Monday, March 30, 2009
The Second World Depression?
So why not major economic downturns that are not confined to one country or region?
The 1914-1918 conflict was the "Great War" until 1939; then it became World War One. We talk about the "Great Depression"--perhaps now it is time to think of that as the "First World Depression?" And given the havoc the current crisis is working--especially in terms of bringing down governments--as well as the drops in levels of economic activity, which are now not being compared to the economic downturns of the 1970s and 1980s but what was taking place in the 1930s--are we in the early days of the "Second World Depression?" And should we be worried that in its wake there will be an uptick in conflict? Do World Depressions have to be followed by major wars?\
[A passing note: Robert Cutler at the Asia Times shares some of Fedyszyn's concerns.]
The current crisis looks more to me like the Panic of 1907, which began with a real estate crash (an insurance crisis after the San Francisco earthquake). But a massive injection of money by J. P. Morgan stabilized the financial system, and underlying demand pulled the world economy back to peacetime growth.
The current situation is different and worse in some respects than 1907 (and of course bad policy today could aggravate it). But I don't see the same physical conditions in the world economy today that existed in 1929.
The sort of war danger that arose in the 1930s resulted from authoritarian solutions to massive unemployment. So far none of the world's great powers seem to be in this kind of danger.
Will's British analogy is closer to what I think lies ahead. The years from 1879 to 1898 saw a number of small wars along the Islamic periphery, in which Britain extended its politico-military influence even as its economy was declining relative to industrializing rivals. The United States today may be repeating this pattern. How long US influence can be sustained is one question, and whether multipolar rivalries sharpen is the other. The conditions of the period 1914-45 resulted from a multipolar world that could not establish a basis for effective peaceful coexistence.
The War of 1914 followed that dissolution and was followed by the War of 1939.
In our own time, we have gone from the sustained peace of the Cold War which lasted for almost 45 years to a 20-year inter-regum period that has now ended.
The political economy of the Cold War is dead. The political economy of the inter-regum is also dead (US consumer as the engine of global growth).
We have entered un-charted territories. We need to look at, perhaps, to the Indian Ocean basin world before the Rise of the West to glean any lessons regarding a possible multi-polar world economy.
It is indeed interestng that we refer to the least warlike, least bloody 46 years of European history in the last thousand as a species of war.
And I agree we are likely to see a great deal more of war, as it becomes clear that what Reagan did was not to win a "war" but to wreck the political foundations of the Peace of Yalta.
I think the economic malaise of US diminishes US power since money is the grease of politics - cajole, co-opt, or bribe.
Without money to buy policy conformance (look at US aide to Egypt as an example) US policy options diminish.
Since much of the military gear is bought and paid for, US can - in principle - use her military forces in lieu of cash. But the usage of these military forces is a one-shot thing; it cannot be repeated since the bullet is spent and there isn’t budget to replace it.
An escape from this conundrum is to re-evaluate, re-trench, and re-duce US commitments and interests abroad
The inter-regum of US-EU pre-ponderance whereby they could get thing for free is over.
With all those nuclear weapons floating around, it seems doubtful that we can have a good, old-fashioned war any more. In any case, according to economist Robert Higgs, the war brought prosperity only because the Roosevelt administration found it necessary to recruit the American business community, assuring them they might keep their property and some of their profits. There's no guarantee that the Obammunists would do likewise.