Why Europe Fades

Countries that can't fight can't survive (forever). Whatever high rhetoric we may ascribe to calling for world peace, the end of wars, and one global nation, da facts, ladies and gents, haven't changed: as long as people are people they will be fighting. Because of this, individuals and states must have defenses in place to protect themselves. For women, this consists of mace. For states, it consists of armies. And states must not only have armies but must be willing to use them when the need arises. Loss of life is terrible but it is a fact of war. Enter France. France today halted all military action in Afghanistan (where they had been maintaining a presence because of the war) because four of their personnel had been killed. Yes, it is terrible that they got killed. But that is what happens when you fight. France is acting like a petulant little child, pouting because someone would dare to (!) actually kill one of their soldiers in a war-zone. Hence, Europe's slow decline. Or at least France's.  

FISH

There are fish to the right of this post. Can you imagine that we live in a world where someone probably got payed for creating something so completely useless as this little application? We truly live in a service economy.

Service Economy Much?

"In an extreme version, it is asserted that this unfair competition will virtually eliminate US manufacturing, leaving only jobs that consist primarily of flipping hamburgers at fast food restaurants." This quote is from an article written in 1988 entitled "Protectionist Trade Policies: a Survey of Theory, Evidence, and Rationale." The authors assert that as more companies go overseas to find their labor forces, industry at home will suffer. People will lose their jobs at factories and be forced into taking the only jobs left. What is interesting is not this rather mundane statement by itself but what the authors assume about the jobs that will be left when the factories pull out. They assume it will be only jobs like flipping burgers and other types of menial labor that cannot be outsourced that will be left when industry is gone. What about the service economy? This article was written in 1988. That was before computers and all that came with them ruled our lives. Many of the jobs now available in the service economy were probably not even imagined back then. What does this mean about the ability of economists to predict what will happen in the future? These guys are probably like top dog in their fields and they didn't even see the predominance of the service economy --- the economy that really now dominates in the US (and will continue to grow in the coming years).  Just a reminder that predictions are only ever that --- predictions. 

CHINA

Let's be honest: the US Stimulus plan did nothing. It might have even worsened the economic downturn that first hit our nation in 2008. Small government is starting to look more inviting. Yet there are still dissenters, claiming that "the spending was a good idea, it was just allocated wrong." Or "it wasn't enough, a much larger amount was needed to make any real progress." Then there are the China-groupies. China has by all accounts done much better than the US during the current global economic crisis. After suffering a relatively bad fourth quarter in 2008, China rebounded and recorded 9.2% growth in 2009. This growth has continued until relatively recently. It was the result of a 586 billion (4 trillion yuan) stimulus package passed by Chinese government in late 2008 - early 2009. But this stimulus was not without its adherent risks. It created inflation, a housing bubble, and bad debts. The effects of these problems are only now being felt. In the last quarter of 2011 China's GDP growth slowed to 8.9%. JP Morgan predicts it will fall to 7.2% in the first quarter of 2012. Barry Eichengreen of the University of California at Berkeley, Donghyun Park of the Asian Development Bank and Kwanho Shin of Korea University have predicted that China's growth will slow by at two percentage points a year starting in 2015. This is largely due to inflation, the soon-to-burst housing bubble, and China's increasing debt. Still, compared to other recession-hit nations China is doing very well. Some of these numbers would be the envy of debt-laden countries such as Greece and Italy. Does this mean the Chinese stimulus was a success? I don't think so. It may have staved off immediate calamity in 2008 but it has created problems of its own (enumerated above). These problems are not likely to go away soon and will probably continue to haunt China for years to come. Only time will tell, but the fate of the "Asian Tiger" will provide serious fodder for the debate of big verse small government, of Thatcherism vs. Obamanomics.
Sources: http://online.wsj.com/article/SB10001424052970204555904577165593145006650.html
http://blogs.wsj.com/chinarealtime/2012/01/17/developer-battle-in-shanghai-foreshadowing-fights-to-come/

2012 Global Economic Forecast

Overcast, with a chance of rain. Europe is projected to go into recession. Japan will grow at a measly 1% rate. The US will be lucky if it reaches 3% growth rate. And China? The "behemoth"? Will it pull through and save the world from a completely depressing year? Not likely. China appears to be slowing. Ah well, no silver lining.

Big-Government Fail

This past Thursday the Heritage Foundation and The Wall Street Journal published the 2012 Index of Economic Freedom. It contained grim findings:

"Rapid expansion of government, more than any market factor, appears to be responsible for flagging economic dynamism. Government spending has not only failed to arrest the economic crisis, but also—in many countries—seems to be prolonging it. The big-government approach has led to bloated public debt, turning an economic slowdown into a fiscal crisis with economic stagnation fueling long-term unemployment."

Admittedly, the Heritage Foundation and the WSJ are traditionally very conservative but I believe their findings cannot be attributed alone to their natural want to "stick to their old ideas." There is research and truth behind what they say. The expansion of government that they mention was largely part of a reaction to the global financial crisis. Governments, especially the United States, tried to fix the problem of a financial downturn by pouring billions of tax dollars into the economy. The results were minimal.

 Liberals, at their most outspoken, accuse the GOP of "not caring enough about poor people." If the above findings are correct, than the Obama and Liberal plan of spending-to-fix-the-economy has led to not more wealth for a greater number of people but more unemployment and and more poverty overall. 

One has to be smart when attempting to fulfill such overarching goals as "caring about poor people" and "eradicating poverty." Handing out welfare, in the form of stimulus packages and general big-government spending, as it seems many of the Western countries in recent years have done on a large scale, appears not to be the answer. If it were, the economy would be fixed by now. Let's hope the Index will serve as a warning and encourage our leaders to reverse their policy (or get out). Here's to Mitt Romeny 2012.... 

Who Saw the Crisis Coming? Not Stiglitz

As I read through our Stiglitz book I am hit by just how little premonition he, and it would appear the rest of the financial system, had of the impending financial crisis.  His book, Making Globalization Work, was published in 2006 --- just one year before the beginning of the crisis. Of course Stiglitz points out many problems with the world financial system and the economy, from too much liberalization to the use of old-boy politics to the overhang of debt on third-world countries but there is no real warning of a crisis. Yet Stiglitz appears to have great confidence in his ability to diagnose the problems of the world and how to fix them. It would be interesting to interview him now and ask him why, if he is so knowledgeable, could he not have foretold what was to come?

Globalization, Necessarily Linked to Financial Globalization?

"Academic research suggests the benefits of globalized finance to the real economy have been minimal and so the cost of deglobalization is likely to be minimal too, says Richard Portes, professor of economics at the London Business School. " ~ Wall Street Journal quote from article by Simon Nixon. Uh, really? This seems highly unlikely. Surely the shrinking of global finance must either signal a great reduction in general globalization or be the result of it. Only the events of coming months will tell...