The Economics of Soaking the Rich

What does Alexandria Ocasio-Cortez know about tax policy? A lot.

By Paul Krugman   (The New York Times)

I have no idea how well Alexandria Ocasio-Cortez will perform as a member of Congress. But her election is already serving a valuable purpose. You see, the mere thought of having a young, articulate, telegenic nonwhite woman serve is driving many on the right mad — and in their madness they’re inadvertently revealing their true selves.

Some of the revelations are cultural: The hysteria over a video of AOC dancing in college says volumes, not about her, but about the hysterics. But in some ways the more important revelations are intellectual: The right’s denunciation of AOC’s “insane” policy ideas serves as a very good reminder of who is actually insane.

The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance. (Although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.

To be more specific, Diamond, in work with Emmanuel Saez — one of our leading experts on inequality — estimated the optimal top tax rate to be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent.

Where do these numbers come from? Underlying the Diamond-Saez analysis are two propositions: Diminishing marginal utility and competitive markets.

Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.

What this implies for economic policy is that we shouldn’t care what a policy does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want.

So why not tax them at 100 percent? The answer is that this would eliminate any incentive to do whatever it is they do to earn that much money, which would hurt the economy. In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.

But here’s where competitive markets come in. In a perfectly competitive economy, with no monopoly power or other distortions — which is the kind of economy conservatives want us to believe we have — everyone gets paid his or her marginal product. That is, if you get paid $1000 an hour, it’s because each extra hour you work adds $1000 worth to the economy’s output.

In that case, however, why do we care how hard the rich work? If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay.

Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.

And that’s something we can estimate, given evidence on how responsive the pre-tax income of the wealthy actually is to tax rates. As I said, Diamond and Saez put the optimal rate at 73 percent, Romer at over 80 percent — which is consistent with what AOC said.

An aside: What if we take into account the reality that markets aren’t perfectly competitive, that there’s a lot of monopoly power out there? The answer is that this almost surely makes the case for even higher tax rates, since high-income people presumably get a lot of those monopoly rents.

So AOC, far from showing her craziness, is fully in line with serious economic research. (I hear that she’s been talking to some very good economists.) Her critics, on the other hand, do indeed have crazy policy ideas — and tax policy is at the heart of the crazy.

You see, Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests on research by … well, nobody. There isn’t any body of serious work supporting G.O.P. tax ideas, because the evidence is overwhelmingly against those ideas.

Look at the history of top marginal income tax rates (left) versus growth in real GDP per capita (right, measured over 10 years, to smooth out short-run fluctuations.):

Top tax rates and growthCreditTax Policy Center, BEA

Image

Top tax rates and growthCreditTax Policy Center, BEA

What we see is that America used to have very high tax rates on the rich — higher even than those AOC is proposing — and did just fine. Since then tax rates have come way down, and if anything the economy has done less well.

Why do Republicans adhere to a tax theory that has no support from nonpartisan economists and is refuted by all available data? Well, ask who benefits from low taxes on the rich, and it’s obvious.

And because the party’s coffers demand adherence to nonsense economics, the party prefers “economists” who are obvious frauds and can’t even fake their numbers effectively.

Which brings me back to AOC, and the constant effort to portray her as flaky and ignorant. Well, on the tax issue she’s just saying what good economists say; and she definitely knows more economics than almost everyone in the G.O.P. caucus, not least because she doesn’t “know” things that aren’t true.

Fear, Loathing and Brexit (Paura, ripugnanza e Brexit)

 Paul Krugman (The New York Times)
There are still four and a half months to go before the presidential election. But there’s a vote next week that could matter as much for the world’s future as what happens here: Britain’s referendum on whether to stay in the European Union.

Unfortunately, this vote is a choice between bad and worse — and the question is which is which.

Not to be coy: I would vote Remain. I’d do it in full awareness that the E.U. is deeply dysfunctional and shows few signs of reforming. But British exit — Brexit — would probably make things worse, not just for Britain, but for Europe as a whole.

The straight economics is clear: Brexit would make Britain poorer. It wouldn’t necessarily lead to a trade war, but it would definitely hurt British trade with the rest of Europe, reducing productivity and incomes. My rough calculations, which are in line with other estimates, suggest that Britain would end up about two percent poorer than it would otherwise be, essentially forever. That’s a big hit.

There’s also a harder to quantify risk that Brexit would undermine the City of London — Britain’s counterpart of Wall Street — which is a big source of exports and income. So the costs could be substantially bigger.

What about warnings that a Leave vote would provoke a financial crisis? That’s a fear too far. Britain isn’t Greece: It has its own currency and borrows in that currency, so it’s not at risk of a run that creates monetary chaos. In recent weeks the odds of a Leave vote have clearly risen, but British interest rates have gone down, not up, tracking the global decline in yields.

Still, as an economic matter Brexit looks like a bad idea.

True, some Brexit advocates claim that leaving the E.U. would free Britain to do wonderful things — to deregulate and unleash the magic of markets, leading to explosive growth. Sorry, but that’s just voodoo wrapped in a Union Jack; it’s the same free-market fantasy that has always and everywhere proved delusional.

No, the economic case is as solid as such cases ever get. Why, then, my downbeat tone about Remain?

Part of the answer is that the impacts of Brexit would be uneven: London and southeast England would be hit hard, but Brexit would probably mean a weaker pound, which might actually help some of the old manufacturing regions of the north.

More important, however, is the sad reality of the E.U. that Britain might leave.

The so-called European project began more than 60 years ago, and for many years it was a tremendous force for good. It didn’t only promote trade and help economic growth; it was also a bulwark of peace and democracy in a continent with a terrible history.

But today’s E.U. is the land of the euro, a major mistake compounded by Germany’s insistence on turning the crisis the single currency wrought into a morality play of sins (by other people, of course) that must be paid for with crippling budget cuts. Britain had the good sense to keep its pound, but it’s not insulated from other problems of European overreach, notably the establishment of free migration without a shared government.

You can argue that the problems caused by, say, Romanians using the National Health Service are exaggerated, and that the benefits of immigration greatly outweigh these costs. But that’s a hard argument to make to a public frustrated by cuts in public services — especially when the credibility of pro-E.U. experts is so low.

For that is the most frustrating thing about the E.U.: Nobody ever seems to acknowledge or learn from mistakes. If there’s any soul-searching in Brussels or Berlin about Europe’s terrible economic performance since 2008, it’s very hard to find. And I feel some sympathy with Britons who just don’t want to be tied to a system that offers so little accountability, even if leaving is economically costly.

The question, however, is whether a British vote to leave would make anything better. It could serve as a salutary shock that finally jolts European elites out of their complacency and leads to reform. But I fear that it would actually make things worse. The E.U.’s failures have produced a frightening rise in reactionary, racist nationalism — but Brexit would, all too probably, empower those forces even more, both in Britain and all across the Continent.

Obviously I could be wrong about these political consequences. But it’s also possible that my despair over European reform is exaggerated. And here’s the thing: As Oxford’s Simon Wren-Lewis points out, Britain will still have the option to leave the E.U. someday if it votes Remain now, but Leave will be effectively irreversible. You have to be really, really sure that Europe is unfixable to support Brexit.

So I’d vote Remain. There would be no joy in that vote. But a choice must be made, and that’s where I’d come down.

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Ci sono ancora quattro mesi e mezzo, per arrivare alle elezioni presidenziali. Ma la prossima settimana c’è un voto che per il futuro del mondo potrebbe contare altrettanto di quanto succede da noi: il referendum dell’Inghilterra sul restare o no nell’Unione Europea.
Sfortunatamente, questo voto è una scelta tra il male e il peggio – la domanda è quale sia l’uno e quale l’altro.
Non sarò schivo: io voterei per restare. Lo farei nella piena consapevolezza che l’Unione Europea è profondamente disfunzionale e mostra pochi segni di riforma. Ma l’uscita dell’Inghilterra – la Brexit – probabilmente renderebbe le cose peggiori, non solo per il Regno Unito, ma per l’Europa nel suo complesso.
Una normale analisi economica parla chiaramente: la Brexit renderebbe l’Inghilterra più povera. Non porterebbe necessariamente ad una guerra commerciale, ma certamente danneggerebbe il commercio inglese con il resto dell’Europa, riducendo la produttività e i redditi. I miei calcoli approssimativi, che sono in linea con altre stime, indicano che il Regno Unito si ritroverebbe ad essere più povero del 2 per cento, in sostanza per sempre, rispetto a quanto sarebbe altrimenti. Il che sarebbe un gran danno.
C’è anche il rischio, più difficile da quantificare, che la Brexit metta in difficoltà la City di Londra – l’omologo inglese di Wall Street – che rappresenta una grande fonte di esportazioni e di reddito. In quel caso, i costi sarebbero sostanzialmente più grandi.
Cosa dire degli ammonimenti secondo i quali il voto per l’uscita provocherebbe una crisi finanziaria? È una paura troppo remota. L’Inghilterra non è la Grecia: ha la propria valuta e si indebita nella propria valuta, dunque non è a rischio di un percorso che crei un caos finanziario. Nelle settimane recenti la probabilità di un voto per l’uscita sono chiaramente aumentate, ma i tassi di interesse britannici sono scesi, non saliti, seguendo l’andamento del declino globale nei rendimenti.
Ciononostante, dal punto di vista economico la Brexit sembra una cattiva idea.
È vero, i sostenitori della Brexit argomentano che lasciare l’UE consentirebbe all’Inghilterra la libertà di fare cose stupende – deregolamentare e mettere in libertà la magia dei mercati, portando ad una crescita esplosiva. Mi dispiace, ma questa è soltanto economia voodoo confezionata con la bandiera britannica; è la medesima fantasia sul libero mercato che si è dimostrata illusoria, sempre e dappertutto.
No, l’argomentazione economica non è solida, come di solito accade ad argomenti del genere. Perché, dunque, il mio tono dimesso a favore del rimanere nell’Unione Europea?
In parte, la risposta è che gli impatti della Brexit sarebbero disomogenei: Londra ed il Sud Est dell’Inghilterra sarebbero colpiti duramente, ma la Brexit comporterebbe probabilmente una sterlina più debole, il che effettivamente potrebbe essere d’aiuto per le vecchie regioni manifatturiere del Nord.
Ancora più importante, tuttavia, è la sconsolante realtà dell’UE che l’Inghilterra lascerebbe.
Il cosiddetto progetto europeo ebbe inizio più di sessant’anni orsono, e per molti anni fu una forza potente in termini positivi. Non solo favorì il commercio ed aiutò la crescita delle economie; fu anche un baluardo di pace e di democrazia in un continente che veniva da una storia terribile.
Ma l’UE di oggi è la terra dell’euro, un errore serio, aggravato dall’insistenza tedesca a volgere la crisi provocata dalla moneta unica in una rappresentazione moraleggiante sui peccati (degli altri, ovviamente), che devono essere scontati con tagli paralizzanti ai bilanci. L’Inghilterra ha avuto il buon senso di tenersi la sua sterlina, ma ciò non l’ha tenuta al riparo dagli altri problemi della eccessiva assunzione di rischi dell’Europa, in particolare quello di ammettere il libero movimento delle persone senza un governo condiviso.
Si può sostenere, ad esempio, che i problemi provocati dai rumeni che utilizzano il Servizio Sanitario Nazionale vengano esagerati, e che i benefici dell’immigrazione in buona misura pareggino quei costi. Ma è un argomento difficile da offrire ad una opinione pubblica frustrata dai tagli ai servizi pubblici – in particolare quando la credibilità degli esperti favorevoli all’UE è così bassa.
Perché è questa la cosa più irritante dell’UE: nessuno sembra mai riconoscere o imparare dagli errori. Se c’è un qualche esame di coscienza a Bruxelles o a Berlino sulla terribile prestazione dell’Europa a partire dal 2008, è difficile scovarlo. Ed io provo qualche simpatia con i britannici che proprio non intendono dipendere da un sistema che offre una affidabilità così modesta, anche se lasciarlo sarebbe economicamente costoso.
La domanda, tuttavia, è se un voto inglese per l’uscita renderebbe le cose migliori. Potrebbe servire come uno shock salutare che finalmente dia una scossa ai gruppi dirigenti europei ad uscire dal loro compiacimento e porti alla riforma. Ma io ho il timore che potrebbe, per la verità, rendere le cose peggiori. I fallimenti dell’UE hanno prodotto una minacciosa ascesa del nazionalismo reazionario e razzista – ma la Brexit, anche troppo probabilmente, rafforzerebbe ulteriormente quelle forze, sia in Inghilterra che in tutto il Continente.
Ovviamente, potrei sbagliare su queste conseguenze politiche. Ma è anche possibile che la mia mancanza di speranza sulla riforma europea sia esagerata. Ed il punto è questo: come mette in evidenza Simon Wren Lewis di Oxford, se oggi l’Inghilterra vota per rimanere, un giorno potrebbe ancora avere la possibilità di lasciare l’UE, ma uscire oggi sarebbe in sostanza irreversibile. Per sostenere la Brexit, si deve essere assolutamente sicuri che l’Europa sia irriformabile.
Dunque, io voterei per restare. Non ci sarebbe, in quel voto, alcuna contentezza. Ma una scelta deve essere fatta, ed io farei quella.

Killing the European Project

Paul Krugman (The New York Times)

Suppose you consider Tsipras an incompetent twerp. Suppose you dearly want to see Syriza out of power. Suppose, even, that you welcome the prospect of pushing those annoying Greeks out of the euro.

Even if all of that is true, this Eurogroup list of demands is madness. The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

Can anything pull Europe back from the brink? Word is that Mario Draghi is trying to reintroduce some sanity, that Hollande is finally showing a bit of the pushback against German morality-play economics that he so signally failed to supply in the past. But much of the damage has already been done. Who will ever trust Germany’s good intentions after this?

In a way, the economics have almost become secondary. But still, let’s be clear: what we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity. It’s as true as ever that imposing harsh austerity without debt relief is a doomed policy no matter how willing the country is to accept suffering. And this in turn means that even a complete Greek capitulation would be a dead end.

Can Greece pull off a successful exit? Will Germany try to block a recovery? (Sorry, but that’s the kind of thing we must now ask.)

The European project — a project I have always praised and supported — has just been dealt a terrible, perhaps fatal blow. And whatever you think of Syriza, or Greece, it wasn’t the Greeks who did it.

Reinhart And Rogoff Are Not Happy - La risposta di Krugman sul NYT alla lettera della Reinhart (e Rogoff)

  
The New York Times

Update: Brad DeLong makes my point with graphs.

Their letter is here.

This could go on forever, and both they and I have other things to do. So let me just state — clearly, I hope — where their analytical sin lies.
To some extent it lies in the downplaying of causality issues — of whether high debt causes slow growth, slow growth causes high debt, or both high debt and slow growth are the result of third factors (as was the case in demobilizing postwar America, which they highlighted in their original paper).
But the more important sin involves the misuse of the “90 percent” criterion.
There is, as everyone in this debate has acknowledged, a negative correlation in the data between debt and growth. As a result, draw a line at any point — 80 percent, 90 percent, whatever — and countries with debt above that level will tend to have slower growth than countries with debt below that level.
There is, however, an enormous difference between the statement “countries with debt over 90 percent of GDP tend to have slower growth than countries with debt below 90 percent of GDP” and the statement “growth drops off sharply when debt exceeds 90 percent of GDP”. The former statement is true; the latter isn’t. Yet R&R have repeatedly blurred that distinction, and have continued to do so in recent writings.
And for a country with debt in the vicinity of the 90 percent level — as, for example, in both the US and the UK — the distinction is crucial. It’s the difference between arguing that failure to impose an austerity program amounting to a few percent of GDP might reduce GDP a decade from now by a fraction of a percent at most — which is what the actual correlation suggests — to suggesting that it will reduce future GDP by 10 percent, which is what the threshold claim suggests.
Austerity-minded policy makers, of course, seized on the latter claim, citing R&R — and if the authors ever made an effort to correct this misconception, or indeed if they have ever even acknowledged that it’s a misconception, it was done very quietly.
I’m sorry, but the failure to clear up this misconception has done a great deal of harm — and this harm is not significantly mitigated by various remarks in passing to the effect that austerity might be overdone.

 La lettera della Reinhart

Dear Paul:
Back in the late 1980s, you helped shape the concept of an emerging market debt overhang.  The financial crisis has laid bare the fact that the dividing line between emerging markets and advanced countries is not as crisp as once thought.  Indeed, this is a recurring theme of our 2009 book, This Time is Different:  Eight Centuries of Financial Folly.  Today, the growth bind of advanced countries in the periphery of the eurozone has a great deal in common with that of emerging market economies of the 1980s.
We admire your past scholarly work, which influences us to this day.  So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks.  You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts.  Now you have doubled down in the New York Review of Books, adding the accusation we didn't share our data.  Your characterization of our work and of our policy impact is selective and shallow.  It is deeply misleading about where we stand on the issues.  And we would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply.
You particularly take aim at our 2010 paper on the long-term secular association between high debt and slow growth. That you disagree with our interpretation of the results is your prerogative.  Your thoroughly ignoring the subsequent literature, however, including the International Monetary Fund's work as well as our own deeper and more complete 2012 paper with Vincent Reinhart, is troubling.   Perhaps, acknowledging the updated literature-not to mention decades of theoretical, empirical, and historical contributions on drawbacks to high debt-would inconveniently undermine your attempt to make us a scapegoat for austerity.  You write "Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics."
Setting aside this wild hyperbole, you never seem to mention our other line of work that has surely been far more influential when it comes to responding to the financial crisis.  Specifically, our 2009 book (released before our growth and debt work) showed that recoveries from deep systemic financial crises are long, slow and painful.  This was not the common wisdom at all before us, as you yourself have acknowledged  on more than one occasion.  Over the course of the crisis, and certainly by 2010, policymakers around the world were using our research, alongside their assessments, to help justify sustained macroeconomic easing of both monetary and fiscal policy fronts.
Your desire to blame our later 2010 paper for the stances of some politicians fails to recognize a basic reality:  We were out there endorsing very different policies.  Anyone with experience in these matters knows that politicians may float a citation to an academic paper if it suits their purposes.  But there are limits to how much policy traction they can get with this device when the paper's authors are out offering very different policy conclusions.  You can refer to the appendix to this letter for our views on policy through the financial crisis as they were stated publicly in real time.  We were not silent.
Very senior former policy makers, observing the attacks of the past few weeks, have forcefully explained that real-time policies are very seldom driven to any significant extent by a single academic paper or result.
It is worth noting that in the past, polemicists have often pinned the austerity charge on the International Monetary Fund for its work with countries having temporary or permanent debt sustainability issues.  Since its origins after World War II, IMF programs have almost always involved some combination of austerity, debt restructurings, and structural reform.  When a country that has been running large deficits is suddenly no longer able to borrow new funds, some measure of adjustment is invariably required, and one of the IMF's usual roles has been to serve as a lightning rod.   Even before the IMF existed, long periods of autarky and hardship accompanied debt crises.
Now let us turn to the substance. The events of the past few weeks do not change basic facts and fundamentals.
Some Fundamentals on Debt
First, the advanced economies now have levels of debt that surpass most if not all historic episodes. It is public debt and private debt (which often becomes public as a crisis unfolds). Significant shares of these debts are held by foreigners in most cases, with the notable exception of Japan.  In Europe, where the (public and private) external debt exposures loom largest, financial de-globalization is well underway.  Debt financing has become an increasingly domestic business and a difficult one when the pool of domestic saving is limited.
As for the United States: our only short-lived high-debt episode involved WWII debts, which were held by domestic residents, not fickle international investors or central banks in China and elsewhere around the globe.  This observation is not meant to suggest "a scare" in the offing, with bond vigilantes driving a concerted sell-off of Treasuries by the rest of the world and a dramatic spike US in interest rates.  Carmen's work on financial repression suggests a different scenario. But many emerging markets have stepped into bubble-like territory and we have seen this movie before.  We should not take for granted their prosperity that makes possible their continuing large-scale purchases of US debt.  Reversals are possible.  Sensible risk management means planning for these and other contingencies that might disturb today's low global interest rate environment.
Second, on debt and growth.  The Herndon, Ash and Pollin paper, using a different methodology, reinforces our core result that high levels of debt are associated with lower growth.  This fact has been hidden in the tabloid media and blogosphere discourse, but this point is made plain by even a cursory look at the full set of results reported in the very paper they critique.  More importantly, the result was prominently featured in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart on Debt Overhangs, which they do not cite. The main point of our 2012 paper is that while the difference in annual GDP growth between high and lower debt cases is about one percent a year, debt overhang episodes last on average 23 years. Thus, the cumulative effect on income levels over time is significant.
Third, the debate of the last few weeks does not change the fact that debt levels above 90% (even if one entirely rejects this marker for gross central government debt as a common cross-country "threshold") are very rare altogether and even rarer in peacetime.  From 1955 until right before the recent crisis, advanced economies spent less than 10% of those years at a debt/GDP ratio of higher than 90%; only about two percent of the years are above 120% debt/GDP. If governments thought high debt was a riskless proposition, why did they avoid it so consistently?
Debt and Growth Causality
Your recent April 29, 2013 NY Times blog The Italian Miracle is meant to highlight how in high-debt Italy, interest rates have come down since the European Central Bank's well-placed efforts to act more as a lender of last resort to periphery countries.  No disagreement there. However, this positive development is meant to re-enforce your strongly held view that high debt is not a problem (even for Italy) and that causality runs exclusively from slow growth to debt.  You do not mention that in this miracle economy, GDP fell by more than 2 percent in 2012 and is expected to fall by a similar amount this year. Elsewhere you have stated that you are sure that Italy's long-term secular growth/debt problems, which date back to the 1990s, are purely a case of slow growth causing high debt.  This claim is highly debatable.
Indeed, your repeatedly-expressed view that slow growth causes high debt but not visa-versa, is hardly supported by the recent literature on the subject.  Of course, as we have already noted, this work has been singularly ignored in the public discourse of the past few weeks.  The best and worst that can be said is that the results are mixed.  A number of studies looking at more comprehensive growth models have found significant effects of debt on growth. We made this point in the appendix to our New York Times piece.  Of course, it is well known that the economic cycle impacts government finances and therefore debt (causation from growth to debt).  Cyclically adjusted budgets have been around for decades, your shallow characterization of the growth-debt connection.
As for ways debt might affect growth, there is debt with drama and debt without drama.
Debt with drama.  Do you really think that a country that is suddenly unable to borrow from international capital markets because its public and/or private debts that are a contingent public liability are deemed unsustainable will not suffer lower growth and higher unemployment as a consequence? With governments and banks shut out from international capital markets, credit to firms and households in periphery Europe remains paralyzed. This credit crunch has a crippling effect on growth and employment with or without austerity.  Fiscal austerity reinforces the procyclicality of the external and domestic credit crunch.  This pattern is not unique to this episode.
Policy response to debt with drama.  On the policy response to this sad state of affairs, we stress that restoring the credit channel is essential for sustained growth, and this is why there is a need to write off senior bank debt in many countries. Furthermore, there is no reason why the ECB should buy only sovereign debt-purchases of senior bank debt along the lines of the US Federal Reserve's purchases of mortgage-backed securities would be instrumental in rekindling credit and working capital for firms.  We don't see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical.  Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany's balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB.
Debt without drama.  There are other cases, like the US today or Japan since the mid-1990s, where there is debt without drama.  The plain fact that we know less about these episodes is a point we already made in our New York Times piece.  We pointedly do not include the historical episodes of 19^th century UK and Netherlands among these puzzling cases. Those imperial debts were importantly financed by massive resource transfers from the colonies. They had "good" high-debt centuries because their colonies did not.  We offer a number of ideas in our 2012 paper for why debt overhang might matter even when there is no imminent collapse of borrowing capacity.
Bad shocks do happen. What is the foundation for your certainty that as peacetime debt hits new records in coming years, the United States will be able to engage in  forceful countercyclical fiscal policy if hit by a large unexpected shock?  Furthermore, do you really want to find out the answer to that question the hard way?
The United Kingdom, which does not issue a reserve currency, is more dependent on its financial sector and suffered a bigger banking bust, has not had the same shale gas revolution, and is more vulnerable to Europe, is clearly more exposed to the drama scenario than the US.  And yet you regularly assert that the situations in the US and UK are the same and that both countries have the costless option of engaging in an open-ended fiscal expansion.  Of course, this does not preclude high-return infrastructure investments, making use of the public balance sheet directly or indirectly through public-private partnerships.
Policy response to debt without drama.  Let us be clear, we have addressed the role of somewhat higher inflation and financial repression in debt reduction in our research and in numerous pieces of commentary.  As our appendix shows, we did not advocate austerity in the immediate wake of the crisis when recovery was frail.  But the subprime crisis began in the summer of 2007, now six years ago.  Waiting 10 to 15 more years to deal with a festering problem is an invitation for decay, if not necessarily an outright debt crisis.  The end may not come with a bang but with a whimper.
Scholarship: Stick to the facts
The accusation in the New York Review of Books is a sloppy neglect on your part to check the facts before charging us with a serious academic ethical infraction.  You had already implicitly endorsed this from your perch at the New York Times by posting a link to a program that treated the misstatement as fact.
Fortunately, the "Wayback Machine" crawls the Internet and periodically makes wholesale copies of web pages. The debt/GDP database was first archived in October 2010 from Carmen's University of Maryland webpage.  The data migrated to ReinhartandRogoff.com in March 2011.  There it sits with our other data, on inflation, crises dates, and exchange rates.  These data are regularly sought and found for those doing research who care to look. The greater disclosure of debt data from official institutions is testament to this.  The IMF began to construct historical public debt data only after we had provided a roadmap in the list of our detailed references in a 2009 book (and before that in a 2008 working paper) that explained how we had unearthed the data.
Our interaction with scholars and practitioners working on real world questions in our field is ongoing, and our doors remain open. So to accuse us of not sharing our data is an unfounded attack on our academic and personal integrity.

Europe’s Economic Suicide

By PAUL KRUGMAN (The New York Times)

On Saturday The Times reported on an apparently growing phenomenon in Europe: “suicide by economic crisis,” people taking their own lives in despair over unemployment and business failure. It was a heartbreaking story. But I’m sure I wasn’t the only reader, especially among economists, wondering if the larger story isn’t so much about individuals as about the apparent determination of European leaders to commit economic suicide for the Continent as a whole.

Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s rescue. It offered Europe’s banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

But they didn’t. Instead, they doubled down on their failed policies and ideas. And it’s getting harder and harder to believe that anything will get them to change course.

Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.

In a way, it doesn’t really matter how Spain got to this point — but for what it’s worth, the Spanish story bears no resemblance to the morality tales so popular among European officials, especially in Germany. Spain wasn’t fiscally profligate — on the eve of the crisis it had low debt and a budget surplus. Unfortunately, it also had an enormous housing bubble, a bubble made possible in large part by huge loans from German banks to their Spanish counterparts. When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause.

Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.

This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

What is the alternative? Well, in the 1930s — an era that modern Europe is starting to replicate in ever more faithful detail — the essential condition for recovery was exit from the gold standard. The equivalent move now would be exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what’s truly inconceivable.

So if European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery.

What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.

So it’s hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price.

Io, milionario d'America vorrei pagare più tasse

WARREN BUFFETT (il terzo uomo più ricco del mondo)

I nostri leader hanno chiesto "sacrifici condivisi". Quando però hanno avanzato le loro richieste, mi hanno risparmiato. Ho chiesto ad alcuni amici straricchi a quali sacrifici si stessero preparando, ma anche loro non hanno accusato colpo.
Mentre i poveri e la middle class combattono per noi in Afghanistan; mentre la maggior parte degli americani stenta ad arrivare a fine mese, noi mega-ricchi continuiamo a goderci i nostri sgravi fiscali straordinari. Alcuni di noi sono investment manager che guadagnano miliardi lavorando tutti i santi giorni, ma sono autorizzati a definire il proprio reddito "incentivo riconosciuto ai gestori di un fondo" e quindi a ottenere un'eccezionale aliquota di imposizione fiscale pari al 15 per cento. Altri tra noi possiedono per soli dieci minuti futures del listino azionario e sì vedono tassare il 60 per cento del loro rendimento al 15 per cento, come se fossero investitori a lungo termine.
Questi e altri vantaggi ci piovono letteralmente addosso grazie ai legislatori di Washington, che si sentono obbligati a salvaguardarci, quasi fossimo gufi maculati o altre specie in via di estinzione. È piacevole avere amicizie altolocate. L'anno scorso le mìe imposte federali — le imposte sul reddito che devo pagare, come pure i contributi che verso o sono versati a mio nome — ammontavano a 6.938.744 dollari. Detta così, questa cifra fa pensare a un bel mucchio di soldi; di fatto, però, ho pagato soltanto il 17,4 per cento del mio imponibile, e tale importo è stato considerevolmente inferiore a quello versato da chiunque altro tra le venti persone che lavorano nel mio ufficio. Il loro carico fiscale vana dal 33 al 41 per cento e si assesta su una media del 36 per cento. Se si fanno soldi con i soldi — come fanno alcuni dei miei amici super-ricchi — la percentuale di imponibile potrebbe essere addirittura un po' inferiore alla mia. Se invece si guadagnano soldi lavorando, la percentuale di sicuro supererebbe la mia, in linea di massima anche di molto.
Per comprendere il perché di questo meccanismo, si devono esaminare le fonti di entrate del governo. L'anno scorso circa l'80 per cento di tali entrate è arrivato dalle tasse sul reddito delle persone fisiche e dai contributi. I ricconi pagano imposte sul reddito a un tasso del 15 per cento sulla maggior parte dei loro guadagni, ma non pagano pressoché nulla in imposte sul monte salari. Diverso è il discorso per la middle class. Di norma i contribuenti della classe media rientrano nelle aliquote del 15 e del 25 per cento, e in aggiunta a ciò sono pesantemente colpiti anche nel pagamento dei contributi.
In passato, negli anni ottanta e novanta, le aliquote d'imposta per i più ricchi erano decisamente più alte, e la mia percentuale era nella media. Secondo una teoria che ascolto di frequente, avrei dovuto fare una scenata e rifiutarmi di investire a causa delle elevate aliquote d'imposta sui capital gain e sui dividendi. Non mi sono tirato indietro, né lo hanno fatto altri. Lavoro con gli investitori da 60 anni e devo ancora trovare chi si astenga dal fare un investimento importante a causa dell'aliquota d'imposta applicata al suo guadagno potenziale, neppure nel 1976-77, quando i tassi sui capital gain erano del 39,9 per cento. La gente investe per far soldi, e le tasse previste non hanno mai dissuaso nessuno dal farlo. A quanti sostengono che tassi più alti influiscono negativamente sulla creazione di posti di lavoro, farei notare che tra il 1980 e il 2000 è stata creata una rete di quasi 40 milioni di nuovi posti di lavoro. Sapete tutti che cosa è successo in seguito: aliquote fiscali inferiori e creazione di nuovi posti di lavoro di gran lunga inferiore.
Dal 1992 l'Irs, il fisco americano, ha tenuto nota dei dati relativi alle entrate dei 400 americani che hanno il reddito più alto. Complessivamente, nel 1992 i 400 americani che guadagnavano di più avevano un reddito tassabile di 16,9 miliardi di dollari e pagavano imposte federali nella misura del 29,2 per cento di tale cifra. Nel 2008 il reddito aggregato dei 400 americani più ricchi ha toccato la cifra di ben 90,9 miliardi di dollari — con una sbalorditiva media di 227,4 milioni di dollari — ma le tasse imposte loro erano scese al 21,5 per cento.
Le tasse alle quali mi riferiscono comprendono soltanto la tassa federale sul reddito, ma potete star certi che qualsiasi altro contributo peri 400 paperoni d'America è irrilevante se paragonato al loro reddito. Iu realtà, nel 2008, 88 su 400 non hanno dichiarato entrate, anche se ognuno di loro ha guadagnato con i capital gain. Alcuni dei miei simili forse si astiene dal lavorare, ma tutti amano
investire. (E di questo parlo a ragion veduta).
Conosco di persona e bene molti dei mega-ricchi americani e in linea generale si tratta di persone dignitose, che amano l'America e apprezzano le opportunità che questo paese ha offerto loro. Molti hanno aderito all'iniziativa Giving Pledge, impegnandosi a dare in beneficenza la maggior parte delle loro ricchezze. Moltissimi di loro non farebbero una piega se si intimasse loro di pagare più tasse, in special
modo ora che così tanti loro connazionali stanno soffrendo veramente tanto.
Dodici membri del Congresso si accingeranno tra breve al compito cruciale di riformare il sistema finanziario del nostro paese. È stato chiesto loro di delineare un piano che riduca il deficit decennale di almeno 1500 miliardi di dollari. Tuttavia, è indispensabile che facciano più di questo: gli americani stanno rapidamente perdendo fiducia nelle capacità del Congresso di affrontare e risolvere i problemi fiscali del nostro paese. Soltanto se si interverrà immediatamente, concretamente e incisivamente si scongiurerà il rischio che dal dubbio gli americani precipitino nella disperazione. Una tale sensazione potrebbe influenzare la realtà stessa. La priorità assoluta per i Dodici, pertanto, è diminuire gradualmente le promesse future che perfino un'America ricca non potrebbe mantenere. Si deve risparmiare molto. In seconda istanza, i Dodici dovrebbero rivolgere la loro attenzione alla questione delle entrate. Per quanto mi riguarda, lascerei immutate le tasse del 99,7 per cento dei contribuenti e proseguirei la riduzione di due punti percentuali dell'importo che i dipendenti pagano per i contributi. Questo sgravio aiuterebbe i poveri e la middle class, che hanno bisogno di tutto l'aiuto che si potrà dar loro.
Per coloro però. che guadagnano più di un milione di dollari — e nel 2009 erano 236.883 nuclei famigliari — alzerei immediatamente i tassi sul reddito imponibile superiore al milione di dollari, includendo — inutile dirlo — dividendi e capital gain. Per coloro infine che guadagnano oltre dieci milioni di dollari o più - nel 2009 erano 8.274 — suggerirei addirittura un ulteriore aumento percentuale.
I miei amici e io siamo stati coccolati a sufficienza da un Congresso bendisposto nei confronti dei miliardari. Adesso è arrivato il momento che il nostro governo faccia sul serio quando parla di sacrifici condivisi.

(Articolo pubblicato sul The New York Times e La Repubblica. Traduzione di Anna Bissanti)

Surreal: A Soap Opera Starring Berlusconi

By RACHEL DONADIO

KARIMA EL-MAHROUG, the beautiful 18-year-old nightclub dancer nicknamed Ruby Rubacuori (Ruby Heart-Stealer) at the center of a sex scandal involving Prime Minister Silvio Berlusconi, went on television last week to explain herself.

As her gripping testimony, décolletage and muted leopard-print top drove up ratings on a channel owned by Mr. Berlusconi, Ms. Mahroug said she had never had sex with him — “He never even laid a finger on me” — and never asked for 5 million euros ($6.7 million) to keep quiet. “I’m capable of exaggerating, but not that,” she said.

Nor, she said, had she ever worked as a prostitute, although she did say Mr. Berlusconi gave her 7,000 euros in cash after the first party she attended at his house (when they were introduced, she said, “Hi, I’m Ruby, and I’m 24,” she recalled). She also said she once stripped for “a client” at a Milan hotel, but when she told him it was her first time, he paid her 1,000 euros and told her to leave.

Ms. Mahroug seemed unfazed by the suggestion that wiretapped phone conversations published in the Italian press last week might contradict her. (In one, she said she had attended the prime minister’s parties since she was 16.) Nor was she moved by prosecutors’ allegations that Mr. Berlusconi had described her as a niece of Egypt’s president when the prime minister helped release her from police custody for theft last May.

“Oh, I don’t know what’s in the wiretaps,” Ms. Mahroug said. “I don’t know what journalists write that’s true or not true.”

Neither, it seems, do many Italians. Ms. Mahroug’s performance was the latest installment in a surreal and very Italian tragicomedy — one that blurs fact and fiction, reality and reality television — in a land where the border between appearance and reality has long been hazy, both in and out of politics.

In this episode, magistrates recently announced that they were investigating whether Mr. Berlusconi gave Ms. Mahroug and other women cash, gifts and rent-free housing in exchange for sex. But the full drama has been airing for the 17 years that Mr. Berlusconi has been Italy’s most colorful politician, playing to an audience shaped by the sensationalist television culture he helped create in his three decades as Italy’s largest private broadcaster.

Today, the dramatic tension is rising. Mr. Berlusconi appears less the leader of a Western European democracy than a character in a late Roman Imperial drama, whose actors seem powerless to control their fates against larger currents of destiny. “He is, in a certain sense, a prisoner of this world that he created,” said Mario Calabresi, the editor of the Turin daily La Stampa.

As described in the Italian press, it is a world in which older men hold court and flirt with leggy showgirls and where middle-aged women, a prime audience for Mr. Berlusconi’s channels and an important bloc in his electorate, swoon over young male heartthrobs. It is also a world in which bad girls confess that they just want to leave “the world of spectacle” to get married and settle down, as Ms. Mahroug said in her interview, to the applause of the audience.

Gently prodded by Alfonso Signorini, a host on Mr. Berlusconi’s channels and the editor of Chi, a tabloid owned by the Berlusconi family and central to its image-building, Ms. Mahroug described a rough life.

She said she was raped at age 9 by two uncles in Morocco, a claim her father is contesting in the press, and moved to Italy with her mother, where she struggled in school and turned to petty theft. She said was ashamed of being Moroccan, so told people that she was Egyptian.

“I invented a parallel life,” she said.

“You invented a parallel life,” Mr. Signorini echoed. Not quite an admission of guilt, the line became a running theme in the interview — and the key to understanding the entire scandal, if not Italy itself.

HOW can it be, many non-Italians ask, that Mr. Berlusconi is still in power? The basic answer is simple: politics. A growing number of Italians would probably change the channel if they saw an alternative, but the left is weak and the center unfocused, and for now the prime minister has a parliamentary majority, if narrow. His fate now lies with his coalition partner, the Northern League, which is growing increasingly restive, and no one has ruled out early elections.

But then there are the parallel lives. Average Italians express such disdain for their politicians, and for the many scandals they have lived through, that they can see the latest drama unfolding on one plane while they try to get on with their lives on another. Italy is a survival culture, steeped in that most time-honored survival mechanism: fatalistic resignation.

Since the Roman Empire, politics here has been seen as a means to power and money. Even today, Italy remains a land where complex networks of connections and family ties can still, as in feudal times, count more than merit or position, whether in getting a job or a bank loan. In my experience, Italians have a highly sophisticated understanding of power dynamics, a keen sense of whom you have to say yes to, and with whom you can get away with saying no.

In the wiretaps to emerge in the scandal, dozens of women appear to have been encouraged by their families and friends to get as close to Mr. Berlusconi as possible so that he might somehow help out in business dealings. He remains the biggest patron in a patronage society, and many Italians can understand that.

There is also an entrenched Catholic culture of forgiveness. Written on the facade of the Justice Ministry in downtown Rome are the words “Ministry of Grace and Justice,” in that order.

Mr. Berlusconi, who has denied all wrongdoing, has repeatedly said that it is outrageous for magistrates to leak wiretaps from preliminary investigations to the press without sanctions. (A bill his government advanced that would restrict wiretapping has stalled in Parliament.) The prime minister has repeeatedly depicted magistrates as a self-contained caste, a de facto political opposition that is out to get him. In fact, Italians show little faith in their slow and chaotic justice system, and many shrug off the scandal. “What do you expect? Judges are judges” is a common refrain.

Lately, however, the particular details of this scandal are proving too much for at least some Italians, including thousands of women who, disgusted by the wiretaps, have signed a petition calling for Mr. Berlusconi’s ouster.

“Do you have a nurse’s outfit?” the television agent Lele Mora asks one young woman he is inviting to a party at Mr. Berlusconi’s home, according to one transcript of a wiretap. “Go out and get one today,” he adds, telling her to wear nothing underneath except white garters. In another, Mr. Mora likens the villa to Michael Jackson’s house. “Wow, Neverland,” she answers.

IT is not always easy to translate between Italian and American sensibilities. There is no good English word for “veline,” the scantily clad Vanna White-like showgirls who smile and prance on television, doing dance numbers even in the middle of talk shows. And there is no word in Italian for accountability. The closest is “responsibilità” — responsibility — which lacks the concept that actions can carry consequences.

There is, however, an English word for Mr. Berlusconi’s television shows, and it is campy. The late-night program where Ms. Mahroug appeared, “Kalispera,” tapped into deep currents in Italian society — family, food, motherhood, nostalgia; randy old goats and leggy young blondes — and distorted them into a grotesque tableau.

After a segment in which the show’s golden retriever goes out clubbing in Milan and an interlude in which Mr. Signorini, in tapered plaid pants and a red sweater vest, danced the Charleston with another comely guest, it was time for the sit-down with Ms. Mahroug.

Beneath dramatic dim lighting, the 18-year-old said she had been introduced to Mr. Berlusconi by a friend who explained that Ms. Mahroug was going through a rough patch. “I told him everything in all sincerity,” Ms. Mahroug said of Mr. Berlusconi. “Except my name, age, and” — here she smiled a bit — “my country.”

If the classic definition of irony is a fundamental tension between what something is supposed to mean and what it actually means, between who is in on the joke and who is not, it is difficult to know if such a display is deeply ironic — or so far beyond irony as to be unironic.

Whatever it is, it is very Italian. This is, after all, the culture that invented the Baroque, with its trompe l’oeil ceilings, false doors, facades that disguise multiple layers and facades that disguise nothing at all. In his years in public life, Mr. Berlusconi has blurred the line between image and reality. Or rather, he has made a brilliant career on the fundamental Italian truth that image is reality.

In a video address broadcast last week, a quietly seething Mr. Berlusconi said prosecutors had violated the constitution and their treatment of his party guests had been “unworthy of a state of law.” “I’m serene, and you should be serene too, because the truth always wins,” he said. As to which truth — for that, the audience will just have to stay tuned.

Haiti’s Angry God

FOR most of the past 20 hours I’ve been hiking the earthquake-rubbled streets of Port-au-Prince. Tuesday night, when we had less idea of the scope of the devastation, there was singing all over town: songs with lyrics like “O Lord, keep me close to you” and “Forgive me, Jesus.” Preachers stood atop boxes and gave impromptu sermons, reassuring their listeners in the dark: “It seems like the Good Lord is hiding, but he’s here. He’s always here.”

The day after, as the sun exposed bodies strewn everywhere, and every fourth building seemed to have fallen, Haitians were still praying in the streets. But mostly they were weeping, trying to find friends and family, searching in vain for relief and walking around in shock.

If God exists, he’s really got it in for Haiti. Haitians think so, too. Zed, a housekeeper in my apartment complex, said God was angry at sinners around the world, but especially in Haiti. Zed said the quake had fortified her faith, and that she understood it as divine retribution.

This earthquake will make the devastating storms of 2008 look like child’s play. Entire neighborhoods have vanished. The night of the earthquake, my boyfriend, who works for the American Red Cross, and I tended to hundreds of Haitians who lived in shoddily built hillside slums. The injuries we saw were too grave for the few bottles of antiseptic, gauze and waterproof tape we had: skulls shattered, bones and tendons protruding from skin, chunks of bodies missing. Some will die in the coming days, but for the most part they are the lucky ones.

No one knows where to go with their injured and dead, or where to find food and water. Relief is nowhere in sight. The hospitals that are still standing are turning away the injured. The headquarters of the United Nations peacekeeping force, which has provided the entirety of the country’s logistical support, has collapsed. Cell and satellite phones don’t work. Cars can’t get through many streets, which are blocked by fallen houses. Policemen seem to have made themselves scarce.

“If this were a serious country, there would be relief workers here, finding the children buried underneath that house,” my friend Florence told me. Florence is a paraplegic who often sits outside her house in the Bois Verna neighborhood. The house next to hers had collapsed, and Florence said that for a time she heard the children inside crying.

Why, then, turn to a God who seems to be absent at best and vindictive at worst? Haitians don’t have other options. The country has a long legacy of repression and exploitation; international peacekeepers come and go; the earth no longer provides food; jobs almost don’t exist. Perhaps a God who hides is better than nothing.

Pooja Bhatia is a fellow at the Institute of Current World Affairs.