Posted tagged ‘Obama’

What’s going to stimulate us?

March 20, 2009

I think we can say that there is a consensus that we are experiencing a global recession. Even those countries that still manage to be in growth, like China, are experiencing a sense of crisis as they see their global export markets shrink. Unemployment is growing fast, businesses are shutting down. So what should governments, reserve banks and others be doing right now?

One of the unsettling things we are seeing is an absence of a global consensus on what needs to be done. Or if there is a consensus about a broad outline, it is breaking down when we get to the details. Perhaps the most interesting but also confusing potential solutions to our problems is the so-called ‘stimulus package’.  The concept itself is easy enough to describe: it is an injection of public money into the economy to off-set the effects of recession. It does this in several ways: by ensuring that funding (which might otherwise be decreasing or even disappearing) is secured for important public policy objectives; that public infrastructure investment is continued, to improve services and facilities but also to provide employment; to secure disposable income for members of the public so that public consumption continues (thereby ensuring that business continues to find customers); to secure financial institutions and thereby ensure that capital continues to be available.

Stimulus packages began to be mentioned as mechanisms for beating the recession from the autumn of 2008. The first major such package was unveiled by the United States in February 2008, and consisted of $150 billion, mainly in the form of tax rebates. The second package was also a US measure, in October 2008; this time it was $700 billion, much of it aimed at rescuing financial institutions. Then came China in November 2008: $586 billion to be spent over two years, mainly on the construction of major public facilities and on infrastructure. More recently we have had President Obama’s stimulus package, this time totalling $787 billion and with a wide range of targets for the money.

In Europe the picture is much more confusing. In November 2008 the President of the European Commission, José Manuel Barroso, was proposing an EU stimulus package of €200 billion, and this was subsequently adopted. But in addition some member states produced their own stimulus, with France adopting €26 billion in December 2008 and Germany €50 billion in January 2009. Ireland hasn’t done this at all, but rather has engaged in accelerating cost-cutting.

And now the question has arisen whether there should be international coordination to provide still higher amounts in stimulus – which is what the Obama administration is proposing and the UK is supporting – or whether what has been done is enough for now, and we should wait to see what happens – which appears to be the view of the European Commission, supported by Germany and France.

The arguments sometimes used against such packages is that it is unclear whether they produce the desired effects, that they may be accompanied by protectionist measures, that they may over the medium term fuel inflation, that they create public finance deficits that may be hard to row back.

The counter-argument may be this: this is not a test laboratory for economic theory, this is a crisis which is escalating and developing at breakneck speed. I doubt that a ‘cautious’ approach makes much sense, in that inadequate stimulation probably produces very limited effects and may be less desirable than no stimulus at all. Looking back at the depression of the 1930s, it seems to me that the concept of an aggressive stimulus has some justification in the evidence of economic history and is worth trying in order to avoid the real social and political disasters that could still come our way. I suspect this is not the time for prudence and caution. I suspect that Obama is right.

A collective purpose

March 18, 2009

Today this blog is coming to you from Washington DC, a place that has traditionally turned itself into something Irish on St Patrick’s Day. And so right on cue, the water fountain outside the White House has turned green for the day.

But amidst the normal Irish bonhomie, in reality there is only one topic of conversation here: the bonuses being paid to senior executives of the insurance company AIG. The latter company, as most people will know, ran into serious financial difficulties in 2008 and was saved from insolvency only through a taxpayer bail-out originally agreed by the Bush administration. More recently the company asked for and was promised more government financial support. And then the US government – now owning 80 per cent of the company – discovered that a number of senior executives were claiming and were to have paid out to them some very substantial bonuses, amounting in total to $165m. These payments are needed, the company has argued, to persuade the executives in question to remain with the company; and they are required to be paid under these employees’ contracts.

The fall-out from all this has been extraordinary, and is still building up momentum. Commentators all over the media and in the blog world are expressing their disgust at the conduct of the company and its executives, but also showing some disappointment with the government for not stopping the payments, contracts or no contracts; indeed the latter complaint has probably directly caused a slight (but noticeable) drop in President Obama’s opinion poll ratings.

My guess is that the AIG executives will not get to enjoy their bonuses; the government will find some way to stop them. Indeed, I would not be too sure about the ‘retention’ of these executives, with or without bonuses.

But the broader lesson, which has validity in all countries now tossed about in the stormy waters of the recession, is that people cannot behave as if the current crisis did not exist, or as if some (particularly those with a hand in getting us to where we are) could claim exemption from the sacrifices and hardships we now have to face. We also need urgently to leave behind us the sometimes audible opinion that it is right that society should now make sacrifices to allow us to escape from this recession – as long as the sacrifice is being made by others, not us. We need a collective purpose now, in which everyone makes the effort and, to an appropriate degree, shares the burden.

A lovely invitation

January 23, 2009

Overheard this morning in a Dublin newsagent’s shop, a conversation between two elderly ladies.

Lady 1: ‘He’s such a lovely man, so athletic.’
Lady 2: ‘And so well spoken. He’s lovely’.
Lady 1: ‘And his lovely wife and two daughters, they looked so proud.’
Lady 2: ‘Yes, with all the world watching. They seem such a lovely family.’
Lady 1: ‘Pity about the oath, but who’d blame him, such pressures.’
Lady 2: ‘By the way, the committee have decided to invite him to open the new crafts shop.’
Lady 1: ‘Oh, that’s grand – it will make a lovely change for him.’

Remember, you heard it here first.

Obama, America and the world: restoring a balance

January 21, 2009

In Monday’s Irish Times, two contributors debated whether George W. Bush was the worst US President ever. Of the two, the piece that caught my eye was that by  Fintan O’Toole. Put in a nutshell (and I hope I am fair in my summary), he argues that George Bush was not the worst President (albeit an insignificant one) because to describe him thus would undermine the more important point that the United States as a whole is deeply flawed, and that even its apparently best Presidents did unspeakable things. Although he doesn’t draw this out, there is an implication that the US has a particularly bad record when it comes to violence and the abuse of human rights. George Bush was merely doing what comes naturally to American leaders.

It is of course a particularly foolish thing to try to create a league table of abuse of power, but I don’t think that the argument identifying America as a leading miscreant stacks up. Some of Fintan O’Toole’s examples are in fact a little doubtful in terms of historical accuracy; but quite apart from that, no country worth examining has a good record in those terms. Abuse of military might has accompanied all empires, from ancient Rome to the Third Reich. Of course the United States has done bad things. Leaving aside the last eight years altogether, nobody could now seriously claim that its conduct in Vietnam was defensible. Nobody could, or should, ignore the serious harm done by US political manoeuvres in Latin America and parts of Asia and Africa. But at exactly the same time, other countries were doing evil things also, many of them only better than the US in the sense that they had less power with which to inflict their misdeeds on others. The United States has had no leader in its entire history one could name alongside Hitler, Stalin, Franco, Mussolini, Pol Pot, Caetano, Bokassa, Mugabe. Ireland itself may not have invaded other countries, but we know there were things happening here in the last century of which we cannot be proud.

Like Fintan O’Toole (at least I imagine), I was part of the generation of young people appalled at Vietnam and at the cynicism of the West in its conduct of the Cold War. I spent some of my teenage years on protest marches. But for all of that, the Vietnam war is not symbolic of the United States of America – much less so, in fact, than the Marshall Plan which saved Europe after the Second World War, or the willingness of Americans to look beyond selfish interests when reaching out to the world.

So maybe my hope right now is that, in the Obama era, we can restore some balance in how we view America, just as the US seems ready to restore some balance in how it sees and interacts with the world. That will be good for everyone.

The US elections…

November 4, 2008

Later this evening, I’ll be at the most significant party in Dublin – the event put on by the American embassy to mark the presidential elections, at which I hope we’ll get some early information on the trends. Whatever way this goes, this election has the whiff of history around it, and even at this remove it is fascinating to observe. In particular, it is wonderful to see the high turn-out. Democracy is a fragile thing, and this election has, I believe, given it a lot of new strength.

I shall report a little more tomorrow on what was said and heard at the event.