South Africa in a tight spot

It has not been a good year for South Africa. Its currency, the rand, has slid 15 percent against the dollar because of sluggish growth, stubbornly high inflation and the flight to safety sparked by the Fed’s announcement in May that it would likely scale back its $85 billion-a-month stimulus programme before the end of the year. Unemployment currently stands at 25.6 percent. The economy managed to grow by 3 percent in the second quarter but is projected to slow in the second half of the year. Ongoing strikes have cost it billions of dollars in lost output and tainted its image among investors abroad. The three major credit agencies downgraded its credit rating to Triple B.

The barrage of downbeat economic news has come from a country until recently considered the economic powerhouse of the continent and which contributed 40 percent of the GDP of Sub-Saharan Africa. Yet last week its central bank governor, Gill Marcus, said that at its current growth rates South Africa risked being overtaken by Nigeria as Africa’s biggest economy within a decade. Furthermore, sluggish growth coupled with high inflation, which hit 6.4 percent in August, mean the central bank is in a tight spot. The sickly growth rate and high unemployment rate would call for an interest rate cut, but with inflation already breaching the central bank’s target range of 3 to 6 percent it has little room for manoeuvre.

To be sure uncertainty over the Fed’s next policy move has weighed heavily on Africa’s biggest economy. Given that South Africa relies heavily on foreign capital to finance its current account deficit, which is around 6 percent of GDP, it was particularly badly hit when investors pulled their money out of emerging markets at the prospect of the pool of cheap dollars drying up. In fact, after the Fed’s surprise announcement that it would not taper in September after all, the rand picked up a little but still has not lifted itself back to its former levels.

The economy was been badly hit by the wave of violent labour unrest in some of the country’s most important sectors, such as mining and motor manufacturing. The strikes have not been as long as last year but have definitely not burnished the country’s image abroad.

To top it all off the politics has not been that great either. The ruling African National Congress (ANC) which has been in power since the end of apartheid in 1994 has been suffering from internal splits, enduring inequality and poverty as well as corruption. Many young people in South Africa do not feel their living conditions have improved and feel increasingly disaffected with the ANC. Deputy President Kgalema Motlanthe called the country’s staggeringly high youth unemployment, which stands at 50%, a “ticking time bomb.” High levels of youth unemployment can lead to social unrest and there are fears within the ANC that South Africa is running the risk of an Arab Spring. If President Jacob Zuma is to win next year’s election and prove that his party has not failed the country he needs to step up his game.

One cliff at a time

John Boehner

American politicians have not disappointed. After creating the fiscal cliff themselves, they proved incapable of avoiding it entirely and have set themselves up for another round of gruelling negotiations on raising the debt ceiling and replacing the sequester (across the board spending cuts worth $110 billion per year) pretty much as soon as the current deal is signed into law. This latest law jewel emanating from a dysfunctional Congress extends the Bush tax cuts for individuals and couples earning less than $400,000 and $450,000, respectively. Above that threshold the marginal rate will rise from 35% to 39.6%. Inheritance taxes will go up from 35% to 40% after the first $5m for individuals and $10m for couples, whilst taxes on capital gains and dividends will rise to 20% from the current 15%. The enhanced unemployment benefits affecting some two million people will be extended for another year whilst the tax credits for poorer and middle-class families have been extended for another five years.

Lawmakers have not exceeded our expectations then. The deal does nothing to address the spending cuts, which have been delayed for a few months, and the debt ceiling, which the Treasury reached on Monday (although it still has some wiggle room to allow it to borrow for another two months). Furthermore, the payroll-tax cut was allowed to expire as scheduled meaning that workers’ purchasing power will decrease by about $1,000 each, causing a significant drag on the economy. Entitlements, which many analysts agree will be a key driver of the burgeoning US debt in the future, have not been tackled although they will probably become a sticking point in the next negotiations as Republicans will demand cuts to them as a price for raising the debt ceiling. Given that they won not a single spending cut in the latest round and backed down on increasing taxes for the rich, they will most likely not be enthused by a sincere spirit of cooperation in the next round. 

President Obama, for his part, has not hesitated to brandish this deal as a Democrat victory and set a worryingly belligerent tone for the next round of negotiations by claiming that “If Republicans think that I will finish the job of deficit reduction through spending cuts alone…they’ve got another thing coming.” His key request that taxes should go up on the rich always made more political than economic sense: higher taxes for the rich should raise about $600 billion over a period of ten years against a projected deficit of $10 trillion over the same period. In other words, pocket change. But it does chime in well with the public sentiment that the rich have weathered the crisis at the expense of the poor and now need to pay their dues. It also goes some way towards appeasing those on the left who perceive Mr. Obama as too often caving in to the demands of the Republicans on protecting the rich. Unfortunately, it does not foster bipartisan cooperation (something Mr. Obama had campaigned on) and basking in symbolic political victories should not come at the price of achieving significant economic ones for the good of the country. Given the unlikelihood of either side steering clear from ideological battles and the fractured chaos of the G.O.P., let us see what deal an ineffective Congress can rustle up next.

Who's the chicken?

From: DonkeyHotey

The world waits with bated breath for an outcome of the ongoing fiscal cliff talks in Washington with much the same anticipation that accompanied the end of the Mayan calendar on December 21. As it happened the end of the world was not to be, and sadly, a grand bargain on how to tackle America’s sickly finances may not grace the news headlines either. There will in all probability be a last minute deal, a fudge of sorts that merely postpones a long-term solution to America’s burgeoning debt.

Back in 2011, the Obama administration came to blows with the Republicans on raising the debt ceiling for the US government and as part of the compromise that broke the impasse both parties agreed to point a gun to their foreheads to ensure a long-term solution was agreed on by the end of this year. This gun is the so-called fiscal cliff: a combination of draconian tax increases and spending cuts worth about 5% of GDP over a year that would kick in on January 2^nd and are likely to topple America’s fragile economy back into recession. No one in their right minds would contemplate rolling out such a harsh package at this stage of the American recovery, and indeed the whole world (American politicians included) assumed the fiscal cliff would be enough to ensure a deal is passed in Washington. The question now is what kind of deal.

Initially Mr Obama had pushed for a rise in tax rates for those earning over $250,000 a year, subsequently rising that threshold to $400,000. He has also agreed to change the way Social Security benefits are indexed to inflation and called for a two-year extension of the debt ceiling. For his part John Boehner, the Republican speaker of the House of Representatives, has also made some concessions. He had conceded that tax rates could rise for those earning over $1m a year and the revenue he is prepared to see gathered over ten years now stands at $1 trillion.  However the suicidal polarisation of US politics makes any reasonable deal unpalatable to one or both of the parties.

The concession to allow the Bush-era tax cuts to expire for those earning over $1m a year came under Mr Boehner’s Plan B, which still left a fiscal tightening of nearly 3% of GDP over a year. As it happens even this largely symbolic tax rise (the Americans affected by it number about 400,000, or 0.3% of tax filers) was anathema to the fiscal hawks in the G.O.P. and so they promptly proceeded to reject it.

The odds now seem to be in Mr Obama’s favour. Whilst a grand bargain which involves a package of spending cuts and tax rises worth at least 2% of GDP to stabilise the debt level is not likely to emerge from the last-ditch negotiations going on right now, the G.O.P. has manoeuvred itself into a corner. Mr Obama’s fall-back position involves a minimalist bill that would prevent an income tax rise on the middle class and extends vital unemployment insurance for Americans looking for a job. If Republicans voted against this for whatever ideological reasons, they would essentially be voting for a tax rise on ordinary Americans. Given that recent polls have found that 53% of Americans would blame the Republicans if the country toppled over the cliff, it is a powerful incentive for them to compromise to avoid becoming the subject of public opprobrium and being eternally branded as the party of the rich as the whole country reels back into recession.

Unfortunately the deadlock is not just about economics. November’s election painted a dreary picture in terms of the polarisation of the country. The number of states that was decided marginally, i.e. by five percentage points or less, decreased from six to four, meaning that incumbents have safer seats and can ignore the needs of the country in favour of their constituents. More worryingly however is the fact that these seats may be safe from the rival party, but, especially for the Republicans, they dramatically increase the battles at the primaries. To vote for a tax rise now would be for many Republicans analogous to committing political suicide. Of course there are moderates within the G.O.P., and both their political futures and the passing of a deal on the fiscal cliff rest on them being able to form a large enough block to give them political cover. The ideological polarisation within the G.O.P. therefore matches that of the entire country, and the repercussions of such a divide are crucial not just for the fiscal cliff but for the other items on Obama’s agenda, such as climate change and gun control.

Whatever final deal emerges then, it will most probably not be a definitive one for the deficit but it will give us a clue as to the turn American politics will be taking. As ever, it’s not just the economy, stupid.

License to kill

From: Alan Cleaver

“A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.” When Thomas Jefferson signed the Second Amendment which was adopted into law in 1791, he probably did not envisage these fateful words underpinning a government policy that made the massacre of twenty children possible on December 14.

The Sandy Hook carnage, which saw a twenty-year old man armed with a semi-automatic rifle with an extended magazine and two semi-automatic handguns enter an elementary school and go on a ten-minute rampage, leaving twenty children (mostly six and seven year olds) and six teachers dead, has largely receded from the headlines. President Obama made his fourth visit to a community rocked by a mass shooting, proffering heartfelt sympathy and a promise to make progress on gun control, only to return to Washington to haggle with obdurate Republicans over the impending fiscal cliff. Of course, to conflate these two issues would be wrong: the debt has to be dealt with now whilst gun control can wait, for a bit. Hopes were raised that Obama’s would not be empty promises by the combination of the sheer scale of indignation at the massacre that swept the country and the fact that Obama does not have to worry about re-election anymore. The public outrage will fade, as is only natural, but Obama’s promise to act within weeks still stands. Unfortunately, so do the seemingly insurmountable obstacles to enacting stricter gun control.

Let’s go back to Jefferson and the Second Amendment. Upon first reading, that sentence, despite its questionable grammatical integrity, does not unequivocally guarantee the right of American individuals to carry arms. In fact, what it actually says and what was upheld by the courts for over a hundred years was that state militias had a right to bear arms, not individuals. Then came the landmark District of Columbia v. Heller 2008 judgement which decided the second clause trumped the first on militias and that therefore the federal government could not ban handguns. As Jeffrey Toobin, writing on the New Yorker, helpfully points out, in the twenty-first century Justice Antonin Scalia could not enshrine the right of individuals to bear the latest military machinery, however ring-fencing handguns proved a suitable political compromise because “handguns are the most popular weapon chosen by Americans for self-defence in the home, and a complete prohibition of their use is invalid.” What this shows is that the precise meaning of the Second Amendment is not set in stone, or paper for that matter. Just because a constitution is written does not mean it cannot evolve like an unwritten one as the values of a country change. However it does mean that hawks in the National Rifle Association (N.R.A.) can cling to words written in a completely outdated context to wage a veritable political campaign. Richard Feldman, from the Independent Firearms Owners Association, said that it would be unconstitutional for the government to “come and get the guns” because the “Supreme Court has already ruled on this issue.” Except the Supreme Court has changed its mind over the decades based on the tides in public opinion, so the case is anything but closed.

So we can now move from these rather arcane constitutional debates to the guns themselves. In 2011 the total of firearm homicides in the US was 11,101. To put this figure into perspective, consider that in 2008-2009, 39 people died from crimes involving firearms in England and Wales, compared to 12,000 in the US in 2008. Even if we adjust for population, that of England and Wales is about one-sixth of America’s, leaving the number staggeringly high. More people are killed by firearms every year than the total number of US military casualties in Iraq and Afghanistan since 2001. And finally, 31 people die every day from firearm homicides. Is it really plausible to argue that the circulation of 300m guns in America has no connection whatsoever to these statistics? If it is not about the guns, but about the people, then does America really have so many more mentally deranged mass murderers than other countries? Even this muddies the waters of the debate, because mass shootings are only one type of murder adding to the firearm death toll; therefore we must ask whether Americans at large have some innate murderous proclivity that accounts for these figures. Feldman goes on to state that the problem with guns involves “clearly mentally deranged individuals [...] we have a failed mental health system now in this country, and if we don't put resources into getting at these people before they commit such horrible acts we're not going to solve this problem.” Well that clears it up. I am sure we can all agree that the reason Britain, Canada and Australia, to name but a few, have such drastically lower firearm death rates is because their mental health systems are infinitely better than America’s. One would surely have to be mentally deranged to posit a correlation between the number of guns and the number of murders.

Modern studies of criminal violence have shown that crime, of all kinds, is to some extent opportunistic. As Adam Gopnik writes on the New Yorker, “even madmen need opportunities to display their madness, and behave in different ways depending on the possibilities at hand.” That is why, on the same day that Adam Lanza unleashed his madness on defenceless children, a fellow madman in China who burst into a classroom “only” managed to sever a few ears and fingers. Had he had a gun in his hands, would he not have used it instead of his measly knife? Or perhaps Min Yongjun had been to see his therapist earlier who had successfully dissuaded him from using his semi-automatic rifle. It is one thing to argue for tightening gun controls to prevent people with mental health issues getting their hands on them given the many loopholes in existing US law; it is quite another to claim that guns are simply not the problem.

Opponents of stricter gun control seem to employ the mutual deterrence line of reasoning: if only everyone had guns, then no one would use them. Just like nuclear weapons. If only the teachers at Sandy Hook had been armed with guns themselves the massacre might have been prevented, or in any case stopped midway. Either Adam Lanza, knowing that all teachers carry guns in an elementary school, would have abandoned his crazy plans (but this undermines the argument that putting up barriers – like taking away guns - to the execution of crimes would have no deterrent effect on the mentally deranged) or a teacher would have stood up against this lone madman in some sort of heroic counterattack.

The words of Wayne LaPierre, executive vice-president of the N.R.A., at a recent press conference would be anathema in any country not at war. He said that people “driven by demons” along with a “much larger, more lethal criminal class,” were among Americans and that the only way to stop them was with guns—more specifically with “armed security in every school” and a “National Model School Shield Program” to be developed by the N.R.A. Quite aside from his derogatory depiction of the mentally ill as some sort of subversive cancer in American society, it is paradoxical to claim that the only way Americans can live peacefully is by arming them to the teeth. And once we have armed all the teachers to enable them to protect their class from madmen with murderous inclinations, who is going to ensure that the teachers do not turn on their own students? Must we arm the children too? No, of course not, we should simply focus on improving the method for selecting teachers and ensuring that people with mental health problems never make it to the classroom.

At the end of the day, however, the most shocking fact is that a majority of Americans support the status quo. Even Beth Nimmo, the mother of a Columbine shooting victim, does not support a ban on all guns and thinks that it “is getting pretty grim that anybody can walk on a campus and there is no protection for those who are in the school themselves.” Never mind working towards a solution that would render such protection unnecessary in the first place. A ban on guns would only be the first step in America; the harder task would be removing the 300m guns already in circulation, but that is no reason for inaction. In the words of Bertolt Brecht, “unhappy is the land that needs a hero.”

Sandy enters the political fray

From: david_shankbone

Ever heard Harold Wilson's saying that "a week is a long time in politics"? Back in September we were all clamouring over Mitt Romney's lame-brained handling of the attack on the American embassy in Libya which cost the Ambassador his life and how it would affect his campaign. Today, in the aftermath of Hurricane Sandy's destructive battering of America's east coast, this incident is all but forgotten. In fact, it had probably already been buried in voters' minds long before Hurricane Sandy decided to take the reins of the presidential campaign.

Faced with such devastation, both contenders have put a halt to their respective campaigns, with President Obama cancelling campaign events to stay at the White House and Mitt Romney converting an Ohio rally into a storm relief event. However, with less than a week left until election day, politics cannot be swept away as it was with the Libyan incident. Granted, as President, Obama has a firm duty to manage the disaster in the best way possible regardless of the impending election, but that does not mean that the political spotlights will not be blaring as he does his job. One cannot naively presume that Obama simply feels no added pressure from the election to nail the emergency response. He may not want to appear as if he is overtly politicising the disaster, but he is most certainly aware that a good show of leadership, sympathy and competence is fundamentally political, and thus inextricably forms part of his campaign. As Mark Mardell from the BBC points out, Hurricane Sandy "puts the spotlight on President Obama as a leader in a time of crisis – both in terms of deeds and words." In effect, appearing to put politics aside is a fundamentally strategic political act; it is about being a president, and thus a political leader of a country. As such, failure to rise to the occasion will have political costs but it also presents a great opportunity to make a last stand in a neck-and-neck race. In fact, according to The Economist/YouGov poll 36% of respondents would describe Obama as “strong” and Romney follows close behind with 34%. So it is all the more important for Obama to rise up to the challenge, especially since the percentage of Americans who view him as a strong and decisive leader has steadily decreased since 2009, when it stood at 73% according to a Gallup poll.Sure, Obama did say that “I am not worried at this point on the impact on the election. I’m worried about the impact on families and our first responders. The election will take care of itself next week.” Nonetheless, it cannot be denied that natural disasters have political repercussions, particularly for presidents who have to take the lead.

For Mitt Romney there is less to be gained (and lost) as the media will not be interested in any speech he makes and he is not faced with one of the greatest challenges of his career. In fact, Hurricane Sandy has pushed him into the sidelines and putting politics aside is a less "political" act for him than it is for Obama. Whereas Romney's show of good taste by turning his rally into a relief event is only the minimum to be expected from him, it will not really score him any political points. Because of this he will resume campaigning today. Obama, on the other hand, will not resume his campaign but the fundamental difference is that he does not need to. Every decision taken with regards to the disaster relief will feed into his campaign whether he likes it or not. His last act before the election will simply be to do his job.