Policy Nonsense
Who was most foolish this month?


Conrad Black

The forces of nonsense appear to be taking over the world. As in olden time, Italy is entering its third month without a government, and it celebrated the milestone by reelecting Giorgio Napolitano, 87 — the same age as Queen Elizabeth II, now in her 62nd year as British monarch — to the presidency. Napolitano returns to his office with the support of about 25 percent of Italians, as almost everyone is disgusted at the failure of the system to produce any government, but almost as many are disgusted at the thought of a functioning government, and the president was reelected only because the almost equally divided main parties of left and right do not want to go through another election, but show no sign of being able to agree on anything else. Such moral authority as there is is in the hands of Beppe Grillo, the comedian and leader of the unofficial opposition who launched his Five Star Movement by mobilizing two million Italians for “F*** You Day” some years ago.

Japan’s new policy of accelerated quantitative easing, which until the last five years of pandemic economic euphemism was simply inflation through money-supply increases, has been welcomed by everyone. The G-20 (which includes such absurdly mismanaged countries as Argentina and South Africa, and such unrepresentative ones as Saudi Arabia) expressed happiness that the Japanese program was aimed at, to quote the Wall Street Journal, “defeating inflation, not at weakening the Japanese currency.” This, in a phrase of Napoleon’s, is just “lies agreed upon.”

For the world’s third-largest economy finally to chuck in the towel and simply open the spigots of money sounds yet another death knell for serious currency. There has been a concerted effort since the November U.S. election to confect in the United States a psychology of recovery, and the gold price has obligingly declined, as if inflationary fears had abated and economic recovery were visibly progressing between the Scylla and Charybdis of inflation and deflation. But there is no real recovery. There is only puny job creation, and insufficient confidence for investment to revive even with the banking system awash with taxpayers’ money and minimal interest rates. The reason there is no recovery underway or on the horizon is that the advanced world has shot its bolt on consumption, and the developing world — except for some of the countries farthest back in the running in Africa, which have balanced infrastructure development with economic expansion rather than using the first as an engine for the second, and where there is some gratifying progress — has shot its bolt on infrastructure and related investment.

The principal significance of the Japanese move, apart from the confession that everything else has been tried and has failed, is that Japan is deliberately going to force the undervaluation of its currency, as China has done for many years, and this will be a very serious challenge to China, because Japan is a far more competent manufacturer with a much more accomplished work force. Also, unlike China, Japan is not hobbled by a command economy, a financial-reporting system based on the mere conjuration of numbers, the absence of social services, a large proportion of the population still living in primitive conditions, a corrupt and regionally fragmented government structure ultimately based on the army, and the imposition of a policy of one child per couple (which will age the population very rapidly). Japan’s move to get down, in monetary terms, on all fours with China comes when the mystique of inevitable triumph that China has been trumpeting from every parapet of the Great Wall for 20 years is ceasing to resonate.