Monday, June 4, 2012

Fascinating -- and frightening

Krugman points to a speech George Soros gave on Saturday which is remarkable for its clarity and breadth. His principles of fallibility and reflexivity constitute a true systems-thinking view of the history and likely breakup of the European Union. His notion of a "political bubble" interacting in complex ways -- generating what complex systems theory calls positive feedback loops -- with the financial bubble is particularly interesting. One candidate for nut graf is:
"While the European Union was being created, the leadership was in the forefront of further integration; but after the outbreak of the financial crisis the authorities became wedded to preserving the status quo. This has forced all those who consider the status quo unsustainable or intolerable into an anti-European posture. That is the political dynamic that makes the disintegration of the European Union just as self-reinforcing as its creation has been.  That is the political bubble I was talking about."
Among the other fascinating and frightening points Soros makes is that the accelerating (not slowing) crisis is leading toward doubling-down on previous mistakes. Thus, instead of winding down the euro while preserving the EU -- the correct course -- the opposite seems likely to happen. And he believes the moment of truth is now upon us:
"In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support."
It may be, in a historical sense, one of the comparatively less important aspects of this that it is happening in the midst of a U.S. election. If the dream of a post-national Europe goes gaflooey, its impact will be far deeper than the replacement of an inadequate Democratic president with an inadequate Republican president. However, Soros's plausible timetable certainly does put this Fall's election home stretch into perspective. After all, it was another Fall -- the Fall of Lehman -- in September 2008 that decided that contest.

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