Yesterday I argued that Irish austerity doesn't really tell us much about what the US should do. Today it's worth talking about why, exactly, the Irish experience is such a poor model for the problems of the US. Luckily, fledgling think tank e21 has done the hardest part of the job for me: explaining the depth of the problems that Ireland faces.
For the U.S., there was never any question about whether the federal government had the capacity to arrest the panic. At its peak, the liabilities of the U.S. financial system were $17.1 trillion (D.3), or about 118% of GDP. Even if one assumed that assets were worth 20% less than liabilities - a highly aggressive and unlikely assumption - the cost of guaranteeing all of the financial system's liabilities would only be 23% of GDP, or equal to a one-time 50% increase in the debt-to-GDP ratio. Therefore, the implied guarantee of all financial system liabilities after TARP was highly credible.
For other countries with larger (relative) financial sectors, the arithmetic was much different. The most obvious example was Iceland, whose banking system's liabilities reached nearly 1,100% of GDP in 2007. When its banks could not access wholesale funding markets, the government lacked the fiscal capacity to intervene credibly. The result was economic collapse. For other nations, it was less cut and dry whether the government could backstop its banking system's liabilities without incident (see chart above). The United Kingdom and Switzerland's banking system liabilities exceeded 400% of GDP. Both nations took actions to recapitalize banks and provide implicit guarantees of their liabilities - TARP-like programs to stand behind banks and assuage concerns of creditors without legally obligating the government to ensure no bank creditor suffered any loss. Conversely, Ireland, whose banking system's liabilities were also near 400% of GDP, decided to formally guarantee its banking system's liabilities.
While the Swiss and UK guarantees seem to have succeeded thanks to their banking system's international activity and broad diversification, the Irish guarantee has not been as successful, largely because of its banks concentrated exposure to a bursting domestic real estate bubble. The result has been a deeply insolvent banking system that some believe will ultimately push the Irish government itself bankruptcy. Barclays was the latest to warn that the government will likely have to renege on its guarantee and seek concessions from bank creditors if it is to avoid sovereign bankruptcy. As of August, the Irish banking system owed €95 billion to the European Central Bank (ECB), which means about 12% of all Irish bank assets are now financed through official liquidity facilities. This is only slightly below the 17% of Greek assets funded through official channels and a sign that the private sector is no longer willing to fund Irish banks.
The problem for Ireland is that the tax revenue that could otherwise be pledged to cover its banks' debts has plunged for the same reason its banks are in such trouble: the collapse of the real estate bubble. Irish house prices have fallen by 34% from the peak and have yet to stabilize. Irish wealth fell by about €150 billion in 2009, which would be roughly equivalent to an $8 trillion decline for U.S. households. Unemployment has spiked in the very sectors most responsible for growth in the recent past - real estate construction and finance. The same factors driving the banks' insolvency are simultaneously depressing employment, household spending, and tax revenue. The deficit stands at 14% of GDP, due largely to an economic contraction that sliced 10% off of the size of the Irish economy since 2008. The government's gross debt has nearly tripled as a share of GDP, rising from 25.8% in 2006 to 64% at the end of last year and could exceed 75% by the end of the fiscal year.
There are no signs that any of this is temporary or that adjustments made to date are sufficient to maintain access to credit. The initial austerity measures taken by the Irish government - tax increases and large cuts to public employee wages - seemed ambitious, but they turned out to be a drop in the bucket relative to the cost of the bank rescue. The Irish government created the National Asset Management Agency (NAMA) to acquire property development and commercial real estate assets from banks at a sizeable discount to par. As with similar schemes, this government-sponsored fund faces a catch-22: overpay for assets and transfer losses directly to taxpayers or drive a tough bargain and further expose the banks' insolvency. To date, NAMA has recorded €30 billion of losses, or more than 10% of GDP. S&P estimates that ultimate losses will be between 29% and 32% of GDP. To put this figure in perspective, this would be equivalent to U.S. taxpayer losses on Fannie Mae and Freddie Mac of $4.2 trillion, or about 11-times the CBO estimate of $380 billion.
While some think Ireland could be saved through export growth given the number of international corporations that moved to Ireland to take advantage of the low corporate tax rate, the potential for export growth is limited by what the IMF suggests was a bubble in wages similar to the one in property prices. At the end of 2007, Ireland was proudly boasting that it had more Mercedes Benz per capita than Germany. The rise in wages brought about by a booming economy reduced competitiveness. Deflation has set in with prices falling by nearly 2% last year. Export growth will likely first require a period of prolonged deflation, which would result in a dramatic increase in the real cost of the large amounts of newly incurred debt. In short, the Irish economy is still reeling from a financial collapse that is several times worse than that of the U.S. Even the Spanish problems are mild by comparison, as only 4% of Spanish banking system assets are funded by the ECB and Spanish banks are more diversified and better capitalized.
Using Irish austerity as a dire warning to us relies on what I think are oversimplified comparisons. Folks point out that despite austerity, Ireland's tax revenues have collapsed, and their debt is trading at a huge premium to Germany's--much bigger than the premium paid by Spain, which hasn't tried such draconian measures. But Ireland's problems are really rather special. For various reasons, including favorable corporate tax rates and an educated, English-speaking population, capital poured into the country for more than a decade, leading to a banking sector that was grossly inflated compared to the underlying economy. The US banking sector is rather tame by comparison to most European nations--bank leverage at the beginning of the crisis was about equal to GDP, rather than the three to five times GDP found in many European nations. But Ireland is almost in a class by itself.
That meant that when the financial crisis hit, Ireland's contraction was much worse--and much less amenable to government interventions that worked in other countries. It's not surprising that their fiscal crisis is dire, their credit spreads rising.
In order to say that Irish austerity offers a grim lesson for us, you need to know the counterfactual: how bad would growth, tax revenues, credit spreads have been without the austerity? And because of the magnitude of their problems, it is far from clear that austerity has made things worse.
Now, even if austerity had made things better, that wouldn't necessarily be a guide for US policy--again, because their crisis is so much deeper. Attempting to borrow and spend their way out of the crisis might have led to total collapse, but that wouldn't mean that it would have the same effect here, where our fiscal issues are more manageable.
That's why I think it's just not useful to bring it up in the context of the American debate.
Forget credit hours—in a quest to cut costs, universities are simply asking students to prove their mastery of a subject.
MANCHESTER, Mich.—Had Daniella Kippnick followed in the footsteps of the hundreds of millions of students who have earned university degrees in the past millennium, she might be slumping in a lecture hall somewhere while a professor droned. But Kippnick has no course lectures. She has no courses to attend at all. No classroom, no college quad, no grades. Her university has no deadlines or tenure-track professors.
Instead, Kippnick makes her way through different subject matters on the way to a bachelor’s in accounting. When she feels she’s mastered a certain subject, she takes a test at home, where a proctor watches her from afar by monitoring her computer and watching her over a video feed. If she proves she’s competent—by getting the equivalent of a B—she passes and moves on to the next subject.
Even when a dentist kills an adored lion, and everyone is furious, there’s loftier righteousness to be had.
Now is the point in the story of Cecil the lion—amid non-stop news coverage and passionate social-media advocacy—when people get tired of hearing about Cecil the lion. Even if they hesitate to say it.
But Cecil fatigue is only going to get worse. On Friday morning, Zimbabwe’s environment minister, Oppah Muchinguri, called for the extradition of the man who killed him, the Minnesota dentist Walter Palmer. Muchinguri would like Palmer to be “held accountable for his illegal action”—paying a reported $50,000 to kill Cecil with an arrow after luring him away from protected land. And she’s far from alone in demanding accountability. This week, the Internet has served as a bastion of judgment and vigilante justice—just like usual, except that this was a perfect storm directed at a single person. It might be called an outrage singularity.
Bernie Sanders and Jeb Bush look abroad for inspiration, heralding the end of American exceptionalism.
This election cycle, two candidates have dared to touch a third rail in American politics.
Not Social Security reform. Not Medicare. Not ethanol subsidies. The shibboleth that politicians are suddenly willing to discuss is the idea that America might have something to learn from other countries.
The most notable example is Bernie Sanders, who renewed his praise for Western Europe in a recent interview with Ezra Klein. “Where is the UK? Where is France? Germany is the economic powerhouse in Europe,” Sanders said. “They provide health care to all of their people, they provide free college education to their kids.”
On ABC’s This Week in May, George Stephanopoulos asked Sanders about this sort of rhetoric. “I can hear the Republican attack ad right now: ‘He wants American to look more like Scandinavia,’” the host said. Sanders didn’t flinch:
A hawkish senator doesn't apply the lessons of Iraq
Earlier this week, Senator Lindsey Graham, a hawkish Republican from South Carolina, used a Senate Armed Services Committee hearing to stage a theatrical display of his disdain for the Obama administration’s nuclear deal with Iran.
The most telling part of his time in the spotlight came when he pressed Defense Secretary Ashton Carter to declare who would win if the United States and Iran fought a war:
Here’s a transcript of the relevant part:
Graham: Could we win a war with Iran? Who wins the war between us and Iran? Who wins? Do you have any doubt who wins?
Carter: No. The United States.
Graham: We. Win.
Little more than a decade ago, when Senator Graham urged the invasion of Iraq, he may well have asked a general, “Could we win a war against Saddam Hussein? Who wins?” The answer would’ve been the same: “The United States.” And the U.S. did rout Hussein’s army. It drove the dictator into a hole, and he was executed by the government that the United States installed. And yet, the fact that the Iraqi government of 2002 lost the Iraq War didn’t turn out to mean that the U.S. won it. It incurred trillions in costs; thousands of dead Americans; thousands more with missing limbs and post-traumatic stress disorder and years of deployments away from spouses and children; and in the end, a broken Iraq with large swaths of its territory controlled by ISIS, a force the Iraqis cannot seem to defeat. That’s what happened last time a Lindsey Graham-backed war was waged.
Netflix’s revival of the ensemble cult film does far more than play on nostalgia—it’s an absurd, densely plotted prequel that never forgets to be funny.
At some point, given time, word of mouth, and endless rewatching, a cult classic evolves into a universally beloved media property. Netflix, it seems, has become the arbiter of that transformation—first and most notably by reviving the adored-but-prematurely-canceled Arrested Development for a fourth season. Now the service is continuing this effort by turning the 2001 comedy Wet Hot American Summer, a critical and commercial bomb on its release, into an eight-episode prequel miniseries. Though it all but vanished without a trace on release, Wet Hot’s shaggy, surreal charm and its cast of future stars have helped it endure over the years, and despite its bizarre positioning, the Netflix edition hasn’t missed a beat, even 14 years later.
Jim Gilmore joins the race, and the Republican field jockeys for spots in the August 6 debate in Cleveland.
After decades as the butt of countless jokes, it’s Cleveland’s turn to laugh: Seldom have so many powerful people been so desperate to get to the Forest City. There’s one week until the Republican Party’s first primary debate of the cycle on August 6, and now there’s a mad dash to get into the top 10 and qualify for the main event.
With former Virginia Governor Jim Gilmore filing papers to run for president on July 29, there are now 17 “major” candidates vying for the GOP nomination, though that’s an awfully imprecise descriptor. It takes in candidates with lengthy experience and a good chance at the White House, like Scott Walker and Jeb Bush; at least one person who is polling well but is manifestly unserious, namely Donald Trump; and people with long experience but no chance at the White House, like Gilmore. Yet it also excludes other people with long experience but no chance at the White House, such as former IRS Commissioner Mark Everson.
The IOC’s selection of Beijing as the host of its 2022 games is met with a lukewarm response.
When the International Olympic Committee selected Beijing on Friday as the host for the 2022 Winter Olympic Games, the Chinese capital became the first city to have hosted both the Summer and Winter games. This, most likely, isn’t coincidental: Beijing’s hosting of the Summer games in 2008 was generally considered a success, and Almaty, the Kazakh city whose bid placed second, lacks comparable experience.
A closer examination of Beijing’s 2022 bid, though, reveals the selection is far more peculiar than it seems at first glance. One reason: It barely snows in Beijing. China’s northern plain is extremely dry, and what precipitation that falls in the capital tends to occur during the summer. Beijing’s Olympic planners have assured the IOC this won’t be a problem—the country will simply use artificial snow to accommodate events, such as skiing, that require it.
On “Back to Back Freestyle” and “Charged Up,” the rapper forgoes the high road in his beef with Meek Mill.
Once upon a time, Drake made a vow of silence. “Diss me, you'll never hear a reply for it,” he said on “Successful,” the 2009 song in which the Toronto rapper correctly predicted he’d soon be superwealthy. This week, Drake has broken his vow twice over, a fact about which he seems conflicted. “When I look back,” he says on the new track “Back to Back Freestyle,” “I might be mad that I gave this attention.”
“This” is the beef started by the 28-year-old Philadelphia rapper Meek Mill, who recently tweeted accusations that Drake doesn’t write his own material. Depending on who you talk to or how you look at it, this is either a big deal or no deal at all. On Instagram, Lupe Fiasco had a good take: “Ghostwriting, or borrowing lines, or taking suggestions from the room has always been in rap and will always be in rap. It is nothing to go crazy over or be offended about unless you are someone who postures him or herself on the importance of authenticity and tries to portray that quality to your fans or the public at large. Then we might have a problem.”
The Vermont senator’s revolutionary zeal has met its moment.
There’s no way this man could be president, right? Just look at him: rumpled and scowling, bald pate topped by an entropic nimbus of white hair. Just listen to him: ranting, in his gravelly Brooklyn accent, about socialism. Socialism!
And yet here we are: In the biggest surprise of the race for the Democratic presidential nomination, this thoroughly implausible man, Bernie Sanders, is a sensation.
He is drawing enormous crowds—11,000 in Phoenix, 8,000 in Dallas, 2,500 in Council Bluffs, Iowa—the largest turnout of any candidate from any party in the first-to-vote primary state. He has raised $15 million in mostly small donations, to Hillary Clinton’s $45 million—and unlike her, he did it without holding a single fundraiser. Shocking the political establishment, it is Sanders—not Martin O’Malley, the fresh-faced former two-term governor of Maryland; not Joe Biden, the sitting vice president—to whom discontented Democratic voters looking for an alternative to Clinton have turned.
Every time you shrug, you don’t need to Google, then copy, then paste.
Updated, 2:20 p.m.
All hail ¯\_(ツ)_/¯.
In its 11 strokes, the symbol encapsulates what it’s like to be an individual on the Internet. With raised arms and a half-turned smile, it exudes the melancholia, the malaise, the acceptance, and (finally) the embrace of knowing that something’s wrong on the Internet and you can’t do anything about it.
As Kyle Chayka writes in a new history of the symbol at The Awl, the meaning of the “the shruggie” is always two, if not three- or four-, fold. ¯\_(ツ)_/¯ represents nihilism, “bemused resignation,” and “a Zen-like tool to accept the chaos of universe.” It is Sisyphus in unicode. I use it at least 10 times a day.
For a long time, however, I used it with some difficulty. Unlike better-known emoticons like :) or ;), ¯\_(ツ)_/¯ borrows characters from the Japanese syllabary called katakana. That makes it a kaomoji, a Japanese emoticon; it also makes it, on Western alphabetical keyboards at least, very hard to type. But then I found a solution, and it saves me having to google “smiley sideways shrug” every time I want to quickly rail at the world’s inherent lack of meaning.