March 26, 2023

Economix Blog: Americans Want to Cut Spending. They Just Don’t Know What to Cut.



Dollars to doughnuts.

As the sequester looms, it’s worth noting that there’s no significant federal spending category that a majority of Americans wants to cut:

Survey was conducted among 1,504 adults. The margin of sampling error is plus or minus 3 percentage points. Survey was conducted among 1,504 adults. The margin of sampling error is plus or minus 3 percentage points.

That chart comes from a Pew Research Center poll conducted Feb. 13-18. In every category except for “aid to world’s needy,” more than half of the respondents wanted either to keep spending levels the same or to increase them. In the “aid to world’s needy” category, less than half wanted to cut spending.

This is part of the problem with heeding any public concerns about getting the budget under control. According to Pew, 70 percent of Americans say it is essential for Washington to pass major legislation to reduce the federal budget deficit this year. But they can’t identify anything worth axing, and it’s not as if tax increases are so terribly popular, either.

By the way, Pew asked similar questions about what categories of government spending to cut in 2011. There has been little change since then, with the exception of attitudes toward military spending. In the most recent poll, 24 percent said the government should cut spending for the military, compared to 30 percent two years ago.

Note that the military would bear a major share of the sequestration-related spending cuts, and as a result much has been written in the last few months about the scary consequences that such cuts would cause. So it’s possible public attitudes have shifted in response to greater coverage of this spending category.

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Economix Blog: In Europe, a Dispute Over Facts and Fairness



Thoughts on the economic scene.

Part of Europe’s problem is that Europeans can’t agree on some basic facts about the continent’s financial crisis. Consider the striking results of a recent poll by the Pew Research Center:

Pew Research Center

In most large European countries, a plurality of people say Germans are the hardest-working Europeans, with a substantial share also saying that Greeks are the least hard-working. Greeks, on the other hand, say Italians are the least hard-working — and view themselves as the hardest working.

Pew explains:

The crisis has exposed sharp differences between some Europeans. Germany is the most admired nation in the E.U. and its leader the most respected. The Germans are judged to be Europe’s most hard-working people. And the Germans are the strongest supporters of both European economic integration and the European Union.

Greece is the polar opposite. None of its fellow E.U. members surveyed see it in a positive light. In turn, Greeks are among the most disparaging of European economic integration and the harshest critics of the European Union. And they see themselves as Europe’s most hard-working people.

James Surowiecki’s column in this week’s edition of The New Yorker touches on similar themes:

Europe isn’t arguing just about what the most sensible economic policy is. It’s arguing about what is fair. German voters and politicians think it’s unfair to ask Germany to continue to foot the bill for countries that lived beyond their means and piled up huge debts they can’t repay. They think it’s unfair to expect Germany to make an open-ended commitment to support these countries in the absence of meaningful reform. But Greek voters are equally certain that it’s unfair for them to suffer years of slim government budgets and high unemployment in order to repay foreign banks and richer northern neighbors, which have reaped outsized benefits from closer European integration. The grievances aren’t unreasonable, on either side, but the focus on fairness, by making it harder to reach any kind of agreement at all, could prove disastrous.

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Plan to Leave Euro for Drachma Gains Support in Greece

So now it is time to ponder the once unthinkable: that Greece might end its 10-year use of the euro and return to its former currency, the drachma.

Such a move is still officially anathema in Athens. But a growing body of economists argues that it would be the best course, whatever the near-term financial and economic implications. And now, with a referendum on the European-led bailout facing Greek voters, a vocal minority that has long called for a return to the drachma might find itself with a growing group of listeners.

A return to the drachma is unlikely to offer a quick cure for Greece’s ills. Default on the nation’s $500 billion in public debt would become a certainty, depositors would take their money out of local banks and, with a sharp devaluation of as much as 50 percent, inflation would loom. A return to the international credit markets would take years.

But drachma defenders contend that these worst fears are overdone. Yes, there would be disruption and panic initially. But, they say, pointing to Argentina’s case when it broke its peg with the dollar in 2002, the export boom ignited by a cheaper currency and the ability to control the drachma would eventually work in Greece’s favor.

“The real problem is that we are operating under a foreign currency,” Vasilis Serafeimakis, a senior executive at Avinoil, one of Greece’s largest oil and gas distribution companies, said of the euro. In the last year, he has been banging the bring-back-the-drachma drum.

“If we had our own currency, we could at least print money,” Mr. Serafeimakis said, referring to the ability to revalue the drachma. “And what is the worst thing that happens if we do this? I don’t get a Christmas gift from one of my bankers.”

His voice is still a lonely one.

According to a recent poll in the Greek newspaper Kathimerini, 66 percent of Greeks believe that returning to the drachma would be bad. But proponents of a euro exit say that beneath the surface, more Greeks are beginning to question the euro.

“The view that Greece should exit the euro is more widespread than you would think,” said Costas Lapavitsas, a Greek economist at the University of London who has long pressed for a return to the drachma. “It is just that the opposing view is so dominant.”

Until now, many Greeks have been wedded to a European identity forged by a national embrace of the euro and the wealth that, for a time, came along with it. Talk of returning to the drachma had mainly been held up as an apocalyptic vision rather than a viable policy option.

But for a growing number of Greeks, the collapse of their economy is apocalypse enough.

Prime Minister George A. Papandreou threw down the gauntlet to the Greek people Monday when he surprised the world by announcing a referendum on the latest bailout plan. But it was his finance minister, Evangelos Venizelos, who that same day put a finer point on the question.

“Are we for Europe, the euro zone and the euro?” he asked. Or, he continued, does Greece return to the drachma?

Under the latest bailout plan from Europe, Greek debt held by private institutions would be written down by 50 percent. In return, as long as Greece stayed on track carrying out painful austerity measures through 2015, Athens would continue to receive more bailout money to finance its remaining debt.

When Mr. Papandreou brought that tentative deal back from Brussels last week, the escalated protests and rioting on Greek streets were a sign that it was not something his people would easily stand for.

Supporters of a return to the drachma note that the severe budget cuts of the last two years had resulted in almost closing the budget deficit — as long as interest payments on its debt are not counted.

Stripping out interest payments, Greece is expected to register a budget surplus next year of 1.5 percent of its gross domestic product (compared with a budget deficit of 8 percent of G.D.P., when interest is counted), and that, in effect, would give it the freedom to stop paying its debts.

It is an argument for defaulting on the debt and starting over, in other words. That sense of reborn autonomy is what lies behind the drachma movement that Mr. Serafeimakis is promoting.

Eleni Varvitsioti contributed reporting.

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