What in the world is the REAL problem?

By Shlomo  Maital

Gordian knot: How to untangle it?

 

   The International Monetary Fund has issued a pessimistic World Economic Outlook, forecasting slow growth for the next 5 years worldwide.  There is some comfort in knowing that economists are nearly always wrong. But just for this once, they may be right.  But they are NOT right in their diagnosis – the root of the problem is not necessarily ‘fiscal austerity’. (The IMF shows countries with the most fiscal austerity, i.e. budget cuts, grow the slowest).

 

    The root of the problem in the world is not economic, fiscal, or financial. It is geopolitical. There is indeed a shortage in the world, but not just of demand and spending and jobs – there is a shortage of courageous political leadership and global political consensus.

 

    Each country is now trying to solve its problems by exporting them to other nations.  American secretly seeks a weaker dollar to strengthen exports. So does Japan.  China too keeps its currency weak.  The problem is,  not EVERY country can weaken its currency relative to every other country. 

 

    Each country tries to export unemployment by finding ways to shut out imports.  Not only does this defy WTO rules, it is logically impossible, because when every country slashes imports, every country also slashes exports (country A’s imports are country B’s exports).  So everyone loses when world trade crashes.

 

    The problem is, as Henry Kissinger once observed:   Capital, labor, knowledge, technology, goods,  ALL are global. But politics is local, increasingly so.   We may have two new countries soon:  Scotland, about to vote on a referendum,  and Catalonia, which is seeking greater independence from Spain.  With local politics, with weak political leaders, with no real cooperation or consensus among countries, we have each nation trying to solve its problems in ways that hurt other nations, who in turn retaliate…creating a weak world economy.  G8? G20?  G232?   They are currently without meaning. 

 

     When will the world begin to recover?  When someone calls a meeting, and at least the world’s top dozen nations  (US China Japan Germany France UK Brazil India Canada Spain Italy Russia) convene their leaders and reach an agreed harmonized set of policies. 

 

   What are the chances that will happen?   Probably nearly zero. 

 

    Alas.   But it starts with everyone realizing the world’s problem is basically political, not economic or financial.  Spread the word!

Advertisements