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Ed Driscoll

Around the World in 80 Basis Points

April 29th, 2012 - 1:22 pm

And now for news of fresh Blue State disaster, both home and abroad.

But first, some background. Back in 2010, Theodore Dalrymple explored the revival of centralized economic planning in general, and the fortunes of its most prominent 20th proponent, John Kenneth Galbraith, specifically:

His books sold by the million and were available everywhere in cheap paperback editions; titles such as American Capitalism and The Affluent Society were known to almost all educated people. A teacher at Princeton, Cambridge, and Harvard, he was the editor for a time of Fortuneand the American ambassador to India. He was also the first economist to be widely known on television, not least through his sparring with William F. Buckley, Jr. (a close personal friend). His omnipresence as the voice of economics was both the result and the cause of a whole climate of opinion.

As is commonly the way, a reaction set in. Galbraith, who lived from 1908 to 2006, grew not only old, but old hat. His Keynesianism appeared outmoded in an era of unprecedented growth and prosperity apparently brought about by adherence to economic theories very different from his. No one believed any longer that demand management—the governmental regulation and, if necessary, provision of the demand for goods and services within the whole economy—was the way to combine prosperity with social justice. Rather, the market’s invisible hand and unconscious wisdom would lead us into the sunny uplands of expanding wealth and diminishing poverty.

But recently, there has been a reaction to the reaction. No sooner had Lehman Brothers collapsed than the printing presses started to roll out copies of Galbraith’s book on the debacle of 1929, The Great Crash. In fact, it couldn’t be printed fast enough, paperback books being affordable even in times of crisis. Galbraith was the hero of a recent PBS documentary extolling the value of big government. And demand management à la Galbraith is now back with a vengeance, of course. If the improvidently indebted but now impecunious private citizen won’t spend and thereby expand economic activity, the improvidently indebted but infinitely expandable government will do it for him.

So how’s that working out? Pretty badly, if these recent stories are any indication. First up, at Big Peace, founded by the late Andrew Breitbart, John J. Xenakis has this news of fresh disaster from Europe: “Spain Unemployment Near 25%; Britain Enters Double-Dip Recession”:

  • Spain’s economy keeps spiraling downward as unemployment rises to 25%
  • Switzerland considers paying illegal aliens to leave Switzerland
  • Britain’s economy moves into a ‘double-dip’ recession
  • Germany’s Angela Merkel angrily repudiates François Hollande’s campaign promises
  • Greece’s elections driven by anti-austerity, anti-immigrant fervor
  • Romania’s government collapses, Czech government survives, in anti-austerity anger

While President Reagan was working to expand entrepreneurship in the US in the 1980s, statist-oriented economists trumpeted the top-down economy of Japan as the better model — recall ’80s and early ’90s era-films such as Gung Ho, Black Rain, and Rising Sun. Two decades later,  Ross Douthat describes Japan as the “Incredible Shrinking Country,” facing demographic, and presumably economic, collapse as well, in the New York Times, and living out a real-life version of The Children of Men, PD James’ 1992 novel:

Japan is facing such swift demographic collapse, Eberstadt’s essay suggests, because its culture combines liberalism and traditionalism in particularly disastrous ways. On the one hand, the old sexual culture, oriented around arranged marriage and family obligation, has largely collapsed. Japan is one of the world’s least religious nations, the marriage rate has plunged and the divorce rate is higher than in Northern Europe.

Yet the traditional stigma around out-of-wedlock childbearing endures, which means that unmarried Japanese are more likely to embrace “voluntary childlessness” than the unwed parenting that’s becoming an American norm. And the traditional Japanese suspicion of immigration (another possible source for demographic vitality) has endured into the 21st century as well. Eberstadt notes that “in 2009 Japan naturalized barely a third as many new citizens as Switzerland, a country with a population only 6 percent the size of Japan’s and a reputation of its own for standoffishness.”

These trends are forging a society that sometimes evokes the infertile Britain in James’s dystopia. Japan has one of the highest suicide rates in the developed world, and there were rashes of Internet-enabled group suicides in the last decade. Rental “relatives” are available for sparsely attended wedding parties; so-called “babyloids” — furry dolls that mimic infant sounds — are being developed for lonely seniors; and Japanese researchers are at the forefront of efforts to build robots that resemble human babies. The younger generation includes millions of so-called “parasite singles” who still live with (and off) their parents, and perhaps hundreds of thousands of the “hikikomori”—“young adults,” Eberstadt writes, “who shut themselves off almost entirely by retreating into a friendless life of video games, the Internet and manga (comics) in their parents’ home.”

And speaking of Japan and Europe, “Europe faces Japan syndrome as credit demand implodes,” Ambrose Evans-Pritchard writes in the London Telegraph:

This slump in loan demand is more or less what happened during Japan’s Lost Decade as Mr and Mrs Watanabe shunned debt. Zero interest rates did nothing. The Bank of Japan was “pushing on a string” (though it never really launched bond purchases with any serious determination).

It is true that banks have slowed the pace of credit tightening, but they are nevertheless still tightening. “A banking crisis remains very much in play for much of the region,” said David Owen from Jefferies Fixed Income.

The credit squeeze is entirely predictable – and was widely predicted – given that banks must raise their core Tier 1 capital ratios to 9pc by July to meet EU rules, or face nationalisation. (The pro-cyclical folly of this beggars belief: by all means impose higher buffers, but not during a recession, and not by letting banks slash their balance sheets. The US at least forced its banks to raise capital, an entirely different policy since it does not lead to a lending crunch.)

The IMF said last week that Europe’s banks would slash their balance sheets by €2 trillion – or 7pc – by next year. This amounts to an economic shock. The Fund said deleveraging on this scale at a time of sharp fiscal tightening risks a “bad equilibrium”.

Indeed it does. It ensures hell for countries containing 200m people, or more. Judging by the rise of Sinn Fein, the Dutch Freedom Party, the Dutch Socialist Party (hard-Left), France’s Front National, and some true fire-breathers in Greece, they victims will not readily put up with this.

Oh well, what’s another potential “European Civil War” amongst friends and neighbors? Over on this side of the Atlantic, America’s Bluest of Blue regions are undergoing similar demographic and economic convulsions, as we’ll explore right after the page break.

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