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.
As it’s moved beyond the George R.R. Martin novels, the series has evolved both for better and for worse.
Well, that was more like it. Sunday night’s Game of Thrones finale, “The Winds of Winter,” was the best episode of the season—the best, perhaps, in a few seasons. It was packed full of major developments—bye, bye, Baelor; hello, Dany’s fleet—but still found the time for some quieter moments, such as Tyrion’s touching acceptance of the role of Hand of the Queen. I was out of town last week and thus unable to take my usual seat at our Game of Thrones roundtable. But I did have some closing thoughts about what the episode—and season six in general—told us about how the show has evolved.
Last season, viewers got a limited taste—principally in the storylines in the North—of how the show would be different once showrunners Benioff and Weiss ran out of material from George R.R. Martin’s novels and had to set out on their own. But it was this season in which that exception truly became the norm. Though Martin long ago supplied Benioff and Weiss with a general narrative blueprint of the major arcs of the story, they can no longer rely on the books scene by scene. Game of Thrones is truly their show now. And thanks to changes in pacing, character development, and plot streamlining, it’s also a markedly different show from the one we watched in seasons one through four—for the worse and, to some degree, for the better.
How much do you really need to say to put a sentence together?
Just as fish presumably don’t know they’re wet, many English speakers don’t know that the way their language works is just one of endless ways it could have come out. It’s easy to think that what one’s native language puts words to, and how, reflects the fundamentals of reality.
But languages are strikingly different in the level of detail they require a speaker to provide in order to put a sentence together. In English, for example, here’s a simple sentence that comes to my mind for rather specific reasons related to having small children: “The father said ‘Come here!’” This statement specifies that there is a father, that he conducted the action of speaking in the past, and that he indicated the child should approach him at the location “here.” What else would a language need to do?
It happened gradually—and until the U.S. figures out how to treat the problem, it will only get worse.
It’s 2020, four years from now. The campaign is under way to succeed the president, who is retiring after a single wretched term. Voters are angrier than ever—at politicians, at compromisers, at the establishment. Congress and the White House seem incapable of working together on anything, even when their interests align. With lawmaking at a standstill, the president’s use of executive orders and regulatory discretion has reached a level that Congress views as dictatorial—not that Congress can do anything about it, except file lawsuits that the divided Supreme Court, its three vacancies unfilled, has been unable to resolve.
On Capitol Hill, Speaker Paul Ryan resigned after proving unable to pass a budget, or much else. The House burned through two more speakers and one “acting” speaker, a job invented following four speakerless months. The Senate, meanwhile, is tied in knots by wannabe presidents and aspiring talk-show hosts, who use the chamber as a social-media platform to build their brands by obstructing—well, everything. The Defense Department is among hundreds of agencies that have not been reauthorized, the government has shut down three times, and, yes, it finally happened: The United States briefly defaulted on the national debt, precipitating a market collapse and an economic downturn. No one wanted that outcome, but no one was able to prevent it.
People in Great Britain felt their leaders weren’t treating them fairly. Politicians in the U.S. should take note.
Britain’s Brexit vote has shocked the political elites of both the U.S. and Europe. The vote wasn’t just about the EU; in fact, polls before the referendum consistently showed that Europe wasn’t top on voters’ lists of concerns. But on both sides of the Atlantic Ocean, large numbers of people feel that the fundamental contracts of capitalism and democracy have been broken. In a capitalist economy, citizens tolerate rich people if they share in the wealth, and in a democracy, they give their consent to be governed if those governing do so in their interest. The Brexit vote was an opportunity for people to tell elites that both promises have been broken. The most effective line of the Leave campaign was “take back control.” It is also Donald Trump’s line.
Readers share their own experiences in an ongoing series.
Prompted by Emma Green’s note on the Supreme Court case Whole Women’s Health v. Hellerstedt, for which a group of lawyers filed a document openly describing their abortions, readers share their own stories in an ongoing collection edited by Chris Bodenner. We are posting a wide range of experiences—from pro-choice and pro-life readers, women and men alike—so if you have an experience not represented so far, please send us a note: firstname.lastname@example.org.
American society increasingly mistakes intelligence for human worth.
As recently as the 1950s, possessing only middling intelligence was not likely to severely limit your life’s trajectory. IQ wasn’t a big factor in whom you married, where you lived, or what others thought of you. The qualifications for a good job, whether on an assembly line or behind a desk, mostly revolved around integrity, work ethic, and a knack for getting along—bosses didn’t routinely expect college degrees, much less ask to see SAT scores. As one account of the era put it, hiring decisions were “based on a candidate having a critical skill or two and on soft factors such as eagerness, appearance, family background, and physical characteristics.”
The 2010s, in contrast, are a terrible time to not be brainy. Those who consider themselves bright openly mock others for being less so. Even in this age of rampant concern over microaggressions and victimization, we maintain open season on the nonsmart. People who’d swerve off a cliff rather than use a pejorative for race, religion, physical appearance, or disability are all too happy to drop the s‑bomb: Indeed, degrading others for being “stupid” has become nearly automatic in all forms of disagreement.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
Their degrees may help them secure entry-level jobs, but to advance in their careers, they’ll need much more than technical skills.
American undergraduates are flocking to business programs, and finding plenty of entry-level opportunities. But when businesses go hunting for CEOs or managers, “they will say, a couple of decades out, that I’m looking for a liberal arts grad,” said Judy Samuelson, executive director of the Aspen Institute’s Business and Society Program.
That presents a growing challenge to colleges and universities. Students are clamoring for degrees that will help them secure jobs in a shifting economy, but to succeed in the long term, they’ll require an education that allows them to grow, adapt, and contribute as citizens—and to build successful careers. And it’s why many schools are shaking up their curricula to ensure that undergraduate business majors receive something they may not even know they need—a rigorous liberal-arts education.
The star Daily Show correspondent is moving on to make her own scripted comedy, and her gain is the show’s huge loss.
When Jon Stewart announced he was leaving The Daily Show last year, many fans lobbied for Jessica Williams to replace him, pushing one of the show’s standout performers into a limelight she deemed herself not quite ready for. “Thank you, but I am extremely under-qualified for the job!” Williams tweeted. Comedy Central eventually picked Trevor Noah for the gig, and in the following months, Williams’s star has only risen higher. It’s no huge surprise, then, that on Wednesday she told Entertainment Weekly she was moving on from The Daily Show to develop her own scripted series for Comedy Central. It’s great news for Williams, but a huge loss for the show she’s leaving behind.
The discussion over Williams becoming The Daily Show host in 2015 turned into a minor political maelstrom. Williams publicly pushed back against the idea that she had “impostor syndrome,” as suggested by one writer, for calling herself “under-qualified” and pointing to her young age (25 at the time) as a reason for her disinterest in the position. Indeed, there are a thousand reasons to not want the daily grind of a TV hosting gig, and the heightened scrutiny and criticism Noah has received in his year on the job is among them. But as Williams’s popularity and talents have grown, and as The Daily Show has struggled to retain its critical cachet after Stewart’s departure, it’s been hard not to mourn a different outcome in which Williams took the host job and steered the series in a fresher, more relevant direction.
Jim Henson’s 1986 film understands at its core that youth is full of mystery, tricks, and danger.
When Labyrinth was first released, critics were overwhelmingly negative, bordering on hostile. Variety called the 1986 film starring David Bowie “silly and flat,” while Gene Siskel said it was “quite awful.” Audiences at the time largely agreed: The movie grossed $12.7 million domestically—hardly half its budget—and Tri-Star Pictures pulled it from theaters after less than a month. Because Jim Henson was the director, many people, including reporters, had gone into the film expecting Muppets. Instead, they got something much darker.
The last feature film that Henson would direct, Labyrinth is about a teenage girl named Sarah (Jennifer Connelly) whose baby brother is kidnapped by Bowie’s Goblin King, Jareth. Sarah has to rescue her brother from the goblins’ castle at the center of a curiously populated maze before midnight, or he’ll be turned into a goblin. (Or something—the plot meanders and at times disappears entirely, but the whole quest may simply be a ploy for the Goblin King to win Sarah’s love.) Why then has Labyrinth—101 minutes of Bowie rock opera and Hensonian spectacle—become so beloved that it’s now a mainstream cult favorite, and what keeps people watching 30 years on?