The big summit in Seoul is over, and all the world’s leaders have emerged with a united plan of action to stabilize the global economy. That’s the headline that the G20 conference would like me to write, but I can’t. We had another opportunity missed, but no one really expected anything else. That’s the situation around the world right now.
Responsible nations like Brazil did their best to reign in the profligate ones like the US, but with little result. I like using that as the headline because the irony of it is really funny. The joke, however, is on all of us.
Is it really possible to have a “global economy” if there is no mechanism for managing it in a responsible way? Free market advocates will probably tell us all that it’s the only way to manage such a beast, and they certainly have a point. But the problem we have right now is a very simple one: the developing world is continuing to develop as the industrialized nations are stalling.
A global economy is not necessarily a zero-sum game – we can all rise together if it’s done right. But that doesn’t seem to be the case at this moment. The pressure on central governments across the developed world to intervene in some way is far too strong and that political problem ripples across the world as the major sources of capital struggle to gain control of their own future.
In many ways it’s the mirror image of the currency crisis of the 1990s, something which was carefully managed. This time, however, the struggling parties are the big ones who should have the resources to patch things up.
An economy is really nothing more than a social arrangement worked out one deal at a time. The idea that anything has a “value” is based on how many people want that item matched up with the ability to make it. As developing nations take their rightful place on the world’s stage the values inherent in our social agreement are shifting to include people that we really don’t understand. They’re also typically a lot less used to being rich and demanding the same life we do, often stuffing away gobs of household savings rather than just consuming their new-found prosperity.
That only increases the pressure being put on currencies around the world. The best that the Seoul Conference could come up with was to issue a statement that “advanced economies” would be “vigilant against excess volatility and disorderly movements in exchange rates” and “help mitigate the risk of excessive volatility in capital flows facing some emerging countries.” In other words, the US wasn’t going to do anything stupid. If you read that sideways, we were chastised by China and Brazil pretty badly.
That’s not to say that most of what’s going on should not be expected. If you sat down in a posh London gentleman’s club 120 years ago and proclaimed that the world was about to enter into an “American Century” in which the US would dominate the globe like no other nation before it you would have been laughed out of the place. Not with the delightfully scoffing of bearded old men who thought you were amusing – no, they would have assumed you had no place in the leather wingchairs in the first place. You’d get the same reaction today anywhere in the US if you tell people that Brazil is about to kick our butts and take its rightful place, but the process is roughly the same.
“To everything there is a season, and a time for every purpose under heaven.” So said the wisdom of Solomon, among many other people.
The forces that are at work will, without any doubt, erase our complete dominance around the world. We don’t necessarily have to see our standard of living decline, but our ability to tell everyone else what to do is certainly ending. There are huge implications for our economy and our politics as a result. These will play out in strange and tangential ways over the next generation as we sort out just what we are in a world that is very different than it used to be.
Is there anyone who can manage what’s happening in the global economy? Like it or not, the answer is “no”. We’d like to think we’re the big playah in the world, but obviously there’s only so much that we can do. It’s up to big showy conferences like the one in Seoul to give us the appearance that anyone is going to be able to do anything about the situation. Don’t buy it. Our destiny is controlled only to the extent we have any self-control at all. That’s what China and Brazil are trying to drill into our heads, and it’s not going anywhere.
While I appreciate what you are saying here, it seems that you’re being a lot more critical of our policy than you have in the past. For example, I took away from the piece on quantitative easing that it was something we had to do and we should all be more realistic about the economy. Here you seem to be chastizing what we’re doing.
Just wondering if I’m reading it right. Thanks.
Anna: Yes and no, but thanks for the chance to clarify. On re-read this does seem a bit more right-wing than I’d like.
I’m deeply worried that we are still, two years into the point where this Depression became obvious, not treating it as urgently as we need to. I fault both parties domestically for that. There is still a vague focus on increasing consumer spending to lift the economy, which is to say the same old Keynesian stuff we slammed on hard through the Bush years.
I took the tone I did because I was trying to write from a Brazilian perspective, more or less. I didn’t make a big deal of that because I’m still not 100% sure that I can do it well, but I wanted to try it out. Developing nations are, indeed, very critical of what we’re doing – but it’s important to note that Brazil’s government is very much to the left of ours in almost every key way of looking at it (and is sometimes called “Marxist” by respected news organizations).
So please don’t take this as “right wing” criticism. Although regular readers will know that I frequently see our left and right as being hopelessly mixed up right now, so it may domestically be a rightist argument!
There’s a lot here that really should be put into a series. People don’t really get any of this. All the news coverage I saw was on what Obama said and did and almost nothing on the policy or why it was important.
Erik, gaze into a crystal ball and imagine if this same conference had occurred one year earlier before the significant rising of the tea party and independent voters turning towards republicans. The election of 2010 seems to enable a return to financial deregulation and the extension of the top Bush cuts. Both are major factors in our new declining economy. If more blue dogs (Herseth in SD) and old liberals (Oberstar and Feingold) would have won would be better off. I tend to think so but then I am a liberal but also against gridlock.
We had similar conferences 1 and 2 years ago, and very little happened there, too. I’ve been upset about that because the worldwide currency regime needs a major overhaul – but no one is in a position to do it. The last time we got something together it happened because the US was in a position to win WWII and dictate terms to the world:
Who will do it now? Apparently no one. The “Free Market” will find its own way, apparently, and it’s not doing a good job of it so far. I fear that when it makes a move it will be to dump the US Dollar pretty quickly, causing a lot of turmoil.
I’m not a huge fan of heavy regulation, but some sense of order benefits everyone at the least – and currencies do require a lot of cooperation between governments that just isn’t happening. We’re possibly looking at a major free market freefall, I fear.
Fasten your seatbelts!
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