eyes on the U.S.

Democrat-Republican Economic Divide Is Peanuts Compared To US-European Split

Op-Ed: President Obama has been wagging his finger at Europe, and Germany in particular, to do more to stimulate the world economy. It reveals a major transatlantic gulf on both philosophical and practical solutions to the global economic crisis.

Democrat-Republican Economic Divide Is Peanuts Compared To US-European Split
Ansgar Graw

BERLIN - An advisor to US President Barack Obama has been quoted as saying that if, when trying to understand the problems of the economy, one had to pick just one economist: it would be John Maynard Keynes. Though Keynes died more than a half century ago, his theories about recession and depression remain fundamental to the understanding of modern macro-economics.

The advisor is right on. Barack Obama, in true Keynesian fashion, keeps initiating stimulus packages to boost the weak American economy -- and he keeps encouraging the Europeans, particularly the Germans, to do the same in order to save the euro.

But the reference to Keynes does not stop at the Democratic president's entourage: the British economist was actually a model for Nicholas Greg Mankiw, who served as chairman of the Council of Economic Advisers under President George W. Bush from 2003 to 2005.

As the United States gears up for the next presidential elections in 2012, hostility between Republicans and Democrats may be reaching a new post-War peak. Republicans systematically and passionately oppose Obama's economic policies, and view Keynes himself as a kind of ghost of Karl Marx.

However -- with the exception of libertarian opponents of virtually all commitments of the state, led by presidential hopeful Ron Paul -- Republicans and Democrats are actually not that far apart in terms of economic philosophy.

While Democrat Bill Clinton fought for a balanced budget and ended his presidency with a budget surplus, Republican Ronald Reagan cut taxes only to later increase them massively. One could argue that Reagan, who believed that the state was not the solution but the problem, had a Republican phase followed by a Democratic phase.

In simplistic terms, Democrats are said to see the state as a safety net, Republicans see it as a drain on individuals. Yet in the face of high unemployment, members of both parties are not looking up to private investors but to the President for a solution.

High debts and budget deficits don't seem to worry US voters very much, and are only marginally of more concern to politicians, experts and journalists. The words on Time Magazine"s cover on New Year's Eve 1965 (following an economic upswing after tax cuts planned by John F. Kennedy and implemented by Lyndon B. Johnson) seem still to hold true: "We are all Keynesians now!"

Do deficits matter?

Republican Richard Nixon took a stab at controlling prices and salaries. Nixon later viewed the experiment as one of his greatest political mistakes, and called on anti-Keynesian Alan Greenspan, who later became Chairman of the Federal Reserve, to be his chief economic advisor.

Under George W. Bush the "deficits don't matter" approach – which one would have thought more likely to come from Democrats -- took firm hold. After 9/11, billions were pumped into national security, and two foreign wars. Farmers were granted higher subsidies. Congress let anti-deficit provisions introduced under President Bush Sr. expire.

Obama‘s calls to European governments to make a stronger commitment to boosting the global economy and rescue the euro are not something he's come up with in the last few weeks. Shortly after he took office, he criticized the German government for doing too little to get the world's economy going again after the 2008 crash. Editorialist and Nobel Prize winner Paul Krugman backed the White House's demand up in the New York Times, calling for a more generous use of German taxpayers' money.

Chancellor Angela Merkel has equated stimulus packages I and II of over 80 billion euros to Washington's stimulus package – and it must be said that, particularly as regards the financing of short-term jobs and other measures to stabilize the jobs market, those packages had far more positive effects than the 787 billion dollars used so ineffectively by the US.

The Greek crisis has made Washington's demands more insistent. Germany in particular is called on to support the euro whatever the cost. According to Obama, Europe never fully dealt with the challenges to their banking system and European states need to show more convincingly that they were willing to play their part to protect the global financial system.

As regards budget matters and finance, the United States is hardly in a position to dole out advice. It has been focused on consumption for far too long, leaving production up to the Germans, and now also the Chinese.

Washington isn't even capable of getting Republicans and Democrats to subscribe to a joint strategy to solve the nation's problems.

So their expectation that governments and parliaments in Europe approve ever-larger bailouts is off-putting, to say the least. The conflict between the Americans, who consider that spending more is the solution to the euro crisis, and the EU countries, who favor cost control and spending cuts, is not going to quiet down anytime soon.

Read the original article in German

Photo - antjeverena

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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