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SANDERS: Economic determinism a la mode
Question of the Day
You don’t have to be a determinist - believing, as orthodox Marxists do, that all life’s decisions lie in the stomach - to occasionally believe that overwhelming national and international economic movements likely will determine the future. But it sometimes helps.
The thought comes after reading an analysis by Swedish economist Anders Aslund, a knowledgeable Sovietologist who predicted the Soviet crash for economic reasons. He is optimistic - that is, until his last paragraph. Russian President Vladimir Putin is going to put Russia on the road to incremental reform, he says. But while he argues that the likely approach of an extended period of lower gas and oil prices will force Moscow into long-promised reforms, he ignores the corollary: Russia currently depends heavily (25 percent of gross domestic product) on gas and oil exports, mostly to the European Union. That’s a hole in his argument you could drive the splendid but now outmoded new Russian T90 tank through. One reason that gas and oil productivity has been falling is that Moscow has neglected to reinvest in the sector for more than a decade after Mr. Putin’s buddies grabbed domestic companies and elbowed aside foreign investors. So, if for no other social and political reasons, Mr. Putin’s reforms ain’t likely to take place.
In fact, one can see several worldwide economic trends now dictating international politics, perhaps for the coming decade.
*Energy.Always remembering the unpredictability of world petroleum markets, what appears the beginning of a period of declining prices is going to have profound effects everywhere. A combination of factors - not least the worldwide economic slowdown - is curbing prices. The world’s second-largest producer after the Russians, the Saudis, in part to replace rival Iran’s exports now facing international sanctions, are pumping oil at levels annoying their OPEC partners who want to encourage shortages and higher prices. But the Saudis also need money to spread manna in a society where possible contagion of the Arab Spring makes Riyadh’s autocratic rulers nervous. The aging sheik leadership, too, has an interest in keeping world oil prices below a level encouraging American exploitation of what now may be the world’s largest reserves of previously hard-to-access shale gas and oil deposits. Elsewhere, falling energy prices are going to crimp national economies. For example, along with iron ore exports, high prices for fossil fuels have led to continued Australian prosperity despite a government that believes in such fairy tales as a carbon tax to curb worldwide “greenhouse gases.”
*Europe’s currency debacle. Whatever happens in Greece, it’s clear that a crash of the euro is coming. Its effects will be worldwide - not least on the U.S. as it sees a major trading partner struggle. The Europeans are caught between a rock and a hard place: the need to backtrack on social welfare benefits whose bounties could not be sustained. That need probably still would be felt even with maximum growth in “mature” postindustrial societies facing contracting, aging populations. On the other hand, austerity blocks growth, making it impossible to pay off huge accumulated debt without reducing living standards to the point of social upheaval. German Chancellor Angela Merkel’s “solution” is a more integrated Europe with central command of economic strategy. But even were that approach successful, the horse-trading required among 27 EU members with long, differing cultural traditions would require the patience of Job. Bureaucrats in Brussels who have taken the integration process to its present inconclusive level and produced the euro crisis could not handle it. There does not appear to be time for a Philadelphia-style, secret “constitutional convention” to fix Europe’s woes.
*A revival of “beggar your neighbor” policies. Ironically, the euro problem has sent capital fleeing into the dollar - as beleaguered as it is. It has facilitated an Obama administration strategy of huge government deficits and rollicking printing presses with no inflation - so far. As Europe’s crisis deepens, there is likely to be more disguised efforts to turn back from the vast advances in global economic integration marking the past three decades. The decline in fortunes of the customers in the developed economies already has trimmed export-led growth in China and India. China, and perhaps India, may not have the political stability to withstand a further slackening of growth, given their huge and expanding populations.
And so, to paraphrase Richard Nixon’s remark during his 1971 disastrous economic program including wage and price controls, when he came near echoing Milton Friedman’s “we are all Keynesians now,” perhaps we are all economic determinists now.
• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at firstname.lastname@example.org and blogs at www.yeoldecrabb.wordpress.com.
About the Author
Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at email@example.com and blogs at www.yeoldecrabb.wordpress.com.
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