By Michael Every of Rabobank
The Polybius Crisis
Take a step back (in time), and see that our neoliberal, debt-addled, was-lower-for-longer global system is not just in a Polycrisis but a Polybius Crisis - referring to the ancient Greek historian.
Methodology: Polybius was first to argue ‘consider your source’: today, media and markets still spout and swallow propaganda. He argues we can’t look at history in just one area, as what happens everywhere effects what is going on everywhere else: but modern markets have monomanias for one asset class, geography, and ideology: markets-first neoliberalism.
Yet while 2024 opened with talk of 7 Fed cuts, then 6, 5, 4, 3, and 2, it just saw calls that US rate cuts are needed to lower inflation (because of the slump in housing supply that recent US data won’t help); chatter of 2 rate hikes; and now Bloomberg asks, ‘What if the Fed’s Hikes Are Actually Sparking an Economic Boom?’ Is neoliberalism in crisis, or is this a new copium given Fed Chair Powell just said he’s prepared to keep rates steady “as long as needed”?
Bloomberg notes that high rates = stimulus is an MMT heresy, but huge budget deficits mean high rates put more cash into people’s pockets (as they take it from others’). Yet it’s fiscal deficits, not rate hikes, that do that trick, another neoliberal shibboleth. (And an MMT one: Stephanie Kelton argues rate hikes contribute to the deficit, so cutting them would lower it… as if supply-side inflation and speculation with new liquidity aren’t connected to rates.)
Meanwhile, trade and FX are next. Perhaps-future US Treasury Secretary Lighthizer mocks the argument the US saves too little because Americans are profligate; (correctly) says low savings / large US trade deficits are caused by foreign industrial policy; forcing the trade deficit to narrow means savings would rise; and wants low corporate taxes, low regulation, subsidies, tariffs, and a “sensible” trade policy to fight mercantilism. If you don’t understand that throws global markets into a tailspin, like the economists Lighthizer mocks, you don’t understand that system.
On security: Polybius would not be surprised that today we have a failing global security architecture because US National Security Advisor Sullivan doesn’t say ‘Si vis pacem, para bellum’, but ‘Quaeso, sume prandium meum argentum!’ (“Please, take my lunch money!”) That approach was always going to lead to a Ukraine-Russia war, or similar; an Israel-Iran clash; and, in parallel and conflating with both, Taiwan-China tensions.
There is now frenetic activity to try to moderate any Israeli counterstrike on Iran to prevent a regional conflagration; Daniela Gabor tweets from the IMF/World Bank spring meeting, “geopolitical conflict is paralyzing everything… including on climate finance.”; and ECB President Lagarde says rate cuts are coming provided there are no inflation shocks(!) As I asked yesterday, ‘who leads and who is led?’ It’s no longer central banks.
On politics: Polybius argues societies start as ochlocracy (mob rule); a strong leader starts monarchy (rule by one: the ‘spare’ gets a Netflix deal); power turns this to tyranny (‘democracy’, says the Ivy League); an elite revolution sets up aristocracy (rule by the best); they also lose virtue, and we get oligarchy (‘neoliberalism’ to everyone but economists); they get overthrown by the people for democracy (rule by the majority: ‘tyranny’ says the Ivy League); but people lack virtue, so this turns to ochlocracy; and the cycle restarts. Polybius argues it’s best to combine monarchy, aristocracy, and democracy.
However, as we loom closer to the EU and US elections, and what populism may emerge, he’d probably repeat: “…enticing and corrupting the common people in every possible way… they have made the populace ready and greedy to receive bribes, the virtue of democracy is destroyed, and it is transformed into a government of violence and the strong hand. For the mob, habituated to feed at the expense of others, and to have its hopes of a livelihood in the property of its neighbours, as soon as it has got a leader sufficiently ambitious and daring… produces a reign of mere violence. Then come tumultuous assemblies, massacres, banishments, redivisions of land; until, after losing all trace of civilisation, it has once more found a master and a despot.” (Or ‘decolonisation’ as they call it at US Ivy League schools and on social media.)
On Great Power struggles: Polybius notes in less than a lifetime Rome went from city-state to the master of the world by winning the Punic Wars vs. Carthage. History can sometimes move fast:
A glance at Polybius underlines our Western neoliberal crisis. Consider his comments on good laws and customs in an election year where the leading US presidential candidate is in a New York courtroom charged with a crime some legal experts say is a misdemeanour, but with a stack of serious cases elsewhere, as allegations of double standards are thrown; and as Belgium tried to ban a political meeting involving former UK PM Truss and Nigel Farage for being dangerously ‘far right’: dangerously far out, maybe. Or look to Polybius’s views on corruption, as it spreads; religion, as religiosity falls; and on mercenaries, as the West’s willingness to fight for their own country evaporates, according to survey data, just as the need to fight grows more urgent.
Yet while Rome and the US both rose to power within a lifetime, the former went on for a great many more, becoming an empire that took more than 650 years to fall in the West, and another millennium in the East. Time may be on the West’s side yet. Could Western checks and balances help it find a new rallying cry like “something construenda est”? And as importantly, what is ‘Team Carthage’ doing? There are two sides to every Great Power struggle.
To summarize, however, reading biased reports not objective analysis; monomaniacal reports not broader thinking; ignoring the Classical world’s lessons on realpolitik; that how we run societies has been an issue for thousands of years, not since 2016; and that Great Power struggles are always with us, ensures you will swept away in a Polybius Crisis. Ancient wisdom isn’t perfect; but it’s arguably a lot better than relying on a contemporary world’s decided lack of wisdom.
“NEOLIBERALISM DELENDA EST”
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