Opinion

Nicholas Wapshott

The end of budget scare politics

Nicholas Wapshott
Dec 23, 2013 15:57 UTC

“Are you kidding me!” The cry of anguished disbelief from House Speaker John Boehner has brought down the curtain on a five-year-long battle over public debt that will not be lifted until the presidential election of November 2016.

There may be scuffles and there will be a good deal of wailing and gnashing of teeth, but members of the Republican leadership have concluded their attempts to pay down the massive federal government borrowing will be put on hold until they have control of the presidency and both houses of Congress.

This has been a long journey. America already owed a great deal when the financial freeze of 2008 sent the economy over a cliff. To save the nation — and the world — from penury not seen since the Great Depression 80 years before, George W. Bush’s Treasury team ignored the advice of many of their fiscally conservative supporters and proposed that $800 billion more be borrowed and spent without delay.

The incoming president, Barack Obama, took his predecessor’s advice and set out on a massive stimulus to keep the country he had inherited at work. It is one of the paradoxes of economics that to remain solvent, America had to go deeper in debt.

That lesson in how the world really spins came as a shock to many. To some it invoked anger. While ordinary Americans watched in horror as their homes became less valuable than the mortgages they were paying off, and as they tried to pay down their personal debt because they feared for their jobs, the thought of someone in Washington running up the tab on the people’s behalf caused fear that soon turned to anger.

Obama, Castro, and the perversity of the Cuban embargo

Nicholas Wapshott
Dec 16, 2013 16:50 UTC

There has been a lot of clucking about President Barack Obama shaking hands with Raúl Castro at the funeral of Nelson Mandela. For some it was bad enough that a president the Republican vice-presidential candidate Sarah Palin accused of “palling around with terrorists” should extend his hand to a Cuban communist tyrant, while mourning a world hero that former Vice President Dick Cheney still thinks was a terrorist.

Whether Obama was entering into Mandela’s contagious spirit of reconciliation and forgiveness, or following in the footsteps of Richard Nixon and Ronald Reagan in reaching out to communist enemies, or merely being good-mannered is not clear. What seems plain, however, is that nothing much will come of it. The trade and travel embargo imposed upon Cuba by the United States in 1960 after the communist revolution nationalized American-owned property will remain in force.  

But is maintaining the Cuban freeze a good thing for America? For the world? For Cubans? No, no, and no.

Healthcare.gov: Private shame, public blame

Nicholas Wapshott
Dec 10, 2013 05:24 UTC

The glitches that have dogged the government’s universal healthcare site have cast a dark shadow over the presidency and over the Democratic Party as they enter an election year when they could easily lose the Senate. The failure of anyone within the Obama administration to notice in the three long years of preparation that something was seriously amiss is an abject failure of management that has led to a self-inflicted political catastrophe.

The inept rollout has allowed the president’s enemies to claim that that is what comes of allowing the government to interfere in the healthcare market. Obamacare’s troubled birth is cited as irrefutable evidence that the public sector is particularly ill-fitted to deal with something as important as healthcare. Had the process been left to the private sector, they argue, the website would have worked and Americans been better served.

But hold on. Obamacare may be a government-run enterprise, but the profound errors in building the site were overwhelmingly due to the incompetence of the private sector.

What Mandela meant

Nicholas Wapshott
Dec 5, 2013 22:04 UTC

Nelson Mandela will be remembered as the person who, more than any other, brought an end to apartheid, the heartless policy of “separate development” in which white, black and South Asian South Africans were obliged to live apart. It is part of his towering achievement that the very notion of racial segregation is anathema to democrats throughout the civilized world. He will be mourned as a freedom fighter and the father of his nation, whose wisdom, patience and courage tormented his oppressors and finally drove them to accept that racial discrimination should have no place in a system of government.

Along with eight other conspirators, in 1964 Mandela was accused of sabotage and armed insurrection against the apartheid state. (He admitted sabotage but denied conspiring to violently overthrow the government.) He spent the next 18 years caged in primitive conditions on Robben Island and a further six in Pollsmoor Prison. Outside the prison walls, the government insisted on “grand apartheid,” the creed that insisted that whites, “natives,” “Asians” and “coloreds” should live in separate areas. Education, medicine, public services, and public spaces and buildings were similarly apportioned by race.

The genius of Mandela lay in the power of his extraordinary character. From his lone prison cell, where he was allowed a single outside visitor and one heavily censored letter every six months, his example was used to undermine the legitimacy of apartheid. Outside of South Africa, his imprisonment became a symbol of racial oppression. His release from prison in October 1989 led directly to the collapse of white rule. His election as president concluded a dark and bitter chapter in the African continent’s history.

Does Japan show us the way out of secular stagnation?

Nicholas Wapshott
Dec 2, 2013 16:46 UTC

Is America’s economy adrift in the doldrums? Lawrence Summers, perhaps the nation’s most inventive applied economist, thinks so. Speaking to an IMF forum last month, he described America’s current condition as “secular stagnation” in which we are stuck in a rut of weak demand, low growth, and low employment. This is the “L-shaped” recovery, or — strictly speaking, non-recovery — some warned about after the financial freeze of 2008. It is also sometimes dubbed “the new normal.”

“We may well need in the years ahead to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activities, holding our economies back below their potential,” Summers said. The phenomenon is not new; after all, before 2008, when Alan Greenspan had ensured endless cheap money through low interest rates, leading to asset bubbles, the real economy did not respond.

“Even a great bubble wasn’t enough to produce any excess of aggregate demand,” Summers said. “Even with artificial stimulus to demand, coming from all this financial imprudence, you wouldn’t see any excess.”

The twisted politics of enforced economic pain

Nicholas Wapshott
Nov 25, 2013 16:16 UTC

By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.

The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.

The return of GM to wholly private hands will no doubt set off hand-wringing from those who would have preferred GM to go properly bust during the financial panic of 2008, then restructure itself without state help. Those who opposed Steven Rattner’s motor rescue argue that government intervention to prevent a company from going broke interferes in a timeless process of rebirth as natural as the change of the seasons.

The strange convergence of Bernanke, Hayek and Bitcoin

Nicholas Wapshott
Nov 21, 2013 16:05 UTC

Every time Federal Reserve Chairman Ben Bernanke opens his mouth, the markets move. But few could have guessed that in an offhand remark he would  add legitimacy to the Bitcoin, the virtual currency that competes with the American dollar as a reserve currency and an international trading medium.

Yet that is what he did when he held out a friendly hand to the notion of fantasy currencies in a letter to the Senate Committee on Homeland Security and Government Affairs. Understandably, this improbable endorsement from the guardian of the mighty dollar sent the value of the Bitcoin soaring.

Until recently, the Bitcoin was seen as a novel, experimental, somewhat piratical cyberspace Monopoly money that has proved useful in moving money around the world without the hampering and costly help of banks, which slow things down, waste days while the cash lingers in limbo, and take a hefty slice of every transaction. Bitcoin’s headiest moment was as the currency of choice of the Deepnet black market website Silk Road, which sold everything from crack cocaine to child porn, and was closed down by the FBI last month.

Hooray for inflation

Nicholas Wapshott
Nov 13, 2013 20:25 UTC

There have been some extraordinary headlines in recent days. Here’s the Economist: “The perils of falling inflation.” Here’s the Financial Times: “The eurozone needs to get inflation up again.”

For those with memories of hyper-inflation and “stagflation” in the 1970s, these cogent pleas for higher prices is heresy, an irresponsible clamor for the return of an ever-changing fiscal landscape that led to widespread misery and economic turmoil.

A little history. By the mid-’70s the Western world was engulfed in an inflation typhoon — with prices rising rapidly and out of control. As companies increased prices to keep up with the higher costs of basic raw materials — such as oil, deliberately hiked way beyond the norm by the Organization of the Petroleum Exporting Countries — trade unions demanded higher wages to protect their members’ standard of living. This led to higher costs, and higher prices, and so on.

No, austerity did not work

Nicholas Wapshott
Nov 7, 2013 18:09 UTC

There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.

Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.

Take Spain, which has just emerged from two years of recession by posting a third quarter growth rate of 0.1 percent. Technically the Spanish slump is over. But a glance at their job figures shows the country has a long way to go before it can genuinely say it has escaped the diminishing effects of austerity — in the form of tight fiscal policies, public spending cuts and labor and entitlement reforms — imposed indirectly by Germany through the European Union.

Enlightening the puzzled Republicans

Nicholas Wapshott
Oct 31, 2013 18:00 UTC

Moderate Republicans cannot fathom what has happened to their party.

Once a happy band of no-nonsense, pro-business conservatives, cautious in everything from money to marriage — including their wary response to the onward march of 1960s liberal social values — they were prepared, within reason, to trim their policies to match the voters’ mood. After all, to achieve anything in government you first have to win elections.

But that was before the revival in fundamental conservatism that has turned the GOP from a pragmatic party to a collection of inward-looking ideological tribes. Republicans puzzled by the rise of dogma and division in their party can find answers in a new survey that explains how large the factions are and what they think. They will be surprised by the findings.

The GOP has long been considered a three-legged stool: big business, Southern evangelical Christians and anti-government Westerners. But, largely since the world financial panic of 2008-9, these three have been joined by two new aggressive, popular movements: the Tea Party and the libertarians.

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