Wednesday, July 6, 2011

The Devil and a Dingbat: Sid Harth

The Devil and a Dingbat: Sid Harth

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07/06/2011

The Devil and a Dingbat: Sid Harth

American politics

Democracy in America

Debt crises

Europe and America, increasingly alike

Jul 6th 2011, 13:52 by M.S.
 
GIDEON RACHMAN had a good thumb-sucker in yesterday's Financial Times arguing that the current political-economic crises in America and Europe are basically two sides of the same crisis. "In Washington they are arguing about a debt ceiling; in Brussels they are staring into a debt abyss. But the basic problem is the same. Both the US and the European Union have public finances that are out of control and political systems that are too dysfunctional to fix the problem," Mr Rachman writes. I have some quibbles about the way he frames the economic issues as a generalised problem of "an unsustainable and dangerous boom in credit", viz homeowner credit in America and the overdrawn borrowing of Greece and Italy in Europe. This seems to smooth over a lot of differences a bit too easily; the American housing bubble was fueled by CDOs, but the economic problems in Europe aren't about an asset bubble caused by Greek or Italian government borrowing, and to the extent that the problems are due not to asset bubbles but to financial interconnectedness, the interconnectedness caused by private-sector issuance of CDOs and CDSs isn't really the same as the interconnectedness caused by the adoption of the euro across 17 countries.
But I think this part is worth coming back to from various angles:
...on both sides of the Atlantic, the economic crisis is polarising politics, so making it much harder to find rational solutions to the debt problem. Populist movements are on the rise – whether it is the Tea Party in the US or the Dutch Freedom party or True Finns in Europe.
The idea that Europe and the US represent two faces of the same crisis has been slow to sink in because, for many years, elites on either side of the Atlantic have stressed the differences between US and European models... The US political debate still uses the otherness of “Europe” as a reference point. The accusation that Barack Obama is importing “European-style socialism” is used to paint the president as un-American. Some on the left do indeed look to Europe as a place that does things differently and better on some issues – such as the provision of universal healthcare.
Yet the similarities between the two regions’ dilemmas are now more striking than the differences – mounting debt, a weak economy, an increasingly expensive and unreformable welfare state, fear for the future and political gridlock are the common points.
Again, I have a couple of quibbles here about whether the European welfare state is too expensive for Europe to afford. For Greece and Italy, clearly. But for Germany (6% unemployment, 5% GDP growth), the Netherlands (5% unemployment, 2.8% growth), and Sweden (7% unemployment, 5.5% growth), which all have very manageable levels of public debt, things look more sustainable. What I think is definitely right here is the assessment of the public mood, the sense of anxiety, and its connection to political radicalism. And I also think Mr Rachman is right to take the next step and ask what the combined political and debt crises of Europe and America look like from a Chinese perspective: "Among Chinese leaders and intellectuals, it is now standard practice to suggest that westerners of all sorts should stop trying to 'teach China lessons' – given the depth of their own political and economic problems."
I actually think the issue goes beyond the increasing unwillingness of Chinese authorities to even pretend to listen to Western complaints about human rights. Unless you buy the Nouriel Roubini argument, and I don't, China is going to be the world's largest economy within ten or 15 years, bigger than America or the euro-zone. And, in case anyone has failed to notice, it's a Communist country. Every year China continues to grow, the case that countries need to be democracies in order to become wealthy and developed becomes more tenuous. In fact, what's happening both in America and in the EU at this point is raising the possibility that democratic governance may in some modern situations be inimical to competent economic stewardship. The incentive structure created by democratic political competition in an internet-era media society may actually be driving countries towards fiscal self-destruction. We're increasingly getting a polarised, viciously divisive, intellectually bankrupt, wildly irresponsible populism that lives up to every negative caricature of multiparty democracy that a CCP ideological hack could dream up. That's certainly what the behaviour of the tea-party-driven GOP and the Party for Freedom suggests.
Last week Clive Crook had a piece, also in the FT, arguing for America to create more automatic fiscal stabilisers to take the issue of stimulus during recessions out of the hands of Congress; the less economic policymaking in the hands of that "broken institution", he wrote, the better. I agree with the point, but it says something pretty troubling about the place of democratic rule on the world stage at this point in history. It seems to me that if we're at a point where we are increasingly calling for important policymaking to be taken out of the hands of our elected representatives, we need to start addressing the problems that are rendering our representative institutions unworkable. The case for democracy is a moral one, not an economic one; but if democracies can't handle responsible governance, either on economic or more general policy issues, then governance will gradually become less democratic, and the moral case will make little difference. And this is where Europe and North America, the places where democratic rule is most deeply rooted, ought to see themselves as being on the same side.
(Photo credit: AFP)

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1-20 of 47
JGradus wrote:
Jul 6th 2011 1:57 GMT
People where saying the exact same things in the 30's, turned out democracy was the right horse to back then, and as long as we try do our best, it will be the right horse this time around as well
Jul 6th 2011 2:04 GMT
JGradus, I think people may have underestimated the degree to which '30s-style fascism might have been a workable system if it hadn't gotten caught up in militaristic expansion.
Jul 6th 2011 2:27 GMT
The Tea Party isn't populist.
All they care about is keeping their economic gains, not paying their fare share of the pain, not demanding the military takes its hit, demanding their subsidies not be touched while others take a hit, etc.
Extremist following Ayatollah Norquist, yes.
Populist, no.
Regards
Jul 6th 2011 2:30 GMT
Two things: 1) Communist country? Really?
China is a one party state that is many things, authoritarian, restricted, nationalist, but the one thing they are not is communist and it beggars the mind why you would cite a label which you have to know does not describe the system of government.
There's a Chinese joke which says that America and China were in a car and they come to fork where they can decide to take their economies to the right or to the left. America says, "Let's go right." China says, "Wait!" America asks, "You're not going to go right?" China replies, "Of course I am. I just wanted to hit the left turn signal before I did."
If I take a bottle of beer, empty it out and fill it with water, it is no longer beer, even if the bottle still says Budweiser on it. Similarly, the Communist Party of China is stuck with a name that they can't change for historical reasons, but if it quacks like a duck, walks like a duck, looks like a duck, why are you paying attention to the old and faded writing on the side that says "cat?"
The Chinese Communist Party: not what it says on the tin.
For example, "capitalist" Taiwan got socialized medicine in 1997 and "communist" China abolished the remains of theirs even earlier; the labels are meaningless.
The only way the Chinese are still communists vs. some other authoritarian is the state's legal ownership of all the land. Big state owned businesses and firms have been an integral part of one party systems all across the spectrum, from the Baath party to the KMT to the Bolsheviks.
2) Taiwan is a democracy and a responsibly governed one at that. It's a cliche, but CCP hacks love to attack the west or India's democracy because the existent Chinese democracies (Singapore*, Taiwan) persist in being competent, prosperous, and safe places to live.
As for the 15 years, in terms of ideology, the KMT of the 1970's and the communists now are hard to distinguish. The KMT was fiercely nationalist, authoritarian, controlled the media, and had huge amounts of state owned enterprises, yet they were able to come out of it. Give China time and it will too.
Jul 6th 2011 2:32 GMT
Last week Clive Crook had a piece, also in the FT, arguing for America to create more automatic fiscal stabilisers to take the issue of stimulus during recessions out of the hands of Congress; the less economic policymaking in the hands of that "broken institution", he wrote, the better.
That's sorta like calling the cops AFTER a crime is committed.
Wouldn't it be cheaper if regulatory institutions were funded, and politicians didn't interfere once rules are set? (Crime prevention)
Regards
Lafayette wrote:
Jul 6th 2011 2:50 GMT
NC, I've lost track of how many formerly leading Taiwanese politicians are now in jail. Not sure I would describe that as competently governed. And Singapore is not a democracy.
As for China, it may not be stricto-sensu communist, but it sure isn't democratic, which is the point of the post.
edgus wrote:
Jul 6th 2011 2:52 GMT
Telling that the lefties are always the first to give up on democracy. A triumph of human spirit when one of their favored, like President Obama gets elected, too much for the stupid unruly hoi poloi to handle when someone to the right gets elected, or threatens to. Then we have to talk about wild raving populists who do not understand the moral imperative of counter cyclical spending. Maybe a board of more enlightened folks, like MS, can make decisions on their behalf and veto their more animalistic urges.
Posts like this read 10 years from now will make you look foolish MS
Eumenid wrote:
Jul 6th 2011 3:02 GMT
M.S., in response to your reply to JGradus, please bear in mind that the fascist and quasi-fascist dictatorships of the 20s and 30s were by no means immune to politically determined economic blunders. Think of Mussolini's insistence on "Quota 90," the lira's unsustainably high peg against sterling.
Jul 6th 2011 3:05 GMT
edgus, I may need to make this more clear so you can understand it. When I say the case for democracy is a moral one, I mean that non-democratic systems of government are immoral. I'm not sure how that constitutes "giving up on democracy".
Jul 6th 2011 3:16 GMT
@Lafayette
That's why I put the asterisk next to Singapore. It is a one party state, but it's a one party state where the ruling party could be thrown out of power by democratic means.
As for Taiwan, it's not the politicians in jail that matters, it's is the government competent? People are fed, they get good schooling, the trains run on time, 80% of the world's laptops come from Taiwanese companies, you can go to a hospital, etc. Taiwan has corruption (and tons) but it still does right by it's people and economy. If the US could throw a hundred more congressmen in jail and get socialized medicine, that would be amazing.
"Authoritarian" would have been a much better, more accurate and more relevant word to the point he was trying to make. Referring to modern China as "communist" should be as outmoded as referring to France as a proud member of the Entente. China is no longer on the Red Team.
Jul 6th 2011 3:20 GMT
Dear M.S. (The Economist)
I could not disagree more with your statement about fascist economies being sustainable in the comments section. They were defined by protectionism, dirigisme, national champions, and outdated mercantilist theories. I thought "The Economist" opposed protectionism and pointed out how badly national champions like British Leyland failed.
The sad thing seems to be that if economies aren't run by dictators, populists like Hitler and Mussolini come to power due to elections and then make them dictatorships. This may be overly cynical, but it should serve as a warning to democracies everywhere.
With Regards and No Regrets
Top Hat 001
P.S. Vive_chimie if you read this you should know I responded to your comment in Bagehot's Notebook.
whaleyboy wrote:
Jul 6th 2011 3:23 GMT
China has democracy at many levels of society and the way that firms engage with each other is far from a centrally commanded "Communist" strategy. One party rule - yes. Communist in anything but name - no. I have spent a great deal of time in China and the capitalistic dynamism of the Chinese people never stops amazing me.
On divisive parties, is the TEA party the only example that comes to mind? Have they, say, encouraged their supporters to "get in the face" of the opposition? The TEA party is hardly in a vacuum and their tactics seem, to me, to be a milder form of the nasty behavior of the party in power right now.
Jul 6th 2011 3:35 GMT
M.S., Wasn't it Albert Speer who wrote that the closed government of the nazis really didn't function all that well compared to the democracies, as all the leading men wasted their time 'working toward the fueher' rather than implementing goals?
Jul 6th 2011 3:37 GMT
As irrational as the tea party movement is and as irresponsible some of their positions (see immigrants) and as inflexible as their negotiating tactics; The tea party has one thing very right. Government needs to be cut...Actually cut and not just a decrease in the rate of expansion. Furthermore the tea party is also correct by its hard stand against higher taxes. For our history has demonstrated that every time Congress raises Xdollars of new revenue they spend 1.5X dollars.
The true question for our democracy; "Are there any adults left?"
OneAegis wrote:
Jul 6th 2011 3:39 GMT
A bit unrelated, but listening to the furor over the Casey Anthony trial this morning, I was struck by one thing - Americans no longer have faith in our bedrock institutions. An overwhelming majority of Americans distrust Congress. We don't trust the judiciary. With the past 2 presidents, less than a majority approve/trust of them. We don't trust our large corporations.
And truly, is it wrong at this point to feel that way? Can our nation survive this crisis of confidence at every level?
Ah Beng wrote:
Jul 6th 2011 3:41 GMT
M.S., I have to invoke Dani Rodrik's response to your questioning of the democratic growth model pursued by Western nations*: That a non-democratic, transparent, free trade etc. model produces growth does not preclude a similar Washington consensus model from being the optimal solution. There is no substantive reason that we should believe that our solution to growth is the only solution in the beginning, but there are a host of reasons we should believe that our solution is the optimal one in the end.
That is why Chinese leaders dismissing Western advice are overfull of nationalistic hubris and Western leaders bemoaning our failure have failed to recognize that China is not yet at the stage at which Democracy, transparent institutions, and all of the other elements of the Washington Consensus development model are needed to continue further.
This moaning about how China is proving the Western Model doesn't work as well is comparing apples to oranges. China is still where America was around 1900. Its performance is at least as much a function of its presence at that stage in development as it is of its government. As it developmentally advances, the institutions inherent in Western democracy will become more important.
Washington Consensus-style governments have long been shown to be demonstrably less effective at making quick decisions when things matter, but much more effective at promoting free enterprise.
@Lafeyette: I would take the vigorous prosecution of senior Taiwanese leaders for corruption that's small fry compared to what people in South Korea, Indonesia, Hong Kong, Malaysia and others have gotten away with to be a sign of a healthy democracy, vigorous free media, and a strong judicial system. Just because the Taiwan legislature regularly features fistfights (it would be great if that happened in America, by the way, it'd make C-SPAN so much better) doesn't mean the government as a whole is incompetent.
* From "Has Globalization Gone Too Far?"
Pacer wrote:
Jul 6th 2011 3:47 GMT
Top Hat - "outdated mercantilist theories"
Protectionist regimes throughout Asia are flourishing in large part because of their mercantilist theories. Export labor-added value, import raw materials and new technology, hoard financial reserves, restrict domestic consumption of foreign-made goods. Sound familiar? It should because it's quite contemporary and quite successful for countries with the discipline to practice it.
doug374 wrote:
Jul 6th 2011 3:51 GMT
I think arguing that the failure of politicians who are the product of ridulously gerrymandered districts and exclusively chosen by zealous primary voters is somehow an argument that democracy itself is a failure is taking on a straw man.
Congressional deadlock and incompetence derived from ideology could be quickly fixed, but don't expect the people currently serving in office to vote in favor of it.
Jul 6th 2011 4:00 GMT
I agree with M.S. and JGradus. Democracy is not just a high degree of freedom or the franchise. It has mechanisms that are needed to gather the votes and others for persuasion. I think you can say that the machinery of our Democracies are on the fritz without giving up a preference for democracy itself.
If I am convinced of anything, it is that the machinery of American and European democracy are running wonky and the distributor cap has water in it.
One fairly right-wing thought that's been in my head for the last couple years is the question of how scalable a republic is. Many U.S. states are now larger than the U.S. was 100 years ago. I'd be surprised if Germany isn't as big as Europe was 100 years ago. I'm more than a little intrigued by whether a return to federalism wouldn't help some of this. Everyone who wants things their own way has too many opponents nowadays.
Jul 6th 2011 4:02 GMT
Oh, and ditto Ah Beng and my fellow Doug. Very good post in general, I think.
1-20 of 47
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