Austerity is Easy, Growth Isn't

This morning, former U.S. Ambassador to Italy, Ronald Spogli, made an appearance on CNBC (video above). Of course, he was asked about the EU debt crisis. One of his comments caught my attention:

I think growth is one of the most elusive things for these countries to achieve. You can press the austerity button and you can try to gain compliance. Competitiveness, they're working on competitiveness and that's the issue because there is no similar button in my opinion, for growth. You just don't press the growth button one day and growth happens. Certainly liberalization has helped, but it helps over time.

Although I may not agree with his political orientation (he was George Bush's ambassador) and with everything he said in the interview, the comment above was very insightful. A country facing a financial crisis may or may not have any easy obvious choices. If is has it's own currency and is not already heavily in debt to global capital markets, it can engage in deficit spending to increase demand (the Keynesian solution). If that option is blocked, it is easy to resort to austerity, even if it generates wide-spread hardship.

Real solutions to the crisis are not that easy. If the crisis was generated by external events in the world system (such as the US Subprime Mortgage Crisis' effect on the EU), it may not be that easy to withdraw from the global economy or, in the case of Greece, from the EU during the debt crisis. If the crisis was generated within the country due to poor regulation or weak political institutions (for example, weak tax collection, shortfalls in government revenue and increases in debt), it's not so easy to change institutional arrangements, as the US is finding out.

Ultimately, the answer is more economic growth but everything depends on how that growth is achieved. If growth is based on the exploitation of either environmental or human resources, the growth is not ultimately sustainable. Right now, the world economy is desperately in need of technological changes that reduce resource inputs, increase labor productivity, increase employment and reduce CO2 emissions and other environmental damage. These are contradictory objectives and the necessary technological changes, particularly in terms of energy intensity and emission intensity, are having trouble emerging even while financial innovation has run wild. Financialization is probably another one of those "easy" things to do, like austerity, that isn't very functional for the society as a whole.

Ambassador Spogli is in a good position to understand these issues. Not only was he Ambassador to Italy but he also started one of the first private equity firms that have become key players in the financialization of the US economy.

Stack & Tilt: Charlie Wi Takes a Second Place at Pebble

The story at the Pebble Beach National Pro-Am was the match-up between Tiger Woods and Phil Mickelson (here), a match-up that Mickelson won. Not to take anything away from Phil's 40th win, but a far more interesting story involved Charlie Wi, who took second, Aaron Baadley who took fourth and Tiger Woods, who took 12th place. Charlie Wi is probably the best known player still using the Stack & Tilt swing (more here), Aaron Baadley is probably the best known player not still using the S&T swing and Tiger Woods new Shawn-Foley Swing has elements of S&T in it. It is also interesting that in May of 2011, Charlie Wi also took a second place at the Crowne Plaza Invitational.

The video above is an example of Charlie Wi's current S&T swing. There is a lot of disagreement about how much S&T Charlie really uses (to my eyes, it doesn't look like he "tilts" very much) but a friend of mine followed him at this year's Waste Management Open in Phoenix and said he definitely sets up with the weight on his left side.



Here's Aaron Baadley's new (old?) non-S&T swing. It's obviously working pretty well for him.

And finally, here's Tiger Wood's Shawn Foley swing for comparison. What's interesting to me is the success that some highly skilled players are having maintain more of their weight on the left side throughout the swing. Conventional instructors hate the left-centered swing (for example the instructors at GolfTEC) calling it a "reverse pivot" or "getting into a bad space." For a different perspective, read some of E. A. Tischler's books (here), for example Secrets of Owning Your Own Golf Swing.

Japan Says Thank You!

The Right Wing Theory of Reverse Causality

Today on Public Radio's Marketplace (here), Robert Reich commented on the causal logic underlying explanations being offered by the current crop of Republican presidential candidates. Since we are dealing with causal logic, we can use causal diagrams to clarify the points being made by the Republican Right Wing. Reich's commentary can be summarized using the causal diagram above (click to enlarge).

All the Republican candidates are afraid of government dependency. They see the Obama Administration as creating a "European Style" welfare state in which government dependency and powerful unions have created our current economic problems. Reich argues that the Republican argument has the direction of causality running precisely in the wrong direction.

In the second causal diagram above, the Subprime Mortgage Crisis not only created massive unemployment that pushed families to apply for Federal benefits such as Food Stamps (the Supplemental Nutrition Assistance Program) but also created downward mobility driving middle class and working class families into the underclass, further creating families in need. At the same time, globalization has insured that any new jobs created as the economy expands will be low wage jobs, further creating families in need. These low wage jobs are non-union which creates a positive feedback loop where unions that might have fought for higher wages are becoming less able to fight for workers.

In other words, if you just reverse the arrows in the top causal diagram above (the Republican causal model), you get an accurate causal view of the current situation. The Subprime Mortgage Crisis created by the very right-wing business groups who support the Republican party led to the Entitlement Society rather than the Obama Administration who inherited the mess from the Bush administration.

Also tonight on the PBS News Hour, Margaret Warner did a piece explaining why the German economy, a European Style Entitlement society, is outperforming the U.S. on a range of measures to include how well the labor force is treated. I'll comment on that video when it becomes available.

Reich's commentary on Market Place begs the question of whether the Republican presidential candidates believe the causal direction of their arguments or have simply adopted reverse causation as the explanation for every problem. In Mitt Romney's case, I'm not really sure that he believes anything he says (although you can study his political positions here). In Newt Gingrich's case, I'm not sure sometimes he knows what he is saying (again you can read for yourself here). For Ron Paul, his views pre-date the Obama Administration and he might see a broader conspiracy trying to create the Entitlement Society (read an interesting article about his world view here). Rick Santorum is probably the only candidate that believes what he is saying, but he is a lawyer.

Before the semester started on my first teaching job, the dean of Letters and Sciences met with me and said that the biggest problem she had was teaching students how to "...distinguish facts from their opinions". Looking at the current crop of Republican presidential candidates, they provide striking evidence that our education system has failed to teach students the difference between fact and opinion, let alone how to make an accurate causal argument. On the other hand, a psychiatrist might argue that people who can't make accurate causal arguments are simply delusional.