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Secular stagnation and jihadist attacks. Why?

By       Message Jean-Luc Basle     Permalink
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Secular stagnation

The global economy has not recovered from the subprime crisis yet. Since 2011, the International Monetary Fund revises its forecast downward every six months. Japan is in the middle of its third 'lost decade'. Europe is struggling. Only the United States and Britain seem to manage adequately. Several economists have sounded the alarm. Larry Summers revived the "secular stagnation" expression, first used in 1938. Two former Reagan administration's officials, Paul Craig Roberts, Assistant Treasury Secretary, and David Stockman, Budget Director, predict a new crisis.

Many events may cause an economic crisis. Economists still debate the origins of the Great Depression. Whatever its roots, there often is a guiding thread. Keynesianism is blamed for the stagnation of the 70s. Neoliberalism and monetarism explain, at least in part, the secular stagnation. Neoliberalism is a deformed version of Adam Smith's views. Monetarism is the expression of Milton Friedman's theories. Quantitative easing is its ultimate form.

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The Great Depression and the stagflation of the 70s brought about a radical change in the conduct of economic policy. Surprisingly, the subprime crisis had the reverse effect. It reinforced the neoliberal and monetarist policies of the 80s. The United States and Britain resorted to robust budget deficits (--10% of gross domestic product) for a brief period of time (2009/2010) before adopting quantitative-easing policies. European nations had smaller deficits, which were quickly followed by austerity measures and quantitative easing.

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Hanging on to inefficient policies will not eliminate the secular stagnation. A new way of thinking will. Several economists such as Michael Spence and Joseph Stiglitz argue in favor of investments in infrastructure and education. The IMF, whose creed rests on the neoliberal Washington consensus, recently expressed similar views.

Jihadist attacks

Many nations believe they are exceptional. This is the case of the United States, Britain and France. But it is also true of China and many other nations. Since the middle of the 19th century, the United States considers itself to be endowed with a "manifest destiny". World War II and the collapse of the Soviet Union reinforced this feeling in the beltway elite. In the 2015 National Security Strategy, Barack Obama writes: "the question is never whether America should lead [the world], but how we lead." In her debate with Bernie Sanders, Hillary Clinton echoes the President's view when she states that it is the United States' duty to intervene (militarily) in the world whenever it sees fit. This thinking emanates from documents such as the "Defense Strategy for the 1990s" and the "Defense Planning Guidance". It impregnates both parties' platform and finds its expression in the United States' foreign policy.

An Israeli-American elite's analysis comforts the American rational ("Rebuilding America's Defense", "A Clean Break: a New Strategy for the Realm", the "Yinon Plan"). Even though Israeli authorities, including Benjamin Netanyahu, do not necessarily agree with this thinking, it pervades the American policy. The blowback the policy creates is felt in Europe through murderous attacks and a refugee influx. Does this mean that Western nations are solely responsible for these wretched events? Of course not. The Middle East is a structurally unstable region. But western nations, which never ceased to interfere in the region since the Sykes-Picot Accord, bear part of the blame.

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Economic and political events punctuate our daily lives. Some are due to unpredictable causes. Others are the result of man's actions. These actions rest on a way of thinking. Neoliberal paroxysmal thinking and irresponsible hegemonic thinking explain, at least in part, the secular stagnation and the jihadist attacks. Difficult as it may be to accept, this is the conclusion the analysis leads to.

 

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Former Vice President Citigroup New York (retired) Columbia University -- Business School Princeton University -- Woodrow Wilson School


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