Monday, April 30, 2012

That Man...

...a continuing series...

Readers here will note my differences with Niall Ferguson, and once again I must take issue with his line of thought.

In a recent interview, he puts forth the disconcerting notion that America is drifting toward a Welfare-type state where risk-taking is frowned upon and incentive structures are tilted toward general poverty. He bases his conclusion on a series of anecdotes and analogies from the past.

In addition to the above conclusion-based arguments about the future of the United States, he proceeds with the following:

"It would be very surprising if Brazil was to fall back. The costs of being Venezuela or Argentina are too obvious to anybody in the region, and the benefits of being Brazil are even more obvious. Not only for Brazil, but quite a substantial number of the Spanish-speaking countries—Peru, Chile, Colombia, Mexico—the picture is sustained institutional improvement, with a long way still to go. Compared with where these countries were 20 years ago, they are closer to rule of law. If you had invested in those countries 10 years ago, you would be in a much better place than if you had invested in North America. I'm cautiously optimistic about the region."

This is a curious statement.  While it is true in a strict sense that Peru, Chile, Columbia and Mexico have experienced good returns in the past 10 years.  In the past 5, they have not gone so well, and going forward, where is capital likely to flow?  And, given Mr. Ferguson's penchant for historical citation, how many examples in history can be recalled with a similar sequence of "sustained institutional improvement"? 

As for Europe, I increasingly believe that it must fight a war (either civil or against some other country or bloc of countries) to gain any legitimacy or engender some spirit of solidarity among its incredibly varied citizenry.  Doubtlessly, the Kakistocracy has thought of this, and this remains one of my concerns going forward for regions adjacent to the EU area.

Meanwhile, Japanese and U.S. bonds continue to strengthen, in complete contradiction to Mr. Ferguson's continued calls for a "debt crisis" that relies on the same incorrect model of National Accounts being equivalent to Household accounts.  Any analysis that does not acknowledge the crucial nature of sovereign currency issuance will be doomed.

Oh well, I Suppose I should expect nothing less given the less than critical nature of this interview...with hardball inquiries that focus the mind like this:

Can you liken this to anything in history?

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