Niall Ferguson, writing in Newsweek:

[M]uch of the developed world, including the United States, is stagnating. The founder of economics, Adam Smith, had a term for this. He called it “the stationary state.” In his day it was China that looked stationary: a once “opulent” country that had simply ceased to grow. Smith blamed China’s unfavorable institutions—including its bureaucracy—for the stasis. He also noticed how the stationary state favored the super-rich and civil servants, leaving poor laborers to slide toward subsistence wages.

Now the boot is on the other foot. It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world. The World Bank expects the European economy to contract this year and the U.S. to grow by just 2 percent. China will grow as much as four times faster than that.

The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.

The currently voguish explanation for the slowdown is “deleveraging.” The argument is that the excessive debts the West ran up in the past 10 or 20 years are now acting as a drag on growth. Households and banks are desperately trying to reduce their debts, having gambled foolishly on ever-rising property prices. To prevent this process from generating a lethal debt deflation, governments and central banks have stepped in with fiscal and monetary stimulus. That helps for a time, but it ultimately transforms a crisis of excess private debt into a crisis of excess public debt.

Read Matthew Continetti on this topic in this issue of the magazine.

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