Logic of Tough Love

St. Valentine Day in Beirut
by  Marek Cejka

It has been a while since I last blogged.  Events unfold at slow pace, and some of the events belong to trends I had hinted at here.

Now, it seems that the continental drift is apace, at least in geo-political terms.  Greece is just the tip of the iceberg, and I suspect nothing less than the western growth model is at stake--by credit vs. organic.  Some, especially in the English speaking world, may want to argue that we are going through another capitalist cycle, whereby the excess of the last two decades is being cut to size.  I think the continentals would 'like' it the German way, or do they?  We'll find out in March when the hands in favor of the Stability Pact are counted out.  I can only say that the Europeans cannot get away from sixtysome years of dollarization on the cheap, yet this poker-like game goes on.  Look out for elections in France and the radicalization of the European street.

The complicating factor has been for some years the Asian re-centering of the world, which also pulls the US and Europe apart, and this is most unfortunate.  I, for one, would rather compete with the Europeans, otherwise the whole baseline for competition goes back a long way, wiping clean many a gain made by the western middle-classes.

On the other hand, I invite you to consider the following.  How is it possible that the Greek olives rot on trees, yet a kilo of olives, or a litter of olive oil, has not come down in price despite the Greek economic tragedy?  Is this a failure of human imagination, or of the ways of commerce at the hands of the multinationals whose logic defies common sense?

I think our unit of capitalism--be it production, trade or finance--has been allowed to grow so big, in order to better compete globally*, that human ingenuity is mostly misdirected in societies  with little understanding of cause-effect relationships.  In a way, this is a measure of the colossally material success our society has achieved, and some great minds in times past saw it all coming.

Some claim this is the result of increased complexity and advocate for a return to simpler forms, or a reduced role for the state.  I wish I knew how we could manage such undoing, other than being resigned to accept a lower station in life--except that such process would require fairness and that's nowhere in sight, neither within , nor among countries.  

Others do want to restore the status-qvo ante by all means left at their disposal, read war, for we still live in a post-ideological time.  As I wrote elsewhere, for US, the worse it gets the better it is, provided that it's all denominated in dollars.  I take this to be  a generational failure, for war is still one of the biggest known unknowns, and the top incumbent stands to lose the most.    

(*) Surely, the reader recalls this being the default justification for allowing anti-competitive mergers to take place.


WAR! by Luis Aguilera


fCh said...

The idea of fairness, or lack thereof, can be seen in terms of:

the distribution of the tax burden,
deflationary pressure at the bottom,
inflation at the top,
undervalued Euro for the northern countries, and overvalued for the southern countries, of Europe...

Crescentsi said...

Nice to see you posting again!

Well, I'm not an economist and my ideas regarding the Global recession tend to revolve around artistic/literary and philosophical theories/ideas and I use (rather contentiously (lol)) insight! Of course this brings into play Globalisation and Postmodern theory, that seem to kick the ass of the Western status quo/malaise and (perhaps) hint at possible solutions.

I think you've touched on many pertinent things here, however fear, greed and Governmental mismanagement are the main factors for me.

fCh said...

Thank you for your comment, indeed.

I cannot say in words how much I would like you to expand on this:
"Of course this brings into play Globalisation and Postmodern theory, that seem to kick the ass of the Western status quo/malaise and (perhaps) hint at possible solutions." Here or on your blog.

Fear and greed have always been the ingredients of raw capitalism, if not of just about everything we do. Government mismanagement is a different matter--do you see the solution along the lines of smaller government? I am also aware of the fact that small government means different things to different people as the Democratic Party in the US is to the right of many liberal parties on the Continent...

Matthew S. said...

So I understand how the right has this divine reverence for the marketplace, and how it and the corporations that reside within it, must be left to their own devices. But that's ridiculous. Taking rules and regulation out of the marketplace is like taking rules and regulation out of a football game. It only leads to chaos.

And there is the argument on the right the periodic crashes are a good thing, that they weed out the problems, that it is natural selection, but what is so great about a system doesn't work all the time?

What I'm saying is that humans have this great ability to make self-correcting systems. We have thermostats that regulate the temperature of your house. We have refineries that use complex chemical engineering to create fuels. And if any of these systems failed or blew up, we would trash them. So shouldn't an economic system follow the same principles?

We need sound principles in place to prevent economic catastrophe. Because would you let a refinery run itself with no oversight?

How aren't banks that are "too big to fail" any different than dinosaurs? And following this point, if we use the dinosaur idea, what happens when a major catastrophe comes along?

The dinosaurs were large and specialized to the lifestyle of which they best could profit from. So when that disaster hit, they died. However, what survived the catastrophe that took out the dinosaurs? Mammals survived. Why did mammals survive? They were smaller and more responsive to change. They also had the ability to breed quicker. Therefore, small mammals survived because, being smaller, they didn't need to eat as much, they reproduced faster and more plentifully. So if some died off, there were others to replace them. So following this logic, small competitive banks would be more responsive to change than large investment banks. And if some of these smaller banks go under, there are others to replace them, so the hit on the economy is lessened.

Working off of that same vein, a system with smaller businesses, would work across the board for increased survivability during times of economic downturn.

For example, this model is used in Germany where these businesses are known by the name "Mittelstand." These small to medium sized enterprises do a great job weathering economic instabilities because they are more responsive to change. They are smaller, so they have less sprawling supply lines and infrastructures in place. Larger supply lines and infrastructures lead to trouble when trying to change production lines or re-educate the workforce. Consider trying to turn in Galleon around as opposed a small Clipper ship. And also if one of these enterprises goes out of business, there are always others to pick up the hole left in the economy by the business's exit.

Smaller businesses have another advantage. They actually encourage competition amongst one another: leading to lower prices, better quality and more jobs. Smaller businesses also have less of a damaging effect on government, as smaller businesses have less lobbying power.

And though it is only my opinion, I see lobbying power by businesses as a problem, because the voices of the business interests outweigh the voices of the public. However, I think that it is not a problem if the administrators and workers within a business work together to actively lobby, because then it is people that are lobbying not property.

Also, since workers make up the vast majority of the people working for a business, they will most likely only lobby where both the business's interests and the worker's interests are one in the same. It is another way to check the power of business, and theoretically discourages practices unfair to workers. It also encourages consensus between workers and administrators, thus tying their success together.

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