Thursday, February 11, 2010

It's the 1970's-80's All Over Again

When I was in grad school, I was introduced to the poli sci literature on strong and weak states--referring not to country's relative power, but to each government's ability to resist their publics as they make hard decisions to adjust to the economic shocks of the 1970's.  So, Japan and France looked mighty good compared to the US, which could not/would not impose significant taxes on energy and stopped building nuclear power plants and all the rest.  However, as the decade progressed and then into the 1990's, it seemed that the Japanese miracle was not so wonderful after all, leading to a dark decade of stagnation.  The US, despite bumps and bruises and bubbles along the way, did pretty well.

Fast forward to the past two years: the US pops, government acts to bailout various sectors (finance, autos) while Europe and Japan get smug about the fallen giant.  But that is short-lived, as the US is experiencing incredibly high growth (although it has not yet dented unemployment) now while the European Union is facing an existential threat in the form of Greece (and Italy, Spain, and Portugal) going pop.  And the Japan auto industry is in a crisis as nearly every Toyota is facing a recall. 

So, what does this tell us?  Well, the strong/weak state distinction tended to conflate strong with smart and weak with dumb.  To be clear, the French and the Japanese and other supposedly strong states did do some stuff that was smart and did work out.  But these folks tended to face some accountability challenges--such as the faceless bureaucrats of Japan that largely ran the economy.  The US often accidentally does the right thing because it is so penetrated by interest groups and where politicians do their best to prevent the others from enacting policies.  President Clinton developed budget surpluses precisely because of the conflict with the Republicans.  On the other hand, those parts of government most protected from public opinion failed us the most--that would be the Fed, which fed the real estate bubble AND did not regulate the banks.  Good work, guys.  How can Alan Greenspan criticize anyone at this point is beyond me.  I guess he belongs to the Dick Cheney Club of Denial. 

Anyhow, the point of this rant, I think, is that insulation from public opinion can be a good thing in moderation, as the public may be too focused on the short term.  However, those who are insulated need to keep grounded, or else they can lose touch and do as much or more damage than interest groups, unions, and corporations.  As always, difficult tradeoffs that must be faced rather than ignored.

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