Interesting that the increase in the deficit is the major platform on which every Republican is running.

 David Cameron MP UK Prime Minister

 “David Cameron’s isolation is a sign of weakness not of strength … It is not in Britain’s national interest for decisions to be taken without us even at the table and it’s a direct result of David Cameron spending more time negotiating with his own backbenchers than with our European partners.”

Douglas Alexander MP
UK Shadow Foreign Secretary

“Mr Cameron was right to reject a deal designed by the French, for the French.”

The Daily Telegraph

The UK has most of the EU’s financial business, but we have a minority of the votes. The City does business globally but pays its taxes here, so retaining a strong, vibrant, international finance hub here is good for jobs and our economy.”

Angela Knight
British Bankers Association

“Britain did not walk out of the EU last night. But let there be no doubt about it: we have started falling out.”

The Economist

The current issue of Vanity Fair has a very lengthy investigation of the collapse of the Irish economy by Michael Lewis, author of a number of lively accounts of the dismal science of economics.  Liars Poker and The Big Short are very accessible and often funny investigations of the bizarre world of high finance that focus on the people involved to illustrate larger insights.Turning his attention to the situation in Ireland, he uses the same technique.  As an Irish American, I was most amused by his ironic observations on how this particular economic crisis is informed by the unique qualities of the Irish.

Here’s his explanation for the unusually strong Irish ethnic identity:

The Irish insistence on their Irishness—their conceit that they’re more devoted to their homeland than the typical citizen of the world is—has an element of bluster about it, from top to bottom. At the top are the many very rich Irish people who emit noisy patriotic sounds but arrange officially to live elsewhere so they don’t have to pay tax in Ireland; at the bottom, the waves of emigration that define Irish history. The Irish people and their country are like lovers whose passion is heightened by their suspicion that they will probably wind up leaving each other. Their loud patriotism is a cargo ship for their doubt.

Here’s his comparison between the Irish collapse and the American version:

The Irish real-estate bubble was different from the American version in many ways: it wasn’t disguised, for a start; it didn’t require a lot of complicated financial engineering beyond the understanding of mere mortals; it also wasn’t as cynical. There aren’t a lot of Irish financiers or real-estate people who have emerged with a future. In America the banks went down, but the big shots in them still got rich; in Ireland the big shots went down with the banks.

At the conclusion of an account of the meeting as which it was decided to have Irish taxpayers provide a guarantee of the debts of the Irish banks, he explains the choice confronting Irish Finance Minister Brian Lenihan:

Lenihan faced a choice: Should he believe the people immediately around him or the financial markets? Should he trust the family or the experts? He stuck with the family. Ireland gave its promise. And the promise sank Ireland.

To drive home the profound folly and, frankly, tragedy of that decision, he describes how this it played out for one financier in a way that, frankly contradicts his point that the big shots suffered:

Not long ago I spoke with a former senior Merrill Lynch bond trader who, on September 29, 2008, owned a pile of bonds in one of the Irish banks. He’d already tried to sell them back to the bank for 50 cents on the dollar—that is, he’d offered to take a huge loss, just to get out of them. On the morning of September 30 he awakened to find his bonds worth 100 cents on the dollar. The Irish government had guaranteed them! He couldn’t believe his luck. Across the financial markets this episode repeated itself. People who had made a private bet that went bad, and didn’t expect to be repaid in full, were handed their money back—from the Irish taxpayer.

And, finally, explains, in part, why the Irish seem to be absorbing this catastrophe with such stoicism.  Unlike Greece, the Irish are not marching in the streets.  Instead, they appear to be taking ownership of this situation as a whole society.  An Irish friend wrote to me, “We were on drugs- almost an entire nation !!”  There is not a lot of public wailing.  Again comparing the Irish to Americans:

Two things strike every Irish person when he comes to America, Irish friends tell me: the vastness of the country, and the seemingly endless desire of its people to talk about their personal problems. Two things strike an American when he comes to Ireland: how small it is and how tight-lipped. An Irish person with a personal problem takes it into a hole with him, like a squirrel with a nut before winter. He tortures himself and sometimes his loved ones too. What he doesn’t do, if he has suffered some reversal, is vent about it to the outside world. The famous Irish gift of gab is a cover for all the things they aren’t telling you.

It’s a long read, but well worth the time.

On a more positive note, a recent piece in Forbes entitled, “Four Reasons the Irish Roar Will Return,” Nin-Hai Tseng outlines the qualities in the Irish economy that position it well for recovery.  These include low taxes, a young, productive and educated workforce and the following:

Unlike Greece, Ireland’s economy is overwhelmingly made up of exports — they account for about 80% of GDP versus just 7.2% in Greece. Facing huge debt and deficits, it’s clear both countries will have a hard time relying on demand for goods and services at home. If anyone can look at markets abroad to increase GDP growth, it’s Ireland given the sheer scale of exports its economy already runs on.

Hope springs eternal.

In his mild academic manner, the economist explained that he’d just re-read some accounts of the Great Depression and the lessons learned from conservative economic God, Milton Friedman.  He pointed out that Bernanke is doing exactly what Friedman recommended, in hindsight, should have been done to prevent the Depression.  A slam dunk against Scarborough.

Scarborough continued to protest by saying, “Isn’t that the same thing that Greenspan did [which the hypocrite on the left refuse to acknowledge]?”

The economist pointed out that Greenspan’s loose money policies occurred at a time of economic growth, which inflated the bubble.  Bernanke is responding to a recession that could have tipped into a depression.  Double slam dunk!

Scarborough changed the subject.  No concession, no rebuttal.  Just changed the subject.

Grrr!

What I’ve read are account of extreme economic stress that have required the new government, led by Conservative PM David Cameron, to impose extraordinary fiscal measures that will result in tremendous hardship. What I’m seeing is stores overflowing with people and shopping areas with sidewalks jammed with people carrying goodies for the holidays.

We visited a place that is popular among young people of my 16 year old daughter’s generation called Top Shop. There was actually a line to get into the store and three floors of avid shoppers.

In fact, what I think I’m really seeing is the economic divide that plagues the Western world these days. Some people, the people I’m seeing in the center of London, are unaffected by the recession. Those affected remain in the shadows, while the courageous politician impose economic austerity that they will likely never see.

Sad, very sad.

I was most struck by the following excerpt:

Lisbon failed because lots of Europeans do not want to live in the most dynamic and competitive economy in the world. They prefer to work fewer hours than Americans or Japanese (about 10% fewer, on average), to take long holidays, and to retire as soon as possible. Among EU leaders it is fashionable to predict that the financial crisis will lead to a revolution in “European economic governance”. Yet that phrase hides a dearth of new ideas.

I find that quote very telling, because it exposes this view that economic growth should be an end in itself.  What he’s saying is that, in their heart of hearts, Europeans will choose a better quality of life over economic growth for its own sake.  I have to say I admire that view. When conservative attack liberals for their secret agenda to Europeanize the American economy, I think “what part of total healthcare coverage, fewer work hours,  longer vacations, earlier retirement, do you not like?”

An economic system should be a means to an end with the end being a better human existance.  As the saying goes, “nobody every laid on their deathbed saying, ‘I wish I’d spend more time at the office.’”   Obviously, you can overshoot and, if your economic system does not produce enough wealth to sustain a good quality of life, it needs to be adjusted.  And maybe the ideal is somewhere between Europe and the U.S.  But, in the American debate, it seems that that we sometimes lose sight of what the real purpose of a strong economy ought to be.

I think capitalist democracy depends on an educated populace that, in general, recognizes the tradeoffs inherent in sound economic policy.  It also helps of the population has some kind of social conscience that will prevent gross inequity from taking hold.  I fear that large numbers of Americans, maybe even a majority of the voting population, lacks either of these qualities.  Combine that with a dysfunctional Congress (read: U.S. Senate) and the future looks bleak.

But there may be another way and China is, I think, testing the proposition.  Maybe if you concentrate solely on generating economic growth and ignore the luxuries of democratic governance or government provided social programs, you can create a functioning society.  Maybe the best way to maintain social peace is a free market economy, with a tightly controlled political system.

In today’s Financial Times, there is a story about economic growth in Tibet.  The Chinese government is focusing heavily on making sure the economy is robust in this tumultuous region, while maintaining strict control over political activity there. 

Nearly two years after Tibetan regions of China were engulfed in riots and protests, Beijing is doubling its bet that rapid economic development will win the political loyalty of its Tibetan population.

This will be an interesting experiment.  Let’s check back in two years and see if the Tibetan resistance to Chinese political control subsides as the population begins to enjoy the fruits of a strong economy. 

Maybe James Carville was more right than he knew when he said, “It’s the economy, stupid.”

Of course, that’s bad news.  The worse news is things are going to get worse when the demographic time bomb hits.  It’s projected that, by year 2040, 40% of the Japanese population will be over 65. 

Yikes.