Institutional policy and the veneer of civilization

You can read 1000 economic forecasts, particularly of western economies, without once encountering the question, what if people protest against the policy. Yet, this to me will be the key issue for the next decade. Can the institutions of society implement policies at both the required level of intensity and duration to bring the world economy back into balance, or at a minimum trending that way? I don't think so. Others, like Stephen Roach at MSDW, do.

Despite admitting that the denial he sees amongst attendees at MSDW's investment conferences might also be found in his own views, he sticks to his guns. Institutions and leadership, he believes, will alter the path of history.

Institutions, the people who run them and the people who are run by them (or not as the case may be) have been features of recorded history for as long as the record exists. Detachment or megalomania depending on your perspective is a feature of those who rise to lead long in the tooth institutions until crisis conditions put those institutions to the test. Throughout history established institutions have been reactive, not proactive. Expecting this time to be different is to me like waiting for the sun to rise in the west.

I'm not arguing that the current world leaders don't think they can pull it off, I imagine they do, as other leaders throughout history have. I just don't think they appreciate the current thinness of the veneer of civilization, particularly in the US.

A people propagandized into accepting the virtue of fighting those with whom they disagree is a powder keg waiting to explode. I note with some concern the just released FBI data on violent crime which showed a jump in 2005-a year, mind you with a housing boom that made economic conditions more pleasant than currently exist.

If the long hot summer progresses with $3 gas, rising interest rates induced foreclosures and bankruptcies, a few hurricanes and perhaps a war with Iran to boot, the people will not be happy. When push comes to shove, I think the first option will be to ease up on monetary tightening.

But let's get a bit more specific and less abstract as we contemplate Mr. Roach's faith that institutions and leadership will alter the path of history.

Which institutions, I wonder. The same Central Banks who allowed the inflation of the 70s to appear, or the depression of the 30s? Is Ben Bernanke the next incarnation of Paul Volcker? I can't imagine Paul Volcker having a problem communicating with Maria Bartiromo, he would most likely have just walked past. No. Academic, politically correct Ben is a long way away from the brusque, cigar chompin' Volcker.

What leadership, I wonder. The Bush team, whose credibility, despite the killing of al-Zarqawi, is on par with Nixon's. Does Mr. Roach really believe that after being told the Iraq war would reduce oil prices among other untruths, that the people of the US will calmly accept the bursting of the housing bubble, which will be far more painful than the Nasdaq deflation, without a fight? While CEOs earn 200-400 times their wages? Not now, I think.

It is a feature of the leading institutions of any empire to look the wrong way at the wrong time- to try an old technique when its time has past. 6 years ago I think the US population would have accepted (with some grumbling) a cleansing recession that restored a degree of balance to international trade. In the event, the Neo-cons beat out the Larry Lindsey's and Paul O'Neill's and the military option, one of the oldest tricks in the book, was the policy option on which the Bush Presidency's credibility was spent.

One of the ironies of history is summed up by this quote from Jean de La Fountaine: A person often meets his destiny on the path he took to avoid it. It will be ironic indeed is those who claimed the end of history will have been instrumental in reviving the cycle, if such proves to be the case.