When Giants Fall--Book Review

"Still, acceptance goes only so far. If, for example, you ask Americans how their lives might change when the [US] is no longer the world's military, political, economic, and cultural leader--or even a superpower at all--many will look at you strangely, as if you had two heads. Yet history teaches us that empires come and go. ... In fact, there is plenty of evidence to suggest that the [US'] days as hegemonic leader are already numbered", ix. "But it seems that even those who accept that the world is changing haven't fully thought things through. Typically nowadays, many believe that no matter what happens more broadly speaking, it won't have much impact on their lives. ... And finally, more than a few people have some vague notion that whatever transition does occur will be benign or maybe even positive--akin, perhaps, to what took place many decades ago, when the [US] grabbed the leadership baton from its English-speaking predecessor, Great Britain", my emphasis, x.

"In late 2007, a Chinese submarine suddenly 'popped up' in the middle of US military exercises taking place in the Pacific Ocean. ... The newspaper added--in a report that received scant US media attention--that American military chiefs 'were left dumbstruck'," xv. "Mounting logistical disruptions, tighter borders, heightened geopolitical instability, rising costs of key inputs like water and energy, and an assortment of dislocations will shoot holes in many of the olf theories about how to improve efficiency and boost growth. For most firms, approaches that might once have increased the odds of success, including just-in-time inventory management, the development of long and intricate supply chains, and outsourcing of functions to other locales, will lead to their undoing", my emphasis, xxii.

"Simply put, the [US] has gone soft. People prefer watching or pretending, instead of doing. Education has been dumbed down. According to 'PISA 2006,' the 2006 Programme for International Student Assessment (PISA), a triennnial survey of 15-year-olds around the world, the [US] ranked 29th in science and 35th in mathematics out of 57 countries in terms of overall performance. ... Social standards have slipped. ... Sound arguments are overrun by sound bites, discourse is drowned out by diatribe, and facts and fundamentals are eclipsed by feelings and fantasy", my emphasis, 8.

"What is having a more pronounced effect on the resource supply-demand equation is a structural shift in regional consumption patterns, as populations in fast-growing countries like China and India look to savor the fruits long enjoyed by the [US] and other economically advanced nations. ... But if, for example, China were to reach the same level as the [US], overall rates of consumption would be twice what they are now; if India did the same, the total would be three times as much", 24. "Another concern stems from the so-called demographic tsunami in the [US] and other nations, where the costs of rapidly aging populations are being shouldered by a shrinking number of workers. Such a shortfall lays the groundwork for future generational clashes", my emphasis, 25. "Over the past decade, however, there has been a visible buildup of stresses and bottlenecks signalling a seemingly intractible disparity between supply and demand. ... At the same time many traditional suppliers are making it clear that they no longer wish to play by the rules of what has been a Western-dominated game. ... Such perspectives underscore increasingly widespread acceptance of the concept of 'peak oil'," 27. "During the past four decades or so, global oil consumption has climbed sharply. Based on data from the BP Statistical Review of World Energy 2007, demand rose from 31.2 million barrels a day in 1965 to 83.7 million in 2006, an increase of around 170 percent. Over that span, India's and China's combined share of the total grew eightfold, from 1.5 percent to nearly 12 percent, while the US share fell from 37 percent to just under a quarter of world consumption", my emphasis, 30.

"There's little doubt, of course, that the [US'] military dominance and its formidable nuclear arsenal--as well as other nations' long-standing acceptance of our role as global policeman of last resort--have helped to foster a degree of peace in the postwar period that is unpredecedented. Now, though, with the [US] poised to lose its place at the head of the geopolitical table and the prospect of an intense scramble for key resources, several developments suggest the world is on the cusp of a destabilizing shift in favor of rising violence and more frequent outbreaks of hostilities between individuals, groups, and nations", 44.

"Indeed, no matter how or why the [US] reached this point, there is an argument that says the sizeable dollar claims of a relatively small number of countries actually represent a problem for them, not the [US]", 66.

"Firms that have depended on free-spending American consumers, for example, will find that the structural underpinnings of their business models have been obliterated as incomes drop, attitudes sour, purchasing habits change, and easy credit disappears", 131. "Firms with significant exposure to foreign markets, either directly or indirectly, will also see doubt cast on supply, production, research, and marketing agreements. Paradoxically, energy and mining companies--along with others in seemingly well-positioned industries--could be exposed to dangerous crosscurrents", my emphasis, 133. "Souring municipal finances will also see police budgets slashed, courts overloaded, and crime rates shoot up. Businesses could find that their dependence on computers, telecommunications networks, the Internet, and other components of digital-age plumbing have serious drawbacks when electrical and other systems don't function as intended--or at all", my emphasis, 136. That waiting list for jail grows daily. "Instead of operating on a just-in-time basis, businesses will have to worry about getting enough of what they need--in enough time. Otherwise it won't really matter how efficient they are", 137. "For those operators who are intent on sticking around for a while, the watchword for the future will be a throwback to the past: 'just-in-case' systems", 141.

"Oil-rich countries like Saudi Arabia, for example, which to a great entent maintained structural links to and large portfolios of the [US] currency for strategic purposes, will have much less incentive to do so when the US protective umbrella is in tatters", 149. "Traditional fundamentals may matter less than the question of which firms or industries will benefit from favoritism and government largesse", 156. "Once things get bad enough, however, [policy makers] will turn to other more destructive approaches. These might include cranking up the government printing presses, thereby triggering a hyperinflationary spiral; mandating forced conversions of savings and investments into government bonds; and nationalizing or expropriating businesses", 157. "Some might argue--perhaps convicingly--that equities stand to benefit in a hyperinflationary environment like that which has been seen most recently in the African nation of Zimbabwe", my emphasis, 159.

"Those who have spent years in an office, sitting in front of a computer or pushing paper around, will discover that they have to get their hands dirty doing other, less comfortable tasks", 171-2. "The budgets of state and local governments will be in similarly bad shape. One result will be an ongoing decline in public services such as law enforcement and education. Another will be the shredding of various social and financial safety nets, including Social Security, Medicare, unemployment compensation, and other insurance-type programs", 173.

I agree with the vast majority of what's in Michael Panzner's (MP) book. Most of it I could have written myself. I share MP's concerns about just-in-time inventory for example, and have written about it. Similarly, China's submarine surfacing in the middle of a carrier battle group should have alarmed all Americans. But didn't. The system's lack of slack could lead to lots of bottlenecks. MP and I read many authors in common including: Alan Abelson, Pat Buchanan, Neil Buckley, Jerome Corsi, Niall Ferguson, Martin Hutchinson, Gretchen Morgenson, JR Nyquist, Stephen Roach, Nouriel Roubini and Robert Samuelson. I see one big difference in our worldviews and have a suggestion for MP should he decide to release a second edition of When Giants Fall.

MP notes on page 8 that "Education has been dumbed down". He offers no explanation for this. He should. The generational clashes described on page 25 were the subject of Kotlikoff and Burns, The Coming Generational Storm, 2005, which should be added to MP's bibliography.

Page 30 has a common error, confusing consumption with demand. This is the only error I found in the book.

I share MP's concerns about the dollar and Saudi Arabia's potential actions with respect to it. I am bullish on the market except for financials. I see hyperinflation wiping out corporate debt, which will benefit equity holders.

MP's comment at 171-2 is Austrian, i.e., as malinvestments are revealed the system's "rounaboutness" will decrease. Farmers should do fine in the collapse. They did well in the German hyperinflation of 1922-23, for example.

Now a deficiency, MP's apparent unfamilarity with the "IQ and economics" literature from Lynn and Vanhannen, IQ & Global Inequality, 2006 and IQ and the Wealth of Nations, 2002. Anyone interested in a major, perhaps the major source of global per capita GDP differences should read these books as well as the La Griffe du Lion website. While many academicians may scream, eventually America will give up trying to equalize incomes by race or we will bankrupt ourselves. We have spent 45 years on this quixotic quest and after perhaps $10 trillion in 2009 dollars, should give it up. Africa is poorer than say Japan. Africa's average IQ is 69, Japan's, 104, and there ain't nuttin' anybody can do about it.

Overall, MP rings the tocsin. Ignore his comments at your peril. Spend the time, read, wake up America.