Business As Usual Is Not An Option

Ben Bernanke, our unruffled Federal Reserve chairman, was asked today whether spending trillions of dollars is the right answer given that it was overspending that got us into trouble in the first place. And his answer was clear - but also goes to the heart of the widespread unease that many feel right now: We cannot afford not to spend. Without aggressive measures, the downturn will become much worse. We need to get through this crisis, then only can we start talking about being fiscally responsible. For sure, there has to be a plan to address the ballooning budget deficit; but now is not the time to be prudent - and he cited St. Augustine's famous "God let me be moral - only not just right now."


The rub with this though is that St. Augustine knew what he had to achieve, and more importantly, what he had to do to fulfill God's demands. It was more or less in his own hands. But it's far from obvious that any of the world's governments have any coherent notion of how to get to the blessed state of sustainable deficits, both external and internal. We need to rethink the premise of a global economy that is driven chiefly by consumer spending in the largest economy, the U.S. Rebalancing the global economy will require the U.S. to curb consumption and invest more in education, transportation, clean technology and many other areas that have been neglected in the past decades. Japan, China and Germany (numbers 2-4 of the global economy) must wean themselves off the exporting fix - these economies must find a way to stimulate private consumption. None of this will be achieved overnight; the scale of the challenge we are facing is daunting.

Conventional wisdom says that the housing market in the U.S. lies at the root of the current crisis - that is partly true. But a different statement would also be correct: it was the massive global imbalances that created the havoc we are now struggling to contain. The G7's conciliatory tone toward China - rather than the usual yuan bashing - was a first step; but the forum that will prove decisive in outlining the post-crisis economic order should ideally be the G20 - where emerging and developed nations come together - which next gathers in London in early April. It has been mostly a talking shop, a handy place for national grandstanding. But under the new U.S. leadership, it has to be hoped that this will change, because we cannot emerge on the other side of the crisis with the same or similar imbalances in the world economy. We cannot afford business as usual.