``Here’s the truth: voters naively think (or hope) that one man has the right answers in the right plan. It's not possible. Presidential policies are way too simple in a world way too complex to be prescriptive with any certainty in their consequences. Stuff happens. I believe the only thing a single man can do before an audience is this: get their attention; move them to action. Influence. Change their psychology. Make them positive, make them hopeful, inspired, make them motivated. Make them act. We don't have to agree with the words of history's greatest orators, but we can't deny they moved people. Mostly for the better (Cicero (before senate in Rome), Jesus (Sermon on the Mount), Patrick Henry (liberty or death), Lincoln (Gettysburg + Inaugural Address), FDR (fear speech) Churchill, Kennedy (Ask not and Moonshot), MLK (I have a dream), Reagan, even—Al Gore created an entire movement, with a slide-deck). Make no mistake: history is littered with corrupted power, jingoistic rhetoric, misguided promises and words wielded with malicious intent from galvanizing speakers (Hitler, Stalin, Castro, Chavez) who took a broken people and raised their spirits and moved them to action--and to atrocities--in the completely wrong direction.”-Josh Wolfe, Words Matter
***
Recession has been the de rigueur word in the web sphere. The more the clarion the call for a global recession, the more public’s attention seems to have been drawn to this. The debate has apparently shifted from one of the probability of occurrence to one of severity and duration of the “established” event.
While it is true that what seem to ail the world today have been imbalances that have been fostered throughout the years, it isn’t clear how these “malinvestments” should result to cataclysm on a global scale.
The worst part is that the penance from the sins of one clique is seen as similar penitential discipline to the others whom have not committed the same iniquities. Thus, because of connectivity or “recoupling” we are told, we ought to prepare for Armageddon.
We learned from the Austrian school that because people are rational and thinking individuals guided by reasons to our every action, the diversity of the individual’s marginal utility or our “values” may generate different responses to even similar circumstances that we are faced with. Seen from the real world perspective, where circumstances are distinct for everybody, the responses from individuals are even more complex and disaggregated than can be comprehended by “articulate self-righteous” aggregate looking Keynesian assimilating experts.
As Jim Fedako of the Mises.org recently wrote, ``the concept of the individual must never be lost amid the ideal of the collective — the belief that the members of the collective (the nation in this instance) are faceless automatons dedicated to serving the whole.”
Such divergences can be seen even from governments themselves.
Many have argued that deteriorating conditions in the external trade and financial linkages would lead to central banks’ conventional response of cutting policy interest rates. During the last crisis, European central bankers followed the steps of the US Federal Reserves; faced with a recession in 2001 the US Fed slashed policy rates to 1% while the European Central Bank cut similar rates to 2%. Recently, as the US Fed cut an aggregate 325 basis points on the advent of the credit crisis, the Europeans refused to follow. And many have been puzzled by the ECB’s persistent recalcitrance.
In June, Wolfgang Munchao (at the Financial Times) sees this in the light of evolving geo-political economic dynamics (highlight mine),
``This suggests that in terms of global monetary policy, we are in the middle of a shift from a unipolar to a bipolar world. In the past, the Fed’s policy alone used to determine the global monetary policy stance – via the dollar, the global anchor currency. Through long periods of loose monetary policies, including lengthy episodes of negative real interest rates, the Fed contributed directly to the rise in global inflation. I am not referring to the recent commodity price increases but to the trend rise in inflation we have been observing for some time.
``European inflation has also risen as part of this global trend. If the ECB follows the course Mr Trichet appears to have set out, there is now a real possibility that the eurozone, and perhaps some other regions in the world as well, could decouple from this US-led trend. This is what I mean by policy decoupling.”
While the ECB might belatedly respond to the lowering of interest rates considering rapidity of declines in economic conditions, this isn’t at all certain. The Bloomberg quotes European Central Bank council member Axel Weber as saying in an interview in that ``there's no scope for interest-rate cuts and the bank may even need to raise borrowing costs again once the economy emerges from its slump.”
All this goes to show that the decoupling recoupling debate is nothing but abstractionism that won’t attain absoluteness simply because nations interact with each other and at same time retain distinctiveness in terms of domestic activities. In the same manner arguments which leads to a global meltdown based on such premises should also be seen with skepticism.
Look at how the world has defied such conviction, e.g. one year into the US-Euro credit crisis impelled global economic slowdown, Germany’s exports continue to account for positive growth whereas the country’s economic slowdown has been due to slowing domestic demand (Wall Street Journal). In other words, Germany’s present weakness has been in the account not because of external linkages but from domestic strains allegedly from “high consumer prices” and not the externally presumed cause-and-effect factors.
Or look at Japan’s recent exports see figure 1.
While it is true that what seem to ail the world today have been imbalances that have been fostered throughout the years, it isn’t clear how these “malinvestments” should result to cataclysm on a global scale.
The worst part is that the penance from the sins of one clique is seen as similar penitential discipline to the others whom have not committed the same iniquities. Thus, because of connectivity or “recoupling” we are told, we ought to prepare for Armageddon.
We learned from the Austrian school that because people are rational and thinking individuals guided by reasons to our every action, the diversity of the individual’s marginal utility or our “values” may generate different responses to even similar circumstances that we are faced with. Seen from the real world perspective, where circumstances are distinct for everybody, the responses from individuals are even more complex and disaggregated than can be comprehended by “articulate self-righteous” aggregate looking Keynesian assimilating experts.
As Jim Fedako of the Mises.org recently wrote, ``the concept of the individual must never be lost amid the ideal of the collective — the belief that the members of the collective (the nation in this instance) are faceless automatons dedicated to serving the whole.”
Such divergences can be seen even from governments themselves.
Many have argued that deteriorating conditions in the external trade and financial linkages would lead to central banks’ conventional response of cutting policy interest rates. During the last crisis, European central bankers followed the steps of the US Federal Reserves; faced with a recession in 2001 the US Fed slashed policy rates to 1% while the European Central Bank cut similar rates to 2%. Recently, as the US Fed cut an aggregate 325 basis points on the advent of the credit crisis, the Europeans refused to follow. And many have been puzzled by the ECB’s persistent recalcitrance.
In June, Wolfgang Munchao (at the Financial Times) sees this in the light of evolving geo-political economic dynamics (highlight mine),
``This suggests that in terms of global monetary policy, we are in the middle of a shift from a unipolar to a bipolar world. In the past, the Fed’s policy alone used to determine the global monetary policy stance – via the dollar, the global anchor currency. Through long periods of loose monetary policies, including lengthy episodes of negative real interest rates, the Fed contributed directly to the rise in global inflation. I am not referring to the recent commodity price increases but to the trend rise in inflation we have been observing for some time.
``European inflation has also risen as part of this global trend. If the ECB follows the course Mr Trichet appears to have set out, there is now a real possibility that the eurozone, and perhaps some other regions in the world as well, could decouple from this US-led trend. This is what I mean by policy decoupling.”
While the ECB might belatedly respond to the lowering of interest rates considering rapidity of declines in economic conditions, this isn’t at all certain. The Bloomberg quotes European Central Bank council member Axel Weber as saying in an interview in that ``there's no scope for interest-rate cuts and the bank may even need to raise borrowing costs again once the economy emerges from its slump.”
All this goes to show that the decoupling recoupling debate is nothing but abstractionism that won’t attain absoluteness simply because nations interact with each other and at same time retain distinctiveness in terms of domestic activities. In the same manner arguments which leads to a global meltdown based on such premises should also be seen with skepticism.
Look at how the world has defied such conviction, e.g. one year into the US-Euro credit crisis impelled global economic slowdown, Germany’s exports continue to account for positive growth whereas the country’s economic slowdown has been due to slowing domestic demand (Wall Street Journal). In other words, Germany’s present weakness has been in the account not because of external linkages but from domestic strains allegedly from “high consumer prices” and not the externally presumed cause-and-effect factors.
Or look at Japan’s recent exports see figure 1.
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Figure 1: Danske Bank: Asia leads Japan’s exportsThe conventional analyses have focused on deteriorating export markets of US and Europe as one of the reasons for marking down Japan. But just recently China has emerged as Japan’s top export destination (IHT). The Dankse chart shows how the growth clip of Asian exports (blue) have remained resilient (or rangebound) in spite of the sharp volatilities in the US (red) and the European market (apple green).
Of course, we don’t deny that present developments may lead to the belated reactions in both Japan and Germany relative to external links as the downshift from global economic growth spreads, but the lesson is clear: If governments-organizations controlled by a few individuals-can’t get their act to be as predictable for the gloom-and-doom advocates, how much more when we deal with markets.
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