Belmont Club

Back to the Races

Christine Lagarde says the European crisis is going global and argues that the only way to survive is for everyone to work together, preferably through the IMF. “There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do,” she said.


European Central Bank president Mario Draghi told leaders that the cavalry was not coming and ultimately, it was every man for himself. “There is no external saviour for a country that doesn’t want to save itself.” In that spirit, “the governor of France’s central bank has said Britain is more deserving of losing its top-notch credit rating than France as Paris braces for a potential downgrade of the country’s triple A status.” He must have been reminded of the story in which two gentle, plant eating dinosaurs suddenly spot a t-rex heading swiftly toward them. One of the the herbivores begins to run:

“Why are you running? asked one herbivore. “You can’t outrun a t-rex?”

“No,” came the reply. “But I can outrun you.”

The credit rating agencies have been busy of late. “France was among 15 eurozone members put on negative watch by Standard & Poor’s earlier this month … with a two-notch downgrade. Britain’s triple A is not currently under threat.” Maybe France can convince S&P to downgrade Britain first, but that will bring only a temporary respite. Other countries, like Italy are coming to the conclusion that they really have to lose weight to keep ahead of the predators.

This means dismantling, or greatly downsizing, the Welfare State. “Italian Welfare Minister Elsa Fornero broke down in tears as she announced an end to inflation indexing on all but the lowest pension bands, a move that will mean an effective income cut for many pensioners.” This will reduce many seniors to desperate straits. But there is simply not enough money to keep the benefits up. “Only 57 percent of Italians are in work, the second lowest proportion in the euro zone after tiny Malta, and the female employment rate, at just 47 percent is 12 points below the euro zone average.”


This means social unrest. Just as the Arab Spring was really sparked by economic hardship, the collapse of the welfare state and the massive regime of entitlements in the United States will inevitably produce resentment, fear and anger.

A job, once something that social engineers believed could be “guaranteed” by law or made into a “human right”, turns out to be a hard thing to find. Perhaps because the laws themselves made a job a hard thing to create. But for whatever reason, young people may no longer believe they will automatically find employment. “Cambridge, MA—A new national poll of America’s 18- to 29- year olds by Harvard’s Institute of Politics (IOP), located at the John F. Kennedy School of Government, finds more Millennials predict President Barack Obama will lose his bid for re-election (36%) than win (30%).”

Part of the reason for their pessimism may spring from the way in which the Great and the Good continue to regard the crisis. They see as a mandate to continue business as usual. The President said recently that his failure to improve the economy was because “we didn’t know how bad it was”. He regretted not being able to prepare “the American people for how bad this was going to be, had we had a sense of that.”

And having confessed he had not the wit to realize that it was the system itself that was in crisis, he’s going to expand it all the same.  That view is apparently shared by the “Movement’s” leaders.  As Jeff Bercovici of Forbes realized with some alarm, “Congratulations, Wall Street occupiers. You did it! You got yourselves named Time’s Person of the Year! Okay, so you had a little help from your fellow protesters, in Egypt, Tunisia, Russia, Yemen, Libya and some other places.”


Time got the scene right, but looked through the wrong end of telescope. The event of the year was the Collapse of the System–  the symptom of it were the protesters it celebrated on its cover. And in that respect the Occupy Wall Street crowd were not protesters at all. They were astroturf. The wild men of the Arab Spring wanted to bring down the house, while the OWS people simply wanted a free house. The AS protesters were for regime change, but the OWS was for Obama 2012.

Unfortunately the masters are out of money. That is what Christine Lagarde was saying in the first place — and so you better turn over what pennies you have left to her — so she can dole it out like poorhouse gruel to the inmates of her new Dickensenian Monetary Fund. This is also what the Italian government is saying, only differently: that there’s only enough left to feed the elderly pet food — the economy brand. What they do after that, who knows?

Together they set out the critical failure parameters of the system: not enough productivity, too many expectations. Newt Gingrich was recently accused of arrogance when he advised OWS protesters to take a bath and get to work. He may not have put in a way that endeared him to the Men of the Year, but he had a point. It is pretty much what everyone else is saying, even in Europe. The party’s over.

In recognition of that reality, one unrecognized political priority should be what one might call the “removal of temptation to power”.   In an economic crisis there will be a temptation for interest groups to seize the bulk of a shrinking pie. The smaller the pie, the more of it must be pre-allocated to favored groups if they are to maintain their accustomed lifestyles. Nigel Farage is alone among European leaders in explicitly recognizing the possible political consequences of an economic collapse, but he does so only on general terms.


But his warning should be taken seriously. The corruption of the ballot; the persecution of political parties; the emergence of political street gangs; an authoritarian style of law enforcement; strident propaganda. These would be dangerous enough in normal times but they are perils to be avoided at all costs during a period of economic crisis. This could take the form of a multipartisan pact — a kind of “hands off” pledge among the parties in the West to leave the constitutional workings of their country untouched for the duration.

In this respect the European Union has set a bad example by forcing through measures which effectively erode national sovereignty in the name of “saving the Euro”.  It is precisely in order to avoid this that a “hands off” pledge should become part of Western politics today. For the old freedoms are under threat to a greater degree than the economic “gains” of the past.  As the awareness of inexorable change sets in and sacrifices are demanded; the last thing to go and final preserve should be the liberties upon which Western civilization and its prosperity are based. In fact you might even make the argument that it is the erosion of those very liberties that have caused the present crisis. But that is for another post.

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