05/09 Paul Krugman: 1938 in 2010

By PAUL KRUGMAN
Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections.

The president in question is Franklin Delano Roosevelt; the year is 1938. Within a few years, of course, the Great Depression was over. But it’s both instructive and discouraging to look at the state of America circa 1938 — instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again.

Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out.

And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.

In short, welcome to 1938.

The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.

Consider Gallup polling from March 1938. Asked whether government spending should be increased to fight the slump, 63 percent of those polled said no. Asked whether it would be better to increase spending or to cut business taxes, only 15 percent favored spending; 63 percent favored tax cuts. And the 1938 election was a disaster for the Democrats, who lost 70 seats in the House and seven in the Senate.

Then came the war.

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.

The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

But the story of 1938 also shows how hard it is to apply these insights. Even under F.D.R., there was never the political will to do what was needed to end the Great Depression; its eventual resolution came essentially by accident.

I had hoped that we would do better this time. But it turns out that politicians and economists alike have spent decades unlearning the lessons of the 1930s, and are determined to repeat all the old mistakes. And it’s slightly sickening to realize that the big winners in the midterm elections are likely to be the very people who first got us into this mess, then did everything in their power to block action to get us out.

But always remember: this slump can be cured. All it will take is a little bit of intellectual clarity, and a lot of political will. Here’s hoping we find those virtues in the not too distant future.

Indonesians Go Home, by the Millions


Irwin Fedriansyah/Associated Press. Many Indonesians return home at the end of Ramadan for a holiday they call Lebaran. In Jakarta, people waited on Friday to board a ship bound for the island of Sulawesi.

September 6, 2010
By NORIMITSU ONISHI
JAKARTA, Indonesia — The exodus happens every year.


During the last days of Ramadan, the Islamic month of fasting, tens of millions of Indonesians leave the country’s cities to return to their villages by motorcycle, train, bus and boat.

The mass homecoming is both a decidedly Indonesian interpretation of the Muslim holiday and one of the world’s great movements of people. On a road network whose capacity is strained at the best of times, travelers brave enormous jams, exhaustion and bandits to make it back home. Hundreds perish on the road each year.

New arrivals to the cities or those with strong roots to rural Indonesia lead the exodus, which is called “mudik,” meaning “going home.” In Jakarta, the capital, businesses shut down, construction sites are stilled and wealthy households overly dependent on domestic help check into hotels while their maids, nannies and drivers are away.

At a bus terminal here, Ria Handayani, 19, and Puji Erawati, 20, cousins working as assistants and maids in the same household, waited to catch a bus for a nine-hour ride to their hometown in Central Java Province. Both were going home for the first time since an uncle had found them jobs here last year.

“I like Jakarta,” Ms. Handayani said. “I’ve made a lot of friends. We go to the malls and hang out at the park. But I really miss my family. I miss my dad and mom. I have five younger brothers and sisters.”

Ms. Handayani, who had finished junior high school, was helping some siblings through high school. She had sent home all of her first month’s salary — $50 — she said with a serious look on her face. She had also sent money each month, but two months ago she finally splurged on herself by buying an Indonesian-made Taxco smartphone for $40. “I use it to communicate on Facebook with my friends in my hometown,” she said, cradling her red phone in her left hand.

About 30 million people are expected to travel this year, most of them in Java and Sumatra, the main islands in Indonesia, which has a population of nearly 240 million. In Jakarta, a quarter of the city’s 10 million residents are expected to leave for mudik.

The annual homecoming is an integral part of how Indonesians celebrate what they call Lebaran — the Muslim holiday at the end of Ramadan known around the world as Id al-Fitr — by reconnecting with families, renewing themselves spiritually and asking for forgiveness. But beyond culture and religion, lopsided economic development favoring cities has driven urbanization and the growth of mudik.

“Indonesia’s economy has improved a lot, but there’s no balance,” said Irwan Hidayat, the chief executive of SidoMuncul, a large manufacturer of herbal drinks. “There’s no balance between cities and rural areas, no balance between rich and poor. That’s why mudik keeps getting bigger every year.”

In the 1990s, SidoMuncul became the first company to sponsor organized mudik convoys for its employees. This year, said Mr. Hidayat, 63, the company had chartered about 300 buses to send home more than 20,000 vendors of its products.

The annual exodus serves as one way for money to trickle down to Indonesia’s villages. At bus terminals here, hawkers of crisp rupiah bills sidled up to travelers who, according to custom, will be expected to distribute them to nephews and nieces back home.

Fuad and Ani, a couple waiting for a bus along with their three children, said relatives from their village had “pre-ordered” gifts, mostly clothes, from Jakarta.

Mr. Fuad, 39, a construction worker who uses only one name like many Indonesians, said he was the only member of his family to have left his village. He came to Jakarta in 1990 and met his wife, Ani, 34, here.

“Yes, there’s a lot of pressure going back home for mudik,” Mr. Fuad said, explaining that the trip this year was costing him about $660, or the equivalent of six weeks’ work. The family went back for mudik only every other year, he said, adding: “It’s too expensive.”

The pressure to give — and, perhaps even more important, the pressure to show off one’s success to those back home — was fueling business for pawn shops throughout Jakarta.

At a branch in south Jakarta of Pegadaian, the state-owned chain of pawnbrokers, the manager, Agus Helmi, said this time of the year was the busiest, along with the back-to-school season. While people pawned belongings to take out loans for the beginning of the school year, they reclaimed belongings, mostly jewelry, before the start of mudik.

“They’ve just received their annual bonuses from their employers, so they can come and get their jewelry,” said Mr. Helmi, who has worked for the pawnbroker for 32 years. “They want to wear it in the villages.”

“It’s in our tradition that we want to show off what we have accomplished in the big city,” he added.

But after the end of mudik, Mr. Helmi said, the same people often come to pawn the same pieces of jewelry.

The same kind of pressure was partly behind the popularity of the motorcycle, a way to get back home and a symbol of material success.

As many as 1.6 million people are expected to travel out of Jakarta on their motorcycles, typically small models made for short trips, despite the authorities’ attempts to ban their use for long-distance trips. More than 400 travelers died last year, most of them in motorcycle accidents. Each year, local news organizations report on infants dying, sometimes squeezed between their parents as entire families ride on one motorcycle.

Yamaha Motor Kencana Indonesia, a distributor of Yamaha motorcycles here, is organizing a convoy for some 3,000 Yamaha owners. Buses will transport the owners and the families to Central Java, joined by trucks carrying their motorcycles.

Early Sunday morning, Maman, 39, boarded the Yamaha-sponsored bus with his wife and son. Last year, he rode his motorcycle to his village for 12 hours.

Paulus S. Firmanto, a manager at Yamaha, said that as motorcycle sales kept rising sharply along with Indonesia’s booming economy, it was natural that motorcycles became the favorite way to go home for mudik.

“By riding their own motorcycle home, it shows they made some money in Jakarta,” he said.

“In the past, a motorbike would last eight years before an owner got bored with it — now not even five years,” he added. “Some of them are even embarrassed to bring back the same motorbike next Lebaran.”


Muktita Suhartono contributed reporting.

07/09 EU ngừng tìm kiếm cơ chế giải quyết khủng hoảng

Kết thúc cuộc họp ngày 6/9 ở Brussels, Bỉ, các bộ trưởng tài chính Liên minh châu Âu (EU) đã tiến gần hơn tới thỏa thuận về biện pháp trừng phạt những nước vi phạm Hiệp ước ổn định và tăng trưởng của tổ chức này.

Tuy nhiên, EU cũng nhất trí ngừng các cuộc thảo luận tìm kiếm cơ chế lâu dài để giải quyết các cuộc khủng hoảng có thể xảy ra trong Khu vực đồng tiền chung châu Âu (đồng euro) trong tương lai.

Phát biểu sau cuộc họp, Bộ trưởng Kinh tế, Tài chính và Việc làm Pháp Christine Lagarde cho biết EU đã đạt tiến bộ về vấn đề trừng phạt những nước vi phạm, nhưng chưa đi đến kết quả quan trọng nào để công bố tại giai đoạn hiện nay.

Ủy viên EU phụ trách vấn đề kinh tế và tiền tệ Olli Rehn khẳng định trừng phạt là vấn đề không cần bàn cãi, giống như trong thi đấu bóng đá. Ông nhấn mạnh "sẽ chẳng ích gì nếu các cầu thủ tranh luận với trọng tài về luật chơi trước mỗi trận đấu."

Bộ trưởng Tài chính Slovakia Ivan Miklos tiết lộ EU hiện chưa thống nhất về thủ tục trừng phạt, cụ thể chưa khẳng định được liệu có cần sự đồng thuận giữa các bộ trưởng tài chính tổ chức này về mọi quyết định trừng phạt trước khi thực thi hay không.

Bộ trưởng Tài chính Đức kêu gọi các nước thành viên EU kiên nhẫn hơn sau khi đã đạt nhiều tiến bộ về khía cạnh ngăn chặn khủng hoảng trong Hiệp ước ổn định và tăng trưởng.

Về vấn đề cơ chế lâu dài để giải quyết khủng hoảng, các bộ trưởng tài chính EU nhất trí sẽ thảo luận vấn đề này trong tương lai với lý do Khu vực đồng euro nói riêng và EU nói chung đã có cơ chế hữu hiệu tạm thời là Phương tiện ổn định tài chính châu Âu (EFSF).

Theo các nguồn tin ngoại giao EU, các cuộc thảo luận về cơ chế lâu dài để giải quyết khủng hoảng bị gác lại do một cơ chế như vậy đòi hỏi EU phải thay đổi Hiệp ước EU, trong khi việc thương lượng lại văn bản có giá trị pháp lý cao nhất này sẽ dẫn đến các cuộc đàm phán kéo dài liên quan nhiều lĩnh vực, không chỉ là quản lý kinh tế hay phối hợp chính sách, và không chắc sẽ giành được sự tán thành của tất cả các nước thành viên EU.

Vấn đề đình chỉ quyền bỏ phiếu của các bộ trưởng tài chính thuộc những nước vi phạm cũng không ngã ngũ. Người đứng đầu nhóm các bộ trưởng tài chính Khu vực đồng euro cho rằng đề xuất này của Đức là phi thực tế nếu không thay đổi căn bản Hiệp ước EU. Trong khi đó, vấn đề đánh thuế mới nhằm vào các ngân hàng đang gây bất đồng giữa các nhà hoạch định chính sách EU và Chính phủ Anh.

Theo các quy định trong Hiệp ước ổn định và tăng trưởng, thâm hụt ngân sách của các nước thành viên EU không được vượt mức trần 3% GDP của mỗi nước và nợ nhà nước không quá 60% GDP. Những nước vi phạm nhiều lần sẽ phải chịu mức phạt lên tới 0,5% GDP của nước đó, nhưng việc áp dụng quyết định trừng phạt phải được tiến hành theo nhiều giai đoạn kéo dài tới hai năm.

Việc thu tiền phạt chỉ được thực hiện tại giai đoạn cuối cùng, khi khu vực tài chính công của nước vi phạm bị đe dọa và phụ thuộc vào quyết định tùy hứng của các bộ trưởng Khu vực đồng euro.

Trong bối cảnh một loạt nước EU vi phạm các quy định trong Hiệp ước ổn định và tăng trưởng, EU tháng Năm vừa qua đã bắt đầu thảo luận các quy định tài chính nghiêm ngặt hơn nhằm giúp các nước thành viên cân bằng ngân sách và đạt thặng dư.

EU đặt mục tiêu đạt đồng thuận về vấn đề này để trình lãnh đạo EU thông qua tại hội nghị thượng đỉnh của nhóm, dự kiến vào ngày 16/9 tới. Chính vì vậy, bế tắc trong kế hoạch cải cách thể thức quản lý kinh tế đang gây tâm lý thất vọng trong các nước thành viên EU./.


(TTXVN/Vietnam+)