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The cause of this recession? Economic pundits ignoring history’s voice | Simon Jenkins December 16, 2011

The Queen, reported the Daily Mail, was wearing a speckled cream suit and matching hat. Her Majesty was at the London School of Economics, listening to a professor, Luis Garicano, talk about the credit crunch. “It’s awful,” she said suddenly. “Why did nobody see it coming?”

For three years I have pondered the Queen’s question, and the answer. (LSE was institutionally flummoxed; a year later, it gave her a waffly reply, that “everyone thought they were doing the right thing,” and that “wishful thinking was combined with hubris”.) It resurfaced last Tuesday with the publication of the Financial Services Authority report into its own conduct of the 2008 collapse of RBS and the attendant chaos. It is like expecting the Cosa Nostra to investigate the mafia. We are all sinners, ruminated the FSA, and need forgiveness, but no one was really to blame. It is a rough old world.

Had the banking fiasco been a Russian invasion, nuclear meltdown or outbreak of plague, every expert would have faced inquisition, damning or being damned. Soldiers would have been cashiered and scientists ruined; doctors would have choked, blaming government cuts. Yet from the profession of economics and its gilded acolytes in the City, nothing but silence. The Queen’s question remains on the table, its acid quietly eating into the woodwork.

The world economy is in a mess. At such times we take refuge in familiarity and choose metaphors that fit our prejudices. Last week we either opted for the slow lane of Europe’s great future, or carefully declined a luxury berth on the Titanic. Britain was a dog slinking miserably from the top table, or walking proud into the sunset.

I prefer to seize the apron strings of history, following a series of articles in the New York Review of Books by the American Nobel economist Paul Krugman. For two years he and his colleague, Robin Wells, have been seeking to set current economic woes in the context of the past. They have studied previous crashes and distilled what was ordered at the time by such pundits as Keynes and Friedman. From the cliff of economic history, Krugman hacked nuggets of wisdom, many sane, most alarming. They should be wrapped in vellum and delivered to Buckingham Palace.

A year ago Krugman wrote up Reinhart and Rogoff’s history of financial crashes – with the ironic title, This Time Is Different. Every crash was unpredictable because everyone thought it was unlike the last one – until found in crucial respects to be the same. Then came Jeff Madrick’s The Age of Greed, with its eerie narrative of how each crash since the war had been worse than the one before and nobody noticed, and Roubini and Mihm’s Crisis Economics – with Krugman admitting “outrage fatigue” amid a crescendo of gloom.

At each turn the financial gurus assert that a recession will be temporary and “different”. Over the past two years each prediction, including from Britain’s Office for National Statistics, has been wildly optimistic. Mathematical models have proved as useless to economics as leeches and blisters once were to medicine. As Krugman notes, whatever the evil tidings, “things have turned out considerably worse … and are running fairly close to the historical norm”.

The western world is in the grip not of a blip or retrenchment, but of “the second great contraction” of modern times. It matches that of the Great Depression of the 1930s, out of which the west climbed only with the spending spree of Hitler’s war. Its roots lay in the same cause, a speculative bubble (this time in housing) linked to reckless bank lending to individuals and states. That lending concealed wide imbalances between national economies.

The fact that no remedy has seemed to work has had remarkably little impact on policy. During the Depression Milton Friedman’s call for an increase in money supply proved ineffective when that increase was merely hoarded by stricken banks. Thus pumping up the banks is exactly what the Bank of England is doing today: to the same minimal effect.

Likewise in the 1920s and 1930s governments that forced national budgets into balance through austerity saved their banks, but exacerbated stagnation and slump. Krugman accepts that deficit finance is more acceptable today than in the 30s, but it is as yet insufficient to stimulate real growth. Equally disastrous was forcing nations to sustain overvalued currencies in deference to the gold standard. Yet the EU is still trying to shackle the weaker European states to an overvalued currency.

There are lessons in smaller crashes, such as the 1982-3 boom in Latin American debt, the Swedish crash of 1991, or the 1997 downturn in the so-called Asian tiger economies. Latin America descended into depression and hyperinflation. Japan has yet to recover. Some things worked. Korea rescued itself by halving the value of its currency, leading to an export-led boom. Sweden nationalised, divided and recapitalised its banks.

Krugman holds strongly to the thesis that indebtedness is no enemy of growth, as creditworthy Britain showed for much of the 20th century. The task for government is to make the trade-off: how much credit to risk for how much growth. The argument between George Osborne and Ed Balls is old as the hills. Now that Osborne has established his bona fides on the credit front, the message of history is probably tilting Balls’s way, towards more aggressive stimulants to demand.

The question is not what history says but who is listening. The relaxation of global regulation in the 1980s arose from the influence over government of a profession that was becoming both rich and arrogant. Bankers paid lobbyists and courted politicians. Their influence is vividly narrated in Madrick’s Age of Greed, as they moved their lending into sovereign debt on the thesis that “countries don’t go out of business” and were “too big to fail”. It was a phrase they deftly applied to themselves when disaster struck.

This week Britain’s bankers likewise persuaded David Cameron that “the national interest” required a refusal to accept or even participate in a new regulatory regime, despite such a regime being palpably needed. The same lobby resisted pressure to reduce bonuses, erect Chinese walls or adopt the recent Vickers report on bank restructuring. History is clear: as long as sectional interest overrides prudence or common sense, there is another crash.

This repeats the awful lesson offered by Seymour Hersh in his book, The Target is Destroyed. Describing events after the Russians accidentally shot down a Korean airliner in 1983, Hersh accused Washington of refusing to believe its own clear intelligence that the shooting was in error. In the grip of the cold war, the most sophisticated surveillance on earth was useless because no one wanted to believe it. Reagan’s White House needed an excuse to hurl threats at Moscow. The message of economic history is similar. It can scream as loud as it likes, but if power is not listening it might as well be mute.

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Traffic deaths trended down again in 2010, says DOT December 8, 2011

Washington (CNN) — Some 32,885 people died on the nation’s roadways in 2010 — a number that, while slightly higher than preliminary figures released in April, shows the downward trend in traffic deaths is continuing, now reaching low levels not seen since 1949, the U.S. Department of Transportation reported Thursday.

The decline came despite the fact Americans drove 46 billion miles in 2010 — 1.6 percent more than the previous year.

“While we have more work to do to protect American motorists, these numbers show we’re making historic progress when it comes to improving safety on our nation’s roadways,” Transportation Secretary Ray LaHood said in a statement.

The 2010 fatality rate — which comes to 1.10 deaths per 100 million vehicle miles — was he lowest rate ever recorded, the DOT said. It is down from 1.15 deaths per 100 million vehicle miles in 2009.

Fatalities declined in most categories, including occupants of passenger cars and light trucks, a category that includes SUVs, minivans and pickups. Fatalities rose among pedestrians, motorcycle riders and large truck occupants.

Experts have attributed the change to a variety of reasons, including changes to cars — such as vehicle rollover protection — and programs to change driver behavior — such as campaigns addressing drunk driving, distracted driving and seat belt use. Laws aimed at young people also likely have had an impact, notably older minimum drinking ages and graduated drivers’ licenses. They also give credit to stricter enforcement of driving laws and drivers taking personal responsibility for their safety.

Traffic fatalities in the United States peaked in 1972, with 54,589 killed, according to the DOT. But the rise and decline of the grim number has numerous peaks and dips, influenced by direct changes such as the national speed limit and indirect causes such as recessions.

In recent history, the most notable change was a 9.7 percent plummet in deaths in 2008. In a report examining that drop, DOT officials gave credit to DOT safety programs, but also noted that the drop coincided with a recession in the economy. The recession, and high unemployment rates among the young workforce, probably had a big impact on travel among young drivers, and probably accounts for a steep decline in fatalities involving younger people, the DOT said.

Drunk driving deaths dropped 4.9 percent in 2010, taking 10,228 lives compared to 10,759 the previous year, the DOT said.

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US searches for a cultural response to economic hardship November 13, 2011

By any standards, watching Jeff Nichols’s much lauded film Take Shelter is a haunting experience. Its central character, Curtis LaForche, a working-class Midwesterner trying to hold on to his family, job and sanity in rural Ohio, is increasingly plagued by apocalyptic dreams that seem to be leaching into the real world.

The audience watches LaForche’s life and world fall apart in a film that is soaked with both supernatural imagery and the everyday American problems of losing a job and being unable to afford healthcare for your family.

The film vibrates with uncertainty and foreboding for the end of the American way of life. Critics have hailed it as as a masterpiece of the great recession and the economic crisis.

Nor is the film alone in revealing the impact of the recession on almost every cultural aspect of modern life in the new US age of anxiety. With headline jobless levels stuck at 9% – and the real figure much higher – and almost 50 million people living in poverty, no wonder there is a cultural angst. A sense of the end-times is also apparent in Rise of the Planet of the Apes and Contagion, where super-intelligent apes and killer microbes respectively are poised to wipe out mankind.

Yet doom and gloom is not the only cultural response to the recession. There is evidence of a renewed longing for the certainties of the 1950s and 1960s when – in the popular mind at least – good solid jobs were plentiful, US factories made products exported around the world and the suburban dream was one of white-picket fences, not foreclosure signs. From high-street fashion to retro trends in cocktails to the renewed popularity of facial hair for men there is a cultural longing to look back and ignore hardships. The influence of the hit show Mad Men, set in an early 1960s New York advertising agency, is almost impossible to overstate. It’s chauvinistic masculine central character, Don Draper, has become a cultural symbol. The curvaceous figure of Joan Holloway has changed modern visions of female beauty. The series’ journey into a simpler, more solid “Golden Age” is not alone. It has been followed by shows like Pan Am, which celebrates and glamorises the life of air stewardesses in the 1960s, when flying was a far cry from the crowded hell that it is nowadays. At the same time, remakes of classic old TV shows such as Mr Ed, The Man From U.N.C.L.E. and Bewitched are in the works, also harking back to simpler times.

“There is a tendency among television storytellers to look to the past when current times are tough. Audiences need to be removed from contemporary settings to provide them a way to, in a sense, relocate from reality,” said Professor Jeff McCall, a popular culture expert at DePauw University in Greencastle, Indiana.

It is not just TV shows that are seeking an escape to a happier past. The Cleveland Institute of Art is showing an exhibition called Masters of Abstraction featuring mid-century artists Robert Mangold, Julian Stanczak and Ed Mieczkowski. All painted highly abstract, often Op Art, pieces celebrated for their cheerful, bold bright colours and lack of social context. “It is completely optimistic art,” said Cleveland gallery director Bruce Checefsky. The show’s opening was a huge success with Checefksy describing it as perhaps his most popular in the last decade. He has a simple explanation. “The outlook is so grim that people are looking back to the 60s and this art when there was at least a sense of optimism. It was staggering the amount of people coming through and I think it reflected those trends,” he said.

Much of the “golden age” that is being yearned for is mythical. The 1950s and 1960s may have been a time of economic advances but it was also a period of deep sexism, homophobia and racism, all on display in Don Draper. “I am not sure Mad Men or the Draper character depict a ‘better’ time,” said Professor Dann Pierce, a communications expert at the University of Portland, Oregon. McCall agreed. “The 1960s were actually turbulent in many ways, including a cold war, the Cuban missile crisis, political assassinations, urban riots and Vietnam. It is not necessarily a time we should long to revisit,” he said.

But not every cultural reaction to hard times is escapism. Another way is to tackle the problems. Today bankers and big business are the villains in films and TV shows. Just as communists and Soviet spies were the bad guys during the cold war and terrorists were the enemy during the 1990s and 2000s, now it is the high lords of finance who are taking the cultural hits.

From Oliver Stone’s Wall Street: Money Never Sleeps, which brought back the 1980s demon figure of Gordon Gekko, to Margin Call in 2011, the finance industry’s role in the crisis is being examined and, usually, a harsh judgment is being passed. The list of films from the last couple years is long and includes The International, where the enemy is a bank, to comedies such as The Other Guys and Despicable Me where offhand jokes skewer banks and bankers even in children’s films.

Music has also got in on the act.Rappers like Young Jeezy have sung about the recession, as has Neil Young. Of course, there is precedence for all of this. The Great Depression, far worse than today’s economic woes, also had a profound impact on cultural life. Bing Crosby’s hit song Brother, Can You Spare a Dime? reflected the devastating impact of the crisis on ordinary lives, as did an explosive growth in blues music.

In literature, Steinbeck’s The Grapes of Wrath explored the hard times of the poor and out of work. At the same time there was escapism in an explosion of exuberant jazz culture and the emergence in 1938 of the figure of Superman, who no doubt symbolised both a yearning for happy simplicity and a desperate desire for an All-American hero to rescue the country.

There was also nostalgia for simpler times in the form of the immense popularity of western films and radio shows, like The Lone Ranger, in which heroes were easily identifiable, problems were solved with a quick fight and villains easily identified and eventually vanquished.

One crucial difference, however, was that during the 1930s there was a massive government sponsorship of the arts via the New Deal. Huge sums of money flowed into the pockets of jobless painters, sculptors, writers, musicians and poets in a bid to create work at a time of immense hardship. But it also was a genuine effort at encouraging, or saving, cultural expression. Organisations including the Federal Theatre Project, the Federal Writers’ Project and the Federal Music Project were all set up in the late 1930s.

The current economic tough times have no equivalent. While billions of dollars have poured into banking bailouts and help for the car industry, there has been no meaningful effort at state help for arts funding, nor is there much public appetite for one. Arts organisations struggle for money more than ever before.

“Fundraising is hard. It is even more challenging now,” said Checefsky. A recent report by the National Committee for Responsive Philanthropy found that because so much cash was now coming in from rich individuals, rather than government, it was skewed to the interests of a wealthy, white audience: mostly funding large museums, opera and symphony orchestras.

Despite the difficulty in raising cash, especially for small projects and in disadvantaged communities, the arts are flourishing. A recent survey showed that some 2.2 million Americans can now be classified as professional artists, up from 1.9 million in 1996. So, when it comes to creating art about the recession, whether via escapism or exploration or condemnation, there is no shortage of people to do it.

Cultural highlights of the thirties depression

We will have to wait to see if the US downturn produces anything to rival the cultural achievements to come out of the Great Depression.

The Grapes of Wrath

John Steinbeck’s masterful tale of the poor Joad family’s flight from dust bowl Oklahoma won a Pulitzer prize after it was published in 1939. John Ford’s film version was made just a year later and it remains an American classic.

Brother, Can You Spare a Dime?

The song was written in 1931 by Yip Harburg, a socialist whose small business went bust after the 1929 Wall Street crash. The best known version was sung by Bing Crosby and it became an anthem of the Great Depression.

Migrant mother photograph by Dorothea Lange

The grim black and white 1936 picture of stern-faced mother Florence Owens Thompson, surrounded by her children, became emblematic of the Depression’s impact on poor workers. Dorothea Lange took the picture while working for the government and documenting rural poverty.Thompson was a migrant worker.

Detroit murals by Diego Rivera

Mexican muralist genius and communist Diego Rivera was commissioned to create a series of 27 fresco panels between 1932 and 1933 in the Detroit Institute of Art. He used the opportunity to pay tribute to the industrial city’s tough working labour force and its factory landscape.


Though there were personal reasons behind the creation of the comic book hero Superman by Jerry Siegel and Joe Shuster, the cultural success of the Man of Steel played out against the Great Depression. The public longed for a saviour who was impervious to harm and with superhuman strength. First published in 1938, Superman rapidly became an all-American icon.

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New Greek PM Says Country Is at ‘Crucial Crossroads’ November 10, 2011

Greece’s newly named caretaker prime minister, Lucas Papademos, says his country is at a “crucial crossroads” and it won’t be easy to fix the huge problems facing the Greek economy.

Thursday, Greece’s feuding political leaders named Papademos, a former vice president of the European Central Bank, to be the country’s interim leader until a national election is held, likely next year. Outgoing Prime Minister George Papandreou handed him the responsibility for carrying out Greece’s hugely unpopular austerity measures demanded by its international creditors in exchange for more money to keep the country from defaulting on its debts.

Stressing stability, unity

Papademos, to be sworn in Friday, said “the course will not be easy.” But he said the country’s continued use of the euro currency is a “guarantee of monetary stability” and that Greeks “must all be optimistic about the final result” if they stay united.

The U.S.-educated economist has never run for elected office and is viewed as a non-partisan personality. Analysts say he is well-connected in European capitals.

His appointment came as the European Union voiced new concern about the continent’s economy. Economic affairs commissioner Olli Rehn said “growth has stalled in Europe” and that there is a risk of a new recession.

Risk of recession

The EU predicted economic growth in the 17-nation eurozone would amount to just five-tenths of one percent next year, plunging from an earlier 1.8 percent projection.

With the Greek selection of a new leader, the focus of the European debt crisis again turned to Italy. Italian Prime Minister Silvio Berlusconi, who has promised to step down after Parliament passes tough austerity measures, appeared Thursday to endorse the man widely seen as his replacement, leading economist Mario Monti.

Focus on Italy

A former European Union commissioner, Monti could be named to head a new government that hopes to implement Italy’s budget-cutting plan aimed at reducing the country’s $2.6 trillion debt.

German Chancellor Angela Merkel said it is important for Italy, with Europe’s third largest economy, to quickly push through its austerity measures and settle on its political leadership.

In the meantime, Italy’s borrowing costs have soared this week above 7 percent – higher than the rate that forced Greece, Ireland and Portugal to ask for bailout loans. The EU predicted that Italy’s economy will only grow by one-tenth of a percent in 2012.

Some information for this report was provided by AP, AFP and Reuters.

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Obama Brings Economic, Security Assurances on Asia-Pacific Trip November 8, 2011

President Barack Obama departs this week for Hawaii where he will host the Asia-Pacific Economic Cooperation summit, formed in 1989 to improve economic cooperation and liberalize trade among its member nations.  Mr. Obama brings economic and security assurances on his nine-day trip that also includes Australia and the East Asia Summit in Bali.

The 21 APEC leaders last gathered in the United States in 1993, when former President Bill Clinton hosted in Seattle.

The summit comes as President Barack Obama continues his efforts to jolt the U.S. economy out of recession and underscores the importance of free trade in helping to create jobs, and the challenge of competition from Asian economies, particularly China.

Ernest Bower with the Center for Strategic and International Studies says Mr. Obama will also be sending a message to Americans back home. “He has got to make the case that if we are going to move out of our economic slowdown, or recession, or whatever it is, that Asia is part of the answer, and being back on a forward foot on trade is going to be absolutely key to that,” he said.

APEC has tried for more than a decade to build a large Asia-Pacific free-trade zone.  But the United States and eight other APEC members are expected to announce a framework agreement for a smaller trade group, the Trans-Pacific Partnership.

China has voiced concerns over the trade group.  Analyst Michael Green of the Center for Strategic and International Studies. “Even though APEC is not a trade negotiating organization, it is the right framework of countries to move forward with a trans-Pacific trade architecture at a time when many in Asia are saying we should have an East Asian-only trade architecture,” he said.

Complex economic and security relationships with China, including rivalries over the South China Sea, are a backdrop to Mr. Obama’s travels.

Before APEC, top U.S. officials toured the region, including Defense Secretary Leon Panetta and Deputy Secretary of State Williams Burns. “In a complex relationship like this one, neither conflict nor cooperation is pre-ordained.  As China’s role in world affairs grows, keeping this relationship on a productive track will be a defining challenge for both sides,” he said.

Bower, of the Center for Strategic and International Studies, says U.S. security assurances to the region are a backdrop to Mr. Obama’s visit to Australia, which will allow expanded access for the U.S. military. “The U.S. security presence is very much welcomed to balance what is perceived as some recent Chinese aggression, particularly in the South China Sea, also in the Senkaku, or Diaoyu [islands] up north,” he said.

President Obama’s trip comes at a crucial time back home, as a November 23rd deadline approaches for a congressional committee to agree on $1.2 trillion in government spending cuts.

That decision, or failure to reach a compromise, will have far-reaching effects and will be watched closely by the Asia-Pacific leaders Mr. Obama meets with on his trip.

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