Okay, we know that bankers got their bail out and are still making upwards of tens of millions each year.  But at a time when increasing numbers of Greeks can’t even afford their basic medicines because of their economic crisis, how about not waving in our faces the excesses others can still afford.

Just realizing that?  We are in a major global collapse, caused by the very bad policy responses to the onset of the Great Recesssion in 2008.  Those bad responses include:

(1) using sovereign debt to bail out banks (except in Iceland, which is now doing fine, thank you), thus hugely increasing sovereign debt while not stimulating the economy, because the banks sat tight to rebuild their balance sheets so they could pay their execs at 2008 levels.  So bankers got a bail out while everyone else got stuck with stagnant wages and high unemployment.

(2) Failure to address the housing market.  In the US, Spain, Ireland, and other countries, the housing market was the center of the crisis.  Yet no strong and persistent measures were taken to move excess property off the market quickly and rebuild effective demand for housing.  So homeowners were stuck with declining assets that were a drag on the economy and still depress consumer spending.

(3) Inadequate stimulus spending.  Countries went head over heels into debt to bail out banks, but resisted borrowing to invest in useful infrastructure and employment measures.  So we got increased debt without growth; the opposite of what we should have had.  The one exception was China, which ramped up state spending on infrastructure to nearly 50% of GDP.  But that was not sustainable.  People mistook that for China’s growth being ‘real’ and able to act as a motor for the global economy.  It was not.  It was the temporary lift China got from being the only country to pursue sensible stimulus policies.  But with the rest of the world, including China’s top customers, strangling their own economies by bad policies, Chinese growth cannot but slow as well.

(4) Adopting austerity policies to depress government spending.  This pro-cyclical action has made recession worse in every country where it was enacted, pushing most of Europe into a double-dip recession, throttling Greece and Spain’s hopes of recovery, and dragging down global growth.  This is a near repeat of one of the biggest blunders of the early period of the Great Depression.

(5) Kicking the can down the road on the imbalances in Europe that threatened the Euro.  For four years, policy makers faced with bankruptcy in Greece and rapidly declining fiscal conditions in Portugal, Spain, Italy, and Ireland did — nothing but scold and insist on counterproductive austerity policies.  These have done a lot to supress growth, but nothing to reduce debts (Greece’s plan to sell state assets to help reduce its debts are now useless, because no one will buy Greek assets at today’s Euro prices fearing a future collapse; this means the plans to reduce Greek debt are essentially junk and there is no way Greece can meet its promised debt reduction targets). The European Central Bank helped stretch things out by lending banks money to buy sovereign debt, thus transferring that debt back to the banks.  However, this has now made things worse because the sovereign debts were not reduced, and the weak banks have traded their troubled private and mortgage debt for even more troubled state debts.  This means the entire European banking system is tied to the risk of sovereign defaults, and will go crashing down if bond rates increase, thanks to mark-to-market rules.

(6) Failure to realize that unlike the period of the Great Depression or any other recession of the last sixty years, we are in a period of labor force contraction in all the advanced economies and China that will be deflationary and restrict demand growth.  There will be no sudden rebound in demand like that which the baby boom provided after 1940 and through all the recessions of the 1970s and 1980s.  So we cannot simply wait out the slump and expect a natural return to growth; it may take exceptional measures to promote and sustain growth in the aging advanced economies of Europe, North America, and East Asia.

It is astounding that sophisticated policy makers in the early 21st century could make so many fatal errors.  But every country apparently assumed that its problems were its own and that growth in other regions would bail it out, if they could just stall and put off complete bankruptcy as long as possible.  These hopes are now being shown to be what they are – naive optimism used as an excuse to avoid difficult policy actions. Yet I still see no sign of more positive policy steps being taken.

Sadly, I see no way out at this point.  The latest data on purchasing indices shows Europe in the sharpest contraction since 2009, with even Germany showing a decline in manufacturing; China’s slowdown is exceeding all expectations with the economy apparently grinding to nearly a complete halt in Q2 2012; India and Brazil are in major slowdowns as well.  Only the U.S. is showing sustained positive growth, but that at a measly 1 to 2 percent; and U.S. policy is headed for a massive fiscal shock of increased taxes and decreased government spending (the ‘fiscal cliff’) after the election that will knock the supports from the sole remaining major economy showing growth.

From Nick Hastings, wsj.com/europedebt:  “Snap! Snap! Snap!  If the Euro were a house on stilts, that would be the sound of its supports snapping.”

Buckle up — it may be a very grim few years ahead….

Not only is the Pope seeking to exert control over the nuns’ organizations in the U.S., he is apparently seeking to rehabilitate some reprobate, anti-Semetic priests who happen to share his hard line against the idea of allowing women priests or gay marriage.  This is the same Pope, of course, who sustained the problem of child abuse among priests by refusing to treat it as a serious matter.

Read Wills essay; it makes clear that the problem with religion is that it leaves virtue behind when it gets enmeshed in power.

Or rather, I visited the NEW Yad Vashem. The original museum/monument was designed by Holocaust survivors to document and show what they went through — it was dark, depressing, even viscerally disturbing.  But it conveyed the horror of one of the most savage episodes of man’s inhumanity.

The new Yad Vashem is bright, open, full of trees and plazas and open vistas.  The museum itself is full of film clips, historical headlines and photos, and stories — designed for a new generation (with shorter attention spans).  But for me it misses the misery and horror, and simply sentimentalizes the losses.  The goal of the museum is to humanize the millions who were lost, to give them names and lives as people.  But in the end, it was not just the people (and that includes my paternal grandparents, my mother’s sister and my father’s brother) but their suffering that mattered; and that is in danger of being lost.

When I went to visit the killing fields in Cambodia last year, their monument to the horror retains it grisly, eerie power to shock. (Notice: the next sentences may be disturbing).  Human teeth and bits of human bone still lie half-buried in the ground on which you walk.  There is a square glass column, six feet on each side and about 30 feet high, filled with the skulls of the victims, recovered from the nearby mass graves.  Because whole families were arrested by the Khmer Rouge and executed, and little children could not be hung and were not worth wasting bullets, they were swung by their heels and their heads smashed against the trunk of a large tree — the tree is still there, the bark clearly broken and blackened from impact and splattered blood and brains.  As an observer you are left gasping, wondering at the horror, and leave determined that this should never happen again.  By contrast, in Yad Vashem, you have a pile of old shoes (SHOES !!!) exhibited as evidence of the losses of the victims…

What the new Yad Vashem is designed to do is show how the Jews were singled out, shipped all over Europe for execution, and killed en masse.  The purpose seems to be to inspire the Israeli Defense Forces (in which all young Israelis must serve) to do anything necessary to prevent Jews from being killed again.  Indeed, there were lots of IDF in uniform going through the exhibits in groups.  From my perspective, it was all a bit strange, as here are uniformed young people looking at posters of uniformed Hitler youth and SS Forces, getting motivation to protect the Jews of Israel — except that their main job will be serving as occupation forces that dehumanize and limit the rights of Palestinians, herding them into designated areas and through checkpoints, protecting the settlers who are encroaching on Palestinian lands.

Sadly, all young Israelis will have to go through the experience of being an occupying army in the Palestine territories.  There is no end to this in sight, and the problem is getting worse as the Palestinian population grows.  Soon, there will be more non-Jews than Jews living in the lands under the Israeli government (including Israel and the occupied lands).  The inevitable logic is that Israel will have to permanently disenfranchise and limit the rights of the non-Jews; otherwise Israel cannot remain both a mainly Jewish and a democratic country.

In a way, this is unsurprising.  The history of Jerusalem since the Babylonian exile 2500 years ago is essentially one of repeated ethnic cleansing — the winners expel the losers (which at various times included the Jews, the Byzantines, the Mamuluks, the Crusaders, the Ottomans, the British) and take their lands and homes.  Why should we expect this to change?

Yet the experience of occupation is painful, even dehumanizing.  When you walk the ramparts of the Old City, and look out on the modernizing booming western part of Jerusalem, and then turn the corner and look at the Arab slums of East Jerusalem, it is reminiscent of other divisions that marked political and military borders – of east and west Berlin, of north and south Korea (I was at the DMZ two years ago, and the feeling was oddly similar).  They can last a very long time indeed.  But to make it work, you have to keep up a hostile view of the people on the other side.  The Wall and the occupation have made Israel safer — but the price of saving the body has been damage to the soul.

On the west side of Jerusalem, not all is well either.  The orthodox Jews, who are also growing rapidly in number, dress — amazingly to me as I sweated in the bright burning sun – in the heavy black clothes and hats of eastern Europe.  I would understand if they want to be traditional, and wear the clothes of Jews from Abraham’s time, or even Solomon’s.  But why interpret tradition as wearing the garb of the 18th century stettl?  I am told that many of the orthodox live in neighborhoods from which they rarely go out, and even speak Yiddish, not Hebrew!  They are not building a new, modern Jewish state as much as they are recreating the Warsaw ghetto.

In some ways, that is appropriate.  One fact you learn in Yad Vashem is that of the nearly 6 million Jews who perished in the Shoah, fully half were from Poland, another third were from Russia and southeast Europe; only about 15% were from Germany, Italy, and western Europe.  So maybe there is a strange logic in seeing 19th century east European Jewry recreate itself in Jerusalem.

The orthodox have done many useful things, rebuilding Yeshivas and neighborhoods.  Yet they seem oddly disengaged from modern Israel, having exemptions from taxes and military service they do little to support the society that shelters them.  This seems about to change — new court decisions have questioned these exemptions. Still, their clothing and attitudes seem light years apart from those of secular Jews, who are fashionably dressed, working on cures for cancer and other miracles of the latest technology.

I was particularly distressed to see that at the Wailing Wall, the holiest site of Jewry, there are still segregated “men’s” and “women’s” sections walled off for prayer — and of course the women were crammed into a space one-quarter the size of the men’s!

The division of Jerusalem into four quarters — Moslem, Jewish, Armenian, Christian — thus seems an apt metaphor for the divisions growing and deepening within Israel itself.  Except that the main divisions are the orthodox Jewry, the secular Jews, the Arabs inside the wall (who have Israeli citizenship and are thus in a very odd condition, inside but cut off from their families on the other side), and the Arabs in the occupied West Bank.  It is hard to see how they will all be able to live in harmony; instead what they have is a constant, quiet tension, eating away at the dream of a united, modern, Jewish state.

Germany replied “No Way.”  I don’t really blame Germany; after visiting last month, I can see how much the Germans feel they have already paid to rescue East Germany from its decades of communist-imposed poverty and decline.  Asked now to rescue other countries from their self-imposed poverty and decline, their response is, understandably, “No, go bail yourself out or fix your own problems.”

Sadly, that is just not possible.  The fix we are in is that Germany and Greece and Spain and Italy are democracies.  The voters in the first will not spend their money to fix problems in the latter; voters in the latter cannot swallow the devastating austerity that Germany is asking them to swallow (and which won’t do anything to rescue their economies without broader European and global growth anyway).

So it looks like we will slide toward default and worse, with every country in denial, rather than gain an orderly exit of weaker countries from the Euro and an adjustment of their economic balances.  I fear the next crisis is just around the corner (again…)

If you would like to order the book, here is link to the publisher’s page:

http://www.oup.com/us/catalog/general/subject/Politics/AmericanPolitics/PoliticalSociology/?view=usa&ci=9780199945962

First, like everyplace else in the world, inequality is growing, as those profiting from globalization leave everyone else behind.  Last summer, there were huge demonstrations in Israel by ordinary Jewish citizens protesting that rents had grown unaffordable.  The government blinked and promised new construction adn rent regulation.  But at the end of the day, the question for all industrialized economies is how much they will either redistribute the gains of their big economic winners to everyone else, or let the majority of their workers suffer from stagnant wages and try to justify the increasing inequality.

Another approach is to distract people from economics with nationalist and religious rhetoric.  Yesterday was Jersualem Day in Israel, and larger than ever crowds dominated by conservative religious and nationalist groups marched through the city.  This year, for the first time, they gained the right to march right through the Muslim sections of the Old City to the holy sites area.  This is a bit like the Orange Unionists (Protestants) marching through Catholic areas in Northern Ireland.  I’m told this demonstrates the increasing power of the religious and nationalist right (pro-settlements, anti-negotiation with Palestine).

Prime Minister Binyamin Netanyahu has strengthened his position by entering a broad unity government with the Kadima party.  Yet he also retains the Shas and other far right parties in his coalition, giving him an overwhelming majority.  No politician in Israel can challenge “Bibi” as he is called here — Time Magazine has crowned him “King Bibi” (an Israeli magazine used the more amusing “BiBi King”, but you get the idea).

Unfortunately, as far as I can tell, Netanyahu has no intention of slowing his plans to dismember Palestine by expanding settlements and render a viable Palestinian state an impossibility.  The talk here is that the Arab Spring has created so much uncertainty that this is no time to try to make a peace deal.  I think a case can be made that a peace deal would position Israel better to cope with the rising populism and Islamism of the region; but the Israeli view is that withdrawal from southern Lebanon only strengthened Hezbollah, and withdrawal from Gaza only entrenched a hostile Hamas, so withdrawing from the West Bank would be madness.

The result may be that Israel feels more secure, but it is getting to be a much less pleasant place.  Anti-Arab racism is increasing (I got an earful of that from my taxi driver at the airport), and I’m told that it’s not safe to venture outside of Hebrew University’s Mt. Scopus campus where I am staying, surrounded as it is by east Jerusalem’s Arab settlements.  Security to enter the campus is much like airport security — full body scans at dedicated gate houses await any vistor without a University ID.  Keeping Israel a democracy and Jewish without a two-state solution will require the endless disenfranchising of millions of Palestinians, and endless occupation and security measures against a hostile Arab population.  Seems to me a high price to pay.

Jerusalem is beautiful though — and just as rich with Christian monuments as places holy to Jews or Muslims.  Indeed, you see lots of evidence of the Crusaders in the monuments, wall, citadel and churches. The two Churches I visited yesterday – the Franciscan Church of St. John the Baptist and the Church of the Visitation — were truly ecumenical world monuments, with plaques in 80 or so different languages lining the main walls.

It would be a wonderful world if Jerusalem, with its concentration of Jewish, Muslim, and Christian holy sites, could be an example of inter-faith peace, tolerance, and cooperation.  It should be an international “Peace City” as well as harboring the Israeli and Palestinian capitals.  But that is not what we see; instead it is becoming a living monument to racism, intolerance, and interfaith conflict.   So sad….

Mark Zuckerberg deserves credit for changing people’s lives.  Clearly, from the amount of time my daughter spends on Facebook, it is a big attraction for many people.  Whether he can monetize it as effectively as Google has monetized its web engine remains to be seen, but I wish him well.

Some people also give credit to Facebook, Twitter, and the web more generally for changing the world through its impact on popular mobilization, particularly in the Middle East, underpinning the Arab Spring.

Yet we have seen how little good the internet has done for the opposition in Syria, (or in 2009 in Iran), against a determined authoritarian regime that retains command of its armed forces and the loyalty of its elites. It was the Army in Egypt, not the internet, that got rid of Hosni Mubarak, and the Army is still clinging to power.  It was NATO, not the internet, that got rid of Moammar Ghaddafi in Libya.  In Syria, with its regime strongly reinforced by Iran and most of the elite still sitting on the fence or leaning toward staying with the Assad regime, we will not have an internet revolution or any kind of revolution until the international community demonstrates that it is willing to give material support and cover to Syria’s opposition.

Meanwhile, the real financial story is the slow-motion but accelerating collapse of Greece, Spanish banks, Italian finances, and the Euro.  (Italy’s GDP figures came in weaker than expected, and Italy’s GDP is now 7% BELOW its level of Q1 2008.  That is not a recovery.)

Neither Spain nor Italy, much less Greece, can repay their debts and get their finances under control without a return to strong economic growth.   Yet government austerity policies are simply pushing growth further away, without reducing the ever-growing drag from burdensome debts.  Years have now been spent moving in the wrong direction, heading for a cliff, which is now so close that momentum is likely to carry these countries over the edge.  The losers will be the ordinary people of southern Europe, who have already lost jobs and businesses, and will soon lose their savings as well.

Bashar al-Assad in Syria, oddly, is perhaps the real winner from the European crisis.  The crisis is distracting Europe from other matters of importance, and preventing it from using any muscle to influence international events.  So despite entering the Facebook era, Assad can smile, knowing that the bigger economic story — the self-destruction of the Euro and several European economies — will have a greater impact on his survival than new tools for the web.

Still, while it is joyous to have any good news to report, I am not sure this is such welcome news.  The strong growth in Germany will likely make German leaders even more complacent and smug about their economic model being a success, and make them feel more justified in their criticism of their struggling neighbors.  The strong growth may also lead German bankers to be more concerned about rising inflation (which had been mentioned as a vehicle by which Germany could assist Eurozone adjustments).

A bigger concern is that this quarter’s growth was temporary and hence illusory.  As noted in my last post, China grew reasonably strongly in the first quarter of 2011 (Jan-March) as well, but the April figures show a shockingly sharp drop in its economic indicators.  Since Germany’s growth has depended significantly on strong exports of machine tools and luxury goods to China, we shall have to see if April export and production figures in Germany show a similar decline.

Good news is welcome, and if strong German growth is a year-long trend, that will offer some hope both that Germany can afford to be generous in supporting its Euro partners and that other countries in Europe can gain from German expansion.  But if this was a blip, and the 2nd quarter of 2012 shows much weaker growth in Germany, then we will be back to wondering where growth will come from and if there is any way to save Europe’s faltering banks and weaker economies while preserving the Euro.