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Many have tried to predict the future, but only a few ever succeed. One is Paul the Octopus, who correctly called all seven of the German team's matches in the World Cup as well as Spain's victory over the Netherlands in the final. Three others include the provocative French thinkers interviewed for this article, each of whom called the American economic crisis years ahead of the fact. What's next now for the United States? The three all hope that the country can reform its financial and political system and cooperate more with Europe and the rest of the world but they fear that special interests will get in the way. One prediction: the international floating currency system will soon end, maybe as early as autumn.
The United States now faces its most precarious economic situation in the postwar era. Many U.S. economists and policymakers see it as a serious but temporary problem, the result of a string of bad strategic and macroeconomic decisions. To some French thinkers, however, it’s another sign that the American Century that took hold after World War II is over.
Of course, finding French intellectuals with doubts about the United States hasn’t been too difficult since Ambassador Franklin went home. But the three interviewed for this article aren’t indulging in schadenfreude. Each one has a good track record for predicting American economic crises:
• Thierry Gaudin, a futurist, first forecast a major economic conflagration in the United States nearly 20 years ago
• Paul Jorion, a leading economics blogger, published a book in 2007 called Is American Capitalism Heading for a Crisis?
• Jean-Luc Gréau, a former economist for MEDEF, a national business group, has argued for years that the U.S. model of laissez-faire capitalism is inherently unstable. He published The betrayal of economists in 2008.
Although coming from very different economic viewpoints, all three foresee continued weakening unless the United States, against the odds, can reform its financial and political system and cooperate more with the rest of the world. One of their first predictions: the end of the international floating currency system, which Jorion believes could happen as early as this fall.
President of Prospective 2100, a group that makes long-range predictions, Gaudin argues that the world is now undergoing changes as far-reaching as those of the Industrial Revolution.
The American crisis is “not a short-term economic imbalance,” Gaudin says. There were 124 systemic banking crises around the world between 1970 and 2007, Gaudin says, quoting an International Monetary Fund working paper – a number that suggests to him that financial crises aren’t an anomaly but “an intrinsic part of the system”.
But Gaudin argues that the more important economic story is the movement of industry out of high-wage countries, because the decision to “delocalize industry to low-wage countries will also delocalize the know-how for the industrialized countries.” This will lead eventually “to either a financial collapse as we have had in this crisis or a very sharp … impoverishment of the formerly industrialized world, because the know-how is no longer there, except for some elements in software – but these can only live if the intellectual property system is strong enough.” What can we do if other countries don’t honor intellectual property? Gaudin scoffs. “Send in the troops?”
The roots of the present situation in the United States begin with the end of World War II, according to Gaudin. He says that in a report by his organization, Prospective 2100, “The World in 2025: A Challenge to Reason’’, his research team argues that the United States and the Soviet Union faced a problem – an economy fueled by defense spending. Looked at in that light, the Cold War then can be seen as “a great invention” that helped both sides maintain high-levels of armament production. “It became a sort of Hollywoodian game with very nice casting, and it worked,” he says.
Since the Soviet Union imploded, the United States has tried to replace Communists with terrorists, but with limited success. Instead, he argues, the country should try to harness popular support to use the military to protect the planet’s natural resources.
But he is not sure how that can happen unless the political system is changed – and he’s not sure if it can. Right now, a “lobbyocracy” rules in the United States, and it may be difficult to displace, he says. If the system can’t be changed, he is very pessimistic about the future of the country.
“Probably if the dangers on health and nature and so on and the disorder of the economic system grow, that will push toward a very authoritarian system,” he says. “You may remember the case of Germany between the two world wars: when you have too much disorder, you have an appeal for order – whatever the order – and that’s a real problem.”
A leading economics writer whose books and blog are closely read in France, Jorion is a trained anthropologist who has also worked in the futures markets. He is noted for the holistic view he takes of the markets.
As worrisome as the economic conditions continue to be, Jorion seems less concerned now about the markets than about what is going on in Washington. He believes that the just-approved financial regulatory package will not achieve much and in fact could make the system even less stable than before.
“My sense is that that package is really dynamite, and it’s dynamite because there are compromises on a few things but there’s no compromise on the speculative dimension,” he says. “The speculative dimension escapes 100 percent from any regulation or supervision whatever . . . Nobody in his right mind can think that a system built around speculation can be a sustainable long-term system.”
Perhaps even more serious, in Jorion’s view, are the implications of the Supreme Court’s decision early this year to strike down restrictions on corporate campaign spending. “This is really putting the Chamber of Commerce in control of the whole country with just one decision,” he says.
At the same time, he doesn’t see China or Europe as being in a position to take on a greater degree of economic leadership. China, because the country’s leaders are new to the capitalist game, and Europe, because he believes that the euro is on the verge of a crisis, perhaps as early as August.
“I don’t think Spain, when it needs all that money in August, will find it,” he says. “Spain will say, ‘Well, we should restructure those debts,’ and then Portugal and Greece will say, ‘That’s a great idea,’ and they will do it, too, and that means the euro will explode sometime in early September.”
If this crisis occurs, he says, it should inspire the United States to consider a new Bretton Woods agreement, fixing the exchange rates of the world’s largest currencies, as happened under the first such agreement, which established an international monetary system in 1944 that lasted until 1971. “The U.S. knows if the euro goes, it’s not just good news for the U.S. and bad news for Europe. The U.S. knows that the whole pressure of the U.S. as a reference currency will be there, and the U.S. cannot afford anymore to pull the economy of the whole world. It’s not possible anymore — there’s not enough industry left in the U.S. to do that.”
“I just hope the people in power will be smart enough to say, ‘This time we need to be serious about it,’ ’’ Jorion says of a fixed currency-exchange system. “Otherwise the whole thing goes down the drain.”
A former economist for the Mouvement des entreprises de France (MEDEF), a trade group sponsored by the French state and 750,000 French businesses, Gréau has long seen the American global free-trade model as deeply flawed. He has argued instead for a more controlled approach to economic growth, emphasizing regional trading blocs separated by protectionist barriers.
Long-term projections of the future of a country are more the work of futurology than any rational prediction, Gréau says. However, he adds, it is possible to draw some lessons from the reshuffling of the world’s economic cards in the past decade, and the financial crisis which is ending it.
The West has been victimized by its own ethnocentrism in underestimating the capacity of Asia and Brazil to develop economically powerful economies, Gréau says, and by an illusion that this redivision of labor is favorable to itself. Medium and large enterprises in the West have aided this process by relocating their industry to these cheaper labor markets, and through this process given China a vast cash reserve of $2.5 trillion.
At the same time, Gréau is critical of what he calls “the organized chaos of foreign exchange and commodities markets,” which he says disrupts the business and economic calculations of many countries.
Gréau’s remedy: either limited protectionism against China and the other fast-developing countries, or a closer economic union between the United States and Europe, including a system of stable exchange rates between the European and North American economies.
“Unequal trade with low-cost countries is not sustainable in the long term,” Gréau says. “We must find a response either through a new trade policy, a reworking of exchange rates, or both.”
Within the United States, too, the economic shift to less-developed countries has had a profound impact, according to Gréau. Despite massive productivity gains of 18% between 2000 and 2008, most Americans are caught in a vice between stagnant wages and excessive debt. This can be solved in only one of two ways, he says: either raising wages or providing debt relief to people of more modest income. At the very least, he says, the government should make sure that the people responsible for those productivity gains share in its rewards.
Critical as he is of the economic model of financially driven capitalism pushed by the United States and the United Kingdom over the past 30 years, Gréau is not arguing for another one. “We have personally never believed in the existence of real models,” he says. The Swedish model of the 60’s, the German model of the 70’s, the Japanese model of the 80’s and the Anglo-American model of the 90’s each turned out to be based on one or more dangerous parameters – whether excessive public spending (Sweden), overuse of experts (Germany and Japan) or accelerated development of financial services and discretionary household debt (United States and United Kingdom).
By contrast, each of these systems also has elements that could inspire partners and competitors, he says, such as Sweden’s significant salaries, even for low-skilled jobs; Germany’s protection of mid-size family enterprises, which have been found to produce the best long-term performance for growth, employment and profitability; Japan’s protection of its companies from hostile raids, and the angel investor system in the United States.
La crise du capitalisme américainPaul Jorion
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La trahison des économistesJean-Luc Gréau
List Price: EUR 18,50
La prospectiveThierry Gaudin
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- Paul Jorion's blog
- Prospective 2100
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