Apologies for a an absence of blogging for around two months. My father passed away in March, and for some time I couldn’t summon the concentration that blogging requires. The world, however, moves on and we do certainly appear to be living in ‘interesting times’ (the Chinese curse of living in ‘interesting times’ again appears to be something of a myth, but Wikipedia suggests here that it may actually come from the rather wonderful proverb ”It’s better to be a dog in a peaceful time than be a man in a chaotic period”).
The ‘interesting time’ that we are witnessing in Europe is the unstitching of postwar political and economic institutions in the face of austerity. And actually it is not ‘austerity’ per se that is the problem in Europe, but rather a structural lack of growth. A libertarian would argue that this death of growth in Europe is the result of the continent’s over-regulation, excessive taxation and sclerotic labour markets. Unfortunately, this argument appears lacking since the downward trajectory in economic growth seems an OECD phenomenon; for example, while the US is no Italy, it currently appears incapable of growing enough to absorb the natural rate of increase in its labour force, and its GDP is expanding at a far slower rate than in previous decades.
True, global growth as measured by the IMF is still humming along at a handsome pace. If we ignore the 2009 credit crisis aberration, then GDP expansion has recently been above the post-War long term average and is projected to push up above 4% over the next few years (here). However, just as OECD growth appeared to be have been artificially propped by the accumulation of debt in the 2000s, it is an open question as to whether the developing market behemoths of China, India and Brazil have also been binging on mal-investment post the credit crisis to keep their economic miracles on track. As countries as diverse as the Soviet Union and Japan show, this particular type of industrial policy has a tendency to suddenly come up against a brick wall with the passage of time (read Michael Pettis on China for this sort of critique). Continue reading