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Simon Johnson notes in a recent post that which caused me concern in a recent posting about the threat of inflation.  I agree that this could be a big threat and I also agree that the Fed’s actions are very appropriate under the circusmtances.   I also agree that inaction is probably far worse than the current actions undertaken by the Fed and the Obama adminsitration.

Where I differ with Simon Johnson (and lets face it, he’s much smarter and more experienced than I) is in his casting of the US as an emerging market.  I accept his drawn similarities between the US and emerging markets in terms of typical macroeconomic indicators and I even acknowledge his qualitative parallel that focuses on the role of elites in emerging markets and the role of the US financial sector as one of those elites.  However, I think that those similarities are superficial and much more easily addressed in the US than in Indonesia, Russia or any other emerging market that Mr. Johnson parallels with the US.

I base this disagreement on my belief that the US has stronger institutions that inhibit prolonged dominance by elites.  We have strong interest groups across all areas of the American political process, so to say that one dominates is misguided.  Even in terms of economic power, Im not sure that Wall Street carries the same weight as the oil and gas complex in Russia, for example.  Perhaps policymakers have recently become awestruck by Wall Street, but the US budget does not rely heavily on tax revenues from Citi the way the Russians rely on Gazprom. As result, that control by the elites is more easily severed.

Moreover, we have a vibrant middle class (which in my opinion should stifle most comparisons to emerging markets which are generally poorer and lack a middle class) that can return to a robust policial process to set things straight.  naturally, the middle class has to conciously awaken and pressure its representatives, but I find it hard to believe that a dentist in Singapore is as empowered to influence the role of elites as a dentist in Nebraska.

But that’s just one credit analyst’s opinion.


One Comment

  1. The stability of our institutions and the status of the middle class are traditional arguments against political instability, which is the underlying fear created by the financial crisis. However, those pillars have been weakening. The middle class as a group is debt-ridden so that as this down turn wrings large amounts of debt out of the economy, the middle class will further diminish. Without getting into further evidence of a diminishing middle class, I suspect the istitutional pillars are not as sturdy as you suppose. Thus, the underlying anxiety is quite real.

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