Everybody in the west knows the fable of the grasshopper and the ant. The grasshopper is lazy and sings away the summer, while the ant piles up stores for the winter. When the cold weather comes, the grasshopper begs the ant for food. The ant refuses and the grasshopper starves. The moral of this story? Idleness brings want.
Yet life is more complex than in Aesop’s fable. Today, the ants are Germans, Chinese and Japanese, while the grasshoppers are American, British, Greek, Irish and Spanish. Ants produce enticing goods grasshoppers want to buy. The latter ask whether the former want something in return. “No,” reply the ants. “You do not have anything we want, except, maybe, a spot by the sea. We will lend you the money. That way, you enjoy our goods and we accumulate stores.”
Ants and grasshoppers are happy. Being frugal and cautious, the ants deposit their surplus earnings in supposedly safe banks, which relend to grasshoppers. The latter, in turn, no longer need to make goods, since ants supply them so cheaply. But ants do not sell them houses, shopping malls or offices. So grasshoppers make these, instead. They even ask ants to come and do the work. Grasshoppers find that with all the money flowing in, the price of land rises. So they borrow more, build more and spend more.
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The ants look at the prosperity of grasshopper colonies and tell their bankers: “Lend even more to grasshoppers, since we ants do not want to borrow.” Ants are far better at making real products than at assessing financial ones. So grasshoppers discover clever ways of packaging their grasshopper loans into enticing assets for ant banks.
Now, the German ant nest is very close to some small colonies of grasshoppers. German ants say: “We want to be friends. So why do we not all use the same money? But, first, you must promise to behave like ants forever.” So grasshoppers have to pass a test: behave like ants for a few years. The grasshoppers do so and are then allowed to adopt the European money.
Everyone lives happily, for a while. The German ants look at their loans to grasshoppers and feel rich. Meanwhile, in grasshopper colonies, their governments look at their healthy accounts and say: “Look, we are better at sticking to the fiscal rules than ants.” Ants find this embarrassing. So they say nothing about the fact that wages and prices are rising fast in grasshopper colonies, making their goods more expensive, while lowering the real burden of interest, so encouraging yet more borrowing and building.
Wise German ants insist, gloomily, that “trees do not grow to the sky”. Land prices finally peak in the grasshopper colonies. Ant banks duly become nervous and ask for their money back. So grasshopper debtors are forced to sell. This creates a chain of bankruptcy. It also halts construction in the grasshopper colonies and grasshopper spending on ant goods. Jobs disappear in both grasshopper colonies and ant nests and fiscal deficits soar, especially in grasshopper colonies.
German ants realise that their stores of wealth are not worth much since grasshoppers cannot provide them with anything they want, except for cheap houses in the sun. Ant banks either have to write off bad loans or they must persuade ant governments to give even more ant money to the grasshopper colonies. Ant governments are afraid to admit that they have allowed their banks to lose the ants’ money. So they prefer the latter course, called a “bail-out”. Meanwhile, they order the governments of the grasshoppers to raise taxes and slash spending. Now, they say, you must really behave like ants. So the grasshopper colonies go into a deep recession. But grasshoppers still cannot make anything ants want to buy, because they do not know how to do so. Since grasshoppers can no longer borrow, to buy goods from ants, they starve. The German ants finally write off their loans to grasshoppers. But, having learnt little from this experience, they sell their goods, in return for yet more debt, elsewhere.
As it happens, in the wider world, there are other ant nests. Asia, in particular, is full of them. There is a rich nest, rather like Germany, called Japan. There is also a huge, but poorer, nest called China. These also want to become rich by selling goods to grasshoppers at low prices and building up claims on grasshopper colonies. The Chinese nest even fixes the foreign price of its currency at a level that guarantees the extreme cheapness of its goods. Fortunately, for the Asians, or so it seems, there happens to be a very big and exceptionally industrious grasshopper colony, called America. Indeed, the only way you would know it is a grasshopper colony is that its motto is: “In shopping we trust”. Asian nests develop a relationship with America similar to Germany’s with its neighbours. Asian ants build up piles of grasshopper debt and feel rich.
Yet there is a difference. When the crash comes to America and households stop borrowing and spending and the fiscal deficit explodes, the government does not say to itself: “This is dangerous; we must cut back spending.” Instead, it says: “We must spend even more, to keep the economy humming.” So the fiscal deficit becomes enormous.
This makes the Asians nervous. So the leader of China’s nest tells America: “We, your creditors, insist you stop borrowing, just as European grasshoppers are now doing.” The leader of the American colony laughs: “We did not ask you to lend us this money. In fact, we told you it was a folly. We are going to make sure American grasshoppers have jobs. If you do not want to lend us money, raise the price of your currency. Then we will make what we used to buy and you will no longer have to lend to us.” So America teaches creditors a lesson from a dead sage: “If you owe your bank $100, you have a problem; but if you owe $100m, it does.”
The Chinese leader does not want to admit that his nest’s huge pile of American debt is not going to be worth what it cost. Chinese people also want to go on making cheap goods for foreigners. So China decides to buy yet more American debt, after all. But, decades later, the Chinese finally say to the Americans: “Now we would like you to provide us with goods in return for your debt to us. Thereupon, the American grasshoppers laugh and promptly reduce the debt’s value. The ants lose the value off their savings and some of them then starve to death.
What is the moral of this fable? If you want to accumulate enduring wealth, do not lend to grasshoppers.
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"Politics sells with ideology but sadly aplies with a collection of all human defalut, most of the time of course."
It is interesting to see how adapting (so well) this story now a days can let us understand that the real "core" of the issue is, maybe not as dramaticaly defended, but still very much defended anyhow. As goverments from around the world, some most than others, had showned that real interest of there actions are never shown to the people or society, there for, a certain "distance" or separation in knowledge is being created betwen what a few "powerpeople" know and do and the rest of the nation believe and do.
That rest of the nation simply follows that carrot on the top of the stick, sometimes thinking its the best way since its propaganded that way. But when the true and real intentions of those decisions are uncertain or based in short term benefits as well as for the wrong reasons (self interest), the results of the reactions of the whole mass becomes dangerous for their counterparts and due to the interconection of the relacions between them, even them selfs. Politics sells with ideology but sadly aplys with those good intentions of real progress....
The elimination of that gap is definitively the only measure. Progress and an international one must be in minds all the time or else selfichness decisions like those made in high financial "cercles" and by poor minded politicians will continue to create those great errors that had been seen on and on in Europe, Americas, Africa, Asia.... every time theres a crisis style issue, wrong human intentions are behind them. So the fable is a very good idea to present the situation since it gives a conclusion base on MORAL, what lise at the core of every good/bad decision, and What some of the world's country should REALLY REFORM.
My regards from D.R.
Congratulations for this rather entertaining story. To begin with, I personally consider myself a grasshopper. In fact, I strongly believe that all of the Bulgarians are true grasshoppers since all of the ants were transformed or died after 1989. But this is a different story, let's jump forward to year 2007. These were fabulous times to be a grasshopper - the foreign ants were buying lots of sunshine home and we, the happy grasshippers were building hundreds of shopping malls, new gigantic sunshine homes, and all this without any thought, without infrastructure, no quality, and funding the "progress" with huge amounts of debt. Ourselves being grasshoppers were laying at the beach and watching happily all those massive buildings appear as quickly as mushrooms after rain. We were thinking: "Good years are to come, hundreds of thousands of ants are going to come and buy those cheaply built sunshine homes and flood our shopping malls, we are going to be happy and careless grasshoppers, our bellies full and our problems gone forever. Sadly, only a year later, our secret plans burned down - the ants never came. The massive empty sunshine buildings started to look gloomy, the sea resorts covered with construction waste, the roads full of potholes, the malls started to go bankrupt one by one. The grasshoppers started to lose their jobs and their salaries begin to shrink. Today, 2007seems like centuries away and we, the grasshoppers, do now realize it is not coming back. So now we try to tighten our belts. It seems it was impossible to tighten our belts when our bellies were full, so we do it when they are empty. But look at the poor ants, they are always fit, seems like their bellies are always empty.
Cheers.
The point is that savers (Germans) and spenders (Greeks) cannot live in the same monetary house without getting into conflict.
Thank you for your correction. I think that synecdoche is a subordinate of metaphor, but anyway I agree that 'grasshoppers and ants' is not synecdoche.
As I have also now told many people, this fable is not invented by La Fontaine. He retold an ancient fable (http://en.wikipedi...nd_the_Grasshopper).
My version is more original than La Fontaine's was.
I look for some more original thinking from you in future.
I hope to see more original thinking in the future.....
Best
If you are ever to write a children book let me know.
I will buy a copy and read it to my kids.
1) Most of the generation that runs the corporate and political systems in America grew up during the Cold War, and were taught to have a strong aversion to socialism. In their minds, socialism is the same as Stalin-type communism (even though democracy is a socialist program). They forgot that there are capitalists societies that are highly competitive because of strong social programs in infrastructure, healthcare and higher education (like those in Scandinavia, and one right near us called Canada). And they think any form of socialism is bad. So right now in the media, everyone is promoting Greece's problems as a failure of socialism, even though it is socialist countries like Germany and Finland that is bailing them out.
2) The same generation of people grew up during the Vietnam era. Prior to Vietnam, American's view of their government was in the high 70-percents. It never recover that high esteem. After Vietnam, people wrongly blame the government when anything bad happens, instead of the corporate interests that treat the government as their puppet. This reduces voter turnout and participation, creating a political power vacuum that is now being filled by even more corporate interests. (In the 60s, it was the military industrial complex to influence the government since the Depression destroyed the corporate power of other sectors. The long period of prosperity saw corporate power return, and with it, corruption).
3) Low taxes and very little social spending was actively promoted by Reagan, who was well loved by the wealthy-class (that has strong media power). When he walked into office in 1981, oil prices collapsed and lifted the economy. People confused the growth from cheaper oil with his policies. His policies of low taxes (which caused inflation) and high interest rates (to contain the inflation), were counter-cyclical. Latin American nations borrowed heavily from US banks in the 70s, and with Reagan's foolish policies, Latin America was crushed by high interest rates.
4) The wealthy has tremendous media power. The US does not have an equivalent to the BBC (The Public Broadcasting Station -- PBS, is too weak). And one thing that is tragic about US media is presents the views of both sides, but it does not provide a third-view which is the facts. So, two politicians maybe debating about global warming on the media (one against doing anything, and another who wants to stop global warming). The viewers see a 50-50 debate, but the media never shows the detailed facts that each debater is using, nor do they tell the viewers that the person who is against action on global warming is in the extreme minority of scientists. Another case in point is healthcare -- it is so obvious that all other developed nations have universal healthcare which is cheaper and with better outcomes. This should clearly end the debate, but the media wants conflicts because it is private and therefore needs to make a profit. This is an example of market failure of the media sector in America.
There are obviously more reasons to why Americans have not revolted at this injustice. You should read Naomi Kline's book, "Shock Doctrine." It explains the issues facing the American citizen very well.
Meanwhile, amongst the "ant colony" there was a class of "moles" who smuggled the earnings of their poor "ants" underground and lent them to the "locusts" as bonds (out of which the "locusts" developed their voracious practices) in the hope that they would be repaid with interest and that they would not be "inflated away" by central-bank "monetisation" of the loans!
Like this, by breaking animal colonies up into "CLASSES" with antagonistic interests we manage to make some sense out of the entire unseemly mess.
When I proposed to use the word "hypostasis" to describe this fable, instead of "metaphor" or "synecdoche" or "metonymy" below, I was not joking. If we start with "households" and "firms", WE WILL ALWAYS end up with "households" and "firms". THERE IS NO HISTORY, BECAUSE THERE IS NO POLITICS in this "fable"!! If we start with "surpluses" and "deficits", again we will NEVER be able to UNDERSTAND what is going on - because these are just ACCOUNTING IDENTITIES!! They have neither history nor POLITICS. Some might say, there is no "class", but only in the political acceptation of the word.
Martin Wolf's grasshoppers are puppets on the Wall Street carnivorous praying mantis' string. Those are the puppeteers that run the show. No! 'we the people' -- tax payers, shouldn't have lent them the money on such easy terms. But who listens?
The point is, as Reverend Bacon conveys, the steam is building up... and with it the Bonfire of the Vanities.
To your reply: you mentioned "industrious grasshopper colony", while also beginning your piece with the insinuation (as all Westerns, including myself are aware) that grasshoppers are lazy. Thus, isn't an industrious grasshopper colony a paradox?
Also to your reply: The motto protrayed in the media is "In shopping we trust." Please see Elizabeth Warren's study on real consumer consumption in America since the late 1970s ( "The Over-Consumption Myth and Other Tales of Law, Economics, and Morality,"). Real consumption has declined by 30 percent, despite higher labor force participation and longer working hours.
However, the matter of American private sector indebtedness is very obvious despite this decline in real consumption -- the only way to explain this (in my view) is that real incomes have been declining faster than Americans can adjust their consumption lower. But, how is this possible if productivity has risen so much? And the real economy is obviously much larger?
My view is that there are industrious ants in America who are not seeing their increased productivity rewarded with higer wages. As you are aware, economics can boiled down to one simple rule: The more you produce, the more you'll consume. I can't produce data here, but if you graph US productivity and real incomes from 1950 through 2000 (the last data I saw), you'll see a tight link between productivity and compensation. This relationship is found in other countries. However, very noticeably for the United States, the relationship breaks down in the late 70s and early 80s, when increased productivity is not being tracked by the same increases in compensation, which have been flat. This means that there are a few grasshoppers in America who are eating way all the labor stored up by ants in America.
To me what was offensive is that what is protrayed of the average American is so off the mark of what is really happening at the ground level. People are far more industrious, have been working long hours, and have delayed major life choices by pursuing higher educations with increased indebtedness. And on top of that, Americans, according to Elizabeth Warren's study, have made the painful choice of consuming less. But, you're right that consumption has increased statistically in America... What explains this statistic?
What is happening to the majority of Americans is well represented by the median figures, than the "average figures" whereby the average is held up by those few grasshoppers. I suppose my feeling of being offended might mean that I'm more emotive than economists, but then again, I feel that most economists are so removed from the average person and only see people as numbers.
The ants in the Chinese nests began to behave a little more like grasshoppers, the younger ones discovered the joys of shopping. And the wise boss ants passed laws to gradually improve health care and make houses more affordable so the worker ants felt less need to save. They did this partly by taxing the ant factories, which anyway had far more savings than the workers.
Conversely, the American grasshoppers nest began to behave a little more like ants. The International Market loving grasshopper Foundation even reversed its recommendations on many issues, advising how ants could transition out of their surpluses while still letting the poorest worker ants have enough to eat, and how grasshoppers could block unwanted savings from causing debts with the right capital controls.
A few decades on, the remaining savings were put to good use. In both the Chinease Ant and the German colony, there hadnt been that many babies for a while. So there were less workers, and as ever the older ants like to live like grasshoppers. In America there were had been lots of babies, and they grow up to be very productive workers, making stuff for themselves and for the older ants.
Only the Gnomes of Zurich had cause to complain, cos they liked the old ways as that let them makes load a money at the expense of everyone else. No one fell for their anti Keynes propaganda any more, no matter how much they spent on it. But even they still had their money.
So everyone lived happily ever after.
The trouble is, peoples' greed knows no end. My parents who grew up farming treat their house and their comfortable savings as a blessing, my generation, who grew up coddled with food, education and clothing all provided grumble about not being able to eat out all the time and have a car and nice house easily, by boon of us having been blessed with security and safety growing up.
The solution? Look at what you have, and be grateful. The cycle of eternal greed and wanting will never end, unless you choose to remove yourself from it.
On the other hand working under the jackboot at Foxconn doesn't appeal.
Perhaps I ought to have pointed out that 'analytically' the best description for Aesop's "personifications" of concepts is METONYMY where the part stands for the whole (eg "the pen is mightier than the sword"). But....I did not wish to be "pedantic" at the time!
But NOTE also George Krimpas's use of "onomatopoeia" for the Greek "tzi-tzi-ki" - "grasshopper". Regards.
@ munzoenix - class analysis (perhaps in the sense of C Wright Mills "The Power Elite" and not necessarily that of Karl Marx) helps in these matters. But I still think that the THRUST of Martin Wolf's analysis at the geo-political-economic level is entirely valid. We should not mistake a "fable" for a "treatise". Cheers.
together on one side sweepingly. Saving ants would sooner than expected get out of business of financing. Fooling around, in the present format, has overrun as both grasshopers and ants have become one.
i did enjoy reading martin fable all over again with interesting comments( surprisingly full of anger most of them)
I'm deeply offended by your presumption that Americans are grasshoppers (i.e. lazy, debt-binging consumers). The reality is that in America, there are grasshoppers who are wealthy, and therefore have power. The majority of Americans are ants, who invested in human capital such as Bill Gates and Steve Jobs to produce Microsoft and Apple, only to see grasshoppers in China manipulate their currencies so the surpluses of producing those wonderful, valuable technological goods go to Chinese ants so they don't revolt against Chinese grasshoppers.
Chinese ants, who make up the majority of the Chinese people do not store up anything for the winter. In fact, savings rates in China has been flat for the past decade. Chinese grasshoppers (their government) controls valuable companies who have seen their profits soar. Those profits are used to manipulate its currency to be cheaper so Chinese ants do not buy artificially expensive goods from American ants. In fact, it gets so expensive that some American ants lose their jobs and sees their jobs go to Chinese ants who work really hard to feed the Chinese Corporate grasshoppers who are well connected politically.
American grasshoppers have no problem with this because they control the financial system (and political system through lobbyism, or better known elsewhere in the world as blatant bribery). They love the cheap money handed over to them by Chinese grasshoppers who harvested it off Chinese ants.
American ants, who are now unemployed, try really hard to find work in parts of the economy that does not compete with artificially cheap Chinese ants -- the lovely service sector which has been expanding since the 1980s when another Asian grasshopper (Japan) crushed American ants ability to work by taking Japanese ants savings (in Japan Post) to manipulate its currency.
The surge in American ants entering the service sector depresses wages in that sector (which is why America is a cheaper place than Japan or Europe where labor have options such as manufacturing). Some American ants try desperately to escape poverty by working long hours -- far more than German ants. These desperate Americans trying to escape poverty go to colleges in record numbers -- since demand easily outstrips supply for advanced education college tuition costs have risen so fast that some ants are deeply indebted and are disrespectfully called grasshoppers because most economist have lost their connection and empathy to fellow human beings since most of them are so removed from the average person. If they are notable economists, they mingle with their local grasshoppers.
All the while, the system goes on, with wealthy grasshoppers who sit in positions of power while ants in China toil away while American ants drown in debt when all their human capital surpluses (ipods, computers, etc) are stolen by Chinese grasshoppers so Chinese ants can work and not revolt! American grasshoppers are happy because they continue to get cheap capital, and when winter comes, it's not their problem -- it's the heavily indebted American ants problem.
Are American ants consumer addicts? According the Elizabeth Warren, an administration official and professor at Harvard, American real consumption has declined 30% since the late 1970s (you can watch her Harvard lecture on Youtube). Yet, the economy has grown -- where has all that surplus gone? To grasshoppers. The biggest salary increases went to bankers, and you cannot tell me that they "deserve" that pay. So, please don't refer to 99% of Americans as lazy, mindless consumers. That's the public media blitz, owned by grasshoppers and funded by other grasshoppers for advertising, to brainwash ants so they can spend money. Actual data, as Elizabeth Warren has shown, proves that Americans consume 30% less since the late 1970s, despite increased work hours, and greater labor force participation.
I therefore disagree with your article. I understand your point, but by glossing over some important details, I don't think readers fully understand want needs to be done to correct the current world economy. USA and Greece look similar, but they truly are not. If Greece cuts its deficit from 13% of GDP to 0%, it's not a 13% decline in GDP -- it's much larger because of the negative multiplier effect on the private sector. Instead of bailing out Greece, the EU should have injected massive capital into their banks, partially nationalizing them. But OH NO, those grasshoppers in the bank won't like that. And they have a lot of money to change politicians' minds.
Though the USA look like Greece, it is unique and vastly different. The USA needs to put tariffs on China -- brining China's weak nominal exchange rate closer to its real exchange rate, allowing the real economy to adjust better than a violent currency realignment. If China has issues with that, then it better start digging into its 2 trillion dollars of reserves. That is not simply 2 trillion dollars of "lost demand" -- the multiplier effect on the Chinese and world economy means that the real "lost global demand" is much higher than 2 trillion dollars. It is lost demand from the Chinese ants. This is why I disagree with your gross simplicity -- Countries may look the same economically on the surface, but the causes are vastly different. Understanding the different causes allows people to understand that different approaches are needed to rectify the situation.
...But, decades later, the Chinese finally say to the Americans: “Now we would like you to provide us with goods in return for your debt to us....
Doug's words:-
Like ag products, i.e. chicken feet, etc...
Martie's words:-
...What is the moral of this fable? If you want to accumulate enduring wealth, ...
Doug's words:-
Barter for food.
My awfully direct ancestor Aesop must be angry with you, for the virtuous-baddie 'it' of your version of his tale was decidedly not a grasshopper, a jumping predator cousin to the locust, an entity so alien as to never be even metaphorically akin to our German [EU and Eurozone] partners. For Aesop's creature is precisely what the French, starting with the La Fontaine aesopic version, called 'la cigalle', a sheer idiot, not a producer at all nor even an otherwise parasitic reproducer, to be oecologically destroyed by the female of the species, having fulfilled his purpose in the scheme of things.
This is not, even metaphorically, a way to treat the Germans.
As for the real 'la cigalle', we, Aesop's purest offspring, now call 'it' Tzi-tzi-ki, an onomatopeic version of their being, from their sound. Interestingly, when you approach them or even stare at them they go silent and vanish in their camouflage on the bark of the pine trees, once again a thoroughly ungermanic mode of being, other than they, without a conductor, all go silent at once.
More useful to your purpose of political economy through fabulous analogy is Aesop's treatment of corporate stupidity.
By logic, Aesop being a slave had a master, a philosopher called Xanthus, who bid him to go to the agora-market and report, and here it is:
The subject of debate being foreign policy and defence, the polity of Samos then facing the tyrant Persian lord across the half-mile straight, the corporations representing the citizenship addressed the assembly in order. First came the stonebuilders, they said that against the aggressor defence preparations were necessary so the city should be protected by a wall, built of stone. Then came the woodworkers, they said that ... ditto, ... but that the wall should be built of wood. Then came the leatherworkers, they said that ... ditto, ... but that the wall should be built of leather, and he stopped.
And then?, asked Xanthus, and the the hapless slave Aesop replied, I left, and was therefore logically and duly beaten as a slave must be before confession and after.
As a philosopher without slaves, dear Martin Wolf, would you treat the ant-like 'germans' or their equally fabulous logical 'grasshoper-locust' converse in the same way as the stupid philosopher Xanthus treated his 'evidence', not as a fabulous hypothesis but a real problem?
I trust you prefer reality to the fable, Europe is a rabble without hegemony, America is not the same as the power which constructed the peace which we are still enjoying after the second Great War, is it not now time to grow up and again join up, I leave the rest of the argument to you.
Fair enough. The ants-vs-grasshoppers argument is now much more balanced and consistent, after your Money Supply posting.
What puzzles me though is that you keep referring to tradeable goods only, apparently excluding services? This brings back a manufacturing-based wealth paradigm that most advanced economies have now left behind. There's only one way to re-balance those economies backwards, and it's called protectionism. Admittedly a likely development, in my view.
You also seem to consider services as contributing to the asset bubbles that fuel (or are fueled by) large deficits, if only through real estate. And if I am not mistaken, you advocate public expenditure in service infrastructure, to avoid private sector excesses?
Linking this back to the eurozone problems, and an earlier, though inconclusive on your part, debate on the 4 policy options, it seems that the logical conclusion from your argumentation is that fiscal transfers through the common EU budget are a more efficient way to spend out of the debt crisis rather than piling up more debt?
IN reality the big, intractable problem is how to get finance back to the ground without massive and indiscriminate asset destruction. Discussing what constitutes real wealth (goods and services in my view) is a good starting point. And if governments should "have a view on how big an external deficit their country should run and how well the money is being used", then shouldn't they have a say in how much finance inflates "real" assets in their economies?
We have yet to see a sensible proposal on how to reign in finance.
The biggest flaw in this metaphor is that big creditors know no national boundaries. And the interests of big creditors are completely different to the interests of national governments.
"Promptly reduce the debt's value"? Who? The government or the privately controlled Federal Reserve? How? By what they call "printing", which manifests as the Fed lending more money to the government (which they will do their best to ensure is paid back by taxpayers)?
Perhaps you think that central banking will fail and the government will print debt-free money? I wouldn't bet on that as it is a bet against "Big Credit", which usually gets its way.
More likely, US taxpayers will have to find ways to produce goods and services that the world needs. Beats hyperinflation.
It is evident that exchange rates will have to be adjusted, otherwise.....well the Beijing Politburo can just focus their telescopes on Pyongyang to 'telescope' what the future holds for them.
But Germany, in particular, has been reluctant to undergo this ant to grasshopper metamorphosis, instead effectively devaluing within the Eurozone by screwing down unit labour costs in order to hang onto manufacturing jobs rather than letting (economic) nature take its course, b*ggering up the whole Euro system in the process.
When it comes to German companies and bribery and corruption i think the word leaches comes into it some where and don't forget scroder and nord stream project,Signed it in as chancellor and after leaving office ends up as chairmen.
Mind you, if you look at pictures of the two insects, you will see that it is quite difficult to tell them apart if you are not an expert.
One a more serious note, I have been working with banks and law makers about the need for a national loan identification number (NLIN) here in the States. It is gaining ground as a sound and practical means to stabilize FI markets over the long term. Better than expedient regulation with built in surveillance. The UK should think about it too if we want to reduce the likelihood of this happening again.
The people who lost their jobs in textile mills in North Carolina did not seek to relieve themselves of productive employment. It was the ruthless seeking of enhancement of capital holdings that destroyed the manufacturing base in the US. So in essence I agree with joseph belbruno above.
Without having "poached" so much of America's demand, China's economic growth would have crept along at a snail's pace, its capital accumulation "fettered" by its miniscule domestic market. Instead they lured American manufacturers to relocate production to factories teeming with industrious, low-paid workers and permitted them to "externalize" other costs such as environmental protection and worker health and safety. Historic rates of growth compounded year after year, pulling hundreds of millions out of poverty, into mega-cities far more glitzy than any in the US or Europe, and provided with the trappings of western-style affluence.
US retailers flocked to buy China's cheap goods and pressured American manufacturers to meet the "China price" or lose their contracts. In short order, the US hollowed out its manufacturing base. But China recycled enough of its surplus to the US to keep interest rates at rock bottom and capitalized on the ensuing housing bubble and the ocean of cheap credit to keep American consumers buying those cheap goods long after a gold standard or Bretton Woods circuit breaker would have shut down such a radically imbalanced arrangement.
Now, with its forces of production fully matured, its infrastructure fully developed, and its coffers filled with the world's reserve currency, China can lock up long term contracts for oil, coking coal, iron ore, copper and all the other raw materials needed to sustain its economic machinery--even if it's forced to wean itself off its export-orientation on to one focused more on its domestic market.
By the time the US is forced to monetize its debt and thereby destroy whatever's left of China's T-bill/USD cache, China's economy will stand quite sturdily on its own. The US will have to start over.
The Chinese ants' fatal flaw, however, will be that it so thoroughly fouled its own nest with decades of rampant ecological destruction, that the long-awaited "modern prosperity" will prove to be as empty and useless as King Midas's gold-besotted world. Cold comfort to the land of grasshoppers who must share the same biosphere.
Now, how do I protect my pension pot from grasshoppers and their ludicrously high management fees? ETFs?
@ kake84 - clever reference to "synecdoche" (another Greek metaphor or figure of speech). Might it be a case of "hypostasis" instead, after reading my comment?
Producing more doesn't necessarely mean working more, especially when there are such competitiveness gap between countrys. Pretending that greece problem are only du to lazziness is a negation of some obvious macro economic fondamentals, beginning with theyr highly overvalued currency (thanks germany). German trade surplus with his european parrners has been growing dramatically since the introduction of the euro ( largely undervalued given the huge trade surplus of Germany) which has to lead to CA and ultimately fiscal defict in the less competitve economys. I am not neglecting the high quality of german industry, but they were already highly competitive in the seventies. What really changed since 99 is the fact that germay could expand his surplus by sharing a currency wuth far less competitive economy. The german surplus could never has become so big whith the DM which would have already been going through the roof for longtime given the huge growth of theyr surplus. Interestingly, the growth of the grman surplus during the last ten years have largely focus on trade with european parrtners (trade with asia has been growing a lot too of course, but Germany has a trade deficit with asia). Of course the system is unsustainable on the long rush if german don't finance greeks deficit... Remember that there is no growth inside Germany.
The PROBLEM with the "fable" (with apologies to Aesop - gee! another Greek! they are ubiquitous now! maybe we owe them a....'debt' after all!)....
the problem is that it tends to obfuscate the OVERRIDING role played by the capitalist elites of both so-called "grasshopper" countries and "ant" countries in enriching themselves from what seem like 'zero-sum' games.
For in reality the workers in "grasshopper" economies are being called to pay with "austerity" for the debt obligations incurred by finance capitalists (investment banks foremost) that speculated unconscionably on securitised assets....precisely because it was DIFFICULT for them to invest in "productive' investments that would further 'emancipate' those workers and enfranchise them from the yoke of the wage relation!
Seen from THIS point of view, the "fable" looks a little less..."fabulous" and in dire need of further explication. When we look at the “ant” economies (China, Germany and Japan), here we find that the capitalist elites in each of those countries have a HORRIFIC PAST (and for China, present) RECORD AS TOTALITARIAN REGIMES (Mao, Hitler, Hirohito) that have ruthlessly (especially in the case of China to this day) SUPPRESSED wages in order to ensure their enrichment through the accumulation of capital AS WELL AS to the repressive deflationary contraction of domestic demand and consumption that has further enslaved their workers to the wage relation!
Rather than a “fable”, we should rework this into a dirge so powerful “that tears shall drown the wind”.
One final anomaly or dissonance with the story. It is true that “grasshoppers” can be bankrupted. But as I have sought to explain at ‘wolfexchange’, trade surpluses DO MAKE NATIONAL "ANT" CAPITALISTS WEALTHIER because (a) debts are often paid back AT THE EXPENSE of “grasshopper” workers, (b) accumulated capital in the form of debt may be used in NEW territories to subjugate new working populations (Africa, Latin America) as long as currencies are convertible and (c) as we have seen, export bias serves to suppress domestic wages.
I would invite readers to follow the forum at ‘wolfexchange’ for deeper analysis.
1. Aesop's ants and 'shoppers used a common 'hard' currency: food. No fiat.
2. The ants and 'shoppers have been very bloody enemies in recent history. Some would say that the EU has done a great political job at binding those wounds even if it has done a mediocre job at economic harmonization. Perhaps a trade-off.
3. As 20th century biology tells us (Maynard Smith ESS evolutionarily stable strategy et al), these two populations may be in balance. Martin Wolf's characterization of cautious but foolish ants and spendthrift 'shoppers may be an ESS. After all, both kinds have been around since well before Aesop.
As a farmer I'd worry more about the locusts. As a townie, I keep some ant spray to hand. And I never, under any circumstance, extend credit to wolves.
will high inflation and competitive devaluations destroy this "instable order "?
I liked it!
Moreover, it is highly useful for us, we 3rd World below the ecuator.
Thank you and Congratulations, Mr. Wolf.
...too bad that reality is more complicated and oversimplification can be dangerous when it distorts the picture in what seems like a quest to arrive at a specific proposition.
If it were that simple, then how would you explain the fact that French banks are much more exposed to southern European sovereign debt that German ones? Are the French a more industrious ant nest? (Hardly) And in the case of Portugal, the country that's over-exposed is actually Spain. Or are the traders in London and New York merely allocating German and Japanese (not to mention Chinese) savings? Please.
The reason for high borrowing by certain countries is not just that the trade surpluses of the industrious economies need to be diverted somewhere to pay importers. Sure, this is partly what happens (with lots of hindsight) but, as was evident in the recent wolfexchange on capital flows, the importance of capital movements in themselves can easily be exaggerated.
The root of the problem is that the creation of paper wealth using financial instruments and without real assets backing it (this would be impossible) has run so wild and the gap has become so enormous that the financial system is overextended and has already started to burst at the seams, even partially implode in stages. It is not by accident that implosion happens where that gap between paper wealth and real wealth is at its most extreme (subprime mortgages, Greek debt, and so on - anyone's guess on the next episode is as good as mine)
But this is what happens when a purely financial and economic analytical framework is used to tackle complicated issues. Particularly when the financial industry's excesses (natural, in my view) are conveniently kept aside. The problem is reduced to fit the tools, opinions, and assumptions of the observer.
If the world's governments do not come together in a post-WTO arrangement to devise a framework for the orderly reduction of the wealth gap, involving coordinated, and real changes in financial regulation, then the overall financial system will face severe trouble ahead.
The grasshoppers´ land is in a messy financial situation; the grasshoppers must pay its debt in Euromark, as it has been agreed with the creditor Hans-the-ant.
But They cannot. With the complicity of the ECB, they have invented a new money, the dracmark. Hans-the-ant, the creditor,ask for his credit in Mark, but the debtor offered devalued Dracmark. To sustain the Dracmark,Hans-the-ant, following the criteria of of a great economist (the wolf), must put much more money in the hands of lazy grasshoppers. So, Hans the creditor ask himself: Is it really sensible to finance these lazy grasshoppers and to get in exchange these f... Dracmark that nobody will buy? END (ps: The Wolf is the king of the woods)
I am a finance student. There are something new here which I don't really understand:
1) We are going to make sure American grasshoppers have jobs. If you do not want to lend us money, raise the price of your currency. Then we will make what we used to buy and you will no longer have to lend to us.”
---> China is the lender, she has the right to choose to lend or not to lend, isn't it? But why from this paragraph it sounded like she is being threaten by US?
---> Why must China raise her currency if she does not want to lend US money?
2) “If you owe your bank $100, you have a problem; but if you owe $100m, it does.”
--> I don't understand. What is meant by "it does"?
2) “Now we would like you to provide us with goods in return for your debt to us. Thereupon, the American grasshoppers laugh and promptly reduce the debt’s value
---> US has to provide China goods in return for his debt to her, but why the US has the right to reduce it's debt value?
Can someone help me with this matter? You can reply me @ happy2263@hotmail.com. Thanks a lot for your help. :)
I have never understood Germany's ambition to provide more goods to the world than the world provides to Germany. Seems to be a combination of masochism (real wage stagnation etc) and arrogance (we do not need your shabby goods...). It is alright to export as much as you can, as long as you enjoy life (ie, increase wages) and import the same amount of goods from the world.
Well, it seems that it is the "enjoy life"-thing that distinguishes Germany (and probably Japan and China) from the rest of us. This is written by an Austrian: we do export as much as the Germans. As a matter of fact, most of our exports go to Germany. Fortunately, in parallel, my real wage has increased and is spent on yoghurt from Greece, US-made iphones, Italian wine and Spanish fashion. Life is good.
Grasshoppers will buy more of our goods if we lend them the money to do so.
Grasshoppers said:
Ants are willing to lend us lots of money at historically low interest rates; so let's go ahead and borrow. Ants are clever; so if they're willing to lend to us, it must be alright.
All in all, unlimited vendor financing is not a very good long run business decision.
It's worth noting that some grasshoppers did borrow from ants and then used the funds to set up new colonies of ants. These grasshoppers now own some ant colonies and live off the labour and profits of their ant colonies (aka: direct foreign investment).
Just like the arrival of the Chinese ant on the big scene, the new version's arrival is an exogenous impact on the world. Let's hope analysts do a better job than they did ten/fifteen years ago is predicting the impact of this huge population .
It is for precisely the same reason that we have what I call 'indeflation' at the moment: a global situation with so many cycles in it, it is near-impossible to call deflation or inflation as the likely result.
http://nbyslog.blo...ion-and-slump.html
This nonsense started when Kohl handed out dmarks to the Ossies at 1:1 thus condemning the former East Germany to years of further and worsening impecunity.
Fools that have lent free money to folk that can never pay iot back because they think somebody else is going to pay it back it their stead should be left to learn a short sharp lesson.
May I add my voice to those that suggest it is an unacceptable distortion to conflate the democratic industriousness of Japan, Germany, Holland etc. with the totalitarian enslavement of the Chinese populace by the barbarian regime in Bejing.
I wish you'd produce a book of similar fables that finally teach business men and politicians that their is more to life than personal wealth amassment: stability, security and sustainability!
This is a very clever and witty piece of synecdoche. Not only I enjoyed it but learnt a lot about the similarity between current Euro crisis and rather elusive US - Asia relations.
Thank you for your interesting article.
From a splendid isolation country.
Do you also realize what "do not lend to grasshoppers" entails ? It means "don't trust each other", and especially "don't trust foreigners" ! Did you already forget "Why globalization work" ? Or is it that your next opus will be titled "Why globalization doesn't work actually" ?
It would be more helpful to address the problem of "How globalization could work" . As it is crucially a matter of trust, one cannot avoid the moral dimension of the problem. Reckless or dishonest economic agents always end up creating a sub-optimal economic situation. The highest priority should be put to fight this recklessness and this dishonesty.
And then all the other ant colonies finally realise that grasshopper money is just paper and turn to other currencies printed by colonies that actually produce stuff, or currencies backed by something real, like gold. Thus the grasshopper currency is no longer used as the reserve currency, and collapses, and most of the grasshoppers starve too.
What is the moral of this fable? Get gold.
Just to drag the last drop our of this metaphor; every few decades there are, often in America, plagues of grasshoppers that devastate all before them. The question is not how to change their character and make them behave like ants, but how to discourage the destruction of occasional plagues. The Obama administration wants to use DDT. This cure is more grievous, and affects more people, than the disease itself.
Answers on a postcard...
If the bond market loses faith in one country, that country is in trouble. But if the bond market loses faith in all developed countries, it's the bond market that is in trouble.