National Security & Defense

The World Economy Staggers Along

(Maria Adelaide Silva/Dreamstime)
The view at year’s end

Almost the only G-20 government that is behaving sensibly is that of Saudi Arabia. As the sun sets with agonizing dilatoriness on the Obama administration, there is no sign of a resurrection of fiscal sanity, of any concern to reform “Affordable Care,” or even of a desire to palliate the shambles of the justice system with its ancillary constabulary and custodial abuses (though African Americans are severely provoked). For what promised to be a transformatively reforming regime, the very tired incumbent has turned out to be one of history’s great underachievers, but he is in numerous company. The aberrantly incompetent French government of François Hollande has managed to lead that rich and highly intelligent, if demiurgically fractious, country into negative economic growth despite chronic fiscal deficits.

German chancellor Angela Merkel talks a good game and deserves some credit for maintaining a reasonable economic performance, but her attempt to fulfill Germany’s longstanding vocation as Europe’s greatest power has been a fiasco. She sternly admonished Russia not to abuse Ukraine but doesn’t reduce German dependence on Russian natural gas. Her coalition partner, the Social Democratic party (SDP), is in a state of schizophrenia whose traditions are rooted in the Reuter–Schumacher and Schmidt–Brandt schisms between upholders of the Western Alliance and fantasist appeasers of the Kremlin, whoever lurked within it. The opposition parties in Germany do not contain any identifiable sane elements: They are the former Communists who have changed only their name and discarded their uniforms, the cyber-pirate nihilists, and the Greens, still fuming about nuclear power and slaves to their addiction to Russian natural gas.

Almost since the hyperactive child-emperor Wilhelm II fired Bismarck in 1890, discarded the Reinsurance Treaty with Russia, and unsuccessfully challenged the naval superiority of the British — driving both those countries into the arms of the revanchist French — Germany has, as Winston Churchill famously said, been at our throat or at our feet. It is undoubtedly capable of showing responsible leadership, and now that Washington has virtually checked out of Europe, there is no one else to do it; but there, as in France and the United States, a possible strengthening of the government (in this case by giving Merkel back a feasible coalition-partner) is two years away.

The Russians are finally retrenching somewhat from their agitation of Russian irredentist minorities in the former Soviet Union, under the pressure of Saudi reductions of the oil price, but this is a problem that always had to be addressed and will not be dealt with sensibly with the present infestation of shilly-shallyers and poseurs in what used to be grandiloquently called the chancelleries of the Great Powers. There are substantial ethnic Russian populations in the Baltic and Caucasus states, as well as in Ukraine, Belarus, Moldova, Kirghizstan, and Uzbekistan. No sane person imagined that Russia would happily go back to its pre-Romanov borders of the Grand Duchy of Muscovy, and no one could expect Vladimir Putin to do so. But if the West had any leadership in its major countries of the stature of Adenauer, Kohl, de Gaulle, Pompidou, Churchill, Thatcher, Truman, Eisenhower, Nixon, Reagan, or the senior Bush, some sort of understanding could be made that allowed coherent chunks of those former Soviet republics that wished to reunite with Russia to do so. Such an understanding would Finlandize some adjoining areas as neutral in foreign policy but autonomous in local affairs, and some would depart the Russian orbit for the West. Were it not for the Saudi tanking of the oil price — which is not aimed at shale-oil exploitation, much less at the tide of Russophilic activity in Eastern Europe, but at Iran’s nuclear program and Iranian and Russian support for the palsied Assad regime in Syria and envenoming of Hamas and Hezbollah — Putin would, to his heart’s content, pluck back parts of the old Russian empire sequentially. The Saudis are exposing Russia as an economic basket case, and, by serendipitous happenstance, are restraining Russian appetites for imperial restoration, in the absence of anything useful from the same powers that implemented the containment strategy that caused the Soviet Union peacefully to disintegrate.

It is a sign of the enfeebled and delusional state of most contemporary economic thinking that oil-price declines are greeted in Western stock exchanges with alarm. These reductions are like a $500 billion tax cut for the population of the North Atlantic countries, with no significant revenue reductions to any but a couple of the governments (Canada, Norway). They should be a matter for celebration, not only for the increase in disposable income, the ultimate non-inflationary boost to supply and demand, but as a vindication of the expanded search for energy despite the wailing of the environmentalists.

And it could be a geopolitical reprieve as well: As the West has waffled over the Iranian nuclear program, the Saudis have laid a rod on Tehran’s back, and, if that is not sufficient, there is still a prayerful hope that Israel will bring the rafters down around the ears of Iran’s furtive subterranean nuclear physicists, toiling like Nibelungen to endow Iran’s mad theocracy with the ultimate weapons of terror. The International Atomic Energy Agency has identified another clandestine Iranian organization beavering away in violation of all Iran’s promises and it is impossible, on current form, to imagine the irresolute alignment of the U.S., the U.K., France, Germany, Russia, and China imposing anything serious on Iran, or Iran complying with anything that gave any sane person a sense of security that it was really abstaining voluntarily from becoming a nuclear military power.

The reelection of Japanese prime minister Shinzo Abe is a straight victory for inflation, everything else having failed to restore Japanese economic growth (everything, that is, except what hasn’t been tried, i.e., tearing apart the built-in feather-bedding of the Japanese employment model that effectively requires all able-bodied people to be on the payroll no matter how superfluous or imaginary the work they do).

Another indication of how peculiar everything to do with international public policy is becoming was the address of Britain’s chancellor of the exchequer, George Osborne, to the New York Economic Club last week. In an acrobatic handspring, he professed lock-step solidarity with the U.S. administration that has spent the past several years urging the British and other Europeans to expand the money supply through the deathly euphemism of quantitative easing. He declared that “the pessimists used to argue that Britain and America couldn’t escape the financial crisis without massive fiscal stimulus and even higher deficits.” Just what does the chancellor, who is presumed to know something of arithmetic, think has gone on as the U.S. has raised federal public debt by 80 percent (i.e., $8 trillion) in six years, and his government has raised it from about 45 to 96 percent of GDP in four years? He is right to take credit for relatively good unemployment and economic-growth figures, but he did not achieve them by emulating the Obama-Geithner economic miracle of achieving minimal economic growth by creating an immense increase in the money supply in six years, and what he actually did do was not worth hurtling over the Atlantic to New York to give prideful speeches about. The greatest advantage the Americans and the British have is that they are not the Europeans, who have persisted for six almost uninterrupted decades in paying unaffordable Danegeld to organized labor and the small farmer (from historically understandable fear of labor and agrarian discontent), while life expectancies rose and birth rates declined, encumbering a smaller share of the population with the burden of carrying the ever-expanding number of public-benefit recipients. The dollar and the pound look good compared with the soft underbelly of the Euro, which Germany does not wish to discard because of the advantage a tainted euro gives to German exports.

None of these currencies is worth anything except in relation to one another; no advanced countries (except Australia, New Zealand, Chile, Luxembourg, and most of Scandinavia) have national-debt levels that are not dangerous by traditional standards; and every announced plan, including that of the U.K., for ending deficits is based on chimerical growth figures and more inflation (the U.S. has not progressed to the point of even espousing one, no matter how far-fetched). George Osborne has done his best and Britain, unlike the United States, is not a rich country; his espousal of an “activist monetary policy,” “a credible commitment to sustainable fiscal policy,” and “supply-side reform” is all right as far as it goes. But neither country, and few others, have done anything to crow about in any of this. Nothing profoundly useful is going to happen until the major countries reform entitlements and make them affordable to their aging societies, and attach their currencies to some measurement of value that holds governments accountable to inflation in key areas, and not just the recent mixture of inflation and stagflation that produces acceptable averages but much discomfort. We will not drink ourselves sober, even by fiddling with the size of the whiskey bottle and the draft-beer glass, and the exotic combination of the Saudis and the Israelis will not pull our chestnuts out of the fire after they have retrieved their own.

I am afraid that this will have to do as my Christmas and New Year’s greeting, heartily extended to all; I prayerfully hope that, a year from now, some of these necessary steps will have been taken.

— Conrad Black is the author of Franklin Delano Roosevelt: Champion of Freedom, Richard M. Nixon: A Life in Full, A Matter of Principle, and Flight of the Eagle: The Grand Strategies That Brought America from Colonial Dependence to World Leadership. He can be reached at


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