End of an Epoch
by Mark English
Something unusual, something historically significant is going on.
Epochal shifts do occur in history, but they usually only become clear in retrospect. One of my professors had a large print of Georges Seurat’s “A Sunday Afternoon on the Island of La Grande Jatte” hanging in his study. It is emblematic of a period (between 1871 and 1914) which came to be known as la belle époque, a time of prosperity and peace and scientific and technological advancement that preceded the horrors of the Great War. Never again would such naïve, unclouded optimism prevail.
The post-World War 2 period was somewhat similar, echoing to some extent that earlier period of optimism. But it was a time of clouded optimism: clouded by the threat of a world-destroying nuclear conflict. It was certainly a period of technological progress and rising prosperity. It was not military conflict which broke the spell this time, however, but rather deep underlying economic and social problems which have only slowly become evident.
I want to focus on two broad indicators, one economic and one social: the first quantitative, the second qualitative.
The quantitative indicator I am referring to relates to debt levels, government and private; boring, I know, but extremely important and relatively easy to grasp. The qualitative indicator relates to levels of trust between different societal groupings and individuals and their relationship to freedom, morality and social cohesion.
Internationally, sovereign debt is at historically very high, if not unprecedented, levels. In the U.S., the national debt currently stands at 20 trillion dollars, or about 100% of GDP. Corporate and household debt is also very high, the latter having returned to the levels that preceded the 2008 crisis. Total U.S. debt (public and private) stands currently at about 350% of GDP. (1)
The situation is quite obviously precarious, not least because a continuance of the status quo is dependent on the very low interest rates which the coordinated activity of central banks has engineered. But central banks don’t have complete control over interest rates. Longer-dated government bonds (seen as indicators of expected inflation, and also as a bellwether of commercial interest rates) will eventually rise, putting severe pressure on highly indebted governments and other borrowers.
Another way of seeing the problem is in terms of the relationship between economic growth and borrowing. For the last forty years or so, growth has been dependent on increasing levels of borrowing. For the last nine years, loose monetary policy, which has allowed rapidly increasing debt levels, may have forestalled a worldwide recession, but only anemic growth rates have been achieved. The consequences should be obvious to anyone who thinks about it. There are limits to what borrowing can achieve, and responsible planners realize that levels of sovereign and private debt are unsustainably high.
In the case of the United States and many other Western countries, the looming problem of unfunded liabilities – especially relating to pensions and social welfare programs – dwarfs official national debt figures. These promises can never be delivered on, but admitting this would have a high political cost.
There are only two ways out in the long term: default, or inflating away the debt/liabilities (by money printing). I don’t know what the consequences of default (on sovereign debt, say) would be – not good, obviously – but the inflation road is also a dangerous one. Inflation, once it takes hold, is notoriously difficult to contain. Moreover, the sorts of anti-inflationary policies that have succeeded in the past may not be politically possible today.
Already, Western (and Eastern) economies seem to be stalling. Highly indebted households in the U.S. are cutting back on discretionary spending. The endgame – probably beginning with a deflationary crisis which would lead to widespread defaults – may well be approaching. I hope it is, because the longer this debt-based charade continues, the more serious the consequences will be.
No individual or country has a right to a certain standard of living, even if people living in rich countries all too often assume that they do. But, not only can continuing prosperity not be guaranteed, poverty is already with us – even in the still relatively prosperous West. Look at the youth unemployment levels in many European countries, for example. Or the stresses being faced by middle- and lower-income families in America and elsewhere. Or the bleak prospects facing many (most?) retirees.
The loose monetary policies pursued by central banks has had the (presumably unintended) consequence of enriching the few at the expense of the many, as the prices of financial assets and certain categories of real estate have been disproportionately inflated.
Moreover our collective memory of the two World Wars and the Great Depression is now fading. Such knowledge as we have of these times is based more on reading and films than on actual memories or family stories. Having grown up (in the West) during a time of peace and prosperity we might be tempted to assume that what we have experienced is the norm, to see war and poverty as some kind of aberration. But history teaches us otherwise.
Even the years immediately after World War 2 were very tough, especially in Europe. Many areas – including Britain, France, Germany and Scandinavia – were in dire financial straits. The material standard of living was much lower than it is today.
Who is to say, then, that our present levels of prosperity will persist? Why should they? Debt levels strongly suggest that we are living beyond our collective means and have been for some time.
So perhaps the question should be: how can present levels of prosperity persist, given the fact that we have been increasingly dependent on credit and deficit spending by governments to fund our lifestyles?
On the issues of trust and social cohesion, I won’t say much here. The facts are obvious. There has been a progressive erosion of trust between individuals and also between individuals and institutions (such as the media, the traditional professions and the government).
Quite rightly, we are put off by – and cringe at – the patently sexist and racist attitudes of the past (which are so painfully obvious in old movies, for example). But it’s all too easy to write off these times as hopelessly backward and unjust. They were backward and unjust in some respects, but there were also positive elements (like mutual trust and social cohesion), which we have lost.
Understanding past eras always involves an imaginative leap, a certain detachment or disengagement from one’s own world and worldview, based on an understanding that as they are to us so will we be to others in the future. We are naturally inclined to think that our (present) perspective is privileged in some way. It isn’t.
People tell themselves stories about “social progress.” But social progress is impossible to measure in any clear-cut way because you need to take the full picture into account, and this is impossible. Even leaving aside the always-contentious issue of values, there are just too many factors for any model – or any mind – to deal with. And most of these factors are dynamic and interrelated and so not specifiable or listable.
In practice, of course, we do specify discrete factors involving both hard (life expectancy, crime and suicide rates, etc.) and soft data (such as measures of personal happiness). Inevitably, we narrow our focus to concentrate on specific things, like education levels or employment patterns of specific groups, in order to provide measures of general social progress customized to fit our own preoccupations and priorities. But the trouble is, in so doing it’s all too easy to miss other pertinent elements which lurk beyond the edges of our attention.
It’s well to be aware of the radical inadequacy of both our formal and our informal models of the social and economic world. Nassim Taleb has built a career elaborating this point. He talked about black swans, but I would be inclined to favor more medieval or apocalyptic metaphors. The basic point, however, is that an economic crisis would not only overwhelm us in such a way as to wipe out much of the progressive institutional infrastructure which has been built up over the last half-century or so, it would create a whole new set of urgent priorities.
Of course, I do not deny that there has been some real and substantive social progress over recent decades, especially on sexual/gender and racial issues, even if things haven’t worked out quite as the idealists of the 1960s envisaged.
One last point I want to make is that many Western societies – especially European ones – were once much more homogeneous in an ethnic and cultural sense than they are today, and need to be judged in the light of this fact. Such ethnic and/or cultural homogeneity is not in itself necessarily bad, though many assume that it is. (2)
As I have already suggested, one positive feature that most Western countries did undoubtedly share was a high level of social cohesion. Moral norms and conventions did much of the work that laws and regulations do now; individuals, families and professional bodies were accorded a much higher level of autonomy – and so freedom – than they are today.
Was this freedom often abused? Yes it was. But to the extent that you take away people’s autonomy, you are decreasing the scope for the exercise of – and so, in effect, the significance of – personal and professional responsibility. This trend threatens to turn the very notion of personal morality into something of an anachronism or an irrelevance.
I am not a libertarian. I see an important role for government, and for laws and regulations. But the laws – if they are to be respected – must be seen as an expression of generalIy accepted societal norms rather than as an alien imposition. And they should always be crafted so as to provide a real space for ordinary freedoms and the exercise of professional judgment.
- Until 1971, the dollar was redeemable (by foreign governments) for gold. The French wanted their gold, but there wasn’t enough (if other countries followed suit) and President Nixon “temporarily” suspended that right, breaking the dollar’s last firm link with gold. My understanding is that a deal was immediately done with the Saudis which gave birth to the petrodollar, and it’s that arrangement – which allowed U.S. monetary authorities to greatly expand the monetary base without immediate negative consequences – which is now breaking down. To what extent this arrangement has affected and is affecting foreign policy I am not sure, but I suspect that it has played – and may still be playing – a very significant role.
- I don’t deny that such societies are prone to certain forms of intolerance, sometimes ostracizing or oppressing non-conforming groups or individuals. A less serious criticism that is commonly heard is that they are/were boring to live in. Mitigating this last point to some extent in respect of the past is the fact that the wider world used to be less homogenized, i.e. less Americanized in a cultural sense. While life in one’s home country may have become more varied and interesting over time, the wider world has in many respects become smaller and less varied in terms of general cultural practices (and also, I would say, in terms of language and languages).