Economics Financial Crisis Foreign Policy Politics

Stimulus and Stability (cont.)

Nicholas Kulish in The New York Times explains how “Europe, Aided by Safety Nets, Resists U.S. Stimulus Push.” 

I wrote a few weeks ago that:

…there seems to be some sort of inverse relationship between a society’s social safety net and the amount of stimulus spending they are proposing. 

This makes sense on a number of levels. Automatic stabilizers which should take some of the pressure off a need for a stimulus are not included here. On another level, these nations without a strong safety net must rely more heavily on economic growth for societal stability. 

If this is true, China and America would be more reliant on constant economic growth to relieve social and political pressure and would be more likely to have larger stimulus packages. France and Germany with stronger safety nets would feel more insulated and be less likely to push for large stimulus packages. This is exactly how this matter is playing out on the world stage today – with some exceptions due to political leadership. 

But both states with strong social safety nets and those without them are dependent on growth over time. But those states without strong safety nets feel the economic bumps more strongly – and downturns end up being more disruptive.

Kulish writes now that:

The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate…

Mr. Posen and others argue that while Germany may be doing more stimulus spending than others in Europe, it is counseling other European countries — many of which share the euro as their common currency — not to spend their way out of recession either, but to count on their safety nets to do much of the job.

Nothing groundbreaking on either of our parts – but it’s an example of how fundamental societal agreements – the social bargains underpinning the state – affect everyday policy.

Financial Crisis

Preparing For A Summer of Rage

[digg-reddit-me]Those in power are clearly nervous about what will happen if this crisis continues to deepen. British police are predicting that 2009 will be a “summer of rage” as middle-class anger at the economic crisis erupts into violence on the streets of Great Britain. Protest organizers are claiming that the police are merely trying to prepare the public for more brutal put-downs of protests by the police – but even this in itself indicates a nervousness on the part of the police, a fear that protests will get out of control. 

At the same time, Zbigniew Brzezinski, the powerful inside player in Washington since he was National Security Advisor under Jimmy Carter, warned on MSNBC that this recession could lead to riots in America:

[T]here is public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America . . . And you sort of say to yourself: what’s going to happen in this society when these people are without jobs, when their families hurt, when they lose their homes, and so forth?

…[T]here’s going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots.

The financial crisis has already lead to the increasing instability, civil unrest, and conflict in Russia, Pakistan, Mexico, and throughout the world – all of this during the normally dormant winter months.

It was often said that China’s government was only able to remain in power and maintain stability if the economy was growing at a fast enough rate. It’s beginning to be clear that this is true for most of the world’s governments. As I wrote before:

As long as American citizens have their basic needs met and a reasonable opportunity to succeed, they will accept a polarized distribution of wealth, corruption of various sorts, and sundry other injustices. And as long as the Chinese citizens are moving towards having their basic needs met and have a reasonable opportunity to succeed, they will accept a single-party state, restrictions on freedom of speech and assembly, and other restrictions.

Any state’s constitutional structure is legitimated by whether it provides for the needs of it’s people. In another age, the state merely provided security against hostile invasions and criminals; later, it provided an identity as well; by the middle of the 20th century, a state was legitimated by the extent to which it could provide for the basic needs of it’s citizens. The Cold War was, to a large degree, a competition between the capitalist states and the Communists states to see which could provide more ably for the needs of it’s citizens. Today, the state is evolving from providing for the needs of it’s citizens to providing opportunities for it’s citizens.

We are now facing the spectre of rapidly increasing unemployment and diminished opportunities for millions accustomed to a rising standard of living. A prolonged depression, or even a slowing in growth, in a market-state undermines the government’s legitimacy and society’s stability, perhaps to the breaking point.

Many of the world’s societies are only peaceful and stable to the extent that their people believe they can improve their lot in life, or their children’s lot. The opiate of the masses is no longer religion – it is hope, the expectation of better things to come grounded in expanding individual opportunity. This financial crisis may test what happens when this opiate is removed.