Financial Times

 The grasshoppers and the ants - a modern fable
Financial Times
25-May-2010
by Martin Wolf
Everybody in the west knows the fable of the grasshopper and the ant. The grasshopper is lazy and sings away the summer, while the ant piles up stores for the winter. When the cold weather comes, the grasshopper begs the ant for food. The ant refuses and the grasshopper starves. The moral of this story? Idleness brings want.
Yet life is more complex than in Aesop's fable. Today, the ants are Germans, Chinese and Japanese, while the grasshoppers are American, British, Greek, Irish and Spanish. Ants produce enticing goods grasshoppers want to buy. The latter ask whether the former want something in return. "No," reply the ants. "You do not have anything we want, except, maybe, a spot by the sea. We will lend you the money. That way, you enjoy our goods and we accumulate stores."
Ants and grasshoppers are happy. Being frugal and cautious, the ants deposit their surplus earnings in supposedly safe banks, which relend to grasshoppers. The latter, in turn, no longer need to make goods, since ants supply them so cheaply. But ants do not sell them houses, shopping malls or offices. So grasshoppers make these, instead. They even ask ants to come and do the work. Grasshoppers find that with all the money flowing in, the price of land rises. So they borrow more, build more and spend more.
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The ants look at the prosperity of grasshopper colonies and tell their bankers: "Lend even more to grasshoppers, since we ants do not want to borrow." Ants are far better at making real products than at assessing financial ones. So grasshoppers discover clever ways of packaging their grasshopper loans into enticing assets for ant banks.
Now, the German ant nest is very close to some small colonies of grasshoppers. German ants say: "We want to be friends. So why do we not all use the same money? But, first, you must promise to behave like ants forever." So grasshoppers have to pass a test: behave like ants for a few years. The grasshoppers do so and are then allowed to adopt the European money.
Everyone lives happily, for a while. The German ants look at their loans to grasshoppers and feel rich. Meanwhile, in grasshopper colonies, their governments look at their healthy accounts and say: "Look, we are better at sticking to the fiscal rules than ants." Ants find this embarrassing. So they say nothing about the fact that wages and prices are rising fast in grasshopper colonies, making their goods more expensive, while lowering the real burden of interest, so encouraging yet more borrowing and building.
Wise German ants insist, gloomily, that "trees do not grow to the sky". Land prices finally peak in the grasshopper colonies. Ant banks duly become nervous and ask for their money back. So grasshopper debtors are forced to sell. This creates a chain of bankruptcy. It also halts construction in the grasshopper colonies and grasshopper spending on ant goods. Jobs disappear in both grasshopper colonies and ant nests and fiscal deficits soar, especially in grasshopper colonies.
German ants realise that their stores of wealth are not worth much since grasshoppers cannot provide them with anything they want, except for cheap houses in the sun. Ant banks either have to write off bad loans or they must persuade ant governments to give even more ant money to the grasshopper colonies. Ant governments are afraid to admit that they have allowed their banks to lose the ants' money. So they prefer the latter course, called a "bail-out". Meanwhile, they order the governments of the grasshoppers to raise taxes and slash spending. Now, they say, you must really behave like ants. So the grasshopper colonies go into a deep recession. But grasshoppers still cannot make anything ants want to buy, because they do not know how to do so. Since grasshoppers can no longer borrow, to buy goods from ants, they starve. The German ants finally write off their loans to grasshoppers. But, having learnt little from this experience, they sell their goods, in return for yet more debt, elsewhere.
As it happens, in the wider world, there are other ant nests. Asia, in particular, is full of them. There is a rich nest, rather like Germany, called Japan. There is also a huge, but poorer, nest called China. These also want to become rich by selling goods to grasshoppers at low prices and building up claims on grasshopper colonies. The Chinese nest even fixes the foreign price of its currency at a level that guarantees the extreme cheapness of its goods. Fortunately, for the Asians, or so it seems, there happens to be a very big and exceptionally industrious grasshopper colony, called America. Indeed, the only way you would know it is a grasshopper colony is that its motto is: "In shopping we trust". Asian nests develop a relationship with America similar to Germany's with its neighbours. Asian ants build up piles of grasshopper debt and feel rich.
Yet there is a difference. When the crash comes to America and households stop borrowing and spending and the fiscal deficit explodes, the government does not say to itself: "This is dangerous; we must cut back spending." Instead, it says: "We must spend even more, to keep the economy humming." So the fiscal deficit becomes enormous.
This makes the Asians nervous. So the leader of China's nest tells America: "We, your creditors, insist you stop borrowing, just as European grasshoppers are now doing." The leader of the American colony laughs: "We did not ask you to lend us this money. In fact, we told you it was a folly. We are going to make sure American grasshoppers have jobs. If you do not want to lend us money, raise the price of your currency. Then we will make what we used to buy and you will no longer have to lend to us." So America teaches creditors a lesson from a dead sage: "If you owe your bank $100, you have a problem; but if you owe $100m, it does."
The Chinese leader does not want to admit that his nest's huge pile of American debt is not going to be worth what it cost. Chinese people also want to go on making cheap goods for foreigners. So China decides to buy yet more American debt, after all. But, decades later, the Chinese finally say to the Americans: "Now we would like you to provide us with goods in return for your debt to us. Thereupon, the American grasshoppers laugh and promptly reduce the debt's value. The ants lose the value off their savings and some of them then starve to death.
What is the moral of this fable? If you want to accumulate enduring wealth, do not lend to grasshoppers.


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Diversity Hype Leaves Residue Of Resentment

Article written by Thomas Sowell

Recent stories out of both Philadelphia and San Francisco tell of black students beating up Asian-American students. This is especially painful for those who expected that the election of Barack Obama would mark the beginning of a post-racial America.
While Obama's winning the majority of the votes in overwhelmingly white states suggests that many Americans are ready to move beyond race, it is painfully clear that others are not.
Those who explain racial antagonisms on some rationalistic basis will have a hard time demonstrating how Asian-Americans have made blacks worse off. Certainly none of the historic wrongs done to blacks was done by the small Asian-American population that, for most of its history in this country, has not had enough clout to prevent itself from being discriminated against.
While ugly racial or ethnic conflicts can seldom be explained by rational economic or other self-interest, they have been too common to be just inexplicable oddities — whether in America or in other countries around the world, and whether today or in centuries past.
Resentments and hostility toward people with higher achievements are one of the most widespread of human failings. Resentments of achievements are more deadly than envy of wealth.
The hatred of people who started at the bottom and worked their way up has far exceeded any hostility toward those who were simply born into wealth. None of the sultans who inherited extraordinary fortunes in Malaysia has been hated like the Chinese, who arrived there destitute and rose by their own efforts.
Inheritors of the Rockefeller fortune have been elected as popular governors in three states, attracting nothing like the hostility toward the Jewish immigrants who rose from poverty on Manhattan's Lower East Side to prosperity in a variety of fields.
Others who started at the bottom and rose to prosperity — the Lebanese in West Africa, the Indians in Fiji, the Armenians in the Ottoman Empire, for example — have likewise been hated for their achievements. Being born a sultan or a Rockefeller is not an achievement.
Achievements are a reflection on others who may have had similar, and sometimes better, chances but who did not make the most of their chances. Achievements are like a slap across the face to those who are not achieving, and many people react with the same kind of anger that such an insult would provoke.
In our own times, especially, this is not just a spontaneous reaction. Many of our educators, our intelligentsia and our media — not to mention our politicians — promote an attitude that other people's achievements are grievances, rather than examples.
When black schoolchildren who are working hard in school and succeeding academically are attacked and beaten up by black classmates for "acting white," why is it surprising that similar hostility is turned against Asian-Americans, who are often achieving academically more so than whites?
This attitude is not peculiar to some in the black community or to the United States. The same phenomenon is found among lower-class whites in Britain, where academically achieving white students have been beaten up badly enough by their white classmates to require hospital treatment.
These are poisonous and self-destructive consequences of a steady drumbeat of ideological hype about differences that are translated into "disparities" and "inequities," provoking envy and resentments under their more prettied-up name of "social justice."
Asian-American schoolchildren who are beaten up are just some of the victims of these resentments that are whipped up. Young people who are seething with resentments, instead of seizing educational and other opportunities around them, are bigger victims in the long run, whether they are blacks in the U.S. or lower-class whites in the U.K.
A decade after these beatings, these Asian-Americans will be headed up in the world, while the hoodlums who beat them up are more likely to be headed for crime and prison.
People who call differences "inequities" and achievements "privilege" leave social havoc in their wake, while feeling noble about siding with the less fortunate. It would never occur to them that they have any responsibility for the harm done to both blacks and Asian-Americans.