May 6, 2013

Digby flagged this segment from this Sunday's Fareed Zakaria GPS, and as she noted, Zakaria seems to be singing a very different tune now on whether austerity is popular with the masses in Europe than he was four years ago. And as she noted, being wrong never seems to get anyone kicked out of the club once you've gained entry as one of the Very Serious People by our corporate media.

Fareed Zakaria four years ago in a post called The Center Holds: In Britain even pain is popular":

Three weeks ago the new chancellor, 39-year-old Tory George Osborne, presented a budget that promised to get Britain’s fiscal house in order with sharp cuts in spending, coupled with tax increases. It landed in the midst of a heated debate across the industrialized world about how to best get the economy back on track. Osborne and his boss, Prime Minister David Cameron, have come down firmly on one side of this debate, hoping that a major effort to reduce the deficit will reassure bond markets and investors that Britain is a safe and compelling place to put their money.

Leaving aside the economics of this, what struck me as I spent time in Britain last week was the politics of deficit reduction. Having announced major cuts in popular programs, plus hefty tax increases, the Cameron government might be expected to be losing popularity by the day. But in fact the budget was well received by the public—though attacked ferociously from the left—and the governing coalition has actually inched up a bit in the polls.

There are several possible reasons for this. Cameron has played the public role of prime minister exceedingly well, making a pitch-perfect apology for the British Army’s wrongful use of force in Northern Ireland in 1972, and handling himself on the global stage with grace and ease. It’s also true, of course, that the effect of the cuts and taxes have not yet been felt, and when that happens, the government’s poll ratings might plunge. But clearly the honesty of the budget has resonated with voters.

It’s heartening to see a government do something that it must have thought would be deeply unpopular, and then be rewarded by the public...

I love this description of how he reacted to the commentary from his guests. Potted plant indeed:

Zakaria still rails against "entitlements" (which his earlier guest Stephen Haas described as a "cancer" to no objection from anyone) but he hasn't exactly come clean about the disastrous effects of the austerity measures in Europe that "heartened him" so strongly, has he? No, today he sits there like a potted plant while the bill of indictment rolls right over him.

But then he's a card-carrying Very Serious Person which means never having to say you're sorry.

Ain't that the truth? I don't always get a chance to watch all of his show every week, but I don't recall seeing him doing much to rebut that flawed economic study by Reinhart and Rogoff which the right has used to justify austerity as well. Most of our corporate media has done their best to ignore that, even as many of them, as Zakaria was here, have finally been forced to admit that maybe that whole push for austerity isn't working out so well.

Full transcript below the fold.

ZAKARIA: May day was a day of protests this week across Europe and England, France, Spain, Greece and beyond. Protesters hit the streets angry about the economy. But they are also expressing anger about austerity, the policy of trimming government expenses. With a number of politicians in the West admitting that austerity is failing, is it the end of austerity? I'm joined by two very smart economic thinkers and writers Gillian Tett from "The Financial Times" and Rana Foroohar from "Time" magazine. Welcome.

Before we get to all of that, U.S. numbers, Rana, you wrote a column where you said everyone is looking at these economic numbers from the U.S. and saying they're bad.

ZAKARIA: You actually found a silver lining.

RANA FOROOHAR, TIME MAGAZINE: Well, absolutely. You know, the government spending has been down. We're feeling the effects of the sequester and if you look at the two percent economy, which we've been in now for a couple of years, that's in part due to the fact that the public sector has cut back so much. But if you strip the public sector out, the growth numbers actually go up above three percent. It's about 3.1 percent and most of that is down to the consumer. You know, American consumers have actually done a really good job of balancing their budgets, getting out of credit card debt, managing their own personal finances and now they can dip a little bit farther into savings than they used to and that's what they did last quarter.

GILLIAN TETT, THE FINANCIAL TIMES: Absolutely. Rana's right. And she's highlighting one of the great unsung stories of the last year, which is that consumers have actually managed to adjust to the new normal, if you like. Credit card debt, which was such a key factor in creating pain for millions of American households during the bubble, that credit card debt is now down to ten-year low. So people actually have been trimming their spending and what that means is that the consumers are in not quite the kind of situation that your grandfather was in, you know, 40, 50 years ago in terms of debt, but certainly something much healthier.

ZAKARIA: So, you said, you know, taking out the effects of reduced government spending.

TETT: Yeah.

ZAKARIA: This economy looks pretty good. That is the private sector engine -- companies and people is moving pretty well. Do you think that people now feel that the government has been cutting back too much in a period of weak economic demand? In other words, are we actually witnessing a kind of shift where people are going to say, enough austerity. Let's try to actually doing it. Because I hear the academic debate, but I don't see any government policy changing.

FOROOHAR: Yeah, well, I think, you know, political gridlock in Washington is going to make it hard to come up with the kinds of spending that would actually be useful. I mean yes, I would love to see more spending on things like infrastructure and education. You've written about that. We've all talked about that. I think that's going to be difficult. But there is this push back now against austerity. We can see that it hasn't worked well in Europe and we can see that the government and public spending, the lack of public spending is a real drag on growth in this country. We just have the effect of being the prettiest house on an ugly block. You know, so we are still doing pretty well compared to others.

ZAKARIA: What does it look like in Europe, because in Europe you're actually having, you know, people like the president of Ireland saying austerity is -- led us nowhere.

TETT: We had some astonishing statements from Ireland this week about the fact that actually, it's not just about an economic union, it's about a social union, a political union and if that phrase, it really could be a lot of upheaval (ph) in the Euro zone, because the reality of the countries like Ireland, like Greece, like Italy and Portugal are getting absolutely fed up by being told by the Germans and the IMF that they have to do more austerity. You can see the results. I mean 27 percent unemployment rate in Spain. Potentially even higher, if you actually look at the numbers properly. Similar levels in Portugal and Greece. You have an entire generation that's essentially being thrown into the garbage can right now and the problem with that is they're not spending, they're not stimulating the economy, you're not seeing the kind of green shoots to the demand that you're getting in America that Rana has been writing about.

FOROOHAR: You know, I think, also, you may start to see a shift in Germany after the elections. You know, there's always been a lot of posturing on the part of Merkel and other German leaders because they want the rest of Europe to get the sense that, well, Germans will cough up money, but if you behave better, if you behave more German, if you're thriftier. So that's the stance politically she has to take to sell any kind of bailout within Germany. I think after the election, there's going to be an increasing realization that Germany has as much to lose if not more than any other European country if there is a fracture in the Euro zone. Because if you think about it, a lot of their trading partners are in the Euro zone. If they go under, Germany's export economy, which is the driver, is really going to suffer.

ZAKARIA: You made a piece about Bangladesh, about the Bangladeshi factory that I thought was fascinating. You think that this fire in Bangladesh in the factory might make us rethink this whole idea of outsourcing manufacturing all over the world.

FOROOHAR: Yeah. I did a cover a couple of weeks ago with a colleague Bill Saprito about the Made in America phenomenon and a Renaissance of manufacturing. A lot of people have been talking about how manufacturing is back and it is back. The jobs haven't come back in mass yet, because there are still these big, complex supply chains in places like India and China. But one of the things that I heard a lot from CEOs was how risky these supply chains are now. You know, they might cut a deal with a supplier and get that supplier and send inspectors, but those suppliers on the ground have outsourced to, you know, mom and pop shops that are very difficult to regulate. So, this is a kind of a political risk and a risk on the ground that is very hard to police. And I think companies have lost billions in recent years reputationally around these things. And I think this coupled with rising energy prices that make it more cost effective to do production closer to home and also the need for sort of quick, customized products, I think that's all going to start to push people to think more about moving manufacturing closer to home.

ZAKARIA: You think it's a kind of broader issue here, localism versus globalism

TETT: Yeah, no I think, Rana has (inaudible) a brilliant (inaudible). Because I think it was either the thought about where your dress was made. I mean I'm just going to go and buy my stuff and think about it. We take for granted the prices are low. But what we are starting to see, partly because of Bangladesh's fire, partly because of the grand (inaudible) of social media is a degree, to which consumers can actually turn on a dime and you really can have serious brand damage very quickly. And the question of where things are made is going to be increasingly important, but also from purely rational perspective today the fact that you do have American wages becoming more competitive on global standard. The fact that actually the cost of moving things around the world physically is high means that, again, we could see more and more of this kind of reshoring, if you like. This localization while more globalization taking hold of the theme.

ZAKARIA: Well, it's been fascinating. Two brilliant women on and you don't even disagree ...

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