Is the next crisis just part II of the last crisis?
The coming depression was avoidable. The instability it will trigger, turning fragile regions from the Middle East to China to the United States’ inner cities into caldrons of violence, was avoidable. The nationalism and fear-driven politics it will produce were avoidable. All it would have taken was honesty, courage and a shred of decency from ...
The coming depression was avoidable. The instability it will trigger, turning fragile regions from the Middle East to China to the United States' inner cities into caldrons of violence, was avoidable. The nationalism and fear-driven politics it will produce were avoidable.
The coming depression was avoidable. The instability it will trigger, turning fragile regions from the Middle East to China to the United States’ inner cities into caldrons of violence, was avoidable. The nationalism and fear-driven politics it will produce were avoidable.
All it would have taken was honesty, courage and a shred of decency from the leaders of the world’s most important economies — the honesty to acknowledge that the numbers didn’t add up and that old approaches weren’t working, the courage to ask as much of their rich benefactors as they do of the weakest in their societies, and the decency to step outside themselves and their narrow self-interests for long enough to do what was right no matter the political cost.
But the politicians were dishonest, timid and self-serving. Even today, with the world teetering on the brink not of a gentle-sounding "double dip" but of something much worse, they are collectively whistling past the graveyard.
Yesterday, U.S. House Budget Committee Chairman Paul Ryan accused the White House of engaging in demagoguery about cuts to Medicare. What dark irony. Because whatever the demagoguery of the White House … and no doubt there is some there, is there any as reckless as that of so-called "deficit hawks" like Ryan who decry the United States’ fiscal mess but who simply refuse to consider the absolutely essential revenue side of the equation? They would sacrifice the entire U.S. economy and in particular the welfare of the neediest in the United States to their own misguided ideological purity.
We have seen misguided ideology driven frenzies in U.S. politics before. But when you think about it none — and I include McCarthyism on the list — were as potentially damaging to so many Americans as this one.
But the problem is not just with Republicans. Democrats are not serious about making the cuts that are necessary. And neither side has been serious about addressing the underlying problems-associated with housing markets and under-regulated, risk-happy financial markets-that led to the last crisis and will ultimately fuel the coming one.
Further, neither side has been serious about recognizing that we don’t just have a deficit crisis, we actually have an even bigger growth crisis. We have a structural problem with the U.S. economy that has stunted job-creation and consumer demand and that requires urgent significant major investments in infrastructure, education, and R&D now. That doesn’t mean we have to spend wildly. We can get to this growth by encouraging foreign investment, by competing for it more effectively, by simplifying our tax codes so they are more competitive even as they become fairer, by eliminating unnecessary regulations even as we better enforce the ones we really need.
This might seem like it is at odds with battling our debt but it is not. Growth is the one thing most essential for getting our fiscal house in order. Frankly, I’m pretty sure growth and associated issues like job creation are far more important to average citizens than deficit reduction. But growth won’t happen because we wish for it or because it has always happened in the past. And not recognizing the newness of our situation or taking measures to respond to it has been one of the errors of the current cadre of leaders in Washington.
Of course, the problem does not just lie in Washington. In all likelihood the coming crisis will be triggered when the dithering around the fiscal imbalances in Europe fails to assuage market fears, the firewall around Spain gives way and the resulting crisis starts taking down German, French … and then British and U.S. banks. It might be a Spanish real estate crisis that triggers the next banking crisis that triggers the next global economic crisis…or it might be a bursting emerging markets real estate bubble … in China or Brazil, for example. But in all these cases, the hand-writing has been on the wall for a long time and politicians have followed the same formulas. They take care of elites in crisis. They speak in platitudes. And they hope the future will hold a solution: "cyclical growth" is what they call this economic Santa Claus upon whose arrival they are basing their plans.
The problem is cycles are changing, models are out of date, the world economy is creating new patterns, dependencies, vulnerabilities. And political leaders are continuing to hope that if they throw another virgin into the volcano the gods will be sated and things will get back to normal.
The problem is not that there aren’t enough virgins. It’s that throwing virgins into the volcano — rhetoric, symbolism, halfway measures-doesn’t work. Fake "fixes" — spending cuts that aren’t real, approaches that address only spending and not revenue, or only deficits and not growth, that postpone Greece’s inevitable restructuring, that postpone addressing Europe’s lack of real fiscal union, that paper over bad debts on banks’ books — these are all throwing virgins into the volcano. Creating a great photo op by "taking a stand" on the debt ceiling is throwing virgins into the volcano. Here in the United States, the likes of Grover Norquist and those who have been bullied into signing his no-tax hike pledge are the chief witch doctors in charge of throwing virgins into the volcano. But they are not alone. From Brussels to Athens to Beijing, we have witch doctors everywhere.
And as a result, innocents everywhere are at risk.
David Rothkopf is a former editor of Foreign Policy and CEO of The FP Group. Twitter: @djrothkopf
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