29 de julho de 2011

America, Oh América!, mas também, Europa, Oh Europa...

O paralelo que alguns fazem é com o que se passou na Europa logo antes da primeira Grande Guerra. Em todo o caso nos EUA está em curso, de forma objectiva, uma experiência de política económica nunca antes vista e o facto de ocorrer no contexto mundial em que ocorre só avoluma o carácter interessante de tudo isto - interessante na acepção chinesa de que não deveríamos querer viver em períodos históricos interessantes.

Os artigos e as notas referenciados abaixo devem ser lidos na totalidade:

How did we get into this mess? [....] How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?

Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed. Part of the answer is the continuing gravitational pull of the Great Recession. But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.

Barack Obama is one of the most eloquent and intelligent people ever to grace the White House, which makes his failure to tell the story of our era all the more disappointing and puzzling. Many who were drawn to him in 2008 (including me) were dazzled by the power of his words and insights — his speech at the 2004 Democratic convention, his autobiography and subsequent policy book, his talks about race and other divisive issues during the campaign. We were excited by the prospect of a leader who could educate — an “educator in chief” who would use the bully pulpit to explaini what has happened to the United States in recent decades, where we must go, and why. [....]

But instead of explaining this to the American people, he joins the GOP in making a fetish of reducing the budget deficit, and enters into a hair-raising game of chicken with House Republicans over whether the debt ceiling will be raised. Never once does he tell the public why reducing the deficit has become his number one economic priority. Americans can only conclude that the Republicans must be correct — that diminishing the deficit will somehow revive economic growth and restore jobs. [....]

A president can be forgiven for compromising, if his base understands why he is doing so.[....]

Why is Obama not using the bully pulpit? Perhaps [....] A more disturbing explanation is that he simply lacks the courage to tell the truth.[....] Obama cannot mobilize America around the truth, in other words, because he is continuously adapting to the prevailing view. This is not leadership.

Maybe everything will turn out all right. One shouldn't forget that possibility. As each day passes, however, frustration grows. Leaders in America and Europe are dallying with failure on an epic scale. They are constrained by dysfunctional institutions, it's true. [....] But it's no longer sufficient to blame inadequate policy responses on institutions alone. America and Europe are flailing because their leaders are failing. They seem to be too small for the tasks at hand, too petty, and too myopic.

The challenges facing Europe and America are big, but they're not mysterious. In Europe, the issues are sovereign debt, vulnerable banks, and a poorly designed currency area. It's not tricky to see what must be done. Peripheral debts should be addressed through austerity, sure. But unsustainable debt loads need to be written down. Banks should be recapitalised to prevent trouble in financial markets. Emergency funds should be bolstered to fight sovereign and banking contagion. And substantial fiscal integration must take place, including fiscal transfers to support peripheral economies while they get their budgets in order. The central bank should also stop fighting the phantom of accelerating inflation.

European leaders know what they need to do. They have been slow to do it for two reasons. First, the magnitude of the commitment necessary to save the union is uncertain, and they don't want to pay a penny more than is necessary. And second, the distribution of the costs of the commitment is uncertain, and no individual entity wants to pay a penny more than is necessary. The concerns are understandable, but this thrift is fundamentally wrong in the context of the current crisis.
[....]. Now is the time for those who can to pay whatever it takes to save the situation. But among the euro zone's top leadership there is a stunning complacency.

In America, the situation is more ridiculous still. The economy is vulnerable. New data continue to reveal just how weak growth was in the second quarter.[....]

 [....] Congress has spent the first month of the third quarter dangling the prospect of a full blown fiscal crisis over the heads of American firms and households. Markets are retreating, and businesses are building up cash reserves as insurance against the worst. After two years of pitifully slow recovery, while tens of millions of workers are un- or underemployed and wages flat, the government is doing its absolute best to kill the latest growth rebound in its crib. It is shocking.

Again, it's not like the correct policy path is incredibly complicated. Here, I'll sum it up in three quick steps:
  1. Don't cause a major crisis.
  2. Do spend more and tax less for the next year or so.
  3. Do spend less and tax more after that.
See? That's really easy! If you wanted to move up to more complicated ideas, you could talk about using the opportunity of record low borrowing costs to make needed, long-overdue investments in critical American infrastructure. Instead, Congress seems determined to convince the world that America shouldn't be allowed to borrow at all, except at highly punitive rates. It might also be a good idea to confirm appointees to the Federal Reserve board who know a thing or two about how labour markets work. Instead, Congress is blocking nominees for sport, citing debasement of the currency while 10-year inflation expectations are under 2%. And while the very same legislators muse publicly about how an American debt default might not be so bad after all.

It's inexcusable. And it is a direct result of a leadership in Washington that is too small-minded to see the danger it's courting by recklessly pursuing a foolish ideological agenda.

Right now, Angela Merkel doesn't look like the leader Europe needs to spare it a wrenching crisis. Jean-Claude Trichet looks like the wrong man in the wrong place at the wrong time. Barack Obama looks like a man who picked a fight he couldn't finish. John Boehner looks to be too worried for his political future to cow a caucus apparently hungry for catastrophe.

One wants to shout at them: stop screwing around! Lives and livelihoods are on the line! Nothing good will come of a return to recession, to saying nothing of a new financial meltdown. And yet, the trifling continues. Sometimes history gives us individuals equal to troubling circumstances. Sometimes it doesn't, and the world suffers. Maybe everything will turn out all right. Shame on the leaders of Europe and America for working so diligently to ensure that it doesn't.

An Historical Analogy applied to today’s debt ceiling crisis, with apologies to Barbara Tuchman Discerning readers of history (so that excludes a number of people) will recall that in Tuchman’s magisterial account of how the world went to war in August 1914, she identified several factors that accounted for why the leaders of the great powers each felt victory would be painless assured. First, they thought that the war would be quick; “Home before the leaves fall”, as Kaiser Wilhelm predicted. Second, they broadly misunderstood the economic implications of the conflict, believing free trade would prevent an expansion of the conflict to continent-wide proportions. Third, military leaders failed to consider the political implications of military plans, such as the German violation of Belgian neutrality. [....]

[....] Even if there are extraordinary measures are implemented which extend the X-date beyond August 2nd, the very fact that the Republicans have no viable plan, given the veto held by the Tea Party component [0], for achieving some sort of compromise indicates that we are inexorably moving to some sort of crisis. Consider the following:
  • Certain individuals believe the debt default would be temporary (or “technical”), lasting until the politicians come to their senses (Pawlenty, Ryan) [1] or can be avoided by selectively defaulting on only non-debt payments (Bachmann, Gohmert) [2]
  • Certain individuals think the effects of the default would be short lived and minimal.
  • Certain individuals think that the rest of the world (including holders of US Treasurys, like PBoC) will not react to a default, and the policy paralysis evidenced by this event. [3]
My analogy is not completely apt in one important sense. The delusions are almost completely held on one side. As long as these delusional individuals hold veto power in the policy process, we are doomed to some sort of event; perhaps it will take a EESA redux — with trillions of dollars of equity value wiped out, and municipal bonds being eviscerated [4] — to make them realize that this is not a game.

By the way, even if the Administration is able to extend funding capacity beyond August 2nd, the one thing those of who have studied currency crises in emerging markets know is that — given rational expectations — the crisis typically occurs before the exhaustion of reserves [....]That policy paralysis due to ideology is something financial market participants have also noted.

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