Friday, May 14, 2004

Moguls and Cliffs

Time, as the saying goes, was invented to keep everything from happening at once. If so, it has recently been falling down on the job. There are rather too many subplots in this particular movie, which can’t decide whether it is an anthology of short subjects or a sweeping political epic. In the area of economics alone, a great many themes are in play at once, cycles on top of cycles on top of cycles superimposed on trends that slope one way in the medium term and another in the long term. To some extent, surely, this complexity is nothing new. In an important way, however, I think it is. Both critics and boosters of the status quo are talking through their hats. Almost anything could happen in the next couple of years. For example:

On general principles, it’s a good bet that the United States cannot go on running huge trade and budget deficits indefinitely; but it’s also true that the world has already subsidized us for a very long time now—at least since Nixon’s time—and maybe that charity will continue for quite a while longer out of political calculation or sheer inertia. There are reasons, after all, why we’ve been able to live beyond our means for an extended period. To some extent the foreign investment was protection money, an imperial bonus. To some extent it was a premium that reflected the political stability of the United States in a dangerous world. Our artificially high level of consumption has also provided a Keynsian stimulus to a world that suffers from a more or less permanent deficit of effective demand because of great and growing inequality. The same low wages that make Chinese or Indian goods cheap, guarantee that they will have to be sold internationally. Hence America has filled a so-far indispensable role in leading the planet out of a series of recessions. All of these circumstances could change rapidly, however. The Euro could easily replace the dollar. The growth of an internal market in China and other nations could lessen the world’s dependence on the American dumping ground. Inflation in the price of industrial inputs such as oil and metals is already putting pressure on the artificially low prices for commodities that keep our domestic proles in line. A major geopolitical shock could also result in serious inflation: if the paper billionaires suddenly had to spend their money on consumption or real investment or if wealth were somehow to be distributed more evenly, it would become instantly obvious that growth in goods and real services over the last ten years has lagged far behind the production of zeroes on bank statements.

If you are very careful, you can chill water well below the freezing point and it will not turn to ice. Allow a speck of dust to fall in, however, and the whole mass congeals in a moment. I don’t know whether that sort of catastrophic change of state is likely to happen to the economy, obviously; I just don’t think it can be ruled out on the basis of the experience of the last few decades, especially granted the series of unprecedented structural changes that make up the phenomenon somewhat misleadingly called globalism.

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