Streams

Civil Society in Decline

Wednesday, June 19, 2013

Niall Ferguson, Harvard professor of history and the author of The Great Degeneration: How Institutions Decay and Economies Die (Penguin, 2013), warns that Western democracies have entered a phase of decline.

 


Excerpt: The Great Degeneration by Niall Ferguson

The voguish explanation for the Western slowdown is ‘deleveraging’: the painful process of debt reduction (or balance sheet repair). Certainly, there are few precedents for the scale of debt in the West today. This is only the second time in American history that combined public and private debt has exceeded 250 per cent of GDP. In a survey of fifty countries, the McKinsey Global Institute identifies forty-five episodes of deleveraging since 1930. In only eight was the initial debt/GDP ratio above 250 per cent, as it is today not only in the US but also in all the major English-speaking countries (including Australia and Canada), all the major continental European countries (including Germany), plus Japan and South Korea.[i] The deleveraging argument is that households and banks are struggling to reduce their debts, having gambled foolishly on ever rising property prices. But as they have sought to spend less and save more, aggregate demand has slumped. To prevent this process from generating a lethal debt deflation, governments and central banks have stepped in with fiscal and monetary stimulus unparalleled in time of peace. Public sector deficits have helped to mitigate the contraction, but they risk transforming a crisis of excess private debt into a crisis of excess public debt. In the same way, the expansion of central bank balance sheets (the monetary base) prevented a cascade of bank failures, but now appears to have diminishing returns in terms of reflation and growth.

Yet more is going on here than just deleveraging. Consider this: the US economy created 2.6 million jobs in the three years beginning in June 2009. In the same period, 3.1 million workers signed up for disability benefits. The percentage of working-age Americans collecting disability insurance rose from below 3 per cent in 1990 to 6 per cent.[ii] Unemployment is being concealed – and rendered permanent – in ways all too familiar to Europeans. Able-bodied people claim to be disabled and never work again. And they also stay put. Traditionally around 3 per cent of the US population moves to a new state each year, usually in pursuit of work. That rate has halved since the financial crisis began in 2007. Social mobility has also declined. And, unlike the Great Depression of the 1930s, our ‘Slight Depression’ is doing little to reduce the yawning inequality in income distribution that has developed over the past three decades. The income share of the top one per cent of households rose from 9 per cent in 1970 to 24 per cent in 2007. It declined by less than four percentage points in the subsequent three years of crisis.

You cannot blame all this on deleveraging. In the United States, the wider debate is about globalization, technological change, education and fiscal policy. Conservatives tend to emphasize the first and second as inexorable drivers of change, destroying low-skilled jobs by ‘offshoring’ or automating them. Liberals prefer to see widening inequality as the result of insufficient investment in public education, combined with Republican reductions in taxation that have favoured the wealthy.[iii] But there is good reason to think that there are other forces at work – forces that tend to get overlooked in the tiresomely parochial slanging match that passes for political debate in the United States today.

The crisis of public finance is not uniquely American. Japan, Greece, Italy, Ireland and Portugal are also members of the club of countries with public debts in excess of 100 per cent of GDP. India had an even larger cyclically adjusted deficit than the United States in 2010, while Japan faced a bigger challenge to stabilize its debt/GDP ratio at a sustainable level.[iv] Nor are the twin problems of slow growth and widening inequality confined to the United States. Throughout the English-speaking world, the income share of the top ‘1 per cent’ of households has risen since around 1980. The same thing has happened, albeit to a lesser extent, in some European states, notably Finland, Norway and Portugal, as well as in many emerging markets, including China.[v] Already in 2010 there were at least 800,000 dollar millionaires in China and sixty-five billionaires. Of the global ‘1 per cent’ in 2010, 1.6 million were Chinese, approaching 4 per cent of the total.[vi] Yet other countries, including Europe’s most successful economy, Germany, have not become more unequal, while some less developed countries, notably Argentina, have become less equal without becoming more global.

By definition, globalization has affected all countries to some degree. So, too, has the revolution in information technology. Yet the outcomes in terms of growth and distribution vary hugely. To explain these differences, a narrowly economic approach is not sufficient. Take the case of excessive debt or leverage. Any highly indebted economy confronts a narrow range of options. There are essentially three:

  1. raising the rate of growth above the rate of interest thanks to technological innovation and (perhaps) a judicious use of monetary stimulus;
  2. defaulting on a large proportion of the public debt and going into bankruptcy to escape the private debt; and
  3. wiping out of debts via currency depreciation and inflation.

But nothing in mainstream economic theory can predict which of these three – or which combination – a particular country will select. Why did post-1918 Germany go down the road of hyperinflation? Why did post-1929 America go down the road of private default and bankruptcy? Why not the other way round? At the time of writing, it seems less and less likely that any major developed economy will be able to inflate away its liabilities as happened in many cases in the 1920s and 1950s.[vii] But why not? Milton Friedman’s famous dictum that inflation is ‘always and everywhere a monetary phenomenon’ leaves unanswered the questions of who creates the excess money and why they do it. In practice, inflation is primarily a political phenomenon. Its likelihood is a function of factors like the content of elite education; competition (or the lack of it) in an economy; the character of the legal system; levels of violence; and the political decision-making process itself. Only by historical methods can we explain why, over the past thirty years, so many countries created forms of debt that, by design, cannot be inflated away; and why, as a result, the next generation will be saddled for life with liabilities incurred by their parents and grandparents.

 

 


[i] McKinsey Global Institute, Debt and Deleveraging: The Global Credit Bubble and its Economic Consequences (January 2010).

[ii] Peter Berezin, ‘The Weak U.S. Labor Market: Mainly a Cyclical Problem … for Now’, Bank Credit Analyst, 64, 1 (July 2012), p. 40.

[iii] See e.g. Jeffrey Sachs, The Price of Civilization: Reawakening American Virtue and Prosperity (New York, 2011).

[iv] See e.g. International Monetary Fund, ‘Navigating the Fiscal Challenges Ahead’, Fiscal Monitor, 14 May 2010.

[v] Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, ‘Top Incomes in the Long Run of History’, Journal of Economic Literature, 49, 1 (2011), pp. 3–71.

[vi] Credit Suisse, Global Wealth Databook (October 2010), tables 3-1, 3-3 and 3-4.

[vii] For a brilliant analysis, see Jamil Baz, ‘Current Crisis Merely a Warm-up Act’, Financial Times, 11 July 2012.

From the book The Great Degeneration. Copyright (c) 2013 by Niall Ferguson. Reprinted by permission of The Penguin Press.

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Comments [46]

Regarding Keynes:
http://conservapedia.com/John_Maynard_Keynes_and_pederasty

Jun. 19 2013 02:13 PM
Doug from Brooklyn

Niall Ferguson was humorless, disrespectful, and arrogant. You have him on your show which allows him to promote his book and he acts like a jerk. You shouldn't be in any hurry to have him back on the show, Brian.

Jun. 19 2013 12:00 PM

The more discerning and curious listener may find this
selection from Alexis de Tocqueville thought provoking.

http://xroads.virginia.edu/~HYPER/DETOC/ch4_06.htm ;-)

Jun. 19 2013 11:48 AM
pliny from soho

i bet listening to this guy
will make Sister Ellen
rethink her position on capital punishment

Jun. 19 2013 11:44 AM
fuva from harlemworld

These types just keep talking fast and writing books to make it hard to corner their fallaciousness. We need to stop entertaining it.

Jun. 19 2013 11:35 AM

Isn't strict regulation-- at a level beyond that which would even be considered here-- at the core of the success of Switzerland's health care system?

Obama Care is a massive subsidy to the insurance and pharma industries.

Canada and England have their problems but how many of the citizens of each country, respectively, would trade places with the average American?

Jun. 19 2013 11:34 AM

Obviously a hateful, anti-gay, and
anti-"progressive"(and anti-lawyer) bigot.
He deserves to be mistreated. Stone him!

Jun. 19 2013 11:33 AM
Leah from Brooklyn

Niall Ferguson is just so bummed that he's not Christopher Hitchens. Next, please.

Jun. 19 2013 11:31 AM
fuva from harlemworld

But corporations enable the regulatory inefficiency that Ferguson criticizes. In addition to actively and successfully discouraging enforcement -- as has been documented under previous administrations -- it is the corporate lobbyists that write the Rube Goldberg rulebook after the underlying law is enacted.

Ferguson's analysis is limited as usual.

Jun. 19 2013 11:31 AM
???

Ed from Larchmont I hope you have to come back in the next life as a woman!

Jun. 19 2013 11:31 AM
???

this guy is really full of blather - saying nothing verifiable at all. Ivory tower blowhard. SHUT UP!!! New guest, please...

Jun. 19 2013 11:27 AM
John from office

I like when Brits come here from their broken society and tell us how broken we are. England is just another state, possible the 51st state, then there is Israel, #52

Jun. 19 2013 11:26 AM

Does Mr. Ferguson realize that regulation has been made more complicated due to the influence by those large corporations who design them in order to intimidate smaller companies so that they can't compete?

Jun. 19 2013 11:23 AM

"Libertarian"?

_________Begin Quoted text___________

But you see, "libertarian" has a special meaning in the United States. The United States is off the spectrum of the main tradition in this respect: what's called "libertarianism" here is unbridled capitalism. Now, that's always been opposed in the European libertarian tradition, where every anarchist has been a socialist—because the point is, if you have unbridled capitalism, you have all kinds of authority: you have extreme authority.

If capital is privately controlled, then people are going to have to rent themselves in order to survive. Now, you can say, "they rent themselves freely, it's a free contract"—but that's a joke. If your choice is, "do what I tell you or starve," that's not a choice—it's in fact what was commonly referred to as wage slavery in more civilized times, like the eighteenth and nineteenth centuries, for example.

_________End quoted text__________

From "Understanding Power: The Indispensable Chomksy, quoted at
http://www.distantocean.com/2008/04/chomsky-on-libe.html

Jun. 19 2013 11:23 AM
John A

Scotus rule on genetic patents was a brilliant improvement in {corrupted} rule of law. Let us hope for continued improvement regarding invention patenting and trolling.

Jun. 19 2013 11:22 AM

Brian, didn't you hear about SCOTUS knocking class action suits out??? Companies have bought liability exemption over the past 30 years. Why are you debating about the state of the world in 1976????

Mr. Ferguson's trust in Corporate Responsibilty is laughable & his read on our current US economy is positively bizarre.

Thanks for the pleasure of hearing Mr. Ferguson hang himself.

Jun. 19 2013 11:21 AM
antonio from baySide

Please do not try to make it a balanced problem. While it is true some social welfare are paying out more (i.e.medicare) then what it takes it. The ruling class has created, AND will continue to destroy anything that is the good for all. Wages haven't changed since the 70's, the dismantlement of union, charter schools...

Jun. 19 2013 11:21 AM
Mike D from Brooklyn

Our country, and the west in general, could certainly use some institutional rejuvenation. We've misallocated resources (two wars, etc), and our regulatory system needs to be rethought (but not thrown out). But we do have a remarkable capacity to reengineer different aspects of our culture, institutions included. Our openness to technology has led to a relentless improvement in productivity (even if this hasn't been uniformly shared). Witness the low cost educational alternatives like Coursera. This is transformative, and we are only at the beginning. We will continue to adapt. Our flexibility is our strength.

Keynes was very sympathetic to the long-term. He just realized if you kill the present, there can be no future. Destroying human capital and living standards is not a way to "improve" and invest in our future. It simply lowers the bar through time.

Jun. 19 2013 11:21 AM
Olivia from Brooklyn

It's hard to care to listen and learn from the conversation when Brian's guests are so arrogant and refuse to listen to the questions he's being asked and verbally bulldozes ahead.

Jun. 19 2013 11:20 AM
Ed from Larchmont

If he's concerned now, wait until the regulations of Obamacare.

Jun. 19 2013 11:20 AM
Hopeless Pedant from the Library Stacks

@geTaylor: I think you mean "nub." A nib is the tip of a pen, one you dip or one with a reservoir.

Jun. 19 2013 11:20 AM
jgarbuz from Queens

Neither Niall nor Keynes are totally wrong nor totally right. Both made good points. The reasons for the rise and fall of civilizations and empires are complex and involve many different factors. But it all come downs to the complexities that make up the nature of human beings.

Jun. 19 2013 11:19 AM

@Martin Chuzzlewit:

Tocqueville would not recognize U.S., I'm sure.

But neither would Adam Smith recognize the economic Frankenstein that's called "Capitalism"...

As Noam Chomsky says, "Adam Smith, who we're supposed to admire but not actually /read/"

For it would be clear to anyone who actually read Smith how far from anything he stood for those who claim his legacy actually are.

Jun. 19 2013 11:18 AM
Sheldon from Brooklyn

The rule of law, where not a single banker goes to jail.

Jun. 19 2013 11:17 AM

This is the "cartoon" outline of the Keynes v Hayek issue.

http://www.youtube.com/watch?v=d0nERTFo-Sk

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Jun. 19 2013 11:16 AM
tom from astoria

Talk about living for the present: Corporations increase NEAR TERM profits while giving places like China 100 million manufacturing jobs over the last few decades. Isn't it our BUSINESS LEADERS that have done as much or more damage to future generations? How about leadership among business leaders?

Jun. 19 2013 11:13 AM
fuva from harlemworld

Ferguson attributes his heterosexist remark to fatigue and expects us to believe it because he's used to exploiting the mass cluelessness symptomatic of the current degeneration.

What credibility does this tedious man have left?

Jun. 19 2013 11:13 AM
Stella from Downtown

Now Niall Ferguson says his homophobic remark about Keynes was "brought on by fatigue" - shame on him!

Jun. 19 2013 11:12 AM
John A

Fatigue? Or can a panel be assembled of notables telling Mr Ferguson that he has excessive pride?

Jun. 19 2013 11:11 AM

Really interested at Mr. Lehrer'e introductory remarks highlighting Ferguson's
"anti-gay" defamation of Lord Keynes. This should be especially unenlightening. Brian has, as always, gotten to the "nib" of the problem.

Jun. 19 2013 11:09 AM

What about having (true) conservative historian John Lukacs on? (if it isn't already too late)

Jun. 19 2013 11:05 AM

@ hjs, 10:13 AM:

Exactly what B. Lehrer should have but failed to ask David Brooks on January 2nd
http://www.wnyc.org/shows/bl/2013/jan/02/david-brooks-good-ideas/

From a past post of mine:

When asked which ideas/positions/policies he would choose from each party, Brooks said that he would adopt the "deregulation program" or "deregulation regime" of the Republicans.

The obvious question which cried-out to be asked of Mr. Brooks was _what_, specifically, he would like to see deregulated and how that would actually advance the _public_ interest, as opposed to private business interests. Would Mr. Brooks suggest, for example, that _reduced_ regulation of the food industry, would result in _fewer_ deadly E. Coli and Salmonella outbreaks? Or that _reduced_ regulation of the coal industry, to take another example, would result in _fewer_ fatal mining accidents? Etc., etc.)

But Lehrer simply allowed Brooks to get away with this lubriciously vague statement, and did not make even the most cursory and weak attempt to challenge it.

Jun. 19 2013 11:01 AM
A Skeptic from New Jersey

Kindly remember that just because someone speaks with an Oxbridge accent doesn't make him or her more intelligent or more informed.

Jun. 19 2013 10:58 AM

What about having Ferguson debate the likes of Doug Henwood or Richard Wolff?

I think the odds of winning of a lottery may be greater...

Jun. 19 2013 10:54 AM
Enough Already from a State of Exasperation

Society has *always* been "in decline." (Cf. "O tempora! O mores"; jeremaiad.) And just because developments take place that you happen to not like doesn't necessarily mean society is in decline. That said, I am worried by hearing today that, in an AMA report declaring obesity a disease, some 17% of children are obese. I am Gen X and am probably among the last group of youngsters who actually played outside and got a significant amount of exercise.

Jun. 19 2013 10:54 AM
Sheldon from Brooklyn

Well, let us hope that Mr Quinn did not blame the decline of western civilization on the "childless gay" lifestyle, the way he did on his recent anti-Kaynesian rant.

When weak politicians finance tax breaks and encourage tax avoidance for multi-national corporations and the rich, with bone crushing debt whilst underfunding human capital and destroying decent jobs - the last 25 years, then yes - we are indeed in decline.

Jun. 19 2013 10:45 AM
halloran

Given Mr. Ferguson's laughably inaccurate economic predictions over the last 5 years or so, perhaps his predictive models are defective, as is his grasp of "mainstream economic theory" -- which he shows no sign of comprehending.

While economics may not be a science, there *is* a body of work and research, with which Ferguson is clearly unfamiliar, beyond catch-phrases. It's also unclear if he has the "math" to read this and comprehend material.

But what the heck -- one sign of decline in America is that anyone with money and a publisher is deemed (by himself) to be an expert on 1) economics, 2) the school system, and 3) the decline of civil society, to which the speaker is the lone exception.

Jun. 19 2013 10:16 AM

I heard the author on msnbc this AM.
So I would ask which regulations should we cut?
The ones that prevent toasters from blowing up?
The ones the keep our water clean? Or food free of bacteria ?
Or ones that prevent molesters from becoming bus drivers? Etc
I'm willing to pay for modernity.

Jun. 19 2013 10:13 AM
Fred from Brooklyn

Regarding Mr. Ferguson's WSJ editorial, is he arguing that citizens of the U.S., acting through their choices of elected representatives, should not have the right to regulate what toxins can be emitted into the atmosphere and the conditions dictate their economic and public lives? Drawing comparisons to 1833 can lead to handwringing about loss of freedoms, but the concerns of a post-industrial, crowded and economically struggling nation are very different from those of a (mostly) pre-industrial nation sparsely populated nation.

Jun. 19 2013 10:04 AM
Robert from NYC

ARE YOU KIDDING! Civil society in decline? Civil society has declined to about the lowest it can go. Degeneration? You said it man. The civil society has been declining over the past two decades at least, and continue to declines as I type. Wake up and look around folks. There is no civility anymore.

Jun. 19 2013 10:03 AM
David from Fairfield CT

@Ed
More abortion is performed in China each year because of their "one child" policy than probably any other country in the world. Is China declining? Anyone who believed China is declining should donate their brain to scientific research!

Jun. 19 2013 09:35 AM
David from Fairfield CT

@Ed
More abortion is performed in China each year because of their "one child" policy than probably any other country in the world. Is China declining? Anyone who believed China is declining should donate their brain to scientific research!

Jun. 19 2013 09:35 AM
Martin Chuzzlewit from Manhattan

MUST READ - Ah, Niall Ferguson in this morning's (!) WALL STREET JOURNAL-

"Niall Ferguson: THE REGULATED STATES OF AMERICA"

"Tocqueville would not recognize America today. Indeed, so completely has associational life collapsed, and so enormously has the state grown, that he would be forced to conclude that, at some point between 1833 and 2013, France must have conquered the United States."

(http://online.wsj.com/article/SB10001424127887324021104578551291160259734.html)

Jun. 19 2013 08:15 AM
Martin Chuzzlewit from Manhattan

If this segment is really about "civil society in decline", then I will quote that famous ancient philosopher, Bernie Goldberg....

"WHEN 'ANYTHING GOES', EVERYTHING GOES."

("Arrogance: Rescuing America from the Media Elite"
http://www.amazon.com/s/ref=nb_sb_ss_c_0_16?url=search-alias%3Dstripbooks&field-keywords=bernard%20goldberg&sprefix=bernard+goldberg%2Caps%2C165)

Jun. 19 2013 07:52 AM
Martin Chuzzlewit from Manhattan

The Left spins this book (When they are not trashing it.) as a conservative's assault on income inequality. But, Ferguson's underlying concept is that a nation or a civilization is, in the end, defined by its collectively held values, individual freedoms and traditions. Lefties deplore this, but what else gives it meaning? What other glue holds it together? Entitlement packages?

The unfortunate morphing of our cultural elites into a quasi-religious group that worships (ironically) vague "world values" bodes poorly for our future unity. Societies don't survive as a collection of "victim groups" vying for top grievance status. And this isn't helped by a President and his wife who resent many of these freedoms and values, seeing everything through a prism of victimization and class warfare.

Jun. 19 2013 07:42 AM
Ed from Larchmont

Chesterton tells us that societies decline morally before they decline economically or militarily. If that's the case, we're in a steep decline.
Abortion is a sign of our decline, and of our lost hope, and it's also a cause of that decline.

Jun. 19 2013 05:51 AM

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