21st Century Political Economy

Is the total collapse delineated in 2020 Hindsight possible?

Economics is a social science – more psychology than physics – not precise at all. It is all about societal behaviour. The economy reflects our collective bi-polar conduct. Substitute “greed” for manic and “fear” for depressive. For the past eighty years, since the last major depression, the drug of choice has been government intervention (we call it a “depression” for a reason). That ‘drug’ has run its course. As for most drugs, it has been misused and abused, seldom given credit, but often blamed for failure. Keynes did believe in running deficits in tough times but he also preached running surpluses in good times and balancing the budget over time instead of each year. One has only to look to the first years of this century to see the abuse inherent in artificially extending a false economy by running deficits when managing surpluses used to reduce debt was the appropriate policy. Clearly those administering the drug don’t understand it any better than those receiving it. Joseph was deemed wise over 3,000 years ago because he foretold the seven lean years to follow the seven prosperous years. The balance of feast and famine are not revelations but we generally manage to forget them. So now the west faces multiple crises: overwhelming debt combined with structural issues making us dependent on others, unable to compete in many areas. We are like the kid in the playground being propped up on the teeter totter about to be dropped.  China is the big kid that has held us up and is about to let us go. Like the kid in the playground we can only take the fall and absorb the pain. Unfortunately the alternative to the drug of government intervention is the laissez faire approach of free enterprise, relying upon greed. However, in the context of a global economy, free enterprise will seek its fortune in more profitable emerging markets, not in tired old markets that have become less productive. Don’t make the mistake of confusing the success of American companies with the recovery of the economy. The gap between rich and poor will expand even more dramatically than it has for the past two decades. Companies will continue to lobby for lower tax rates and they will continue to keep their profits off shore. Social unrest is probable.

Politics is the weak step sister of economics. Democracy exercised too regularly is an ineffectual system, ultimately the mob rule that killed the Roman Empire. The founding fathers knew this danger. They created the Electoral Congress to insulate against the possibility but electing congress every two years literally makes the politicians pander to the press and their constituency. The press itself has turned from the role of holding politicians accountable to the more lucrative task of exaggerating every positive and negative in the interest of creating entertainment. When the constituency itself is totally divided, as it is today in what has been the pre-imminent democracy in the world, the result is inertia. Leaders are incapable of making any decision remotely close to being optimal. The hidden infrastructure deficit is a real phenomenon, an error of omission by politicians which will come home to roost. The western economic empire based on the foundation of American consumption is about to fall. Its legacy is a global economy, increasingly dominated by emerging powers, but inevitably gravitating towards control by China. A new world order is on the horizon. Where will that leave us here in the West? So, is the total collapse delineated in 2020 Hindsight possible?