The Real Economic Challenge Part One

TW: That this economic crisis is global is no longer debatable. We are living through the first synchronized world recession since the 1930's. Governments internationally are employing policies to prevent the recession from worsening. To date most of the policies have not veered toward the selfish, nationalistic sort that could help evolve this crisis from very bad to far worse.

The Democrats inclusion of "buy American" provisions in the original stimulus was a bad move albeit one that has been softened. The damage was done though as that provision received far more attention internationally than it did here. The U.S. is by no means alone, the tendency of governments to look out for themselves is longstanding and frequently quite rational.

For the world to navigate through this current crisis will require extraordinary management by governments not only here but across the world. What are the odds of that occurring? The governments will have to be irrational in the sense of not trying to game the system (for example if everyone else stimulates their economies but yours, you could sit back and export to the stimulus countries while not incurring more debt).

More importantly the great arrangement by which some countries (e.g. Japan, China, Germany) exported like mad while lending much of the proceeds to the consumer countries (e.g. U.S., Spain, Eastern Europe) must be adjusted. That this adjustment has not been addressed earlier is one of the primary reasons we are in this huge mess. That the adjustment has been occurred earlier also means powerful forces are aligned against an adjustmentBut this adjustment cannot occur all at once as to so risks a true rendition of GD 2.0 except perhaps worse.

U.S. consumers like consuming, who wants to hear about higher taxes, smaller homes, a lower standard of living. Just as importantly the Chinese/Japanese and Germans are fighting a losing battle to grow their economy on the back of exports. The Chinese are on a treadmill of growth that if it were to stop would challenge the ruling party structure and perhaps the internal cohesion of the country.

The U.S. is by no means alone in having protectionist tendencies. Protectionism is no longer about tariffs and has not been for decades. Protectionism is about countries defining health standards to their own benefit, manipulating their currencies, favoring domestic suppliers for government procurement etc.

Will governments figure this all out? Call me skeptical more on that to come.