Wisdom of The East
Stephen Roach was the Chief Economist for Morgan Stanley for many years. My guess he was such a scold of Wall Street and Greenspan that they packed him off to China to run Morgan Stanley Asia. The problem is, his diagnosis of America’s macro-economic problems was all too correct. This morning The Times lets him give us a little history lesson.
Japan’s experience demonstrates how difficult it may be for traditional policies to ignite recovery after a bubble. In the early 1990s, Japan’s property and stock market bubbles burst. That implosion was worsened by a banking crisis and excess corporate debt. Nearly 20 years later, Japan is still struggling.
As the chart above shows, cutting the Federal Funds rate in a post bubble crisis is like “pushing on a string”. You can cut all you want, but real rates keep rising. Roach’s solution to the problem is pretty much in line with what I’ve been saying for the past few months.
Government aid is being aimed, mistakenly, at maintaining unsustainably high rates of personal consumption. Yet that’s precisely what got the United States into this mess in the first place — pushing down the savings rate, fostering a huge trade deficit and stretching consumers to take on an untenable amount of debt.
A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.
Roach has played Cassandra on the American sense of entitlement for some years now. Wall Street just slapped a “perma-bear” tag on him and tuned him out.
We lucked out when Europe decided to attempt suicide back in the first half of the 20th century — inherited a ton of their most innovative people and a world too devastated to compete with us. Since then we’ve developed an enormously self-regarding tunnel vision.
Who here remembers Henry Clay and the American System? I don’t want to recommend a return to tariffs, but we need to look back to a time when we were scrappy up-and-comers. We have the resources to do more great things, but we’ve got to shake off our bad attitude. This attitude was perfectly expressed by Dick Cheney when he said: “the American way of life is non-negotiable.” I translate this as: we’ll pour countless trillions into postponing the inevitable end of the oil era — including amoral militarism and colonialism that degrades our political ideals — but not a cent for finding a new path.
americans save? that would be unamerican. welcome to Rome.
STS raises an interesting point about the rise of the US over the 20th century.
I often wonder if American ascendancy is something inherent in the way the USA was “designed” or if it is just an accident of history, or somewhere inbetween.
Any ideas?
STS- You have nailed the struggle we face. Sometimes it takes a crisis to force us to “get scrappy” again. Innovation happens at the edge. Sometimes its the edge of the cliff.
“Getting scrappy,” means less government right?
Morgan,
That’s one possible interpretation. Of course the American System had to do with a view of internal development and investment which isn’t particularly libertarian. It was the perhaps the closest equivalent in the early 19th century context to “chamber of commerce” Republicanism at mid 20th century. Those analogies are hard to make, of course. I mentioned it mainly to prompt a few google searches by others. There’s no going back, but we can learn from our own past debates and controversies.
What I meant by “scrappy” was the perspective of a country that can’t take it’s own importance for granted. One that doesn’t look at other nations and automatically assume their inferiority and subordination, one that can’t reflexively regard those nations’ raw materials are somehow “ours” regardless of the way we treat them.
John Quincy Adams spoke for the aspirations of a youthful — and, yes, scrappy — nation when he offered a July 4th address as Secretary of State in 1821:
“Wherever the standard of freedom and Independence has been or shall be unfurled, there will her heart, her benedictions and her prayers be. But she goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own. She will commend the general cause by the countenance of her voice, and the benignant sympathy of her example. She well knows that by once enlisting under other banners than her own, were they even the banners of foreign independence, she would involve herself beyond the power of extrication, in all the wars of interest and intrigue, of individual avarice, envy, and ambition, which assume the colors and usurp the standard of freedom. The fundamental maxims of her policy would insensibly change from liberty to force. . . . She might become the dictatress of the world. She would be no longer the ruler of her own spirit. . . . [America’s] glory is not dominion, but liberty.”
Our role in the world is necessarily made more complex by the fact of enormous military preeminence. But it was not always thus. Nor will our accidental preeminence last forever. On what terms will we rejoin the community of nations? As despised fallen would-be dictator? Or as firm friend of others’ liberty? I would prefer to see us try once again to lead by example rather than by force.
STS-Amen
STS – A very nice sentiment indeed.
Another factor that has contributed to the US’ rise to its present position is that it has essentially inherited the mantle of the British Empire post WWII. This could be considered quite an odd statement, but it amounts to a few very specific things. One thing the British Empire was very good at was divide and conquer. You can thank us for the tortuous geography of the middle east and the resultant ethnic strife in Iraq. More than this though, Britain was very good at creating ruling classes in the countries it controlled, ruling classes who were incorporated into english culture, largely through being educated in the UK (at Oxbridge primarily).
I would wager that this strategy is responsible for a lot of the way international academia is structured, as well as in part the growing dominance of english as its lingua franca.
After WWII, Britain did of course withdraw from most of its Empire, but it managed to retain relatively decent relations with its former colonies precisely because of the culture it had spread across them. This still forms much of the basis of the commonwealth.
However, America has slotted straight into the middle of the network of english cultural institutions that Britain created. This is by no means to say that it is just using structures Britain created. America has expanded them, and developed the use of this tactic of cultural integration. In those countries where there is enough stability for there to be a class from which most leaders are drawn, you will find a significant proportion of education in US institutions. This is not to go into the export of US military culture in training officers from foreign militaries.
I ask people to bare in mind that when I’m talking about any of these structures I’m not ascribing any personal agency to them. There is not always a conspiracy of people who plan this stuff, it can be the result of a confluence of different factors, including personal intentions. The important thing is that these structures FUNCTION, and as such we should aim to understand this functioning independent of intentions.
There are two other interesting structures which intermesh with this first one in fascinating ways:-
1) Global economic institutions.
2) American media institutions (Hollywood et al).
The first of these seems fairly obvious. The US has gotten itself in a position where it doesn’t need to actually colonise many countries in order to keep their economies effectively subordinated to its own. I’m not just accusing the US here, the UK and most other ‘first world’ nations benefit from the wealth differentials established and maintained by the global financial system (cheap imports of easily produced goods, cheap sources of labour, exports of complex goods and services). Free Trade style economic policy is hoisted upon poorer countries through various means. One that has been mentioned is the education of the ruling class in such ideologies in western institutions. There are however also ways of enforcing compliance with ‘best economic policy’ (“really, its the best thing for your own countries growth”), namely the sanctions of the WTO, the forced restructuring of the IMF (which if you are already indebted to it, has you by the balls) and the slightly gentler touch of the World Bank.
Hollywood though? Am I really serious? Totally. American media exports have a much greater benefit to the US than simply the cash they bring in. They have a constant role in establishing the way the world sees and feels about the US, which does have a serious impact upon the decisions people make (and the decisions they directly and indirectly guide their politicians to make). I could go into some of the theory of this in more detail, but I ramble on enough as it is.
But doesn’t a lot of the world hate the US? Well, yes and no. Large proportions of the globe have love/hate relationships with the US. Without America’s cultural output it’d just be a hate relationship. People empathise with Americans in ways they don’t empathise with Iranians, because they’ve never seen the Iranian action hero save the world, or see the plucky Iranian underdog come back and win the game. When we saw New York being attacked, it wasn’t like watching somewhere like Mumbai, Jocarta, or even Moscow or Berlin. It was watching the stage of our dreams being sullied. (Please feel free to criticise this approach, I’m not sure its perfect, but I’ve been throwing the idea around for a while)
The political questions for the US are firstly how one gains the power to change these structures, and then how one changes them so as to take a healthier role on the world stage.
STS – Well said. Beautiful and sage words. Worth recycling.
- Zhirem
Good God. John Quincy Adams. Ya know, one of the GREAT annoyances in the life of a libertarian, is when anyone pretends for even a moment, that on your quoting a civil servant of yester-year, the man didn’t roll over in his grave.
If you took JQA, who yes I grant loved tariffs, and showed him 40% of a man’s income being taken from him by the government, he’d ask first:
1) Why have the people not come and killed their governors? Have they been made simpletons?
2) And when he found out it was the FEDERAL government taking that money, he’d shoot you for treason, and he’d riot for Massachusetts to secede.
3) And when he finally calmed down, he say, “well I guess I can see that kind of action, IF THERE IS A WAR.. is there a war?”
And thats when you would say, “yes,” America was attacked by a religious group, and was struggling in a very dangerous world to weaken the the extremes of the religious group without killing off an entire religion. He’d find that at least interesting.
The golden oldies are only great if you imagine who they really were and are still today. Mostly they were thugs and hypocrites and barbarians, and the only reason they passed onto us something great, is because there was so LITTLE central force of the mob, but many small fiefdoms where each local mob and their chieftains were concerned mainly about not being forced to be something else.
The reason toppling Saddam was so easy, is that no one would fight FOR the man. That’s why we arr having a relatively easy go of it over there compared to say Vietnam.
Morgan- But perhaps Eisenhower’s warning abouth the growth of the Military Industrial Complex might also have something to do with you you (fortunate one that you are) are being taxed at 40%.
Morgan,
Historical analogies are treacherous, of course. Nobody in the early 19th century could have imagined our present circumstances — but JQA *did* seem to anticipate the danger world power would pose to our liberty. And he expressed himself well on that occasion. I’m not suggesting he would be on my side in any argument we might be having — only that I found his remarks insightful.
While I place Liberty at the center of my political philosophy, I don’t consider myself really a “libertarian” because that doctrine attempts to offer an oversimplification of real life. Liberty requires order as well as freedom. That government governs best that governs least, but if you imagine a kind of “Phillips curve” of the trade-off between quality and size, it doesn’t reach zero anywhere. A minimal government is one which imposes symmetrical, balanced, lucid and transparent rules and enforces them in proportionate, intelligible ways. That is very, very hard to achieve. But imagining an “evaporation” of government is not much different from Marxist/Leninist fantasies of a “withering away” of the state. Ain’t gonna happen.
Our constitution is remarkable in part because it is simple, concise and addresses process rather than outcomes. That’s a good model for statutes as well.
Guy #1: Hey there, we’d like you to join our club.”
Guy #2: “Get off my land.”
1: “No seriously, it is a great club.”
2: “make it quick.”
1: “Ok, first, there are no dues.”
2: “no dues?”
1: “None whatsoever.”
1: “On top of that, you can say anything you want about anybody in the club, you can investigate them, print stuff you think about them, say whatever the hell you want.”
2: “this isn’t like any club, I’ve heard of before”
1: “and be warned, some of us have some pretty crazy religious beliefs, dancing with snakes, drinking blood, so – feel free to get your freak on.
1: “you can get together with any kind of like minded folks you want, and live in peace. this here club is kinda a non-aggression treaty.”
2: “IT BETTER BE non-aggressive, cause I’ll be keeping all my guns!”
1: “You better keep ‘em, cause we’re keeping all of ours.”
Guy #2: “so lets say I were to join this club, what were you gonna call it?”
Guy #1: “we were gonna call it America”
Guy #2: “fuck you I’m from Maryland”
Guy #1: “ok, then grace-be-allah, we’ll call it “the United States of America.”
—-
That’s where our greatness comes from. ONLY THERE. All other supposed “greatness” is self-serving lies told by the teller for reasons meant to weaken the guys and gals you are talking too.
People firstly just want to be left to do what they want, when they want, they are comfy going it their own way, if for one minute they have to suffer a perceived injustice. That’s the natural state of man.
Society forms freely based only on the above conversation being had routinely and constantly. You ever want to fix anything, just get back to those roots. We are meant to be a nation of negative rights, not positive ones.
That’s what being scrappy means.
Morgan,
You sound like you are channeling Washington’s irascible neighbor George Mason. Occasionally a bit of a crank, but well worth hearing from.
Your ideal of voluntary (and conditional!) association is sound. I worry that our multinational corporations are going global faster than our political ideals. I’d like rural Chinese to have both the opportunity to work in coastal factories if they wish AND the ability to participate in shaping their government. Our corporatists (both liberal and conservative, neither genuinely fascist) are proselytizing their free-market talk while making deals with illiberal governments.
I don’t oppose globalization (as if that were even possible) but we can’t address global ecological risks or effectively counteract terrorism or isolate tyrannical governments unless we give as much attention to the globalization of law as we do to the globalization of capital.
Peter Wolf,
The analogy with the post-imperial experience of Britain is very relevant. Thanks for bringing it up. The Bretton Woods conference was a wrenching experience for some of the British participants (certainly it was for Keynes) as they effectively turned over the keys of empire to the US. Americans will eventually face this kind of reckoning with history. I hope we can make as graceful a transition.