American economy – chronicle of a death foretold?

Gabriel Garcia Marquez’s novel ‘chronicle of a death foretold’ is a fascinating story of how a man who sees his death and still keeps moving towards it. Today when I read about the status of the American economy I see an uncanny resemblance to the story.

The Fed, the Government, and most of the decision makers individually know of the direction they are headed to but still appear to be unaware of the direction they are headed to collectively. Most of them have heard and analysed the Japanese lost decade(s) and how it managed to not come out of the liquidity trap, however, they appear to either foresee that they are also headed there or they are all individually hapless.

The Democrats can’t convince the Republicans to go for a fiscal push that is big enough and soon enough, and the Republicans can’t convince and ensure the Fed from not creating more and more liquidity in the system through a series of Quantitative Easings (QEs).

Few years have already passed by in the recession and the immediate aftermath of a slow recovery. In the current scenario nobody is expecting a robust recovery anytime soon. In totality, in retrospect it might well be a complete decade of ‘laidback’ recovery if I might call it. And the structural losses of productivity, and unemployment, and competitiveness will likely never be recouped.

Japan didn’t manage to come out of crisis at that time because it didn’t have a precedent to go with. The decision makers couldn’t decide but they were totally unaware of the possible damage. America knows of it and is still treading the same path. It is true that both situations are not 100% comparable but they are not that disjunct as well. Marquez could maybe claim sometime later that the protagonist in his novel was meant to denote the American economy in the days to come.

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I recently came across and article by Krugman in NYT that confirms to my feelings above:
"Recent data don’t suggest that America is heading for a Greece-style collapse of investor confidence. Instead, they suggest that we may be heading for a Japan-style lost decade, trapped in a prolonged era of high unemployment and slow growth."
 

Messy America or a messy world

We Indians are used to getting depressed after picking up the morning newspaper. News of non-functional government, road rage, political gimmicks, and injustice is generally all over. And many of us, and of course many in this world look to America as an ideal place to be in. Not for nothing is the phrase ‘the American Dream’ so popular.

However, when I read the NYT today it made me feel bad. The denial of clemency to Troy Davis and the mention of police forcing witnesses to testify incorrectly, bad news on Afghanistan front and a reminder that this would be a never healing wound, the governor of California Jerry Brown finding it difficult to deal with Republicans and the images of the debt default crisis and so on and so forth. This is news but this is symbolic of the fundamental fractures that have appeared in the American system and it is tough to believe if these could be cured especially when the inspiring Obama is appearing hapless.

 It is true that sometimes we feel good that as we are growing economically and therefore politically in the global arena the so called bosses of this world are seeing a decline. Only recently was I emailing the YouTube videos of American ‘tent cities’ to my colleagues in my office. However, at another level America for all its bossism is also a set of superb values. Well many Indians feel that we have stronger values than say Americans but my reading is values in India are more of hypocrisy.

Europe again is in crisis which is not just economy related but reflective of deeper malaise in the system. So that makes me wonder if we are all in a period of institutional decline or is this a transitional phase of say a couple of decades when the high would converge to the low and then the low would reach to a higher pedestal. In other words would Indian or Chinese values and institutions graduate and mature enough to ever reach the status of an ‘American Dream’ in its true sense.

Or has something changed drastically in the set of human values that would never allow us to recreate such a nation. As Fareed Zakaria mentions we are a bit more pessimistic today because of the flood of easy information, and I am cognisant of that. There are no world wars, no cold war of the previous magnitude, increasing longevity and so on, and terrorism kills lesser number of people than events in say earlier times. There is also a flood of philanthropy lead by the likes of Gates and Buffetts.

What do you think then? Is it a messy America or a messy World?