On the more pessimistic front, we have Karl Denninger.
On the more optimistic front, we have Barry Farber.
Denninger gives us a glimpse of what a worst-case scenario can look like. His supporters can point to the fact that he has been right about the economics. He called the housing bust. He and others–such as Vox Day and the Austrian schoolers–insisted that the stimuli, bailouts, and other monetary gimmicks would not work and would only make the problem worse. They nailed it qualitatively, and, on the quantitative side, are closer to reality than Geithner, Bernanke, Krugman, Greenspan, and the other high-profile talking heads have been thus far.
On the other hand, Farber is right thus far: those bandied-about social uprisings, catastrophic riots, violent governmental upheavals, that hasn’t happened. Yet. At least not in the West.
The question remains, though, whether “the center will hold”. Economically, we are headed for a nasty train wreck that–when the smoke clears–will be seen at least as bad as the 1930s. I submit that it will be much worse.
When that happens, will the center hold? Will cooler heads prevail? Will this bring out the best–rather than the worst–in our generation?
Will we reap the whirlwind we have sown for the last generation and a half, or will this generation–seeing that this is the result of the malfeasance of past generations–come to its collective senses and do the right thing?
Those are questions the answers to which are nebulous. No one really knows how this is going to play out. No one knows the timetable, or how the collapse will materialize. Whether it will be a slow-motion train wreck that lasts decades–think Japan—or whether it will be a spectacular fall–think the Old Soviet Union and the Iron Curtain/Warsaw Pact meltdown, we shall see.
Is Denninger right? Is Farber right? Personally, I think the answer is somewhere in the middle. I sure don’t want to be in any big cities when the defecation hits the circulation. I also want to have a stockpile of supplies so that I’ll have a few months of wiggle room if things get bad enough. I’m glad I have most of that covered.
If Farber is right and the center holds, we will recover well even if slowly. Americans will be more sober-minded, realizing that government cannot deliver on those grandiose hopes, and will make the necessary adjustments, albeit painful. The civil disturbances will be there, but won’t be plenteous enough so as to cause a full-on collapse of all civil order.
On the other hand, if Denninger is right, those disturbances could reach a critical mass and we could experience more widespread meltdowns in civil order. If that happens, then that recovery–if it materializes–could be fragmented at best, as parts of America descend into Balkanization. This is not unprecedented in recent experience.
In 1984, Sarajevo was the host city for the Winter Olympics. Ten years later, it was a war zone. Civilians could not roam the streets without considerable risk of encountering sniper fire. Yugoslavia disintegrated.
Out of the ashes of that collapse, six countries emerged. Economically and politically, things have been very tough. Before Mugabe’s monetary insanity in Zimbabwe, Bosnia-Herzegovina held the record for the worst hyperinflation of all time.The ethnic clashes were also quite brutal: we still have pending genocide charges against some of the agitators. While some stability has emerged, it has not been without severe pain.
Personally, I hope Farber is correct. I’ll still prepare for the possibility that Denninger is correct.