Muddling Toward Mediocrity

The Euro-zone deal, like the ObamaCare decision, continues the slow, damaging drip of pain-avoidance.


If there was any recent political decision more opaque than Supreme Court Justice John Roberts' tortured-if-fascinating majority decision upholding the Affordable Care Act, it might be German Chancellor Angela Merkel's sign-off Friday on a 120-billion Euro "growth pact" that will effectively insulate Italy and Spain from their own high borrowing costs by injecting money directly into their banks from a new European bailout fund. As Reuters delicately phrased it, "Agreed in Brussels, the details of how this new authority will work, what powers it will have and which banks it will supervise remain murky."

Walter Russell Mead, to name one transatlantic commentator with consistently interesting insights, declared that these two major and obviously flawed acts of crisis management nonetheless represented a clear victory for the United States' constitutional, democratically accountable system over the European Union's undemocratic technocracy. In Europe, Mead wrote, "there are no institutions that are capable of coming to grips with the currency question. Meeting after meeting is held, no real agreement is reached. Neither the EU Parliament nor the Commission nor the heads of government meeting in summits has the power or a method to decide. Europe is trying to write a constitution even as it works desperately to stave off an economic collapse."

Even if Mead is right about superior American institutionalism, the two compromises share an enormous commonality: They both find a way to ratify the status quo in favor of statism, while putting off the hard decisions that are being foisted upon policymakers by the nonpartisan cruelty of welfare-state mathematics. The political representatives (I won't call them "leaders") of what is decreasingly referred to as the "West" are locked in a cycle of pain-avoidance, upping the dosage in the drip rather than addressing the long-diagnosed disease in the host.

For those of us who have spent decades warning that entitlements will eventually crowd out most other forms of government expenditure (eventually necessitating ever-higher taxes and debt loads), events like those of last week are licenses for apocalyptic grumbling about looming fiscal catastrophe. Reminding people that we're just one crude external shock away from a runaway debt spiral helps focus the attention, while indulging the universal taste for drama.

But the lived-in reality may be a good deal more boring than all that: a slow leak rather than a sharp slap. As long as the United States and the European Union remain–by far–the largest, most successful, and most liberal blocs in the world, they will likely get to skate above the worst potential consequences of their actions. Thomas L. Friedman fever-dreams to the contrary, China won't be catching up to the U.S./EU lead during any of our lifetimes; the yuan is hardly poised to become the globe's reserve currency. Even better-governed countries such as Switzerland have felt compelled to bend their own monetary policies to accommodate those of their larger, more reckless, cousins.

So if not a clarifying debtpocalypse, what might the future look like on either side of the Atlantic? I'm guessing much like on either side of the Pacific.

In one corner stands Japan, now contemplating a third consecutive "lost decade." The once unstoppable economic powerhouse has been mired in a mild, post-bubble economic malaise for an entire generation, as successive bank bailouts and stimuli failed to jump-start meaningful growth. It's still a pleasant place to live, particularly if you're old, but every year people's sights just get set a little lower. American President Barack Obama, despite explicitly warning against creating another "lost decade," has nonetheless pursued many of the same policies, and produced an economic track record as bad as any modern president's.

But I think the more likely scenario is the one being played out in California: dreary, internecine battles over a shrinking revenue pie, while potholes deepen, libraries close, population stagnates, and lousy political results of all types—unemployment, deficits, even government itself—receive the apologetic prefix of "structural." The kind of place where the largest municipal bankruptcy in the nation's history is greeted with a lecture by the state's largest newspaper to avoid "finger-pointing."

Sure, California (like Japan, and Europe) will always be a comparatively nice place to live. But as long as the rich world keeps reacting to its predictable calamities with evasion, can-kicking, and ever-creative bouts of muddling through, the best-case scenario will be a slow erosion of the very dynamism that made us rich enough to get away with mistakes. This is not the 21st century we signed up for.

Matt Welch is editor in chief of Reason magazine and co-author with Nick Gillespie of The Declaration of Independents: How Libertarian Politics Can Fix What's Wrong With America, now out in paperback with a new foreword.

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  1. To the State, stagnation is success. Nobody loses their jobs because nothing is innovated to make them obsolete. Nobody is offended because nothing of interest is said. Neighborhoods don't 'lose their character' because nothing new is built.

    Over time wealth and mindset disparities are eliminated because those on the fringes are those in flux, and flux is discouraged.

    Japan isn't a warning. Japan is success.

    1. This. Bureaucrats despise change, it rocks the boat.

  2. This is like a new type of football, where all either side does is punt.

    1. I'll take the under!

      1. Also, no advancing fumbles, no fake punts, no safeties. And it's a tax.

        1. Also, fried chicken.

        2. You don't have to fall down and avoid trying to run it back, but if you do run it you'll take a 15 yard penalty tax.

  3. I can't get any of the liberals I know to believe that we are out of money and broke. It is like I am telling them the earth is flat.

    1. It's one of the more remarkable delusions of our age. What's funny is that they were all "Need to balance the budget!" back when Bush was president.

      1. It's not a delusion if your intentions are good.

      2. Do you try to tell them that we need to cut taxes for the rich in the same breath as demanding spending cuts? If you do, you won't have any credibility.

        Try saying that taxes should stay exactly the same while spending is cut. They might not like it, but at least they won't think you are just trying to blow smoke up their @%%.

        1. Depends which half of people you're talking to: the half the pays no net federal taxes, or the half the does. Hurr durr, teh 99%!11!!!one!eleventy!!

    2. The rich have money! We can take it from them.

      1. They do? Dammit, I've got to go get me some of that.

      2. That is the usual answer. then I explain to them that if you took all of the money belonging to every billionaire in America, you couldn't even balance the budget this year, they just kind of go blank and change the subject.

        1. Yeah, but at least we'd be rid of the rich people.

          1. Vive la France!

        2. The other usual answer is "Clinton did it, so it can be done". But of course, any rollback to 1990 spending levels is "draconian".

          1. 1990, hell 2008 is just libertarian nihilism.

          2. But of course, any rollback to 1990 2005 spending levels is "draconian".

            If we went back to the dark days of 2005 when we were spending less than our 2012 revenue, we'd be cast back into those dark ages. Is that really what you want?

            1. That and a good spanking.

              1. You monster. Don't you care about the 50 million people that died every year with no healthcare?

                1. Only 50 million? Pffffttttt, Mao did much better.

                  1. 50 million per year.

                    1. Now that's what I'm talkin' about

        3. The value of all the platinum in the world is equivalent to this year's deficit. They better get those asteroid mines spun up on the QT.

        4. they're probably thinking...."yeah, but if we took every dollar from every billionaire for MANY years, we could solve a lot of problems."

          sadly, you probably gave them a new idea.

    3. That's because they believe slight reductions in proposed future massive increases are "massive cuts."

      At some point, you need to just smile and say 'okay' and try to make sure they aren't holding anything sharp.

    4. Then they're dumber than I thought. Bond markets are clearly calling bull shit. It's looking like they're gonna put an end to all the deferring nonsense and demand default.

      To which I say good. About time.

      I say it's time to rethink Grover Cleveland.

      Seriously. You have to be in remarkable denial to not see there's not enough cash to service things. Expenses dwarf revenues. Once you struggle to cover interest payment - which is the case now - you're sunk.

      It's no different than a god dang household budget.

    5. Modern Liberalism's views on economics really are a cargo cult.

      They have no idea where it comes from, they cannot understand, and if you try to explain it to them they can't accept it and end up thinking you're trying to trick them.

      If we just keep standing in this field and waving bright orange sticks at the sky and fiddling with the coconut dials on the fake radio, sooner or later the giant metal bird will come and land and give us magic gifts.

  4. OT Related to Media Panic being over:

    Teen lesbian couple found shot in Texas park

    The two women were involved in a relationship, according to family and friends, though it's not clear if that was the motive for the shootings. So far, the incident has not been ruled a hate crime.


    Media Panics to resume in 3...2...1...

    1. Aw man, and they were the good kind too.

    2. It looks like Kramer.

  5. Some think that soccer/football is the world's most popular sport, but it's clear that fucking the next generation while invoking the well-being of same has that beat to hell.

  6. Government stupidity is a symptom, not the disease. The disease was, is and shall be the fiat system of currency in which private central banks issue currency, manipulate rates, keep profits private while socializing losses, and to avoid this diagnosis in some misplaced zeal to avoid maligning the 'free market' is to confuse our banking system with a free market, or with something that doesn't steal from labor [doing something, providing something other than manipulating IOUs].

    The economic system is built on flim flam and *that* is the root of the problem. One candidate talked about it and you saw how he was treated.

    Not only are people too stupid to question the federal reserve system, they have no problem with Romney genuflecting in Israel to determine our foreign policy, and no problem with the A.G. lying about shipping guns for drugs, and no problem with bankers continuing to be above the law as they lie, cheat and steal the wealth away from the people who *actually* create it.


    1. Cue shreik

        1. The one I was thinking of is much less refined.

    2. It's amazing the disdain that people like Ron Paul are met with, even by people who often talk about economic freedom when opposing things like Obamacare. If I interject in an argument about the health care bill with something like this, it's like everyone just stops talking. They don't want to face the fact that the entire system is as you put it, "built on flim flam."

  7. ...locked in a cycle of attempted pain-avoidance...

    8.3% - 16% (depending on what stat you believe) unemployment is hardly without pain.

    1. But imagine how horrible it would be if we hadn't done the stimulus and had gotten all the way up to *gasp* %8 unemployment!

    2. If Obama touts success every time the unemployment rate drops .1%, even if it's above 8%, he'll be a hero to the left. 8% will be the new norm to them and they'll tout it as a victory for our lord protectors, the federal government

  8. Here are the tools they have for this bailout:

    The current bailout mechanism, the European Financial Stability Facility, will continue to provide relief until the introduction of the recently proposed European Stability Mechanism that will be launched next month.

    The ESM doesn't even exist yet, and I believe has to be approved by every EU member. To date, less than half have approved it, I believe. And its supposed to be funded in part by the countries who need bailouts - Spain and Italy are supposed to provide 30% of its funding. How is that supposed to work?

    1. Spain and Italy are supposed to provide 30% of its funding. How is that supposed to work?

      Through an aggressive growth program.

      1. I really don't see how Italy will grow with its rigid labor codes. The new guy at Fiat asked his workers to work more in an inspired attempt to revive the sense of pride in the company. They balked.

        That being said, I'd take Italy's economy over Spain's any day.

        Aside from being 7x over total debt to Spain's 11x (Germany is at nine), at least there's a manufacturing and industrial base (albeit protected by insular protectionist laws) but one in which produces so many of the world's great luxury items. It has solid CASH FLOW.

        Spain doesn't have that.

        The Germans are buying up unique Italian companies like Ducati anyway. The two country's get along very well for some reason so it's win-win.

        Just saying.

    2. I think it has something to do with stability, or are you too stupid to figure that out? You should just leave this whole matter to your betters.

    3. How is that supposed to work?


    4. Spain and Italy are supposed to provide 30% of its funding. How is that supposed to work?

      I think they will borrow.....oh maybe not....never mind then.

    5. Maybe Spain and Italy will borrow the necessary funds. IOW, they've improved on the perpetual-motion machine, with said machine actually emitting free energy now.

    6. I know how it works. All the countries in the Eurozone are going to take their debts and stuff them under their pillows. Tonight, the Euro Fairy is going to come and take their debts away and leave American Dollars in their place. What about the US? don't worry. The Dollar Fairy leaves Chinese Yuan under our pillows.

      1. I know. Even Canada was on the wrong end of some Euro scolding for refusing to send bail out cash.

  9. I'm actually starting to find the humor in all of this. It's like a Monty Python skit come to life.

  10. To restate - this isn't merely politicians kicking the can/avoiding the pain... this is pulling out all the stops to prop up a monetary/economic system that is going to collapse...

    Most new "wealth" the past ten years has been derived from the repackaging of IOUs, and bets on those packages, and insurance and rate swaps on *those*.

    Because it was thought by Very Serious People back in 2008 that if several large international banks had to actually write down their books, the world would explode, we chose instead to paper over those losses by printing more money, giving it to the banks for nothing... so they could loan it to people without any money at higher rates and buy u.s. treasuries, thereby instantly making a profit off the American people for doing exactly nothing.

    An economy based on people moving around little pieces of paper which amount to future promises to pay, and where each new dollar created has compounding interest created along *with* it can not last forever.

    This is just life support, last measures, last rites.

    It's not even surprising. What is surprising is how many people find it surprising.

    And how many people think that if we just stopped funding entitlements everything would go back to being sunshine, puppy dogs and free ice cream.

    That, fellow babies, is just another form of can-kicking... although I admit it would be nice to keep more of my own money until the Zombie Appocalypse.

    1. borrowing is income
      debt is wealth
      ...actually its not, and its gonna be a b*tch when the world finds out.

  11. Thanks, Matt, I just spent a half hour reading about a red cow. That's time I can never get back.

    1. Ho ho!

  12. always be a comparatively nice place to live. But as long as the rich world keeps reacting to its predictable calamities with evasion, can-kicking, and ever-creative bouts of muddling http://www.lunettesporto.com/l.....-3_23.html through, the best-case scenario will be a slow erosion of the very dynamism that made us rich enough to get away with mistakes. This is not the 21st century we signed up for.

  13. The people who think they run the world can't get it. What is amazing is that there are people not in government who believe the government can run the world with its agencies, commissions, boards, councils, etectera:
    FFIEC (federal financial institutions examination council)
    FDIC (federal deposit insurance corporation
    NCUA national credit union admistration
    OCC (office of the comptroller of the currency)
    CFPB (consumer finaincial protection bureau)
    Export-Import Bank of the United States
    Federal Housing Finance Board
    Securities and Exchange Commission
    Securities Investor Protection Corporation
    Small Business Administration
    U.S. Trade and Development Agency
    United States International Trade Commission
    Freddie Mac
    Fannie Mae
    Financial Crimes Enforcement Network
    (which can't figure out what was going on at Freddie and Fannie)
    Federal Reserve Board
    And the one that takes the cake:
    Office of Government Ethics
    Office of Financial Stability
    (maybe it should be called office of finanical instability)
    Commodity Futures Trading Commission

    And that is just a fraction of the bureacracy involved in the economy.
    So the question I would ask, if these people had any clue as to what they are doing, why are we in the mess we are in?

  14. It seems like US Government are ready to take on the supreme court again.

  15. For those of us who have spent decades warning that entitlements will eventually crowd out most other forms of government expenditure (eventually necessitating ever-higher taxes and debt loads), events like those of last week are licenses for apocalyptic grumbling about looming fiscal catastrophe. Reminding people that we're just one crude external shock away from a runaway debt spiral helps focus the attention, while indulging the universal taste for drama.

  16. The same folks who will be, like, totally surprised when the dollar collapses {or its purchasing power goes from Captain America to Roger Ebert} will also be surprised when the military is patrolling the streets, and when Obama announces that they're gonna have to reinstate the draft

    Remember - the value of war lay primarily in the debt it creates.



    p.s. If people had any spine, and were willing to stand up to the rhetorical ploy of "The Smear" - WE would pass something like the following to limit the influence of the Saudis, Chinese and {gasp} most of all - The Israelis through AIPAC and about 45 thousand Ziocon shill groups like CFR.


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