The Age of Negativity

July 14, 2010

The fear genie is out of the lamp and running wild.  Just read the press headlines.  From a single page in today’s Financial Times, one can choose from “Three years on, fault lines threaten the world economy”, “The war on greed begins at the dinner table,” or “Hell no is not a platform for power.”  Another page offers a different trio of “Japan pension funds net sellers of JGBs”, “Small [U.S.] businesses stifled by lack of loans” or “Obama faces crisis over his leadership.”  The cover stories from the last seven issues of The Economist were

  • Fear Returns: How to avoid a double-dip recession,
  • Israel’s siege mentality,
  • What’s wrong with America’s right,
  • Obama v BP: The damage beyond the spill,
  • Losing Afghanistan: The war after McChrystal,
  • Cyberwar: The threat from the internet, and
  • Can anything perk up Europe?

Every age has a Dr. Doom.  Such people in biblical times were known as the prophets.  Henry Kaufman earned the title with relentless and correct predictions of rising long-term interest rates and other plagues that would be caused by fiscal deficit spending.  Nowadays, Professor Nouriel Roubini of NYU holds the honor of chief doomster, won fairly for correctly projecting the world financial crisis and recession.  If you are Dr. Doom, you can always get space in a paper or on some radio station or TV market-watching show to pump the trading and general public up with more fear food.  Indeed, Professor Roubini co-authored a commentary in yesterday’s FT, which among other dire offerings warned,

“The most realistic scenarios are painful, even if we avoid a double dip.  U.S. growth into 2011 will feel like a recession… Policymakers cannot keep kicking the can down the road for much longer.”

With unemployment of 9.5% in the United States and 10.0% in the euro area, with U.S. jobs about 27 million below their 1980-1999 trend-line, with surplus countries like Germany and China intent on running policies their way, and with western nations generalizing Greece’s experience to every nation and thus planning austerity in the face of greater deflationary than inflationary risk, Roubini’s forecast for 2011 is a pretty safe one. A more pertinent question is to ask if all of this will be behind us by 2015.  I expect the answer to be no.  Regrettably, this is an age for which the “negativity” label fits pretty comfortably, and a fact quoted by Martin Wolf in the first cited article above underscores that the world economy didn’t acquire its current dangers through a quick process but rather through a two generation-long slippery slope.  Quoting Professor Raghuram Rajan of The University of Chicago Business School, the article notes that from “every dollar of real income growth [in the U.S.] that was generated between 1976 and 2007, 58 cents went to the top 1% of households.”  Eventually the 99% of people sharing the remaining seven-sixteenths of the pie were going to feel pretty squeezed.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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