Jeffrey Sachs is the director of The Earth Institute at Columbia University in New York and author of ‘To Move the World: JFK’s Quest for Peace
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Jeffrey Sachs is the director of The Earth Institute at Columbia University in New York and author of ‘To Move the World: JFK’s Quest for Peace
In a world going mad with war, European and US sanctions against Russia stand out as sane and measured. They will not stop Russia’s assault on Ukraine in its tracks, but they will help Kiev to weather the Russian blows. And by answering violence with economics, they can help to rescue the world from the current epidemic of military delusions.
Vladimir Putin is not alone in believing that military force can solve Russia’s political problems vis-à-vis Ukraine. Western powers wrongly believed that killing Muammer Gaddafi would resolve problems with Libya; that backing an insurgency to overthrow Bashar al-Assad would resolve political problems with Syria; and that toppling Saddam Hussein would create a stable, pro-western Iraq. Now Israel believes that a mass bloodletting in Gaza will make that trapped and desperate population compliant to Israeli might.
Today’s report on deep decarbonisation delivered to Ban Ki-moon, the UN Secretary-General, offers a new perspective on how countries can avoid dangerous climate change and achieve sustainable development. The report, produced by the Deep Decarbonisation Pathways Project which is overseen by the UN Sustainable Development Network, describes the joint efforts of independent experts from 15 countries to find national pathways to making economies based on low-carbon energy consistent with the 2-degree Celsius limit on global warming agreed to by governments in 2010. Such low-carbon pathways are feasible, but to achieve them will require a high degree of global cooperation and a novel design of the climate deal to be reached at the Cop 21 meeting in Paris in December 2015.
The internationally agreed 2-degree C limit on warming (compared with the pre-industrial temperature) reflects the warnings of the world’s leading climatologists, ecologists, agronomists and economists. The world would breach 2 degrees C at grave peril. The droughts, floods, heat waves and extreme storms that are already disrupting the world would intensify dangerously. Even worse, warming of more than 2 degrees could trigger natural feedbacks (such as carbon and methane release from the melting permafrost) causing runaway climate disruptions that would overwhelm the world’s capacities to adjust. Continue reading »
World leaders gather in Warsaw today to celebrate Poland’s return to democracy 25 years ago on this day, and the country’s astounding economic and political development since then. Today Poland is a prosperous, dynamic and democratic society. Yet the leaders will make the most of their visit if they understand the deeper lessons of Poland’s remarkable recovery after 1989 and apply those lessons elsewhere, including vis-à-vis Ukraine and Russia.
Three cheers for the new EU energy policy for 2030. While last week’s announcement was criticised by some observers as a retreat on clean energy (and praised by some businesses for the same alleged reason), it was no retreat at all. The EU maintains its global leadership in pointing the way out of the climate-energy morass. The new goals are sound but will require considerable diligence to implement.
It is worth taking a moment to cheer the United Nations for its outstanding successes this past week. The UN is the global home of diplomacy, the art of maintaining peace and co-operation in a world all too ready to head to war. Sometimes it succeeds; often it is brushed aside, by great and small powers alike. Four times last week the UN proved its enduring worth. Continue reading »
The curtain has been pulled aside on the once secret world of tax havens, and the scale of abuse is nearly beyond reckoning. Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system. Continue reading »
President Barack Obama’s budget this week makes clear the real political equilibrium in the US. The federal government is shrinking. Discretionary spending in the new Obama budget would shrink to 4.9 per cent of gross domestic product in 2023, compared with 7.9 per cent of GDP in 2008. Both parties have signed on to this shrinkage. Neither will try to stop it.
The implications are enormous. Until 2017 at the earliest, there is likely to be no or very meagre action to address America’s growing underclass, gaping inequalities, decrepit infrastructure, persistent drought or worsening climate change. Slow growth, unemployable young people, a vast incarcerated minority population and gaudy excesses at the top will remain the norm. Even Mr Obama’s few new initiatives, for example for early childhood development and new infrastructure, are tiny drops in America’s ocean of unmet need. Continue reading »
The publication last week of the budgets of Republicans in the House of Representatives and Senate Democrats demarcates the political debate in Washington. Though all the press coverage is about the differences between the two proposals, there is also remarkable convergence. Some of that convergence is good news. Other aspects of the convergence threaten the future of the US as a dynamic society. Continue reading »
The administration is now vigorously blaming the Republicans for the sequestration – but the surprising truth is that from the start of his time in office, the president has planned a steep shrinkage of discretionary spending as a share of national income. Continue reading »
The US, France, UK and other European countries are engaged in a widening arc of military activities across Africa, the Middle East, western Asia and central Asia, some visible and some surreptitious. France’s incursion into Mali last week was a notable short-term success. Other actions have been costly failures. It is important to understand why.
Let us distinguish two main kinds of targets. The first are oil states, including Algeria, Iraq, Iran, Libya and Sudan, where the purposes of western actions are, of course, routinely obscured. The second are failed states, generally non-oil states in the region characterised by extreme poverty, hunger, massive population growth due to unchecked fertility rates, and extreme ethnic and clan divisions. Western achievements on both fronts are equally dismal.
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For more than 30 years, from the mid-1970s to 2008, Keynesian demand management was in intellectual eclipse. Yet it returned with the financial crisis to dominate the thinking of the Obama administration and much of the UK Labour party. It is time to reconsider the revival. Continue reading »
Those who have participated in the backroom negotiations know that it is the US above all other countries that has resisted a clear and accountable financing mechanism. This is par for the course. The US these days resists almost all calls for sharing the financial burdens of sustainable development. As a striking example, the US official development assistance budget, though large in absolute terms, is the lowest share of GDP of any advanced economy, just 0.18 per cent of national income. Continue reading »
America’s economic debate is stuck in a time warp. The prescriptions of free market economics peddled by the Republicans – slash taxes and spending, end financial and environmental regulations – are throwbacks to the 1920s. The other side is only a little better. In Paul Krugman’s telling, we are in the 1930s – and there are no structural challenges, only shortfalls in aggregate demand. We need to move beyond these increasingly irrelevant ideologies.
We need new economic strategies to overhaul broken systems of finance, labour markets, taxation, ecological management, budget management and investment incentives. Those challenges cannot be fixed through lowering taxes on the rich or higher fiscal deficits to create aggregate demand. The new approaches must be long-term, structural, sensitive to inequalities of skills and education, aligned with the need for more sustainable technologies and “smarter” infrastructure (empowered by information technology) and congruent with long-term demographic trends. It’s time we moved beyond the Republican Party economics of the 1920s and the Democratic Party economics of the 1930s, to a new macroeconomics for the 21st century. Continue reading »
Keynesian economists blame the sluggish US growth and lack of job creation on the insufficiency of stimulus measures. If only Congress had agreed with President Obama to greater stimulus, they say, the current US recovery would have been much stronger. This is a dubious proposition. The deeper problem lay in the limitations of fiscal stimulus as a response to the 2008 crisis. Continue reading »
The bank panic is Greece is now accelerating, and could easily push Greece out of the Eurozone unless decisive actions are taken to prevent a massive run on the Greek banks. If such a run occurs, and drives Greece to leave the euro, Greece’s exit would most likely create an even greater calamity, as Portugal, Spain and perhaps Italy, suffer rapid withdrawals of bank deposits as well. The Eurozone’s unwillingness to keep Greece in the union would create a powerful one-way bet against the survival of the currency union in several other countries as well. Continue reading »
French and Greek voters have rejected Europe’s current macroeconomic framework. The headlines cry that voters demand growth rather than austerity. Yet growth is not a policy but an outcome. A vote rejecting the incumbents does not define the policy alternatives. Continue reading »
President Barack Obama’s budget for 2013 will set off a vitriolic battle. Republicans will rail against the Democrats’ “class warfare” and Democrats will rail against the Republicans’ “coddling of the rich”. Yet it is mostly for show. The rich will win in their fund balances while probably losing at November’s presidential polls, and the poor and working class will probably re-elect Obama but suffer a continuing decline in relative and perhaps absolute incomes.
There are very high long-term costs to all this. Main street is in decline, despite the recent optimism over a revival of hiring. One of every two Americans is now in a low-income household. Only about one-third of Americans aged 25-29 have a bachelor’s degree, and the college completion rate falls to a distressing 11 per cent among young Hispanic men. Mr Obama’s policies are slightly more responsive to these realities than the Republican alternatives, but the larger truth is that a shrinking federal government will fail to meet America’s skill, education and infrastructure challenges.
Even as Democrats praise Mr Obama and Republicans castigate him for his headline proposals to tax the rich, the budget is actually more grim news for America’s poor and working class. The poorer half of the population does not interest the Washington status quo. A third political party, occupying the vast unattended terrain of the true centre and left, will probably be needed to break the stranglehold of big money on American politics and society. Continue reading »
Capitalism earns its keep through Adam Smith’s famous paradox of the invisible hand: self-interest, operating through markets, leads to the common good. Yet the paradox of self-interest breaks down when stretched too far. This is our global predicament today.
Global capitalism has mostly shed its moral constraints today. Self-interest is no longer embedded in higher values. Consumerism is the world’s secular religion, more than science, humanism, or any other -ism. “Greed is good” is not only the mantra of a 1980s Hollywood moral fable: it is the operating principle of the top tiers of world society.
Unless we regain our moral bearings our scope for collective action will be lost. The day may soon arrive when money fully owns our politics, markets have utterly devastated the environment, and gluttony relentlessly commands our personal choices. Then we will have arrived at the ultimate paradox: the self-destruction of prosperity at the very moment when technological knowhow enables sustainable prosperity for all. Continue reading »
I bravely predict more of the same in the coming twelve months.
Mitt Romney will win the Republican nomination after the party has exhausted its one-week-long love affairs with each of the non-Romneys. Barack Obama will be re-elected, because his one consistent strategy – to stay one step towards the centre of the rightwing Republican party – will prevail. But the presidential elections will do nothing to reinvigorate American society. Government will remain corrupt, incompetent and shortsighted. A chronic budget deficit will lead Congress to continue to slash education, family support, health for the poor, infrastructure, and science and technology. American exceptionalism will mean that the US is the only leading country at war with its own teachers and children.
The world as a whole will become less stable. Though word has not yet reached (drought-stricken) Texas, climate change is real; so too is a rapid increase of population whenever families have no access to family planning and basic healthcare. The young generation will increasingly tire of the increasingly turgid baby-boomer politics. The groups that took to the streets this year from Tunis to Cairo to Tel Aviv to Santiago to Wall Street to Moscow will be back.
This, then, is the meaning of more of the same: the continuity of change. As the great A-lister of the sixth century BC, Heraclitus, put it much better: “All is flux, nothing stays still.” Continue reading »
America’s squeeze on spending on all public services other than health and pensions means that it is ceding global leadership in education, science and infrastructure. Mr Obama speaks of investing in these areas to restore America’s jobs and competitiveness, but lacks the financial space to do it. The result is a dispiriting contradiction between his soaring rhetoric and the grinding cuts that he has agreed with Congress.
Republicans claim America’s low taxes and small government have spared it from the European disease. This claim is utterly false. The US is vastly outperformed by the countries of northern Europe, which tax heavily but spend efficiently, buying superb public health, childcare, public education, infrastructure, and remarkable social equality.
The results are lower unemployment, smaller budget deficits, much lower poverty and smaller trade deficits than in the US – as well as higher intergenerational social mobility, life expectancy and life satisfaction. Per capita income growth in these countries has been comparable to that in the US – but in the US, the gains have accrued mostly to the top of the income distribution.
Yet according to the July debt agreement between the White House and Congress, non-security discretionary programmes will be further squeezed to below 2 per cent of GDP by the end of this decade. The Republicans propose to strangle government once and for all. Obama’s policies suffocate federal programmes slowly.
To finance the outlays that are needed on education, infrastructure, family support and technology, taxes on high incomes will have to rise by several per cent of GDP, far beyond what Obama has dared to acknowledge. A brave presidential candidate, following in the footsteps of Theodore and Franklin Roosevelt, will win office some day soon and put the US back on a path towards high employment and a recovery of the middle class.
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Last week’s G20 meeting marked the demise of the eurozone’s three-year effort to save itself. The monetary union will be saved, but not from the inside. Its survival will come at the hands of the International Monetary Fund and the emerging economies.
Europe’s weaknesses were on full display at the meeting in Cannes. Mr Sarkozy did not hesitate to upbraid his Greek and Italian colleagues. Italy’s premier Silvio Berlusconi displayed a further retreat from reality. Ms Merkel, as usual, said very little. The US said even less. The decline of America’s economic power was patent.
The eurozone urgently needs an infusion of financial support from beyond the eurozone, channelled through the IMF. We are at the end of an era, not only in Europe, but globally. The rising economic powers have financial surpluses, economic growth, and high stakes in global stability. They have the means to provide new bulwarks of the multilateral system. The traditional powers will have to make more room for them at the head table. Continue reading »
The Greek government is on the knife-edge of solvency. Public debt is estimated to be around 160 per cent of the country’s gross domestic product, of which around three quarters is owed to foreign creditors. We cannot be sure whether it can service its debts within the boundaries of political, social, and economic stability. But I believe a route to Greek solvency is possible.
Greece’s ability to “pay down” its debts and restore long-term confidence in its solvency will depend on the future real interest rates it will have to pay – balanced against the real growth rate of its economy. If it is pushed too soon to the private capital markets it will face sky-high rates, if it is able to borrow at all. Insolvency and default would then become inevitable. The better approach is to lock in low long-term interest rates at the “safe” rate, close to the current German or French long-term borrowing rate. This could be achieved most directly through guarantees offered by the European Financial Stability Facility on Greece’s future borrowing.
There is a chance – a rather good one, I believe – that in the end Greece would prove able to repay its debts over the course of 20 years at lower interest rates established by the EFSF. It may be the last clear chance for Greece and Europe to avoid a potential calamity. It is an attempt well worth making. Continue reading »
A default could have led to a dramatic unravelling of the European economy, and even beyond. Many of my colleagues in academia have blithely called upon Greece to default, and thereby force an involuntary restructuring of its debts. I find such advice to be naive. Nobody can guarantee a managed default in today’s global financial system.
Many of those who argue for the inevitability of default claim that Greece can never repay its mountain of debt. Fortunately, that dire forecast is not necessarily right. Greece need not pay anything near to that level if the financial crisis is better handled from this point forward. Here is how. Continue reading »
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