Suppose deflation really becomes all the rage in the Firstworld as well as the Thirdworld? What is the basic problem that led to this situation in the first place? Will we see some changes in politics in the Firstworld? How will it be resolved?
As I see it, the basic problem worldwide is to much stuff chasing too few paying customers. This is the problem that the world faced in the 20's-30's. Then as now, the "problem" was a change in technologies and a resulting step change in manufacturing productivity. Electric motors and the widespread adoption of the technologies of mass production led to increased productivity. As a matter of fact, the decade leading up to the great depression saw the adoption of radio, telephones and other breakthrough technologies. Ours is the integrated circuit, the microprocessor, and powerful advances in computer software (CAE...making it even possible to design chips like the Pentium)and telecommunications. And like then, the ground is shifting under all of us, sweeping away the old conventions and making lots of people redundant.
Advocates of the free market cry "let the games begin" and bristle at the idea of any kind of control of the economy. Yet in the free-for all that resulted, can we say that the result has been a stable prosperity? Massive global currency flows, booming economies, and tectonic shifts of trade balances, a widespread contravening of the social compacts formed after the last depression followed by currencies crashing, political unrest, perhaps revolutions in the near future in at least Russia and Indonesia, and perhaps more places if things continue along this trajectory. Even strong advocates of the free market are beginning to murmur about the necessity of some kind of boundaries being set. (Soros) The traditional constituency of the nation-state, the middle classes in Europe, Japan, Russia, and the USA have seen their standard of living slowly be curtailed--or cancelled in one case. (Remember the story about how to boil a frog?) So far, they have been quiecent---but can anyone deny the similarities between Russia and Wiemar Germany? Will a strong man emerge, promising prosperity and a readressing of wrongs? Can it happen elsewhere? (Who is LePen, Bucannan? Who was Perot?)
Is the middle class really all that enamored of the government? Here in the USA, the news, the popular opinion is that everyone is for dumping it. (Or at least those burdensome taxes.:)) Consider, however, how many people do you know who work or benefit in a substantial way from the government. Counting up those who I know I come up with a large number of middle-class people (some very conservative!) who have benefited largely by their association with government spending. A nurse who works for the VA, an engineer at a major aerospace firm, a councilor in the school system, an engineer working on govt. research contracts, a math teacher at the state college, an editor working on a newsletter for a nonprofit---almost exclusively funded by the state, retired wealthy ex-military contractors, firemen, police...all these people doing pretty damn well, thank you very much. And everyone else I know is largely scratching. In my community the only decent paying jobs are government related. Not exactly the story about rugged capitalism told in the press. Consider further that the last stronghold of unionism is in the government sector. Is it really believable that these folks would allow the bottle to be snatched away by a worldwide economic crisis, a deflationary crash?
Don't bet on it.
I travelled to Argentina in the early days of "democracy" there (late 80's). The generals were out, banks, power systems, telephones, the mail worked erratically at best, and inflation raged at hundreds of percent a year in a largely middle-class society. I saw no one hungry or unhoused. The only other activity other than tourism was the government building lots of housing. Other than tourism the only stable jobs that paid anything were related to government. My understanding of the Argentine situation was that there was prosperity that gradually dimmed, and from the sixties on it was increasingly government housing, the military, and a fixation on all manufactures being produced in a country with the population of California. It worked, after a fashion. Not too good of a place to be an investor, however. Peron came in and promised an resumption of prosperity to the middle-class voters, and they followed him---right into a flavor of facism, it's American analogue being what I would call Country & Western Socialism. Argentina had seen the top, and when the light began to fade, the middle-classes insisted that the government "do something" and they did--- "get tough" and print lots and lots of cash.
If things went bad here (USA) would the government spurn the middle class so faithfully attached to the sustaining flow of milk? Or would a strong man rise, promising a return to prosperity, and a redressing of all wrongs....?
So, what if the powers that be are deathly afraid of such a fate, a replay of the history of the 30's? Can we really afford to bomb redundant competing factories into the dust like we did in WWII? (Are suitcase nuclear bombs readily availble?) Can we close the borders? Or is there a ideological fight being waged right now over the nature of the global economy? (to see one view check out pei-intl.com Let 'er rip and buy up the weak hands .vs. it's time for some basic rules governing global commerce. Could we be looking in extremis at another New Deal...but this time, for the whole world? After all, it's the differences in production costs between nations that has caused this dustup. What would this mean for the price of the scarce things of this world, ie; oil, water, forests, agricultural products, metals? Will the middle classes of the world stay quiecent as the ship slowly takes on water? What do you think?
Pete |
