Our Postmodern Financial Crisis

Via City Journal, Andre Glucksmann argues that the old axiom it is true because we say it is, has run its course:

Postmodernism, which places itself “beyond good and evil,” beyond true and false, inhabits a cosmic bubble. It would be a good thing if fear of a universal crisis allowed us to burst the mental bubble of postmodernism—if it washed away the euphoria of our pious wishes and brought us once again to see straight. That may be no more than another pious wish. But we should not succumb, as so many did in the 1920s, to a catastrophic sensibility. Yes, history is tragic, as Aeschylus and Sophocles knew. And yes, it is as stupid as set forth in Aristophanes or Euripides. No roll of the dice and no act of God or of mathematically refined finance can abolish chance, corruption, or adversity; the providence of the stock market cannot save us any more than that of the state. Let these lines from Plato be inscribed at the entryway to future G-20 meetings: “Is there not one true coin for which all things ought to be exchanged?—and that is wisdom.”

Needed: A Fiscal Framework

Jeffrey Sach's writes a compelling piece in April's Scientific American, a magazine I recently ordered and have been quite enjoying. He suggests that rather than arguing over what kinds of short-term stimulus - tax cuts or spending - produce more real stimulus dollars, we need to take a more systematic long view of our economics.

Infrastructure, for example, shouldn't be invested in because of its ability to produce short-term stimulus. It should be invested in because our infrastructure is crumbling, and has been in hard need of attention for decades. Tax cuts - of course - don't necessarily shore up economic stability in the short term. And, the problem with cuts long term, is that - at least in America - those cuts will need to do a strong about-face in order to compensate for a massive national debt and the forthcoming demographic crisis.

Sachs recommends what he calls a "medium-term fiscal framework" as a way beyond the spending/tax cutting dichotomy: a systematic trade-off of taxation and spending backed up by formal budget projections for at least 5-10 years, if not nearly 50. An example of this, cited by Sachs, is Norway's hydrocarbon wealth program.

Is it time for a new paradigm? Sachs is no fiscal slouch, and his ideas have resonance with me on a few different levels.

Who Hurts the Most in Recessions?

Answer: the already poor, and especially the recently upwardly mobile. Recession economics aren't fair: the brunt isn't borne by the already wealthy and industrialized. America, and middle power countries like Canada, will continue to attract foreign investment because they are safe havens in turbulent economic times. They have proven track records, educated work forces and retain far more confidence than developing economies. Ironically in recession markets more money and investment, not less flows into the US - and it's coming out of the developing world.

Joe Clark - a once (Conservative) Prime Minister of Canada - argues the poor will feel this recession the worst for four reasons:

1. Private foreign investment plunges as investors look for "safe" markets.
   
2. Rich countries can borrow and run big deficits. Poor countries can't.
   
3. Aid budgets are the first to go, both in foreign policy and in NGO budgets. Sub-Saharan Africa can't unelect a a developed world government.
   
4. Remittance - money sent home from individuals working in rich countries - plummet (Remittances account for an astonishing 20-30% of GDP in Haiti, Bosnia and Jordan).
   

The real question: will Canada use its privileged place in the G20 to treat this global crisis as more than just a trade and economic issue?

Grannie's Virtues

"Ah, for a little more Calvinism - and a little less, er, 'depleted moral capital.'"

Thus sayeth Ross Douthat in a good post on the paradoxes of capitalism. In the news these days, I'm constantly struck by the remedy offered to the economic plight we find ourselves in. The answer is: spending. And tax cuts to encourage spending. Now I recognize that there is much more going on, but I have yet to hear the majority of commentators comment on how saving, investment, frugality can be good things for the economy as a whole. In the short term we might feel the pinch, but in the long term we'll be healthier. Banks don't just put savings in mattresses after all. They make money by investing your money.

Thus, while I have my fair share of problems with them, it's time that we heard a little bit more from people in the Acton Institute, and a little less from the likes of the libertarians and socialist folk among us in our country. Or, perhaps I should ask: why not more Wellum on the airwaves?

We need a more virtuous bourgeoisie!