The Upcoming Economic Summit

In the midst of the Great Depression leaders from around the world met to attempt to coordinate a solution. They failed miserably. The summit broke up in rancorous disarray.

I hope that the upcoming ‘G20’ meeting in London will not suffer this fate. Instead I would like to see it invoke action rather than conclude with the usual pious homilies to ‘coordination’.

Here’s what they need to do:

First: Stop the slide into protectionism. This means getting some countries like Japan and Germany to pump up domestic demand and import more. It also means stopping the ‘buy American’ silliness from enraging the Europeans into self destructive retaliation. We need trade to grow so that countries where demand is still fairly strong can import from weaker countries like America and thus stimulate growth.

Second: Take decisive action to fix credit markets. All countries need to make sure their respective banking systems are fully functional. We need coordinated action, not coordinated discussion. Plus, and contrary to what the Obama administration is suggesting it wants, we need international financial regulation to be overhauled. This means getting things like hedge funds fully regulated and not sitting dangerously off to one side where they can cause any more mischief. It also means attacking off shore banking centers, like the Cayman Islands, to prevent the looting of regulated national systems. See this article by Simon Johnson for what ‘looting’ in this context means: Looting in Banking

Third: Capitalize the various world organizations charged with supporting weaker economies. The current crisis is perilously close to tipping some Eastern European and South Asian economies into turmoil. That is not just a danger for the world economy, it is also a potential source of political collapse. The so-called victory of capitalism over the past two decades is paper thin in some places and needs international assistance for it to flourish long term. For many of these countries this is either the first or the greatest post-communist or post-authoritarian regime crisis. For a return to worldwide growth we cannot allow recidivist regime change to exploit economic chaos.

Fourth: Do something! Governments have a habit of inaction in the name of political consensus building. This is especially true in the inflexible American system. Other places, like Germany, have a habit of complacency and thus the adoption of an ‘it’s not my problem’ attitude. For the world to return to normal, whatever that turns out to be, we cannot afford to have two or three of the largest economies lost in some sort of introspective politically inert sloth. I am not advocating rash action. I am simply pointing out that this recession is in danger of sinking into depression so the risks associated with the normal ways of politics are unacceptably high.

We need leadership. Anything with the bureaucratic nomenclature ‘G20’ seems like a non-starter as a source of dynamism, but it’s all we’ve got.

So enjoy your meeting everyone.

And do something!

Addendum:

Readers of The Financial Times will recognize that the I borrowed and embellished the above list from today’s FT editorial. The FT has started a series of articles in the run up to the G20 meeting. They are well worth your time and effort: Wolf FT Article; and: Schiller FT Article I think you may have to register to be able to read the articles; it’s free so go ahead!