Another domino theory: Europe and the global economy
There are frightening financial rumblings from Europe.
It’s not just about Greece, either, nor even limited to Europe. The last few decades have intertwined the economies of the entire world more tightly than ever.
This seemed like a good idea to most people at the time. I never understood why—but then, as I’ve said many times, economics is not my forte. It has long seemed to me that the more interconnected the elements of a system are, the more any flaw in that system could bring the whole thing down:
We are, of course, deeply intertwined, even without the EU. As the poet John Donne wrote a long time ago, in the early part of the seventeenth century:
No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend’s or of thine own were. Any man’s death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee…
Except for a few mountain man survivalists who live in isolation entirely off the grid, those sentiments are more true now than ever before. And the result is that we’re all in trouble, because the Western countries, a huge linchpin of the world’s financial system, have become increasingly addicted to the fiction that there is a free lunch.
Did I say free lunch? Actually, it’s a free lunch plus aperitifs and dinner and then a big whopping dessert—all known as the social welfare state. That state might even be sustainable if it weren’t coupled with a diminishing commitment to actual production or even work, a bad balance of trade, politicians interested in short-term wins for themselves while ignoring long-term risks to their countries, and an ever-increasing sense of entitlement on the part of the citizenry (including immigrants from have-not countries). This trend has spread, of course, to the United States as well.
There is no dearth of articles about the current European crisis, written by people who know far more about economics and finance than I. But there’s “knowing.” and then there’s knowing. I’m afraid that it’s the nature of economics to be clear as mud, and for remedies to be more in the nature of hypotheses and hunches based on pre-existing biases than on any sort of hard science (and I say this in sorrow, because I wish it were otherwise).
Just go to RealClearMarkets and you’ll see today’s crop of pieces on the subject. The bottom line for almost all is a sense of fear and extreme crisis, with confusion about whether a remedy exists—and, if so, what it might be.
Here’s a piece that indicates that some sort of European breakup might be imminent:
“If the euro fails, then Europe fails and the idea of European unity fails,” she said. Too late, I think. The German nation is moving on. I was struck by a piece in the Frankfurter Allgemeine proposing a new “hard currency” made up of Germany, Austria, Benelux, Finland, the Czech Republic, and Poland, but without France. The piece entitled The Alternative says deflation policies may push Greece to the brink of “civil war” and concludes that Europe would better off if it abandoned the attempt to hold together two incompatible halves. “It can be done,” the piece says…No democracy will immolate itself on the altar of monetary union for long.
I’m not so sure about that last sentence, though. Breaking up is hard to do, especially when so many of Europe’s leaders are invested in the PC idea of nationalism=bad and EU=good.
What about tough love? If corporations and banks are too big to fail, aren’t countries? How long can the bailouts go on, and how widespread will they become, before we run out of other people’s money?:
The fatal flaw in the plan is that the European nations bailing out Greece — even Germany, where government debt has risen to about 80 percent of gross domestic product — have similar budget problems and even less political will to take similar medicine.
Their plan appears to rest on the hope that lenders won’t notice. Eventually they will, and when that happens, a worldwide loss of faith in government debt markets is a virtual certainty.
In other words, it is hardly good news for a creditor if a hopelessly bankrupt borrower offers to take on the debts of a hopelessly bankrupt borrower.
During the financial crisis, faith was restored in large financial institutions because toxic assets were essentially exchanged for government bonds. If government bonds become toxic, there will be no effective treatment options remaining. The collapse will have no bottom…
And that collapse could happen at any moment. If lenders decide collectively that the big Western governments have unsustainable debt positions and lack the political will to fix them, the end can come tomorrow.
This is chilling stuff. And despite (or maybe because of?) my rudimentary knowledge of economics, it seems correct to me. Living beyond your means works up to a point, but we’ve gone way beyond that point. The entire world economy was, at least in part, one big bubble, and the bubble may be in the process of bursting.
Magical thinking is understandable and even charming in a child. Shameful and disastrous in a ruler.
Are we listening, B.O.?
“Annual income 20 pounds, annual expenditure 19 and six: result happiness. Annual income 20 pounds, annual expenditure 20 pounds, nought and six: result misery.”
Unfortunately, the depth of the problem hasn’t sunk in yet to Europeans. I just finished a business trip with a young English intern to the (inland) Pacific Northwest. The local news was full of anger about the current dismantlement of some small hydroelectric dams for environmental reasons as the unemployment in the area was very high.
I mentioned to my intern that you cant pay pensions by throwing away useful things. He had no solid response but years of green training got him to say that dams do cause some problems!
What is more interesting was his motivations towards work (this is an engineering student). THey pay next to nothing for tuition, take year long internships and seem to be motivated by holiday travel more than anything else. We spoke about Iran, and his biggest regret was that this closed off Iran to extended holiday travel!
The Germans alone seem to have retained some regard for work as necessary, but they too will sell their souls to avoid hardship in their recreation.
National currencies serve as firewalls, preventing cascading of failures from one economy to another. Nothing was achieved economically by introducing Euro. It was a political move, motivated by European inferiority complex and antiamericanism: to create an alternative to US dollar as universal reserve currency. This project failed, and now the very existence of euro makes no sense, except for all trouble and expence of return to national currencies. But if euro zone disintegrated, which can happen, it will be the beginning of the end of EU.
So what is the plan…
There is NO WAY to hedge yourself against the stuff except:
1) You better already own your home. And I mean own it. Your job is not safe and with no income you can’t pay for your home unless it’s already paid for.
2) You better have a solar system capable of powering your home because you will not be able to afford the cost of energy
3) You better be in GOOD shape and own a bicycle and lots of spare tires. Owning and operating a car and paying for the energy for that won’t be an option.
4) Have the clothes and personal items you need for awhile.
Save your money for perishables, water, air – have already paid for the items above.
Seriously.
I don’t know how to make this happen in such a short period of time. But this is what I’m committed to do.
Expand my skill sets even more. I’m already very versatile and skilled. All my efforts will be to keep my family’s food on the table I think in the next 10 years.
Sergey has it right. The Euro is doomed because 1) None of the treaty signatories has observed the “agreed-upon” annual deficit growth cap of no more than 3%GDP; indeed, some, like Greece, have lied to their Euro partners. And 2) There is no cap enforcement mechanism, none! Which is just more of the liberal social democrats’ “Do as I say, not as I do.”
Under Obama, the USA is thundering down the same road; it may be 5 to 8 years from fiscal catastrophe. Individual income tax receipts for April 2010 were about 30% below the prior year. We are surely too big to fail, but who will be left for our fiscal rescue? NO ONE. The ChiComms may buy a lot of our physical assets, though.
There is an article by Theodore Dalrymple about chilling prospect of ressurection of German nationalism:
http://pajamasmedia.com/blog/reawakening-german-nationalism/
Baklava:
I doubt your survival strategy is broadly applicable for most of us city-dwellers. Without energy we are doomed; biking is a poor travel choice in anarchy.
Max. leverage is great in raging inflation, as is owning gold. But not for deflation, where money is king. It is not clear which is in our future, but governments will favor inflation. That will have the added Ezekiel Emmanuel benefit of creaming the elderly and with their demise once again making healthcare affordable. Nauseating times we live in, no?
Second Sergey’s characteristically apposite remarks.
The very notion of “European unity” was laughable on its face. Europeans have been more or less continuously at each others’ throats starting in pre-historic times up through the present outside of hiatuses imposed by the Roman Army, and then the U.S. Army. The idea that they would now make nice because they had a currency and bureaucratic taskmasters in common was ridiculous. Furthermore, the whole concept behind the EU was dishonest; it was, in effect, an effort by the French to backdoor their way into calling the shots in Europe.
(Some years ago I read a book by that idiot Lester Thurow, who, throwing common sense and good judgment to the winds, asserted that Europe would be the economic powerhouse of the 21st century, in essence because Europe was socialist (although he didn’t say that in so many words; he blathered about “industrial policy” and such, but bottom line was “socialism.”) How’d that prediction work out, Lester?)
The EU is finished. Kaput. Fin. Finito. It’s been an abject failure politically, diplomatically, militarily, and now economically. There’s no point whatever in its continued existence. If it were a racehorse, it would be led into the infield and shot.
Tom, it will not be deflation.
Money will mean little.
Money will mean less.
The definition of inflation is – it costs more and more for the same amount of goods and services.
City dwellers can spend time in the buildings for free… as anarchy reigns.
Those who “owned” the buildings will “lose”. Those owners will not get paid.
MAED
Mutually Assured Economic Destruction
it replaced MAD
the idea was to intertwine our economics to prevent nuclear war
the bigger problem was rushing as if all entertwinings are equal. what would be created in haste would never be as robust and functional as what would have evolved over time.
the other problem to this, was as long as communist states remained separated, they became a danger as it is easier to trigger MAED falsely, than to play the nuclear gambit.
Its a case of geniuses putting all our eggs in one basket because that seemed an easier solution than actually living and handling things as they came.
turns out their solution ends up having us pay for the incident that never happens.
Sorry to be negative folks.
Greek politicians. Greek citizens. Neither seem to get it.
California politicians. California citizens. Neither seem to get it.
Higher and higher unemployment is on the way. Higher energy prices. It’ll take more and more money to buy food, energy, etc.
Well. Maybe housing will be dirt cheap !~ 🙂
The interesting thing is going to come soon
that is, when you shift blame, you have to accept false guilt.
if barney and politicans are to blame for bad regulations, then greece games will have few things to play
however, they didnt tell the truth, they laid blame on the institutions…
now comes the interesting part… in a fish bowl, that may be fine… but in a global economy, pegging a institution you need to get a bit of swag, becomes sealing your own destruction, by removing defense
the greeks are going to take the tack that its these banks fault… and they will sue these banks, and either obama goes back on the lie, and removes liability… or, he cant, and the banks he gamed, go under being responsible for all the bad in the world.
see the chess game? kind of like having pieces guarding other pieces to prevent moves.
of course, if one is STUPID, one walks into moves that one didnt understand the behavior preventing them previously.. (like admitting wrong is assigning guilt – ergo, never admit wrong)
the day i heard them stacking this up for INTERNAL convenience, i knew that their idiocy of different rules for different occasions was going to screw them up.
you cant have them guilty for the American people AND not guilty for the world…
so, by pushing off blame from politics, to business, the business is now liable worldwide in all courts in their specific laws, and their main evidence is obama’s big mouth and the others.
obama taking money and legally punishing them, opens up the same from every country in the world, and makes the country liable..
yes, there are rules at the top, and violating them makes for very unintuitive outcomes…. there are VERY good reasons why world leaders dont behave liek average people, and do things that piss them off.
unlike average people and populist pretenders to socialism, they see the outcome…
admit your wrong, you admit guilt, you admit guilt your liable and cant fight it. after all, how can they be guilty here, and not guilty there?
You better already own your home. And I mean own it. Your job is not safe and with no income you can’t pay for your home unless it’s already paid for.
Ah, except, of course, that you don’t actually own real estate. You’re just renting it from your county for whatever your yearly taxes are.
What? you expect the tax collector to accept an IOU? actually, they’ll let it slide, but then a smart Aggie might come along and buy Baklava’s home for the small sum of his back taxes + interest and fees.
Is there anything that Europeans can’t screw up? Anything at all?
Historically they seem to swing from one extreme to another.
They’re proud of their countries – great – but that mutated into rampant nationalism. When rampant nationalism didn’t work out, they went to supine pacifism.
They’re proud of their ethnic cultural heritages – great – but then decide to murder those of different heritages.
They say the most hateful things imaginable about other people, and incite people to genocide, then decide to prosecute people for making even mildly critical comments about others.
They overthrow a tyrannical and unrepresentative regime in the name of liberty, equality, and fraternity, then institute a Reign of Terror and guillotine people for jaywalking. Ultimately they wind up with a military dictator who throws the whole continent into war.
They realize that European chauvinism fragments their markets and impedes economic growth, so they decide to unify the whole continent politically and economically, adopting one currency – and therefore one monetary policy – for countries with wildly disparate cultures, economies, and financial resources, leavened with more than a dash of mutual distrust.
Guys – how about hitting a middle ground here somewhere?
Be proud of your countries, but put away both the jack boots and the supine pacifism. Defend your countries vigorously and effectively, but don’t try to grind everyone else under foot.
Be proud of your own cultural heritage, nurture and defend it, without either trying to extirpate others or succumb cravenly to them.
Support the freedom to speak freely up to the point of inciting violence. It’s OK if others are offended; they’ll get over it. Being murdered is harder to get over.
By all means level the playing field in terms of opportunity, but don’t use the power of the state to try to achieve equality of outcome, because ultimately only a totalitarian government can do that.
Encourage intra-European trade by all means, but do so by removing impediments to trade (which, ‘fess up, you all surreptitiously put in place to favor domestic industry), not by trying to ramrod through a continent-wide bureaucracy and currency.
In short, don’t try to prove your sincerity and doctrinal purity by taking up extreme positions on each rebound. Try taking a middling position for once. You might like it.
If you want to read what life is like in a modern country after an economic collapse (Argentina), check out this blog:
http://www.survival-spot.com/survival-blog/argentina-collapse/
It’s sobering.
Occam’s Beard at 6:20 . . .
A great call-to-arms for common sense!
Sorry guys, but you are all too pessimistic here. Here are some facts to get some perspective.
All of the European countries are socialist to one degree or another. Some less, such as Sweden and Germany, some more, such as Greece, Spain and Portugal. I could fill in all the steps if you want, but the end result is that socialist countries must inflate (weaken) their currencies. More socialist countries must inflate faster than less socialist countries. The US is slightly less socialist than Sweden or Germany, and so will inflate a little slower. Club Med must inflate faster.
The Euro prevented the more socialist countries from inflating faster than the less socialist countries. For a number of reasons, that caused a crisis. So now we have a crisis, and no-one is willing to admit that Greece must inflate faster than Germany. But they must. There are two ways to do this:
1) The EU central bank starts inflating through money printing. They haven’t started doing that, but they are getting closer. At the same time, constrictive government policy in Club Med keeps wages from rising – thus causing a fall in standards of living in Club Med countries without a fall in actual wages. The less socialist countries such as Germany and France also see inflation, but have wage inflation with it, so it doesn’t hurt as much. Over time, Greece and Germany will reach a new equilibrium where Germany is x% richer than the Greeks relative to today.
2) The Euro breaks up and the more socialist countries have their currencies fall a lot. Wages still won’t rise, but costs go up, so they get poorer relative to Germans in the same way as #1.
All of this is not going to cause a war. People in Europe are too old to go fight one another. War is horrible, but watching a bunch of 60 year olds go to war with each other would be a sight to behold.
Since choices #1 and #2 are the only choices, eventually they will get around to choosing one of them. It looks like they prefer choice #1, so will go that route, but the Germans will squeal the whole time. The Germans will run for Gold – driving up the price and maybe causing a bubble. Germans will be very tempted to choose choice #2, but they see too many dangers in it – so will not.
Its my general guess that this won’t effect the US too much. Some multinationals will have a hard time selling things in Europe, but at the same time Europe won’t be able to buy as much oil, so that will drop in price. I’d be surprised if we have loaned much money to Europe, they aren’t the borrowing kind.
James
Art,
You are right about Obama screwing up the message that goes abroad. I can’t believe how ignorant this administration is about the effects of its bolster the base speeches. I don’t think they realize that everything they say goes abroad and is spun by locals to their advantage. He is offering the world scapegoats to avert damage to his image.
One other point about this whole crisis is that psychology counts. If Obama could project an image of determination to make necessary changes and confidence in the American people’s ability to overcome the problems, it would help a lot. Instead he projects weakness abroad, and he blames and ridicules the people at home he most needs. What the world needs to hear is that things may be tough, but that he has faith in the can-do spirit of Americans. Despite all the cheap-shot criticism of America, in their hearts people everywhere have counted on it. Instead he has his ambassssador to China tell them how bigotted and racist we are. He criticizes a mass movement at home that is pleading for individual responsibilty and initiative. He should be telling the world that he is inspired by the backbone of our citizens. He doesn’t know America, and he is not fit to represent it.
Occams,
Great comment. Somehow the Euros seem to think that if a foolish consistency is the hobgoblin of little minds, then even more foolish inconsistency is a sign of philosophical and moral superiority. Trying to follow the balls they bounce back and forth makes my head hurt. I once told my husband that Germany should put a tranquilizer in its drinking water. Still seems like a good idea!
Occam: I request that you develop your analysis a little more and offer it to PJM for publication. You might consider integrating into it some of the observations by others here, such as from James and expat.
I’m flattered, but unworthy! /blushes
I just dashed off something that has been on my mind for quite a while.
A country boy can survive.
As Baklava said earlier in the thread, this isn’t restricted to Europe by any means. The entire global economy is teetering towards collapse.
I’ve been reading Karl Denninger’s Market Ticker for over a year now, and he has been warning about the trouble ahead throughout this time.
He usually has 3-4 new posts per day, but I’d like to call your attention to one in particular a few days ago: Ten Things For 2010
If you’re only beginning to prepare now, you’d better hurry, because it’s almost too late. The collapse, when (not if) it comes, will have little or no warning.
“Sorry guys, but you are all too pessimistic here.”
Sorry James, but you’re in denial.
Virtually every western nation is now insolvent.
We and all of the West, have passed the tipping point where debt is compounding faster than economy’s can possibly grow.
It is now merely a matter of time before we and almost all of Europe become Greece. It’s no longer a mater of if, but of when.
The BILL is finally coming due. And we don’t have the money to prevent national foreclosure.
When that happens you can bet your last drachma that no one is going to bail us out.
As for when it’s going to happen…when China is certain that nothing we can do will pull us out of immediate economic collapse.
You don’t really think that the Chinese don’t know that we’re going to, sooner or later, default on our T’Bills, do you?
When we collapse, China will just tighten their belts, suck it up and allow a few million to die.
Can we survive a sovereign bankruptcy? Yes, but an awful lot of people are going to get hurt and very badly indeed.
Hi Occam’s,
Your comments make perfect sense, but its impossible for socialist systems to do things that make sense.
Pacifism is just a thin gloss over what is really going on in most European countries. Socialism is a mildly utopian system which is design to make life predictable with little risk. But life has risk, so once a socialist system is set up, the government needs to expend larger and larger effort to remove the risk. Over time, the government either allows the currency to fall in value, which makes everyone poorer, or it has a crisis and everyone gets a lot poorer all at once.
Asking people to make reasonable, middle of the road choices in such a system makes sense, but in the end is folly. Your only hope is to talk them out of their utopian system. What is the chance they will listen to you?
James
“Unfortunately in the year XXXX the whole world was one large international workshop. A strike in the Argentine was apt to cause suffering in Berlin. A raise in the price of certain raw materials in London might spell disaster to tens of thousands of long-suffering Chinese coolies who had never even heard of the existence of the big city on the Thames. The invention of some obscure Privat-Dozent in a third-rate German university would often force dozens of Chilean banks to close their doors, while bad management on the part of an old commercial house in Gothenburg might deprive hundreds of little boys and girls in Australia of a chance to go to college.”
This passage is from Hendrik Willem Van Loon’s book The Story of Mankind, published in 1921.
The date that appears in place of XXXX is 1914.
I linked this site here a little while ago, but it bears repeating:
Pleasant Hill Grain
I expect to receive my FoodPak 1 on Wednesday. I ordered it about 2 1/2 weeks ago. Just sayin’.
Hi Geoffrey,
Thanks for the comment – and no I’m not being sarcastic.
I guess I still disagree, though I don’t have the time to debate it.
Ultimately I think that these discussions about the financial system avoid the discussion about the real economy. That is, the effort to grow food, keep warm, have clothes, transportation, etc. In my discussion of Europe, I was essentially alluding to the real economy in Greece. That is, socialist countries don’t produce real goods and services people want to consume, so they must get poorer over time. Any discussions about the resulting financial state only explain that underlying reality (of no production). Fixing the financial system in such a place does no good, because the underlying productivity of the economy doesn’t support the way people want to live.
So if I had time, I would argue that the underlying productivity of America is not nearly bad enough to cause the results you are predicting – whatever the financial analysis.
I’m guessing your argument back would entail an explanation that we have shipped our economic productivity to China, and so we are in the same boat. I disagree, so we will have to let the future show us the truth.
Respectfully,
James
To be fair to the old man who was, I think, wrong about so much, John Maynard Keynes did realize, and write about in The Economic Consequences of the Peace, that the international economy at the end of WWI was already so interdependent that the scope and type of reparations imposed upon Germany by the allied nations in the Treaty of Versailles would have deleterious consequences internationally. That they would also play into the hands of a demagogue like Hitler Keynes couldn’t possibly have foreseen–but play into his hands they did.
James, I see socialism not as a cause of the European tendency to irrationality, but rather as a consequence, and the most recent manifestation, of it.
Continental Europeans have a long history of over-reacting, one that predates socialism by centuries. (In this context, socialism seems to be an over-reaction to the historical disparity in wealth between different classes of Europeans.) That tendency is probably the driver for the European aspiration to “sophistication;” i.e., adoption of views that are utopian, theoretical, unsullied by practical considerations, such as whether they might actually work. The French Revolution is replete with examples, as was the Paris Commune, to name two. These ideas ought to work, and if they don’t, it’s obviously because reactionaries/ counter-revolutionaries sabotaged them. Alleviate the suffering of the destitute — noble goal. Shift that suffering to those considered to have benefited — not so noble an idea, nor a particularly sound one, as Zimbabwe/ Rhodesia has learned, to its cost.
This reason may be why Europeans consider Americans “unsophisticated;” we, like our British forbears, are a constitutionally pragmatic rather than theoretical people. We favor policies that we think are likely to work, rather than those that theoreticallyshould work, and reject policies that in practice don’t work, regardless of how many clowns in cafes with Gauloises dangling from their lips think should work. (Let’s face it, we find those clowns faintly ridiculous, not sages from whom we should solicit advice.)
Consider, for example, how many Europeans take Marx seriously, although his prescriptions — as distinct from his economic analysis — are risibly sophomoric. Consider further the sophistication of the French in insisting on grinding Germany under foot after WWI, thereby absolutely guaranteeing a rematch that they would lose. On a more prosaic level, consider the French Army’s insistence in 1914 on retaining red pants on its infantry, and its expectation that French cran would carry the day over overwhelming numbers and machine guns. Europeans in general, and the French in particular, need to learn that reality bats last.
“To minimize suffering and to maximize security were natural and proper ends of society and Caesar. But then they became the only ends, somehow, and the only basis of law – a perversion. Inevitably, then, in seeking only them, we found only their opposites: maximum suffering and minimum security.”
–Walter Miller, A Canticle for Leibowitz
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James
You and Geoffrey are not nearly so far apart.
But what do you say about a service-based economy, as the USA has become? Increasing service productivity is all well and good, but actual produced goods seem key to me (and, apparently, to the Germans).
It has long seemed to me that the more interconnected the elements of a system are, the more any flaw in that system could bring the whole thing down:
The interconnection allows the system to stabilize individual members. That’s one of the attractions to join the system. The implicit assumption is that members will behave as prudently within the system as they did when they were on their own.
The danger is that if a failure does occur, it will almost certainly be system-wide.
Moral hazard: as more and more members become lax because they count on the system to protect them, the likelihood of overall collapse grows.
Occam’s,
I guess I think you are correct, but disagree on a minor detail.
I think Capitalism works on a theoretical level, and socialism fails on a theoretical level. The reason why I and the European cafe dweller disagree is because we start at different assumptions, not because I’m less theoretical. Though I guess because my theory has passed the test of experience while his has generally failed, that then makes me “practical”.
I guess the European theory is true because he really wants it to be true, and because his self worth is tide up in it being true. That, by itself, makes him a better person.
Tom – You ask a long question. I guess the answer is yes and no. America is a capitalist country – at least by comparison to Europe – so it creates goods or it creates services depending on profitability. When and if the Chinese (and everyone else) decides to stop making our stuff, by definition it will then be profitable for us to do so. The question then is whether we will be able transition to that need fast enough to keep a reasonable standard of living. That question is complicated. I think the answer revolves around the ability for the other countries to make the transition too – but in the opposite direction.
To simplify the question to just the Chinese – which is a big simplification – can they transition to not needing our markets much faster than we can transition to making our own stuff? Its not an easy question, but I think we can make the transition when we need to, as fast as we need to.
That is the fundamental issue with Greece. They have killed their ability to build their own wealth, not because they made an economic deal based on profit, but because their government passed laws making it nearly impossible to produce anything. Those laws are nearly impossible to undo. Which puts Greece in a very different position than us, IMHO.
James, fair point.
I’d say that capitalism wasn’t promulgated, and then implemented, but rather evolved through trial and error over an extended period. The theory underlying capitalism was written as a “prequel,” once the reality was appreciated.
In contrast, socialism is precisely the opposite – hence its manifest contradictions, and experimental failures.
Put another way, capitalism is empirically-based, unlike socialism.
Or socialism was invented while capitalism was discovered? Makes sense to me.
James,
I fervently hope that you are more correct, than I.
After the economic collapse that I predict is where perhaps, we have more common ground.
The currency may be worthless but the natural resources remain. The land with its farms and seeds and livestock remain. We will still possess a highly skilled workforce. People will be motivated to work. Electrical generators will still work. Communications will remain. A certain amount of fuel supplies will still be available. What you labeled the natural economy will remain available.
Rationing of food and fuel will be absolutely necessary and for perhaps years to come. Martial law will be necessary until order is restored. Barter will be insufficient to base transactions upon, so a new currency will have to be implemented fairly quickly.
Certain sectors will have a higher national priority. The military will be one of those sectors. Electrical production, especially in the east will require fuel allocations. Commercial transportation will be an important sector.
It will be a national emergency and while there are no doubt plans available for almost any conceivable scenario we might imagine, it is in the necessity for martial law wherein the greatest concern for liberty should lie.
Artflgdr is of the opinion that will be when the left and Obama will make their move to seize power. I do not see the military supporting such a move and therefore we disagree as to its probability.
But during martial law the country could be moved greatly in the direction of a socialist/marxist society with incremental, ‘temporary’ seizure and requisition of assets deemed necessary to the national interest.
Freedoms would necessarily be curtailed and much harm could be done during a period such as I describe.
Scary to think about, necessary to think ahead to be prepared.
God help us, maybe we’ll get lucky one more time.
Occam’s,
On Europe vs America: There is a castle/palace in the center of and above the town where I live. Especially during the Reformation, it was a venue for important meetings of the thinkers of the day. I’m pretty sure my German friends imagine themselves as participants in the heady discussions. The first time I went there, I climbed the steep cobbled path to the top. I knew that my ancesters would not have been part of the elite inside the walls, but rather would have been the ones pulling a cart of turnips or slaughtered chickens up the damned bumpy road to feed the assembled. Europeans love the cobblestone streets, but if you are a schlepper, asphalt is the way to go. Forget the Mars/Venus comparison. Americans were and are schleppers and not ashamed of it.
Common sense is the most rare commodity in European culture. Their most famous philosophers are tainted by a distinct strain of insanity. The only exception is Scotish Enlightenment, but the only country where it took root and was put in practice was New England. Now, when European democratic socialism, that is, welfare statism, is banckrupt, they will learn a hard way that there no such thing as free lunch. Will American public learn this lesson, too, seeing European debacle?
Black markets thrive (notoriously) in the shadows of all failed socialist systems, because freedom and free market capitalism can only be suppressed, at the expense of the people, but can’t be eradicated.
“Capitalism works on a theoretical level, and socialism fails on a theoretical level.”
No, capitalism works on a real level, and socialism fails on a real level.
You guys go on talking how sophisticated-crazy these Europeans are, but you must admit that you are catching up rapidly! Hollywood, your universities, liberal media, the Democrat party, the education system in general, the White House, it all smells of contempt for American Hillbillies and adulation for European sophistication! Seen here from Europe, your limosine liberals and lefties are even more off putting than ours.
I sure hope that there is still a sane ‘Middle America’ strong enough to fend of the present Obama turn to the extreme left. But what I see does not make me that assured.
The US and Europe have often been compared to ancient Rome and Greece. Ancient Greece, with its high culture and art, suffered from its ever warring city states. But Rome, with its stable republic and military power, ended up with a cruel and decadent dictatorship under the Emperors.
During the Roman Emperors, Greece lived in the sad afterglow of its former cultural and political glory, lamenting its own decay and the crude Roman yoke. And Rome had its decadent elites snobbishly revelling in Greek refinement, while the ‘good, simple, oldfashioned’ Romans were lamenting the lost virtues of hard work, patriotism, sobriety etc.
How similar are things today!
Finally I will be able to shop on the Champs-Elysees. $$$$$$$$$$$$$$$$$$$$$$$$$$$$$
I worry if the minds of liberals are so indoctrinated in the quest for equality of outcomes that their denial will persist till the bitter end of western civilisation. That basic denial being based on the thought that a few thousand elite politicians know better how to compose a society than 300 million individuals acting in their own self interest.
They don’t get it and i’m not sure if they even can.
I just saw a story on German Yahoo news that the German Institute for Economic Research has recommended raising the value added tax from 19% to 25% to cover budget deficits. They said it would be easy.
That says something about the dangers of value added taxes and something about the difficulty of changing the entitlement mind set. I don’t think there will be a global answer to the worldwide economic situation. We are going to have to get out of this one Chris Christie at a time.
Sergey asked:
“(Europe) will learn a hard way that there no such thing as free lunch. Will American public learn this lesson, too, seeing European debacle?”
Of course the public will behave wisely, didn’t the public elect an unknown with no resume, obvious delusions of grandeur and seedy friends to be president? What further proof do you need?
In place of the term “socialism” we really should employ another term like “runaway entitlement programs” or “dictatorship of the bureaucrat” which is really our complaint. Socialism is too ill-defined. Many ancient societies had retraining and social welfare programs that one could call socialism.
Also don’t applaud too loudly for total capitalism unless you approve of the era of the robber barons.
Late to the discussion, sorry.
I believe that socialists consistently make two great mistakes: First, they consistently envision a purely socialistic utopia. They don’t realize that socialism is parasitic and can only survive off of another institution. Like pacifism which can only exist if there is someone willing to defend the pacifists, , socialism can only operate as long as it doen’t run out of other people’s money. When that happens, a socialistic economy implodes. (This recognition of socialism as dependent is an idea that is unstated but woven into neoneocon’s post as well as many of the comments above.)
Secondly, proponents of socialism don’t distinguish between the micro- and macro- economic aspects of socialism. We all NEED to work for a living (that’s capitalism), but most of us would not think twice about helping our neighbor or loaning him/her our lawn mower without charge (that’s socialism). Socialistic intent lubricates our relations with people we deal with on a day-to-day basis, but it fails as an imposed macro-economic system.
The balance was held in America between raw capitalism and charitable giving by the Christian code of morality toward our fellow man. Liberals are too stupid to see they long for a society that they’ve spent decades tearing down. But you can’t impose kindness and caring through coersion, any more than you can create such a thing as a paid volunteer and pretend it’s still volunteering.
Steve H,
“Liberals are too stupid to see they long for a society that they’ve spent decades tearing down.”
Amen!
Bob from Virginia,
I don’t think anyone here lauds totally unfettered capitalism. At least it doesn’t seem so to me.
Still, the era of the robber barons is not a good example of unfettered capitalism. That was a unique period where capitalism and a free market, however unrestricted, was also fueled by an unprecedented global wave of immigration for generally unskilled jobs. The only way that the robber barons could do what they did was because they were fortunate enough to have an limitless supply of labor.
Look more toward Henry Ford who raised workers wages to an unprecedented $5/day. The result, everyone wanted to work for Ford. Why did he do it? So that his employees could afford the Model T they were manufacturing. By raising wages he was creating a new market. Look also to John D. Rockefeller who began shipping oil by rail-car instead of in barrels thus reducing the price of gasoline.
Why would one want to pay higher wages or charge lower prices? Because in the market there is a balance. Pay lower wages and you loose the ability to hire qualified workers, pay too much and you make less money. Charge to little and you make no money. charge too much and very few buy the product.
That’s why marketing tries to create NEED for a new product. You’re more likely to pay a higher price if you believe need a product (even if that need is justas a status symbol)
Expat, good point. When I lived in Europe fellow American academics used to spend their sabbaticals in my lab. They (or more commonly, their wives) commonly engaged in self-congratulatory social pretension that here they were, the elite of America, now mingling at High Table with the elite of Europe, back where they’d come from, and where they belonged. (Think Al and Peggy Bundy.) You know, all of us nobility reassembled. Goodness, it’s so hard to find good help these days, isn’t it?
I used to laugh at this. They didn’t realize that the Europeans considered them upstart smelly socks rubes, but were too polite to let on, and also they enjoyed playing them in this way. These Americans also hadn’t figured out that if their forbears had been in the upper crust of European society, they themselves would have been born in Europe. All Americans are descended from the schleppers, not the nobility — that’s why they left (or were kicked out, per Bill Murray in Stripes). So, far from alighting from a Bentley at a country estate while the servants stand dutifully assembled around the gravel driveway, they’d be one of the assembled servants. But many of them obviously hadn’t figured that out.
Absolutely right, Wandriaan. On top of the general philosophical and moral rot, our limousine liberals and lefties are reprehensible for their pretensions, their attempt to deny who they are and slavishly apeing others whom they consider more sophisticated. My contempt for them knows no bounds. To thine ownself be true, and all that.
Another problem is that Americans only visit attractive sights in Europe. They visit Blenheim Palace, Buckingham Palace, Harrod’s, the Eiffel Tower, the Louvre, quaint medieval villages in Germany (we pretty much took care of the old buildings in the cities during WWII), the sidewalk cafes…ah. European culture. If only America were like this. They fail to visit the grittier industrial districts or cities, and the working class neighborhoods. No one goes to, e.g., Bradford, or Brixton, or (intentionally) visits the banlieus surrounding Paris.
Europeans, for their part, sometimes evince the same misapprehensions, and think that everyone in America lives like characters in Dallas or Dynasty. This silliness is harmless enough unless you allow it to shape your views on how things should be run, which is what has happened with the liberals.
Occam,
I agree. We are all descended from the schleppers and the risk-takers. Our ancestors may have had nothing to lose, but it still takes a set of brass to leave the little you know and love and go to a land whose language one doesn’t even speak. Thus, I hold onto my hope for this country and its people.
I also agree that most Americans, and certainly the intellectual elite only visit the nice places in Europe. In fact, as you point out this is partly where the stereotype of the rich American came from.
Two types of Americans visit Europe; those that can afford to, and those who have saved for a once in a lifetime vacation. The former spend money easily because they have it; the latter spend money because they know they will never return and will not be denied. To the Europeans, if every American they see spends money liberally, then it must be because all Americans are wealthy. Americans rarely visit Essen and the Ruhr district, but Europeans rarely visit Camden (NJ) and Gary (IN).
I have a lib friend that once remarked Europe was superior because you didn’t see as many unsightly power wires on poles. Lol. Of course he was certain the unfettered freedom and poor taste of American ultility companies was to blame and common sense weighing of economics and asthetics had zero to do with all of it.
SteveH, I call that the “High-Speed Rail Link fallacy.” Rail travel is more practical in Europe, where an extra base hit can land in another country. With a few exceptions, rail travel is impractical here because of the distances involved, and the much lower population density.
But your lib friend has a point. We should put our phone and power lines underground too. First, dig a trench 3000 miles long. Then lay power lines in it, and cover them up. Simple. Money well-spent.
Occam,
Off topic, but I always thought that regional rail travel could succeed in this country. Especially now, when a one hour flight has been lengthend by extra security time and travel time to the airports.
The DC-NYC-Boston corridor is not the only route that could successfully run, although it might be the route most heavily used.
T, sure, there are selected routes for which this is true. Boston-DC is one. SD-LA is nice also. I’m sure there are a few others. But as a general proposition, rail travel doesn’t make it in the US.
Occam, this is have more to do with habits and customs and inertia of infrastructure than with any geographical determinism. In Russia distances are huge, too, and population density even lower, but passengers railroads travel is widespread. Most of these railroads were built in the end of 19 or beginning of 20 century and for the first time in her history made Russia connected. They were very effective and the only way to travel. That is why Russia skipped the new trends in 1930s, when autobans were built everywhere, but not in Russia. The whole infrastructure of cities accomodated to railroads, and it would be ruinously costly now to switch to rubber wheels. In USA infrastructure is adapted to automobiles in everything, including zonal regulation and patterns of population distribution.