onsdag den 15. oktober 2008

The 56 Trillion Dollar Deficit | Bill Maher Interviews Fmr. Comptroller General David Walker

The Diversity of Development: The Evolution of Complexity

The living world is made up of complex biological systems. At the level of the individual, the most complex of these systems is the human brain. But the process of evolution has produced even more complex systems, such as tropical reefs and rainforests, that are made up of millions of interacting species. UCSD Professor of Ecology Christopher Wills explores how this complexity evolved and what genetic and ecological processes complex systems have in common.



Verden skælver

Kim Fournais adm. direktør i Saxo Bank advarer om, at forkert politik kan forlænge den økonomiske krise, ligesom det skete under The Great Depression.


Reguleringen af de frie markedskræfter og politikernes konfiskation af vores produktion og forvaltning af vores moral har ført os ud i den værste krise siden 1930'erne. Vi er havnet i et moralsk og økonomisk kaos, men der er opstået et reelt håb om, at krisen vil give plads til fornuft og samarbejde her i Danmark, efter at aftalen mellem regeringen og oppositionen samt finanssektoren er indgået. Kunsten bliver fremadrettet at udnytte samarbejdet til at skabe et rationelt samfund, der baserer sit forbrug på arbejdsomhed og sunde investeringer.

Det Private Beredskab, der oprettes med et indskud på 35 mia. kr. i form af garantiprovision og tabskaution, betales af den finansielle sektor. Så langt så godt. Der oprettes et afviklingsselskab, hvis formål er at overtage nødlidende banker og afvikle disse på en kontrolleret måde, såfremt der ikke kan findes en privat løsning. Endnu et skridt i den rigtige retning, når nu det skulle være. Problemet er, at alle banker i Danmark betaler solidarisk til, at man fra branchens side kan spænde et sikkerhedsnet ud under banker, der har jagtet høje indlånsrenter og i det hele taget spillet hasard med indskydernes penge. Man skulle naturligvis have ladet disse banker blive overtaget, så aktionærer og stillere af ansvarlig lånekapital ville miste deres investering, inden problemerne bliver uoverskuelige. Nu bliver det så de veldrevne banker, der skal betale for de dårligt drevne banker, som de ikke har haft indflydelse på. Det er naturligvis uretfærdigt.

Når eksempelvis Saxo Bank alligevel støtter aftalen, selvom vores forretningsmodel gør, at vi ikke er negativt påvirket af krisen, skyldes det for det første, at vi stadig tror, at aftalen kan skabe en vis stabilitet på markedet, når budskabet bliver ordentligt kommunikeret til den bredere internationale verden. Faktisk er danske banker nu blandt verdens mest sikre banker. Danmark har såkaldt AAA-rating, hvilket betyder, at ingen indskydere i danske banker vil miste deres penge, hvis en nødlidende bank overtages af afviklingsselskabet.

Dertil kommer, at aktionærerne og folk, der har sikret ansvarlig lånekapital, reelt mister deres penge, hvis en bank overtages af afviklingsselskabet. Det vil fremme en sundere aktiekultur i Danmark, hvor investorerne forhåbentlig begynder at forstå, at der findes en risiko ved investering, og at denne risiko ikke blot er en teoretisk størrelse. Det vil skabe en mere ansvarlig, rationel adfærd og afføde, at de investeringer, man i de senere år har set i alle mulige fantasifulde projekter, stoppes, og investorerne begynder at være mere kritiske overfor virksomhedernes ledelser og deres dispositioner.

Ligesom boligkrisen spredte sig til finansverdenen, vil finanskrisen sprede sig til den generelle økonomi. Vi ser kun toppen af isbjerget i disse dage, men som vi ved, er det kun ca. 1/9 af isbjerget. De resterende 8/9 ligger under havets overflade, og verden går store problemer i møde.

Det er lang tid siden, at vi aflyste overophedningen i Saxo Bank, men desværre talte vi for døve øren. Nu er krisen en realitet, og selvom Danmark allerede er ramt af krisen, og vil blive det yderligere, så er der gode muligheder for at komme styrket ud af krisen. Ikke mindst fordi vi i de sidste 25 år faktisk har sikret en relativ god økonomi.

USA har i de seneste uger taget stormskidt mod de tiltag, som forlængede den sidste store krise, der kulminerede i 1929, men varede mange år frem. To økonomer fra UCLA har tidligere fremlagt forskning, som viser, hvorfor den Store Depression blev så stor og varede op til 15 år. De kommer frem til den skræmmende konklusion, at det var velmenende politikere, der forlængede krisen ikke mindst den daværende præsident, Franklin D. Roosevelt. Jeg er ikke ude i en kritik af Roosevelt, men kan blot konstatere, at Den Store Depression ikke behøvede at vare op til 15 år, og det er da gode nyheder for os i dag.

"Årsagen til, at den Store Depression varede så lang tid, har altid været et stort mysterium, og fordi vi aldrig rigtig kendte årsagen, har vi altid bekymret os for, om vi igen ville få 10-15 års økonomisk nedtur," sagde Lee Ohanian, vicerektor for UCLA's Department of Economics, i en pressemeddelelse. "Vi har fundet ud af, at en gentagelse af Den Store Depression ikke er sandsynlig, med mindre lovgiverne sammensætter en redningsplan med dårligt tænkte stimuluspakker."

I en artikel i augustnummeret af the Journal of Political Economy pointerer Harold L. Cole og Lee Ohanian, at hvor vi i dag ved, at lønninger og priser falder, når arbejdsløsheden stiger, så resulterede New Deal politikken i, at lønningerne, men dermed også priserne, steg. Man kortsluttede så at sige markedskræfterne i stedet for at lade dem få ro til at slutte krisen af sig selv. Det havde været hurtigere, ved vi i dag, skriver de. De kunstigt oppustede lønninger og priser ødelagde markedets selvregulerende kræfter, og resultatet var altså en 15 år lang depression.

Markedskræfterne er dig og mig. Vi er lidt over 5 mio. danskere, og spørg dig selv, om 5 mio. ikke ved bedre end 179 politikere. I stedet for at kortslutte markedskræfterne, skal vi sikre, at danskerne råder over deres egne penge (det burde være selvindlysende!), og det skal ske indenfor retfærdige, rationelle rammer. Hvis politikerne vil hjælpe os med at slutte krisen, så den ikke varer 15 år som krisen i 1930erne, så skal de altså vedtage de rigtige - men for nogle meget kontroversielle - reformer nu.

Vi har i Danmark fantastiske muligheder for at trodse den globale krise og komme styrket ud af den. Til at begynde med, bør vi sikre lovhjemmel, så man kan tilbyde kunder i finansielle institutioner segregerede konti. Dvs. konti der ikke hænger sammen med bankens egne midler. Ligesom en advokat har en klient-konto, som ikke bliver berørt af advokatens egne potentielle økonomiske problemer. Dermed skal banken selv finansiere egne spekulationer og kan ikke bruge kunders midler til spekulation. Hvis man er "too big to fail", så må det også betyde, at man ikke kan påtage sig risici, der gør, at man reelt kan gå konkurs. En "smiley"-ordning for banker ville være på sin plads, selvom man aldrig må glemme, at indskyderne selv har et ansvar for at tænke over, hvem de betror deres penge. Der mangler dog informationer og gennemsigtighed.

Margin, dvs. kontant sikkerhedsstillelse, med en løbende regulering af sikkerhed i forhold til markedsværdi, ville sikre, at ingen ville kunne geare uden af have "rigtige og likvide" sikkerheder for deres forretninger. Det system kendes allerede fra f.eks. futures-børser, der har opereret fint, også under denne krise. Margin-niveauer vil også altid blive justeret opad, når usikkerheden stiger, og dermed sikre, at der er balance imellem sikkerheder og eksponering og dermed risiko. Det vil med andre ord sige, at store eksponeringer og hårdt gearede forretninger altid ville blive lukket ned i tide.

Banker, som tager imod kunders indskud og tilbyder en rente, der ligger over markedsrenten, burde udsende en advarsel til deres kunder og fortælle, at de ikke er i stand til selv at låne til markedsvilkår, og at de har lånt flere penge ud, end de har i indskud. Det er et for de fleste tydeligt tegn på likviditetsproblemer, og i dette klima bliver regningen ved konkurs sendt direkte til skatteyderne, der i forvejen er hårdt prøvet.

Når der er ryddet op i den finansielle sektor, må vi se på, hvad det ellers er, der er gået galt. Alt for mange har finansieret deres forbrug ved hjælp af afdragsfrie lån og friværdi. Når gode, arbejdsomme danskere må ty til den slags usundheder for at få økonomien til at hænge sammen i dagligdagen, så er det et tegn på, at samfundet er skruet forkert sammen. Folk har tjent flere penge på at eje et hus end ved at gå på arbejde i mange år. Det er usundt, og det skader muligheden for at opbygge et arbejdsomt og produktivt samfund. Vi må tænke skattesystemet helt forfra og sikre en lav skat for alle, der vil gøre en indsats på arbejdsmarkedet. Skattereformen må fremrykkes, hvis det er det, der skal til for at lette skatterne med det samme, så de kan træde i kraft 1. januar.

Verden skælver, men det er stadig ikke for sent at gøre det rigtige og få samfundet på ret kurs. Der er faktisk en reel mulighed for, at Danmark kan blive en rollemodel for resten af verden og sikre, at den ikke gå under i misforstået altruisme og skadelig planøkonomi.

Conversations With History: How the War on Terror Turned into A War on American Values


Conversations host Harry Kreisler welcomes New Yorker writer Jane Mayer to discuss her book, The Dark Side. She explains how, under the direction of Vice President Cheney and his Assistant David Addington, the Bush administration, contrary to American history and tradition, implemented a policy of torture and rendition in violation of U.S. and international law. She describes the resistance within the government and the military to these actions. Mayer also offers a compelling account of what happened to detainees under the Cheney/Addington regime. She analyzes long term consequences for the fight against terror and for U.S. moral leadership in the world.



This Stock Collapse Is Petty When Compared to the Nature Crunch

Published on Tuesday, October 14, 2008 by The Guardian/UK


This Stock Collapse Is Petty When Compared to the Nature Crunch
The financial crisis at least affords us an opportunity to now rethink our catastrophic ecological trajectory

by George Monbiot


This is nothing. Well, nothing by comparison to what's coming. The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year as a result of deforestation alone. The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing fresh water - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it's the first response to every impending dislocation.

Gordon Brown, for instance, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40% of the world's foreign equities are now traded here. The financial sector's success had come about, he said, partly because the government had taken "a risk-based regulatory approach". In the same hall three years before, he pledged that "in budget after budget I want us to do even more to encourage the risk takers". Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends on the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That's another noun which reminds us of the connection. The Oxford English Dictionary gives 69 definitions of "stock". When it means a fund or store, the word evokes the trunk - or stock - of a tree, "from which the gains are an outgrowth". Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland's financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the common fisheries policy. Already the prime minister, Geir Haarde, has suggested that his countrymen concentrate on exploiting the ocean. The economic disaster will cause an ecological disaster.

Normally it's the other way around. In his book Collapse: How Societies Choose to Fail or Succeed, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe. The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport, and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. Diamond wonders what the Easter islander who cut down the last palm tree might have thought. "Like modern loggers, did he shout 'Jobs, not trees!'? Or: 'Technology will solve our problems, never fear, we'll find a substitute for wood.'? Or: 'We don't have proof that there aren't palms somewhere else on Easter ... your proposed ban on logging is premature and driven by fear-mongering'?".

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for instance, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90% and 99% of the population. The Mayan collapse was accelerated by "the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems". (Does any of this sound familiar?) Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other's conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks - of either kind - start sliding towards oblivion, we're knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1,700% a century), it too will hit the wall.

Iam not going to suggest, as some scoundrel who shares a name with me did on these pages last year, that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity that is not available during periods of economic success. Governments restructuring their economies should read Herman Daly's book Steady-State Economics.

As usual I haven't left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission (all references are on my website). But what Daly suggests is that nations which are already rich should replace growth - "more of the same stuff" - with development - "the same amount of better stuff". A steady-state economy has a constant stock of capital that is maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.
© Guardian News and Media Limited 2008

tirsdag den 14. oktober 2008

'The United States Has Essentially a One-Party System'

The linguist and public intellectual Noam Chomsky has long been a critic of American consumerism and imperialism. SPIEGEL spoke to him about the current crisis of capitalism, Barack Obama's rhetoric and the compliance of the intellectual class.

By Gabor Steingart

13/10/08 "Spiegel" --
Chomsky: The times are too difficult and the crisis too severe to indulge in schadenfreude. Looking at it in perspective, the fact that there would be a financial crisis was perfectly predictable, its general nature, if not its magnitude. Markets are always inefficient.

SPIEGEL: What exactly did you anticipate?

Chomsky: In the financial industry, as in other industries, there are risks that are left out of the calculation. If you sell me a car, we have perhaps made a good bargain for ourselves. But there are effects of this transaction on others, which we do not take into account. There is more pollution, the price of gas goes up, there is more congestion. Those are the external costs of our transaction. In the case of financial institutions, they are huge.

SPIEGEL: But isn't it the task of a bank to take risks?

Chomsky: Yes, but if it is well managed, like Goldman Sachs, it will cover its own risks and absorb its own losses. But no financial institution can manage systemic risks. Risk is therefore underpriced, and there will be more risk taken than would be prudent for the economy. With government deregulation and the triumph of financial liberalization, the dangers of systemic risks, the possibility of a financial tsunami, sharply increased.

SPIEGEL: But is it correct to only put the blame on Wall Street? Doesn't Main Street, the American middle class, also live on borrowed money which may or may not be paid back?

Chomsky: The debt burden of private households is enormous. But I would not hold the individual responsible. This consumerism is based on the fact that we are a society dominated by business interests. There is massive propaganda for everyone to consume. Consumption is good for profits and consumption is good for the political establishment.

SPIEGEL: How does it benefit politicians when the populace drives a lot, eats a lot and goes shopping a lot?

Chomsky: Consumption distracts people. You cannot control your own population by force, but it can be distracted by consumption. The business press has been quite explicit about this goal.

SPIEGEL: A while ago you called America “the greatest country on earth.” How does that fit together with what you've been saying?

Chomsky: In many respects, the United States is a great country. Freedom of speech is protected more than in any other country. It is also a very free society. In America, the professor talks to the mechanic. They are in the same category.

SPIEGEL: After travelling through the United States 170 years ago, Alexis de Tocqueville reported, "the people reign over the American political world as God rules over the universe." Was he a dreamer?

Chomsky: James Madison’s position at the Constitutional Convention was that state power should be used "to protect the minority of the opulent against the majority." That is why the Senate has only a hundred members who are mostly rich and were given a great deal of power. The House of Representatives, with several hundred members, is more democratic and was given much less power. Even liberals like Walter Lippmann, one of the leading intellectuals of the 20th century, was of the opinion that in a properly functioning democracy, the intelligent minority, who should rule, have to be protected from “the trampling and the roar of the bewildered herd.” Among the conservatives, Vice President Dick Cheney just recently illustrated his understanding of democracy. He was asked why he supports a continuation of the war in Iraq when the population is strongly opposed. His answer was: “So?”

SPIEGEL: “Change” is the slogan of this year’s presidential election. Do you see any chance for an immediate, tangible change in the United States? Or, to use use Obama’s battle cry: Are you "fired up”?

Chomsky: Not in the least. The European reaction to Obama is a European delusion.

SPIEGEL: But he does say things that Europe has long been waiting for. He talks about the trans-Atlantic partnership, the priority of diplomacy and the reconciling of American society.

Chomsky: That is all rhetoric. Who cares about that? This whole election campaign deals with soaring rhetoric, hope, change, all sorts of things, but not with issues.

SPIEGEL: Do you prefer the team on the other side: the 72 year old Vietnam veteran McCain and Sarah Palin, former Alaskan beauty queen?

Chomsky: This Sarah Palin phenomenon is very curious. I think somebody watching us from Mars, they would think the country has gone insane.

SPIEGEL: Arch conservatives and religious voters seem to be thrilled.

Chomsky: One must not forget that this country was founded by religious fanatics. Since Jimmy Carter, religious fundamentalists play a major role in elections. He was the first president who made a point of exhibiting himself as a born again Christian. That sparked a little light in the minds of political campaign managers: Pretend to be a religious fanatic and you can pick up a third of the vote right away. Nobody asked whether Lyndon Johnson went to church every day. Bill Clinton is probably about as religious as I am, meaning zero, but his managers made a point of making sure that every Sunday morning he was in the Baptist church singing hymns.

SPIEGEL: Is there nothing about McCain that appeals to you?

Chomsky: In one aspect he is more honest than his opponent. He explicitly states that this election is not about issues but about personalities. The Democrats are not quite as honest even though they see it the same way.

SPIEGEL: So for you, Republicans and Democrats represent just slight variations of the same political platform?

Chomsky: Of course there are differences, but they are not fundamental. Nobody should have any illusions. The United States has essentially a one-party system and the ruling party is the business party.

SPIEGEL: You exaggerate. In almost all vital questions -- from the taxation of the rich to nuclear energy -- there are different positions. At least on the issues of war and peace, the parties differ considerably. The Republicans want to fight in Iraq until victory, even if that takes a 100 years, according to McCain. The Democrats demand a withdrawal plan.

Chomsky: Let us look at the “differences” more closely, and we recognize how limited and cynical they are. The hawks say, if we continue we can win. The doves say, it is costing us too much. But try to find an American politician who says frankly that this aggression is a crime: the issue is not whether we win or not, whether it is expensive or not. Remember the Russian invasion of Afghanistan? Did we have a debate whether the Russians can win the war or whether it is too expensive? This may have been the debate at the Kremlin, or in Pravda. But this is the kind of debate you would expect in a totalitarian society. If General Petraeus could achieve in Iraq what Putin achieved in Chechnya, he would be crowned king. The key question here is whether we apply the same standards to ourselves that we apply to others.

SPIEGEL: Who prevents intellectuals from asking and critically answering these questions? You praised the freedom of speech in the United States.

Chomsky: The intellectual world is deeply conformist. Hans Morgenthau, who was a founder of realist international relations theory, once condemned what he called “the conformist subservience to power” on the part of the intellectuals. George Orwell wrote that nationalists, who are practically the whole intellectual class of a country, not only do not disapprove of the crimes of their own state, but have the remarkable capacity not even to see them. That is correct. We talk a lot about the crimes of others. When it comes to our own crimes, we are nationalists in the Orwellian sense.

SPIEGEL: Was there not, and is there not -- in the United States and worldwide -- loud protest against the Iraq war?

Chomsky: The protest against the war in Iraq is far higher than against the war in Vietnam. When there were 4,000 American deaths in Vietnam and 150,000 troops deployed, nobody cared. When Kennedy invaded Vietnam in 1962, there was just a yawn.

SPIEGEL: To conclude, perhaps you can offer a conciliatory word about the state of the nation?

Chomsky: The American society has become more civilized, largely as a result of the activism of the 1960s. Our society, and also Europe's, became freer, more open, more democratic, and for many quite scary. This generation was condemned for that. But it had an effect.

SPIEGEL: Professor Chomsky, we thank you for this interview.

Degrowth economics: Why less should be so much more

By Serge Latouche

Last December we published an article about contraction economics - décroissance or ’degrowth’- a topic that has become a major subject of debate, not just within the counter-globalisation movement but in the wider world. The big question is: how should ’degrowth’ apply to the South?

THE logic of advertising so dominates the media that it views anything new - material, cultural or otherwise - as a product launch. And in any product launch, the key word is concept. So as discussion of décroissance (literally "degrowth", that is economic contraction or downscaling) spread, the media naturally started to ask what was the concept. We are sorry to disappoint the media, but degrowth is not a concept. There is no theory of contraction equivalent to the growth theories of economics. Degrowth is just a term created by radical critics of growth theory to free everybody from the economic correctness that prevents us from proposing alternative projects for post-development politics.

In fact degrowth is not a concrete project but a keyword. Society has been locked into thought dominated by progressivist growth economics; the tyranny of these has made imaginative thinking outside the box impossible. The idea of a contraction-based society is just a way to provoke thought about alternatives. To accuse its advocates of only wanting to see economies contract within the existing system rather than proposing an alternative to that system, and to suspect them (as do some counter-globalisation economists) of wanting to prevent the underdeveloped world from resolving its problems reflects at best ignorance and at worst bad faith.

Proponents of contraction want to create integrated, self-sufficient and materially responsible societies in both the North and the South. It might be more accurate and less alarming if we replaced the word degrowth with "non-growth". We could then start talking about "a-growthism", as in "a-theism". After all, rejecting the current economic orthodoxy means abandoning a faith system, a religion. To achieve this, we need doggedly and rigorously to deconstruct the matter of development. The term "development" has been redefined and qualified so much that it has become meaningless. Yet despite its failings, this magical concept continues to command total devotion across the political spectrum. The doctrines of "economism" (1), in which growth is the ultimate good, die hard. Even counter-globalisation economists are in a paradoxical position: they acknowledge the harm that growth has done but continue to speak of enabling Southern countries to benefit from it. In the North the furthest they are prepared to go is to advocate slowing down growth. An increasing number of anti-globalisation activists now concede that growth as we have known it is both unsustainable and harmful, socially as well as ecologically. Yet they have little confidence in degrowth as a guiding principle: the South, deprived of development, cannot be denied at least a period of growth, although it may cause problems.

The result is a stalemate where neither growth nor contraction suit. The proposed compromise of growth slowdown follows the tradition in these debates in that it lets everyone agree on a misunderstanding. Forcing our economies to grow more slowly will never deliver the benefits of a society free from constant growth (that is, being materially responsible, fully integrated and self-sufficient) but it will hurt employment, which has been the one undeniable advantage of rapid, inequitable and environmentally catastrophic expansion. To understand why the creation of a non-growth society is so necessary and so desirable for North and South, we must examine the history of the idea. The proposal for a self-sufficient and materially responsible society is not new; it is part of the tradition of development criticism. For more than 40 years an international group of commentators had analysed economic development in the South and denounced the harm it has done (2). These commentators do not just address recent capitalist or ultra-liberal development: for example, they have considered Houari Boumediene’s Algeria and Julius Nyerere’s Tanzania, which were both officially socialist, participatory, self-reliant and based on popular solidarity. And they have also noted that development has often been carried out or supported by charitable, humanist NGOs. Yet apart from a few scattered success stories, it has been an overwhelming failure. What was supposed to bring contentment to everyone in every aspect of life led only to corruption, confusion and structural adjustment plans that turned poverty into destitution.

Degrowth must apply to the South as much as to the North if there is to be any chance to stop Southern societies from rushing up the blind alley of growth economics. Where there is still time, they should aim not for development but for disentanglement - removing the obstacles that prevent them from developing differently. This does not mean a return to an idealised version of an informal economy - nothing can be expected to change in the South if the North does not adopt some form of economic contraction. As long as hungry Ethiopia and Somalia still have to export feedstuffs destined for pet animals in the North, and the meat we eat is raised on soya from the razed Amazon rainforest, our excessive consumption smothers any chance of real self-sufficiency in the South (3).

If the South is to attempt to create non-growth societies, it must rethink and re-localise. Southern countries need to escape from their economic and cultural dependence on the North and rediscover their own histories - interrupted by colonialism, development and globalisation - to establish distinct indigenous cultural identities. The cultural histories of many societies reveal inherently anti-economistic values. These need to be revived, along with rejected or forgotten products and traditional crafts and skills. Insisting on growth in the South, as though it were the only way out of the misery that growth created, can only lead to further westernisation. Development proposals are often born of genuine goodwill - we want to build schools and health clinics, set up water distribution systems, restore self-sufficiency in food - but they all share the ethnocentrism bound up with the idea of development. Ask the governments of countries what they want, or study surveys of populations duped by the media, and they do not ask for the schools and clinics that western paternalism considers fundamental needs. They want air conditioning, mobile phones, fridges and, above all, cars (Volkswagen and General Motors are planning to start producing 3m vehicles a year in China, and Peugeot is also investing heavily there). For the benefit of their governing elites, we might also add nuclear power stations, fighter jets and tanks to the wish list.

Or we could listen to the exasperated Guatemalan leader cited by Alain Gras (4): "Leave the poor alone and stop going on about development!" All the leaders of popular movements, from Vandana Shiva in India to Emmanuel Ndione in Senegal, say the same thing. Advocates of development may pontificate about the need to restore self-sufficiency in food; but the terms they use prove that there was self-sufficiency and that it has been lost. Africa was self-sufficient in food until the 1960s when the great wave of development began. Imperialism, growth economics and globalisation destroyed that self-sufficiency and make African societies more dependent by the day. Water may not have come out of a tap in the past, but most of it was drinkable until industrial waste arrived to pollute it.

Are schools and clinics really the right ways to achieve and maintain good standards of education and health? The great polemicist and social thinker Ivan Illich (1926-2002) had serious doubts about their effectiveness, even in the North (5). As the Iranian economist Majid Rahnema puts it, "What we call aid money serves only to strengthen the structures that generate poverty. Aid money never reaches those victims who, having lost their real assets, look for alternative ways of life outside the globalised system of production which are better suited to their needs" (6).

There is no prospect of just returning to the old ways - no more than there is a universal model of progress on contraction or non-growth lines. Those millions for whom development has meant only poverty and exclusion are left with a weak mixture of lost tradition and unaffordable modernity, a paradox that sums up the double challenge that they face. But we should not underestimate the strength of our social and cultural achievements: once human creativity and ingenuity have been freed from the bonds of economism and development-mania, there is every reason to believe that they can tackle the task.

Different societies have different views of the shared basic aim of a good life. If we must give it a name, it could beumran (thriving or flourishing), as used by the Arab historian and philosopher Ibn Kaldûn (1332-1406); Gandhi’s swadeshi-sarvodaya (self-sufficiency and welfare); bamtaare (shared well-being) in the language of the West African Toucouleurs; or fidnaa/gabbina (the shine of someone who is well-fed and free of all worry) in the vocabulary of Ethiopia’s Borana people (7). What really matters is that we reject continuing destruction in the name of development. The fresh and original alternatives springing up point the way towards a successful post-development society.

However, neither North nor South will overcome their addiction to growth without a collective and comprehensive detoxification programme. The growth doctrine is like a disease and a drug. As Rahnema says, Homo economicus had two strategies for taking over virgin territories: one operated like HIV, the other like a drug pusher (8). Growth economics, like HIV, destroys societies’ immune systems against social ills. And growth needs a constant supply of new markets to survive so, like a drug dealer, it deliberately creates needs and dependencies that did not exist before. The fact that the dealers in the supply chain, mainly transnational corporations, benefit so much from our addiction will make it difficult to overcome. But our ever-increasing consumption is not sustainable; sooner or later we will have to give it up.

The Secret History of the American Empire The Truth About Global Corruption

John Perkins, author of Confessions of An Economic Hit Man.

Perkins zeroes in on hot spots around the world such as Venezuela, Tibet, Iraq, Israel, Vietnam and others and exposes the network of events in each of these countries that have contributed to the creation of the American Empire and international corruption in "The Secret History of the American Empire: Economic Hit Men, Jackals, and the Truth About Global Corruption"

Yunus: 'Capitalism Has Degenerated into a Casino'

Nobel Peace Prize laureate Muhammad Yunus says that greed has destroyed the world's financial system. SPIEGEL ONLINE spoke with him about the profit motive, social consciousness and what should be done to end the financial crisis.

10/10/08 "SPIEGEL" --
SPIEGEL ONLINE: Mr. Yunus, for years you have been preaching a more socially conscious way of doing business and have denounced the narrow focus on maximizing profit as harmful. Now, the entire financial system is wobbling ...

Yunus: The current turn of events makes me sad. It is certainly not something I am happy about. The collapse has hurt so many people and has suddenly made the entire world unstable. We should now be concentrating on making sure that such a financial crisis does not happen again.

SPIEGEL ONLINE: What should be done?

Yunus: There are huge holes in the current financial system that need to be plugged. The market is clearly not able to solve these problems itself, and now people are having to run to the governments to ask for emergency assistance. That is not a good sign because it shows that trust in the markets has evaporated. At the moment, there is unfortunately no other option than for government takeovers and government support. That is currently the method being used to combat the crisis -- a method kicked off with the $700 billion bailout package passed in the US. In Germany, the government has likewise jumped into the fray.

SPIEGEL ONLINE: Where exactly do you see the problem with such a strategy?

Yunus: The point is that we have to return as soon as possible to market mechanisms that can ameliorate the crisis and solve problems. Solutions should come out of the market and not from governments.

SPIEGEL ONLINE: But you just said yourself that the market is not capable of doing so.

Yunus: That is exactly what we need to work on. For a long time, the main priorities have been the maximization of profits and rapid growth -- but that focus has led to the current situation. Each day, we have to look to see if there is potentially harmful growth somewhere. If we find there is, then we need to react immediately. If something grows unnaturally quickly, then we have to stop it. Why don’t companies all pay into a fund that buys up securities that have become too risky? I can even imagine a business model for such a program.

SPIEGEL ONLINE: On the one hand, you say that the market has to solve the problem itself, on the other hand, though, you criticize overly quick growth. That sounds like you think that profit-oriented capitalism has failed.

Yunus: Not at all. Capitalism, with all its market mechanisms, has to survive -- there is no question. What I excoriate is that today there is only one incentive for doing business, and that is the maximization of profits. But the incentive of doing social good must be included. There need to be many more companies whose primary aim is not that of earning the highest profits possible, but that of providing the greatest benefit possible for human kind.

SPIEGEL ONLINE: And you think that those two incentives are mutually exclusive? The bank you founded, Grameen Bank -- which led to your receiving the Nobel Peace Prize in 2006 -- both helps people and earns healthy profits.

Yunus: It is a company which is focused on the social good and which makes a profit, but it is not focused on maximizing its profits. I am not interested in turning all profit-oriented companies into socially conscious operations. They are two different categories of companies -- there will always be businesses whose primary goal is that of earning as much money as possible. That is okay. But earning as much money as possible can only be a means to an end, not an end in itself. One has to invest money in something meaningful -- and I would make a case for it being something that improves the quality of life for all people.

SPIEGEL ONLINE: What, though, does an increase in the number of socially minded companies have to do with the financial crisis?

Yunus: Were there more socially minded companies, people would have more opportunities to shape their own lives. The markets would be more balanced than they are today.

SPIEGEL ONLINE: You are talking about saving the world with altruism ...

Yunus: There are many philanthropists in this world, people who help people by providing them with homes, education, etc. But that is a one-way street. The money is spent and never comes back. Were one to invest that money in a socially minded company, it would stay in the economy and would be much more effective because it would be used according to the criteria of the market and would thus develop a certain amount of market leverage.

SPIEGEL ONLINE: Who do you think is guilty for the current financial meltdown?

Yunus: The market itself with its lack of adequate regulation. Today's capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions. These are all things that have to end.

SPIEGEL ONLINE: The current financial crisis began as a credit crisis -- homeowners in the US could no longer pay down their mortgages. At Grameen Bank, which provides microloans, the repayment rate is close to 100 percent. Do you think your bank could be a model for the entire finance world?

Yunus: The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don't exist at all. That was the point at which the financial system collapsed.

SPIEGEL ONLINE: Is it now time for governments to intervene in the market economy and strengthen regulation?

Yunus: There has to be regulation, but governments should not be allowed to steer the market. On the other hand, it has become clear that Adam Smith's "invisible hand" which supposedly solves all the market's problems doesn't exist. This "invisible hand" has completely disappeared in the last few days. What we are experiencing is a dramatic failure of the markets.

Interview conducted by Hasnain Kazim. Translated from the German by Charles Hawley.

Food for thought: Eat your way to a better brain






CHILDREN have a lot to contend with these days, not least a tendency for their pushy parents to force-feed them omega-3 oils at every opportunity. These are supposed to make children brainier, so they are being added to everything from bread, milk and pasta to baby formula and vitamin tablets. But omega-3 is just the tip of the nutritional iceberg; many nutrients have proven cognitive effects, and do so throughout a person’s life, not merely when he is a child.

Fernando Gómez-Pinilla, a fish-loving professor of neurosurgery and physiological science at the University of California, Los Angeles, believes that appropriate changes to a person’s diet can enhance his cognitive abilities, protect his brain from damage and counteract the effects of ageing. Dr Gómez-Pinilla has been studying the effects of food on the brain for years, and has now completed a review, just published in Nature Reviews Neuroscience, that has analysed more than 160 studies of food’s effect on the brain. Some foods, he concludes, are like pharmaceutical compounds; their effects are so profound that the mental health of entire countries may be linked to them.

Last year, for example, the Lancet published research showing that folic-acid supplements—sometimes taken by pregnant women—can help those between 50 and 70 years old ward off the cognitive decline that accompanies ageing. In a study lasting three years, Jane Durga, of Wageningen University in the Netherlands, and her colleagues found that people taking such supplements did better on measures of memory, information-processing speed and verbal fluency. That, plus evidence that folate deficiency is associated with clinical depression, suggests eating spinach, orange juice and Marmite, which are all rich in folic acid.

Another suggestion from Dr Gómez-Pinilla’s review is that people should eat more antioxidants. That idea is not new. Antioxidants are reckoned by many to protect against the general effects of ageing. Vitamin E, for example, which is found in vegetable oils, nuts and green leafy vegetables, has been linked (in mice) with the retention of memory into old age, and also with longer life.

Dr Gómez-Pinilla, however, gives the antioxidant story a particular twist. The brain, he observes, is peculiarly susceptible to oxidative damage. It consumes a lot of energy, and the reactions that release this energy also generate oxidising chemicals. Moreover, brain tissue contains a great deal of oxidisable material, particularly in the fatty membranes surrounding nerve cells.

That suggests, among other things, the value of a diet rich in berries. These have been shown to have strong antioxidant effects, though only a small number of their constituents have been evaluated in detail. One group that has been evaluated, the polyphenols, has been shown in rodents to reduce oxidative damage and to boost the ability to learn and retain memories. In particular, these chemicals affect changes in response to different types of stimulation in the hippocampus (a part of the brain that is crucial to the formation of long-term memories, and which is the region most affected by Alzheimer’s disease). Another polyphenol, curcumin, has also been shown to have protective effects. It reduces memory deficits in animals with brain damage. It may be no coincidence that in India, where a lot of curcumin is consumed (it is the substance that makes turmeric yellow), Alzheimer’s disease is rarer than elsewhere.
Peas of mind

Though the way antioxidants work in the brain is not well known, Dr Gómez-Pinilla says it is likely they protect the synaptic membranes. Synapses are the junctions between nerve cells, and their action is central to learning and memory. But they are also, he says, the most fragile parts of the brain. And many of the nutrients associated with brain function are known to affect transmission at the synapses.

An omega-3 fatty acid called docosahexaenoic acid (DHA), for example, provides membranes at synaptic regions with “fluidity”—the capacity to transport signals. It also provides “plasticity”—a synapse’s capacity to change. Such changes are the basis of memory. Since 30% of the fatty constituents of nerve-cell membranes are DHA molecules, keeping your DHA levels topped up is part of having a healthy brain. Indeed, according to the studies reviewed by Dr Gómez-Pinilla, the benefits of omega-3s include improved learning and memory, and resistance to depression and bipolar disorder, schizophrenia, dementia, attention-deficit disorder and dyslexia.

Omega-3s are found in oily fish such as salmon, as well as in walnuts and kiwi fruit, and there is a strong negative correlation between the extent to which a country consumes fish and its levels of clinical depression. On the Japanese island of Okinawa, for example, people have a strikingly low rate of mental disorder—and Okinawans are notable fish eaters, even by the standards of a piscivorous country like Japan. In contrast, many studies suggest that diets which are rich in trans- and saturated fatty acids, such as those containing a lot of deep-fried foods and butter, have bad effects on cognition. Rodents put on such diets show declines in cognitive performance within weeks.

In the past few years, several studies have looked at the effect of adding omega-3s to people’s diets—particularly those of children. One such, carried out in the British city of Durham, was controversial in that it was funded by a maker of children’s omega-3 supplements and did not include a control group being given a placebo. Despite the publicity this study has received, Ben Goldacre, author of a book called “Bad Science” that includes an investigation of it, says the results will not be released.

Work by other researchers, however, has suggested such supplements do improve the performance and behaviour of school-age children with specific diagnoses such as dyslexia, attention-deficit disorder and developmental co-ordination disorder. Moreover, although more work is needed to elucidate the effects of omega-3s on healthy school-age children, Dr Gómez-Pinilla says that younger children whose mothers took fish-oil supplements (which contain omega-3s) when they were pregnant and while they were breast-feeding do show better cognitive performance than their unsupplemented contemporaries.

Eating well, then, is one key to a healthy brain. But a word of warning—do not overeat. This puts oxidative stress on the brain and risks undoing all the good work those antioxidants have been up to. For those who would like a little practical guidance, The Economist has some suggestions for dinner (see menu). So why not put the Nintendo brain trainer away tonight, and eat your way to intelligence instead?

The Myth of Progress

Kirkpatrick Sale

I can remember vividly sitting at the dinner table arguing with my father about progress, using upon him all the experience and wisdom I had gathered at the age of fifteen. Of course we live in an era of progress, I said, just look at cars - how clumsy and unreliable and slow they were in the old days, how sleek and efficient and speedy they are now. He raised an eyebrow, just a little. And what has been the result of having all these wonderful new sleek and efficient and speedy cars, he asked. I was taken aback. I searched for a way to answer. He went on.

How many people die each year as a result of these speedy cars, how many are maimed and crippled? What is life like for the people who produce them, on those famous assembly lines, the same routinized job hour after hour, day after day, like Chaplin’s film? How many fields and forests and even towns and villages have been paved over so that these cars can get to all the places they want to get to - and park there? Where does all the gasoline come from, and at what cost, and what happens when we burn it and exhaust it? Before I could stammer out a response - thankfully - he went on to tell me about an article written on the subject of progress, a concept I had never really thought of, by one of his Cornell colleagues, the historian Carl Becker, a man I had never heard of, in the Encyclopedia of Social Sciences, a resource I had never come across. Read it, he said.

I’m afraid it was another fifteen years before I did, though in the meantime I came to learn the wisdom of my father’s skepticism as the modern world repeatedly threw up other examples of invention and advancement - television, electric carving knife, microwave oven, nuclear power - that showed the same problematic nature of progress, taken in the round and negatives factored in, as did the automobile. When I finally got to Becker’s masterful essay, in the course of a wholesale re-examination of modernity, it took no scholarly armament of his to convince me of the peculiar historical provenance of the concept of progress and its status not as an inevitability, a force as given as gravity as my youthful self imagined, but as a cultural construct invented for all practical purposes in the Renaissance and advancing the propaganda of capitalism. It was nothing more than a serviceable myth, a deeply held unexamined construct - like all useful cultural myths - that promoted the idea of regular and eternal improvement of the human condition, largely through the exploitation of nature and the acquisition of material goods.

Of course by now it is no longer such an arcane perception. Many fifteen-year-olds today, seeing clearly the perils with which modern technology has accompanied its progress, some of which threaten the very continuance of the human species, have already worked out for themselves what’s wrong with the myth. It is hard to learn that forests are being cut down at the rate of 56 million acres a year, that desertification threatens 8 billion acres of land worldwide, that all of the world’s seventeen major fisheries are in decline and stand a decade away from virtual exhaustion, that 26 million tons of topsoil is lost to erosion and pollution every year, and believe that this world’s economic system, whose functioning exacts this price, is headed in the right direction and that direction should be labeled “progress.”

E.E. Cummings once called progress a “comfortable disease” of modern “manunkind,” and so it has been for some. But at any time since the triumph of capitalism only a minority of the world’s population could be said to be really living in comfort, and that comfort, continuously threatened, is achieved at considerable expense.

Today of the approximately 6 billion people in the world, it is estimated that at least a billion live in abject poverty, lives cruel, empty, and mercifully short. Another 2 billion eke out life on a bare subsistence level, usually sustained only by one or another starch, the majority without potable drinking water or sanitary toilets. More than 2 million more live at the bottom edges of the money economy but with incomes less than $5,000 a year and no property or savings, no net worth to pass on to their children.

That leaves less than a billion people who even come close to struggling for lives of comfort, with jobs and salaries of some regularity, and a quite small minority at the top of that scale who could really be said to have achieved comfortable lives; in the world, some 350 people can be considered (U.S. dollar) billionaires (with slightly more than 3 million millionaires), and their total net worth is estimated to exceed that of 45 per cent of the world’s population.

This is progress? A disease such a small number can catch? And with such inequity, such imbalance?

In the U.S., the most materially advanced nation in the world and long the most ardent champion of the notion of progress, some 40 million people live below the official poverty line and another 20 million or so below the line adjusted for real costs; 6 million or so are unemployed, more than 30 million said to be too discouraged to look for work, and 45 million are in “disposable” jobs, temporary and part-time, without benefits or security. The top 5 percent of the population owns about two-thirds of the total wealth; 60 percent own no tangible assets or are in debt; in terms of income, the top 20 percent earn half the total income, the bottom 20 percent less than 4 percent of it.

All this hardly suggests the sort of material comfort progress is assumed to have provided. Certainly many in the U.S. and throughout the industrial world live at levels of wealth undreamed of in ages past, able to call forth hundreds of servant-equivalents at the flip of a switch or turn of a key, and probably a third of this “first world” population could be said to have lives of a certain amount of ease and convenience. Yet it is a statistical fact that it is just this segment that most acutely suffers from the true “comfortable disease,” what I would call affluenza: heart disease, stress, overwork, family dysfunction, alcoholism, insecurity, anomie, psychosis, loneliness, impotence, alienation, consumerism, and coldness of heart.

Leopold Kohr, the Austrian economist whose seminal work, The Breakdown of Nations, is an essential tool for understanding the failures of political progress in the last half-millennium, often used to close his lectures with this analogy.

Suppose we are on a progress-train, he said, running full speed ahead in the approved manner, fueled by the rapacious growth and resource depletion and cheered on by highly rewarded economists. What if we then discover that we are headed for a precipitous fall to a certain disaster just a few miles ahead when the tracks end at an uncrossable gulf? Do we take advice of the economists to put more fuel into the engines so that we go at an ever-faster rate, presumable hoping that we build up a head of steam so powerful that it can land us safely on the other side of the gulf; or do we reach for the brakes and come to a screeching if somewhat tumble-around halt as quickly as possible?

Progress is the myth that assures us that full-speed-ahead is never wrong. Ecology is the discipline that teaches us that it is disaster.

Before the altar of progress, attended by its dutiful acolytes of science and technology, modern industrial society has presented an increasing abundance of sacrifices from the natural world, imitating on a much grander and more devastating scale the religious rites of earlier empires built upon similar conceits about the domination of nature. Now, it seems, we are prepared to offer up even the very biosphere itself.

No one knows how resilient the biosphere is, how much damage it is able to absorb before it stops functioning - or at least functioning well enough to keep the human species alive. But in recent years some very respectable and authoritative voices have suggested that, if we continue the relentless rush of progress that is so stressing the earth on which it depends, we will reach that point in the quite near future. The Worldwatch Institute, which issues annual accountings of such things, has warned that there is not one life-support system on which the biosphere depends for its existence - healthy air, water, soil, temperature, and the like - that is not now severely threatened and in fact getting worse, decade by decade.

Not long ago a gathering of elite environmental scientists and activists in Morelia, Mexico, published a declaration warning of “environmental destruction” and expressing unanimous concern “that life on our planet is in grave danger.” And recently the U.S. Union of Concerned Scientists, in a statement endorsed by more than a hundred Nobel laureates and 1,600 members of national academies of science all over the world, proclaimed a “World Scientists’ Warning to Humanity” stating that the present rates of environmental assault and population increase cannot continue without “vast human misery” and a planet so “irretrievably mutilated” that “it will be unable to sustain life in the manner that we know.”

The high-tech global economy will not listen; cannot listen. It continues apace its expansion and exploitation. Thanks to it, human beings annually use up some 40% of all the net photosynthetic energy available to the planet Earth, though we are but a single species of comparatively insignificant numbers. Thanks to it, the world economy has grown by more than five times over in the last 50 years and is continuing at a dizzying pace to use up the world’s resources, create unabating pollution and waste, and increase the enormous inequalities within and between all nations of the world.

Suppose an Objective Observer were to measure the success of Progress - that is to say, the capital-P myth that ever since the Enlightenment has nurtured and guided and presided over that happy marriage of science and capitalism that has produced modern industrial civilization.

Has it been, on the whole, better or worse for the human species? Other species? Has it brought humans more happiness than there was before? More justice? More equality? More efficiency? And if its ends have proven to be more benign than not, what of its means? At what price have its benefits been won? And are they sustainable?

The Objective Observer would have to conclude that the record is mixed, at best. On the plus side, there is no denying that material prosperity has increased for about a sixth of the world’s humans, for some beyond the most avaricious dreams of kings and potentates of the past. The world has developed systems of transportation and communication that allow people, goods, and information to be exchanged on a scale and at a swiftness never before possible. And for maybe a third of these humans longevity has been increased, along with a general improvement in health and sanitation that has allowed the expansion of human numbers by about tenfold in the last three centuries.

On the minus side, the costs have been considerable. The impact upon the earth’s species and systems to provide prosperity for a billion people has been, as we have seen, devastatingly destructive - only one additional measure of which is the fact that it has meant the permanent extinction of perhaps 500,000 species this century alone. The impact upon the remaining five-sixths of the human species has been likewise destructive, as most of them have seen their societies colonized or displaced, their economies wrenched and shattered, and their environments transformed for the worse in the course of it, driving them into an existence of deprivation and misery that is almost certainly worse than they ever knew, however difficult their times past, before the advent of industrial society.

And even the billion whose living standards use up what is effectively 100 percent of the world’s available resources each year to maintain, and who might be therefore assumed to be happy as a result, do not in fact seem to be so. No social indices in any advanced society suggest that people are more content than they were a generation ago, various surveys indicate that the “misery quotient” in most countries has increased, and considerable real-world evidence (such as rising rates of mental illness, drugs, crime, divorce, and depression) argues that the results of material enrichment have not included much individual happiness.

Indeed, on a larger scale, almost all that Progress was supposed to achieve has failed to come about, despite the immense amount of money and technology devoted to its cause. Virtually all of the dreams that have adorned it over the years, particularly in its most robust stages in the late 19th century and in the past twenty years of computerdom, have dissipated as utopian fancies - those that have not, like nuclear power, chemical agriculture, manifest destiny, and the welfare state, turned into nightmares. Progress has not, even in this most progressive nation, eliminated poverty (numbers of poor have increased and real income has declined for 25 years), or drudgery (hours of employment have increased, as has work within the home, for both sexes), or ignorance (literacy rates have declined for fifty years, test scores have declined), or disease (hospitalization, illness, and death rates have all increased since 1980).

It seems quite simple: beyond prosperity and longevity, and those limited to a minority, and each with seriously damaging environmental consequences, progress does not have a great deal going for it. For its adherents, of course, it is probably true that it doesn’t have to; because it is sufficient that wealth is meritorious and affluence desirable and longer life positive. The terms of the game for them are simple: material betterment for as many as possible, as fast as possible, and nothing else, certainly not considerations of personal morality or social cohesion or spiritual depth or participatory government, seems much to matter.

But the Objective Observer is not so narrow, and is able to see how deep and deadly are the shortcomings of such a view. The Objective Observer could only conclude that since the fruits of Progress are so meager, the price by which they have been won is far too high, in social, economic, political, and environmental terms, and that neither societies nor ecosystems of the world will be able to bear the cost for more than a few decades longer, if they have not already been damaged beyond redemption.

Herbert Read, the British philosopher and critic, once wrote that “only a people serving an apprenticeship to nature can be trusted with machines.” It is a profound insight, and he underscored it by adding that “only such people will so contrive and control those machines that their products are an enhancement of biological needs, and not a denial of them.”

An apprenticeship to nature - now there’s a myth a stable and durable society could live by.

Columbus exposed as iron-fisted tyrant who tortured his slaves

Christopher Columbus was a despot who ruled his subjects with an iron fist, according to documents which have emerged 500 years after his death.

The man who discovered America for Europe routinely tortured slaves and starved his subjects in colonies on the Caribbean island of Hispaniola.

Columbus was known to have mistreated native people when he was viceroy in Santo Domingo, the capital of today's Dominican Republic, at the end of the 15th century. But until now it had been put down to his lack of political sensitivity.

The documents suggest a hidden face to the man who, after arriving in the Caribbean in 1492, fell from grace eight years later because of his conduct in Santo Domingo. In 1500, Columbus was brought back from the city as a prisoner on the orders of the Spanish monarchs, Ferdinand and Isabella, to stand trial.

Statements from 23 witnesses at his trial were uncovered at the archive of Simanacas, near Valladolid, by an archivist, Isabel Aguirre, who spent a year transcribing them.

Consuelo Varela, a historian in Seville, has studied the documents and believes it is the most important discovery about Columbus's life for a century. Her research, which appears in La Caida de Cristobal Colon (The Fall of Christopher Columbus), reveals the brutal life in the first colony which Columbus set up.

Varela told the Spanish daily El Pais: "Life in the colony in these first seven years was hard and terrible. There was a great deal of hunger, envy, rancour and rumours of all sorts. It was a primitive, insular life, rather like what we see in Western films."She said people, including white Spanish slaves, were auctioned in the main square of Santo Domingo. "We hear of a poor boy who was caught stealing wheat grain. They cut off his ears and nose and put shackles on him and made him a slave. Columbus ran the colony with an iron fist.

"One woman happened to say that Columbus came from a working-class family and that his father had been a weaver. Columbus's brother Bartholme had her tongue cut out, after parading her naked through the streets on a donkey. Christopher congratulated his brother on defending the family honour."

There were many attempts at mutiny in the colony, she said.

The 46-page document shows Columbus and his brothers Bartolme and Diego as tyrants who ruled through summary justice. They also forbade natives from baptism so they could used as slaves. Varela said the documents showed Columbus's "immense greed". He was eventually arrested, tried and dismissed as viceroy of Santo Domingo and governor of the Indies.

"Now we know why he was removed from office and the good reasons for it," she said. "Nobody likes to air dirty laundry, but this is what the document shows."

The exposure has already provoked an angry reaction. Critics say some of the accounts may have come from enemies of Columbus, who were out to damage his reputation. But other accounts come from members of his own close group, even trusted friends. "Even they told of the atrocities that happened," said Varela. "Columbus's government was tyrannical, with no trials or anything similar."

The revelations come as the world marks the 500th anniversary of Columbus' death in 1506. DNA investigations on his descendants are under way in several countries finally to pinpoint the explorer's birthplace, usually attributed to Genoa in Italy. A result is expected later this year.

KILDE/SOURCE

mandag den 13. oktober 2008

Wall Street Bailout Won’t Do Much to Help Ailing Economy by Mark Weisbrot

[Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan.]

It is now clear the approval by Congress of President Bush’s $700 bailout package on Friday October 3rd has done nothing to ease the current financial crisis. Credit markets have worsened for several days after the bill passed the Congress. The stock market also plummeted to nearly ten-year lows.

So much for dire warnings from the Bush Administration that Congress was risking a Great Depression if it did not quickly fork over the dough. The bailout’s supporters said Congress had to do something to unfreeze the credit markets. It didn’t work.

There is a basic misunderstanding of the current financial crisis and economic recession that is widespread. Most people think that the current economic downturn – which will be officially designated a recession some time in the near future – is the result of the financial crisis. But this is not true. The current recession is mainly the result of a collapsing housing bubble. This bubble of more than $8 trillion dollars accumulated between 1996-2006, and it is only about 60 percent deflated so far. This means that even if all the problems in the financial system were miraculously solved tomorrow, the United States would still be facing a serious recession.

Of course the financial crisis can make this worse, as financial institutions cut back on lending and short-term interest rates for commercial borrowing rise. And we are indeed facing a serious financial crisis. But the bailout package is a wasteful and inefficient way of dealing with the problem of banks holding bad debt, mostly related to mortgages gone sour in the housing bust. It enables the U.S. Treasury Department to buy up “troubled assets” – mostly mortgage-related securities – from financial institutions, at prices that will likely be much higher than they are worth.

Economists across the political spectrum saw this as a wasteful and inefficient way to fill holes in banks’ balance sheets. Ordinary citizens and taxpayers saw the bailout as an enormous rip-off, and flooded Congress with phone calls, defeating the bailout on its first vote.

Indeed, the most important ways that our government is currently holding the financial crisis in check do not involve overpaying banks for bad assets. The Federal Reserve and U.S. Treasury have intervened repeatedly to pour liquidity into the banking system. They have agreed to federally insure $3.4 trillion of money market mutual funds held by millions of Americans. This week the Fed created a new facility to buy commercial paper, the short-term debt issued by banks and corporations, where lending has been shrinking. The Federal takeover of Fannie Mae and Freddie Mac, and the nation’s largest insurer, were also necessary to preserve the stability of the financial system.

All this is just the beginning of cleaning up the mess that has resulted from a de-regulated and un-regulated financial system gone wild. The government will have to take over more insolvent financial institutions and provide capital to others. It will have to take steps to help homeowners, to minimize foreclosures and evictions. And it will need to provide the largest fiscal stimulus package since the Great Depression, to prevent this recession from dragging on for years. The worst part about the bailout is that some politicians will say we can’t afford the necessary stimulus because we just added $700 billion to the national debt.

Americans will have to fight for measures that protect the public interest, not the interests of those who made this mess. Treasury Secretary Henry Paulson made $163 million as CEO of Goldman Sachs in 2006. Now he and his former colleagues at Goldman are running the Wall Street bailout.

During the Asian financial crisis ten years ago, there was an expression for this kind of system: “crony capitalism.”

Reversal of Fortune

Describing how ideology, special-interest pressure, populist politics, and sheer incompetence have left the U.S. economy on life support, the author puts forth a clear, commonsense plan to reverse the Bush-era follies and regain America’s economic sanity.

by Joseph E. Stiglitz November 2008

When the American economy enters a downturn, you often hear the experts debating whether it is likely to be V-shaped (short and sharp) or U-shaped (longer but milder). Today, the American economy may be entering a downturn that is best described as L-shaped. It is in a very low place indeed, and likely to remain there for some time to come.

Virtually all the indicators look grim. Inflation is running at an annual rate of nearly 6 percent, its highest level in 17 years. Unemployment stands at 6 percent; there has been no net job growth in the private sector for almost a year. Housing prices have fallen faster than at any time in memory—in Florida and California, by 30 percent or more. Banks are reporting record losses, only months after their executives walked off with record bonuses as their reward. President Bush inherited a $128 billion budget surplus from Bill Clinton; this year the federal government announced the second-largest budget deficit ever reported. During the eight years of the Bush administration, the national debt has increased by more than 65 percent, to nearly $10 trillion (to which the debts of Freddie Mac and Fannie Mae should now be added, according to the Congressional Budget Office). Meanwhile, we are saddled with the cost of two wars. The price tag for the one in Iraq alone will, by my estimate, ultimately exceed $3 trillion.
Joseph E. Stiglitz

The $3 Trillion War, April 2008 (with Linda J. Bilmes)

The Economic Consequences of Mr. Bush, December 2007

This tangled knot of problems will be difficult to unravel. Standard prescriptions call for raising interest rates when confronted with inflation, just as standard prescriptions call for lowering interest rates when confronted with an economic downturn. How do you do both at the same time? Not in the way that some politicians have proposed. With gasoline prices at all-time highs, John McCain has called for a rollback of gas taxes. But that would lead to more gas consumption, raise the price of gas further, increase our dependence on foreign oil, and expand our already massive trade deficit. The expanding deficit would in turn force the U.S. to continue borrowing gargantuan sums from abroad, making us even more indebted. At the same time, the higher imports of oil and petroleum-based products would lead to a weaker dollar, fueling inflationary pressures.

Millions of Americans are losing their homes. (Already, some 3.6 million have done so since the subprime-mortgage crisis began.) This social catastrophe has severe economic effects. The banks and other financial institutions that own these mortgages face stunning reverses; a few, such as Bear Stearns, have already gone belly-up. To prevent America’s $5.2 trillion home financiers, Fannie Mae and Freddie Mac, from following suit, Congress authorized a blank check to cover their losses, but even that generosity failed to do the trick. Now the administration has taken over the two entities completely, a stunning feat for a supposedly market-oriented regime. These bailouts contribute to growing deficits in the short run, and to perverse incentives in the long run. Market economies work only when there is a system of accountability, but C.E.O.’s, investors, and creditors are walking away with billions, while American taxpayers are being asked to pick up the tab. (Freddie Mac’s chairman, Richard Syron, earned $14.5 million in 2007. Fannie Mae’s C.E.O., Daniel Mudd, earned $14.2 million that same year.) We’re looking at a new form of public-private partnership, one in which the public shoulders all the risk, and the private sector gets all the profit. While the Bush administration preaches responsibility, the words are addressed only to the less well-off. The administration talks about the impact of “moral hazard” on the poor “speculator” who borrowed money and bought a house beyond his ability to pay. But moral hazard somehow isn’t an issue when it comes to the high-stakes speculators in corporate boardrooms.
How Did We Get into This Mess?

A unique combination of ideology, special-interest pressure, populist politics, bad economics, and sheer incompetence has brought us to our present condition.

Ideology proclaimed that markets were always good and government always bad. While George W. Bush has done as much as he can to ensure that government lives up to that reputation—it is the one area where he has overperformed—the fact is that key problems facing our society cannot be addressed without an effective government, whether it’s maintaining national security or protecting the environment. Our economy rests on public investments in technology, such as the Internet. While Bush’s ideology led him to underestimate the importance of government, it also led him to underestimate the limitations of markets. We learned from the Depression that markets are not self-adjusting—at least, not in a time frame that matters to living people. Today everyone—even the president—accepts the need for macro-economic policy, for government to try to maintain the economy at near-full employment. But in a sleight of hand, free-market economists promoted the idea that, once the economy was restored to full employment, markets would always allocate resources efficiently. The best regulation, in their view, was no regulation at all, and if that didn’t sell, then “self-regulation” was almost as good.

The underlying idea was, on the face of it, absurd: that market failures come only in macro doses, in the form of the recessions and depressions that have periodically plagued capitalist economies for the past several hundred years. Isn’t it more reasonable to assume that these failures are just the tip of the iceberg? That beneath the surface lie a myriad of smaller but harder-to-assess inefficiencies? Let me venture an analogy from biology: A patient arrives at a hospital in serious condition. Now, it may be that the patient has simply fallen victim to one of those debilitating ailments that go around from time to time and can be cured by a massive dose of antibiotics. In this case we have a macro problem with a macro solution. But it could instead be that the patient is suffering from a decade of serious abuse—smoking, drinking, overeating, lack of exercise, a fondness for crystal meth—and that it has not only taken a catastrophic toll but also left him open to opportunistic infections of every kind. In other words, a buildup of micro problems has led to a macro problem, and no cure is possible without addressing the underlying issues. The American economy today is a patient of the second kind.

We are in the midst of micro-economic failure on a grand scale. Financial markets receive generous compensation—in the form of more than 30 percent of all corporate profits—presumably for performing two critical tasks: allocating savings and managing risk. But the financial markets have failed laughably at both. Hundreds of billions of dollars were allocated to home loans beyond Americans’ ability to pay. And rather than managing risk, the financial markets created more risk. The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression.

Economic theory—and historical experience—long ago proved the need for regulation of financial markets. But ever since the Reagan presidency, deregulation has been the prevailing religion. Never mind that the few times “free banking” has been tried—most recently in Pinochet’s Chile, under the influence of the doctrinaire free-market theorist Milton Friedman—the experiment has ended in disaster. Chile is still paying back the debts from its misadventure. With massive problems in 1987 (remember Black Friday, when stock markets plunged almost 25 percent), 1989 (the savings-and-loan debacle), 1997 (the East Asia financial crisis), 1998 (the bailout of Long Term Capital Management), and 2001–02 (the collapses of Enron and WorldCom), one might think there would be more skepticism about the wisdom of leaving markets to themselves.

The new populist rhetoric of the right—persuading taxpayers that ordinary people always know how to spend money better than the government does, and promising a new world without budget constraints, where every tax cut generates more revenue—hasn’t helped matters. Special interests took advantage of this seductive mixture of populism and free-market ideology. They also bent the rules to suit themselves. Corporations and the wealthy argued that lowering their tax rates would lead to more savings; they got the tax breaks, but America’s household savings rate not only didn’t rise, it dropped to levels not seen in 75 years. The Bush administration extolled the power of the free market, but it was more than willing to provide generous subsidies to farmers and erect tariffs to protect steelmakers. Lately, as we have seen, it seems willing to write blank checks to bail out its friends on Wall Street. In each of these cases there are clear winners. And in each there are clear losers—including the country as a whole.
What Is to Be Done?

As America attempts to work its way out of the present crisis, the danger is that we will listen to the same people on Wall Street and in the economic establishment who got us into it. For them, our current predicament is another opportunity: if they can shape the government response appropriately, they stand to gain, or at least stand to lose less, and they may be willing to sacrifice the well-being of the economy for their own benefit—just as they did in the past.

There are a number of economic tools at the country’s disposal. As noted, they can yield contradictory results. The sad truth is that we have reached the limits of monetary policy. Lowering interest rates will not stimulate the economy much—banks are not going to be willing to lend to strapped consumers, and consumers are not going to be willing to borrow as they see housing prices continue to fall. And raising interest rates, to combat inflation, won’t have the desired impact either, because the prices that are the main sources of our inflation—for food and energy—are determined in international markets; the chief consequence will be distress for ordinary people. The quandaries that we face mean that careful balancing is required. There is no quick and easy fix. But if we take decisive action today, we can shorten the length of the downturn and reduce its magnitude. If at the same time we think about what would be good for the economy in the long run, we can build a durable foundation for economic health.

To go back to that patient in the emergency room: we need to address the underlying causes. Most of the treatment options entail painful choices, but there are a few easy ones. On energy: conservation and research into new technologies will make us less dependent on foreign oil, reduce our trade imbalance, and help the environment. Expanding drilling into environmentally fragile areas, as some propose, would have a negligible effect on the price we pay for oil. Moreover, a policy of “drain America first” will make us more dependent on foreigners in the future. It is shortsighted in every dimension.

Our ethanol policy is also bad for the taxpayer, bad for the environment, bad for the world and our relations with other countries, and bad in terms of inflation. It is good only for the ethanol producers and American corn farmers. It should be scrapped. We currently subsidize corn-based ethanol by almost $1 a gallon, while imposing a 54-cent-a-gallon tariff on Brazilian sugar-based ethanol. It would be hard to invent a worse policy. The ethanol industry tries to sell itself as an infant, needing help to get on its feet, but it has been an infant for more than two decades, refusing to grow up. Our misguided biofuel policy is taking land used for food production and diverting it to energy production for cars; it is the single most important factor contributing to higher grain prices.

Our tax policies need to be changed. There is something deeply peculiar about having rich individuals who make their money speculating on real estate or stocks paying lower taxes than middle-class Americans, whose income is derived from wages and salaries; something peculiar and indeed offensive about having those whose income is derived from inherited stocks paying lower taxes than those who put in a 50-hour workweek. Skewing the tax rates in the other direction would provide better incentives where they count and would more effectively stimulate the economy, with more revenues and lower deficits.

We can have a financial system that is more stable—and even more dynamic—with stronger regulation. Self-regulation is an oxymoron. Financial markets produced loans and other products that were so complex and insidious that even their creators did not fully understand them; these products were so irresponsible that analysts called them “toxic.” Yet financial markets failed to create products that would enable ordinary households to face the risks they confront and stay in their homes. We need a financial-products safety commission and a financial-systems stability commission. And they can’t be run by Wall Street. The Federal Reserve Board shares too much of the mind-set of those it is supposed to regulate. It could and should have known that something was wrong. It had instruments at its disposal to let the air out of the bubble—or at least ensure that the bubble didn’t over-expand. But it chose to do nothing.

Throwing the poor out of their homes because they can’t pay their mortgages is not only tragic—it is pointless. All that happens is that the property deteriorates and the evicted people move somewhere else. The most coldhearted banker ought to understand the basic economics: banks lose money when they foreclose—the vacant homes typically sell for far less than they would if they were lived in and cared for. If banks won’t renegotiate, we should have an expedited special bankruptcy procedure, akin to what we do for corporations in Chapter 11, allowing people to keep their homes and re-structure their finances.

If this sounds too much like coddling the irresponsible, remember that there are two sides to every mortgage—the lender and the borrower. Both enter freely into the deal. One might say that both are, accordingly, equally responsible. But one side—the lender—is supposed to be financially sophisticated. In contrast, the borrowers in the subprime market consist mainly of people who are financially unsophisticated. For many, their home is their only asset, and when they lose it, they lose their life savings. Remember, too, that we already give big homeowner subsidies, through the tax system, to affluent families. With tax deductions, the government is paying in some states almost half of all mortgage interest and real-estate taxes. But many lower-income people, whose deductions are meaningless because their tax bill is too small, get no help. It makes much more sense to convert these tax deductions into cashable tax credits, so that the fraction of housing costs borne by the government for the poor and the rich is the same.

About these matters there should be no debate—but there will be. Already, those on Wall Street are arguing that we have to be careful not to “over-react.” Over-reaction, we are told, might stifle “innovation.” Well, some innovations ought to be stifled. Those toxic mortgages were certainly innovative. Other innovations were simply devices to circumvent regulations—regulations intended to prevent the kinds of problems from which our economy now suffers. Some of the innovations were designed to tart up the bottom line, moving liabilities off the balance sheet—charades designed to blur the information available to investors and regulators. They succeeded: the full extent of the exposure was not clear, and still isn’t. But there is a reason we need reliable accounting. Without good information it is hard to make good economic decisions. In short, some innovations come with very high price tags. Some can actually cause instability.

The free-market fundamentalists—who believe in the miracles of markets—have not been averse to accepting government bailouts. Indeed, they have demanded them, warning that unless they get what they want the whole system may crash. What politician wants to be blamed for the next Great Depression, simply because he stood on principle? I have been critical of weak anti-trust policies that allowed certain institutions to become so dominant that they are “too big to fail.” The harsh reality is that, given how far we’ve come, we will see more bailouts in the days ahead. Now that Fannie Mae and Freddie Mac are in federal receivership, we must insist: not a dime of taxpayer money should be put at risk while shareholders and creditors, who failed to oversee management, are permitted to walk away with anything they please. To do otherwise would invite a recurrence. Moreover, while these institutions may be too big to fail, they’re not too big to be reorganized. And we need to remember why we’re bailing them out: in order to maintain a flow of money into mortgage markets. It’s outrageous that these institutions are responding to their near-monopoly position by raising fees and increasing the costs of mortgages, which will only worsen the housing crisis. They, and the financial markets, have shown little interest in measures that could help millions of existing and potential homeowners out of the bind they’re in.

The hardest puzzles will be in monetary policy (balancing the risks of inflation and the risk of a deeper downturn) and fiscal policy (balancing the risk of a deeper downturn and the risk of an exploding deficit). The standard analysis coming from financial markets these days is that inflation is the greatest threat, and therefore we need to raise interest rates and cut deficits, which will restore confidence and thereby restore the economy. This is the same bad economics that didn’t work in East Asia in 1997 and didn’t work in Russia and Brazil in 1998. Indeed, it is the same recipe prescribed by Herbert Hoover in 1929.

It is a recipe, moreover, that would be particularly hard on working people and the poor. Higher interest rates dampen inflation by cutting back so sharply on aggregate demand that the unemployment rate grows and wages fall. Eventually, prices fall, too. As noted, the cause of our inflation today is largely imported—it comes from global food and energy prices, which are hard to control. To curb inflation therefore means that the price of everything else needs to fall drastically to compensate, which means that unemployment would also have to rise drastically.

In addition, this is not the time to turn to the old-time fiscal religion. Confidence in the economy won’t be restored as long as growth is low, and growth will be low if investment is anemic, consumption weak, and public spending on the wane. Under these circumstances, to mindlessly cut taxes or reduce government expenditures would be folly.

But there are ways of thoughtfully shaping policy that can walk a fine line and help us get out of our current predicament. Spending money on needed investments—infrastructure, education, technology—will yield double dividends. It will increase incomes today while laying the foundations for future employment and economic growth. Investments in energy efficiency will pay triple dividends—yielding environmental benefits in addition to the short- and long-run economic benefits.
Joseph E. Stiglitz

The $3 Trillion War, April 2008 (with Linda J. Bilmes)

The Economic Consequences of Mr. Bush, December 2007

The federal government needs to give a hand to states and localities—their tax revenues are plummeting, and without help they will face costly cutbacks in investment and in basic human services. The poor will suffer today, and growth will suffer tomorrow. The big advantage of a program to make up for the shortfall in the revenues of states and localities is that it would provide money in the amounts needed: if the economy recovers quickly, the shortfall will be small; if the downturn is long, as I fear will be the case, the shortfall will be large.

These measures are the opposite of what the administration—along with the Republican presidential nominee, John McCain—has been urging. It has always believed that tax cuts, especially for the rich, are the solution to the economy’s ills. In fact, the tax cuts in 2001 and 2003 set the stage for the current crisis. They did virtually nothing to stimulate the economy, and they left the burden of keeping the economy on life support to monetary policy alone. America’s problem today is not that households consume too little; on the contrary, with a savings rate barely above zero, it is clear we consume too much. But the administration hopes to encourage our spendthrift ways.

What has happened to the American economy was avoidable. It was not just that those who were entrusted to maintain the economy’s safety and soundness failed to do their job. There were also many who benefited handsomely by ensuring that what needed to be done did not get done. Now we face a choice: whether to let our response to the nation’s woes be shaped by those who got us here, or to seize the opportunity for fundamental reforms, striking a new balance between the market and government.

Joseph E. Stiglitz, a Nobel Prize–winning economist, is a professor at Columbia University.

The Economic Consequences of Mr. Bush


The next president will have to deal with yet another crippling legacy of George W. Bush: the economy. A Nobel laureate, Joseph E. Stiglitz, sees a generation-long struggle to recoup.


by Joseph E. Stiglitz December 2007

The American economy can take a lot of abuse, but no economy is invincible. Illustration by Edward Sorel.

When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.

I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.

And it gets worse. After almost seven years of this president, the United States is less prepared than ever to face the future. We have not been educating enough engineers and scientists, people with the skills we will need to compete with China and India. We have not been investing in the kinds of basic research that made us the technological powerhouse of the late 20th century. And although the president now understands—or so he says—that we must begin to wean ourselves from oil and coal, we have on his watch become more deeply dependent on both.

Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle “worst president” when it comes to stewardship of the American economy. Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover. The economic effects of Bush’s presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America’s being displaced from its position as the world’s richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush.
Remember the Surplus?

The world was a very different place, economically speaking, when George W. Bush took office, in January 2001. During the Roaring 90s, many had believed that the Internet would transform everything. Productivity gains, which had averaged about 1.5 percent a year from the early 1970s through the early 90s, now approached 3 percent. During Bill Clinton’s second term, gains in manufacturing productivity sometimes even surpassed 6 percent. The Federal Reserve chairman, Alan Greenspan, spoke of a New Economy marked by continued productivity gains as the Internet buried the old ways of doing business. Others went so far as to predict an end to the business cycle. Greenspan worried aloud about how he’d ever be able to manage monetary policy once the nation’s debt was fully paid off.

This tremendous confidence took the Dow Jones index higher and higher. The rich did well, but so did the not-so-rich and even the downright poor. The Clinton years were not an economic Nirvana; as chairman of the president’s Council of Economic Advisers during part of this time, I’m all too aware of mistakes and lost opportunities. The global-trade agreements we pushed through were often unfair to developing countries. We should have invested more in infrastructure, tightened regulation of the securities markets, and taken additional steps to promote energy conservation. We fell short because of politics and lack of money—and also, frankly, because special interests sometimes shaped the agenda more than they should have. But these boom years were the first time since Jimmy Carter that the deficit was under control. And they were the first time since the 1970s that incomes at the bottom grew faster than those at the top—a benchmark worth celebrating.

By the time George W. Bush was sworn in, parts of this bright picture had begun to dim. The tech boom was over. The nasdaq fell 15 percent in the single month of April 2000, and no one knew for sure what effect the collapse of the Internet bubble would have on the real economy. It was a moment ripe for Keynesian economics, a time to prime the pump by spending more money on education, technology, and infrastructure—all of which America desperately needed, and still does, but which the Clinton administration had postponed in its relentless drive to eliminate the deficit. Bill Clinton had left President Bush in an ideal position to pursue such policies. Remember the presidential debates in 2000 between Al Gore and George Bush, and how the two men argued over how to spend America’s anticipated $2.2 trillion budget surplus? The country could well have afforded to ramp up domestic investment in key areas. In fact, doing so would have staved off recession in the short run while spurring growth in the long run.

But the Bush administration had its own ideas. The first major economic initiative pursued by the president was a massive tax cut for the rich, enacted in June of 2001. Those with incomes over a million got a tax cut of $18,000—more than 30 times larger than the cut received by the average American. The inequities were compounded by a second tax cut, in 2003, this one skewed even more heavily toward the rich. Together these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.

The administration crows that the economy grew—by some 16 percent—during its first six years, but the growth helped mainly people who had no need of any help, and failed to help those who need plenty. A rising tide lifted all yachts. Inequality is now widening in America, and at a rate not seen in three-quarters of a century. A young male in his 30s today has an income, adjusted for inflation, that is 12 percent less than what his father was making 30 years ago. Some 5.3 million more Americans are living in poverty now than were living in poverty when Bush became president. America’s class structure may not have arrived there yet, but it’s heading in the direction of Brazil’s and Mexico’s.
The Bankruptcy Boom

In breathtaking disregard for the most basic rules of fiscal propriety, the administration continued to cut taxes even as it undertook expensive new spending programs and embarked on a financially ruinous “war of choice” in Iraq. A budget surplus of 2.4 percent of gross domestic product (G.D.P.), which greeted Bush as he took office, turned into a deficit of 3.6 percent in the space of four years. The United States had not experienced a turnaround of this magnitude since the global crisis of World War II.

Agricultural subsidies were doubled between 2002 and 2005. Tax expenditures—the vast system of subsidies and preferences hidden in the tax code—increased more than a quarter. Tax breaks for the president’s friends in the oil-and-gas industry increased by billions and billions of dollars. Yes, in the five years after 9/11, defense expenditures did increase (by some 70 percent), though much of the growth wasn’t helping to fight the War on Terror at all, but was being lost or outsourced in failed missions in Iraq. Meanwhile, other funds continued to be spent on the usual high-tech gimcrackery—weapons that don’t work, for enemies we don’t have. In a nutshell, money was being spent everyplace except where it was needed. During these past seven years the percentage of G.D.P. spent on research and development outside defense and health has fallen. Little has been done about our decaying infrastructure—be it levees in New Orleans or bridges in Minneapolis. Coping with most of the damage will fall to the next occupant of the White House.

Although it railed against entitlement programs for the needy, the administration enacted the largest increase in entitlements in four decades—the poorly designed Medicare prescription-drug benefit, intended as both an election-season bribe and a sop to the pharmaceutical industry. As internal documents later revealed, the true cost of the measure was hidden from Congress. Meanwhile, the pharmaceutical companies received special favors. To access the new benefits, elderly patients couldn’t opt to buy cheaper medications from Canada or other countries. The law also prohibited the U.S. government, the largest single buyer of prescription drugs, from negotiating with drug manufacturers to keep costs down. As a result, American consumers pay far more for medications than people elsewhere in the developed world.

You’ll still hear some—and, loudly, the president himself—argue that the administration’s tax cuts were meant to stimulate the economy, but this was never true. The bang for the buck—the amount of stimulus per dollar of deficit—was astonishingly low. Therefore, the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. In real terms, taking inflation into account, interest rates actually dropped to negative 2 percent. The predictable result was a consumer spending spree. Looked at another way, Bush’s own fiscal irresponsibility fostered irresponsibility in everyone else. Credit was shoveled out the door, and subprime mortgages were made available to anyone this side of life support. Credit-card debt mounted to a whopping $900 billion by the summer of 2007. “Qualified at birth” became the drunken slogan of the Bush era. American households took advantage of the low interest rates, signed up for new mortgages with “teaser” initial rates, and went to town on the proceeds.

All of this spending made the economy look better for a while; the president could (and did) boast about the economic statistics. But the consequences for many families would become apparent within a few years, when interest rates rose and mortgages proved impossible to repay. The president undoubtedly hoped the reckoning would come sometime after 2008. It arrived 18 months early. As many as 1.7 million Americans are expected to lose their homes in the months ahead. For many, this will mean the beginning of a downward spiral into poverty.

Between March 2006 and March 2007 personal-bankruptcy rates soared more than 60 percent. As families went into bankruptcy, more and more of them came to understand who had won and who had lost as a result of the president’s 2005 bankruptcy bill, which made it harder for individuals to discharge their debts in a reasonable way. The lenders that had pressed for “reform” had been the clear winners, gaining added leverage and protections for themselves; people facing financial distress got the shaft.
And Then There’s Iraq

The war in Iraq (along with, to a lesser extent, the war in Afghanistan) has cost the country dearly in blood and treasure. The loss in lives can never be quantified. As for the treasure, it’s worth calling to mind that the administration, in the run-up to the invasion of Iraq, was reluctant to venture an estimate of what the war would cost (and publicly humiliated a White House aide who suggested that it might run as much as $200 billion). When pressed to give a number, the administration suggested $50 billion—what the United States is actually spending every few months. Today, government figures officially acknowledge that more than half a trillion dollars total has been spent by the U.S. “in theater.” But in fact the overall cost of the conflict could be quadruple that amount—as a study I did with Linda Bilmes of Harvard has pointed out—even as the Congressional Budget Office now concedes that total expenditures are likely to be more than double the spending on operations. The official numbers do not include, for instance, other relevant expenditures hidden in the defense budget, such as the soaring costs of recruitment, with re-enlistment bonuses of as much as $100,000. They do not include the lifetime of disability and health-care benefits that will be required by tens of thousands of wounded veterans, as many as 20 percent of whom have suffered devastating brain and spinal injuries. Astonishingly, they do not include much of the cost of the equipment that has been used in the war, and that will have to be replaced. If you also take into account the costs to the economy from higher oil prices and the knock-on effects of the war—for instance, the depressing domino effect that war-fueled uncertainty has on investment, and the difficulties U.S. firms face overseas because America is the most disliked country in the world—the total costs of the Iraq war mount, even by a conservative estimate, to at least $2 trillion. To which one needs to add these words: so far.

It is natural to wonder, What would this money have bought if we had spent it on other things? U.S. aid to all of Africa has been hovering around $5 billion a year, the equivalent of less than two weeks of direct Iraq-war expenditures. The president made a big deal out of the financial problems facing Social Security, but the system could have been repaired for a century with what we have bled into the sands of Iraq. Had even a fraction of that $2 trillion been spent on investments in education and technology, or improving our infrastructure, the country would be in a far better position economically to meet the challenges it faces in the future, including threats from abroad. For a sliver of that $2 trillion we could have provided guaranteed access to higher education for all qualified Americans.

The soaring price of oil is clearly related to the Iraq war. The issue is not whether to blame the war for this but simply how much to blame it. It seems unbelievable now to recall that Bush-administration officials before the invasion suggested not only that Iraq’s oil revenues would pay for the war in its entirety—hadn’t we actually turned a tidy profit from the 1991 Gulf War?—but also that war was the best way to ensure low oil prices. In retrospect, the only big winners from the war have been the oil companies, the defense contractors, and al-Qaeda. Before the war, the oil markets anticipated that the then price range of $20 to $25 a barrel would continue for the next three years or so. Market players expected to see more demand from China and India, sure, but they also anticipated that this greater demand would be met mostly by increased production in the Middle East. The war upset that calculation, not so much by curtailing oil production in Iraq, which it did, but rather by heightening the sense of insecurity everywhere in the region, suppressing future investment.

The continuing reliance on oil, regardless of price, points to one more administration legacy: the failure to diversify America’s energy resources. Leave aside the environmental reasons for weaning the world from hydrocarbons—the president has never convincingly embraced them, anyway. The economic and national-security arguments ought to have been powerful enough. Instead, the administration has pursued a policy of “drain America first”—that is, take as much oil out of America as possible, and as quickly as possible, with as little regard for the environment as one can get away with, leaving the country even more dependent on foreign oil in the future, and hope against hope that nuclear fusion or some other miracle will come to the rescue. So many gifts to the oil industry were included in the president’s 2003 energy bill that John McCain referred to it as the “No Lobbyist Left Behind” bill.
Contempt for the World

America’s budget and trade deficits have grown to record highs under President Bush. To be sure, deficits don’t have to be crippling in and of themselves. If a business borrows to buy a machine, it’s a good thing, not a bad thing. During the past six years, America—its government, its families, the country as a whole—has been borrowing to sustain its consumption. Meanwhile, investment in fixed assets—the plants and equipment that help increase our wealth—has been declining.

What’s the impact of all this down the road? The growth rate in America’s standard of living will almost certainly slow, and there could even be a decline. The American economy can take a lot of abuse, but no economy is invincible, and our vulnerabilities are plain for all to see. As confidence in the American economy has plummeted, so has the value of the dollar—by 40 percent against the euro since 2001.

The disarray in our economic policies at home has parallels in our economic policies abroad. President Bush blamed the Chinese for our huge trade deficit, but an increase in the value of the yuan, which he has pushed, would simply make us buy more textiles and apparel from Bangladesh and Cambodia instead of China; our deficit would remain unchanged. The president claimed to believe in free trade but instituted measures aimed at protecting the American steel industry. The United States pushed hard for a series of bilateral trade agreements and bullied smaller countries into accepting all sorts of bitter conditions, such as extending patent protection on drugs that were desperately needed to fight aids. We pressed for open markets around the world but prevented China from buying Unocal, a small American oil company, most of whose assets lie outside the United States.

Not surprisingly, protests over U.S. trade practices erupted in places such as Thailand and Morocco. But America has refused to compromise—refused, for instance, to take any decisive action to do away with our huge agricultural subsidies, which distort international markets and hurt poor farmers in developing countries. This intransigence led to the collapse of talks designed to open up international markets. As in so many other areas, President Bush worked to undermine multilateralism—the notion that countries around the world need to cooperate—and to replace it with an America-dominated system. In the end, he failed to impose American dominance—but did succeed in weakening cooperation.

The administration’s basic contempt for global institutions was underscored in 2005 when it named Paul Wolfowitz, the former deputy secretary of defense and a chief architect of the Iraq war, as president of the World Bank. Widely distrusted from the outset, and soon caught up in personal controversy, Wolfowitz became an international embarrassment and was forced to resign his position after less than two years on the job.

Globalization means that America’s economy and the rest of the world have become increasingly interwoven. Consider those bad American mortgages. As families default, the owners of the mortgages find themselves holding worthless pieces of paper. The originators of these problem mortgages had already sold them to others, who packaged them, in a non-transparent way, with other assets, and passed them on once again to unidentified others. When the problems became apparent, global financial markets faced real tremors: it was discovered that billions in bad mortgages were hidden in portfolios in Europe, China, and Australia, and even in star American investment banks such as Goldman Sachs and Bear Stearns. Indonesia and other developing countries—innocent bystanders, really—suffered as global risk premiums soared, and investors pulled money out of these emerging markets, looking for safer havens. It will take years to sort out this mess.

Meanwhile, we have become dependent on other nations for the financing of our own debt. Today, China alone holds more than $1 trillion in public and private American I.O.U.’s. Cumulative borrowing from abroad during the six years of the Bush administration amounts to some $5 trillion. Most likely these creditors will not call in their loans—if they ever did, there would be a global financial crisis. But there is something bizarre and troubling about the richest country in the world not being able to live even remotely within its means. Just as Guantánamo and Abu Ghraib have eroded America’s moral authority, so the Bush administration’s fiscal housekeeping has eroded our economic authority.
The Way Forward

Whoever moves into the White House in January 2009 will face an unenviable set of economic circumstances. Extricating the country from Iraq will be the bloodier task, but putting America’s economic house in order will be wrenching and take years.

The most immediate challenge will be simply to get the economy’s metabolism back into the normal range. That will mean moving from a savings rate of zero (or less) to a more typical savings rate of, say, 4 percent. While such an increase would be good for the long-term health of America’s economy, the short-term consequences would be painful. Money saved is money not spent. If people don’t spend money, the economic engine stalls. If households curtail their spending quickly—as they may be forced to do as a result of the meltdown in the mortgage market—this could mean a recession; if done in a more measured way, it would still mean a protracted slowdown. The problems of foreclosure and bankruptcy posed by excessive household debt are likely to get worse before they get better. And the federal government is in a bind: any quick restoration of fiscal sanity will only aggravate both problems.

And in any case there’s more to be done. What is required is in some ways simple to describe: it amounts to ceasing our current behavior and doing exactly the opposite. It means not spending money that we don’t have, increasing taxes on the rich, reducing corporate welfare, strengthening the safety net for the less well off, and making greater investment in education, technology, and infrastructure.

When it comes to taxes, we should be trying to shift the burden away from things we view as good, such as labor and savings, to things we view as bad, such as pollution. With respect to the safety net, we need to remember that the more the government does to help workers improve their skills and get affordable health care the more we free up American businesses to compete in the global economy. Finally, we’ll be a lot better off if we work with other countries to create fair and efficient global trade and financial systems. We’ll have a better chance of getting others to open up their markets if we ourselves act less hypocritically—that is, if we open our own markets to their goods and stop subsidizing American agriculture.

Some portion of the damage done by the Bush administration could be rectified quickly. A large portion will take decades to fix—and that’s assuming the political will to do so exists both in the White House and in Congress. Think of the interest we are paying, year after year, on the almost $4 trillion of increased debt burden—even at 5 percent, that’s an annual payment of $200 billion, two Iraq wars a year forever. Think of the taxes that future governments will have to levy to repay even a fraction of the debt we have accumulated. And think of the widening divide between rich and poor in America, a phenomenon that goes beyond economics and speaks to the very future of the American Dream.

In short, there’s a momentum here that will require a generation to reverse. Decades hence we should take stock, and revisit the conventional wisdom. Will Herbert Hoover still deserve his dubious mantle? I’m guessing that George W. Bush will have earned one more grim superlative.

Anya Schiffrin and Izzet Yildiz assisted with research for this article.

Joseph Stiglitz, a leading economic educator, is a professor at Columbia.