After America

because they think you’re likely to have 500 bucks in the near future. The older you get, the less likely the bank will assume that. If you’re seventeen and broke, it’s because you haven’t yet got your first foot on the ladder of success. But if you’re sixty-three or seventy-eight and you’re broke, it’s because that’s who you are and you’re never not going to be broke. So why should the bank lend you 500 bucks? Where’s it going to come from?

That’s the question the developed world is facing: Where’s it going to come from? A new tax? There’s nothing left to tax. By 2009, Europe was reduced to considering a levy on bovine flatulence.²⁹ You heard that right—not a flat tax but a flatulence tax. Ireland was pondering a tax of 13 euros per cow, while in Denmark it was as high as 80 euros per cow. Is a Danish Holstein six times as flatulent as an Irish Hereford? Beats me. But somewhere in Brussels there’s a Director of the European Flatulence Agency of Regulation and Taxation (EuroFart) who’s got all the graphs. Apparently it’s to offset looming penalties each nation faces from EU legislation to combat “global warming.” The Times of London reported: “EU member states are obliged to cut the emissions from non-ETS sectors by 10 percent overall by 2020. While Romania and Bulgaria will be allowed to increase emissions, Ireland and Denmark are each faced with cuts of 20 percent in farming sector emissions.”³⁰

Even allowing for the regulatory yoke Europe’s cowed citizenry labor under, the bureaucratic logic here is hard to follow. Why is some Bulgar’s Holstein allowed to increase his flatulence while the poor Jutlander’s Polled Hereford has to put a stopper in it? Is there a dearth of flatulence in the Balkans but a Code Red alert over the North Sea? Couldn’t the EU introduce flatulence offsets and let the excessively flatulent Irish trade some of their flatulence to the Carpathians?

Go back to medieval times. The gnarled old peasant is in his hovel, and one day a fellow rides up in the full doublet and hose and says he’s come from the palace to collect His Majesty’s bovine flatulence tax. It’s just three groats per cow, a footling sum of no consequence. Even the medieval simpleton rustic would say, “Aaargh, sire, I dunno. The King’s flatulence tax? That don’t sound right….” When you’re taxing bovine flatulence emissions, there’s nothing left to tax.

Greece, wrote Theodore Dalrymple, is “a cradle not only of democracy but of democratic corruption”³¹—of electorates who give their votes to leaders who bribe them with baubles purchased by borrowing against a future that can never pay it off. The advanced democracies with their mountains of sovereign debt are the equivalent of old people who’ve blown through their capital and are all out of ideas looking for young people flush enough to bail them out. And the idea that it might be time for the spendthrift geezers to change their ways butts up against their indestructible moral vanity. In 2009, President Sarkozy prissily declared that the G20 summit provided “a once-in-a-lifetime opportunity to give capitalism a conscience.”³² European capitalism may have a conscience. It’s not clear it has a pulse. And, actually, when you’re burning Greek bank clerks to death in defense of your benefits, your “conscience” isn’t much in evidence, either.

This is the first crisis of globalization, and it is a far more existential threat than the Depression. In living beyond its means, its times, and its borders, the developed world has run out of places to pass the buck.

THE KRAUT BONE CONNECTED TO THE YANK BONE

American admirers often talk about the European lifestyle. Alas, it’s all style and no life. If the EU’s deathbed demographics are becoming too obvious for even the dopier media outlets to ignore, you can bet the Chinese and other buyers of western debt are way ahead in their analyses. If you’re an investor and you’re not factoring in demography, more fool you. Tracking GDP versus median age in the world’s major economies is the easiest way to figure out where this story’s heading.

Take a “toxic asset.” What would improve its current pitiful value? That’s easy: more demand. Less supply. An asset is only an asset as long as there’s a buyer willing to buy it. If you’ve got 50 houses and 100 would-be homeowners, that’s good for property prices. If you’ve got 100 houses and 50 would-be homeowners, that’s not so rosy.

Which is the situation much of the West is facing. A bank is a kind of demographic exchange, by which old people with capital lend to young people with ambition and ideas. Who are somewhat thin on the ground in modern consumer societies. Japan, Germany, and Russia are already in net population decline.³³ Fifty percent of Japanese women born in the Seventies are childless. Between 1990 and 2000, the percentage of Spanish women childless at the age of thirty almost doubled, from just over 30 percent to just shy of 60 percent.³⁴ In Sweden, Finland, Austria, Switzerland, the Netherlands, and the United Kingdom, 20 percent of 40-year-old women are childless.³⁵ In a recent poll, invited to state the “ideal” number of children, 16.6 percent of Germans answered “None.”³⁶

Well, that’s a woman’s right to choose. But, in the macroeconomic picture, who’s going to be around to buy your assets? Mark Twain commended the purchase of land because “they’re not making any more of it.”³⁷

But, in the fast depopulating eastern half of Germany, they’ve made more than anyone’s going to need for the foreseeable future. Pace the Fuhrer, no country has ever been less in need of lebensraum. America has a milder case of the same syndrome—the Boomers didn’t have enough kids to sustain the mid-twentieth-century entitlement regime—but EU governments are now frantically hurling natalist benefits at a shrinking base of fecund womanhood.

Now look at it from a business point of view. In the United States, depending on what line of work you’re in, your sales territory may be your town or your state or the whole of America. But for Germany, Italy, and Japan, their only viable sales territory is the world. When your median age is forty-three and rising, any economic growth is down to exports. Wall Street experts talk about restoring “consumer confidence,” but in much of Europe they won’t restore “confidence” until they restore consumers—that is, figure out a way to generate sufficient numbers of them. Until then, the domestic market is too old and too small (or “inert,” to reprise Martin Wolf’s line) to support economic revival.

If you’re a German bank, to whom do you lend money? With age distribution on your home turf heading north relentlessly, you don’t have enough young people to grow your business. So you lend farther and farther afield. Not crazy farther, not Sudan or Rwanda. But far enough that you’re operating in markets where your traditional forms of risk analysis don’t apply, even if you were minded to apply them. To western bankers, Eastern Europe didn’t seem that different or dangerous, if you steered clear of the more psychotic oligarchs. Unfortunately, the post-Soviet east is even further down the demographic death spiral than you are. America? By some estimates, Germany’s Landesbanken could have to write off a trillion bucks’ worth of subprime crud from the U.S.

So, from the individual homeowner with no one to sell his home to, and the business that’s run out of domestic market, and the bank frantically loaning to jurisdictions it barely comprehends, nudge it up one last stage—to the state. In recessions, government is enjoined to spend—to go into deficit, ramp up the national debt in order to “stimulate” the economy.

Adding to the national debt presupposes that there’ll be someone to pay it off. But what if there isn’t? And do the Chinese and the Saudis already know the answer to that question? The failures of British and German Treasury auctions (not to mention near misses in the U.S. prevented only by the Fed buying up Treasury securities) prefigure a world with too much debt and too few sugar daddies willing to cover it.

In 2003, the IMF conducted a study of Eurosclerosis and examined the impact on chronic unemployment and other woes if the Eurozone labor market were to be Americanized—increasing participation in the work force, reducing taxes, rolling back job-for-life security, and generally liberalizing the economy.³⁸ They concluded that the changes would be tough, but over the long-term beneficial.

It’s interesting that it never occurred to the IMF that anyone would be loopy enough to try their study the other way around—to examine the impact on America of Europeanization. For that, we had to wait for the election of Barack Obama. You’ve probably heard liberal academics on NPR and the like drooling about “the European model,” and carelessly assumed they were referring to Carla Bruni. If only. Under the European model, state spending accounts for roughly 50 percent of GDP.³⁹ Under the Swedish model, which isn’t half as much fun as it sounds, state spending accounts for 54 percent of GDP. In the United States, it’s already over 40 percent. Ten years ago, it was 34 percent. So we’re trending very Swede-like. And why stop there? In Wales,