Saturday, November 15, 2008

Recipe for Success for G20 Summit

This may be one for the books - the very conservative Times of London hailing very liberal Nobel laureate economist Paul Krugman for praising British prime minister Gordon Brown.

As one of the foremost neo-Keynesian economists in the United States, Mr Krugman supports the need for pump-priming through either tax cuts or increased spending.

He is arguing for an economic boost US next year of around 4 per cent of GDP, or $600 billion, to help Americans through "the scariest crisis since the 1930s".

After meeting Brown for drinks in New York, Krugman praised the British PM, saying he'd make a great academic "if this prime minister thing doesn't work out." Krugman also said, while he's worked on globalization for a long time, even he was surprised at how closely the world's major economies have become coupled together.

In other words, thanks to globalization, when one of us gets the flu, we all get it. Yipee!

Meanwhile, The Guardian weighed in with its four-point recipe for success at the G20 Summit:

The benchmark of success for this meeting should be its progress towards four goals, one short-run and the rest longer-term. In the short term, all governments must acknowledge that these are extraordinary times demanding extraordinary measures: the slashing of interest rates and far more public spending. Otherwise a global recession will turn into a depression.
The other three objectives could be summed up as regulation, stability and governance. In the US and UK in particular, finance has been allowed to run wild. It now needs taming, with banks keeping money aside for rainy days, and tax havens clamped down upon. Instead of lecturing other leaders, Mr Brown would do well to wag his finger at those British banks he already owns part of, but still feels the need to keep at arm's length. Greater stability is also needed on financial exchanges, so that businesses are better able to make investment decisions without worrying about volatile currencies. Exchange rates need to be managed, and more taxes ought to be put on speculative transactions. Finally, the institutions that govern the world economy need to give more say to the global south. This is a big wishlist, but it could be bigger. And that will be the measure of this summit's success: its ability to think big.

Unfortunately, we've arrived at a world today where crises demand holistic responses. We can hope to patch up the worst leaks in the world economic hull but it'll be a patch job at best. If a truly global economy is going to survive, answers will also have to be found to a host of other destabilizing problems including global warming, pollution, and resource depletion. Even failing to find suitable replacement for fossil fuels could be enough to doom globalization. Its vulnerability reflects the fact that the global system was never designed to cope with these fundamental, even existential challenges. It was largely a free for all with few effective regulatory and monitoring mechanisms in place. That's how all those garbage derivative securities managed to infect economies around the world.

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