October 17, 2016
An Interview with Mark Weisbrot, by Nacho Berdugo
La Circular nº5 (Instituto25M), pp. 114–125
Nacho Berdugo: After seeing the major political events that have taken place in the past year in the member countries of the European Union, such as the humanitarian refugee crisis, the economic recession, the uptake in cases of xenophobia, terrorist attacks, and Brexit, what political and economic trends are we going to see in the old continent in the short and medium term?
Mark Weisbrot: Among all of these problems that the EU faces, I think the most important one is the structural problem of the eurozone. This is the most fundamental cause of high unemployment in the EU, which is still twice the level of that of the US; the “lost decade” that the EU is approaching since the world financial crisis and recession; and the continued hacking away at the region’s prior social and economic achievements, i.e., the achievements of social democracy. All this contributes to xenophobia, racism, and right-wing resurgence (as in France and the UK); and it makes the refugee problem much worse, since it would be much easier to absorb refugees if there was not so much unemployment and unnecessary constraints on government spending. (On the other hand, the refugee crisis is primarily a result of joint US/EU foreign policy in the Middle East, a fact that is generally overlooked; so this, too, urgently needs to change in order to resolve the refugee crisis.)
The most basic problem is that the governments of the eurozone countries gave up their national sovereignty over their most important economic policies: first monetary (including interest rates) and exchange rate policy, and then, when they got into trouble, some found that they had lost control over their fiscal (government spending and taxation) policies as well. Even worse, they gave up this control over economic policy to a group of institutions and people (the European Commission, the European Central Bank, and the IMF and the eurogroup of finance ministers) who had a fierce neoliberal agenda of their own, directly at odds with the majority of Europeans. And so, for example, in 2011 and most of 2012, these unaccountable European authorities deliberately prolonged and exacerbated a financial crisis and recession, pushing the regional economy several times to the brink of a financial meltdown, in order to pressure the more vulnerable elected governments to adopt policies that people would never vote for. This included fiscal austerity, of course, but the deliberately prolonged financial crisis also contributed to the extra two years of recession that Europe had, which the US avoided. And they did this in order to promote neoliberal “structural reforms,” including cuts in health care spending and pensions, unemployment insurance, and labor law “reform” that reduced the bargaining power of unions. There is a whole paper trail of thousands of pages of IMF Article IV consultations with EU governments, which are negotiated between the finance ministries of these governments and the IMF, which spell out this agenda pretty clearly.
And the EU itself has also increasingly adopted a neoliberal project, for example with the misnamed European Stability and Growth Pact, adopted in March 2012. This applies to the whole EU, not just the eurozone. It builds on the mistakes of the Maastricht Treaty, and it is another major obstacle to Europe undertaking the expansionary fiscal policy ? including public investment ? that is necessary to move the regional economy toward full employment.
So a big challenge for progressive forces in Europe will be to negate and replace this neoliberal project with a set of policies that can restore social and economic progress in Europe. This will not be easy, and there are tough questions regarding political strategy, e.g., what can be accomplished inside versus outside of the eurozone. On the positive side, we have seen a very big change in monetary policy, with quantitative easing; in this sense it is similar to the US, where the next step is to change fiscal policy, although the situation with mass unemployment is much worse in Europe. And Europeans need to reverse the process of implementing neoliberal “structural reforms.”
It appears that Greece’s worst fears have been confirmed since the arrival of Alexis Tsipras’ government — the economic recession has installed itself as an irreversible process while austerity policies are having a deep impact on Greek society. In this scenario, it appears practically impossible to bring an end to the Greek situation without at least partial debt forgiveness. What is your diagnosis for the Greek people?
Well, even the IMF has acknowledged that Greece will need more debt cancellation in order to return to sustainable growth. But the more urgent problem in the short run is again fiscal policy; the European authorities are still squeezing the Greek economy with austerity, too much to allow it to even get out of recession, much less do something about its more than 23 percent unemployment (and more than double that for youth). They are insisting that Greece run a primary budget surplus of 3.5 percent by 2018, a level that it has practically achieved for the first seven months of this year, but that is not compatible with economic recovery. Of course, the arithmetical reason for such high primary budget surpluses is to pay off more debt. The political reasons are less certain; it seems clear that the European authorities had a political strategy of “regime change” last year, prior to the July referendum on austerity, and it is possible that they would still like to get rid of Syriza, despite the latter’s surrender after the July 2015 referendum. But for whatever reason, they are on track to keep the Greek economy in recession and crisis indefinitely, and even the IMF has objected to this, pushing for debt relief, although the European authorities have prevailed for now.
I think this dissent from IMF officials represents a difference between Washington and the European leaders, headed by Germany, over Greece. Washington does not care very much about the neoliberal project of these European leaders, and it looks at Greece through a geostrategic lens, and has at least some worries that Greece could be forced out of the euro if present policies continue. Whereas their European partners have other priorities, and once it was clear to them that Greece was not going to leave the euro last year, they simply crushed Syriza with brute force. It’s tough to say whether Syriza had any bargaining power in that situation, because they didn’t try to use any.
From an economic point of view, it is clear that Greece would be much better off today if they had left the euro six years ago, rather than going through more than six years of depression. Of course there would be a short-term crisis upon leaving, but if we look at the financial crises associated with devaluations of the past two decades, the economic losses are very short and small compared to what Greece has lost. But politically, it is difficult for politicians to risk the short-term hit of leaving, especially when the majority of the electorate doesn’t understand the economics of what is at stake, and for other reasons wants to remain within the eurozone. This is one reason why the EU authorities issued mafia-like threats to the UK before the Brexit vote, and many still want to punish them as much as possible if they actually leave.
The European authorities have never wanted anyone to think that there was life after the eurozone (or the EU, in the case of the UK). But the economics of the situation are such that most governments in the eurozone, including even France, if they had wanted to move toward full employment in the past seven years, would have found that vastly easier to do outside of the euro.
With due respect to the differences with Greece, the Spanish economy is growing at an extremely slow rate, youth unemployment is alarming (over 40 percent) and austerity measures continue to tighten. In this scenario, we are witnessing another context of political deadlock in which the old bipartisanship is trying not to lose its complete dominance and Podemos is unable to achieve enough electoral strength to lead a political change in Spain. The political situation in the country is at a standstill after the second consecutive election, and a panorama of uncertainty continues to reign. What is the prognosis— in your opinion — for Spain, and how might it be framed within the context of southern Europe?
Podemos has made great political advances in a very short time. I cannot predict what will happen in the near future. But politically, it is hard to see how any government that continues the present policies of austerity could have much of a future, even if one is able to be formed from an upcoming election. The economic recovery that Spain has had since the second half of 2013 has been driven to a large extent by favorable external influences, including quantitative easing by the ECB and low oil prices, as well as the government missing its fiscal targets and thereby escaping the austerity that it had promised. But the [governing] Partido Popular promises continued budget tightening, and that will weaken or abort further recovery.
The IMF has projected that Spain will still have 16-17 percent unemployment when it reaches its potential GDP several years from now. In other words, they are saying that this level of mass unemployment is basically full employment ? as good as it gets. With youth unemployment currently at more than 45 percent, this is intolerable, and cannot be accepted by the majority of the country.
Podemos has put forth a feasible economic program that would move the economy much closer to full employment, and at CEPR we have done similar work that shows it is possible to do so even while remaining in the eurozone. Spain has relatively low taxes as a share of GDP, so there is room to increase taxes on upper-income taxpayers and use this for public investment and other expenditures that will increase growth and employment. And borrowing costs are extremely low right now, with Spanish government 10-year bonds currently yielding less than 1 percent. So there is plenty of room for expansionary fiscal policy. And Spain has the fourth-largest economy in the eurozone, more than six times larger than that of Greece ? so a left government in Spain would have a lot more bargaining power with relation to the European authorities than Greece has had.
The campaign of fear and distrust around Europe has won in the United Kingdom; the most reactionary propositions coming from notable figures like Boris Johnson and Nigel Farage have prevailed in a referendum that asks for an exit from the European Union. What is the real viability of this process in the medium and long term in a country divided in this regard? What would the economic impact of this decision be if it eventually materializes?
Well, there was also a campaign of fear on the other side, the anti-Brexit or “Remain” campaign ? the media, the IMF, the OECD, the UK Treasury ? all predicted that the sky would fall after a “yes” vote. But it certainly didn’t: unemployment doesn’t seem to be rising, and the financial markets rebounded and remain calm. The Brexit vote seems to have been primarily a protest vote, by many who belong to the majority of citizens whose incomes are still well below their prerecession level.
The Brexit vote represents a very similar problem as in the rest of Europe: the center-left (in the UK it was New Labour) embraced an internationalism that abandoned the interests of the majority and especially workers, buying into the neoliberal project of the “New Europe.” In Greece and Spain, where conditions were ripe for it, including prior grass-roots organizing and some talented leadership (in particular Alexis Tsipras and Pablo Iglesias), a sizable fraction of the center-left defected and went to the left (Syriza and Podemos). But it can also go to the right, as in France, and in the Brexit fight, the UK. This problem is fundamental, and it would seem that the European left will have to come up with a progressive economic nationalism, one that recognizes the vital importance of national economic sovereignty to basic democracy. (Syriza was successful in doing this, until its surrender to the European authorities.) And in this age where neoliberalism has such self-assured hegemony in the highest circles of power and the intelligentsia in Europe, and is aggressively trying to chip away at the welfare state, to fail to contest their agenda in the name of “internationalism” is to abandon an entire generation to their program; and in so doing, to risk feeding the growth of the extreme right.
The problem is much worse in the eurozone than in the UK, given the eurozone’s deep structural problems that I have noted. But many people who are considerably to the left of center are confused; they think it somehow most important to support internationalism and international institutions, even when those institutions are committed to lowering living standards and creating mass unemployment for millions of their fellow citizens and residents. Stathis Kouvelakis, a member of the Syriza Central Committee, noted that even some European Marxists share this view; in their case, he says, “it is easier to imagine the end of capitalism than the end of the euro.”
At this point it is not at all clear that the UK will actually leave the EU; if I had to bet, I would bet that they will not. And while the uncertainty that exists now will most reduce likely investment somewhat there, it is not clear how much the economy of the UK, or Europe, will be harmed in the interim. Again, Europe’s main problem is the deficiency of aggregate demand; it needs more government spending in order to recover. Unfortunately, now some voices, including in the media, will blame the continued weakness of Europe’s recovery on Brexit, when it is really due to continuing rotten macroeconomic policies in the eurozone.
In a brief analysis, what do you believe is the state of the US economy, and how do Donald Trump and Hillary Clinton’s [respective] economic proposals fit within that context?
Compared to recoveries from previous US recessions, the current recovery is one of the weakest in the post-World War II era. So even though the headline unemployment rate for June was 4.9 percent, if we look at employment for prime age workers (25–54), we are still down about 2.5 million jobs from where we should be, if we were to match prerecession levels of employment.
Nonetheless, the US economy looks great compared to Europe. And I would attribute much of this difference to the fact that however limited democracy on economic issues is in the US, there is vastly more accountability than exists in the eurozone. At the same time, the US and Europe face very similar problems, with Europe having much more severe cases of some of the same diseases. On fiscal policy, we didn’t have the terrible, procyclical austerity of Europe; but the initial stimulus in 2009–10 was a small fraction of the annual demand lost from the bursting of the real estate bubble and from cuts in state and local government spending. And per capita government spending during the first two years was very weak compared with previous recoveries.
US monetary policy was way ahead of Europe too, with the Fed cutting short-term interest rates to about zero in December of 2008 and keeping them there for eight years. It also engaged in quantitative easing, and ended up creating $3.7 trillion dollars since the Great Recession.
It is difficult to say what Trump would do since his positions on the issues change frequently. Most likely he would cut taxes, favoring rich households and many businesses; although Wall Street does not trust him, and their money is going to Hillary. And much of other Republican politicians’ distaste for him is because of his populism: he opposes the TPP (Trans-Pacific Partnership) agreement, and pledged not to cut Social Security and Medicare. As for Hillary, she has adopted some of Bernie Sanders’ progressive program, including free college tuition for at least the majority of families, opposition to the TPP, and increasing Social Security payments. Who knows what she would deliver; her ties to big corporate and Wall Street donors are well known. But it is very unlikely that she would be like her husband, who ushered in a whole set of terrible structural changes: NAFTA, welfare reform, the WTO, and financial deregulation. More likely she would be more like Obama, and have some net positive impact, as he did with his deeply flawed but still significant health care reform. And the social movements that have come out of the Sanders campaign will exert considerable pressure.
It is in the area of foreign policy that a Clinton presidency is most worrying, given her past support for wars in Iraq, Libya, Syria, and aggressive posture towards Iran.
Trump has crafted, with tremendous skill, a figure of an outsider who “will save the country,” playing with the political disaffection of a large part of the working class and white middle class. In a context where immigration is a rising phenomenon and the Spanish language floods every corner of the country, what are the possible consequences of the extension and consolidation of this xenophobic discourse among broad sections of the native population?
I think that Trump has done damage by his appeal to racism and xenophobia, but he is unlikely to have a lasting impact. Hispanic voters are an important and growing part of the electorate, and the lesson that politicians will draw from this election and Trump’s (and Republican) losses is much more likely to be that his anti-immigrant and racist politics are a losing strategy. Trump never had a serious chance at the presidency, and he won the Republican primary largely because he got $2 billion of free media. If Bernie had gotten anywhere that much media, he would have won the Democratic nomination and be well on his way to the presidency. Trump’s worldwide media attention has made him seem much more important than he really is in US politics. His legacy will be his contribution to the demise of the Republican Party, which is unlikely to win a presidential election in the foreseeable future, and only hangs on to the House of Representatives through gerrymandering and voter suppression.
After Bernie Sanders was ruled out as the Democratic nominee in the US presidential race and Hillary Clinton has been reaffirmed as a solid establishment candidate, is it possible to continue the process of political regeneration that Sanders started or, on the contrary, or is there no room for transformation within the Democratic Party?
The Sanders campaign was unprecedented in US politics: a social democrat, identifying himself as a socialist, with no money from elite or corporate sources, won 22 states in the Democratic primary and could very well have won the nomination (and the presidency) if he had done a few things differently. And there are two new organizations, including Sanders’ own, who are organizing to recruit and raise money for candidates ? for Congress and for local offices ? organized around a progressive program. This is the real legacy of the 2016 presidential race, and it is likely to change the country more than either of the current candidates for president. The Democratic Party itself is not nearly as much of an obstacle to political change as centrist political parties in Europe are, since anyone can compete for the Democratic nomination for any office without having been a Democrat or making any political concessions to the party.
What is your assessment for the upcoming general elections in November and how could the US political agenda be structured accordingly?
Hillary Clinton is very likely to win the presidency, and the Democrats are likely to take the Senate but not the House of Representatives ? although this is also possible if Trump loses badly enough. On the economic front, an important struggle is shaping up to stop the Federal Reserve from raising interest rates and thereby slowing employment and wage growth. The base of the Democratic Party, more mobilized than before the Bernie campaign, will try to put pressure on the Clinton administration around such issues as climate change, the $15 minimum wage, expanding health care and Social Security benefits, and other measures to reduce poverty and inequality. They will also try to pressure Hillary and the Congress on war and peace issues, including a possible move by a Clinton administration to intervene more in Syria.
Western societies, first the US with the New Deal and later Europe after World War II, have defined citizenship through employment. Since the 1980s, we’ve seen how this model has been falling apart. If to be a citizen, one must be employed, could we say that we are currently facing a citizenship crisis?
The mass unemployment in Europe is overwhelmingly a result of macroeconomic policy, not technological change. It is tragically ironic that at a time of deflation when money is free and even getting negative nominal interest rates in some countries, political leaders cannot be forced to implement policies, including public investment, that will create employment while at the same time accomplishing desperately needed social goals, such as reducing carbon emissions. To a certain extent, it is a problem of public education: most of the public does not understand the basic economics of what needs to be done. Although in Europe the structural problem of the loss of democracy in the eurozone makes things much more difficult than in the U.S.
Do you think that a universal basic income could guarantee security, while also promoting a more innovative fabric of production?
This does not seem like a practical way to reduce poverty, at least in the foreseeable future; maybe in a much more distant future. But for now, with the same amount of money, vastly more people could be pulled out of poverty with a targeted program that guarantees people can live above the poverty line, rather than giving everyone ? rich, poor, and everyone in between ? the same amount of money. There is no reason at present to believe that robotics must result in mass unemployment, any more than much more rapid technological change and productivity increases created mass unemployment in the 1960s. Similarly, I don’t accept the idea that social democracy is dead ? in fact it is even coming to life in the US, as the Sanders campaign showed. I won’t go through all the arguments that this is not a feasible or necessary change; Vicente Navarro has summarized them here and here. But of course if there is a country where this idea becomes popular enough to implement ? ahead of other, more practical proposals ? it could be an advance.