lower new [deficit] target cannot be credibly achieved without a comprehensive reform of the value-added tax (VAT) – involving a widening of its base – and a further adjustment of pensions.  Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone.  Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP.  We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners”.

But Blanchard’s demand will not protect the ‘poorest’ pensioners as it involves a cut in EKAS, the pension fund for those on lower incomes. A recent poll revealed that 52% of Greek households claimed their main source of income is pensions. This is not because so many people are ‘gaming’ the system and drawing on pensions; it is more because so many Greeks are unemployed without qualifying for benefits or employed but not being paid. If pensions are cut further, a lot of Greek households will really suffer at a time when the economy will likely continue to shrink.  10,000 Greeks have taken their own lives over the past five years of crisis, according to Theodoros Giannaros, a public hospital governor, whose own son committed suicide after losing his job.

The myth that Greeks are all living off the state and sunning themselves on the beaches with their early retirement pensions – something peddled by the Troika and politicians in northern Europe to their electorates – is just that, a Greek myth.  Yes, pensions amount to 16% of GDP, making Greece appear to have the most expensive pension system in Europe.  But this is partly because Greek GDP has dropped so much in the last five years.  Moreover, Greece’s high spending is largely the result of bad demographics: 20% of Greeks are over age 65, one of the highest percentages in the Eurozone.  If you adjust for this by looking at pension spending per person over 65, then Greek pension outlays are below the Euro average.

But the facts don’t matter.  The Troika continues to reject a series of compromises offered by Syriza, pushing the Greek government to the wall on pensions, taxes, privatization, labor policy and more.

A Test Of Power

Alexis Tsipras, the Greek Prime Minister, voiced his frustration with the talks and determination to keep his party’s election promises in a recent Le Monde article.  The main points of the piece are summarized by the economic journalist Paul Mason:

The key passage is Mr Tsipras’ claim that the tax and spending changes Syriza wants “will increase revenues, and will do so without having recessionary effects since they do not further reduce active demand or place more burdens on the low and middle social strata”. –

Basically the Greek government believes there can be non-austerity fiscal discipline and the lenders do not. And that is why Greece remains, for all the emollience in Tsipras article, on a collision course with its lenders.

And here is where Tsipras’ article gets interesting. He accuses that faction among the lenders that is blocking progress – implicitly the German finance ministry and its hardline allies on the ECB – of wanting to create a “two-speed Europe”:  “where the ‘core’ will set tough rules regarding austerity and adaptation and will appoint a ‘super’ Finance Minister of the EZ with unlimited power, and with the ability to even reject budgets of sovereign states that are not aligned with the doctrines of extreme neoliberalism. For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Mandatory austerity. And even worse, more restrictions on the movement of capital, disciplinary sanctions, fines and even a parallel currency”.

In other words, what is taking place in Brussels is not about economics, it is about politics, or better said domination.  The Troika want a different regime in power in Greece, one subservient to their interests. Its leaders hope that the economic pressure they are applying during a period of renewed recession will cause the Greek people to abandon Syriza, or as a second best, that Syriza will break and discredit itself by agreeing to Troika demands.

How this ends isn’t clear.  If Syriza holds firm the Troika have to weigh the gains and losses from having its bluff called. A bankrupt Greece cut free from the euro could cause international investors to become fearful about the stability of Spain or Italy, leading to capital flight from those countries and the eventual unraveling of the entire eurozone project.  The survival of Syriza and the revitalization of the Greek economy will depend heavily on how well its supporters understand what is at stake.

Oppose Fast Track And The TPP

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It is looking increasing likely that the U.S. Congress is going to approve a Fast Track mechanism which will be used to pass the Transpacific Partnership (TPP) agreement.  This is not good.   What follows is the text of a talk I gave at an April 2015 Oregon AFL-CIO sponsored event on the TPP.

 

I don’t have much time so I am going to try and make my points as quickly but as clearly as I can.

First, globalization is a process that is shaped by power and current globalization dynamics reflect corporate interests.  Sadly, these dynamics have produced a globalization process that is harmful to workers in all the countries involved.

Many U.S. companies have globalized their production because it enables them to lower labor and environmental costs and greatly increase their profits.  Since they no longer need to engage in production in this country they have not used their profits to fund investment or job creation in this country.  Rather they have channeled them into dividends or stock by-backs, both of which enrich their owners and managers.  The consequence for working people is quite different.  The resulting low growth and intensified competition between workers for jobs has left us with weak job creation and employment conditions that are increasingly precarious.

 

Second, the essence of these globalization dynamics is perhaps best revealed through an examination of our various free trade agreements.  These agreements, and the Transpacific Partnership agreement (TPP) is no different, are called free trade agreements because the government believes that we all think free trade is good and so by calling them free trade agreements it hopes we will uncritically support them.

The fact is that these agreements are about far more than trade.  For example, they normally have some 20 chapters, most having nothing to do with trade as we understand it.  The US-Korea agreement had 24 chapters, for example.    The TPP apparently has 29 chapters.  Now, we don’t know precisely what the TPP or the Trans-Atlantic Trade and Investment Partnership, another agreement being pushed by the current government, will include because they are being negotiated primarily in secret.  But we have seen enough agreements signed that we know the US trade negotiator’s play book and there have been enough leaks about the TPP that we can be confident of what many of the chapters will include.

Let me highlight two of its chapters:

We know the TPP has an investment chapter because of a recent leak.  Ostensibly this chapter is supposed to protect foreign investors, defined broadly, from nationalization or expropriation, but it does much more.  For example, the chapter blocks governments from putting performance requirements on foreign investment.  More problematic, it also grants foreign corporations protection from direct or – and here is the kicker – indirect expropriation or nationalization.

So, what is an indirect expropriation or nationalization you might ask?  According to the leaked chapter, one of the factors that might signal an indirect expropriation is “the extent to which the government action interferes with distinct, reasonable investment-backed expectations.”  Another is “the character of the government action.”  This last factor becomes clearer from a reading of the terms of the Investment Chapter in the U.S.-Korea Free Trade Agreement.  There it is stated that one of the factors to be considered in determining whether a foreign investor has suffered an indirect expropriation is “whether the government action imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.”

Moreover, the chapter also allows an investor that feels like it has been wronged to sue the offending level of government in a special tribunal, whose judges are primarily corporate lawyers who will earn millions of dollars regardless of who wins.  In fact many of these lawyers actively encourage corporations to sue in one period, making millions representing them, and then sit on a tribunal judging a government in another time period and again making millions.

The number of corporations suing governments under investment chapters, which are in most FTAs, is rising sharply.  Here are a few cases:

  • Philip Morris is suing Uruguay and Australia, because these countries want tobacco products sold in plain packaging with large health warnings. The company is suing Uruguay for $2 billion.
  • Vatterfall, a Swiss company, is suing Germany because the country has decided to decommission nuclear power plants.
  • Lone Star, a U.S. based company, is suing Canada because the province of Quebec has decided to ban fracking.
  • Veolia, a French company, is suing Egypt because the government mandated increase in the minimum wage has reduced the profitability of its waste management operation.

Another leaked chapter, this one designed to protect the intellectual property rights of our large companies, seeks, among other things, to extend the length of patents enjoyed by big drug makers. It does that in several ways.   For example, it protects “evergreening” in which drug companies can obtain patent extensions by making minor changes to their patented formula or by promoting a secondary use for the drug.  It also limits the criteria a product must fulfill in order to be eligible for a patent, thereby making it easier for companies to patent new products.  An earlier version of the chapter—it is not sure where things currently stand—even tried to secure patents for particular methods of performing surgery.

I could go on but you get the idea—these and other chapters are designed to promote corporate power and profits by limiting public policies that might regulate their investment or production decisions.  This freedom would come at our expense and, I would add, the overall health of our economy.

 

Third, what about the trade part.  We hear over and over again from economists how wonderful free trade is for all countries involved.  However, realize that this conclusion is largely based on Ricardo’s theory of comparative advantage, a theory which rested on a few key assumptions.  The most important were: full employment, balanced trade, and a lack of capital mobility.  Now you might think that this theory and its assumptions is just another example of the fantasy world that economists live in, and no one, especially policy-makers, would take its conclusions seriously.  Well, every time you read or hear an economist or government official tell you how much such and such free trade agreement is going to raise GDP or boost trade you can be sure that they got that number from something called a Computable General Equilibrium Model.  And those models, believe it or not, use the very same assumptions.  They have to make those assumptions if their models are to produce numerical estimates.  But think of what that means.  We worry about unemployment, trade deficits, and capital flight.  Economists, the ones that our government relies on, assume those worries away, by assumption.

Even granting them their assumptions, their predictions for gains are still incredibly small.  The most common estimates, using the method noted above, find that the TPP will boost U.S. GDP by 0.38 percent in 2025.  That is a predicted gain of approximately $80 billion, really a rounding error in a $18 trillion economy.  And then remember all the chapters that we know will do us harm.  For example, the extra cost for medical care from extending and promoting patients will clearly swamp predicted benefits from trade.

Nevertheless U.S. officials have been endlessly quoting that the agreement will boost jobs—most often they cite a gain of 650,000 jobs.  However, it is unclear where this number comes from.  The studies themselves do no actual job forecasting.  All they do is predict, subject to the assumptions noted, growth in GDP and exports and imports.

So, where does the administration get its estimate?  No one knows for certain, but here is a good guess:  The model predicts that the TPP will increase exports by $124 billion by 2025.  The Commerce Department estimates that about 5,500 jobs are supported by every $1 billion in exports, so, if you do the math you get an increase of approximately 650,000 jobs.  There is one big problem with this calculation—it leaves out imports.  The model actually predicts an increase of approximately the same dollar value of imports—so there goes the increase in jobs.

In short, we are being lied to—about the nature of this and other agreements.

The fact is that the government doesn’t have the slightest idea of what this agreement will do for our GDP or employment.  What it knows is that it will greatly increase corporate profits and power and that is what it cares most about.  The rest is all salesmanship.

So, the takeaway: these agreements have been harmful—we have the history of past agreements to show us that.  We need to oppose them.  The government knows that the more people know about these agreements the less they will like them so they want to fast track them.  They want a procedure that will allow a simple and quick up or down vote.  Unfortunately many of our politicians depend on corporate funds and so they also want fast track because it allows them to do what they want without drawing too much public heat.  We cannot let that happen.  We need to educate others about what these agreements are really about and we need to pressure Congress not to approve a fast track procedure for approving them.

Things are bad enough in this economy we certainly don’t need to implement agreements that will only worsen them.

Taxes and Militarism

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Tax day has come and gone.  And there is indeed a lot to complain about: our corporations and the wealthy have successfully minimized their own tax responsibilities, leaving us to support a powerful and profitable military-national-security-industrial complex at the expense of needed public services and social programs.

Let’s start with who pays taxes.  Individuals and corporations pay income taxes to the federal government.  However, as the chart below shows, corporations have been able to take advantage of increasingly lenient income tax laws and a corporate friendly globalization process to significantly lower their tax obligations.  If we add payroll taxes which are paid to support specific programs like Social Security and Medicare, the overall individual contribution is approximately 80% and the corporate share about 11%.

ind_and_corp_tax_line_chart_large

Lower corporate taxes were supposed to unleash the power of the market and make us all better off.  Unfortunately, but not surprisingly, all they have done is boost corporate profits at the public expense.

Of course, income tax burdens are not equally divided among individuals.  In fact, our federal income tax code has become increasingly favorable to higher income earners.  As the next chart shows, the top marginal income tax rate has been dramatically reduced.  The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s.  Currently, the top rate is 39.6 percent; it is paid by individuals making more than $406,750 and couples making more than $457,600.  And then there are tax breaks that disproportionately benefit top income earners.

11economist--folbre2-blog480

The combination of more income going to top earners, lower top marginal tax rates, and specially crafted tax breaks cannot help but reduce federal tax revenues and drive up our federal deficits.

The payment of income taxes is one thing—how the federal government uses the money it receives is another.  As we see next, military related activities absorb a heavy share of federal spending.

tax_dollor,_labels_edited_large

Direct spending on the military accounts for 27 cents of every federal tax dollar spent.  Including spending for veterans benefits and approximately two-thirds of the interest on the federal debt adds another 16.05 cents, which brings the overall military total to 43.05 cents out of every dollar spent.  This is a conservative estimate because it does not include spending on activities that fall under the broader heading of national security such as homeland security and certain “foreign aid” expenditures.  No wonder our infrastructure and social programs are starved for funds.

Federal spending can be divided into non-discretionary and discretionary items.  In the case of the former, spending is mandated by law, such as payment of the national debt.  In the case of the latter, the federal government has discretion in how it spends our tax money.  Looking just at discretionary spending reveals even more clearly the dominant position of the military in our budget priorities.

discretionary-desk

Moreover, political pressure keeps working to push the military share higher.  Both House and Senate budget proposals call for spending some $530 billion on defense in Fiscal Year (FY) 2016.  That is the most that can be spent without triggering automatic spending cuts due to sequestration.  But – happily for the military – there is an exception to the sequestration process.

This exception allows Congress to authorize unlimited spending for current military operations or what is officially known as Overseas Contingency Operations.  House and Senate proposals include more than $90 billion under this heading.  Significantly, there is no similar exception when it comes to spending on non-military, discretionary items.  Apparently our non-military needs don’t rise to the same level of urgency as our military ones.

A few key changes in the tax code and federal spending priorities and a better 2016 tax day is not hard to imagine.

The Disappearing State Unemployment System

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Business has failed to create the jobs we need and our public policies are failing to protect those who are unemployed.

As an Economic Policy Institute report explains:

The drop in the official unemployment rate overstates the overall improvements made in the underlying labor market. The United States lost 7.8 million jobs between December 2007 and October 2010 but the working-age population continued to grow over that period. As a result, even with steady job growth in recent years, the current labor market is still short 5.6 million jobs needed to keep up with the growth in potential labor force (see Figure A).

 Jobs

And, as of December 2014, only 23.1 percent of unemployed workers received any state unemployment benefits (see Figure B).  One reason is the nature of many of the recently created jobs: they are short term and low paying; this leaves workers without the work record or earnings necessary to draw benefits.  Another reason:

since 2011 nine states have cut the maximum available number of weeks of regular UI benefit duration [to below the long-accepted norm of 26 weeks] : Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina. Except Illinois, all these states made other legislative changes to their programs which may have reduced benefit recipiency.

 Unemployment

Times are not easy even for those lucky enough to receive the benefits they earned:  As the Economic Policy Institute report notes:

Many states pay low benefits. There were 11 states with maximum weekly benefit levels of $350 or less in 2014, meaning that workers earning more than $700 a week (well below the median weekly earnings) do not get half their pre-layoff wages replaced by UI benefits. Average benefits overall were only $315 a week in 2014 with average weekly benefits below poverty levels in the poorly performing states.

Written by marty

April 13th, 2015 at 4:37 am

Corporations in Control

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President Obama continues to press for a form of fast track approval to ensure Congressional support for two major trade agreements, the Trans-Pacific Trade Partnership Agreement with 11 other countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) and the Trans-Atlantic Trade and Investment Partnership Agreement with the entire European Union.

Both agreements, based on leaks of current negotiating positions, have been structured to promote business interests and will have negative consequences for working people relative to their wages and working conditions, access to public services, and the environment.

These agreements are being negotiated in secret: even members of Congress are locked out of the negotiating process.  The only people that know what is happening and are in a position to shape the end result are the U.S. trade representative and a select group of 566 advisory group members selected by the U.S. trade representative.

Thanks to a recent Washington Post blog we can see who these advisory group members are and, by extension, whose interests are served by the negotiations.  According to the blog post, 480 or 85% of the members are from either industry or trade association groups.  The remaining 15% are academics or members of unions, civil society organizations, or government committees.  The blog post includes actual names and affiliations.

Here we can see the general picture of corporate domination of U.S. trade policy as illustrated by the Washington Post.

color codes

distribution

committee structure

In short, corporate interests are well placed to directly shape our trade policies.  No wonder drafts of these treaties include chapters that, among other things, lengthen patent protection for drugs, promote capital mobility and privatization of public enterprises, and allow corporations to sue governments in supra-national secret tribunals if public policies reduce expected profits.

Written by marty

March 15th, 2015 at 3:18 pm

Class Interests and Economic Policy

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The conventional wisdom is clear—our economic policies should aim at boosting profits.  Success will translate into investment and jobs.  Unfortunately for us, the conventional wisdom is wrong.

Profits are up and so is the stock market, but investment, job creation, and wages all remain flat. Corporate managers are just not interested in investing firm profits in new plant and equipment. They have a better use for them, one that more directly speaks to their interests as well as those of the stock holders they represent.

William Lazonick, writing in the Harvard Business Review, offers one important explanation for what is happening and why:

The allocation of corporate profits to stock buybacks deserves much of the blame [for the trends noted above]. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.

Why are such massive resources being devoted to stock repurchases? . . . . Stock-based instruments make up the majority of [corporate executive] pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.

As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity—with unsurprising results. Even when adjusted for inflation, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990s, when it was already widely viewed as excessive. Meanwhile, overall U.S. economic performance has faltered.

The Pharmaceutical industry is a case in point.

In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.

The takeaway here is that boosting profits is not the means to promote the general interest.  If we want more and better jobs we need appropriate public sector investments to stimulate and restructure our economy as well as new labor supporting workplace and wage policies.

Written by marty

February 21st, 2015 at 5:59 am

The Federal Budget In Pictures

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The following charts, taken from a National Priorities Project post, highlight our federal budget priorities.

As the post explains:

President Obama recently released his fiscal year 2016 budget proposal. Budgets are about our nation’s priorities: What are we going to spend money on? How are we going to raise the money we want to spend?

Though the budget ultimately enacted by Congress may look very different from the budget request released by the president, the president’s budget is important. It’s the president’s vision for the country in fiscal year 2016 and beyond, and it reflects input and spending requests from every federal agency.

 Here’s a look at the overall proposed budget:

2016-budget-chart-total-spending2_large

 

2016-budget-chart-discretionary-mandatory-interest-on-debt2_large

 

Here’s a look at the allocation of discretionary tax dollars:

2016-budget-chart-discretionary_large

 

Here”s a look at the relative balance of military and non-military discretionary spending over time:

2016-budget-chart-military-non-military-discretionary_large

 

Here’s a look at the structure of taxes supporting federal spending:

2016-budget-chart-individual-corporate-tax-line-chart_large

Written by marty

February 9th, 2015 at 9:16 am