Krugman's Clear Primer on Greece

Paul Krugman's column from yesterday nicely explains the Greek crisis in a manner comprehensible even for someone who studied environmental policy and geography. The key is that being in the Eurozone, Greece cannot devalue its currency, which would make its products cheaper in other countries and other countries' products more expensive in Greece, thus improving its trade balance.

But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.

He also had some interesting things to say about how the crisis hit them. Entering the Eurozone had opened the PIIGS (Portugal, Italy, Ireland, Greece, Spain) to lots of investment because of confidence in the euro, but the financial crisis caused it to "dry up" as he puts it. This is what drove these countries' government into such dire fiscal straits. Spain was even experiencing a budget surplus prior to the crisis. Perhaps for countries who don't have a lot of financial capital themselves it's not the best idea to completely liberalize investment in addition to trade.

The Greek Debt Crisis (Part 1): Moral Hazard For Nation-States But Not Banks

I've been trying to follow this Greek debt crisis closely. Not only is it clearly affecting global financial markets, but it says a lot about big issues of political economy and social relations. Who is paying for this recession in terms of class and geography? What is the appropriate fiscal policy response to deep recession to pull us out of it? Is a double-dip recession around the corner? I'm going to leave these big issues aside for now, and juxtapose the EU's response to this crisis and its response to the earlier financial crisis.

First off, this Greek crisis has laid bare the gross hypocrisy of neo-liberal elites in Europe (and here) with regard to moral hazard. So many commentators have stated that Greece (and so many of them conflate this with the Greek working class) must be punished with severe budget austerity as a condition of a EU or IMF bailout, or otherwise other countries will not be sufficiently deterred from running into debt trouble themselves. This is a basic principle of capitalism. To achieve market efficiency, people who make bad decisions must pay the price or else they will continue to make bad ones. And to be absolutely clear, the Greek government is responsible for much of this crisis. It used interest rate swaps with the help of the wonderful people at Goldman Sachs to conceal its actual debt levels before the recession, after which greatly reduced tax revenues pushed its budget much, much deeper in the red. (How much is our fault as the collapse of our housing bubble set off a global recession? Ah, but I digress.)

Yet big European and American banks made similar if not worse mistakes. They over-leveraged i.e. ran up too much debt, made poor investments, and hid liabilities through shadow institutions and tricky devices like the Repo 105 method of Lehman Brothers. According to classical capitalist thinking, they should have been allowed to fail, or at the very least punished severely in exchange for being rescued. Instead, the Federal Reserve, European Central Bank (ECB), and the Bank of England offered extremely low interest loans to these banks, bought toxic assets off their books, and guaranteed loans. Governments similarly provided great amounts of cheap capital for these inept banks, except they used taxpayer funds rather than "printing money." Of course, some response was necessary to stave off a worse collapse, but they did practically nothing to punish the banks. So much for moral hazard!

What does it say morally about the structure of the EU's political economy when a nation-state is punished for running into solvency issues while banks are coddled? Sure there are people that work for banks, but saving banks is mostly about preserving the value of money and assets, mostly held by the rich. Last I checked governments are responsible for entire populations. Call me crazy, but I think people are more important than banks.

There's a very interesting link between these two crises, and not just in how they expose the hypocrisy of neo-liberalism. Why are interest rates on Greek bonds going so high? The media refers to the market causing this as some sort of mystical force that dispassionately calculates the risk of Greek default. In the real world, it's bond traders that determine that rate by their interest in purchasing the bonds. Given the immense concentration of huge wealth in transnational financial institutions, this gives them a lot of power to mess around with rates. In other words, speculation and even bullying plays a role in addition to calculated analysis. The great Marshall Auerback of the Roosevelt Institute calls these folks, the very same ones we bailed out I might add, "big dick swinging bond traders." Is it rational to allow these jerks to push our governments and by extension us around? I encourage you to check out an excellent article by him on this subject at the New American Perspectives blog here.

The other important players are the rating agencies that assess the risk of different bonds. The lowered rating of Greece and other smaller European countries by Moody's is what drove their bond rates so high and set off this crisis. Hmm, Moody's, sounds familiar. Oh yeah, they're those incompetent bastards who gave AAA ratings to securities consisting of bundled sub-prime mortgages that would later bring down global financial markets!

So not only is the EU punishing Greece after it propped up the financial sector, but it's letting that very same bailed-out financial sector run its smaller member states into the ground. Remember that the next time you hear an American commentator bemoan Greek "profligacy" and "excess."

Great Earth Day Edition of The Nation

The posts have been slow lately because I got married recently and figured out where I'm going to law school in the fall (George Washington, so to DC the wife and I and the kitty go), so I've had a lot going on to say the least.

I'm an avid reader of the The Nation magazine. It's a wonderful old institution of the American left. A lot of people of a more leftist than liberal persuasion have been disappointed in the magazine of late for the unwillingness of the editorial leadership to challenge some of the far-from-progressive policies of President Obama, particularly on health reform (adios public option!). Being of that persuasion, I understand their disappointment, but outside of the editors' editorial at the beginning of each issue, the articles continue to present an uncompromised critique, particularly of the escalation in Afghanistan and Obama's bellicose moves in Latin America. The magazine also funds some of the best investigative journalism out there, which we need more than ever as talking point talk shows replace factual investigation.

I always thought The Nation could use some more environmental coverage, but recently they've been really stepping it up on this front. Its coverage of the abysmal Copenhagen climate conference in December, online and in print, was fantastic, especially capturing the voices of climate scientists and climate justice activists locked out. More recently the magazine ran a brilliant cover story by Johann Hari savaging the big, corporate environmental NGO's for close ties to polluters and politicians that undercut their purpose and effect. This trend has culminated in an excellent Earth Day edition devoted entirely to the environment.

As I've written a couple times, our politicians as well as the public don't get how bad the climate crisis is. The notoriously conservative Intergovernmental Panel on Climate Change said in 2007 that developed countries needed to cut their emissions 25-40% below 1990 levels (we're well above that now) by 2020 to avoid a temperature rise of 2 degrees C, the level at which scientists believe the worst impacts will come to fruition. The climate bill passed out of the House last summer would cut emissions by 17% below 2005 levels by 2020, which is only 3% below 1990 levels. Hmm doesn't match up, does it?

As it has done on the matter of Afghanistan, with this issue The Nation presents an excellent environmentalist and left critique of inaction thus far by our Congress and the President as well as critique of the weak actions they are considering. You can read the most of the article in the issue online without a subscription here, and here's a summary of the best:

-Excellent piece by Christian Parenti on what the President could do using the Clean Air Act without any action by Congress. This is a big issue to watch come Monday when the Kerry-Graham-Lieberman bill comes out: will EPA authority to regulate greenhouse gases be stripped?

-Mark Hertsgaard and Johann Hari ridicule this invented Climategate scandal and describe how our news media gives credence to deniers who have no scientific credibility

-A surprisingly good and unmuddled editorial summarizing the worst aspects of disturbingly weak climate bills proposed from a progressive as well as environmental perspective: wasteful corporate giveaways to coal and nuclear, way too low emissions reductions, offsets (allowing companies to purchase dubious emissions reductions in poor countries instead of cutting their own), and pre-emption of states already regulating greenhouse gases i.e. rendering any state-level climate bills moot

-Robert Eshelman reviewing the huge successes of local grassroots activists and the more progressive NGO's (Sierra Club, RAN, Center for Biological Diversity) in defeating proposed new coal plants. As the lead editorial states, this grassroots and independent approach provides a good model to progressive environmentalists for fighting the broader climate justice battle.

So check out these articles, and don't be satisfied with a climate action incommensurate to the scope of the climate problem. Whatever ends up on the President's desk will be a piece of shit, and you can bet the Democrats will praise themselves for saving the planet no matter how weak it is. In working to make the bill less of a piece of shit we lay the groundwork for stronger climate action as this struggle continues over the next decade.

3 Good Policies on The Environment This Week (That Outweigh But Do Not Diminish This Drilling Foolishness)

It's unfortunate that the President's drilling plan overshadowed some quite excellent and even transformative environmental/energy policies he implemented this week. They demonstrate the rather large impact a President can have on domestic policy through the broad regulatory powers allocated to the executive branch. Of course these decisions do not legitimate offshore drilling in some sort of quid pro quo (it would be more acceptable if drilling won votes for a desperately needed climate bill, but that seems pretty doubtful to me).

It's important to note that all of these 3 good policies came from the EPA headed by Lisa Jackson. In contrast to the Ken Salazar's Interior Department, the EPA has taken a somewhat progressive post-Bush tack. A President's choice for cabinet appointments reflects the President's own pedagogy and beliefs, but those appointments can also in turn shape the President's policy opinions. In this way, Lisa Jackson has been a mildly positive force while Ken Salazar has pushed the President towards a more corporate and developer-friendly approach to our public lands and environment. Salazar's effect is quite analogous to that of Summers and Geithner in economic policy.

1) Clean Water Limits on Mountaintop Removal Coal Mining

If you haven't heard, mountaintop removal coal mining is the most destructive form of fossil fuel extraction humans have devised. This method, performed primarily if not exclusively in the Appalachian mountains from West Virginia down into Tennessee, involves blowing the top off a mountain the get at a coal seam below. The debris is dumped in valleys, which destroys forests, completely fills in miles of streams, and pollutes the remaining streams with heavy metals. Left behind are huge waste pools of toxic coal slurry. Not only is this is so terrible for the natural environment, but it pollutes drinking water supplies and toxic waste pools frequently spill near communities. The Appalachian Voices website has more info on these severe impacts.

As this Grist article recounts, the Jackson EPA has given the green light to some new MTR permits and rejected others, a decidedly mixed record. That was disappointing considering how obvious damaging this practice is, and how little benefit it brings to the local area (WV remains among the poorest states in the nation. Scholars of the "resource curse" persuasion have suggested that this is in part because of coal, not despite it as the coal companies say.)

This new rule restrains MTR projects by placing new limitations on valley fills. In announcing the rule, Jackson said very few mines if any will meet the new standard, meaning that it may become a de facto ban on this abysmal practice because the blown-up mountain tops have to go somewhere.

The excellent mining watchdog group Earthworks reminds us that the rule doesn't go as far it could have i.e. explicitly banning valley fills and/or MTR. Nor does it apply to other regions or the mining of other substances, which also employs valley fills at times. That said, more or less stopping this terrible practice is a major advance for the people and environment of Appalachia. A lot of hard-hit communities there have been fighting MTR for years, and my congratulations go to them. I only wish this happened sooner.

MTR in Appalachia accounts for almost 10% of our coal supply with disproportionately enormous environmental impact, so this decision is a big step forward. Allowing the destruction of Appalachia through MTR has been a subsidy to coal against much less carbon-intensive natural gas, nuclear, and renewables, so this is helpful in moving to curtail greenhouse gas emissions as well.

2) New Auto Fuel Efficiency Standards

In the first time the Clean Air Act has been used to limit carbon dioxide pollution, the EPA issued new rules ramping up the gas mileage new cars must get between 2012 and 2016. Average fuel economy for cars will go from its current 27.5 miles/gallon to 39, and for light trucks from 24 mpg to 30 mpg, basically an increase in efficiency of 5% each year.

This is pretty freakin awesome. Transportation accounts for a big chunk of our carbon emissions, and autos account for a big chunk of that. A carbon price through a cap-and-trade system or carbon tax would make change more slowly in the transportation sector because oil is less carbon-intensive than coal and because the consumer of gas does not have direct control over the technology through which he is burning the gas (unlike say a utility company running a power plant).

Plus this is great for all Americans who need to drive to get around. It will definitely reduce the pain at the pump as oil prices will almost certainly go up over the next decade.

It also makes one wonder, besides all the other objections to offshore drilling, why bother when we can cut our oil consumption much more rapidly and deeply by ramping up fuel efficiency, electric cars, and high speed rail? Also from a public relations move, why hype up drilling and not hype something so good for Americans and the environment that is even supported by auto companies? Drilling won't win over Republicans while it discourages progressive voters, especially the young people who had a large part in putting Obama where he is, whereas increasing fuel efficiency standards would be quite popular. Seems like bad politics in addition to the bad policy of drilling.

3) New Water Heater Standards

Not the sexiest issue, but the EPA's more stringent efficiency regulations for new water heaters are another excellent policy. Water heaters comprise a large amount of home energy usage. These new rules will save families money while cutting carbon pollution. It also frees up natural gas to lower prices and make it more competitive with coal in electricity generation.

The huge benefits of these policies are way greater than the negative impacts of offshore drilling, especially more or less ending MTR and putting a dent in new vehicle pollution. We need to keep up the heat on the president to protect Alaska and our coasts, but we also need to publicize these positive steps so as to encourage more.

Team Obama-Salazar Disappoints Again

Just as I wrote a post lambasting Interior Secretary Ken Salazar on endangered species, he and President Obama teamed up to unveil yet another terrible policy regarding the environment. They intend to lift the ban on offshore drilling off the mid-Atlantic coast, in the eastern Gulf of Mexico, and the Chukchi and Beaufort Seas off the Arctic coast of Alaska. The plan threatens important ocean and coastal habitats and will do practically nothing to reduce our dependence on foreign oil.

Obama himself admitted in his speech announcing the plan that the US has less than 2% of the world's oil reserves, yet accounts for 20% of oil consumption. Clearly drilling will not erase our oil trade deficit or even put a significant dent in it. Joe Romm found in the President's own Energy Information Administration's 2009 report that drilling in our continental shelf (assuming that rosy estimates of reserves turn out to be true, T. Boone Pickens doubts that) would reduce gas prices 0 cents by 2020 and 3 cents by 2030. Considering that that greenhouse gas reduction goals likely will have impelled our economy towards much more efficient automobiles, electric cars, and better public transportation (such as a high speed rail network) by 2030, 3 cents will mean even less to consumers than it does today.

The President's assertion that drilling will be done in an "environmentally sensitive" way is a load of bullshit. Defenders of Wildlife has an excellent fact sheet outlining the deleterious impacts of oil and gas drilling on the outer continental shelf, including routine smaller spills (oil rigs already spill 880,000 gallons of oil off American coasts annually), air pollution, invasive species, bird kills, and damage to marine mammals from seismic surveying. The mid-Atlantic drilling area would present a major threat to the already imperiled North Atlantic Right Whale. Then there's the risk of a large spill. If a large spill occurred occurred offshore in the Arctic, we have no feasible technology to clean it up. That would be a huge ecological disaster for an area already feeling the worst impacts of climate change. A similar big spill in the Gulf or on the Atlantic coast would be incredibly damaging to tourist economies in those areas as well as an ecological disaster.

In the above DN! clip, Center for Biological Diversity lawyer Brendan Cummings discerns who benefits rather than consumers and our national security: oil companies and right-wing politicians hoping to bully Obama to the right. Some will argue that this plan will push some undecided senators to vote for the climate bill that will be voted on this spring. First of all, much of the concern with the bill comes from coal states, not coastal states. Secondly, the critical Republican response to the announcement that it does not open up enough areas to drilling suggests it will fail to bring recalcitrant Republicans around. This is strikingly reminiscent of the health care battle, in which the Democratic leadership discarded good policy ideas (like the public option or negotiating drug prices with pharmaceutical companies) as much to placate corporate interests as to win votes.

In his speech, Obama stated that it is time to get past the old arguments between left and right and between environmentalists and corporations. Our "pragmatic" President has moved past these arguments by clearly siding with oil companies and their right-wing boosters.

The good news, as Cummings notes, is that smart organizing at the local and national level can stave off drilling, as it has in California and Bristol Bay in Alaska (the exemption for which is the sole bright spot in this shitty plan). Also, several environmental groups defeated Bush's offshore drilling plan in court, so they may be able to do the same for Obama's plan or at least individual leases. But still, this plan will likely allow for at least some additional offshore drilling. It also continues a troubling trend of the President rolling back or failing to enforce very basic environmental protections (like declaring new endangered species) contrary to campaign pledges and basic expectations for a supposedly center-left political leader. Fortunately, I don't think the environmental community outside of the more corporate groups will take this one lying down.

P.S. I posted my piece about the desert nesting bald eagle on Firedoglake as I do occasionally. It received quite a bit of response and was placed on the site's main page. I had a fruitful discussion with one commenter on the EPA's mixed signals in terms of mountaintop removal coal mining. Check it out here. A past post on Afghanistan made it to their main site as well. In the future, I'll insert a link when I post there.