What does the future hold?

In six months time, at the end of December, where will we be? How will the November elections go? How will things go in Afghanistan? Will the American and global economies be expanding or contracting at that time?

My guesses, which easily could be wrong, is that the Democratic party won't do too bad in November, Afghanistan will keep on going as it has been and the American and global economies will keep growing slowly with slow improvements in employment. Again, all of this could be way off.

Matt Yglesias points out that David Leonhardt has delivered a great column once again, this time on the global turn towards austerity.

Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.

The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries are now big enough that their growth can lift other countries’ economies.

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once.

However, Yglesias disagrees with Leonhardt's contention that inflation played an important role in the rise of the Nazi party in Germany in the thirties.

As I’ve said before, it’s true that Germans are paranoid about inflation and it’s true that Germany had a major inflation problem in the 1919-1923 period, but it’s simply false to say that inflation played an important role in the rise of the Nazis. In 1924 there was no inflation problem and the Nazis were politically marginal. The same was true in 1925, and in 1926, and in 1927, and in 1928. By the election of 1930, the country was mired in deflation and sky-high unemployment and Nazis were securing over ten percent of the seats in parliament. Those trends--deflation, high unemployment, and a rising share of the Nazi vote--set the stage for the eventual decision of Germany’s mainstream conservatives to hand power over to Hitler. But it was monetary orthodoxy and excessive fear of socialism that put the Nazis in power.

I'd argue Leonhardt is technically correct, while Yglesias's larger point should be more well-known. The original cause was the immense austerity inflicted on Germany by the excessively punitive reparations included in the Treaty of Versaille at the conclusion of World War I.* Reparations caused massive resentment in Germany and inflicted pointless economic damage. There was hyperinflation and much suffering in the early years of the Weimar Republic, after WWI, but the 1920s saw stabilization and a golden era until the Great Depression hit at the end of the decade. From Wikipedia:

The Reichstag general elections on 14 September 1930 resulted in an enormous political shift: 18.3% of the vote went to the Nazis, five times the percentage compared to 1928. It was no longer possible to form a pro-republican majority in the Reichstag, not even a Grand Coalition of all major parties except the KPD, NSDAP and DNVP. This encouraged the supporters of the Nazis to force their claim to power by increasing organization of public demonstrations and paramilitary violence against rival paramilitary groups.

From 1930 to 1932, [chancellor] Brüning tried to reform the devastated state without a majority in Parliament, governing with the help of the President's emergency decrees. During that time, the Great Depression reached its low point. In line with conservative economic theory that less government spending would spur economic growth, Brüning drastically cut state expenditures, including in the social sector. He expected and accepted that the economic crisis would, for a while, deteriorate before things would improve. Among others, the Reich completely halted all public grants to the obligatory unemployment insurance (which had been introduced only in 1927), which resulted in higher contributions by the workers and fewer benefits for the unemployed.

...

Because most parties opposed the new government, von Papen had the Reichstag dissolved and called for new elections. The general elections on 31 July 1932 yielded major gains for the KPD [Communists] and the NSDAP (the Nazis), who won 37.2% of the vote, supplanting the Social Democrats as the largest party in the Reichstag.

So the race is on: will private demand continue to grow into a virtuous circle that is able to supplant and surpass the withdrawal of public demand by the world's governments? Will the economies of the relevant election districts improve enough in time for the November elections? 

Obama and Bernanke met yesterday at the White House. Bernanke said "What's happening around the world in the emerging markets, in Europe, affects us here in the United States and it's important for us to take that global perspective as we discuss the economy."

Obama said "We've got to continually push the pace of economic growth in order to put people back to work. That ultimately is the measure for most Americans of how well we are economically doing."
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*Liaquat Ahamed's Lords of Finance is good on this.