For this month's Environmental Outlook: Ten years ago, Israel experienced a prolonged drought that forced the country to come up with a strategy to address water scarcity. What its experience could teach an increasingly water-starved planet.
Riots in England and deepening economic and political strains in Europe: Challenges for Britain, debt-burdened European countries and the global economy
- Kenneth Lieberthal senior fellow and director of the John L. Thornton China Center at The Brookings Institution; former senior director for Asia at the National Security Council under President Clinton.
- Scheherazade Rehman professor of International Business/Finance and International Affairs at George Washington University
- Simon Nixon reporter, Wall Street Journal
- Zoe Williams columnist, The Guardian
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. London is calm, but rioters have taken to the streets in several other British cities. Many blame the eruptions on increasing numbers of young people unable to find work. The unrest in Britain comes as fears mount over the ongoing debt crisis in Europe.
MS. DIANE REHMJoining me here in the studio to talk about economic challenges in Britain and Europe and what the troubles could mean for us, Kenneth Lieberthal of the Brookings Institution, Scheherazade Rehman at the George Washington University. Joining us from a BBC studio in London, Simon Nixon. He is a reporter for The Wall Street Journal. We are going to take your calls, your email, your tweets, your Facebook postings throughout the hour.
MS. DIANE REHMBut first, joining us by phone from London is Zoe Williams, a columnist for The Guardian newspapers. Good morning, Zoe.
MS. ZOE WILLIAMSHi. Good morning to you.
REHMYou've said that some of the -- you've seen some of the rioting firsthand. Tell us what's going on today and what you saw earlier this week.
WILLIAMSWell, what's been really interesting about the riots, just from a kind of local point of view, is that when they were really in that full flow, there was no police presence at all, certainly not in the southwest of London and very little in the north of London. So with these incredibly dramatic events, the one nearest me was -- absolutely trashed a whole shopping area that has been there since I was a kid and no arrests.
WILLIAMSSo that -- you know, that was quite striking, and I think everybody finds that quite frightening. But within a day, the police presence in London is now 17,000, which is huge. So there's really no trouble occurring in London anymore, but there is still vigilante action. There's still significant numbers of people gathering with (word?) intent of protecting their streets. And there's still rioting in the north of England.
REHMAnd we read yesterday about three men who have been killed. How did that happen?
WILLIAMSThat happened -- they were three Asian men in Birmingham guarding their property. And they were basically ramrodded by another man who is now being bound over. I mean, he's been in front of a magistrate already. Obviously, it won't stay in a magistrate court. He's up with triple murder. So it's a very serious allegation, and he will end up in our court. But that was just a horrible tragedy.
WILLIAMSAnd I think quite after the (unintelligible) with everything else that's happened because there was one death in Croydon in southeast London. But that was -- that's thought by police to have been a gang killing that was just done opportunistically while the riots were going on. So if anybody should die as a result of the riots, it's very unusual. And it seems to have been an act of malice.
REHMZoe, there is a debate going on in Britain over just how politically motivated the riots were. What's your thinking?
WILLIAMSMy thinking about the political motivation of the riots is that it's not political at all because they are shopping riots, really. I mean, they're not -- normally, with a political riot, the rioters would seek confrontation with the police, whereas, in these cases, the rioters are trying to smash into shops and avoid confrontation with the police. When the police actually arrive, they disappear to other shopping centers.
WILLIAMSSo it's not -- it doesn't seem to have any kind of political basis. There's no political rhetoric. If you look at the communication between the rioters, it's not political in tone or in content. But the political context is incredibly important because, as you said in your introduction, there's just huge youth unemployment. It's almost -- it's not as bad as Spain, but I would say it's probably as bad as the worst of most of the rest of Europe.
WILLIAMSAnd I think if you combine youth unemployment with household budget squeeze that's been going on, there's been kind of a real time contraction intensified by a tax rise of this government that really started after the financial crash. It means that at -- in the very, very bottom 10 percent of household budgets, there's -- you know, there's no money at all. There's no spare money at all.
WILLIAMSSo you're looking at kids who've had nothing, no -- it was, like, no slack in the household budget for over a year and no prospect of work. And I think if it weren't for that context, you would struggle to understand why they are being so blatant.
REHMZoe Williams, she is a columnist for The Guardian newspaper. Thank you so much for joining us.
REHMAnd now, turning to Simon Nixon, you wrote yesterday that, at least on the face of it, there is not much to link the London riots to the global markets. But I gather there is a link. Tell us why.
MR. SIMON NIXONYes. Good morning, Diane. Well, the -- and I agree with what Zoe Williams was saying, that I don't think that there's any overt political motivation behind these attacks.
MR. SIMON NIXONBut there may be -- but there is an economic context. And I think what's -- what the point I was trying to make in that column is that what we've seen over the last 60, 70 years is an extraordinary transformation in the world economy through free trade and, you know, through the various agencies of the post-second -- World War II with a multinational trading system.
MR. SIMON NIXONAnd that's created an enormous amount of prosperity all around the world. But it's also created some enormous imbalances, both within countries and between countries. And the link is that the imbalance between countries is reflected in the financial crisis, which is the buildup of enormous surplus in parts of Asia or in Germany.
MR. SIMON NIXONAnd on the other side of that, corresponding side is enormous deficits in countries, like the United States, the Untied Kingdom and some of the peripheral eurozone countries. And a lot of the crisis right now in the global economy is about how to resolve those structural imbalances in the economy.
MR. SIMON NIXONAnd what I was suggesting about the U.K. riots is that they reflect a structural imbalance within economies, which is that this same process of globalization, while it's created enormous prosperity, has created an enormous -- has created great dislocation for people who are forced to sell their wages in the global markets and have seen their wages and living standards competed down.
MR. SIMON NIXONAnd I think that's what we're seeing there, is -- and for a long time, the developed world was able to cover over, paper over these cracks in the social system through increasingly generous welfare benefits paid for out of the middle classes. And the middle classes, in turn, kept their living standards up by borrowing and watching their assets, their houses, house prices soaring.
MR. SIMON NIXONAnd what we've seen in the last few years is that whole arrangement is starting to unravel. And the middle classes, they no longer have the money. They don't have the ability to continue to support these welfare systems. And at the same time, the people at the bottom of the income scale are finding their life -- their living standards very severely constrained. So I think there is a link.
MR. SIMON NIXONAnd the link is a problem in the global economy, and it's the relationship between those countries with -- it's in the relation between the surplus countries and the deficit countries and the global imbalances that have built up.
REHMSimon Nixon, he is a reporter -- pardon me -- with The Wall Street Journal. He joins us from London. Turning to you, Scheherazade Rehman, you've said you're more afraid of what's happening in Europe than anything else. Tell us why.
PROF. SCHEHERAZADE REHMANI think in the short term, the eurozone crisis, a sovereign debt crisis, is overriding our concerns at this point. But I think in the long term, it's really all about growth in the West, in Europe and in America. I want to pick up one thing that Simon mentioned. There's a wonderful article in The Wall Street Journal by Gordon Brown, who is a former prime minister of the U.K., today, about how the world is interdependent. It's never more clearer now.
PROF. SCHEHERAZADE REHMANHe makes a wonderful statement saying, loose statements anywhere can sink stock markets everywhere. And he's right. Look, there's been a trend in the world for the last decade. In all the G-7 countries and in the U.S. and in Europe, the rich are getting richer, and the poor are getting poorer. We're seeing this. And the fundamental question we're asking ourselves, even the U.S. is, is the economic model that we are using today working?
PROF. SCHEHERAZADE REHMANIs it fiscally sound? And does it work for everyone? The financial crisis has deepened this problem, and the austerity packages have shown real cracks in our economic system. And I think we're seeing this play out right now.
REHMWhat about these rumors that began regarding the French market yesterday? What happened?
REHMANWell, you know, there are rumors, and there are facts. And I think they are both -- you know, they're both accurate in the sense that French banks are exposed to other countries, which are vulnerable. A third of the Italian debt is held by French banks. French banks hold an in order amount of Greece debt as well. And so these rumors and these facts are actually based on some serious, you know, analysis in terms of their exposure to the debt in Europe.
REHMAnd, Ken Lieberthal, at the same time all of this is happening in Europe, in the United States, what's happening in China?
MR. KENNETH LIEBERTHALWell, the Chinese are widely seen globally as really being on a roll. They've maintained very rapid economic growth through the financial crisis with only a relatively short dip in 2009. Their growth this year remains strong. Having said that, they perceive themselves as being in potentially serious trouble. They have inflation at what for them is a very high rate. Officially, 6.5 percent in the most recent quarter, probably, in real terms, higher than that.
MR. KENNETH LIEBERTHALThey worry about their export markets. As Europe slows and North America slows, China's going to have more trouble pushing products out the door. But exports have been a major growth driver for them. Their other big growth driver has been domestic investment, mostly in infrastructure. It's widely felt that they have now over-invested.
MR. KENNETH LIEBERTHALTheir economy is sharply out of whack, and so they are trying to wrestle all these problems down and are very worried about what the future holds.
REHMKenneth Lieberthal of the Brookings Institution. When we come back, we'll talk more, take your calls. Stay with us.
REHMAnd welcome back. We're talking about the world's economy, its economic woes. Certainly, the riots in London and elsewhere have focused attention there in London, but it's truly all over Europe. Here in the studio with me, Scheherazade Rehman -- she is professor of international business and international affairs at George Washington University -- and Kenneth Lieberthal, senior fellow at The Brookings Institution.
REHMOn the line with us is Simon Nixon. He's a reporter with The Wall Street Journal. He is currently in London. Well, we've certainly seen some volatile trading on the markets, not only here in the United States but all over Europe. What about Brazil, Ken Lieberthal?
LIEBERTHALWell, you know, Brazil, along with the other major developing countries, has been growing more rapidly than the eurozone or North America has been growing. Having said that, the Brazilians now face their own problems. Their exports are dominated by commodities. As major economies slow, the prices of commodities are dropping.
LIEBERTHALThe -- in the equities markets, commodities have done worse in the last two weeks than the broad markets overall. And, secondly, for Brazil in particular, they have a major problem competing with Chinese manufacturing exports to Brazil, which are hurting Brazilian manufacturers themselves. So they feel, on both the commodity side and the manufacturing side, they're under some pressure at this point.
REHMAnd, Scheherazade, a great many people are looking toward Germany to sort of deal with the whole European problem. How likely is that?
REHMANI think that it's rightly so. There is no other country in Europe right now that can help calm the markets down or resolve the issue. However, Germany is facing its own growth. Germany has to grow in order for it to remain stable and stabilize the rest of the eurozone. And there is no doubt that the bill, ultimately, will be picked up by the Germans.
REHMThe entire bill.
REHMANNot the entire bill, but a large chunk of it.
REHMAnd how willing are the Germans to do that?
REHMANWell, my guess is that nobody really likes to do that. But this is, you know, an agreement that was signed some 12 years ago, if not longer, when the eurozone -- when the euro came into being. And they have to do this. There is no other -- there is no one else in Europe right now who can support the bailouts. They don't have enough money. They have a very different problem than the U.S.
REHMANIn the United States, we have a political debacle, but we do have the money to pay our debts back. In Europe, the problem is a political debacle, plus they don't have the money to pay the debts back.
REHMSimon, you've said that the cards are really in the hands of both Germany and China. Tell us why.
NIXONWell, I agree with what was just said about -- that only Germany can rescue the situation. I have argued all along the last -- you know, throughout this euro crisis, that the solution has to lie in much deeper fiscal integration in Europe and with the creation of the common eurozone bond. But whereas three weeks ago, I think that if they denounced that, that might have put a, you know -- draw -- helped at least draw a little bit of a line under the crisis.
NIXONThings are now spiraling so rapidly out of control that the -- that what we're seeing is almost a -- is a major shock to the economy. And part of the reason why the French banks are under such pressure, and along with other European banks -- but the French in particular -- is that people are now beginning to factor into their models the prospects of a very real economic contraction, a credit crunch across Europe as the banks start to draw in their lending and push up their borrowing costs.
NIXONSo I think it's now got to the stage where the price, both politically and financially, to resolve the euro crisis is becoming incredibly high. And I agree that Germany will end up -- I think she's absolutely right that Germany will end up bearing the cost of the eurozone crisis. The question is whether it bears the cross in a constructive way by moving towards a -- rapidly towards further European integration, or whether it does so in a disorderly way by allowing the eurozone to break up.
NIXONI mean, just to bring the point back to China, I think the issue here is that you have these creditor countries -- Germany in particular and China, the two biggest creditor countries in the world -- and then the problem is that they've done pretty well out of the crisis, to be honest, so far. And so the pressure isn't on them to make concessions.
NIXONAnd that's why, I think, we're at a very critical juncture in the financial crisis now because this has now become a completely global crisis of growth, as been said. And there are now a number of things that need to happen very rapidly on a global level to try and restore growth and remain -- and also to maintain the political consensus behind the global economy that sustained the -- sustained us for the last 70 years. And my fear is that we're now reaching a decisive moment on that score.
REHMHow much political will is there in China, Ken Lieberthal, to do something about this crisis?
LIEBERTHALI think, actually, at this point, very little. In the financial crisis in '08, '09, the Chinese adopted the biggest stimulus program in the world. They really did provide help in terms of generating global growth. At this point, the Chinese are dealing, as I mentioned earlier, with inflation, et cetera. They're also dealing with the debt overhang from bad loans that were made during their huge stimulus program in the financial crisis.
LIEBERTHALAnd they're in the middle of a political succession. And it's very clear that this leadership is going to have to be very cautious. They'll do what's necessary to patch and fill in in China. But, fundamentally, they're focused on bringing down inflation, stabilizing the domestic economy, hoping to maintain exports at a sufficient level to avoid massive unemployment in their export processing industries domestically, which involve several tens of millions of workers. I don't think the Chinese are going to have to step up to the plate on international needs at this point.
REHMBut considering how much the United States is in the debt of China, wouldn't you think that China would at least want to step in to preserve its own wealth?
REHMANI agree. I think that -- and I agree with Ken. But I also think that perhaps it's unconstructive for the Chinese to make derogatory statements now, particularly with the fear in the market about the U.S., because, you know, they have over $1 trillion of wealth in this country. As the dollar deteriorates, so does their wealth.
REHMANAny sell-off will deteriorate further future wealth. And they're also in the market buying up the U.S. dollar because their exports get more expensive when the dollar goes down. And I think, you know, that's what -- that's what's going on right now.
REHMAll right. We're going to open the phones, 800-433-8850. First to Ann Arbor, Mich. Good morning, Steven. You're on the air.
STEVENGood morning, Diane. Continuing with the thread of China, I'm wondering -- I saw a video on Hubski. And it was about how China is in the middle of a housing bubble themselves. I'm wondering, is that similar to the bubble we were in? And if that bubble pops, how would that affect the world economy?
LIEBERTHALThere is a housing bubble in China, especially in the upper end of the housing market. It's not similar to our bubble in that, you know, the Chinese, for example, put down, on average, a 40 percent -- I'm sorry. They put down, on average, 60 percent and borrow 40 -- no, I'm sorry. They put down 40 percent and borrow 60 percent for their housing. There's no such thing as borrowing nearly 100 percent...
LIEBERTHAL...of the value of the house. So you're not going to get a lot of Chinese underwater on mortgages. Having said that, housing is a hugely important sector of the Chinese economy. Housing construction drives an enormous array of things in China. So they are trying to stabilize housing prices without going off a cliff and having this bubble burst. Should the bubble burst, the consequences are going to be very severe on the Chinese economy in the short run.
REHMThanks for your call, Steven. To Nitin (sp?) in Raleigh, N.C. Good morning to you. Nitin, are you there?
NITINYes. Yeah, I'm there. Thank you, Diane, for taking the call. Diane, just a quick question on the -- all of the kind of previous shows that you have done and right now that you're doing. All the -- aren't all the issues related to just one thing, you know, basically, whether it be U.S. or Europe? The trade deficits that are with which China and all the countries. Basically, there's no manufacturing jobs in U.S. All we do over here is just service industry.
NITINAnd as a service industry, you're not going to be, you know, not going to survive for long. You're not going to be able to employ a lot of people. And if that's going to be the case, you're always going to have a double-digit unemployment, just like Europe.
REHMSimon Nixon, to what extent is or are the riots in -- which were in London and spread to other parts of England, related to unemployment?
NIXONWell, I'm really quite cautious about putting any specific causes for the riots in London. I don't -- I think it's too soon to say. I think there's a lot of things that are very unusual about these riots, you know, the way in which they, you know, they spread and the places they took place. And I think that -- you know, I think that there was a significant -- and it's very clear that there was a very significant role played in this by gangs, street gangs.
NIXONAnd those gangs, of course, are quite involved in the drug trade. So, you know, I think that we -- you know, I think that it's very difficult to make -- to be specific about the causality. But I think that the -- but there is an -- but what is an issue is that there is a very large element of the U.K. populace -- there are, like, 5 million people now in the U.K. who basically never had a job and who live on the welfare system.
NIXONAnd some of these -- in some cases, this is something -- several generations of a single family, and that is a very serious issue. And these are people who, you know, for whom, you know, the traditional jobs or whatever their ways of life are, you know, have been -- they've been taken out of the economy. And I think that that's a big public policy issue for all advanced economies. And that -- and I think that that's the sort of wider context.
NIXONAnd I think what these riots have done is they have -- you know, and so without drawing -- jumping to conclusions about what caused them, I think they have focused people's attention on the fact that there is a, you know, this entire -- there's a very large band of people in the country who are out, you know, who are isolated from the mainstream economy.
REHMANYou know, I think, you know, what's happening in the U.K. is an experiment that the government is carrying out that the U.S. should pay some attention to. And the experiment is this: Can we simultaneously shrink the state and stimulate the economy at the same time? And the jury is out. It doesn't look very good right now.
REHMWhat would the alternative be, pouring lots of money into stimulating all of these European economies?
REHMANI don't think that's the answer. But I do believe, in the crisis of fear that we are seeing right now and what I call a deficit of political credibility, some stimulus is needed in the financial markets until things calm down because every day we have the stock market go down 600 points, up 400 points and down again 500 points, the common man on the street is paying the bill for this.
REHMANSo I think the stimulus is necessary to calm the fears down, but after that, absolutely, austerity programs. But we have to do them in a manner that achieves growth. Without growth, we are not going to get out of this mess.
REHMScheherazade Rehman of George Washington University. And you're listening to "The Diane Rehm Show." Now, to Dallas, Texas. Good morning, Roy. Thanks for joining us.
ROYGood morning, Diane. I want to talk a little bit about the unemployment situation you guys were just talking about. The guy who does howstuffworks.com, Marshall Brain, wrote this long piece about robotic nations and talks about how automations and continuing productivity gains -- basically, you're making millions and millions of people just not needed for the global economy.
ROYI mean, as we continue to ramp up productivity, you just don't need as many people to do so much work. You don't need so many people to plow so many fields. You don't need so many people to build so many cars. And it seems like that's kind of what's going on here, as you have a lot of people who are well-educated, technologically capable, you know, smart, know what's going on but just aren't really needed at a level that they have the skills for.
REHMKen, would you agree with those thoughts?
LIEBERTHALWell, it's certainly true that productivity has been increasing. As productivity increases, you need fewer workers to get the same output. And that's been a serious phenomenon. Having said that, there is a lot that needs to be done, say, in the United States, that would require a lot of high-end jobs to accomplish. Our infrastructure has been deteriorating for years. We are decades behind where we need to be in that.
LIEBERTHALThere's a whole sector of clean energy that is being developed technologically but not being deployed and scaled up in the United States. This is mostly local labor. It is high quality labor. It's potentially good-paying jobs. But you got to get the financing out there and the regulatory environment in order to enable this to occur.
REHMIs the same true for Europe, Simon Nixon?
NIXONWell, you know, I'm sort of more optimistic about human nature and that -- and our society than the core, in my respects. I think that, you know, the -- at least, you know, the last 200 years, we've been inventing increasingly complex machinery and labor saving machinery. And the world is growing immeasurably richer, and more and more people have been able to participate in the global economy.
NIXONAnd that's accelerated over the last 20 years. I was in Japan the other day and saw some quite remarkable new robots that are being developed, and, of course, you know, the manufacturing of these robots and development of them employs lots of very high-skilled jobs. And then people have -- they still need people to manage them. So you -- I think that's a -- I'm optimistic about it.
NIXONI think that, you know, increased productivity frees up resources for new investment. I think the issue is that -- the problem is that there are a whole range of skills that works very well for people with rare skills that they can sell into the global market and reap the benefits of global scale, so whether that's people in the financial sector or running companies, whatever, who can make enormous amounts of money.
NIXONBut the issue is for people at the lower end of the income scale who have to sell their labor into a globally competitive market, competing with people all over the world. And I think what's happened to developed societies is that either those sorts of jobs have been taken by -- have been shipped overseas -- I mean, they've been outsourced.
NIXONOr, alternately, you've had, you know, lots of massive immigration into economies where people have been willing to work for less protection, less rights and, therefore, undercuts the living standards and the ability to live a -- to support a family and live a dignified life for people at the lower end of the income scale. And I think that's a very big challenge, globally. And I think that's part of the issue that, you know, in a sense, this crisis is forcing.
REHMSimon Nixon, he is a reporter with The Wall Street Journal. We'll take a short break here. And when we come back, read your email, open the phones. Stay with us.
REHMAnd welcome back. As we discuss the difficulties in the global economy, here's an email from Harry, and it's for you, Simon Nixon. He says, "The British conservative answer to their recession in 2008 was to cut programs to the poor, medical benefits and investment in job creation. This move increased the gap between the rich and poor. It's difficult not to believe that these moves may, in part, be contributing to the riots and dissent." What do you think?
NIXONWell, I think that's an unfair caricature, to be honest. I mean, I think it's a -- there has obviously been a -- an austerity budge in the U.K. The U.K. took a decision that the most important thing it could do for the recovery was to try and protect its sovereign rating. So the U.K. is still AAA rated and, as a result, has amongst -- probably the lowest borrowing costs now of any of the European or America or U.S. -- or of, also, the European countries.
NIXONSo, I mean, that's -- you know, that's being -- is an important economic advantage. I mean, and I think that the cuts, the spending cuts have clearly, you know -- the government had tried to target those as much as possible to avoid creating, you know, hardship for -- you know, to try and spread the burden as much as possible.
NIXONSo I think, you know -- look, I think there's a cost when there's going to be -- I mean, I think what's really hurt living standards for the people in Britain has been inflation, which is currently running at nearly 5 percent. And that really is cutting into people's living standards. The spending cuts haven't actually started to take place yet.
NIXONAnd I think, again, it's one of the reasons I'm very cautious about this as an explanation for the riots because, you know, they're phased in over the next three or four years. So I don't think that -- I don't think anybody, really, in the U.K. seriously believes that that's what has triggered these (word?).
REHMScheherazade, what about you?
REHMANI think Simon's right. The cuts haven't really kicked in, but there's been a lot of news about what the cuts are going to be about. And, you know, low-income housing hitting the bottom end of the socioeconomic lower-middle class. And I think that might have given the perception that the future is very bleak. We know that youth unemployment is at an all-time high.
REHMANThe numbers are around 1.25 billion students around the world will have a period of unemployment after they finish school. And when the future is bleak, it leads to all sorts of troubles.
REHMHere's an email from Jeff in Strongsville, Ohio, who says, "I heard someone on a BBC program yesterday say the youth have seen the bankers loot the economy. They've seen Wall Street loot the economy. Now, they feel it's their turn." Ken.
LIEBERTHALWell, I'm not prepared to comment on how British youth are seeing the situation. I haven't been there. Or I'd, you know, defer very much to Simon's judgments on that. I do think in the U.S., and probably in a number of other countries, there is a feeling of unfairness, that, you know, the people on Wall Street, the really high-income finance people are being referred to by conservatives in the United States as the job generators, the job growers.
LIEBERTHALWell, I'm sorry. I think most poor people don't think they're the ones that cost millions of jobs in the United States in 2008 and 2009. So there is some popular sense, I think, very powerfully felt, that the people who caused the problem or contributed to it by not doing things as effectively and professionally as they should have not been the ones to pay for it.
LIEBERTHALAnd the people who didn't cause it are being asked to pay for it. And I think there's a demand that that burden shift.
REHMTo San Antonio, Texas. Good morning, Al.
ALGood morning. If someone issues you a check and the check is returned by the bank, insufficient funds, do you become angry with the person who issued you the check? Or do you become angry with the bank that sent it back insufficient funds?
ALThe politicians in Europe, the politicians in the United States are issuing people checks where they're giving people programs without any idea that the bank can pay -- has enough -- that they have enough money in the bank to make those programs good. The riots are in response to getting mad at the bank. And in this country, everyone is mad at the government instead of being mad at the politicians who issued them the check to begin with.
REHMThat's an interesting point. Scheherazade.
REHMANYeah, I think it's an interesting point. I think the American public is astounded at what's happening in Washington, that they simply cannot understand the gravity of the situation and how that impacts on their day-to-day lives, jobs, their retirement funds and their investment funds. The debt ceiling debacle was avoidable. There's no real restructuring plan in place at this point.
REHMANI mean, how much does the stock market have to go down for the politicians to understand they have to get their act together quickly? And this is on both sides of the Atlantic. And I believe that if they do not come out with a global solution quickly, if the world does not believe that there is concrete action, we will, indeed, have a lost decade in the West.
REHMSimon, I wonder if you expect to see any political changes in Britain as a result of this week's riots.
NIXONWell, no, I don't really, to be honest. I think that -- I mean -- and I repeat again that I just think it's too soon at this stage to draw any firm conclusions about what caused them. And so if you're talking about a policy response, I think that, you know, the policy response will need to be dictated by, you know, what -- about when we're clear about what caused them.
NIXONBut, as I say, what I think is -- has already become clear is that the, you know, the gangs -- street gangs were major elements of this. And the prime minister announced today some policies related to that. But if you're talking about a change in the political, you know, in terms of political class, I don't -- you know, I think the current coalition government has a, you know, is stable for the moment.
NIXONAnd it's united behind its fiscal plan. So I don't see any immediate change. And I guess that the wider issue is just simply that the eurozone crisis is now -- you know, it's having a big effect on the U.K. economy. And it's going to prevent the most enormous challenges if the economy unfolds in the way it looks over the last few days.
NIXONAnd that is clearly going to drive political change, I think, everywhere. But, you know, how that will pan out, I think, is too soon to say.
REHMANI mentioned earlier that the American public is astounded at the politicians here. Well, I think the Europeans are astounded at their own politicians. The British, the French and the German leaders were on vacation. I cannot understand this at this particular juncture in time with the eurozone crisis.
REHMAnd, of course, our own president is expected to leave on vacation quite soon. Do you believe he will leave Washington for Martha's Vineyard?
REHMANI think if the Dow Jones Industrial Average drops another 700 points today, perhaps it's best to postpone it for a little while.
REHMAll right. To Jeff in Indianapolis. Good morning to you.
JEFFGood morning, Diane. I know I'm supposed to say hello. But thank you so much for your show. I greatly enjoy it.
JEFFI wanted to suggest that, I think, you know, America's ripe to see, you know, similar civil unrest here within the not too distant future. I would suggest that for a couple reasons. One, you know, we're already seeing flash mobs that make (word?) TV commercials become flash robs to the point where Philadelphia now has a curfew to extend the issue. So the social media aspect that that we saw in London is already here.
JEFFAnd, you know, we really have the socioeconomic situation, as we really are creating a lost generation that, you know, has a very dangerous combination of no hope and, unfortunately, no fear in a lot of cases. So no hope and no fear lead to such activity. And I really think that we're going to see, you know, similar things happening over here.
LIEBERTHALI think in the United States, we clearly have a very strong, very conservative component to our body politic now. We also have a relatively strong, relatively liberal component. What we need is a militant center. We need a center that really can get out there and lead and mobilize because neither the left nor the right has an adequate solution for this at this point.
REHMDo you see that militant center?
LIEBERTHALWell, I think, frankly, the great disappointment at this point is with President Obama, who's -- regardless of how he's characterized by some, is, in fact, on balance, generally, a centrist. The problem is he hasn't been a leader. And we need someone who can get in there and do the politics of this, publicly with the American people and within the U.S. Congress and U.S. political system and really fight tough, hard, eloquent.
LIEBERTHALName who the problems are. Go after them tooth and tong. Articulate a program that people can understand, that's not just code words, like, balanced, and that kind of thing. And articulate it day after day in a powerful fashion. This is an eloquent man, and we have waited for him to be eloquent ever since January 2009. Without that kind of -- you know, the White House is a bully pulpit. It's not just an idea generator.
LIEBERTHALAnd we need a bully pulpit in the middle of our political spectrum now, or we're going to be in very, very deep social, as well as economic, trouble.
REHMANI agree. I think some concrete action has to be had, and someone has to do it. And the White House is the only place. And I'll give you an example. We don't have to bring deficit down or buy the debt down to zero. We have to go from 100 of GDP to roughly 40 to 60 percent of GDP, and we'll be fine.
REHMWhat kinds of statements does either of you believe President Obama could make in the face of the kind of resistance that he has encountered on the debt ceiling, on the end of the Bush tax cuts? I mean, you got a group of people who have said we're not moving. We're not changing our minds. We're not going to raise taxes. What does a president do in the face of that? Does he let the economy sink? Does he let our debts fall and not pay them? What could he have done?
REHMANI think more concrete statements. I think he's stuck. Clearly, there are certain members of Congress that have now put their foot down and said they're not going to move on certain issues. The Super Congress is already at a deadlock before it's even formed at this point, with the six Republicans saying there's no issue on taxes that they're willing to discuss.
REHMANAnd so I think that moving down the road, he'll have to do the best he can until the elections, and then he'll have to encourage the voters to get out of their houses and vote.
REHMJeff in Indianapolis, what would you like to have seen President Obama do?
JEFFWell, Diane, really, there's not a lot of easy answers. You know, it's -- it is a global situation. I believe, you know, Europe is a bigger issue. You know, we talked earlier about Germany. I don't know with the German taxpayers. I've heard figures as much as -- it may cost them 130 percent of their gross domestic product. Will those German taxpayers stand still if the number amounts to any sort of figure like that?
JEFFI don't know the climate in Germany right now. But I understand there's not a lot of support or popular support, at least for Angela Merkel, so I don't know.
REHMAll right. Jeff, thanks for your call. You're listening to "The Diane Rehm Show." And let's go now to Richmond, Va. Good morning, Mike. You're on the air.
MIKEOh, thank you for taking my call, Diane.
MIKEI just -- I've been listening to your program. And it's been really helpful. But I'll tell you, I think the bottom line to all of it is very simple. I think that capitalism is probably the best system that the world has ever known. But the world has allowed it to run uncontrolled and unleashed. And so what we've had is huge corporate monoliths that have started gobbling up each other, getting bigger and bigger and bigger, reducing the chances for competition.
MIKEAnd I think that the wealthy have become more and more wealthy. And all of that money that they and the corporations are getting is being sucked out of the middle class. And the middle class has been sitting there waiting for it to produce jobs, but it's not producing jobs. It's not going to produce jobs because the big motivator is greed, for all of them. And, I think, until our government -- and I know Greece has a problem with this.
MIKEI suspect that U.K. has it. Until the people take control of the wealthy and those big corporations and put caps, limits and very strict regulations on them so that they can still function and still make the profit, but a reasonable one, I think the money drain is going to keep sucking out of the middle class and going to the wealthy.
MIKEAnd then pretty soon we're all going to go back to how we started in feudal Europe. And it's going to be the rich lords, and all the rest of us are going to be little serfs, waiting to get kicked off their land.
REHMAll right. Mike, thanks for your call. Sounds as though what Mike and perhaps some others are calling for is some change to the capitalistic system. Would you agree, Ken?
LIEBERTHALWell, I think that's what he's calling for. I'm not sure I'd agree with the prescription. I think markets are marvelous. Markets are the most efficient way to allocate resources to get results. But no market should be left totally unregulated because it will go strictly for maximizing profit, potentially at enormous social and eventually economic costs, monopolies and so forth.
REHMBut isn't that what the Tea Party is arguing against, regulation?
LIEBERTHALWell, I disagree with them very strongly. You need, I think, light but serious regulation that is rigorously implemented. And we have not had that in recent years. We've had regulations that are not seriously implemented. And you then get terrible outcomes. And markets out there will optimize whatever they're allowed to optimize.
LIEBERTHALSo you have to be very thoughtful about how you structure incentives in order to get good outcomes from market dynamics.
REHMANI think I agree with you. I think there is a serious restructuring needed in this country, from infrastructure to education. And until that happens, we're not going to go anywhere.
REHMBut the profit-making system continues to operate in a way that ultimately seems to be hurting the economy.
REHMANWell, you know, it's hard to restructure in the middle of a crisis, and I think this is what we are facing. You know, do we let the banks fold? And the answer is, no. Because it will hurt everyone else, so we have to bail out. We have to stimulate. The question is what happens once the crisis has abated? Do we have the political will to do the serious restructuring this country needs?
REHMDo you want to see a QE3, Ken?
LIEBERTHALI would like to see QE3, in part, because I think we're not able to do enough because of politics on the budgetary side of this. So we've had to turn to the Fed and QE3.
REHMKenneth Lieberthal at the Brookings Institution, Scheherazade Rehman of George Washington University and, from London, Simon Nixon, reporter with The Wall Street Journal, thank you all so much. Thanks for listening. I'm Diane Rehm.
ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth, Sarah Ashworth, Lisa Dunn and Nikki Jecks. The engineer is Erin Stamper. A.C. Valdez answers the phones.
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