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Marco Werman: Spaniards are not the only ones spending this holiday season, in spite of an economic crisis — so are many Americans. It’s no surprise that people who still have jobs and disposable income can be enticed to spend their money this time of year, but this has not been any ordinary year. The Eurozone crisis, repeated calls for austerity in Europe, slow job growth in the US, even the Chinese economy has started to slow down. Dan Ariely is a Professor of Behavioral Economics at Duke University. Dan, how does an economic climate like the one we’re in right now affect the way that people spend their hard-earned cash?

Dan Ariely: So I think we need to separate short-term effects and long terms effects on behavior. And when the financial crisis started in 2008 people basically stopped spending any money, but as this crisis is going longer and longer, this initially fear is just hard to hold onto. So let’s first of all think about what happened initially, and I think the best model to describe our initial reaction to the crisis is what’s called learned helplessness. Imagine you have a dog that there’s a bell, and after each ring of the bell there’s an electrical shock. And there’s another dog that doesn’t hear the bell and just gets an electrical shock from time to time. The first dog basically learned how to react to the shocks and he’s perfectly happy; you know, not as happy as he without the shocks, but he’s perfectly fine. The second dog gets depressed, they lay down in the cage, they have all kinds of things. And they’re finding is that the moment we don’t understand the relationship between cause and effect, we get depressed. We think the world is unpredictable and we just curl up and stop behaving in any possible way. And I think that was the initial reaction to the stock market. We kind of lost hope and people stopped spending. And if you look at 2008 that was actually what happened. Now the question is how long can people sustain this sense of fear? And I think what we’re seeing now is kind of a rebound reaction in the opposite direction, where people are just not thinking about the dyer economic situation we’re actually in, just because we have no more energy to think about it.

Werman: So do you call this rational behavior or irrational behavior?

Ariely: Oh, I think it’s very irrational.

Werman: Irrational.

Ariely: I think the reality is things are not really looking up, particularly not looking up in Europe, but at the same time how long can you keep being depressed? One of the theories for shopping is that by shopping we actually exert some control on the world around us.

Werman: And does it take away the depression?

Ariely: It takes away some of the feeling of lack of control. Think about shopping as kind of a magical thing you can do. You go to a store and you see something else that’s somebody else’s. And you give them a little plastic card and all of the sudden it’s yours. You’ve just kind of created a huge change in ownership in the world based on an action that you as a shopper created. And one of the theories that this is a sense of gaining control back, which by the way is very healthy psychologically, but not so healthy financially.

Werman: Dan, when you study the psychology of spending behavior do you find that it varies according to the season? I’m wondering if the shock of 2008 has now receded or whether people just feel you know, it’s the time of the season, we’ve gotta give gifts.

Ariely: So there’s definitely a question of the time of the year, but this doesn’t explain what’s happened with 2008. Because in 2008 the gift season was much, much slower. So I think two things are happening — there is a seasonality, but there is also an inability to continue feeling depressed since 2008. Now one of the things people find is what is called shopping momentum. And there’s a couple of nice papers about this showing that once you start spending it’s easy to spend on the next gift, and the next gift and the next purchase. And this is one of the things about holiday season. There’s another interesting version of this, which is called depletion. And depletion is the idea that we face a lot of temptation, ranging from writing nasty emails to our bosses, to buying things, to checking Facebook, to eating donuts, all these keep on tempting us. And with shopping of course, you go to a mall and every window is tempting in some way or another. And the reason depletion has shown that as we resist temptation more and more, our ability to resist temptation goes down, and down and down. And therefore, if you see just one store and are tempted just a little bit, you might be able to resist it. But if you see the same store after resisting temptation for the last 45 minutes it might be harder to resist temptation. So from that effect you could think about the holiday season as the season for temptation. We’re just being tempted all over by all kinds of deals and proposals and offers, and as those offers keep on coming, and coming and coming, our ability to resist temptation goes down, and down and down until at some point we just fail and succumb to temptation.

Werman: Dan Ariely, Professor of Behavioral Economics at Duke University, thank you very much.

Ariely: My pleasure, take care.

Werman: Are you spending despite all the economic gloom? What tempts you to open your wallet these days? Share your story at theworld.org.

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Are you spending despite all the economic gloom?

What tempts you to open your wallet these days?

Share your story below in the comments.

Anchor Marco Werman speaks to The World’s Mary Kay Magistad about the possibility.

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The text below is a phonetic transcript of a radio story broadcast by PRI’s THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI’s THE WORLD is the program audio.

Marco Werman: I’m Marco Werman. This is “The World”. Protests swept through Russia over the weekend. Tens of thousands of people took to the streets of Moscow and other cities to protest alleged voting fraud. The demonstrations were the biggest Russia had seen in years. We want to know the likelihood of protests like this taking place in China, so we’re asking The World’s Asia correspondent, Mary Kay Magistad. She’s based in Beijing, but is with us in Boston for a few days. Mary Kay, always good to see you.

Mary Kay Magistad: And good to see you.

Werman: We’re talking kind of oranges and apples, really, when we talk about China and Russia. Still, I’m wondering whether the demonstrations that we’ve seen over the weekend in Russia could happen in China. Do the Chinese have the appetite to protest and would the government let it happen?

Magistad: Well, certainly there’s an appetite for a protest in China. There are about a hundred and eighty thousand protests a year in China, according to an estimate by the Chinese Academy of Social Sciences which is a government think tank, but these tend to be localized and they tend to be about things like polluting factories and land grabs by local governments, and the central government makes sure that people who are protesting never really connect with each other in a way that might be a threat to the ruling government.

Werman: Well, one way that people in China are connecting with each other, and it can’t be denied, is online. If they don’t, if these protests don’t happen in the streets on a wide scale and aren’t connected, could they, are they already happening online?

Magistad: So I’m not sure that I’d necessarily call it protests, but there are now almost five hundred million Chinese online. About two hundred million of them use the Chinese version of Twitter. It’s called “Weibo” and there are increasingly interesting conversations and comments and satire online, political humor, and I think the government is increasingly finding it hard to keep up. The government is making an effort to monitor what’s said online so it can at least stay a step ahead and be a bit responsive, which is an interesting change of behavior for it, but it also has recently been saying, you know, “We need to get more of a grip on this online community. We need to monitor and limit what kinds of conversations can be had online.”

Werman: And when the Chinese government says, “We need to get a grip on what’s going on there,” are the worried about the numbers of people or are they worrying about people getting connected and actually forming some kind of movement?

Magistad: They’re worried about people getting connected and criticizing the government and spreading information more quickly than the government can put out its own version of what’s happening. In the past, censorship always worked for the government. Now, it’s kind of running behind, trying to catch up with what people online are able to do.

Werman: How outspoken do Chinese activists get online?

Magistad: So it’s not just about the activists themselves. It’s about ordinary people who are just making snarky comments about a government official or a government action, and they can get fairly outspoken, but it tends to stop short of “We want a different government. We think the communist party has run its course.” Chinese tend to be fairly nationalistic, to kind of accept the paradigm of “This is our government. However, increasingly, we think it can do better by us and we want to hold it account.”

Werman: You know, one individual that a lot of people have heard of, the artist, Ai Wei-wei. He’s not only an artist, he also has a very strong online presence and he’s pretty sophisticated when it comes to the net. What’s happened to his online activism since he was detained early this year?

Magistad: OK, so he was detained for about three months, finally released into unofficial house arrest, and then government slapped him with a 2.4 million dollar tax bill. They said that he owed taxes from way back. He contests that and is continuing to contest it. Interestingly, a lot of Chinese came to his assistance and said, you know, “We want to contribute,” and he was quite overwhelmed and touched and said, “I’ll take this as loans and I will pay back.” The information about how to get the money into his account had to go out somehow and he had to keep finding ways to put out a micro blog account that was his, but not in his name, that enough people knew was his for long enough, maybe a day or two, that they could get the information and get the money to him, and, indeed, it worked. So it was something the government clearly was not expecting a sign that is a civil society instinct online and that a significant number of Chinese were looking at this situation, deciding it was unjust, and that they wanted to do something about it. It’s a challenge the Chinese government hasn’t really had to deal with in quite this way before, and they’re still trying to figure out how to respond.

Werman: It’s interesting because it’s a challenge, as you say, they haven’t had to deal with, and yet it’s just going to keep happening, isn’t it,? As long as the net is out there. They can’t really run these parallel paths. Do you get the sense that the Chinese government does kind of quietly accept that at some point, these two paths are going to intersect and they’re going to have to deal with it?

Magistad: It’s an interesting moment for China. The economy is slowing down, there’s an increasing expectation among the population that they should be able to have a say, that they should be able to have free discourse online, and I think, you know, the Chinese society is maturing and the government has to respond in way that it’s not comfortable with. So I think the next year in particular will be quite interesting as the number of Chinese online grows. It’s expected to hit seven hundred million by 2013 and by then, the government will be dealing with a number of significant economic challenges.

Werman: The World’s Asia correspondent, Mary Kay Magistad. Good to see you.

Magistad: Good to see you, Marco.

Copyright ©2009 PRI’s THE WORLD. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to PRI’s THE WORLD. This transcript may not be reproduced, in whole or in part, without prior written permission. For further information, please email The World’s Permissions Coordinator at theworld@pri.org.

“I’m starting with the Lehman Brothers, which is starting pretty high and in the end the melody is very down,” says Kreidler. “And then the Bank of America…”

Kreidler netted more than a half million hits for his video of stock charts translated to music. He took the precipitous fall of bank share prices like Lehman Brothers, turned them into melodies, and then posted a video of the charts and the music together online.

“And I always changing the arrangement. Now I think it is a waltz,” he says and hums. “And it’s the Microsoft values.”

Kreidler included Microsoft in his stock chart music video because it designed the program he used to create these songs.

The program’s called Songsmith. It’s for kids, which explains the cartoonish sound. To make the songs, Kreidler started off with the stock charts of banks and other companies. He also included unemployment data and US national debt.

“I took these charts and they are pretty similar to musical notation. In musical notation you have the pitch and the time in a diagram, and with stock exchange values you also have a diagram with the time on the one axis and on the other axis it’s the value. And so you can transcribe these values into pitch information, and so into melodies.”

Then he fed those melodies into Songsmith which created a jazzy soundtrack of the financial crisis: Songsmith makes even the Dow’s slump in 2009 sound upbeat.

“For me I was interested in the contradiction that is generating an aesthetic effect or a funny effect for sure,” says Kreidler. “Why not being funny? But it is definitely serious behind.”

Kreidler says the music shows the disconnect between the exuberance of financial excess and the consequences of that risk taking. The idea that every jazzy note translates to money lost, or houses foreclosed says something about how all of the data flying by us can sometimes lose its impact. What does a million or billion dollar loss actually mean?

“I think that’s really a strong field of possibilities for the arts to make things visible, to make things audible, to make things perceptible.”

When the video came out a few years ago, it provoked a big response online. People left comments on YouTube like “fantastic, brilliant, the financial crisis never sounded so amusing.” But Kreidler says many musicians and artists had a different take.

“Well, in the arts world it was really a controversy because people said it’s not art,” he laughs.

Kreidler’s used to this kind of criticism. He’s a classically trained composer but he prefers to use commercial technology to experiment.

“I was always fascinated by the means and possibilities that the computer offers and especially in music it is really great nowadays what is possible there.”

He demonstrates his latest project. It makes use of another Microsoft application: Kinect. Kinect works with Xbox 360 to register your movements when you’re playing video games. Kreidler hacked the system and turned those movements into sound.

Not the kind of tunes you’d put on to relax, but the music does present data in a new way.

Now companies are approaching Kreidler to talk about translating data into sound. For some it’s putting their share prices to music for corporate events, for others it’s using sound to help recognize patterns in data – from stock charts to diagrams of brain waves.

Kreidler says there is plenty to draw on these days, from the news and in life.

“Since 9/11 we have the clash of cultures, we have the digital revolution, and we have now the financial crisis which is changing the world. It’s a disaster but on the other hand, for me as an artist, it’s material.”

And with the euro crisis, US job losses and Wall Street protests, there ‘s no shortage of material.

The city’s mayor says damage costing more than one million euros ($ 1.4 million) was caused when hooded protesters torched cars and attacked banks and a church.

Mayor Gianni Alemanno described those responsible as “animals”.

Saturday’s protests affected 950 cities in 80 countries. They began in New York as “Occupy Wall Street” a month ago.

Megan Williams reports from Rome.

Read tweets about the protests in Rome

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The text below is a phonetic transcript of a radio story broadcast by PRI’s THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI’s THE WORLD is the program audio.

Lisa Mullins: The Occupy Wall Street protests are entering their second month, but student protests in Chile are on month five and counting. Katie Manning is a reporter for the Chilean online newspaper Mi Voz. She’s in Santiago.

Katie Manning: Hundreds and thousands of students have been on the streets. They’ve protesting, they’ve been sleeping in their schools and universities, they’ve been running laps around the presidential palace and they’re very upset because half of the students in Chile pay for education. They’re calling for the government basically to eliminate all private education. They want education to be 100% public. They want it to be much higher quality and they want it to be government funded.

Mullins: When you say half the students pay for education, what happens to the other half?

Manning: The other half go to public universities…or public high schools. The education system here, most of the better schools that are public are charter schools. And the charter schools, the students also pay to go to. They’re prohibitively expensive. The students are often in debt for years after graduating from university. So the students that can’t afford to go to the private schools, or the public charter schools, are basically left with a bad education according to them.

Mullins: So the students themselves who are protesting, you said they’re running laps around the presidential palace. Are they boycotting classes, occupying campuses, what other forms are the protests taking?

Manning: Yeah, they’re sleeping at their schools. They basically lost a year of school. So for about five months now all the schools that are in protest the students haven’t been going to class. And as far as running laps around the palace, they’ve run for 1,800 consecutive hours around the presidential palace. They’ve had 1,800 seconds long kiss-a-thons where they’ve kissed each other for 1,800 seconds. And the reason why they’re making 1,800 famous is because there were estimates saying that it would cost $1.8 billion in US dollars to give free education to the 25 traditional public universities for free for everyone.

Mullins: Okay, so how has the government been responding to this? I don’t know to what extent the government cares if they’re playing football, running laps or kissing for hours on end, but does it?

Manning: Well, the student protests have a really, really overwhelming majority of support in Chile. And President Sebastian Pinera’s approval rating is extremely low, under 30%. So they’re paying attention. They’re trying to meet with the students, but they say that to pay for the education of everyone in Chile would be too expensive. So the students have responded and said you should rethink the copper mining industry and make it a government subsidized industry in order to pay for the education.

Mullins: This is an economic issue for these students, not just an educational issue, but what gives it the staying power to continue for five months now, especially if there haven’t been tangible results?

Manning: The students are angry and they’re fed up. I think, what’s really surprising to me is that this is being lead by the kids. For them to be missing school for five months in protest is huge. And I don’t see this stopping anytime soon.

Mullins: All right, Katie Manning, a reporter for the Chilean news website, Mi Voz. She joined us from Santiago, Chile. Thank you, Katie.

Manning: Thank you.

Copyright ©2009 PRI’s THE WORLD. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to PRI’s THE WORLD. This transcript may not be reproduced, in whole or in part, without prior written permission. For further information, please email The World’s Permissions Coordinator at theworld@pri.org.

She’s now at the Occupy Wall Street demonstration. She tells host Marco Werman what she finds peculiarly American about the gathering.

The LiveStream feed of the #OccupyWallStreet protests in New York

Tweets from @pennyred and what people around the world are saying about #OccupyWallStreet

Young soy (Photo: Julia Kumari Drapkin)

When the wind rustles through the trees and the air smells like wet earth, everyone in the Argentine farming town of General Villegas stops what they’re doing.

“Finally, a storm is coming,” said Gisela Giunti, who grew up here on the edge of the Argentine Pampas, about 290 miles west of Buenos Aires.

Giunti said when neighbors and friends greet each other; they don’t say “How are you?” They say “Te llovio? Did it rain to you?”

It’s an odd phrase. After all, it doesn’t rain to people. But to farmers, nature’s volatility can seem pretty personal.

“Actually, it’s a very clear way of how people feel the weather is part of their lives,” Giunti said.

She would know. Her family is full of soybean farmers. I asked her brother, Ignacio Giunti, if “it rained to him” last night. He said hardly at all. “It moistened the dust on the ground,” Ignacio said, but it wasn’t enough for his crops. A strong La Nina this year has kept Argentine farmers like Giunti on edge about drought.

Rains determine crop yields

Just outside town, fields of young soybeans and corn stretch for miles into the horizon. Without rain, the crowns on the corn crops have turned yellow. Many won’t survive. But the soy harvest still has a chance. Giunti stooped down among the knee-length greens to show me small purple flowers. The flowers mean the plants are just about to enter the critical phase. That’s the time of year when rains determine crop yields. Without water, the soy plants don’t produce beans.

Argentina is the third largest producer of soybeans behind Brazil and the United States, so it’s not just the farmers who get nervous when there isn’t enough rain. Fear of La Nina droughts helped push the price of soy beans up $150 in January. Corn and wheat hit highs too.

“This is creating a lot of nervousness on the prices,” said Sebastian Lago, who advises farmers in General Villegas about global grain markets.

“My job is to help them to sell their grains at the best prices, and what I try to tell my clients is this: in the last 10 years, we had a huge change in the financial markets. We have a lot of new players in the grain markets.”

After the stock market crash of 2001, Wall Street investors looking to diversify their portfolios discovered agricultural commodities. So now in addition to changes in the weather, Lago said, Argentine farmers have to worry about currency markets and interest rates.

Speculating with grains

“It doesn’t have anything to do with the grain markets, but it makes a lot of change in the price of the grains. Why? Because you have a lot of funds speculating with grains,” he said.

Wall Street speculators have added even more volatility to global grain markets because they’re trading food like stocks. “A stock is a part of a company,” Lago said. “But when we’re talking about a commodity, we’re talking about supply and demand.

Today, the problem is the supply. Global grain reserves are at historic lows owing to increasing demand from the world’s two biggest consumers of soy and corn. China’s rising middle class is eating more protein and importing soybeans to feed its livestock.

“China is like the video game Pac man,” Lago said. “Every year they need more soy beans. In the corn market, the Pac man is the ethanol industry in the United States.”

And Wall Street speculators are gobbling up grain commodities. At any given time investors can pull their money out of grains and move it into another market. But farmers who finance their crops with their own money, can’t be so nimble.

So Lago is helping the farmers of General Villegas develop strategies to protect themselves from the additional market volatility, especially when they’re not sure enough rain will come.

Farmers like 72-year-old Jorge Olano meet with Lago every month before the USDA publishes its monthly grain stock reports.

Of course, the first thing Lago asks Olano is if it “rained to him last night.”

Olano responds that it rained to him on both his fields. He’d like more, but it’ll do for now.

Mc Yinka

May 14th, 2010
A sense of malaise and uncertainty has settled over Greece as the country tries to climb out of debt. But The World’s Gerry Hadden found one local musician who’s trying lift people’s spirits.
Download MP3

Ways to revive the Greek economy

May 12th, 2010
What will it take to revive the Greek economy? The government can cut spending and catch tax cheats, but it will also need to jump start the economy.
Download MP3

Photo gallery

Soul searching in Greece

May 11th, 2010
Greece owes lenders hundreds of billions of dollars, its deficit is over 13 percent and the economy is in recession. As Greeks come to terms with the the future they’re also reflecting on just how they got to this point.
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Photo gallery

Greece’s unofficial economy

May 10th, 2010
Gerry Hadden explores Greece unofficial economy and what the government is doing to put an end to it.
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Germany votes to bail out Greece

May 7th, 2010
Germany’s Lower House of Parliament approved a controversial 38 billion dollar bailout loan to Greece. The bailout is deeply unpopular among Germans, but today’s vote brings the European Union one step closer to providing a massive rescue package to Greece before the May 19th deadline.
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• Photo gallery: Greek Americans on the crisis
• Global economy podcast: The Greece problem
• How did Greece get there?

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This text below is a phonetic transcript of a radio story broadcast by PRI’s THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI’s THE WORLD is the program audio.

MARCO WERMAN:  Greeks around the world have strong opinions about the financial crisis.  One of the largest concentrations of Greeks outside of Greece is in Queens, New York.  Specifically, in Astoria.  The World’s Alex Gallafent filed this report.

ALEX GALLAFENT:  I spent a day wandering around the neighborhood, just asking people how they saw the Greek crisis.  First up, Doros Evangelides.  He makes animations for commercials.  I catch him midway through his lunch, bought from a food cart called “The King Souvlaki of Astoria”.  Above a train rumbles through Queens on elevated tracks.

DOROS EVANGELIDES:  For us it’s an issue of national pride.  But I think it’s unfair that Greece has been singled out that it’s going to bring the world economy down.  For some reason they like to trample Greece.  Remember the Olympics?  You know, they’re not going to make it, you know.

GALLAFENT: Evangelides brandishes a skewer of meat and criticizes the countries that blame Greece for Europe’s woes.

EVANGELIDES: You know and the world crisis wasn’t created by Greece.  It was created by like here.

GALLAFENT: Here meaning the United States.  It’s long been home to another Greek American, George Stavrolakis.

GEORGE STAVROLAKIS:  And I’m very happy.  I like it very much here.

GALLAFENT: Stavrolakis has lived and worked in Astoria for more than 40 years.  He says Greek Americans like him are disappointed in their country and their people.

STAVROLAKIS: It’s very embarrassing and very shame.  It’s a beautiful country, but now the big mess.  It’s not supposed to be like that.

GALLAFENT: Stavrolakis is a realtor.  Actually, he’s a retired realtor, but he keeps coming back into the office on 31st Street.  Stavrolakis wonders what’s happened to a work ethic that energized immigrants like him, people who came to the States and put in the time for their rewards.

STAVROLAKIS: In Greece they get as much as they want and they get very early and very young people are retired.  So the Greek people, they have to understand to get together to help their country.

GALLAFENT: One way Greek Americans say people back home can help their country is by paying their taxes.  In addition to other woes, recent reports suggest that many Greeks, especially the wealthy, don’t declare anything near their full income.  Doros Evangelides says even though that’s a recipe for fiscal disaster, he can still kind of understand why people do it.

EVANGELIDES: The idea of paying taxes to a government that is corrupt, it doesn’t work.  You cannot pay taxes to a government and then see your money get wasted.

GALLAFENT: Or, to say it in a different way, not taxation without competent, honest representation.  But that argument lets Greek voters off the hook too easily, says Jimmy Zafiris, a general contractor also getting his lunch at the souvlaki stand.

JIMMY ZAFIRIS:  We always accuse politicians.  It’s not only their fault, we allow them to do that.  Okay?  So I don’t know if we should always have them as the black sheep.

GALLAFENT: Ultimately, there’s not a lot these Greek Americans can do, apart from watch at a distance.

ZAFIRIS: We’re concerned.  We love our country.  We like to know what’s going on there.  But beyond that, we live here.

GALLAFENT: And so Greek Americans cheer for Greece from the sidelines.  Again, Doros Evangelides.

EVANGELIDES: Greece going to survive. Greeks live very well, high standard of living.  Now they have to get a little bit more organized.

GALLAFENT: And from Efthichios Kalfakis, another contractor, a final dose of defiance befitting a man wearing a Yankees jacket.

EFTHICHIOS KALFAKIS:  Greece is going to make it because Greece is Greece.  We are the top civilization.  You guys got to understand that.  Thank you very much.

GALLAFENT: For The World, I’m Alex Gallafent in Queens, New York.

WERMAN: Come to our website to see some of Alex’s Greek American friends including that man in the Yankees jacket.  We don’t have much interest in that photo here in Boston, but that’s another story.  The pictures along with a new batch of political cartoons about the debt crisis are all at the world dot org.

Copyright ©2009 PRI’s THE WORLD. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to PRI’s THE WORLD. This transcript may not be reproduced, in whole or in part, without prior written permission. For further information, please email The World’s Permissions Coordinator at theworld@pri.org.

• BBC coverage
• Market data
• Global Economy podcast

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This text below is a phonetic transcript of a radio story broadcast by PRI’s THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI’s THE WORLD is the program audio.

MARCO WERMAN:  The other big news from Europe is, of course, the trillion dollar bail out for Greece and it seems the markets aren’t quite sure what to make of it.  Stock markets around the globe rallied when the bail out package was announced yesterday.  Today it was more of a mixed day for Wall Street and other stock exchanges.  The bail out’s goal is to provide Greece with cash to service its debt and reign in its budget.  It’s also supposed to shore up global confidence in the Euro.  Sounds a lot like our financial crisis here in the U.S. and our bail outs and that’s not a coincidence.  Kristin Forbes is a professor of International Economics at MIT’s Sloan School of Management.  She says the two crises are related.

KRISTIN FORBES:  This is the next chapter in the global recession, and unfortunately not the end of the book.  This all began with the housing collapse in the United States and then spread to financial institutions in the United States and then the financial crisis spread to Main Street around the world.  And then there was a period of hyperactive governments, where governments tried to stop this financial crisis by enacting huge spending packages to try to stabilize economies.  That worked for a period, but now this is the next chapter in that we are realizing we have to pay for all those steps that we took to stabilize the economy.  And Greece is the first country where people realized that the massive spending that went on to help get us out of this crisis has to be paid back and people are looking at the numbers and realizing Greece doesn’t have the money to pay things back under its current programs and its current path.  So this is the next chapter and unfortunately I think other countries in the next couple years are going to face similar challenges where people look at all the money that was spent to try to stabilize things after the crisis and raise concerns about whether governments will be able to repay that debt.

WERMAN: And now we’ve got another series of governments in the EU and the IMF bailing out Greece to the tune of one trillion dollars.  Does this bail out address any of those underlying problems that got Europe to this point in the first place or does it address preventing another Greece in Europe or somewhere around the world?

FORBES: I think the current package unfortunately will not solve the problem for Greece.  At this point Greece has simply borrowed too much.  It’s taken on too much debt and the package just announced is basically giving Greece more loans.  And we all know if an individual has borrowed too much, giving them more debt is not going to solve the problem.  So unfortunately I think in Greece’s situation it is too late.  Greece is going to have to take some tough medicine and this package isn’t going to be able to solve that problem.  But the good news is that I think that this package is aimed not just at Greece, a big aim of this package was to stabilize things in other countries, such as Ireland, Italy, Portugal and Spain. And those countries do have enough time.

WERMAN: Let me ask you briefly about the stabilization of the Euro, which is one of the two goals of this rescue package.  Are there many people in Europe who have long been skeptical of the concept of this common currency, the Euro, and what impact will the bail out have on deepening any mistrust of the Euro?

FORBES: That’s a great question.  Some countries, such as in Greece or some of the countries that are now going to have to make spending cuts and deal with higher taxes will probably be very critical of the Euro and blame the Euro for having to take these tough steps.  But they also will hopefully appreciate that it’s because of the bail out from the Eurozone that the situation will avoid being much worse.  But the countries that I worry about the most are countries such as Germany.  It’s the German tax payers who will be writing the checks to pay for this bail out and how long will tax payers in these countries be willing to continue to write these checks?  So I think this is going to raise some very fundamental questions for countries in Europe.

WERMAN: Ultimately do you think Europe’s problems are American’s problems?

FORBES: I think what is going on in Europe should be a wake up call for the U.S.  The U.S. is also running huge budget deficits and it’s on a completely unsustainable fiscal path and if we don’t reign in our deficit spending, we are going to be in a situation such as Greece in the not too distant future, in five to ten years.  So I think how this is resolved in Europe is very relevant to the United States.

WERMAN: You think the United States could be facing a situation like Greece in five years?

FORBES: Five to ten if we do not start to reduce our deficits.  When you look at, say the U.S. debt dynamics, for example, our total debt to GDP is close to 90% now.  Greece is at about 110%.  We will be on a path to have debt numbers similar to Greece’s in just a few years if we don’t cut down on our spending and reduce our deficits.  So I think that’s where there’s a very strong lesson for the United States.

WERMAN: Kristin Forbes, professor of Economics and MIT, thanks very much.

FORBES: Thank you.

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MARCO WERMAN:  Now we return to that unprecedented one trillion dollar European emergency package.  The funds and loan guarantees are designed to achieve two goals; one is to defend the European single currency, the Euro; the other is to stop the debt crisis in Greece from spreading.  Wall Street seems to like the idea.  The Dow Jones Industrial Average climbed 405 points to close at 10,785.  Ken Rogoff is a former chief economist for the international monetary fund.  He says the European plan is ambitious.

KEN ROGOFF:  The package is unprecedented in its size and it is intended to provide a backstop, not just for Greece, which is immediately in trouble and it’s already had a bail out, but for Portugal, Spain and Ireland.  They’re trying to send a message to markets that we’re going to stand by all government debt in Europe.  It’s not just the trillion dollar package, in fact that might not even be the most important part.  The European Central Bank, Europe’s Central Bank, has agreed to start taking on all kinds of government debt, bank debt that it wouldn’t have dreamed of and at a scale that it wouldn’t have dreamed of earlier given this political backing.  Last, but not least, the Europeans are telling financial firms you bet against us, and we’ll regulate you into the Stone Age.

WERMAN: So will one trillion dollars send the message that the EU and the IMF won’t let the same thing happen to Portugal, Spain and Ireland that happened to Greece?  Or is it just kind of economic suicide?

ROGOFF: Well it’s a very risky move, both for Europe and the European Central Bank.  I would say they clearly kicked the can down the road a year or two, but they haven’t solved the fundamental problems.  They haven’t got the rod out of the system.  The governments in Europe are running big deficits, there’s very slow growth in the southern countries recession, and they need to solve their problems.

WERMAN: How do you get at those fundamental problems that rot at the heart of these European governments as you call it?

ROGOFF: Frankly, I think the ideal package would have been to allow a couple countries to default, to discipline others, put them on sabbatical from the Euro and then draw this ring fence around the rest.  Instead, they’re trying to prevent anyone from going down, feeling that’s essential for political unity.  But it’s tough.  The scale of how much Greece has to cut back on its deficit is staggering.  Frankly, even if they didn’t have to pay their old debts, they’re having trouble living within their means and not borrowing new money.  That’s really the problem.  That’s a problem across Europe.  So it’s a huge challenge.  Is it impossible?  No.  I’d make an analogy to an overweight person who needed to lose 80 pounds and instead of having to do it in a year, this bail out lets them do it in four years, but it’s still very, very tough.

WERMAN: Was that really ever an option, though, to let Greece default on its debt to kind of teach other countries a lesson?

ROGOFF: Not only was it ever really and option, I suspect it’s still more likely than not that it’s going to happen.  They want to postpone it to where their economies are growing more quickly.  The governments say we’re not going to allow it, but they always say that.  It’s in a very difficult bind.

WERMAN: Now the United States is still the chief IMF paymaster.  How exposed does this loan leave the American tax payers?

ROGOFF: You know, there’ll be complaints about it in Congress, but it’s small potatoes.  It’s about a 300 billion dollar loan.  Maybe at the outside, we hold a third of that.  Technically it’s even less.  So compared to having Europe collapse and going into a recession, it’s a good investment.  Politically, we have no choice.  We can’t walk away from Europe.  We can’t protest.  And frankly, Germany is tougher than we are.  Germany is the central country in Europe.  We don’t really need to crack down when they are already being so tough.

WERMAN: Ken Rogoff, a professor of Economics at Harvard University and a former IMF Chief Economist, Ken thank you very much.

ROGOFF: My pleasure.

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Just after Lehman Brothers collapsed, there was talk that Wall Street would cease to be perceived as the center of the global financial universe. But now, a year later, The World’s Jason Margolis finds that there is life in an on Wall Street yet.

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President Obama is calling for a new set of reforms, to deal with a new set of challenges. Here’s part of his speech from June 17th.

“It is an indisputable fact that one of the most significant contributors to our economic downturn was an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess. A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis — the Great Depression — was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.”

President Obama’s plan has three main tenets:

1. Regulators will not look only at the safety and soundness of financial institutions, but also at the financial system as a whole.

2. Creation of a new agency to look out for consumers.

3. A series of changes to close gaps and overlaps in the regulatory system.

(The Brookings Institution provides a nice summary of the plan, as does the BBC.)

The Wall Street Journal editorial board argues that the president’s plan amounts to a modest reshuffling of bureaucratic furniture. Joe Nocera of the New York Times says that this is not Roosevelt redux, and that President Obama should go further.

This debate will be played out for months in Congress: Will more regulation help the economy or hinder it?

Meanwhile, across the pond in the UK, they’re grappling with the same question.

Listen to the Global Economy Podcast