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.
Girls in the Middle East do better than boys in school by a greater margin than almost anywhere else in the world: a case study in motivation, mixed messages, and the condition of boys everywhere.
Jordan has never had a female minister of education, women make up less than a fifth of its workforce, and women hold just 4 percent of board seats at public companies there. But, in school, Jordanian girls are crushing their male peers. The nation’s girls outperform its boys in just about every subject and at every age level. At the University of Jordan, the country’s largest university, women outnumber men by a ratio of two to one—and earn higher grades in math, engineering, computer-information systems, and a range of other subjects.
In fact, across the Arab world, women now earn more science degrees on a percentage basis than women in the United States. In Saudi Arabia alone, women earn half of all science degrees. And yet, most of those women are unlikely to put their degrees to paid use for very long.
The foundation of Donald Trump’s presidency is the negation of Barack Obama’s legacy.
It is insufficient to statethe obvious of Donald Trump: that he is a white man who would not be president were it not for this fact. With one immediate exception, Trump’s predecessors made their way to high office through the passive power of whiteness—that bloody heirloom which cannot ensure mastery of all events but can conjure a tailwind for most of them. Land theft and human plunder cleared the grounds for Trump’s forefathers and barred others from it. Once upon the field, these men became soldiers, statesmen, and scholars; held court in Paris; presided at Princeton; advanced into the Wilderness and then into the White House. Their individual triumphs made this exclusive party seem above America’s founding sins, and it was forgotten that the former was in fact bound to the latter, that all their victories had transpired on cleared grounds. No such elegant detachment can be attributed to Donald Trump—a president who, more than any other, has made the awful inheritance explicit.
Physicians rarely agree on anything as strongly as they do that the Graham-Cassidy health-care bill is harmful.
It used to be that when a doctor gave a confident recommendation, patients trusted it. A skeptical person might seek a second opinion, or a third. When they all agreed, the best course seemed clear.
Today, America’s major physician organizations are recommending something, strongly and in unison: The latest health-care bill, known as Graham-Cassidy, would do harm to the country and should be defeated.
Coalitions of health professionals that have spoken publicly against the measure so far include the American Medical Association (“Provisions violate longstanding AMA policy”), the American Psychiatric Association (“This bill harms our most vulnerable patients”), the American Public Health Association (“Graham-Cassidy would devastate the Medicaid program, increase out-of-pocket costs, and weaken or eliminate protections for people living with preexisting conditions”), the National Institute for Reproductive Health (“the Graham-Cassidy bill preys on underserved communities ... a clear and present danger”), and Federation of American Hospitals (“It could disrupt access to health care for millions of the more than 70 million Americans”).
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
The president has made a mockery of a promise at the core of his campaign. It is time for the #MAGA media to tell his supporters the truth.
There is no campaign promise that Donald Trump has failed to honor more flagrantly than his oft repeated pledge to “drain the swamp” in Washington, D.C. He has violated the letter of his promise and trampled all over its spirit. His supporters ought to be furious. But few perceive the scale of his betrayal or its brazenness.
Are they skeptics of the Russia investigation?
Forget the Russia investigation. Even if no wrongdoing is proved on that matter, the Trump Administration’s behavior would still be epically swampy. A list of examples is clarifying:
Corey Lewandowski, who worked as Trump’s campaign manager, moved to Washington, D.C., and started a Beltway lobbying firm, where he accepted lots of money from special interests that were trying to influence Trump. Meanwhile, TheNew York Timesreported, “Established K Street firms were grabbing any Trump people they could find: Jim Murphy, Trump’s former political director, joined the lobbying giant BakerHostetler, while another firm, Fidelis Government Relations, struck up a partnership with Bill Smith, Mike Pence’s former chief of staff. All told, close to 20 ex-aides of Trump, friends, and hangers-on had made their way into Washington’s influence business.”
On Tuesday, the late-night host once again devoted his show to the politics of American health care. This time, though, he offered indignation rather than tears.
“By the way, before you post a nasty Facebook message saying I’m politicizing my son’s health problems, I want you to know: I am politicizing my son’s health problems.”
That was Jimmy Kimmel on Tuesday evening, in a monologue reacting to the introduction of Graham-Cassidy, the (latest) bill that seeks to replace the Affordable Care Act. Kimmel had talked about health care on his show before, in May—when, after his newborn son had undergone open-heart surgery to repair the damage of a congenital heart defect, he delivered a tearfully personal monologue sharing the experience of going through that—and acknowledging that he and his family were lucky: They could afford the surgery, whatever it might cost. Kimmel concluded his speech by, yes, politicizing his son’s health problems: He emphasized how important it is for lower- and middle-class families to have comprehensive insurance coverage, with protections for people with preexisting conditions. “No parent,” he said, speaking through tears, “should ever have to decide if they can afford to save their child’s life. It shouldn’t happen.”
And yet that is exactly the praise that Netflix’s lawyers received this week, from a variety of media outlets, for going about that most lawyerly of tasks: telling people they aren’t allowed to do a thing. In this case, the people were the Chicago residents Danny and Doug Marks, and the thing was operating a bar whose theme was Stranger Things, a hit Netflix show set in the 1980s.
Netflix was applauded because its legal team, or perhaps its marketing department, peppered its cease-and-desist letter with several knowing references to the program (“Look, I don’t want you to think I’m a total wastoid … ”) and—even more strangely for the form—what seemed like actual politeness. “You’re obviously creative types, so I’m sure you can appreciate that it’s important to us to have a say in how our fans encounter the worlds we build,” a Netflix senior counsel wrote. (The company did not respond to an interview request.)
There’s a lot to admire in Ta-Nehisi Coates’s new essay. It’s one of those pieces that grabs you with its first paragraph and never lets go. The argument keeps gathering force, building on the striking imagery (“Trump cracked the glowing amulet open”) and the caustic scouring of the polemics (opioids are treated as a sickness, crack was punished as a crime), to the very end. At its heart is the undeniable truth that racism remains fundamental in American politics.
It’s the overwhelming, the single cause that Coates finds for the phenomenon of Donald Trump. It’s a cause no one in America should ever bet against. And it shapes every premise Coates lays down. Because he takes all white American political behavior as undifferentiated and founded on the idea of race, he faults me for writing a pre-election essay in The New Yorker about the white working class. Since a majority of all categories of white people ended up voting for Trump, why single out white voters without college degrees, unless it’s to absolve them of their racism by invoking other factors, like class? Or worse, to extend them sympathy, since they’ve fallen into the lower depths where, unlike black Americans, they don’t “naturally” belong? Or, worse still, to absolve myself?
Their debt-ceiling deal with President Trump cleared up a busy congressional calendar and may have removed a big hurdle for Republicans facing a September 30 deadline.
“They may have spiked the ball in the end zone a little too early,” Mitch McConnell observed about his Democratic colleagues to The New York Times last week.
The Senate majority leader was referring to the celebrations from Senate Minority Leader Charles Schumer and House Minority Leader Nancy Pelosi about the deal they struck with President Trump, in which the president agreed to a short-term increase in the debt ceiling over the objections of McConnell and House Speaker Paul Ryan. McConnell boasted that because of the way he wrote the corresponding legislation, going forward Democrats won’t have the same leverage on the debt ceiling that they thought they would.
But the agreement that “Chuck and Nancy” reached with Trump may end up backfiring on Democrats in another way: It freed up time for Republicans to take one last stab at dismantling the Affordable Care Act.
Its faith-based 12-step program dominates treatment in the United States. But researchers have debunked central tenets of AA doctrine and found dozens of other treatments more effective.
J.G. is a lawyer in his early 30s. He’s a fast talker and has the lean, sinewy build of a distance runner. His choice of profession seems preordained, as he speaks in fully formed paragraphs, his thoughts organized by topic sentences. He’s also a worrier—a big one—who for years used alcohol to soothe his anxiety.
J.G. started drinking at 15, when he and a friend experimented in his parents’ liquor cabinet. He favored gin and whiskey but drank whatever he thought his parents would miss the least. He discovered beer, too, and loved the earthy, bitter taste on his tongue when he took his first cold sip.
His drinking increased through college and into law school. He could, and occasionally did, pull back, going cold turkey for weeks at a time. But nothing quieted his anxious mind like booze, and when he didn’t drink, he didn’t sleep. After four or six weeks dry, he’d be back at the liquor store.