On Logos, Retooling Growth, and Contagion Fears: Conventional and Non-Conventional Thoughts on the Occasion of the Days at the Dawn of 2011

A few months ago on this part of the website we wrote about the New Silk Road. Growth will probably continue at significantly higher pace in the emerging economies than the developed ones, which are filled with debt burdens, toxic assets, excess capacity, unemployment, and fears of contagion.

A synergy needs to be found where Mother Theresa’s phrase that “it is in giving when we receive” will take place around the world. Growth in the developed world for the next several years – if not decades –  passes through the emerging markets’ path. To that extent a new Marshall plan that emancipates extreme poverty (for those earning less than $2 dollars a day, i.e. roughly for 3 billion people around the globe), builds infrastructure (legal, physical, social, and financial), and advances the comparative advantage of developing nations (e.g. making Africa the center of global agricultural production), may be in dire need, for the sake of all people around the globe. The transfer of capital, technology, know-how, financial capital, and even skilled labor in places that need them the most, could become the springboard for growth in those economies, enabling them to enjoy better standards of living, while advancing employment and export opportunities for developed nations. (Imagine the impact that thousands of US and EU-educated professionals spend months at-a-time, educating and building the necessary networks and infrastructures in the developing world).

We are of the opinion that the hundreds of billions of dollars already spent and those that will be spent by the U.S. and the E.U rescuing the culprits of the financial catastrophe, could and would be better used in advancing opportunities and building up developing nations. The U.S. gained a lot out of the Marshall plan following World War II, and developed nations stand to gain even more if they advance the interests of developing nations outside the BRIC (Brazil, Russia, India, China) block.

Under this plan the development should be seen as enhancement of the freedom and of the capabilities of the poor and the disadvantaged around the world, while advancing growth at home too.

Source: DeLong and Maddison

In the figure above, we can clearly see that it was not until about 140 years ago when the per capita income started growing substantially, and of course that growth concentrated in what is known today as developed world. Without a doubt it was the technological developments of the Industrial Revolution, along with the productivity enhancements and infrastructure building that enabled such rapid growth in incomes. A new age for the developing and the developed world can emerge, if the focus becomes the advancement of productive capabilities in the developing world. This great metamorphosis-in-waiting does not require the fixing of the developed world’s debt problems.

In the West these days, most people remember the incarnation of the Logos (kenosis of the Logos), the time when the reasoning and governing principle in the cosmos became flesh, in order to animate history in a new moral direction. A Logos-driven history becomes an algorithm that is co-designed by humans and the Logos. The cosmo’s providential administration becomes the co-habitation and co-administration between the divine and the humankind. In that way, the Logos reconciles the transcendence of God with a divine presence in the world. To know the Logos and be directed by the Logos becomes an extension of God, like the algorithm programmer ‘s language becomes an extension of who s/he is.  In that framework of thought, the role of the humans is to cooperate with the divine for the sake of the purpose that the divine imparts to the humans.  Hence, the human mind and soul is directed to the realm of the divine for the sake of now advancing the humans to the reality of theosis.

The kenosis (emptying) of the Logos becomes the enabler and the springboard of humans to resemble the Logos. Deciphering the Logos and the fleshy expression it took, reminds us of mangers and not palaces, of donkeys and not horses, of sacrifice rather than egotistical paths, where the victim emerges as a hero who changes history for ever. It seems to me that the kenosis of the Logos initiated a reversal of historical values whose identity we may be in need of rediscovering.

If there were any truth in the above thoughts, how could we then apply them to the troubled economies of the developed nations that are in dire need of rescue and restructuring?

First of all, it’s incomprehensible to try to help someone and impose cost of capital above the projected growth rate of that economy. If the particular economy (be Ireland, Greece, Spain, etc) had had trouble paying the principal and interest on their debt prior to the bailout, how in the world do they expect to pay back the additional debt with a cost of capital that is four to six times times higher the projected rate of growth? If those countries had liquidity problems before, the solution applied may make them insolvent. In that case, the contagion fears will become a self-fulfilling prophesy.

Second, the burden of the debt is partially due to loans taken to buy weaponry systems from Germany, France etc. Moreover, in the midst of their debt problems those countries committed to buy even more weapons! At this stage Greece has a military which is double the size of the German military, when Greece is only 1/7 of the German population size, and its economy is 1/10 of Germany’s. The EU could guarantee e.g. the territorial integrity of Greece and the military budget could be devoted in making the lenders whole.

Third, any investment carries risks. The bondholders may need to take a haircut. How do you expect the middle classes and the poor to tight the belts while making whole the banks and those who speculated with the debt instruments?

Fourth, union and solidarity means that you enjoy the benefits but you also endure the costs of that union.

Lastly, given the dismal growth perspective and the talk of even dropping some countries from the Euro for the sake of gaining competitiveness via the devaluation of a new local currency–or even worse, abandoning the Euro altogether – why do they rescue banks rather than advancing growth prospects via enabling exports to the developing nations through the initiation of a new Marshall program?

And now, few unconventional thoughts regarding  our side of the Atlantic. We face “unusually uncertain” times. Moreover, the Fed due to “unusual and exigent circumstances” has initiated credit facilities to institutions that traditionally is not allowed to loan money to (investment banks, insurance companies, etc.). It may have averted a worse catastrophe, but there is no doubt that its balance sheet has deteriorated by acquiring toxic assets. Moreover, its programs have not achieved its stated goals and objectives. The monetary base has increased but money supply has decreased, as we have documented on this website before. Banks hesitate to loan. Unemployment is unacceptably high. How about a non-conventional approach, where due to “unusual and exigent circumstances” the Fed lends directly to coops, states, and regional banks that will be created for reconstruction purposes that advance employment and growth via regional and international programs? The income streams of those programs would repay bonds issued by the newly established banks and held by the Fed (where the cost of capital i.e. the interest on the bonds would be either zero or very close to it). Maybe the Fed itself is in need of some kenosis.

It seems that it is in kenosis where part of the answer may lay. Ode to kenosis then!