Sovereign Shock and Awe

I have long argued that preemptive action - in the form of a good (read: conservative) policy mix - should be the preferred route of governments. The upside vs. downside of pursuing pedal-to-the-metal policy mixes is now being witnessed (in Anglo-Saxon land). The marginal upside (and its positive externalities), on a probability-adjusted basis never, in my opinion, outweighed the risks to systemic stability engendered in neglectful policy pandering to the present at the expense of the future. Europe too must accept its culpability, unable as it was to resist the Siren's call of me-too spend-now, worry-later goosing. But that was then, and this is now. Democracy in complex modernity (again, not solely in Anglo-Saxon land) has failed to deliver prudent management of the State's affairs (for different reasons). Libertarians may still argue markets were not free enough, but the reality of prolonged markets distortions by mercantilists that man-slaughtered bond market vigilantism, should have been enough to seek redress through tighter fiscal policy, tighter monetary policy (as implied by the Taylor rule), or both. Regulatory neglect, across financial centres, too played its part in the [hopefully] now-regretful feedback loop.

But pre-emptive action - the brave type witnessed in Germany's VAT rise several years ago - has been almost wholly absent for almost three decades. Since the days of Carter's malaise speech, and his subsequent electoral spanking, pulling "a Mondale", that is, even suggesting that taxes might need to rise to prudently satisfy the financing requirements of the State's expenditure has a been a political death-wish. The people have got what they asked for (more for less) year-in and year-out - and they should be both mindful and regretful in their culpability. A few developed countries have (politically) managed better, but this is likely a vestiges of collective memory or austere protestantism. I have recognized this, and thus argued, in particular, that the US will not, indeed cannot, fix the problem until the proverbial wagon has lost its wheels evidenced by an exemplary Team America Vomit-scene extraordinaire.

What should have been done has been evident to grown-ups (and some children) in the realms of fiscal, monetary, regulatory policy for the past decade-and-a-half. But again, that was then, and this is now. The present medicine is far more painful now, as any practitioner could forecast. And so despite knowing what is necessary, and the pain such obvious solutions will cause (no matter justly apportioned and implemented) discussions with a wise man yesterday raised an interesting question in regards to their acceptance and adoption by the polity. He posited that shock-therapy (not in the IMF sense), but in the sudden event occurance sense inherently is psychologically easier for humans to bear to bear than, how shall I call it, a prolonged gradual stoic voluntary austerity. The shock whether default, restructuring, etc. he argued, removes the oppositional barriers, and focuses peoples attention more clearly on the future and solutions, than on protection of parochial interests.

I have been somewhat idealistically prejudiced towards a northern-european rationalism, hence believed that neglect and financial demagoguery was more of a failure of political leadership and communication than of will. Regretfully, the political processes and media failures within our democracies coupled with general financial ignorance and the belief in The State Tooth Fairy cause me to relent, and seriously entertain the superiority of Shock-and-Awe as an motivator and aggregator or requisite political will, not just in the USA.