This time round, the G20 has underlined the truth – with a big, thick red crayon. And that truth is that all the mucking about we’ve had since J. M. Keynes decided he – personally and on his own – could design a better world economy has covered over that truth. Lots of lovely communiqués, statements, treaties and concords have been agreed, issued, signed and published – all of them ignoring that truth. We get stuff like this:
…enhance the Mutual Assessment Process (MAP) to promote external sustainability.
We will strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed by our Finance Ministers and Central Bank Governors, warrant an assessment of their nature and the root causes of impediments to adjustment as part of the MAP, recognizing the need to take into account national or regional circumstances, including large commodity producers. These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken.
Sounds good eh? Well it’s just an admission of failure really.
Fortunately for all of us, the world’s arch-protectionists (a treasured position held for many years by the French but now passed quietly to Barak Obama and the US Treasury) have not got their prize of managed trade. Indeed – and I can hear the squeals of protectionist pain – we actually got a reference to trade liberalisation! Something that Governments can do that really will help the world economy – you know, that free trade stuff that makes us rich!
...our strong commitment to direct our negotiators to engage in across-the-board negotiations to promptly bring the Doha Development Round to a successful, ambitious, comprehensive, and balanced conclusion consistent with the mandate of the Doha Development Round and built on the progress already achieved.
Despite this, it remains that case that the USA – using Gordon Brown’s ‘world-saving’ approach – is deliberately tanking its currency and intentionally feeding inflation so as to avoid facing up to its debts. And to support this we can expect the US Government to start “getting tough on trade”. Like this:
President Barak Obama attacked China’s policy of undervaluing its currency minutes after he and other Group of 20 leaders ended a summit that failed to agree on a remedy for trade and investment distortions.
“It is undervalued,” Obama said of the Yuan, speaking to reporters in Seoul after the meeting concluded. “And China spends enormous amounts of money intervening in the market to keep it undervalued.”
And of course the Chinese are supposed to sit about doing nothing while the US pours $600bn of freshly printed cash into the system so as to force the dollar’s value down? China may indeed be manipulating its currency – using its cash reserves to keep the Yuan’s value down – but the US cannot surely criticise this as it is following exactly the same policy.
The truth – that painfully inconvenient truth – is that none of this matters. Our economy is determined by the sum of value-adding interactions between individuals and groups of individuals. By something called trade. And for trade to work best we need the following conditions:
1. Money available to individuals to spend on the things they want – which means we must cut taxes (across the board)
2. Free movement of goods and services around the world – which means scrapping the CAP and other systems designed for subsidy and protection
3. Currencies that compete and find equilibrium in a free international system – which means taking the printing presses off the Government
4. Fewer – ideally no – barriers to entry – which means less regulation, fewer controls and a much smaller state
If we set these conditions we will thrive. And, in thriving we will provide those things we want as a society – schools, hospitals, security and protection for the sick, the disabled, the old and the unlucky. Things we’re struggling to provide now under the misplaced belief that Governments can design a better world economy.