Tag Archives: austerity

How’s the Other Guy Doing?

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In weak economic times, we often look at our neighbors to see how they are doing. It is natural. We all know somebody that has lost a job or is struggling to pay bills. My family has been in that boat for a while, timing bills, some of which we weren’t sure would get paid.

We have two examples of similar conditions in the international community that can shed light on why looking at one’s neighbors isn’t enough.

English: Metropolitan Government Building in S...

Metropolitan Government Building in Shinjuku, Tôkyô, Japan (Photo credit: Wikipedia)

Back in the early 1980s, the world watched a titan collapse. Japan’s economy went bust and they made the choice to shrink their economy and cut spending. What resulted was the infamous “Lost Decade”. The ramifications of their decision were born out in a smaller, weaker Japan. Though they eventually regained relative economic health, they never regained their eastern dominance.

In the early 1990s, a similar economic panic fell upon the unifying German people. The wealthy West was uniting with a poor East. They similarly chose to cut spending and shrink the economy. The ensuing decade was not lost, however. Their hard work and sacrifice led to the slow-build of the most powerful economy in Europe.

So why did austerity work in Germany and not Japan? There are two obvious reasons.

One, Germany was in the midst of reunification. They had goals and tangible projects. The government was still involved in the creation of new infrastructure. The entire social safety net wasn’t scrapped, but in fact, was strengthened through a new, united voice. This is far from the case in Japan, in which they lacked either the common goal or the pressing need to continue improving the infrastructure and the government.

The second, and perhaps more important reason, is that the global economy was lousy in the 1980s and strong in the 1990s. Germany benefited from incredibly good rates on loans and could export vast quantities to booming Europe. The foundation of their economy could be easily raised up by the free-flowing cash from France, Spain, Italy, and Britain. On the other hand, Japan toiled away with high interest rates on its loans and a weak U.S. and Europe who were not willing to prop up a failing Japan.

Which sounds more like today?

The wider lesson for us is not only to look at where our friends and neighbors are at, but how everybody else is doing before we decide the best approach. It is clear that cutting back in lean times can work when the rest of the world is doing great. If not, it must be time to spend.

In your world, whether it be business, nonprofits, advertising, or the church, ask your neighbors how they are doing. But base your plans on how the other guy is doing. The one on the other side of town, the country, or the world. Because her success will determine yours.

Who do you need to check up on? Who is your “other guy”?

There is More Than Supply and Demand

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Robert Reich

Robert Reich (Photo credit: victoriabernal)

One of my pet peeves is false dichotamies. You know, when we make complex problems into simple either/or solutions. Like politics. That’s why Robert Reich’s recent column struck me this morning as I read it. He was talking about what the U.S. could learn from the European economic crisis, which is a telling case of what not to do. But he wrote these significant words:

In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other.

It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.

What supply-siders like to suggest is it really is entirely about the dichotomy. That the economics boils down to the simple equation of supply vs. demand. The same goes for an economic crisis: you either cut or increase spending, as if these are the only metrics. In this case, cutting almost always sounds better than increasing, so their side sounds good. But as Reich points out, one unaccounted for variable is timing. As in when things happen.

If we pretend timing has nothing to do with it or perhaps the actual pain caused by austerity measures on actual people has nothing to do with it, we can make seemingly easy decisions. Many times in my own life have I or my wife had to look at the timing of our bills and the timing of our paydays, so don’t dare tell me timing doesn’t matter.

Or if any student of economics argued in class that cutting is cutting without regard to the economic conditions, s/he would be laughed out of the program. So why should we make our arguments so devoid of context?

Question:
What other areas might we benefit from breaking open a dichotomous stalemate?

 

What if China fails?

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Image representing Barnes & Noble as depicted ...

Image via CrunchBase

I was sitting in Barnes & Noble a few weeks ago and some book title I can no longer remember caught my eye.  It made me think of this question: what if China fails?  It got me thinking.  What if the Chinese economy collapsed today?  What would it mean for all of us here?

This is particularly important in light of the excuses given for the trumped up debt debate (a blatant excuse to impose an austerity economy) when it began in April.  These massive loans are being taken out from the Chinese!  Won’t the Chinese inevitably overtake us the global superpower?  Fear our Chinese overlords!

So I got to thinking about that and the irony of the Chinese superpower equation demands that the Chinese economy grows while ours continues to falter.  It requires an Us vs. Them arrangement of direct, though unrelated, competitiveness.  Isolation, not integration.

The classic dualistic paradigm says we have a choice between isolation and integration.  We can either worry only about ourselves or we can interact in multiple ways with our global partners.  But we have to choose.

Now, we know this is ridiculous, or at least most of us do.  From the flippant likes of Thomas Friedman to super serious Paul Krugman, there is a clear association with mutual dependency.  We are not merely business partners with most of the world, we are essentially married to every other country.  This isn’t simply the effect of globalization (though that sped up the process).  It is because we are so dependent on one another for survival.  We don’t simply rely on the Chinese to loan us money and buy our currency, but our very survival is dependent on China’s survival.  From food and textiles to currency and military support.

If anything, the conflict in the EU should show this to us.  The difficulty for Ireland and Greece to bring their economies “in check” is not based on their overspending, but how much was leveraged in the toxic asset mess of 2007-8.  Their economies crashed, just as ours did, because of banks and the reliance we all have on the banking industry.  They were dependent on the likes of Bank of America and Merrill Lynch being trustworthy and S & P granting them status as trustworthy.  The pulling of Italy and France into this is not related to their individual health, but in mutual relationship, even though France doesn’t actually have a problem!  Now Germany, the healthiest of the bunch, is having to deal with being the healthiest of the bunch!

This might lead some to retreat into isolationism as the patriotic option, to save ourselves and not worry if the world burns.  This, of course, is counter-Biblical and goes against Jesus’s dual commandment.  And it is just plain stupid.  I once again direct you to the prisoner’s dilemma which demonstrates time and again that the greatest example of personal benefit comes from 1) helping your neighbor and 2) relying on them to do the same to you.  Humanity is so often trapped in the foolish attempt to maximize individual gain at others’ expense, rather than deal with the truth of our mutual vulnerability and need.

We are connected to China, Greece, and England.  We are dependent on them for our very survival.  That doesn’t make us weak, but all of us strong.  For after all, if dependence were such an inappropriate choice, then why did Jesus come as a baby?

[NOTE: if you're interested in my thoughts on austerity, check out the post over here.  I also updated this post to include a picture.  And yes, my wife does work for Barnes & Noble and so did I.]
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Not Mindless

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DAVOS/SWITZERLAND, 29JAN10 - David Cameron, Le...

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Prime Minister David Cameron was on vacation while parts of London burned.  After a few days, he decided to make an appearance.

England’s leaders and members of the media have called the uprising in several poor communities in London “mindless”.  Condemning atrocious acts as “mindless” is a way of totally discrediting the other party’s humanity.  It makes the person that much easier to dismiss.  To say “This act was mindless” is to say there was no cause worth caring about.  The very laws of science tell us that for an effect, there must be a cause.  So this approach is to so belittle that cause as to deem it irrelevant.  But look what that does!  Like Krusty the Clown likes to say “Don’t blame me, I didn’t do it!”

The people who argue this are usually the ones at fault.

I pointed out the insanity of ignoring the cause while only punishing the effect earlier.  Since then, I’ve read a very good article by a Londoner that you really ought to read.  But the surprising thing in all of this was the stunning silence on the cause from leadership.  Among those that did speak, they wanted to sweep it under the rug and reassure the people that they would bring safety.  Hence, quotes about petty criminals, thuggery, and “mindless” misbehavior.  Absolute safety is an impossible promise made to whitewash events; an attempt to scrub away mutual culpability for what we have at the moment: a leadership that is so clearly out of touch from its people, a media class that refuses any responsibility for influencing events, an economic class that shows little respect for long-term health of the multitudes, and an ever-expanding poverty class that has shrinking influence in the “legal” channels.  The better question is how did this not happen sooner?

Even though these events started nearly a week ago, the queen has made no public statement.  Neither has the Roman Catholic Archbishop of Westminster.  Only today has the Archbishop of Canterbury made a public statement.  Otherwise, crickets.  Mark Harris wrote about this on Tuesday.

The poor and disenfranchised pay the price for the excess of the wealthy.  Economics isn’t a sliding scale with only a finite amount of money, but the monied elites have made gains directly off of the backs of the poor for years now, and the widening gap has reached a pressure point.  Without proof that this arrangement is being fixed, there is no hope for lasting civility in London.

So what are we going to learn from this?

If we’re smart, we’ll bone up on our game theory and brush up on the prisoner’s dilemma.  We’ll listen to everyone and come up with a solution that benefits all, not only the most, and certainly not just the few.  All.  We’ll have a frank, public discussion about how we move forward from here.  We’ll treat everybody with respect.

But we’re not smart.  And I hold out little hope that any of this will happen.  Because up to now, the response has been, well…mindless.

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