Will Hollande go to Germany?

Sanjay Reddy

The crisis of the Eurozone shows no sign of resolution and indications of intensification. W.B. Yeats’s image of ‘turning and turning in the widening gyre’, formulated in another period of clouds over the European continent, is as apposite as any other.   Is there a way out for Europe from the foreseeable disaster of a disorderly collapse of the euro?

The current approach demands austerity from crisis-hit countries as a quid pro quo for support.  It is failing for three reasons.  The first is that austerity is having a counter-productive consequence, leading to economic contraction which makes debt-burdens all the more difficult to bear.   The second is that austerity-oriented policies are perceived as unjustly punitive and distributively blind, leading to social and political resistance that makes them difficult to implement and sustain.  The third is that austerity cannot succeed, by itself, at restoring the confidence of the ‘markets’.

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Talking Populist, Walking Plutocrat: Paul Ryan on Dodd-Frank and the Volcker Rule

Gerald Epstein

In a little noted speech to his constituents in May, Paul Ryan decried the “crony capitalism” that he said, prompted the big bank bail-outs of 2008 (though he himself voted for the TARP, and he himself gets massive campaign contributions from big financial firms).

More surprisingly, Ryan effectively endorsed the Volcker Rule, saying: “…if you’re a bank and you want to operate like some non-bank hedge fund, then don’t be a bank. Don’t let banks use their customer’s money to do anything other than traditional banking…”

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The Last Days of Pushing on a String

Mark Blyth

A metaphor attributed to John Maynard Keynes maintains that using monetary policy to fight a severe recession is like “pushing on a piece of string.” When the problem is inflation, pushing up interest rates (pulling on a string) is a pretty effective policy tool — ask anyone who lived through the Volcker recession of the early 1980s. But when rates are pushed down to stimulate economic activity the ‘push’ becomes less and less effective the closer to zero rates get.

The power of this “pushing on a string” metaphor is especially apparent today. The Federal Reserve’s balance sheet shows that, since 2008, “deposits by depository institutions” (i.e. banks) have ballooned from about $30 billion to around $1.5 trillion. Why is all that money sitting at the Fed earning a meager 0.25% nominal interest when those same banks could make a lot more than that by lending it out?

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The Republicans’ Medicaid Cruelty

Jeff Madrick

“The essential American soul,” claimed D.H. Lawrence, “is hard, isolate, stoic, and a killer.” While the rejection by five state governments of the Affordable Care Act’s Medicaid expansion may not precisely illustrate Lawrence’s heated observation, it does suggest a contemporary vein of cruelty in America that is deeply disturbing.

A new study published in The New England Journal of Medicine shows that providing greater medical insurance coverage for the poor has saved lives. Moreover, the ACA’s expansion of Medicaid requires little state money, since the federal government will pick up more than 90 percent of the costs over time, and 100 percent of the costs for the first few years. Yet Texas, Florida, Louisiana, South Carolina, and Mississippi—which together account for more than a sixth of the overall US population—have already rejected the plan, and as many as twenty other states, including New Jersey, Missouri, Iowa, Nebraska, and Nevada, have indicated they may follow suit.

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When battered people took on the pesticide industry

Sunita Narain

Today, I want to tell you a true story of extraordinary courage. The past week, I was in Kasaragod, a district in Kerala, splendid in beauty and with abundant natural resources, but destroyed by the toxic chemical, endosulfan. The pesticide was aerially sprayed over cashew plantations, for some 20 years, in complete disregard of the fact that there is no demarcation between plantations and human habitation in this area. It is also a high rainfall region and so, the sprayed pesticide leached into the ground and flowed downstream. The poison contaminated water, food and ultimately harmed human beings.

This story is known. But the personal battles that make up the story of this poisoned land and its diseased people are not known. More importantly, it is not asked where this story ends?

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Credit to Small Enterprises: The silent crisis

Jayati Ghosh

A new BIS working paper by Cecchetti and Kharroubi makes a point that is becoming more widely known, especially after the continuing financial crises experienced globally since 2008. This is that the level of financial development is good only up to a point, after which it becomes a drag on growth. In fact, the authors argue that when the focus is on advanced economies, a fast-growing financial sector is actually detrimental to aggregate productivity growth. This is explained by the authors on the grounds that, because the financial sector competes with the rest of the economy for scarce resources, financial booms are not, in general, growth-enhancing.

The recent experience of the United States and now particularly Europe, certainly confirms this – and even established doyens of the world of private finance are now more willing to concede this. But one critical aspect of the failure of financial intermediation is still inadequately recognised and discussed: the inability of the currently constituted private financial system to deliver funds to small and medium enterprises (SMEs), which still account for the bulk of employment not just in developing countries but also in advanced economies.

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Three Reasons the Euro Zone Deal Won't Work

Mark Blyth and Stephen Kinsella, guest blogger

The latest Euro crisis summit was different from the 19 others that preceded it in one very important respect: The PR department of the EU played this one very well. Rather than hopes being raised only to be dashed, this time they were dashed before the summit only to be raised after it ended.

And yet hopes are now slowly deflating once again, even as the Eurogroup works out the final details.

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Three Reasons the Euro Zone Deal Won’t Work

Mark Blyth and Stephen Kinsella, guest blogger

The latest Euro crisis summit was different from the 19 others that preceded it in one very important respect: The PR department of the EU played this one very well. Rather than hopes being raised only to be dashed, this time they were dashed before the summit only to be raised after it ended.

And yet hopes are now slowly deflating once again, even as the Eurogroup works out the final details.

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Extreme weather events on the rise

Martin Khor

It was lucky the Olympics opening ceremony was not washed out by rain, because heavy rain, floods, heatwaves and droughts are among extreme weather events on the rise this year.

Last Friday night’s opening ceremony of the Olympic Games in London was widely acclaimed for its spectacular display.  But besides the brilliant design and smooth implementation, another factor played an important role, and that is luck.

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