Anatole Kaletsky: America will still rule the post-crisis world
[Anatole Kaletsky writes for The Times Comment pages on Thursdays.]
I am just back from Washington where the green shoots of recovery have sprouted into a jungle on Wall Street, if not yet on main street or in other countries. I was addressing a meeting of US and European diplomats to survey the geopolitical horizons.
As the world economy gradually returns to something approaching normality after the catastrophe triggered by the Lehmans bankruptcy on September 15 last year, thoughts naturally turn to the longer-term effects of the crisis.
Economic models are never good at predicting turning points in cycles, but in these conditions they are completely useless. To assess the long-term political and ideological impact, it makes more sense to consider two scenarios.
In the first, which has dominated thinking throughout the crisis, the deflationary forces of the credit crunch prevail and the world sinks into a recession lasting many years, with unemployment soaring to levels last seen in the 1930s. In that case, this crisis really will mark the end of US dominance, not only as a global power, but also as an economic model and source of political inspiration. But rather than neatly shifting the mantle of global leadership to China or maybe Europe - if we take seriously the triumphalist rhetoric of President Sarkozy after the London G20 summit about the death of the Anglo-Saxon model - a prolonged recession would usher in chaos.
China is far too poor, too technologically backward and too inward-looking to be a credible economic leader and its social arrangements are hardly a model for the democratic world. As for Europe, it would suffer even more institutional damage than the US from a prolonged depression, as it did in the 1930s. In short, the widely predicted depression would lead to what some investors describe as the Mad Max world: a state of global anarchy in which the only assets worth owning would be farmland and oil wells - and the guns and ammunition to protect them.
The alternative possibility is that monetary and fiscal stimulus succeed and the world returns to normal growth and moderate unemployment within a year or so. To judge by much commentary, this benign outcome is unlikely. But on Wall Street and in much of Asia it is becoming the mainstream assumption.
In my view, the benign scenario should be the focus of all policy discussions for two reasons. First, because economic theory tells us that fiscal and monetary reflation will succeed and hints of success are starting to show. The second reason is an economic equivalent of Pascal's Wager: if the world is about to collapse into anarchy and nothing can be done, there is no benefit in predicting it. If, on the other hand, the end of the world can be averted, acting on this assumption, will make recovery more likely. But even on this benign assumption, some big upheavals may lie ahead.
The financial crisis has profoundly changed US politics. It has convinced voters of the need for government, and of leaders who believe in government. With the election of an Administration dedicated to competent government, things have improved, as voters have noticed. Thus US and European ideology have moved closer together. Many Bush Administration foreign, social and environmental policies have been reversed, sending the signal that Americans no longer live on a different planet from the rest of us. As a result, America has become more attractive as a political model throughout the democratic world...
Read entire article at Times (UK)
I am just back from Washington where the green shoots of recovery have sprouted into a jungle on Wall Street, if not yet on main street or in other countries. I was addressing a meeting of US and European diplomats to survey the geopolitical horizons.
As the world economy gradually returns to something approaching normality after the catastrophe triggered by the Lehmans bankruptcy on September 15 last year, thoughts naturally turn to the longer-term effects of the crisis.
Economic models are never good at predicting turning points in cycles, but in these conditions they are completely useless. To assess the long-term political and ideological impact, it makes more sense to consider two scenarios.
In the first, which has dominated thinking throughout the crisis, the deflationary forces of the credit crunch prevail and the world sinks into a recession lasting many years, with unemployment soaring to levels last seen in the 1930s. In that case, this crisis really will mark the end of US dominance, not only as a global power, but also as an economic model and source of political inspiration. But rather than neatly shifting the mantle of global leadership to China or maybe Europe - if we take seriously the triumphalist rhetoric of President Sarkozy after the London G20 summit about the death of the Anglo-Saxon model - a prolonged recession would usher in chaos.
China is far too poor, too technologically backward and too inward-looking to be a credible economic leader and its social arrangements are hardly a model for the democratic world. As for Europe, it would suffer even more institutional damage than the US from a prolonged depression, as it did in the 1930s. In short, the widely predicted depression would lead to what some investors describe as the Mad Max world: a state of global anarchy in which the only assets worth owning would be farmland and oil wells - and the guns and ammunition to protect them.
The alternative possibility is that monetary and fiscal stimulus succeed and the world returns to normal growth and moderate unemployment within a year or so. To judge by much commentary, this benign outcome is unlikely. But on Wall Street and in much of Asia it is becoming the mainstream assumption.
In my view, the benign scenario should be the focus of all policy discussions for two reasons. First, because economic theory tells us that fiscal and monetary reflation will succeed and hints of success are starting to show. The second reason is an economic equivalent of Pascal's Wager: if the world is about to collapse into anarchy and nothing can be done, there is no benefit in predicting it. If, on the other hand, the end of the world can be averted, acting on this assumption, will make recovery more likely. But even on this benign assumption, some big upheavals may lie ahead.
The financial crisis has profoundly changed US politics. It has convinced voters of the need for government, and of leaders who believe in government. With the election of an Administration dedicated to competent government, things have improved, as voters have noticed. Thus US and European ideology have moved closer together. Many Bush Administration foreign, social and environmental policies have been reversed, sending the signal that Americans no longer live on a different planet from the rest of us. As a result, America has become more attractive as a political model throughout the democratic world...