By Ricardo Caballero
Perhaps one of the economic phenomena most akin to witch-hunting is the diagnostic and policy response that develops during the recovery phase of a financial crisis. Understandably, pressured politicians and policymakers rush to find culprits and sources of instant gratification. All too often they find a ready supply of these in preconceptions and superficial analyses of correlations. This time around the scapegoats are global imbalances and leverage.
Abraham Lincoln famously said that “you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time”. His successor, George W. Bush, is reported to have added: “You can fool some of the people all the time, and those are the ones you want to concentrate on.” Some British politicians wish to follow that advice in the debate on the public finances. Alistair Darling’s refusal to do that was, it appears, the reason Gordon Brown, the prime minister, wanted to drop him. But Mr Darling is to be praised, not dropped, for his probity.
By Brendan Brown
Global equity markets are understandably not taking seriously the ominous pessimism from commentators dissatisfied with the notion of an economic recovery emerging from below.
Yes the S&P 500 may be down a few per cent in recent days but that is mainly a reflection of the US dollar’s mini-rebound (which means foreign earnings become worth less in US dollar terms) and some long overdue downward correction (very small so far) in commodity markets.
Is the current crisis a watershed, with market-led globalisation, financial capitalism and western domination on the one side and protectionism, regulation and Asian predominance on the other? Or will historians judge it, instead, as an event caused by fools, signifying little? My own guess is that it will end up in between. It is neither a Great Depression, because the policy response has been so determined, nor capitalism’s 1989.
Is the UK once again the economic sick man? Or is it, as Alistair Darling, chancellor of the exchequer, argued in his Budget speech on Wednesday, just one of a number of hard-hit high-income countries? The answers to these questions are: yes and yes. The explanation for this ambiguity is that the fiscal deterioration is extraordinary, but the economic collapse is not.
By Rebel A. Cole
The financial crisis has thrown the US economy into a deep and lingering recession. Most analysts agree that delinquent mortgages are at the heart of the crisis, and that opaque mortgage-related securities have spread their toxicity to other sectors of the credit markets.
Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.
Did the meeting of the Group of 20 in London last week put the world economy on the path of sustainable recovery? The answer is no. Such meetings cannot resolve fundamental disagreements over what has gone wrong and how to put it right. As a result, the world is on a path towards an unsustainable recovery, as I argued last week. An unsustainable recovery might be better than none, but it is not good enough.
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