Robert B. Zoellick, the World Bank Group president, recently said that the global economy had reached a “new danger zone.” He added, “I think that confidence in economic leadership has been slipping.” Please. Please. Tell us something we do not already know.
Zoellick’s comments can be added to a long list of observations by major financiers about the global disintegration of the economy made long after the disintegration began.
Zoellick’s other comments may be true, but they have little to do with how the financial and sovereign debt crises can be solved. “In the short term, it’ll primarily be dependent on actions such as that from the European Central Bank,” he said. So far, the ECB is the only organization that has been able to come close to policies that help weak EU nations. The bank has bought bonds of these nations in the open market, as a sign that the organization thinks the economies of Spain and Italy are not already in a state of collapse.
Zoellick’s comment about what needs to happen after a period of ECB aid is that “it will require attention to some of the fundamentals, and those fundamentals not only deal with sovereign debt and the challenges of basic competitiveness, but they also deal with putting in effective growth strategies.” Unfortunately, not a single economist or politician has been able to solve the riddle of how higher taxes and austerity can help national economies with GDP growth problems. Cuts in national spending and taxes, which are often regressive, usually cause GDP growth to slow or even contract.
Not one single piece of advice has been offered by IMF officials, ECB leaders, or the financial ministers throughout Europe, the U.S., UK, or Asia, to make the balance between growth on the one hand and attempts to bring down national deficits and debt on the other work. To say that the economy is in a new danger zone adds nothing to the serious debate about solutions.
Douglas A. McIntyre