Chas Freeman considers the global outlook for 2012

From a speech by Chas Freeman given in Macau, China, yesterday: Europe used to be boringly predictable, which was good for business. Now bits of it have reverted to being excitingly unreliable, which is bad. Repeated crises have addicted European leaders to summits, where they agree on partial solutions to problems and create new ones, then go home to think up still more ways to unnerve each other and investors. The year ahead seems certain to feature more summits and more Eurotorture of the world’s financial nervous system. The fiscal sobriety and punctiliousness of northern Europeans will not soon prevail over the bouzoukinomics and bunga bunga politics of Europe’s exuberantly irrational and overly indebted south.

More fundamentally, however, as a club of clubs, Europe has just shown itself to be much less than the sum of its far too many movable parts. In some of the clubs that make up Europe, members are seriously tired of each other as well as of the way responsibility is apportioned. The mismatch between the eurozone’s membership and that of the European Union, in particular, makes German creditworthiness, not the EU, central to the credibility of the euro. And there is an obvious contradiction between a bureaucratically administered supranational currency and the democratically exercised sovereign authority of Europe’s many nation-states.

As Greece has just demonstrated, the European project is seriously incomplete and vulnerable to disruption by reckless acts of political brinkmanship. In the absence of Europe-wide democracy, national democracy and multinational community-building no longer seem compatible. Decisions based on local interests, no matter how legitimately they are arrived at, can threaten both pan-European and global interests in market stability and economic revival. Sadly, in many ways, Europe remains more colloquium than commonwealth — more a confederation of small minds and big egos than a federal union of peoples. The incongruities and incompetencies of a still far-from-united Europe have become a problem not just for Europeans but for the world.

The destabilizing effects of financial uncertainty may now be Europe’s most notable export. But the United States seems determined to one-up the perversity of European indecisiveness. Europe has the will to act, but not the political machinery to act coherently. America has the mechanisms and the resources needed to make decisions and implement them. It lacks the wit, the will, and the spirit of political accommodation to do so. In effect, the United States now suffers from fiscal anorexia — economic self-starvation born of an obsession with curing the imagined obesity of government. But America’s civilian public sector is already too lean to sustain the nation’s socio-economic health and competitiveness. The United States is disinvesting in its human and physical infrastructure — consuming its sinews — at the very moment when it most needs to rebuild its strength. India may be the world’s largest functioning democracy but America is now seen everywhere as its largest dysfunctional one.

Ideological delusion, self-indulgence, arrogance, and unbridled greed got America — and the world economy — into their current mess. Devotion to fanciful concepts, despite their catastrophic results when actually applied, has undermined the credibility of the “full faith and credit” of the United States. Many Americans remain wedded to the bizarre notions that the redistributive functions of government are a net drag on the economy, that reducing government investment and outlays will somehow generate jobs, that financial engineering adds real value to the economy, and that unequal income distribution stimulates economic growth. In a less narcissistic political environment, people would laugh at the idea that cutting public spending — and thereby contracting the economy — could possibly create jobs and stimulate growth or that a “SuperCommittee” of the finest politicians that vested interests can keep in office could magically balance a budget that is 40 percent in the red solely by cutting non-defense expenditures, without raising revenues.

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5 thoughts on “Chas Freeman considers the global outlook for 2012

  1. delia ruhe

    I read this essay last night. It’s so depressing. It must be frustrating for someone like Freeman to watch what’s happening in Washington and Europe and not be able to do anything about it. But then, that’s how a lot of other Americans feel too — which is why we have such things a blogs.

    Freeman does have a way with words. I really like his anorexia metaphor to describe the sickness called “government is the problem.” The analogy really works.

  2. Christopher Hoare

    This speech actually gives hope to real optimism—if you don’t hold an outdated Americo-centric view of the world. Freeman puts the jumbled threads together in a coherent way as usual.

    Let’s look at them:
    Every measure of support the US gives to Israel (under repellant management; like that) strikes a fatal blow at its own stature and credibility. Ergo—the US will exert far less of its disastrous meddling in the world’s affairs in the future.

    This leaves a vacuum in the UN that could present the opportunity for really united nations, instead of nations crippled by political manipulation, to use the world body for the good of mankind instead of the good of neoliberal fraud. In a multilateral world nations like Brazil, Turkey, China, and Indonesia can exert such influence as their economic and political maturity will allow—by necessity cooperatively—instead of the massive global overreach that has characterised the so called ‘American century’.

    The world’s most pressing problems are internal; overpopulation; ineffective food distribution (caused mainly by neoliberal commodity speculation); shortage of clean water (ditto); rapid over-consumption of valuable resources (ditto); climate change and the lack of a balanced forum to combat it; the spread of mechanised weaponry (arms races); the weakness of the application of International law to protect the vulnerable; the undervaluing of human workers by the mass production of cheap junk; the continued dependance on fossil fuels to distort the balance of trade. Most of these ills derive from the economic power of the USA and Europe, and so any ‘catastophe’ that brings about their inability to project their power and influence into the world gives promise of the emancipation of new ideas, new worldview, and new leadership.

    If 2012 develops in the way Freeman suggests, the twenty-first century has the promise of becoming ‘Humanity’s Century’.

  3. Internationalist

    The assessment from my last post is yet again corroborated: not a single English-speaking commentator talks sense on the whole euro kerfuffle.

    In Mr Freeman’s defence, although his assessment of the situation is as defficient as that of the remaining members of the Anglophone chattering classes, his instincts are exactly right in a key respect: “national democracy” is no longer enough, and thus no longer possible, in a world (and particularly in a Europe) where every one’s affairs are everybody else’s. “In the absence of Europe-wide democracy, national democracy and multinational community-building no longer seem compatible. Decisions based on local interests, no matter how legitimately they are arrived at, can threaten both pan-European and global interests in market stability and economic revival.” Indeed.

    But oh, the errors of assessment. As a Spaniard who’s been living in Germany for fifteen years and counting, I had to chortle as I read this jewel: “The fiscal sobriety and punctiliousness of northern Europeans will not soon prevail over the bouzoukinomics and bunga bunga politics of Europe’s exuberantly irrational and overly indebted south.” Hahahahaha. Let me assure you that the notion of Protestant probity and rigour is a sad sick joke. “Bunga bunga” is the name of the game in a world of increasing inequality.

    The original institutional arrangement of the eurozone is a fair-weather construction, that will either have to be altered from the ground up or collapse in on itself. When it still worked, everybody benefited for a while because it allowed a first set of countries such as Germany to export easily while the countries that had traditionally paid a high risk premium with respect to German debt issues saw their financing costs drastically lowered. This anti-euro bubble, this cynically pursued stampede on the sovereign bond markets, this latest proof of the deleterious effects of the financialisation of our economies which –curiously enough– the deadly enemies of Wall Street and the City in the English-speaking world are not condemning in quite the same terms as the preceding ones…this thing, has turned the original advantage for the second set of countries into a burden, while Germany benefits from historically low financing costs. The absurdity of this is shown by the fact that investors will rather buy bunds or gilts with a virtually guaranteed erosion of real wealth, than being paid 6%-7% for an equivalent Italian bond with a virtually certain better outcome in two years.

    The German posturing about fiscal rigour and their fears is nothing more than that, posturing, designed to justify for as long as possible the fact that Germany now enjoys *all* the advantages of the euro, to the detriment of its partners. It’s particularly effective in fooling „Anglos“, as Mr Freeman shows. Many of his peers are suckers for the second bit, the thing about Germans being haunted by the memories of hyperinflation during the inter-war period and such. The traumatised German mind, always such an easy sell. Sometimes one is tempted to think that such a lazy, cliché-addicted creature as XXI-century man deserves all that besets him.

    So, what the Germans are doing is engaging in dangerous brinkmanship themselves, insisting on the imposition of deeply counterproductive, destructive „discipline“ on their beleaguered partners rather than making the necessary steps towards trans-national solidarity (in the form of eurobonds and an enlarged common EU budget) that are needed to finance said partners and thus ensure the sustainability of the many benefits that the euro entails for Germany. However, contra Freeman, anybody who follows the debate in Germany, France or the Netherlands knows that the politicians and the public are aware that something has to give and that the aforementioned steps towards greater solidarity will have to be taken eventually. Most of them, that is. There is highly influential neoliberal element within the German establishment that regards the objectionable, punitive adjustment the PIGS* are forced to go through as a useful means to an end…the end being the breakup of the euro area. To the enemies of labour in Germany and the broader Europe, nothing would be sweeter than the replacement of the EU by a sort of „EFTA“ (European Free Trade Agreement), and the conversion of Germany’s (former) EU partners into what, after a collapse of their re-introduced national currencies, would be effectively reservoirs for cheap labour with a hunger for competitive de-regulation and fiscal dumping, and more than willing to subject their assets to a firesale in exchange for „harder“ monies.

    Such are the enemies of the euro, the clueless leftists and the radical free-marketeers. The latter group happens to know exactly what it wants.

    Admittedly, since what we’re seeing at this stage of the game is only objectionable, recession-inducing punitive austerity, it is intuitive to assume that’s all there is on the horizon. As stated, however, knowledge of the events on the ground shows that things are far more open-ended. In that vein, following the debate in places like Spain or Italy allows to see that the consensus opinion advocates staying in the Euro, and negotiating to bring about the aforementioned necessary institutional changes.

    One needs to puncture one’s little monolingual bubble to know any of that, of course.

    At this stage, the clueless leftist who opposes the euro tends to mention the advantages of a sovereign national currency. This requires a single-minded, simplistic application of Keynesianism 101 which was shown to be exceedingly iffy in a previous post. Another popular ploy is the mention of how swimmingly Iceland is doing out of the EU and stuff. But Iceland is a tiny island with few assets worth grabbing by opportunistic global investors, and which exerts a negligible influence on global and European currency and labour markets. In other words, they have the distinct advantage that nobody cares what they do. They weren’t particularly impressive as a laboratory of financial innovation back in the day, and nowadays their (alleged) re-enactment of the fable of Astérix is not exactly blazing any trails either.

    *: again, let us remember how very charming that sobriquet is…and it was invented by those who are now deeply concerned about the sovereignty of the bunga bunga porcines!

  4. Internationalist

    A further remark on the myth of Northern probity which Freeman so gleefully embraces. In a world of global wage arbitrage, and barring any technological boom of the kind that economists cannot predict and that is still a ways off at this point, there are only two ways for developed economies to grow: they either consume by going into debt, or they expect others to indebt themselves to buy their exports. Both alternatives are equally “corrupt”, because they are mutually dependent. Now, the basic structural problem within the eurozone is that is has behaved like a miniature (a very large one) or the global economy at large, with a set of countries accumulating current-account deficits and others building on their partners’ indebtedness to export. The challenge now is to correct that politically, or see the whole –political– construct break apart. As stated, in the latter case, the economic racket would continue unabated, after a re-arrangement of the musical chairs.

  5. Internationalist

    “The German posturing about fiscal rigour and their fears *of hyperinflation*…”

    As ever, proofreading is your friend.

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