Editor’s note: GPS sits down with Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, to discuss U.S. political gridlock and the cyber threat to the U.S. economy.
The 112th Congress has been dismissed by many as the ultimate do-nothing Congress. How much is the gridlock in Washington hurting the U.S. economic recovery?
It’s hurting a lot and, unfortunately, a lot of things that need to be done aren’t getting done. For example, I would like to see Congress pass a version of the Simpson-Bowles tax reform proposal. By far the most efficient way to collect more tax revenue would be to drastically reduce exemptions (“tax expenditures”) thereby raising more revenue while keeping marginal tax rates at a reasonable level. With private investment weak, this is a good time for the government to undertake high-return infrastructure projects with a compelling cost-benefit ratio. But the rationale is to improve the long-run growth potential of the economy, not to engage in pure Keynesian stimulus. While I strongly favor instituting a carbon tax, there is some urgency in refocusing our energy program to recognize the huge innovations that are allowing the U.S. to harvest unconventional sources of gas and (secondarily oil) that promise to make the United States far less dependent on imported energy. In principle, our low energy prices could even catalyze a return to the U.S. of some types of manufacturing.
Of course, the Congress has been gridlocked for some time. This gridlock didn’t matter so much during the credit bubble; the economy was growing briskly despite – or perhaps because of – limited government intervention or innovation. But we’ve reached a point where there’s been so little reform for so long that it’s a hindrance to growth. And, in the near term, things only seem to be getting worse, with ugly partisanship clearing out the center in both major parties.
All this on "Fareed Zakaria GPS" Sunday at 10 a.m. and 1 p.m. ET.
On "Fareed Zakaria GPS" this week: It’s all about the economy. Fareed weighs in on why Mitt Romney is wrong to say he’ll cut taxes on his first day in office; a debate on Europe with Robert Skidelsky versus Niall Ferguson; and environmental author Bjorn Lomborg on why next week's Rio+20 summit will likely be a waste of time. Also: The new dictator has evolved and gotten smarter.
Also: What to do about the European Union? London’s colorful, conservator Mayor Boris Johnson has a simple answer. Break it up.
"What would be great would be, I think, if the European leaders could face up to the reality, shrug off their egos, shrug off all their political capital that Europe has collectively invested in this project, and say, look, we made a mistake," he tells Fareed.
Watch more in the video above and from these excerpts from the show: FULL POST
By Fareed Zakaria
A day after Governor Scott Walker won his recall election, the New York Times wrote, "The biggest political lesson from Wisconsin may be that the overwhelming dominance of money on the Republican side will continue to haunt Democrats." Democrats have drawn much the same conclusion. "You've got a handful of self-interested billionaires who are trying to leverage their money across the country," said David Axelrod, Barack Obama's senior campaign strategist. "Does that concern me? Of course that concerns me."
But then how to explain the landslide victories in San Jose and San Diego of ballot measures meant to cut public-sector retirees' benefits? What should concern Axelrod far more is that on the central issue of the recall–the costs of public-sector employees–the Democratic Party is wrong on the substance, clinging to its constituents rather than doing the right thing.
Warren Buffett calls the costs of public-sector retirees a "time bomb." They are the single biggest threat to the U.S.'s fiscal health. If the U.S. is going to face a Greek-style crisis, it will not be at the federal level but rather with state and local governments.
Everyone is worried that Greece might default on its national debt. That's really not news. By one estimate, in the 180 years since it gained its independence from the Ottomans in 1832, the country has been in default or restructuring for half this period. The news is that this time, Germany is willing to bail Greece out.
Throughout the euro-zone crisis, it has been conventional wisdom to regard the Germans as narrow-minded, ungenerous and dogmatically wedded to prescriptions of austerity to treat Europe's problems. These criticisms are vastly overstated.
The U.S. economy is currently on autopilot: A sharply polarized Congress and a tapped out Federal Reserve can't do much more to stimulate it this year.
But the economy may still hit turbulence after voters in France and Greece delivered a resounding anti-austerity message over the weekend to their governments.
That message, say analysts, is likely to have implications for the United States that extend from its fragile economy to its planned withdrawal from Afghanistan.
Hollande swept to victory Sunday, becoming France's first-left wing president since Francois Mitterand left office in 1995.
That was followed by news that voters in Greece dealt major blows to the country's two most established parties in parliamentary elections, leaving no party with anything approaching a majority.
The message from voters in both countries appeared to be the same: The current policy of deficit-cutting, reduced spending and cuts to benefits and public services is unacceptable.
The election results leave in question what happens now to the eurozone and its debt crisis. France is a key player in plans to navigate it. And Greece is a recipient of bailout by the European Central Bank that requires the government to slash spending.
Take a look at Fareed Zakaria's interview with one of the men behind the Simpson-Bowles plan, Alan Simpson. The former Republican Senator from Wyoming examines the GOP presidential contenders, and what Washington needs to do about the deficit.
FAREED ZAKARIA: Do you think that Mitt Romney has now wrapped up the nomination for all intent and purposes?
ALAN SIMPSON: I think that's very possible because they've washed all the laundry of his that they could ever find. Now they're going to start washing the laundry of Rick Santorum, who has not had his laundry washed yet.
Every one that rose to the top here has suddenly created a great deal of investigation and examination and Rick Santorum has never had that. And when they got it, the others, who have fallen, all capable people when they got it, they all dropped. FULL POST
Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Meeting at an EU Council summit in Brussels late into Thursday night, leaders of the seventeen eurozone countries agreed to sign a new intergovernmental treaty (NYT) mandating greater fiscal coordination and budget discipline. The highly anticipated decision is meant to quell months of market volatility by offering a long-term solution to the ongoing eurozone sovereign debt crisis.
German Chancellor Angela Merkel and French President Nicolas Sarkozy had pushed for a full overhaul of the existing EU treaty. However, British Prime Minister David Cameron rejected such a move when he failed to obtain concessions (DeutscheWelle) to protect Britain from a European financial tax harmonization plan.
The pact is expected to include twenty-three EU countries (WSJ), including six non-eurozone states that hope to join the single currency in the future. EU leaders will continue to meet today to hash out the details of the agreement. FULL POST
By Yao Yang, Project Syndicate
BEIJING – Will China help to rescue the euro, or not? In August, Premier Wen Jiabao said that China was ready to assist Europe in its hour of need. But, in December, at the Lanting Forum in Beijing, Deputy Foreign Minister Fu Ying declared that China could not. “The argument that China should rescue Europe does not stand, as reserves are not managed that way,” she announced.
For months, European leaders and International Monetary Fund officials have been hoping that China would lend a hand to save the euro. But Wen proposed certain conditions, including the European Union’s recognition of China as a market economy. Europe’s leaders, however, have not agreed to this or any other of Wen’s conditions. Hence, Fu’s insistence that China can do nothing to help. FULL POST
We've got a great show for you this Sunday: The future of Greece & the euro zone; what's next in Iran; Washington’s pivot towards Asia; and Pakistan’s “memogate.”
First, I talk to former Greek Prime Minister George Papandreou. Should Greece drop the euro? Can Germany do more? What happens next? A video excerpt of our talk is above.
Then, an all-star GPS panel on Pakistan, Iran and Obama’s new focus on Asia. We've got Anne-Marie Slaughter, Ian Bremmer, Gideon Rose, and Nile Gardiner for a wide-ranging discussion on the world.
And finally – the man behind Pakistan’s “memogate” scandal. How a Pakistani-American businessman brought relations between Washington and Islamabad to a new low. I speak to the man in the middle – Mansoor Ijaz.
Be sure to tune in Sunday at 10a.m. and 1p.m. ET.
Editor's Note: The following is reprinted with the permission of the Council on Foreign Relations.
Addressing the German parliament, Chancellor Angela Merkel called for a "stability union" (DeutscheWelle) that would include tighter and more coordinated fiscal controls across the seventeen-nation eurozone. But Merkel again rejected calls for joint eurobonds, saying they would not provide a solution for the single currency's ongoing sovereign debt crisis.
Merkel warned that resolving the crisis would take years, but that European unity depended on the preservation of the euro (NYT).
She also called for speedy changes to the EU treaty (WSJ) that would pave the way for greater eurozone fiscal unity. She is set to meet with French President Nicolas Sarkozy on Monday to prepare proposals for a December 9 EU leaders summit.
Looking at how Europe's leaders are failing to fix their debt crisis, you might be thinking, 'Hey, even I can do a better job.'
Well, there's a game to put that to the test. It's on the website of the European Central Bank.
In Economia, the monetary policy game, you are at the controls of the European Central Bank. At each step, you have to decide whether to raise the key interest rate, lower it, or keep it where it is. The aim is to keep inflation at two percent or slightly lower. You have a team of advisers and all kinds of data to help you along.
Even with all that, it's not so easy. You, too, could end up bankrupting Europe. Don't take my word for it, try it for yourself here.
Editor’s note: This is an edited version of an article from the ‘Oxford Analytica Daily Brief’. Oxford Analytica is a global analysis and advisory firm that draws on a worldwide network of experts to advise its clients on their strategy and performance.
The euro zone’s current problems are often described as economic, but the solutions will inevitably be political. Leading euro countries are preparing to impose a system of much tighter, centralized controls over member states’ public finances. The European Commission yesterday proposed measures that would involve greater union, but tend to erode national sovereignty.
The trend towards greater supervision and union will be widely interpreted as the price that Germany demands for underwriting bailouts. The European Union summit on December 9 is thus shaping up to be a battle over the future governance of the region. FULL POST