Stephen Roach sees the politics behind deflation!! Sadly his politics are what you would expect from a Wall Street financial guru, but still, give the man props for seeing the world as it really is.
Today�s America is more trusting of markets to allocate scarce resources -- namely, labor and capital. Europe is not. That�s where the social contract comes in. America has dramatically re-written its social contract with labor, whereas Europe has not.This is what the current impasse of globalization is all about. The US crushed its labor movement in the early 1980s, partly through the White House and Reagan's busting of PATCO, partly through the Reagan recession which destroyed the ability of labor to hold onto wage gains, partly through the stratospheric rise of the dollar in the early-mid 1980s which killed the ability of US manufacturing and agriculture to export. So now the US grows, and Roach preaches the capitalist sermon of "flexible" labor markets (read temp work and no job security) without mentioning the stunning rise in economic inequality in the US since the early 1980s, which of course translates rather easily into political inequality and the slow death of democratic self-rule (but that's for another blog).
Now Europe is facing its own Reagan moment, and as Roach ably observes, "nothing less than its deeply entrenched social contract is now at risk." Now Fordism is not the be-all and end-all of economic arrangements, of course. Perhaps something better than the European social model could arise. If globalization survives, however, it is all but assured that the Europeans will look a lot more like Texas. If globalization enters into a deflationary crisis, the real prospect of fundamental change exists. Whether than change is toward more equality (socialism) or less (fascism) is the dangerous gambit.
We may be back to the 1930s -- in more ways than one -- before we know it.