Tuesday, 8 September 2009

Global Economics’ Disappointment In Barack Obama

Once upon a time there lived a very very large dragon. This beast was the scariest of all creatures ever lived. It was taller than a house, and its mouth was big enough to gobble down six little children at once. Its teeth? Oh those giant, yellow teeth were the largest, sharpest, spikiest in the whole wide world. There were all kinds of princes, kinglets, knights, and quite a few of the smallest and cleverest sons of men with agricultural occupations trying to fight off the fearsome dragon. But to no avail. The world was getting darker by the day. Even some very brave princesses had a go at the beast, but they failed too. Everyone who had gone up to the firebreathing basilisk, either got a bit burned and went home, or died the most horrifying of deaths, deep in the dark lair of the monster.

There was only one who could stop it.

But he didn’t.

And that’s the end of the story. Goodnight.

Obama is disappointing the global economics crowd again. As the crisis went into full swing around a year ago, the global nature of the meltdown became undeniable. "Sweeping global actions needed", went the empty words at every summit. But, there was a problem. The global policy that could have dealt with the root causes of the crisis and stopped the spiral would have required more than just a few one-off actions. Rather, a lasting institutional framework on the global level with powers to set, implement, and enforce policy would have been needed. However, there were no political leaders that could’ve led the transformational action. The US was amidst its presidential election, and unlike Clinton eight years earlier, the Bush administration lacked the global clout, as well as the will to rise to the challenge. The new Obama administration was, obviously, nowhere in sight. After its lost decade, Japan was not in shape, either. And the Chinese government was still well before its change of tack with regard to global institutions. The most likely candidate alternative to the US, the EU, failed yet again to come up with a common idea about what to do with the global economy, or even to put forward one person to represent it on the world scene.

Granted, the leadership should have been intellectual as much as political. Despite the pretence of the macro economics profession, neither analysts, nor policymakers had the first idea about what was going on.

This blog has argued the need for theoretical innovation: a new global economics. The main argument against it was that you should not use untested theories for policy-making. (Which is rather funny in retrospect having seen the random policy “innovation” to which politicians turned in their utter panic.) In any case, the global economics policy argument in its current form is not necessarily pushing for a new theory, rather the recognition that the subject matter of our research, as well as, our policy problem has moved from the national level to the global level. Thus, we end up with the same conclusion: irrespective of whether the world economy will end up being modelled in an international macroeconomics framework, or a new global economics framework, the rise of global economic policy institutions is inevitable.

Barack Obama, as the new president of the US, came to power with unprecedented global political capital. Not only was he seen as a possible, legitimate leader for the entire world, but the Bush administration’s policies, as well as the failure of the governments of the developed economies to stop the crisis, had left a political vacuum. Obama was seen as the only one who could become the leader the global economy needed. He combined credibility and trust, the hope of a fresh start, and the power to act.

It is unfortunate, at least from a global economics point of view, that he did not use this opportunity. His domestic economic policy hardly contains any new vision, most of it is a mix of traditional economics and policy solutions already tested in other countries, mostly Europe. And his global economic policy … Well, there is none.

Just as we did not understand what was really happening as the global economy was spiralling into recession, we do not understand how it is coming out now. If it is coming out, at all. But assuming that recovery is on the way, it is nothing but the lucky, unplanned, undesigned outcome of a set of spur of the moment, short-termist policy actions. Bar another stroke of luck, the next crisis will bring much scarier pictures than those we have seen this time. History, I fear, will be harsh on Barack Obama.


  1. Wow! That's lavish disappointment, if I may say so...

  2. Obama cannot do much at home, either, apart from talk and talk and talk. His health care speech is celebrated in some corners ('obama wins health care debate' or 'huffpost reaction to obama's health care speech'), but in reality he is fighting for a policy that should have been a cake walk. I'm afraid, he will never will be able to be the world leader that you ask for here. He might not even want to be one, but that's a different matter.