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Home-Alone Economies

With the world economy teetering, the leadership crisis is global too.

Federal Reserve Chairman Ben Bernanke waits for a meeting of the International Monetary Fund Committee at the annual IMF and World Bank meeting on Sept. 24, 2011.(BRENDAN SMIALOWSKI/AFP/Getty Images)

photo of Michael Hirsh
September 26, 2011

As the world’s top financial regulators gathered in downtown Washington over the weekend, filtering in and out of the annual meetings of the World Bank and International Monetary Fund, one big unanswered question seemed to hang over the event: Is there an “adult in charge” in the global economy any longer?
       
That piquant phrase allegedly comes from President Obama’s former chief economic adviser, Larry Summers, who told his administration colleague, then-budget director Peter Orszag, that their current boss was screwing up, according to Ron Suskind’s new book, Confidence Men.

"We're home alone. There's no adult in charge. [Bill] Clinton would never have made these mistakes," Summers was quoted as saying.
       
Clinton himself seemed to suggest as much in interviews last week, when he obliquely criticized Obama for proposing tax increases on the wealthy at this delicate juncture, and suggested that government shutdowns weren’t so terrible on his watch, since they helped to mold consensus in the end.

Even so, Clinton allowed, he had it easier in the booming ‘90s. “With the economy weak, the president could not responsibly allow the debt ceiling not to be raised. Because we had to honor our credit,” he said on MSNBC.

 

The internecine nattering among Democrats -- without even any GOP encouragement this time! -- is indicative of a larger problem. The crisis is now global, and yet every economy seems to be home alone. In Europe they’re bickering over eurozone fixes that could take months or years while the markets are counting in weeks; in Washington the politicians can’t even agree on a continuing budget resolution until mid-November. China continues to go its own way, with one foot in the international system and the other in its own mercantilist world, keeping its currency outrageously devalued. Among other countries there is a sense that the “old is dying and the new cannot be born” -- to cite a famous quote from radical writer Antonio Gramsci -- that the world is in some kind of leaderless interregnum in which “a great variety of morbid symptoms appears.”
       
Perhaps the most morbid of these, The New Republic’s John Judis wrote recently, is that willy-nilly, each for different reasons, the major economies are following courses that dangerously resemble that of the 1930s; they are pursuing budget austerity at precisely the moment when an opposite policy of growth initiatives is required.
       
Over the weekend, it was clear that the ministers in Washington were waiting anxiously for some sense of leadership, a champion of some bold course, a latter-day “Committee to Save the World” -- the now-ironic description given to Summers, then-Treasury Secretary Robert Rubin, and then-Federal Reserve Chairman Alan Greenspan during the late-‘90s Asia crisis. But there was none.
       
Ultimate solutions to the key threat, the fracturing of the eurozone, lie far down the road. Parliaments are still debating the July 22 agreement on the European Financial Stability Fund to help Greece, though events have already roared beyond it and infected other countries. European ministers are aiming to announce an updated plan for the EFSF at the G20 meeting in early November, but the markets are not likely to wait. The government of the strongest economy in Europe -- Germany, which has the largest voice in the question of eurozone survival -- is weak, and the Germans themselves cannot come close to agreeing on a measure that could take months, even though the existence of the eurozone itself may be counted in matter of weeks.
       
“I’m quite worried about the current debate,” former Bundesbank chief Axel Weber said at an IMF forum on Sunday. Weber said it is absurd to talk about fiscal unity and a new Eurobond concept now, “throwing any conditionality out the window,” before authorities pressure governments more on spending and revenue-raising to get themselves out of debt. “The whole debate about a Eurobond is totally misleading,” Weber said. “It takes attention away from the action that needs to be taken.”   
       
On this side of the pond, little trust exists in Barack Obama, and even less in the Republicans in Congress. “Helicopter Ben” Bernanke, desperately trying to find new ways of reinvigorating the economy after revolutionizing the Federal Reserve over the past three years –- and doing more than any other single person since 2008 to prevent a Great Depression, no matter what Rick Perry says -- seems to be running out of aerial tricks. Most recently, with his “twist” move to lower long-term interest rates, he seems to have succeeded mostly in persuading the markets that things are as bad as they suspect.
       
European unity has always looked fractious, giving rise to the famous plaint attributed to Henry Kissinger: "Who do I call if I want to call Europe?" But now some Europeans complain that the dysfunction on this side of the Atlantic is almost equivalent. “When we want to know what the U.S. plan is for the economy, who do we call?” one European economist recently remarked to me.  
       
In the end, we may find that this period is a test of a novel proposition in the post-Cold War period: Can the “international system” run on its own, without real leadership? It may have no choice.

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