Volume V, Issue XIV

Volume V, Issue XIV

December 6, 2010

JHU POLITIK EUROPEAN DEBT WOES A NEW BAILOUT FOR IRELAND

ISSUE XIV, 12/6/10 Also in this Week’s Edition:

INTERNATIONAL THE WIKILEAKS DELUGE

By Anna Kochut, ‘13 -Page 3

NATIONAL WILL PAST LEGISLATION REMAINED PASSED?

By Randy Bell, ‘13

-Page 4

OPINION THE CHOICE IS CLEAR: COOPERATE

By Paul Grossinger, ‘11 -Page 5 (Peter Morrison/AP)

Irish Prime Minister Brian Cowen, left, and his Minister for Finance, Brian Lenihan.

By Daniel Roettger, ‘13 -Page 6

by Briana Last, ‘14 Staff Writer

U

ntil Ireland’s housing bubble burst in 2007, from the mid 1990s onward, its economy was booming. For a dozen years it was the fastest growing economy in Western Europe, with rising foreign investment and exponentially increasing exports, which in turn invited a newly skilled and developed foreign labor force. However, rapid growth came at a price – the Irish began purchasing real estate recklessly, spurring the credit-inflated bubble in property prices. Since 2007, Ireland has experienced the rapid destruction of its economy: unemployment at staggeringly high rates, a baking system now in shambles, and a deficit that has put the nation on an unsustainable path.

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THE (FALSE) REPUBLICAN MESSAGE

This past week, the International Monetary Fund (IMF) and the European Union (EU) came to the rescue by issuing an emergency bailout to Ireland, as was done last summer for Greece. The total package of €100 billion (approximately $114 billion) also included €35 billion to be used to stimulate Irish banks.

The Irish government has already contributed €32 billion to the banks, adding up to €67 billion of bank stimulus, about 50% of Ireland’s gross national product. According to many observers, this tremendous amount of money is not so much indicative of Ireland’s needs as it is a symbolic gesture of the steadfastness of the European Union.

However, whether the bailout will

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yield the desired results is debatable. According to The Guardian, published on November 28th, “The EU authorities hope the Irish bailout would draw a line in the sand and halt the threat of Spain and Portugal needing international assistance. But tonight, investors and analysts were far from certain this could be achieved.” Despite the Irish bailout, economists still fear that Portugal and Spain will soon have to cope with the same economic woes Ireland is facing currently. Others still have hopes that the tremendous bailout might ensure the economic success of Ire(Continued on Page 2) www.JHUPOLITIK.com

Volume V, Issue XIV

December 6, 2010

The POLITIK EDITOR-In-Chief

Editor-in-Chief

Editor-in-Chief

Joshua Ayal

Harry Black

Sam Lichtenstein

Staff Writers

Executive Editors

Randy Bell Alex Clearfield Rachel Cohen Rohit Dasgupta Eric Feinberg Becca Fishbein Conor Foley Cary Glynn Benjamin Goldberg Paul Grossinger Dan Hochman Jordan Kalms Anna Kochut Hilary Matfess Daniel Roettger Ari Schaffer

Managing Editor

Will Denton Morgan Hitzig

Matt Varvaro PRODUCTION MANAGERS

Casey Navin Neil O’Donnell Faculty Advisor

Steven R. David JHU POLITIK is a student-run political publication. Please note that the opinions expressed within JHU POLITIK are those solely of the author.

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INTERNATIONAL REPORT (Continued from Page 1) land and the Eurozone as a whole, thus convincing the bond markets that the E.U. will do anything it must to ensure the economic success of one of its member states.

Following the bailout, however, the bond markets were not as forgiving of Ireland as some might have hoped. According to an article published on November 25, 2010, in The Economist, the rescue package seems to already be a failure: “The bail-out’s failure was immediately apparent in the spreads of Irish, Portuguese and Spanish government debt over German bonds. Within 24 hours, these had grown wider than before the deal was announced.” In another article “Not Waiving But Drowning,” Paul Krugman, a liberal economist and New York Times columnist wrote, “These [the bond] markets are evidently not reassured. But why should they be…

Ireland really can’t afford to pay these debts.”

In addition to no immediate economic success, the bailout also inspired many protests throughout Dublin.

Tens of thousands of protestors took to the streets two weekends ago in solidarity against the austere measures, the most severe imposed on any European country ever.

Not only is it unclear as to whether the country can reasonably pay back its debts, but also it is certain that there is large opposition to doing so.

To be sure, many of Ireland’s economic woes were results of its own doing. For one thing, Ireland’s banks were largely deregulated. Moreover, the regulation that

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was in place was simply not enforced due to the close relationship Irish politicians and the real estate development sector. In addition, in 2008 the government made the decision to guarantee bank losses and liabilities.

Though this issue has been inflated to be the root cause of Ireland’s banking problems – Ireland would have required a bail out with or without this policy – it stripped incentives for Irish banks to succeed and allowed for sloppy decision-making. The startling low corporate tax rate, which helped the country’s economy growth, also contributed to its decline. It produced massive capital flows that many economists have deemed unhealthy.

However, the euro is also partly responsible for some of Ireland’s problems. The combination of the boom due to corporate tax rates and low euro zone interests heavily contributed to the problem. Interest rates were too low for too long in Ireland. In order to deal with this, the country implemented offsetting contractionary fiscal policy, but according to Megan McAardle, a writer for The Atlantic, “it was not able to contract enough (politically, practically) to counter the monetary stimulus from ECB [European Central Bank] policy and capital flows.

When the crash came, the country was unable to take the most obvious and least painful route out of its troubles: devaluation and (maybe) default.”

Devaluation of currency, often implemented by print(Continued on Page 3) www.JHUPOLITIK.com

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December 6, 2010

INTERNATIONAL REPORT (Continued from Page 2) ing more money into the system, is an oft-used tool for countries to offset economic irregularities. The United States, for example, recently implemented a second round of quantitative easing to stimulate the economy.

However, because the euro is used by different countries, each with its own economic challenges, Ireland was not able to control its currency and help prevent, or at the very least, slow down, its demise.

Regardless of the recent economic aid package, analysts are already looking to the Iberian Peninsula with worry. While the leaders of Portugal and Spain claim their finances are in better order, fears are already rising about the economic crisis expanding to other, less economically prudent countries. If it does, the basic effectiveness of the E.U. may well be put into question. s

The Wikileaks Deluge

by Anna Kochut, ‘13 Staff Writer

Over the past week, the notorious whistle-blower website WikiLeaks has begun to release hundreds of thousands of previously secret American diplomatic cables. The total number, reaching slightly above 250,000 cables, poses a significant threat to United States’ diplomatic efforts. These cables are mainly from the past three years of American diplomatic activity. Although only a small amount of the complete total have been released, the ones that have already been leaked not only reveal the inner workings of the United States in the Middle East, but also the nation’s involvement in China and other countries.

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One of the more alarming aspects of this latest release of documents, observers agree, is that they were from the private, secure email–switching service that links messages from U.S. embassies abroad to the State Department and Pentagon in Washington. This fact understandably poses a significant security threat. Several countries around the world are taking action, namely against the founder of the website, Julian Assange. In fact, both Sweden and the United Kingdom have warrants out for his arrest.

Washington’s reaction to this release of secret state cables is mainly to highlight the fact that, as U.S. ambassador to Pakistan Cameron Munter says, “diplomats must engage in frank conversation with their colleagues, and that they [have been] assured that these conversations will remain private.” He goes on to assert that “whatever [WikiLeaks’] motives are in publishing these documents, it is clear that releasing them poses real risks to real people.” However, due to these frank statements, many world leaders have expressed displeasure at the opinions of them in these messages. Nonetheless, Secretary of State Hillary Clinton has issued statements reassuring watchers of the international political stage that the administration’s diplomatic relationships would survive.

The cables that were released to the media by WikiLeaks have received interesting feedback. Several of the world’s prominent leaders were discussed in frank, honest terms. For example, German chancellor Angela Merkel was described as “risk averse and rarely creative.” Other foreign public figures, such as Italian Prime Minister Silvio Berluscioni and Germany’s foreign minister Guido Westerwelle received similarly disparaging comments. However, observers agree that everything might have been put into perspective when Israeli Prime Minister Benjamin Netanyahu commented, “you should hear what we say about you.” Netanyahu also made the statement that “there is not a huge gap between what we say behind closed doors and what we say openly.” Based on these comments, some observers have concluded that perhaps the WikiLeaks release will not be as big of a catastrophe as was initially feared.

Nevertheless, there has been plain outrage, as well.

Iran and Iraq have been the subjects of the most sensitive cables. Iraq’s foreign minister Nuri Kamal al-Maliki calls the leaks “unhelpful and untimely” due to their release close to the nation’s important elections. As for Iran, unsurprisingly the cables focus mainly on the country’s nu(Continued on Page 4) www.JHUPOLITIK.com

December 6, 2010

Volume V, Issue XIV

INTERNATIONAL REPORT / NATIONAL REPORT (Continued from Page 3) clear missile program. The Iranian response to the cables has been the angriest: Iranian officials have accused the United States of releasing the cables on purpose. The Italian prime minister has made similar statements, claiming that the WikiLeaks release was part of a strategy to discredit the country’s government.

Given the wide array of opinions, the full effect of the release of these confidential documents is yet to be realized. One thing, however, is certain: international political anaylsts will wait to see whether or not the documents’ release will actually affect the foreign policies of various nations. If it does, observers agree that this will likely raise new concerns about the relative power of the media. After all, if diplomats cannot trust in the secrecy of diplomatic cables, one can only wonder whether the damage done by the release will manifest itself more in the future. s

Will Past Legislation Remained Passed?

by Randy Bell, ‘13 Staff Writer

On January 3rd, 2011, John Boehner and the Republicans will rise to power on Capitol Hill with a clear mission to sail the ship of state in the opposite direction and return Congress to conservative principles. Republicans, who will return to a majority in the House of Representatives for the first time in four years, look to enact legislation over the next two years to reflect what they see as a clear mandate for smaller government, lower taxes, and a sharp decline in spending. As the 111th Congress comes to a close, though, Democrats will have more on their plate than merely protecting their role in future

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policy decisions. They will also have to struggle to protect past legislative accomplishments from being repealed.

In 2006, current Speaker of the House Nancy Pelosi said, "You must drain the swamp if you are going to govern for the people". Since then, she and her fellow Democrats have passed landmark pieces of legislation that have been anything but uncontroversial. Taken together, the Patient Protection and Affordable Care Act (healthcare reform), the American Recovery and Reinvestment Act (stimulus bill), and the Troubled Asset Relief Program (bank bailout) have been the centerpiece of the Democrats’ legislative program.

As Pelosi's party is drained of power in the House, Republicans are threatening to repeal these bills from law, claiming them to be examples of reckless spending by an out-of-control Congress. Projections indicate that healthcare reform will cost $940 billion over the next 10 years, the stimulus bill $787, and the bailout of the nation’s troubled banks up to $700 billion, but Democrats defend these bills by stating that the economy would have been in a devastatingly worse condition than it is now without them. They also say that the effects of the bills work to neutralize the budget, citing reports from the Congressional Budget Office reports that healthcare reform will actually yield a surplus of $6 billion and that bailout loans have been paid off with interest to yield a current net loss of only $30 billion.

Regardless of these arguments, the Republicans still look to follow through with their "Pledge to America,” a list of promises House Republicans running in the recent midterm elections said they would make if elected to a majority. Among these promises are the repeal of the healthcare bill, a cancellation of all future TARP payments, and a return to 2008 level non-discretionary spending before TARP and the stimulus package were passed. Since they will now have a majority, Republican leaders seek to fulfill their promise.

Nonetheless, with a minority in the Senate and a presidential veto from Barack Obama staring them down, the Republicans will not have any luck in a complete repeal of the bills. However, there are other ways that the Republicans can slow down and chip away at them. Working with the Senate and President Obama, the Republican majority in the House is poised to make small revisions to the bills that all parties can compromise on. For his part, President Obama has already submitted to the possibility of altering certain Internal (Continued on Page 5)

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NATIONAL REPORT / OPINION (Continued from Page 4) Revenue Service (IRS) reporting requirements in the healthcare bill. Additionally, the Republicans can essentially "bureaucratize the bureaucracy" of the law by overseeing agencies like the IRS responsible for carrying out the provisions and stifling their regulations whenever they can.

The Republicans may not be able to make any major changes to the bill, at least in the next two years, but they are adamant about doing everything they can to try.

"This is not a 'Jeopardy!' question where there is just one right answer," said Congressman Joe Barton (R-TX).

"House Republicans are committed to repealing the existing Obamacare bill. That's not window dressing, but we are going to do a three-pronged approach. We'll do repeal, we'll do a reform bill; we'll do a defunding bill.

It's all of the above."

Coming off their big win last month, the Republicans (AP) have considerable support from the American people for their political agenda. The TARP bailouts and stimulus package have never enjoyed strong popularity and according to a Rasmussen Reports national telephone survey, 46% favor repeal of the Health Care Bill. Regardless of these facts, however, Republicans will still have to contend with the political reality of a Democratic-controlled Senate and a Democrat in the White House. What compromises will be made is anyone’s guess, but Republicans still have a long way to go before they can repeal the actions of the 111th Congress. s

The Choice is Clear: Cooperate

by Paul Grossinger, ‘11 Staff Writer The year is 1994. Bill Clinton and the Democrats have just suffered the worst shellacking in a half-century. The Republican Party is ascendant and, having regained control of the House of Representatives for the first time in a decade, determined to shift the national agenda towards its own goals. The nation prepares for a period of political uncertainty and upheaval and numerous political pundits unceasingly predict the coming end of American economic greatness and global primacy.

The year is 1998. Four years of interparty cooperation have led to a period of unprecedented prosperity. The

size of the military has been reduced and, while its potency has not faded in the least, annual military upkeep costs have fallen below $300 billion annually. Cooperation on welfare has led to cost-reducing reforms, Medicare and Social Security are on the upcoming agenda, and successful legislation has brought the nation from backbreaking deficits of over six percent of annual gross domestic product to the first surplus in over 30 years.

Why the history lesson? Looking back at the nation’s political, social, and economic transformation in the mid-1990s shows the value of political cooperation. Each party believes its own agenda is superior but, time and time again, periods of intense cooperation have emerged as the most successful, progressive, periods in our national history. Both President Obama, whose extremely liberal policies have cause the national deficit to balloon and turned off voters over the last two years, and the ascendant Republicans would be wise to remember this lesson: ignore the tendency to be partisan and embrace cooperation.

For Obama, cooperation is just the tonic needed to save his flagging presidency. In 2008, anger over eight years of Republican mismanagement ushered the Democrats into power, but Obama and Speaker Pelosi both mistakenly believed that Americans had elected them to pursue a liberal economic and social agenda. The result was bitterly divisive partisanship, a massively expensive healthcare law enacted without any Republican cooperation (or the spending controls such cooperation might have provided), a ridiculous increase in the size and scope of government, and a massive deficit increase.

This country is a politically center-right nation and, historically, Americans have hated each and every one of these developments – big government and high deficits in particular.

The reality check voters dealt Democrats last month was the worst political defeat in party history. The American people nearly unanimously condemned the nation’s current track and, by putting Republicans in charge of the legislative branch, issued an unmistakable ultimatum to Democrats: move to the center, create a unifying agenda, and cooperate with Republicans to actually get things done. The declaration to President Obama is clear: make these changes or face the dreaded prospect of becoming a one-term president.

Clinton received the same ultimatum in 1994; in fact, the specific parallels are striking. Clinton came into (Continued on Page 6)

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OPINION (Continued from Page 5) power in 1992 on a wave of anti-Republican sentiment.

Americans were angry over high deficits, excessive military spending, tax increases, a recession, and flagging economic vitality. Clinton came to power and pursued an unabashedly liberal agenda for two years that included a push for healthcare overhaul (sound familiar?) that divided the capital and pushed partisanship to new heights. Believing they had received a liberal mandate from the American people, the Clintons pushed ahead with these policies…until they got smacked in 1994.

However, after the defeat, Bill Clinton read the clear political message, tacked to the center, and mixed traditional democratic values (increasing education funding, building soft power, and lower class enfranchisement) with bipartisan deficit reduction and social welfare reform. Like the historical similarities, the results were spectacular and provide a clear blueprint for President Obama.

Moreover, the similarities between 1994 and 2010 are significant because, along with the changes from 19941998, they show that doomsday predictions are all premature and cooperation is the clear path to American rejuvenation. Americans tend to think of the 1990s as a period of unprecedented prosperity but this is foggy history. However, the first half of the 1990s was marked by uncertainty, recession, and such partisan political deadlock that parts of the government shut down in 1995. But the nation solved these issues with astonishing speed and, contrary to popular belief, America’s current problems are equally solvable with the right political cooperation.

Without any changes, the national deficit will hit $418 billion in 2015, but several bipartisan changes could gap this and even create a surplus within that five-year window. According to approximate statistics provided by the New York Times, the following changes would lead to a balanced budget in 2015: eliminating earmarks (-14), cutting the inflated pay of civilian federal workers by 5% (14), reducing the over-large federal workforce by a modest 10% (-17), reducing military forces in Iraq and Europe (-85), reducing nuclear arsenal spending (-19), cancelling over-budget weapons programs (-19), using a better inflation measure for social welfare payments (21), returning the estate tax to Clinton era levels (-50), allowing the Bush tax cuts to expire for the highest income brackets (-54), minor increases to the payroll tax (-50), and implementing a bank tax to pay for future bailouts (-70).

While this is only one possible scenario, it shows that the deficit can be bridged with bipartisan cooperation on a host of small issues, while the bigger ticket problems do not need to be solved initially. Indeed, if even one of these larger problems were solved by, among other choices, radical tax reform, increasing social welfare eligibility ages, ending both wars, and capping Medicare, that bipartisan agreement would solve nation’s long-term deficit problems.

The point of all this is twofold: changes are needed but they are not as impossible as some like to argue.

With some bipartisan agreement, Democrats and Republicans could enact legislation to reduce the nation’s deficit, end sluggish economic growth, and increase the confidence of the American people. But this can only happen if both President Obama and the ascendant Republicans get the message from the midterm elections and cooperate. Partisanship may appear to be easier at first, but voters want bipartisanship. If the nation’s lawmakers deny them that, they do so at their own peril. s

The (False) Republican Message

by Daniel Roettger, ‘13 Staff Writer

Perhaps I’m a cynic, but where is the sense of "country first" that John McCain trumpeted in 2008? Senate Republicans have vowed to block the passage of all pending legislation until Bush-era tax cuts are extended to the wealthiest of Americans – those earning more than $250,000 annually – in addition to the middle and lower classes. This, at a time when they are excoriating Democrats for the counter-cyclical spending that, in the minds of most economists, saved the country from a ringing Depression – and are trying to claim it didn’t.

The centerpiece of the current contretemps in Congress is the debate concerning the end of the Bush-era tax cuts. The legislation that reduced marginal income tax rates to one of the lowest among the industrialized Western democracies and to one of the lowest levels in recent memory in U.S. contained a sunset provision: that is, it was set to expire in 2011. This was the understanding; this was the policy that was approved. The policy was intended to ensure continuing prosperity; 2008 (Continued on Page 7)

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OPINION (Continued from Page 6) poorest has increased over the past decade and during the most severe economic downturn in 70 years, the Republicans seem to think that the American people will fall for labels rather than examining the record. Seems like they were right in 2010, but how long will Americans play dumb? s

showed just how well this policy of spend but do not tax worked.

Now, the Republicans present the end of this period of reduced taxes that were intended to ensure prosperity but did not and which contributed to the current unsustainable budget deficits as "Democratic tax increases during a recession." Never mind that they agreed that the tax cuts were temporary. Never mind that they did not produce the era of promised prosperity. Never mind that the two Republican wars plus the Republican recession have created our historic deficit. And now, Republicans say that if they don't get their way, they will stop the machinery of government.

Magically, they will do so in the name of an imagined fairness. The planned and approved end of the tax cuts is unwise, they tell us. A Democratic-sponsored compromise solution that would extend the reduction for all but 3% of taxpayers is unfair, they contend, since it does not treat all equally. That is today's version of the oft-repeated Republican position that "the rich and the poor have an equal right to sleep under the bridge at night."

Never mind as well that the extension of the tax cuts for this $250,000 and above income group will cost the country a trillion dollars plus over the next ten years. In addition, tax cuts for the wealthiest will create jobs, they say. However, the state of the economy despite the earnings reports from top-level merchants does not give that argument credence, either.

To justify their position, the Republican's characterize the Democrats as "socialists." Such egregious tautology offends the legacies of Western European socialized states. In a country with income tax rates among the lowest of its peers, in a country with rising poverty rates, in a country where the gap between the wealthiest and

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Loyal Readers, We hope you have enjoyed this semester’s publication of JHU POLITIK. We hope you have found each issue to be informative, helpful, and worthy of political discussion. Although we at JHU POLITIK do not promote any particular political belief system, we are committed to raising the level of political debate on our college campus. We hope we have achieved that goal this semester.

As we prepare for the next semester of publication, we wish all of you the best of luck in the next two weeks, and we hope you all have a relaxing winter vacation!

Sincerely, Josh Ayal, Harry Black, and Sam Lichtenstein Editors-in-Chief

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