Is the global economy slowly falling apart? … A new book, David Stockman, President Ronald Reagan's budget director, chronicles the relentless downward spiral of America's political and financial systems. He concludes: "The future is bleak… When the latest bubble pops, there will be nothing to stop the collapse." … The last of the Baby Boomers won't reach retirement for another 16 years, so the economy is facing a demographic headwind. And the need for further deleveraging is also likely to hold back growth for a while. The same is true for many other countries. On the more positive side, America's budget problems are fixable – and not so terrible when viewed in a long-term global context. Finally, technological breakthroughs that can't be predicted could give the economy a lift – but at the very least, America's energy outlook is far brighter than anyone would have imagined 10 years ago. – TIME magazine
Dominant Social Theme: Chaos looms?
Free-Market Analysis: Time magazine asks whether globalism is falling apart but the article is really just another excuse to rebut Stockman's book.
We've already covered the controversy over David Stockman's new book that provides what is basically an Austrian analysis of today's sputtering world economy. You can see some of our articles here:
Stockman's book received attention because the New York Times published an excerpt from it. The Times obviously did not have to publish an excerpt. From our point of view, the excerpt merely allowed the usual suspects a justification to launch anti-free market arguments.
If you read the totality of what's been published to rebut Stockman, you end up with the suspicion that the attack has been highly coordinated. Most mainstream analyses of the book focus on the "gloom" of Stockman's perspective and its negativity. The Times analysis is no exception. Here's more:
It's conventional wisdom that the U.S. economy is steadily recovering from the recession, even if progress is slow and disappointing. But there's also a widespread sense that long-term economic prospects are deteriorating all around the world. Young people can't find jobs. Budgets keep being cut in both the public and the private sectors. And the projected increase in debt over the next decade figures to be a huge burden for the most highly developed economies. Political systems seem unable to cope with problems that ought to be fairly easy to solve, or at least contain. As the recent crisis in Cyprus demonstrates, a minor dislocation can become a threat to the entire global financial system overnight …
The U.S. is deeply troubled, too. Deficits remain enormous, and the checks and balances of the political system have turned into a logjam … This view may be extreme, but there's hard evidence to substantiate the idea that the global economy is becoming more rickety. Although the developed world today is considerably richer overall than it was when Stockman worked in the Reagan administration, creditworthiness has been steadily declining. The global supply of AAA-rated government bonds has shrunk by more than 60% since the financial crisis began. And while dozens of big U.S. corporations had top bond ratings 30 years ago, today that group has dwindled to four – Automatic Data Processing, Exxon Mobil, Johnson & Johnson and Microsoft.
… But the problem isn't as terrible as it sounds. At last year's rate, the Federal government would take on $11 trillion of debt over the coming decade. With average growth, however, the U.S. economy could handle another $6 trillion of debt, so the real shortfall is $5 trillion. The tax hikes at the end of last year are projected to raise $600 billion over a decade, and the sequester is scheduled to save $1.2 trillion. More normal economic growth would eliminate the so-called output gap – the difference between what the economy can produce and what it is producing. And that would reduce the annual deficit by $900 billion. That all adds up to $2.7 trillion, and the deficit that remains is $2.3 trillion. As a benchmark, that amount is nearly twice the size of the sequester. Bringing the budget under control would be painful, but not impossible – and there's a decade in which to do it.
… There's always the possibility of external shocks that would knock the U.S. economy off track. But based on the trends that can be evaluated now, it looks as though a sluggish recovery will continue for several years, and that the outlook could well improve after that. The overall picture may not be particularly upbeat, but the worst appears to be behind us. Certainly, the relentless decline foreseen by Stockman and other pessimists seems unsubstantiated by what we can know now.
This is truly a breathtaking dismissal of the Austrian argument. Perhaps the most outrageous suggestion is that the global economy has been stabilized by tax hikes. The idea that the budget deficit of the US needs to be bridged by raising taxes is a variant of the Big Lie.
Governments always spend too much if they have the opportunity and thus deficits can never be resolved by adding yet more money. But that is only one of the falsehoods presented in this article.
The basic big lie is that globalism needs to be salvaged. What the article refers to as the global economy is merely a patchwork of treaties and judicial enabling decisions that has allowed economic power to concentrate in multinational corporations and other mercantilist bodies that are held up as evidences of the benefits of internationalism.
There are good arguments to be made for a global economy but they would have to be made within the context of a real free-market environment. This kind of globalism would have to grow naturally as a result of private business decisions not government treaties and artificial cultivation.
Stockman is correct about his analysis of what's gone wrong. But just as importantly, the article asks the wrong question. The interrogative statement is not whether the global economy is falling apart but whether it should have existed in the first place.
We can see from this brief analysis that the article makes unfounded presumptions before utilizing incorrect data to formulate inaccurate conclusions.
We would expect no more from Time – or no less.