Tags: Double Dip

Headed for a Double Dip? Or, Spengler vs. AOL


Mort Zuckerman seems to think so. I suspect so, too. Reason: I have a radical belief that setting great trillion-dollar piles of money on fire will not lead to increased production of goods and services. Just a hunch!

Zuckerman’s in a black mood, meditating upon Oswald Spengler, of all people:

Read today, Spengler’s forebodings have an uncanny and chilling association with our present predicaments. He was not saying Western civilization would vanish overnight in a puff of smoke. It would erode more slowly, as did some ancient civilizations—not to vanish forever but with symbols of their power and influence surviving (the Pyramids, the Aztec temples, the Parthenon), with the potential to re-emerge as civilizations many centuries later.

Are our current plagues—the riots first in Athens and then in Paris, our global economic crisis manifest in the riots and rampant sovereign debt—merely a symptom of a deeper decay of a civilization in the autumn of its existence? A civilization unable to recognize its own vulnerability? The riots were certainly as much an example of myopic lethal self-indulgence as the sovereign debts in all the leading countries of the West. In France, students took to the streets protesting against a rise of just two years in the age of subsidized retirement—a system destined to bankrupt the state long before they, too, want the comforts that will be impossible to sustain.

Among Spengler’s convictions was that money, instead of serving mankind, would betray the Western civilization as it had others—and money in politics and media especially.

The truth is, we betrayed the money before the money betrayed us.

I am not yet ready to give into Spenglerian agony. Here’s the optimistic take: The modern welfare state as we know it is an obsolete piece of technology, the Commodore 64 of politics (without the cool sound effects).  It does not do what we want it to do, and it is beyond upgrading. The choice we really face, short-to-medium-term, is whether we will make the necessary changes that will allow us to develop new institutions and protocols to replace the welfare state and its unsustainable model of entitlement and expense, or whether we will ruin ourselves and impoverish our progeny by clinging stubbornly to a set of practices that had their time but no longer serve our interests.

We’re not eager to make big changes, for the same reason that some middle-aged people still use AOL: Change is uncomfortable and, even though what we have right now doesn’t really work all that well, it works well enough for the moment. But, eventually, we upgrade. It can be painful and expensive (I just spent a small fortune on upgrades for my elderly MacBook, forced to do so just to make a new toy work), and there’s a learning curve that gets less and less pleasant as you get older, but things work better afterward.

To the extent that I am optimistic about the long-term prospects of our economy and our society, I am optimistic because nobody wants to be poor, miserable, and vulnerable. There are better ways to organize shared life, distribute risk, and to solve truly public problems, and we know what some of them are — and, better still, we know how to create the conditions for discovering better solutions even though we do not know what those solutions are, or even what they will look like. We want to have cool stuff and lead long, healthy lives with lots of options for work and play, and, ultimately, that desire will push us to make better decisions and  to develop better institutions than the ones we have.

We have 900 kinds of shampoo but one major pension plan, a crappy one run by the government, into which everybody is obliged to enroll. That’s simply not destined to last — especially not when it is imposing an unpayable multi-trillion-dollar obligation on future generations. We thirtysomethings already are cursing our Baby Boom forebears for their short-sightedness and stupidity, but the people under eighteen right now are the ones who have a real shot at seeing things radically improved before they’ve spent their prime working years paying half their incomes into an array of failed and unproductive programs rooted in dead politics. But somebody has to have the guts to make the first move. Spengler may have been correct about the Europeans, but I still think Americans have guts.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Debt , Deficits , Despair , Double Dip , Recessions

No Inverted Yield Curve = No Double Dip?


Bloomberg seems to think that the lack of an inverted yield curve (meaning a bond market in which long-term bond yields fall below short-term yields) means there will be no double-dip to this recession: The inverted yield curve has been a prelude to almost every earlier recession.

But . . . short-term rates are basically zilch. How do you get a long-term rate under that? Slide it under the carpet? Stuff it in a gopher hole? At least one investment manager is thinking the same thing:

An inverted yield curve has twice failed to predict a recession — in late 1966 and late 1998. The bears say bonds may be sending another “false positive.” With the Fed’s target rate for overnight loans between banks at a record low of zero to 0.25 percent, it may be impossible for long-term yields to fall below short-term debt.

“As long as the Fed continues with ultra easy policy the yield curve’s relative importance as an economic signal is diminished,” said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York.

As for the politics of it, the optimists at the Cleveland Fed are predicting a sclerotic 1.14 percent growth over the next year — not exactly guns-blazing, unemployment-slashing stuff. 

Tags: Bonds , Double Dip , Economy , Fiscal Armageddon , Recession

Subscribe to National Review