The political atmosphere these days seems like a chapter out of the Elmer Gantry novel. Facing failure, the lack of personal responsibility and depravity, our ideas on economics are enjoying a fundamentalist revival. We have the Tea Party movement electing sex-abstinence advocate Christine O’Donnel, Fox News telling us how out of control the federal government and our very own Right Reverend James A. Bacon preaching on the dangers of debt and default. The only things lacking are a big revival tent and a sweaty summer night.
That’s what makes reading an op-ed piece today in The New York Times so enlightening if not frightening. Anatole Kaletsky, a chief economist for a Hong Kong advisory firm, warns us that too much of that homespun Olde Tyme Religion is setting the United States for a comeuppance as far as influencing economic events that, given the utterly global nature of our economy, could do our country a lot more harm than a few trillion bucks extra in debt.
Kaletsky’s point is that the Asian nations of China and Japan simply do not buy the Olde Tyme Religion. They will do whatever they think is in their interest to shore up their trading positions even if it involves direct government intervention. On Sept. 15, he points out, the Japanese yen dropped sharply against the dollar, opening the door for a lot more lower-priced Japanese exports. Rather than leave currency valuation to the wonderful magic of the market, Tokyo dropped $23 billion of government money in a single day to give the yen a distinct advantage.
Kaletsky writes: “Japan’s action suggests that, in the aftermath of the recent financial crisis, the dominance of free-market thinking in international economic management is over. Washington must understand this, or find itself constantly outmanuevered in dealings with the rest of the world.”
To be sure, Washington has been tussling with Tokyo and Beijing for a few decades now over one-sided currency valuations. And none other than the freemarket Gipper himself, Ronald Reagan, actually played a strong government hand in the 1980s when he defended the dollar on world markets. (But then, Reagan was a secret Keynesian as we now know).
What disturbs Kaletsky is what happens if the economic fundamentalists, the free market at any price types, prevail? He writes: “In this climate, the market fundamentalism now represented by the Tea Party, based on instinctive aversion to government and a faith that ‘the market is always right’,’ is a global laughingstock.”
He further states (and I truly agree with this) that “if market forces cannot do something as simple as financing home mortgages, can markets be trusted to restore and maintain full employment, reduce global imbalances or prevent the destruction of the enviroinment and prepare for a future without fossil fuels?”
Markets can be useful for allocating scarce materials, he says, but they also can fail miserably. Witness the constant short-sightedness of big corporate CEOs who hurt the nation as they push for big returns in the next quarter and lock in their bonuses. Or consider how many respectable banks got addicted to quick profit fixes from the subprime mortgage market and left us with the worse financial crisis since the 1930s.
Preachers such as Jim Bacon have their points about frugality and the demographic challenges of the Boomer generation. But there is also a dangerous naivete in their philosophy. Tea Party types, Christine O’Donnells, Rand Pauls and the rest may push for a very American fundamentalist view on limited government spending and action. But the rest of the world could give a damn. Lucky for us that many of the ideas of Thomas Jefferson, so beloved in Virginia, did not win out. Otherwise we would be like a big Holland.
Kaletsky notes that as U.S. power wanes (Jim Bacon, sorry but this idea was around a a bit before your book came out), there is going to be a very tough competition over whose version of democracy and capitalism wins. Will it be the U.S. version? Or will it be an Asian version that is state-led and a lot more authoritarian?
I personally saw what happened when the socialist Soviet Union fell and an Asian variant of capitalism took over. Sure you could buy sushi on Kutuzovsky Prospekt, but the rest of it was quite ugly. Under Vladimir Putin, civil liberties didn’t exactly flourish. These conflicts will likely dominate the U.S. in coming years. The outcome is a hell of a lot more important in the long term than blowing out a budget.
Peter Galuszka