Is High Noon Looming?
Are the protests spreading across the developed world just the tip of the iceberg?
October 20, 2011
Policymakers of all stripes are trying their very best to avoid the mistakes made in the Great Depression and thereafter. And so they should — after all, the miserable state of the economy in the early 1930s was one of the incubators of fascism and the Third Reich.
However, other than continuing to print money, not much is left in policymakers’ toolboxes — and what they have tried in the past, namely “Quantitative Easing” I and II, has had a disappointing effect, at best.
True, QEII did spur the 2010 rally in U.S. and global equity markets, and those of us holding Apple stock (just to name one high-performing investment) were smiling for a while. However, job creation has remained sluggish, and the U.S. housing market continued its slump. Wall Street one, Main Street zero.
Reducing government debt that has spun out of control over the past couple of decades is as laudable as it is necessary. However, most developed nations have become so dependent on the public sector as part of their economy that winding down government spending threatens the already fragile recovery in their economies even further.
As governments become more austere and reduce their footprints in the economy, unemployment will rise even further, simply because the private sector has learned to do more with less human resources. This is good for corporate balance sheets, but bad for the working class that needs jobs to put food on the table. And that is especially bad for the United States, which depends more than any other developed economy on consumer spending.
This is the breeding ground for a political drama that will unfold over the coming years. Nobody should underestimate the potential for the economic disaster of the past couple years turning into a significant political crisis. The risk is especially high in Europe, where the frustration and disgust with the “classe politique” seems to be particularly elevated.
Labor strikes, demonstrations and riots will become a much more common occurrence across Europe and even in the usually placid United States, as the disenfranchised and the frustrated take to the streets to voice their disapproval with the political process.
We will also watch how more and more cities will follow the example of Philadelphia and Kansas City in issuing curfews to make sure riotous youth are staying indoors rather than destroying storefronts and police cars. Violence will increase in the land of the free, where the sale of new handguns has gone through the roof in recent months.
However, none of the riots and curfews in the United States will be as pronounced and politically dangerous as the ones we see unfolding across Europe, where the shifts could be much more seismic still. While the United States has plenty of frustrated and disenfranchised citizens, the vast majority of the population continues to believe in the American Dream and the concept of the United States as one nation with a common purpose — even as that very proposition becomes more hollow by the day.
EU member states will see voters carry their frustrations and anger to the ballot box over the next couple of electoral cycles, both on a national level and in terms of who is sent to represent them in the European Parliament in Strasburg.
That is why it is not far-fetched to predict that the far left and extreme right in Europe will make substantial gains at the expense of the traditional centrist parties that have formed governments across Europe over the past 50 years. Add in an increase in nationalist sentiment at the expense of European coherence, and it is possible that Europe will become impossible to govern in as little as three to four elections.
This does not only spell trouble for the future of the euro as a common currency, but for the European Union altogether. Persistent economic troubles have been enablers for political extremism before. Even though these events occurred three or four generations ago, the memory of Europe during the Third Reich lives on, which is why more and more pundits are warning policymakers not to repeat the mistakes made in 1937 that threw economies into hyper-inflation and populations into endemic poverty.
The subprime experiment should have been contained as an American problem. Instead, the globalization of the financial system allowed it to metastasize across the planet. Globalization makes for a good scapegoat. It is already widely vilified as the cause of the global financial meltdown we find ourselves stuck in. And it may soon be blamed for rekindling nationalism across Europe.
Labor strikes, demonstrations and riots will become a much more common occurrence across Europe and even in the usually placid United States.
EU member states will see voters carry their frustrations and anger to the ballot box over the next couple of electoral cycles.
Globalization is already widely vilified as the cause of the global financial meltdown. And it may soon be blamed for rekindling nationalism across Europe.