Wednesday, June 20, 2012

Consensual Failure.

TMM have woken up this morning pondering the uselessness of politicians and wondering how we have got to a stage where paralysis of policy response has reached an almost global level. We are at the point where we are once again wondering if politicians themselves are the problem or if there is a problem with the system in which they have evolved, or even whether the two are inextricably linked in one super-problem.

If the current seizure in the machine of response was a one-off then perhaps we could let it go, but it does appear to be becoming a global disease. TMM have touched upon this concern in previous posts, having worried that China may be catching the European disease of indecision (Sinostriches),  but it is worth listing some current examples

US - Last year's debt ceiling debate exposed the cracks in the efficiency of the US system to near breaking point. We doubt if it will be long before the same issue occurs again.

Europe - Apparent paralysis in response to a problem that the rest of the world can see yet, judging by Barroso's response at the G20 on Monday, the Euro politicians do not recognise, let alone take responsibility for, let alone think they need a solution for and let alone offer one for. UKIP Farage's speech last week in the Euro-parliament was worryingly symbolic. Not in what Farage had to say but the response of the Eurocrats around him. Their mockery betrayed a belief that there is no problem.

UK - Coalition hell. The lack of ability to implement strident policy due to consensus politics is somewhat hidden as the UK is muddling through at the moment. Like the US it is being hugely helped by capital inflows caused by European ineptitude. TMM like to think that the very low UK and US borrowing costs are not the product of either masterful economic management nor, as we are beginning to hear from some Eurostriches, some master plan of Western/Anglo political manipulation to stitch up Europe, in order to maintain global currency dominance, but they are just a result of competitive political stupidity, with the US and UK winning by being marginally less stupid than the Europeans.

Greece - The home of democracy where the current state of Greek politics makes the Monty Python's "Life of Brian'" political revolutionary parties look organised. Of course you can argue that there is bound to be paralysis when there is no solution,  but the petty bickering between parties point to self-serving political priorities over those of the country as a whole.

The feeling that the present system is failing is picking up steam. Of course there is rarely a demand for change when the populace is vaguely contented, no matter how useless the ruling body -  it's when things go wrong that the mettle of the rulers is tested. Until a couple of years ago the Euro-project had been an easy run, but  complacent growth (funded by sovereign profligate spending, funded by profligate lending) together with a self-regulated administrative budget has created a "Jabba the Hutt" of a European Parliament. Bloated, self important, dictatorial, living in a luxury created at the expense of its subjects only to succumb when confronted by a "Hans Solo" of a problem that they thought was dead. They are completely useless in time of crisis.

So knowing that we cannot rely on European Central Command to make a decision in this time of stress, we look to the European states themselves to unite and provide strong leadership, combined with an ability to make difficult decisions, despite populist concerns. Worryingly, policy appears to be set by consensus rather than coalition due to a misunderstanding that "consensus politics" are the same as "coalition politics". They are not. During World War II the UK ran a coalition government, however decisions were delegated to individuals who were given absolute power in their fields. Trying to run a war on consensus is impossible, yet Greece and Greater Europe are both trying to make some very difficult decisions by consensus, rather than by strong coalition. Not surprisingly they are failing miserably, leaving TMM wondering where the strong group leadership is going to come from.

While we ponder the path of Pan-European rulership as current consensus democracy is failing, we are seeing Arab nations fighting hard to move towards consensus democracy, having shed oppresive dictatorships. TMM do wonder if they will succeed, as we are beginning to surmise a tendency for the success of a democracy to be inversely proportional to the diversity of the beliefs, behaviours, interests, cultures and religions of its populace (Egypt is in danger of bypassing its newly found democracy, remaining in military control). In other words, the more balanced and numerous the make up of subgroups, the less likely consensus politics will succeed. Which is, we suppose, why the oldest "democracies" sort of cheat by becoming two or three party systems where democracy is partially obscured by an oligopoly of power sharing. Before you ask  -"Then how come Greek democracy isn't working as it is culturally homogenous? - TMM suggest that Greece is actually made up of 12 million different interests!

None of this bodes well for Europe where each state's interest is given equal weighting creating an artificial multi-party system all with the same vote weight, thus making it even harder to reach agreement. This instability of indecision perhaps even increases the chances of a breakdown back into multiple stable units of common interests, in other words reverting  back to local country driven politics, where the number of disparate interests is reduced. Just as we are seeing?

The dread is, to paraphrase Aristotle, "extremism abhors a power vacuum", and this leads to a swift transition to oppressive dictatorship which is sold initially as being benign. But these rarely stay as such unless particularly wealthy (eg Saudi, Brunei, and even a certain Asian city state). Many point out that it wasn't that long ago that Europe had its own dictators and even now we are hearing the odd casual remark about the chances of coups and a return of  the military juntas, 1970s style. TMM really do not see this happening, though the thought of a NATO takeover of the European Parliament does amuse us.

As it is we are left hoping that Europe swiftly moves from consensus policy to a coalition, with strong delegated responsibility, as the hope of the European Parliament ever being able to make a useful decision seems as remote as the chances of a Greek taking personal responsibility.


Hotairmail said...

Excellent post.

I feel the Greek 'consensus politics' is more about the democratic imperative to make sure your enemies share the blame and increase your chances of re-election.

Syriza very astutely exhibit great clarity in not joining a 'consensus coalition' in setting the scene for the inevitable future.

Looking forward to the football. Brave lady that Merkel (is that the right word?).

theta said...

Regarding the difference in borrowing cost, it's simpler than that. In the US and UK case there's no credit component in the yields, it's just the risk free rate. In the euro reincarnation of the gold standard it's mostly the credit component that you see.
In fact, if people understood how the monetary system works in the US and UK case, they would not refer to the treasury and gilt yields as borrowing "costs". They are not costs. The government should be glad if yields rose, it would mean that market expects economic growth and shifts to risk assets.

Polemic said...

Well they are only costs if they issue at those
yields (as per spain paying through the nose for recent issues) but agree that the secondary market is less relevant other than a confidence level. However i would argue that in this environment rising yields can swiftly morph from a vote of general confidence and move from safe haven as outlook improves - to one of credit concerns.

Anonymous said...

rossco said

Who is to say that the unelected bureaucrats within the EC don't actually like things this way ?

The longer the crisis rages, the more their goals of subordinating the populous, creating a welfare dependent underclass and foistering their centralized controlling agendas play out.

To your point above; the mocking of Farage indicates a certain confidence and acceptance of the situation. After all , who can fire them ? In an extended crisis their tenure , bizarely , becomes more secure.

Anonymous said...

No,they really are not that smart. There was a time I wondered about that,but after assessing their decision making abilities and general inability to communicate effectively I realised they really are the archetypal academically bright and commonsense thick role model for self interested politicians.

Anonymous said...

Rover having sifted through his bowl can still find no meat and his ability to salivate is drying up faster than Angela Merkels network of political supporters.
Rover is now considering submitting his CV to the RSPCA which we knows means The Ridiculous Society for Pavlovian Crushed Assets.

Leftback said...

The short time intervals between elections fosters a focus on being re-elected at the next one and makes it impossible to design and execute rational longer term economic policies that make sense.

When the Colonels roll the tanks into Syntagma Square and take over Greece again, (LB is hoping that this comment is in jest) the election problem at least will go away.

As for the US, Turning Japanese offers the prospect of changing almost identical corporatist leaders every six to nine months or so once the slow decline enters its second and third decades....

Europeans? Print already...

abee crombie said...

in 2007-2008 you had to worry about the bankers... 2011-2012 is all about the politicians, worldwide (China, US, EU, Brazil, India... need I go on)

I say stick to corporate fixed income in such an environment

It feels like its gonna be a bumpy ride still, especially if growth continues slowing, which seems to be happening. I'm slowly switching my bias here, not a bear, but ready to dawn a furry coat soon

oh boy oil!

Leftback said...

Slower growth is really being priced in to all markets now. Certainly Asia, Europe and the US bond market have got the message. US equities? Perhaps in the energy, industrial and mining stocks, but retail and banking is still optimistic and the technology sector is still in its own little mini-bubble world.

I would rather leave the US alone until the froth has been removed from Facebook and the rest, perhaps by a dismal earnings round for all the Mickey Mouse stocks. As for the real economy stocks, the next round of earnings is probably in the process of being priced in via lower guidance. So it's a mixed bag for investors, and I'd rather seek value elsewhere. European and Asian valuations are much more realistic at this point.

Leftback said...

Ugh.... my timing isn't usually that precise. Ugly.

abee crombie said...

well put LB. Though I am not sure asia is really cheap yet, just first glance looking at Hang Sang, Tiawan, Jakarta etc indicies and the only thing cheap is the energy/industrials and materials.. consumer stuff still at 15x+ .. which isnt so bad considering LT growth. but I would like to see this sector washed out before i get excited.

EM operating segments of US companies often have much higher margins vs the rest of the company (like for a P&G etc). Will be interesting if this starts to really weigh on US companies soon

I would like to HY really panic again as well. Some of those leveraged ones are just turds

Aethel Hard said...

i read it,
that is very nice post,

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