Cyreenik Says
Ever since Japan suffered its "Lost Decade" in the 1990's economists and other financial types have tried to figure out what happened there? Why didn't Japan bounce back as it had so many times before in the post-World War II era? The answer agreed upon now, in the 2010's, is that it encountered "deflation" and that was a trap both deep and difficult to emerge from. One fallout from that conclusion is a great fear of deflation throughout the financial world. Numerous articles now show up in the Wall Street Journal, The Economist and other financial magazines about the steps the ECB must take to dodge deflation in Europe. And earlier in the 2007-9 Great Recession crisis the US's Quantitative Easing policies were enacted for the same reason. The heart of these steps is to promote inflation instead of deflation, and this is why interest rates are being kept artificially low to this day in both Europe and the US.
There is an expensive problem with this conclusion and this core solution to the threat: It stifles long-term growth.
The goal of the low interest rates is to stimulate lending which will stimulate growth. The problem is that low interest rates mean the investing done with this stimulated lending isn't disciplined -- a harsh and careful eye is not being paid to the returns on what is being invested in. Instead money is being funneled into what seems quick and easy -- good returns or not. This is why growth has been slow, and will stay slow as long as interest rates stay low.
For this reason, we should reexamine what caused the Lost Decade in Japan. I think a reexamination would show that demographics were the key to this phenomenon, not falling prices. Japan was going through several kinds of "generation gap" crises in the 1990's. The nation was aging, the manufacturing and consumer technologies were changing, and the young workers just coming into the job market were reaping the benefits of two decades of previous success -- they were more individualistic and less conformist. The net result was a recession that did not come up with quick answers as how to change what business was being done to move into a new boom. (This is my definition of what a recession is about: It's about transitioning from a set of boom industries that have run out of steam on to another set that is ready to grow fast.)
This mix was a first for Japan. This, in my opinion, was the root of the Lost Decade. And this same issue -- what kind of new, growing industries will replace those of the last boom? -- is the current big challenge Europe and the US face.
In sum, we need to understand this issue of slow growth better if we are going to solve it. Deflation is a distraction, not an insight.
In eastern Europe these are scary times. The last time this magnitude of territorial antics happened the end result was World War II. So far Putin and his Russian military have come up with splendidly successful tactics for inserting his military without provoking a NATO or other western response, and no one else, such as UN, China or India, is more than mildly upset in the diplomatic arena.
I give a sad Congrats to Putin the Innovator.
But his success has amplified the fear in the region. Ukraine has been having a rough time governing itself for the last twenty five years -- even with twenty five years of practice they haven't learned how to create a strong central government. The Russian occupying successes are a dramatic symptom of that. So... what happens now?
Given the fear, and panic, a Blunder is looming. An exciting event will happen (think 9-11) and someone, many people, in the region are going to make a hasty and very expensive response to it. As with all Blunders its nature will be clear only after the fact. It will seem like a good and reasonable response at the time, but in retrospect, when viewed by cool heads, it will look hasty and hugely expensive.
I'm calling it: Blunder Time is upon us.
The beginning of this Ukraine Blunder Chain was the ineffectual governments the Ukraine has been living with since its independence twenty five years ago. These governments, there have been several changes, have consistently been corrupt and kleptocratic. For twenty five years the Ukrainians have not figured out how to build effective national governing institutions. The protests starting in November 2013 which then got violent in Maidan Square started the current Blunder Chain, and Russia going into Crimea has been another link in it. It is unlikely the chain has ended. It is unlikely because the root cause -- ineffectual central government -- has not been solved, or even recognized by Western media. In this circumstance, the Crimean situation is simply Putin taking advantage of a bad situation in the Ukraine. The people who need yelling at are the Ukrainians, not Putin.
This 1 May 14 WSJ article, IMF Bets This Time is Different in Ukraine Stabilizing the Economy Is Important But Geopolitical Risk Remains the Bigger Factor by Richard Barley, gives some feel for the magnitude of Ukraine's governing problems. From the article, "Ukraine's previous IMF deals—a $16.4 billion package in 2008 and a $15.2 billion deal in 2010—both ran off the rails quickly as Kiev reneged on promises to undertake economic overhauls and markets proved surprisingly willing to provide funding. Ukraine still owes $5 billion to the IMF from those programs."
It appears that Putin is ready to move again and gobble up some eastern Ukraine to add to the Crimea grab.
The media is making a rock star of Putin in this process. What they are not doing is pointing out that this is happening because the Ukrainians can't get their act together and create a stable government that can put up meaningful resistance to Putin.
How feeble is the Ukrainian government?
Putin is sending in gangs of armed thugs, not tanks and aircraft. The Ukrainian government can't organize soldiers and police to face off gangs of armed thugs?
Ouch! In this the Ukraine is acting like Afghanistan West. This is the truly spooky part, even if the media is not bringing it up.
Update: This 14 Apr 14 WSJ article, Putin Tightens His Clampdown at Home 'In suffocating Ukraine,' says an analyst in Moscow, 'Putin's really suffocating Russia.' by Matthew Kaminski, offers more thoughts on why the Ukraine Crisis is happening: It is Putin's way of clamping down on Russia. This tactic is classic for appealing to the "redneck contingent" in any culture. <sigh>
This thought was inspired by a 29 Mar 14 Economist article, America’s awful airports A new ranking, which talks about how terrible the service and facilities are at American airports compared to the overseas airports they connect to. From the article, "SOGGY pizza, surly security staff and endless queues: American airports offer a shabby welcome to the greatest nation on earth. On March 26th Skytrax, a consultancy, released its list of the world’s 100 best airports. The highest-ranked in America was tiny Cincinnati, at 27th."
Why is this? And related, why do Americans accept the cheap-shot pricing-and-fee trickery that plagues trying to find out how much it is going to cost to fly from Point A to Point B?
My answer is that these choices are caused by enduring scars from the 9-11 Disaster. Even before 9-11 many Americans had a deep-seated fear of flying, but the 9-11 Disaster changed how that fear was expressed. Since 9-11 this fear as changed American flyers' expectations from believing they can enjoy the experience to believing they have to endure the experience -- they feel they have to put up and shut up. Compare this to the expectation the traveler has when he or she arrives at their hotel.
The long term result of this fear has been a paralysis of what Americans expect from their flying experience. Americans don't expect planes to get better, they don't expect airports to get better, they don't expect the experience to get better.
What can be done to erase this scar... to get over it, and allow commercial travelers to aspire to enjoying flying again?
First on the list is to understand that fear of flying and airport security are two different issues. The current TSA rituals treat them as one and the same. So Americans need to decide if the TSA is in the making airports more secure business, or the helping passengers sooth their fear of flying business.
If the TSA is in the help-calm-fears business, then treat their airport presence like the new religion it is and make it optional to endure the ritual and sacrifices, as in, freedom of religion. People can walk by the searching and checkpoints (or whatever rituals replace them) if they feel confident the plane will fly fine without engaging in them.
If the TSA is in the airport security business, then reform the TSA practices to make them discrete instead of obtrusive. The obtrusive TSA rituals serve to vividly remind Americans that they have something to be scared of. This helps the scar to endure, and with it the paralysis of expectations for improving air travel.
(Note: here is some earlier writing I've done on this topic.)
Update: This 13 May 14 WSJ editorial on the flight MH370 tragedy, Malaysia's Lessons From the Vanished Airplane My government didn't get everything right. Yet other parties, too, must learn from MH370—and make changes. by Najib Razak, gives some more examples of where the air travel industry has been lagging. From the article, "One of the most astonishing things about this tragedy is the revelation that an airliner the size of a Boeing 777 can vanish, almost without a trace. In an age of smartphones and mobile Internet, real-time tracking of commercial airplanes is long overdue." and goes on to give several simple recommendations for things such as black box design.
This accident is one of a kind. In that it is like the 9-11 Disaster. We aren't going to see a repeat. But read between the lines: The recommendations of the article indicate how slowly air travel has been adapting to modern technology. This slow adapting is caused by the ongoing fear of flying that air travelers feel. This fear seeps all through the industry, slowing change down. And these fears are vigorously reinforced by our current TSA rituals... And the huge media circuses that each airline accident produces -- media can fully share blame with the TSA.
-- The End --