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Germany on the Brink of Recession?


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#1 Sator

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Posted 15 October 2014 - 11:10 AM

I often end up talking about politics and the economy with successful tailors. Why? Because you are running a small business. 

 

Anyway, I am reading a lot of gloomy things about the future of the Eurozone. For example:

 

http://euobserver.com/news/125990

 

Here is one possible explanation for Why the German Experiment has Failed. In short, clinging to classical neoliberal economic dogma has resulted in Germany sticking to the principle of austerity. If Germany's trade partners are in crisis and you don't bail them out to stimulate the Eurozone economy in a timely fashion, your exports to these trading partners will drop off and end up hurting Germany even more. 

 

Meanwhile, geopolitics instabilities (i.e. conflict with Russia) cause a further drop in trade. Growth in China slows (or perhaps collapses), resulting in a drop in exports from Germany to China. This hurts the German economy even further.

 

The Japanification (to use a phrase from Nobel prize winning economist, Paul Krugman) of the Eurozone would then be complete. Just as Japan hit the wall with a two decade hiatus of stagnant deflation, from which it is only emerging, the Eurozone could follow Japan — and the US — in going the same way. The Euro may yet collapse and be replaced by national currencies, given the lack of impetus to political reform towards economic centralisation in Europe.

 

There is a lot of pessimism in the air about the future of the world economy...



#2 Der Zuschneider

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Posted 15 October 2014 - 11:27 AM

I follow end time up since 2008. MMnews, Koppverlag should be mandatory, if you don't want to stay blind. Also Alois Irlmaier.


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#3 Sator

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Posted 15 October 2014 - 12:12 PM

BTW I don't advocate turning to psychic mediums or astrologists to predict the future of the economy  :rolleyes:

 

Those who do so might want to start their own thread on this...preferably on a forum for psychics.  :pinch:



#4 Der Zuschneider

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Posted 15 October 2014 - 01:59 PM

So you believe MMnews and Koppverlag ist psychic? Those are news portals.


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#5 SINNED

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Posted 15 October 2014 - 04:18 PM

Many of us in the UK have always been sceptical about the Euro which is why we stayed out. There is an inherent weakness in a common currency without true political union (which Europe is not ready for yet). Many weaker countries joined (and sometimes cooked the books to be able to) in order to be swept up on the German coat tails of economic success. Germany was happy to do this because of improved export prospects. The weaker economies like Greece cannot devalue their currencies to correct their economic ills and so the only alternative is a massive drop in the standard of living in that country. This destroys their ability to buy goods from expensive economies like Germany, which is back to where they were before the Euro. The UK still has huge borrowings but because we are in control of our own fiscal policy we have managed to confound even the IMF and are now the fastest growing economy in Europe. I am sure Germany will come through this because they have a strong economic heritage although I think sometimes they are slow to admit they are wrong.

#6 Schneidergott

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Posted 15 October 2014 - 04:45 PM

I doubt that any country is in control of their currencies. The fact that basically all governments instantly agreed to bail out the banks, who caused yet another economic crisis, is proof of that.

And having ex Goldmann-Sachs CEOs as a head of state ( Monti in Italy), ex finance minister or advisors (USA) or head of the European Bank (Draghi) is not of any help either.

BTW, it was Goldmann-Sachs who helped Greece to cook their books and it was the ex CEO who didn't want to help the Lehmann Brothers bank out when the real estate bubble was going to burst.

 

The German economy has been in decline since the 1980s, the VAT has been increased has been increased practically every time Helmut Kohl got re-elected.

Germany's export is basically just machinery, from production equipment over cars to weapons. Any other production has been successfully eliminated, like the clothing trade which had employed millions of people, and was first moved to Eastern Europe and finally to Asia. Since we hardly produce our own goods we are heavily struck when the export is slowing as well.

The unemployment figures are incorrect (in particular before major elections) and there are several million people in work who cannot live from it.

 

The actual government is constantly trying to tell the world that everything is fine, while it is not, mostly with the help of certain media groups, like the Springer publishing house, which has been supporting the conservative parties (CDU and CSU) for decades.

 

So yes, Germany is in denial when it comes to it's actual economic state.

 

http://www.staatsschuldenuhr.de/

 

But the UK is actually worse:

 

http://www.nationaldebtclock.co.uk/


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"Nur der ist Meister seiner Kunst, der immer sucht, das Gute zu verbessern und niemals glaubt, das Beste schon zu haben."
"Only he is a master of his art who always seeks to improve the good and never believes to have the best already"

http://www.dressedwell.net/ It's snarky, but fun.


#7 Sator

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Posted 15 October 2014 - 10:20 PM

So you believe MMnews and Koppverlag ist psychic? Those are news portals.

 

No, but Irlmaier, whom you keep mentioning, is:

 

http://www.worldprop...er_Prophecy.htm



#8 jukes

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Posted 16 October 2014 - 03:58 AM

A united Europe will always fail, it was set up for for the richer countries to get richer,(the auditors have not approved the accounts for 20 years) while the poorer countries live on the scraps.
The lunatics are running the asylum purely for self greed. It was always destined to fail, let's just hope it fails peacefully.
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#9 SPOOKIETOO

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Posted 16 October 2014 - 04:08 AM

For at least 2 years prior to the mortgage meltdown here in the states, I predicted to anyone that would listen that it would all come tumbling down - sooner rather than later. And unfortunately it did.  So much of economics boils down to basic common sense, yet those in charge virtually everywhere - worldwide - continue to make decisions based solely on their own pocketbooks.  The world order has reached the point where the obscenely wealthy demand  - and have  - the right to destroy any semblance of a middle class existence.

 

The downturn in available clients for bespoke wear is the same as the downturn in everything else - simply that fewer individuals control the overwhelming majority of most of the wealth. If an economy is not building or supporting a middle class - it is not growing. In this country, when I was a child, medical doctors were considered wealthy and many could have afforded bespoke if they chose, but now many MD's are making little if any more that most engineers - yet our healthcare costs have spiraled out of control.

 

One would think that if another country were truly trying to find their way through this crisis, their leaders could simply look as far as the U.S. for confirmation of what not to do. But apparently leaders are the same everywhere... bought and paid for, in one form or another, by special interest.  Look at what Britain is wanting to do with the NHS - privatize it.  REALLY??? Is the horrid state of our current U.S. health system not enough to convince anyone that privatization is NOT the answer? We have the MOST expensive healthcare system in the world - not the best - just the most expensive.  Make no mistake, that expense is completely due to the private insurance companies.  Under no circumstances should a healthcare system be ran as a for profit, uncontrolled entity.

 

Here in the states, ignorant people argue that running the Health insurance companies as for profits is "the American way", and that if the government retained control of just say - the salaries of all levels of upper management, that would constitute socialism. But here is my question, what does the CEO of a health insurer do that is more important and more difficult than the engineers in charge of one of the largest nuclear facilities in our country?

 

Answer: Nothing.  Yet the U.S. has governed the salaries of its nuclear workers for decades. Combined salaries and bonuses of top level managing engineers will top out around $250,000 to $400,000 - as mandated by federal law. In 2006, the  then CEO of United Healthgroup, a monstrously massive healthcare conglomerate, was asked to step down due to the backdating of stock options (fraud). As a result of the stock options in his own compensation package, he walked away with $1.1 Billion - with a "B" - Billion Dollars!  The federal government subsequently took him to court and made him pay back $468 million - leaving the poor man with a paltry $632 million.  To recap - he oversaw the intentional fraud of backdating stock options - was fired for doing so - benefitted immensely from his fraud - and had to return approximately 42% of what was stolen. And this was not prosecuted as an actual crime.  No talk of jail time.

 

The shame is this: how many people were denied healthcare and subsequently died as a result of this fraud?

 

This "above the law" attitude carries through to most aspects of the lives and business concerns of the Über wealthy in this country, and from what I have seen as of late, this holds true for most other countries. Unless these people are forced into some sort of compliance as members of the human race...I see no end in sight for the downfall of numerous world economies. Germany tried and it hasn't worked. Humanitarianism on behalf of our leaders is dead....our economies will not be far behind.  



#10 Faith

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Posted 16 October 2014 - 05:36 AM

I find it interesting that the Euro and the Old Roman Empire cover much of the same territory. Rome fell. This Euro too shall pass.


If most women are not 5 feet 10 inches 120 pounds, why do these unrealistic models dominate the runways?


#11 Schneidergott

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Posted 16 October 2014 - 06:38 AM

The Euro didn't do any good for the normal people.

In Germany many shops secretly increased the prices by simply just changing the currency symbol. Some items instantly cost double than before.

Workers with a monthly pay of 2000,- DM could pay for housing and still feed and clothe a family. Those days are gone. At the moment most of the net income is needed for housing, then food and clothing.

Not to mention costs for a car or commuting.

 

Actually, not only the Euro currency is a fail, the attempt to bring more than 20 countries into line is as well. There will always be different interests in each country and the rich ones will have the say.

Brussels with its rules and regulations is a pain and would allow a group of states to interfere with the interests of a sovereign state. And there is so much lobbyism going on in Brussels and capitals around the world that the politicians forget what they should be there for: To serve the people who voted them into power.

 

Regarding the banks: They should have killed the beast while it was weak. The money the governments spent to bail out a bunch of greedy gamblers could have easily been spent elsewhere.

How come that when corporations are doing well they are all for a free market and de-regulation, but if they gambled and lost they need the state to bail them out?

Banks are nothing better than loan sharks, with the difference that a loan shark has to have the money he is handing out. A bank only has to have 10% (or nothing) of the lended amount as a security, everything else is just a couple of virtual numbers.

 


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"Nur der ist Meister seiner Kunst, der immer sucht, das Gute zu verbessern und niemals glaubt, das Beste schon zu haben."
"Only he is a master of his art who always seeks to improve the good and never believes to have the best already"

http://www.dressedwell.net/ It's snarky, but fun.


#12 Der Zuschneider

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Posted 16 October 2014 - 06:42 AM

Irlmaier makes people afraid, better is, for the blind, to be in denial.


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#13 Sator

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Posted 16 October 2014 - 01:36 PM



 

Regarding the banks: They should have killed the beast while it was weak. The money the governments spent to bail out a bunch of greedy gamblers could have easily been spent elsewhere.

How come that when corporations are doing well they are all for a free market and de-regulation, but if they gambled and lost they need the state to bail them out?

Banks are nothing better than loan sharks, with the difference that a loan shark has to have the money he is handing out. A bank only has to have 10% (or nothing) of the lended amount as a security, everything else is just a couple of virtual numbers.

 

 

Disclaimer: I'm here to stimulate thoughtful discussion and to encourage tailors to be astute business people. I'm not here to use this forum as a soapbox for my views on politics and the economy. 

 

As point of discussion, I thought I'd mention the fact that there are divergent economic views about the problem with two subjects mentioned by SG:

 

1. Should central banks and governments bail out banks to avert a financial crisis?

2. How bad is government debt? Is private debt better or worse?

 

With respect to question 1, I thought that Nouriel Roubini gave a balanced discussion of this in Crisis Economics. Sorry, can't find a German translation, but the French translation is here. The last time there was a massive banking crisis as bad as the GFC was back in 1929. Governments didn't intervene to bail out failing banks, and the result was the Great Depression, a major trigger for the collapse of Weimar democracy leading to the rise of the Third Reich and WWII. The effect on ordinary people was terrible. In that sense, Roubini thinks that a certain degree of intervention is necessary. But Roubini thinks that the opposite school of thought, the Austrian School of economics has some validity too. Their phrase 'creative destruction' means that banks that deserve to fail should be allowed to do so, to clean the system out. You can't give the message that it's OK to continue bad monetary practice and expect to be bailed out whenever you crash. The point is that you need a bit of both timely intervention to prevent widespread catastrophe, but at the same time some controlled 'creative destruction'. Food for thought.

 

As for question 2, that too is interesting. I have more questions than answers. After WWII the US government debt level was enormous, yet the 1950s was a period of great prosperity for the US. Since then there has been a growing tendency for debt to be carried privately rather than by government. As government debt was reduced it was replaced by private debt. This happened when economic ideas about government actively building infrastructure to stimulate the economy (Keynesian economics, almost the opposite of Austrian school) went out of fashion. You can argue that the result was the fact that private households ended up carrying a huge weight of debt in order to afford to buy a house, and that this contributed to the subprime mortgage crisis. The same thing is happening elsewhere even today. For example, the cost of housing in London, Hong Kong, Vancouver, Sydney etc is really getting out of control. Private debt too can lead to a crisis, one that can lead to a need for intervention to prevent a financial collapse. 

 

PublicVsPrivateDebt.jpg

 

Until the GFC, economically liberal schools of thought tended to dominate. Now questions are being raised about them. The assumption that the role of government is just public debt reduction and non-interventionalism is holding increasingly less sway today. Moderate right wing governments didn't think along such lines back in the 1950s-70s, after all. Republican US president, Nixon once said: "we're all Keynesians now". Roubini says "there are no liberals in financial crises", and Nixon's adoption of Keynesianism was in response to a financial crisis.  Still, unlike in the 1960-70s, liberal economics does dominate in universities, as well in government ranks, both of the centre left as well as centre right. Hence why Merkel's centre right CDU party regards austerity to be an important principle of economic reform moving forward. Even the French Socialists have conceded to the liberal economic austerity principles of the mainstream Eurozone economists.

 

Part of the problem with economics is that it is very politicised. This can lead to dogmatism, on both sides of the politic fence. The worst case scenario is the sort of political gridlock that we recently saw in Washington. The trouble is that nobody benefits from that sort of thing. It's important to be open to divergent views about the way forward and to find some sort of bipartisanship.

 

If the Eurozone collapses, especially at the same time as China experiences a hard landing after it goes the same way as Japan, while the US experiences stagnant deflation, then the world economy is going to go back into severe crisis mode.

 

We live in very difficult and trying times. It's all the more critical to be acutely aware of what is happening in the political and economic sphere if you are a small business owner.



#14 Sator

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Posted 16 October 2014 - 02:09 PM

The world order has reached the point where the obscenely wealthy demand  - and have  - the right to destroy any semblance of a middle class existence.

 

The downturn in available clients for bespoke wear is the same as the downturn in everything else - simply that fewer individuals control the overwhelming majority of most of the wealth. If an economy is not building or supporting a middle class - it is not growing. In this country, when I was a child, medical doctors were considered wealthy and many could have afforded bespoke if they chose, but now many MD's are making little if any more that most engineers - yet our healthcare costs have spiraled out of control.

 

 

Again, I will try to stay reasonably politically neutral. This is forum for tailors, and I am here to encourage tailors to be astute business people. All of the successful tailors I know have been people with business smarts. Not a coincidence I think!

 

I recommend the book Capital in the 21st Century by Thomas Piketty for those patient enough to read it. Piketty tells us that Americans used to pride themselves for being more egalitarian and meritocratic than Europeans. A hundred years ago, America was the New World of opportunity, where anyone with drive and talent could 'make it'. 

 

Part of the reason bespoke tailors used to thrive was because there was a thriving middle class to support the trade. In those days, the pay difference between the CEO and those at the bottom of the ladder was nowhere near as big as it is today. The way people dressed reflected that. Both the CEO and the junior wore a pretty similar sort of suit (unless the boss turned up in a frock coat with silk lapels and top hat, but that was something you were more likely to see in Old Europe than in the egalitarian New World). It was a matter of working-middle class pride that you went to work wearing a silk tie, since silk was once only allowed to be worn by the aristocracy: it was an act of defiance.

 

Henry Ford once argued for a raising of the minimum wage on the grounds that if the masses were poorly paid they would never be able to afford his cars. This is Keynesian thinking or 'demand side economics' i.e. if the masses were better paid this would stimulate demand for cars. Piketty mentions that if people in America were better paid across the board, there would never have been a need for subprime mortgages in the first place — and hence no subprime crisis to crash the whole economy.

 

Today, America is a land with more income inequality than Old Europe and it is getting worse. Oddly enough, Americans brag about it, by saying the rich deserve to be rich, just as the poor deserve to be poor. The result is that thriving middle classes that were the backbone of the golden age of America is now slowly dwindling away. No wonder people are dressing like nineteenth century working class people!

 

Americans used to be terrified of becoming like Old Europe, where wealth was inherited and where inheritance fixed what your 'place in society' should be. Now that role swap between America and Europe seems to have become complete.



#15 Sator

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Posted 16 October 2014 - 05:15 PM

Another rather sobering analysis of the future of the German economy written by an economist:

 

The German ship is sinking under the weight of its own delusions

 

Is the German economy going the way of the Hindenburg, taking the Eurozone with it?

 

hindenburg.jpg



#16 Faith

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Posted 16 October 2014 - 05:47 PM

Sator, I don't mean to help you keep this thread politically neutral; you're doing a splendid job of "moderating" already. But if I may speak my mind, because the deadlock in Washington you mentioned has me rather incensed. Not at you, but at Washington. I've also seen petty arguments break out over categorically declaring one method better than another. I'm a little crabby right now and I need to blow off some steam, and this looks like a constructive opportunity.

 

Liberals and conservatives usually manage to find their way into the majority with the right ideas at the right time, tempered by an opposition that is willing to negotiate. USUALLY. And most of us non-politicians are too slow to realise the need for a change of the old ways. Sure, we grouse when our political ideology is in the minority, but eventually when the timing is right all of that grousing turns the tide (or maybe the tide turns because of voter sentiment and grousing is futile). The real problems begin when we become so polarised in our thinking that we are immovable in our positions and we (in the US anyway) call each other Repugnicans and Democraps. I must say that lately a fine example of maturity we are not.

 

Those old enough might recall Reagan and his supply-side economics (deregulation) and how unpopular his policy was at the time (critics and even supporters of the time favored demand-side wage increases). More recently, Reagan's toughest critics have credited "Reaganomics" for the US economic boom that followed. But without re-introducing enough regulation at the right time, the economy grew too big too fast until it became too big to be stable. When the regulations finally came, it was too late.

 

My husband uses the analogy of two-part epoxy, that you have to pump both handles to get the epoxy to turn out right. He's right, but I think it's more complicated than that.

 

Using the analogy of dough (the stuff we bake into bread, not the slang term for the stuff we want more of) we have different components with different functions, and recipes are merely guidelines. If the weather is humid we add more flour, if the weather is dry we add more water. To grow yeast we add sugar. To inhibit yeast we add salt. And then there's the type of fat and protein according to what's on the table, milk and butter for milchig meals or oil and eggs for fleisch meals. This fat and protein part is Jewish custom, but I use it as an analogy of the type of economy, whether communist or capitalist.

 

I learned to bake bread without a recipe, and to this day I CAN'T follow a recipe. I have to adjust it until it feels right. Likewise, economies have to be adjusted, and as Sator said, these adjustments are mired in politics. Now, I don't like salty bread, but sometimes as I'm mixing up the batter I look over at my yeast starter and think, "Impressive head of foam, better add an extra pinch of salt." Without that extra pinch, the finished dough will rise too quickly and collapse into something too tough to serve as bread. But it makes up into some excellent bread pudding, which has been known to start wars among small children.

 

Pour on some maple syrup and I'm likely to jump into the fray wielding the rolling pin! :girl_devil:  (I knocked myself out with nunchaku once, so I just stick to my non-articulated rolling pin. Seriously, am I the only one that sees this emoticon as an unlucky nunchaku girl? My husband thinks she's cracking a whip. Faith, get back on target or stop rambling.)

 

Okay. It takes both sides, and both sides must both give and take. When either side becomes so polarised that they lose their willingness to negotiate fairly, NEITHER side can make any progress. I think it's fair to say that we have too many liberals, too many conservatives, and not enough moderates.

 

The same holds true in business. Moderation (the ability to apply liberal principles when they're best and apply conservative principles when they are best, or more precisely, the ability to apply the correct mix of the two according to the climate), is the most important element of business savvy we can have second only to knowing how to make correct change for a given denomination of currency.

 

Sator, I know I rather carpet-bombed my way to the objective, but your thoughts?


Edited by Faith, 16 October 2014 - 05:50 PM.

If most women are not 5 feet 10 inches 120 pounds, why do these unrealistic models dominate the runways?


#17 hutch48

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Posted 16 October 2014 - 08:49 PM

I would pretty much agree with the view that the EU has been a disaster for most of its members and the inflicting of a single currency has destroyed a number of the poorer economies within the EU. In particular I remember Barossa gloating over being able to bypass popular voting in different countries when trying to inflict the Euro on them. European debt levels are the product of Brussels and its economic policy and the structural changes that need to fix it will never be done.

 

The US is a different animal, subservient to its own corporate sector, it is destroying itself by allowing Wall Street to rape and pillage the economy. I come down strongly on the side of Main Street over Wall Street but big money will keep ripping the guts out of America for as long as it can get away with it. You see this played out after Obama was elected, for all of the rhetoric little has changed, Pelosi was more interested in her fashion that putting Democrat policy into place and with the next senate election the Democrats lost their majority. With the Gingrich approach of destroying the Government at any cost, the US has twice nearly fallen into default economically which is rediculous for a country of that wealth. Funding wars eventually breaks economies and the US has suffered very badly from the cost of the Iraq and Afghanistan involvement. The big winners moved to Dubai, profits and all and left the US taxpayer holding the bag.

 

With the original topic, I doubt Germany is alone, much of the world teeters on the brink of recession, probably the BRIC countries (Brasil, Russia, India and China) are the exception in that they have some form of asset to back their economies. The UK was very wise in resisting the Euro and retaining its own currency, while I gather things in the UK are tough at the moment, it could have been a lot worse if they had have been under the control of Brussels.



#18 Sator

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Posted 16 October 2014 - 09:15 PM

Yes, the lack of bipartisanship in government due to ideological polarisation is a disaster. It means decisions get made based on ideology or worse still, driven by narrow interest groups, rather than in the wider national interest. It's something happening everywhere you look, not just in Washington. It's worst in countries with systems based originally on the Westminster system with its two-party winner-takes-all principle. This includes Washington, but also Canada and Australia.

 

Germany is a bit better in that, despite being severely polarised, the system of proportionate representation has forced the SDP and CDU to form a grand coalition ("Große Koalition") of the unwilling. A bit like a coalition between the Democrats and Republicans. Imagine that! But still, even then, the German government is running an austerity based economic reform programme for the Eurozone, one that doesn't seem to be working. All because German voters feel resentful of the neoliberal thought that the German taxpayer is bankrolling a financial bale out of Greece and Spain. It's short sighted, but also self-destructive, and it will help drive Germany into recession.

 

It should be remembered that Republicanism is a term that was originally the opposite of Monarchism. It meant you were a patriot for believing that anyone should be able to succeed given talent and hard work, rather than inheriting wealth and social rank. That's why this article questioning whether America is still a meritocracy appeared in The American Conservative. This next article saying America has lost sight of its meritocratic ideas appears in The Economist. Neither of these sources are exactly left wing rags. That helps to understand how during the Great Depression, FDR managed to pass laws imposing confiscatory progressive taxes on the ultra rich: up to 80% in the highest income bracket. Imagine trying to pass that one through Washington today!

 

Political parties will eventually have to discover that they have to rule again in the wider national interest, or else it's not good for a politician's already limited shelf life. Disasters may have to happen first to force this to happen.






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