To the Vectors Belong the Spoils

When top policy-makers choose a direction based on some underlying “axiomatic” belief – a notion that a fundamental driving concept is the proper route in all circumstances – increasingly in times where complexity abounds, those vectors inevitably fall short. Example: don’t spend more than you make. Great concept, and we would never need loans, mortgages or incur any deficits. But economic growth would become a near-impossibility until sufficient hordes of cash could be salted away. That’s the way the planet moved in ancient times, and capital was amassed by conquest (read: looting the losers) and taxation (but then, you’d have to be a government). Think of a small manufacturer with a solid order for some wondrous product lacking the capital to fulfill the order, even knowing that the buyer is sitting at the other end waiting to pay for the load (including a fat profit).

Likewise, Americans have this belief that if we impose a democratic system on one of our many occupied countries (recently Iraq and Afghanistan), peace and prosperity will flourish. As our forces leave Iraq, the clearly Shiite-dominated government with increasingly close ties to Iran, is pushing the minority Sunnis (once in power under Saddam Hussein) around, letting them know in no uncertain terms who’s in charge. Angry Sunnis, some part of the militant Sunni Awakening movement, have responded in protest… with roadside bombs and blasts in public places. Our desire to have left a stable government to navigate the future is nothing but an impossible wish.

In Afghanistan, the Taliban and local warlords control the regions outside of the Kabul area, occasionally ceding temporary control to NATO forces until they leave. The “democracy” led by Hamid Karzai is about as trustworthy as a pickpocket in a crowded rail station, and cronyism and wanton corruption benefit just about everybody… except the people of Afghanistan. Our belief that a unifying democracy would bring peace and stability to a fractionalized tribal nation with harsh geographics was once again trashed by reality. Americans simply could not believe that a democratic experiment in both these theaters of war was doomed to failure based on historic animosities and selfish leaders. These were hardly lands with fertile soil where democracy could flower.

Now Europe and the United States have come to believe that austerity – getting deficits under control – is the essence of recovery and financial stability. Stimulus notions are now dead on arrival. What’s really happening now? First, that we will “recover” (by definition, “to return to a prior condition”) is an interesting assumption all by itself. Since in the history of the sustainability of political systems, there is always an inflection point that defines a significant and permanent change (from the fall of Rome in 476 AD to the fall of the Berlin Wall in 1989). My personal belief, reinforced by the destruction of going-forward investments in socioeconomic growth-drivers (infrastructure, education and research), is that what we are witnessing is not so much a path to recovery, but a mass adjustment to a new, highly polarized lowered-standard reality and a severe contraction of the “middle class,” a “re-set” if you will and a shift in growth values to new powers in Asia and Latin America.

This failure to appreciate the differences in our condition – the notion that one size fits all – is indeed at the heart of the disappointment. Germany, a thrifty and productive nation that has spent decades since WWII investing in itself (yep, infrastructure, education and research!) to the point where it remains Europe’s only major net exporting country of significance, believes that all of Europe needs to embrace its conservative economic style. Without much in the way of alternative financial resources, the rest of the European Union (minus Britain) has followed suit.

But Germany has already made its productivity investments and can sustain itself for the foreseeable future based on those efforts. Most of the rest of Europe has used its capital to upgrade their standard of living without the disciplined notion of investing for future returns. They’ve spent the money but lack the investments necessary to generate a viable economic future. Germany sees a Europe of little Germanys, sacrificing now to grow the future of Europe. Unfortunately, the net impact is sacrifice without investment… cutting back without building the foundation for future growth. And trust me, Greece, Italy and Spain will never work as little Germanys! The formula is based on smoke and mirrors disguised as economic policy.

In the United States, the word of the day is disillusionment. The Tea Party sees all of our problems as government-created and believes the solution is to pull government out of as much as possible. On the other side of the political spectrum is the belief that failed government regulation of Wall Street is at the heart of the problem: “The Occupy movement was inchoate, but it spoke to a widespread disillusion with capitalism – specifically financial capitalism. The public remains angry and frustrated at the cost of rescuing the banking system, a cost largely born by taxpayers rather than shareholders or bondholders. Bankers have done their cause scant good by continuing to award themselves generous remuneration packages …” Financial Times, December 12^th.

In the end, growth comes from investment and hard work. In the modern world, these are both essential components. Asia and Latin America are ramping up their educational systems, elevating their infrastructure to the highest modern standards and funding research at unprecedented levels without wasting their national capital on building and sustaining mega-military forces and diving into expensive global conflicts at a moment’s notice. Who’s going to generate the better long-term results in the battle for economic prosperity? Seriously, them or us?

I’m Peter Dekom, and the baby is sailing through the air along with the bathwater!