The global recession is beginning to end. Asia is beginning to recover: South Korea, Taiwan, and India are doing very well. Some countries outside are also faring better, and we’re beginning to see commonalities as to why. In this post, I’ll point to two examples.
The first is from the Economist, Aug 8-14, on the strength of the German economy:
Germany’s economic machine is made of honest iron and steel, not subprime mortgages, collateralised debt obligations and other financial chicanery. Having been concocted in Wall Street and the City of London, the crisis, it is said, has proved the merit of Germany’s solid social-market economy.
The second insight is about Brazil, which was “one of the last [countries] to enter recession and now looks like being one of the first to leave it.” The ingredients are:
- responsible economic policies, ignoring pressures from left-wing Workers’ Party.
- insistence on “rational economics” and free trade, and.
- “ambitious social policies have helped to lift 13m Brazilians out of poverty; searing inequalities of income are narrowing steadily.”
See any commonality? Social safety nets. Social policies–public support for good health, good education, minimum income, and crisis assistance. In fact, this insight is supported by decades of serious research. (I will write about that in another post.) And it’s not just policy (frequently and stupidly derided in the US as big government), but an economic culture that is thankfully more social-ist.
In America, of course, sustaining social support needs an astonishing amount of selling, so much so that the government finds it easier to bail out big investment banks and big insurance companies, whose criminally-negligent incursions into risky financial products helped create the crash in the first place, than extending funds for a sound healthcare system. Funds for public education, similarly, have been difficult to come by for years.
Yes, in the end big banks got us in the mess, and as Paul Krugman says, big government has saved us. But that’s true if “save” = “getting worse more slowly.”
If saving = learning so that the next recession may be less of a surprise, then it’s another story. The American style of capitalism–the type that has prioritized home ownership over thrifty spending habits as the mark of success, and typically promotes the likes of Rumsfeld and Paulson as the main shapers of fiscal priorities–is sure to not learn well from this recession. The priorities of the economic culture of Brazil and Germany are quite different.