Tuesday, January 5, 2010

a not-very-tasty morsel

Some New Year's wonk:

Michael Lind over at salon.com has a vital piece about the nature of the economic slowdown, and it is not good news. It's disheartening to those who wanted to believe we were turning the corner, and especially to those who are looking to redefine the Democratic Party as a new, business-savvy outfit (we already knew that was a sham, but somehow Larry Summers still has a job in Washington).

It's worth reading in its entirety. His core argument, though, is that the very assumptions underlying Bill Clinton's claims of a "New Economy" (with elements of an IT-led economic revolution, endless foreign investment predicated on American technological dominance, and an endless supply of jobs provided we could train people fast enough) were all a sham, and the riches of the late nineties were just another speculative bubble.

Lind's biggest point is that to find solutions now, we need to face cold hard reality: that wages and productivity have been, at best, stagnant over the last ten years, and a "recovery" would merely place us at the tip of a slower decline.

And here's some even worse news. Lind outlines:

What about the claim of neoliberals in the 1990s that foreign money was pouring into the U.S. based on rational expectations of a permanent, technology-driven American boom? That pet theory of the New Democrats has been discredited by events (pdf) as well.

Investments in emerging markets have done better than investments in the U.S. in the 2000s. China and Japan have continued to buy U.S. debt, not because they are impressed with Silicon Valley's growth potential, but in order to cripple American manufacturing by keeping the dollar artificially high and the yuan and the yen artificially low. Their debt purchases are part of their strategic industrial policies on behalf of their own export-oriented manufacturers, not a vote of confidence in future American economic dynamism.

This is all the more sobering for the rich world when you witness The Economist's head-scratching this week as it ponders the resiliency of Emerging Markets:

The political and social consequences of the worst economic crisis since the Great Depression have been milder than predicted. In developing countries, at least, governments have not fallen in a heap, as they did after the Asian crisis of 1997-98.


During 2009 the largest developing-country stockmarkets recouped all the losses they had suffered during 2008. October 2009 saw the largest monthly inflow into emerging-market bond funds since people started tracking the numbers in 1995. Russia’s central bank estimated that the country would attract $20 billion of capital inflows during the fourth quarter, compared with capital outflows of $60 billion in the first nine months. The IIF now reckons that net private capital flows to developing countries will more than double in 2010 to $672 billion (still a long way below their peak). So much new money is flooding into emerging markets that calls for capital controls are echoing around the developing world.

As they seek stable returns, investors are now fleeing established markets en masse and pouring their resources instead into emerging markets.

Now, this might very well be the makings of another bubble -- this time based on natural resources instead of silicon chips -- but either way it proves two things: America does not embody any great paradigm shift (as Bill Clinton's minions assured us), and in the grand scheme of things, as people once again move in packs to get rich quick instead of well, not much has changed.

Happy New Year.

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