New Year Allows for Optimism Even in a Pessimistic World: View
For pessimists, the new year offers an embarrassment of riches.
In the U.S., a bruising presidential election will distract Congress from the crucial business of solving the country’s deep fiscal problems. Europe is teetering on the brink of a financial disaster that could sink the global economy. China may be entering a real-estate bust. The Arab Spring has given way, in places, to a violent winter. Russia could be next in line for full-bore rebellion.
It’s far too easy to see how things could go terribly wrong. Hence, in the spirit of the holiday season, we at Bloomberg View thought it would be more interesting to imagine how they might go right. Here, point by point, is our optimistic case.
No doubt, worries about Europe and recurring displays of political brinkmanship are weighing on U.S. households, investors and corporate executives. Such concerns are also getting tiresome. What if businesses and consumers up and decide to get on with life?
There are signs that may be happening. Indicators of hiring intentions are looking better than they have since mid-2008. The housing market and auto sales are recovering from a summer lull. Gasoline prices, down 16 percent from their peak of more than $4 a gallon in May, are less of a burden on consumers. Economists have been raising their estimates for growth in the current quarter.
Desolate as the political landscape may appear, the election will be fought at least in part on a fundamental issue: how to fix the U.S. government’s finances, and who will pay. Democracy was never intended to be pretty. If the winner emerges with a clear mandate, the U.S. could be in a better position to balance its long-term budget than at any point in the past decade.
Europe’s sovereign-debt troubles differ from other recent crises in one important way: Almost everybody involved seems to recognize how devastating it would be if euro-area governments failed to act. The threat of Armageddon is pushing Europe’s leaders, step by inadequate step, toward the closer union required to make the currency area viable. Indeed, it’s possible to see the crisis as just the bitter medicine Europe needed.
Success could be transformative. Markets would boom, easing the task of fixing government finances and giving a much-needed boost to the global recovery. Ultimately, if euro-area countries pursue the creation of collectively backed government bonds, the vast new market might help rebalance the world’s economy by providing central banks and investors with an alternative to U.S. Treasuries.
Even if Europe’s leaders can’t reach agreement on a new fiscal compact before markets lose patience, the European Central Bank may yet have the firepower to prevent a breakup of the euro -- if only it’s willing to use it. The ECB’s move this week to make 489 billion euros ($639 billion) in three-year loans available to banks suggests it might be.
Recent data on real-estate prices suggest China might be facing the burst bubble many had feared. Although nobody would wish that on the Chinese people or the global economy right now, the shock could provide a useful lesson in the limits of authoritarian rule. Monolithic government and state-directed investment can be effective in pulling countries out of poverty, but not in building a middle class or in reaching the ranks of the world’s wealthy nations.
If economic troubles spur China’s 1.3 billion people to demand more freedom and more of a voice in the way they are governed, the result could be a step in the right direction.
It’s hard to know what will come of new regimes in Egypt, Libya and Tunisia. The renewed bloodshed in Cairo’s Tahrir Square, together with ongoing battles in Syria and Yemen, suggest the Arab world’s democratic struggle could be long and tortuous. Still, it’s possible that by the end of 2012, revolutions in the Middle East will have toppled five dictators. That could open the way for free elections -- as protests have in Tunisia and Egypt -- with moderate (albeit Islamist) governments similar to Turkey’s.
On the economic front, greater openness to foreign investment could allow some countries to kick-start growth, much as Morocco did in the previous decade. Also, the imperative of reconstruction will push Iraq and Libya to accelerate oil production as fast as possible. Their contributions could help keep prices down if Iran’s standoff with the rest of the world intensifies.
The intransigence of Vladimir Putin, who is showing no sign of ceding to protesters’ demands for free and fair elections, might be just the impetus Russia’s civil society needs to spur it into existence.
In one positive sign, the organizers of Moscow’s protests have gone to great lengths to avoid violence. They also have at least one leader, anti-corruption blogger Alexei Navalny, who appeals to the country’s liberal intelligentsia and might be able to channel rising nationalism in a constructive direction.
The political turmoil has spooked investors, but a Russian Spring could ultimately be a great buying opportunity. Navalny made his name as an activist shareholder, campaigning against embezzlement in big Russian companies. Picture a country in which entrepreneurs no longer face crushing bribery costs, shareholders have rights and investing is more about value than guessing whom the Kremlin will favor. Revolution could bring an economic renaissance.
We recognize, of course, that it would be irresponsible -- and hardly in character for journalists -- to assert that all or any of the above will prove correct. Better to be prepared for the worst. The beauty of pessimism, after all, is that it allows reality to exceed expectations.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.