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Dealing with the Trump Presidency: a Survival Guide for 4 to 8 Years

By Shlomo Maital

  trump1

OK, so counting four years from Jan. 20, or possibly eight – how do we survive?

Mark Blyth, a political science professor at Brown University, has some sage advice, published in the Washington Post.

   The basic problem: In democracy, we vote for what we want. And increasingly, Blyth notes, we are simply NOT getting it.

“Unsurprisingly, people are beginning to realize that they are no longer getting what they vote for. Instead, they are being asked to pay more and more for what they already receive through taxes, taken from stagnant or declining incomes, which also must service their debts. In such a world it’s great to be a creditor and lousy to be a debtor. The problem for democracy is that most people are debtors. In such a creditor-friendly world, however, democracy is reduced knowing that the menu of policy will never vary. Trump’s win in the Midwest, British voters deciding to leave the European Union, Italy’s referendum and Greece’s revolt against its creditors are all connected in this way.”

     In short: Most of us owe money. A few OWN money. The system has been rigged in their favor. And it may stay that way under Trump, the billionaire.

     So how do we respond? Blyth observes:

     “At the end of the day, when you no longer get what you vote for and when the role of voting is reduced to affirming the status quo, voters will vote for the most undemocratic of options if that is all that is “off the menu.” That’s democracy in action in a world devoid of choice. When you can’t get what you want and most people do not benefit from the economic outcomes of government, it’s also what makes democracy unstable.”

       Americans voted “off the menu” (a minority of them, true) because that was the only choice ‘off the menu’.   And it has made democracy unstable, and is doing so all over the Western democracies.

       We’ll survive this. Take a deep breath. Take a long view.  Watch how the brilliant, wise American Constitution protects its citizens from scoundrels. At some point, centrist politicians will begin to understand that voters want real change, want to unrig the system to help debtors not creditors, and want actions, not promises. It may take a few more ringing defeats, like Trump, Brexit, and Italy to wake these politicians up.

       For four years, or eight years, Americans must say clearly what they want, and vote that ticket in every election. Mid-term elections are only two years away.   How will Trump supporters vote, when they feel they are again, not getting what they want?

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Greece Collapses – Germany and the World Will Pay the Price

By Shlomo Maital

   Greek collapse

    Two trucks speed toward each other on a deserted highway. They are 50  kms. apart.  Each drives at 100 kms. an hour.   They have 15 minutes before they meet.  Plenty of time to slow down, stop, turn off the road. 

    Yet they still collide head on, with massive damage.   

    Then, the experts debate why this happened.

    This is the story of Greece.  Greece joined the EU in 1981.  It joined the Euro in 2000, in time to implement paper euros and coins when all of Europe did. 

   Here is what  former  European Central Bank Chief Economist Otmar Issing  said, in March 2011:   “Greece was only able to join the euro through deception [its budget deficit was far above permissible levels]  and the currency bloc’s leaders have been “too polite” ever since to deploy adequate sanctions that could have averted the region’s debt crisis.  When I worked for the ECB, I suffered every time countries didn’t meet the criteria…Greece cheated to get in, and it’s difficult to know how we should deal with cheaters. … Greece will probably be unable to honor its debts as it grapples with insolvency. The country’s repayment ability remains questionable even after the government endorsed an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout.”

    It was obvious in 2011, four years ago,  that Greece could not pay back all that it had borrowed.  Today its public debt is an unsustainable 177 percent of its GDP.  So it is obvious – much of the debt has to be wiped out, one way or another.

   Are Greece and its leaders to blame?  Sure.  But on the principle of “sunk costs”, the history is irrelevant. The question is, what to do today, to avoid the crash?  We’ve seen it coming for years, according to Issing.  Yet Europe and its blind leaders continued to torture Greece, imposing ever more severe austerity.  You cannot grow an economy by shrinking it.  And an economy can only pay back debt by growing.  Grade 5 kids know that.  But politicians and economists don’t.  You cannot have a single currency, the euro, without a single united banking system throughout the euro zone with one set of rules.  That never happened. It never will.  So the euro will become a permanent chronic ongoing crisis, and it has been for years. 

    Yesterday German Chancellor Angela Merkel said, “if the euro fails, Europe fails.”  Really?   What has Chancellor Merkel done to recognize reality – Greece cannot, cannot, pay back its debt?    She should have said, “The euro has failed, because I have failed, and I therefore tender my resignation.  I failed to explain to the German voters, that even if we wipe out a quarter of Greek’s debts, Germany still has gained immensely”. 

     Who has been the big winner from Greece’s suffering?  Germany.

     Why? Because Greece has dragged down the external value of the euro, and the cheap euro makes German exports more competitive.  If Germany under Merkel would give Greece 3 percent of all it has gained from the Greece-driven euro decline, the crisis would be over. 

      Some 37 % of Germany’s GDP comprise exports, or nearly $1.5 trillion (in 2014),   just slightly behind that of the U.S., whose population is three times bigger.  Even China exports only 23 % of its GDP.   How strong will German exports be, when Greece leaves the euro, restores the drachma, bankrupts its citizens and its banks, crashes world financial markets,  bashes the world economy —  and then the euro soars,  throwing Germany’s export-driven economy into recession?

     Two trucks speeding toward each other for years.   Could the crash have bene prevented?  Sure,  with common sense. 

     Was it?

     No.   History will be unforgiving to the hypocritical blind leaders who caused this.

Euro Nations: Benchmark Estonia

By Shlomo Maital     

 Estonia

  With all eyes focused on Greece,  it is easy to forget about little Estonia.  Bloomberg Business Week reports that this tiny nation, squeezed between Latvia and Russia, joined the Euro zone only four years ago.  Many countries leaped at the Euro capital markets opportunity and their governments sold bonds like drunken sailors. 

    Not Estonia.  Government debt is less than 10 per cent of GDP.  That is one – tenth the average debt burden in Europe, and about 1/20th the debt burden of Greece (170 per cent of GDP).

    How come?

    Estonia has refrained from issuing government bonds, since 2002.  Instead, the Estonian government took loans from the European Development Bank, which lends ONLY for infrastructure and investment, not to finance current government spending.  Maris Lauri says, “we can’t afford to borrow to finance current spending; such borrowing becomes a habit and we saw where that landed Greece and Russia, in 1997/8”. 

      Some Estonian economists are opposed. They think Estonia should leap at the low interest rates and borrow.  But it won’t happen. 

       “Estonia is a strange bird in the Euro zone,” says Frederick Erickson, who heads the European Institute for Political Economy in Brussels. “No other country has such a stronge instinct for understanding the way macroeconomic problems are rooted in the real economy.” 

       Estonia’s Prime Minister says Estonia has to save its borrowing and access to Euro capital markets, for the time when Estonia’s GDP reaches 75 % of the Euro average (it is now 73%), at which time European aid money dries up. 

        Strong wise leadership can keep a small country like Estonia out of hot water.  Greece, in deep hot water, has to be rescued.  Estonia will not.  As the Hebrew saying goes, wise leaders avoid crises that smart leaders know how to escape from. 

Explaining (again) the Euro/Greece Crisis to Grade 5

By Shlomo Maital

Grade 5

  Hello Grade 5’ers!  Thanks for inviting me.  I know my subject, money and economics, is BOOOOOring.   But believe me, it is important for you to know what is going on, because when you are just a few years older, what happens in Europe will affect you. Because Europe is the world’s biggest, or next-to-biggest, economy, depending on how you add the numbers. 

   So here’s the deal.  Europe has had lots and lots of terrible wars, with France, Germany England and others fighting each other. Someone (in France) had a great idea.  What if we stopped fighting and made money together, by buying each other’s stuff?  If you buy my stuff, I’m not likely to want to fight you.   So they called it the European Single Market.  And it worked beautifully.  No-one thinks Europe will have a big fight any time soon (though, Russia may be an exception – that’s another scary story).

     If you sell and buy, you use money.  But there are 28 countries that belong to this European club.  What a mess if you have to start finding escudos, guilders, lira, pounds, francs, and all kinds of weird money.   So 19 of the countries decided they would use the same new currency, which they called the “euro”.  Kind of like America, where the 50 states all use the same money, the dollar.  Some 332 million Europeans use the euro. 

     But there is a problem.  If you have the same money, you have to have the same rules for making the money.  That means, you have to get all those 19 countries to agree on the “rules of the game”.  You can’t play baseball or football if neither team agrees what the rules are, right?  And here is where things broke down.  

  Some countries want there to be lots and lots and lots of euros.  Some countries want just a little bit of money.   Some countries (like, a little country called Greece, only 11 million people) broke the rules, spent too much money, and got into trouble, just like we do when we spend too much.   Because they had to borrow and now they have trouble paying back what they owe.  Other countries, like Germany, who had lots of money, helped Greece but sent Greece kind of to the penalty box. No more spending.   Less treats, less goodies.  And Greece didn’t like it.  I wouldn’t either. 

      So Greece has had elections and its new leaders are making a big fuss about the punishments other countries have given it.   Some think Greece might even leave the ‘club’ (the euro).  That might be terrible, because then some other countries might do the same, and the whole club would collapse.  So, the 27 countries want Greece to stay in the club but they do not agree how to make that happen.  It’s like, do you punish the Greek people for overspending (they didn’t do it, their leaders did)?  Do you forgive them, and then others might do the same?   Why should other countries give money to Greece? But if they don’t, they will lose too, because the whole Euro club might come apart.

    And you know, Grade 5’ers,  I guess you could see this coming.  If you start a game, and you have not all agreed clearly on the rules, including for things that are really strange (like, what if two guys are on second base – who’s out?  What if one player’s mother comes on the ice and drags him (the goalie) off to Hebrew School?  (yup, happened to me) – you’re going to get into trouble.  Those Europeans, they started a club without a clear set of rules, and worse, without any way of leaving it without causing REAL trouble. 

    I’m pretty sure they will muddle through and keep that weird euro club going.  They all have too much to lose. But boy, kids, I think you Grade 5’ers could have done a far better job.  Those Europeans, they couldn’t see their fingers even if they were right in front of their nose.   So, when you go to play a game, or start a club, make sure everyone knows the rules.  Kids usually do. It’s the grownups who are dumb about that sometime. 

 A Deep Contrite Apology to the people of Greece

By Shlomo  Maital

Greece

      Greece’s new prime minister Alexis Tsipras has been sworn in and vows to lead an anti-austerity coalition.   He could possibly lead Greece out of the euro and back to the drachma.  This would be unspeakably painful for Greece, in the short run, but possibly best in the long run.

      Meanwhile,  we economists all owe Greece an apology. We have caused immense suffering, needlessly, to 11 million innocent Greeks.  According to Nobel Laureate Paul Krugman, economists drafted the ‘troika’ agreement in May 2010, under which the IMF, European Central Bank and European Commission lent Greece money, in return for extreme austerity.    Greece had no choice in the matter. 

    This document assumed Greece would suffer only a small contraction in 2011 and by 2012 would be recovering.  Yes, unemployment would rise to 15 per cent (Would Merkel’s Germany ever accept such a scenario??) in 2012, but then it would fall rapidly.  Why?  Because austerity would work quickly, heal Greece’s economy, and restore growth.

    Really?  Did the troika economists ever find a single (just one! One!) example in history where austerity worked? 

    No. There are none.

    Instead, Greece suffered a depression, 28 per cent unemployment,  its young people migrated abroad, learning German for instance, and youth unemployment reached nearly 60 per cent. 

     Greece kept its part of the bargain, slashing public spending by 20 per cent.  But the promised benefits of austerity turned out to be disaster.  That is why Tsipras won the election.  And it is why the euro has dived.  The EU and its economists brought it on themselves. 

      It isn’t complicated at all.  To heal a budget deficit, you need a growing economy, because when the GDP grows, tax revenues grow much faster, 1.5 times faster.  To get a growing economy, you need spending and demand.  If people can’t spend, because they have no jobs and their wages are falling, only the government can take up the slack. But if you slash government budgets, the economy will shrink, not grow, and the debt problem will become even worse.  That is what ‘austerity’ does.   It’s pretty simple.

On behalf of my fellow economists, I would like to apologize to the people of Greece. We screwed up.  And worse of all —  none of those responsible seem willing to admit it. 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
May 2019
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