Reason for a New Age

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    What you will expect to see here are discussions of politics and tangentially economics. This blog will do its best to present a rational look at the world of today, how the modern world came into place, and the issues that are currently being discussed in the public realm.
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Posts Tagged ‘cowardice’

True Economic Ill

Posted by publius2point0 on 2010/01/26

As I have pointed out a few times now, the current recession is largely an issue of perception. Had people expected the economy to keep on going well, it would likely have done so.

But so it becomes worth noting that there are of course times of true economic problems. At the moment, three categories come to mind, which I will present. Before I do though, let me note that while I am intermixing examples of both businesses and governments, and generally these aren’t particularly comparable, for our purposes I think that these differences aren’t relevant. Businesses, when they fail, collapse. Governments get revised and updated. But the afflictions which bring them down are the same.

Cowardice & Bureaucracy

The examples that are most likely to be familiar in modern times are those of Japan and GM.

Following WWII, the people of Japan turned to business and trade as their path to reclaiming their lost honor and quickly rebuilt their nation, established a massive electronics and mechanics industry, and by the mid-80s was perhaps the second most influential country on the planet. Suddenly, their whole economy collapsed and even today–20 to 25 years later–still hasn’t come back to where it reasonably should be.

Generally, any recession, all you have to do is wait until customer confidence returns and people start spending money again. You might have been overvalued, and investors don’t want to be the last person caught by the market adjustment, so they all pull out and make things worse–but then things come back to whatever the right value is.

For Japan this didn’t happen. Things simply never came back. The country had ceased making any attempts to establish itself overseas or continue expansion. They didn’t go out talking about the things they were going to do and sell people on how it was a certain money maker. When things went in to toilet, it seemed like the correct market value was actually just that.

Japan still had high scores in education, they still had all the same companies, the government hadn’t changed, there was no particular reason to think that Japan of 1990 wouldn’t be the same as the Japan of 1980 in terms of potential. But, to draw people back, you have to sell to them. You have to come up with plans and strategies and market them. Customers don’t come to you unless you do that.

Something had actually changed in Japan between 1980 and 1990.

WWII ended in 1945. Figuring that the businesses which became the largest movers of Japan were established just after the war, you would expect their top executives to be 30-40 years old. By 1985, these men would be 70-80 years old, retiring from the business world, and a new generation coming in to take over. This new generation hadn’t, unfortunately, ever been trained to strategize freely–or so goes my understanding of it. In their attempt to rapidly modernize, post-WWII Japanese industries had decided to exercise tyrannical control of the company. One man operating with a hundred thousand instantaneously obedient bodies, so long as that man is wise, can achieve an insane amount. But he leaves behind a hundred thousand people who simply had to obey for forty years.

When the economy of Japan collapsed, there was no one with the imagination and will to lead the country or its businesses. Economic stimulus after economic stimulus for 20 years, things continued to fall back into a slump because there truly was a problem with the economy of Japan. They just didn’t have the “go” anymore.

GM is in a similar position. After becoming the largest single company in the United States, being 4.1% of the nation’s entire GDP (in 1979), they became complacent, strongly in the public eye, and unable to plead poverty whenever anyone asked for more money or the chance to operate independently within the corporation. 30 years of acceding to everyone’s demands and finally all the money and power was exhausted and either the executives were so used to their complacent way of living or there was so much bureaucracy and contractual agreements formalizing all of this waste that the company was fundamentally incapable of righting itself. If you were to pump extra–stimulus–money into GM, it would simply drool back out until it returns to its natural state.

Someone sufficiently dynamic and willing to hack and slash may have been able to have saved the company, but that person never appeared.

Left Behind

Other times a company might be perfectly healthy and yet still shrink and collapse simply because their product is no longer useful. This can happen to countries as well–for instance, if oil independence is achieved, you can expect several currently prosperous nations to shrink up. Obviously a truly healthy company or nation–where we mean the ability to innovate rather than simply the ability to maintain–will find some new market to exploit, but the entrepreneurial spirit is slightly different from the sort who simply keeps a company running efficiently. You can’t really expect it.


And of course sometimes there was just nothing there to begin with. You can invest in .Com Businesses or Mongolian oil, and you can continue to pump money in to keep the whole scam afloat year after year, but eventually it has to collapse.


In conclusion, there are cases where the economy truly is bad. Whole nations have become complacent–Spain, for example–whole nations have existed based on unsupported expectations, I’m sure. But so long as you have a real product and a leadership who are enterprising and capable, any recession is nothing more than a re-adjustment that will go away on its own. If you are to busy yourself on a thing, it’s not on stimulating the economy, but more-so on seeing to it that there is greater separation between industries. The collapse of the housing market shouldn’t affect my Microsoft stock.


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