Sunday socionomics

The headlines almost tell the whole story today.

Merkel says German multiculturalism has failed

"This (multicultural) approach has failed, utterly failed," Merkel told the meeting in Potsdam, south of Berlin.

Japan, Once Dynamic, Is Disheartened by DeclineChuckle at the NYTimes being about a decade behind the times, but a good capture of social mood.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

This is an older Japanese who has experienced the decline. How about the younger Japanese?

Yukari Higaki, 24, said the only economic conditions she had ever known were ones in which prices and salaries seemed to be in permanent decline. She saves as much money as she can by buying her clothes at discount stores, making her own lunches and forgoing travel abroad. She said that while her generation still lived comfortably, she and her peers were always in a defensive crouch, ready for the worst.

“We are the survival generation,” said Ms. Higaki, who works part time at a furniture store.

Hisakazu Matsuda, president of Japan Consumer Marketing Research Institute, who has written several books on Japanese consumers, has a different name for Japanese in their 20s; he calls them the consumption-haters. He estimates that by the time this generation hits their 60s, their habits of frugality will have cost the Japanese economy $420 billion in lost consumption.

“There is no other generation like this in the world,” Mr. Matsuda said. “These guys think it’s stupid to spend.”

Read this article and remember it whenever someone tells you the American consumer will always be there to buy. Although they had high savings rates, the Japanese enjoyed spending on conspicuous consumption and luxury goods. Now they either cannot afford it or view it as stupid. Just as the children of the depression continued counting pennies even as the stock market boomed in the 1980s and 1990s, these Japanese youth are unlikely to ever become big spenders.

Flashback to 1870 as Cotton Hits PeakA few takes. One, a historic price level, coming around the same time as the Republicans are likely to score one of their largest political victories since Reconstruction. Two, deflation. If there's only inflation in commodities, it means the money printing of the central banks is just going into speculation. The economy picks up as prices recover, but eventually these price increases become a tax and the economy falls back into recession, just as the high price of oil in 2008 weakened an already financially damaged economy. Three, the investment implications that follow are to buy low and sell high. People were very worried about price increases in June 2008 and most totally missed the direction of prices for the next year.

And if you wondering where the next leg down in social mood will emerge from, read up on MERS.