The G-8 meeting (Friday and Saturday) and the G-20 meeting (Saturday and Sunday) that were held in Canada provided the world’s major political leaders a forum to promise the usual grab-bag of goodies that governments are clearly incapable of providing: (1) economic growth, meaning no double-dip recession; (2) austerity spending programs that are politically sustainable; (3) reductions in deficit spending by 50%, no later than 2013; (4) a percentage increase in GDP to match any increase in debt by 2016. Yet few if any of the leaders who promised all this will be in office in 2016. There is no way that they can assure the public that they can deliver any of these benefits.
The Canadian government had to spend over $1 billion (Canadian) on these two events, most of which went for security. The media were filled with reports on firebombings by protesters over the weekend. What was absent was any clear picture of exactly what the protesters were protesting against. For all their activities, the protesters did not get out their message.
To understand the 27-page G-20 report, you must mentally travel back 45 years to a 1965 Sunday-edition political cartoon by Jules Feiffer. It was a series of panels. Above the crowd was a pair of feet in Texas-size cowboy boots.
Q. What do you see, Mr. President-of-all-the-People?
A. I see a land where love reigns. I see great farms and great cities. I see men at work, children at play, women at peace.
Q. What else do you see, Mr. President-of-all-the-People?
A. I see the end of divisiveness and contrariness. I see small men growing large and closed minds opening wide. I see a rich harvest of book-learning and the arts.
Q. Tell us more, Mr. President-of-all-the-People.
A. I see Black and White in final harmony. Rich and poor, young and old, big and little, small and large.
Q. But what of our enemies, Mr. President-of-all-the-People?
A. I see love entering their hearts, I see understanding and good will. I see peace, sound and strong, hewn out of the rock of give and take.
Q. Is there nothing more that you see, Mr. President-of-all-the-People?
A. I see a mandate for happiness. I see the determined faces of millions — fat and skinny, tall and short, bold and shy — crying out as one: “Onward to the Great Society!”
Q. And how will all this come about, Mr. President-of-all-the-People?
A. I shall wheel and deal.
This is my favorite political cartoon of all time. In a series of panels, Feiffer nailed the preposterous theology of political salvation. Lyndon Johnson was the incarnation of this theology — more so than any President in American history. In early 1965, this faith was shared by millions of Americans who had elected him the previous November. Now he would end poverty with the War on Poverty. Now he would end political injustice with the Civil Rights Act of 1965. Also, that tiny nation the voters had heard nothing about, South Vietnam, would remain a stronghold of the Western alliance.
Three years later, he announced that he would not stand for re-election. In January 1969, he departed from the political scene, never to be heard from again.
What the “The G-20 Toronto Summit Declaration” promises to deliver to the world is comparable to what the boots in the sky promised in 1965.
RABBITS OUT OF GOVERNMENT HATS
In the Preamble, we are told:
1. In Toronto, we held our first Summit of the G-20 in its new capacity as the premier forum for our international economic cooperation.
I take seriously this declaration — the only sentence in the declaration that I do take seriously. The G-20 is now the forum by which the Powers That Be will communicate the message of international economic cooperation. Twice a year, the public will be told whatever the decision-makers choose to reveal.
Who are the decision makers? On the G-20’s site, we read:
The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 15—16, 1999, hosted by German and Canadian finance ministers.
This is an accurate presentation. The finance ministers and central bank governors run the G-20 show. The national heads of state show up for photo-ops and to deliver sound-bytes for the voters back home. The national position papers are prepared by bureaucrats. Then these are reconciled by a committee that tries to keep the various national politicians satisfied.
The declaration is a statement of goals, not a description of means. The goals are the equivalent of pronouncements from boots-in-the-sky. The means are not mentioned. Good will can somehow bring forth great results.
Here is the basic package:
2. Building on our achievements in addressing the global economic crisis, we have agreed on the next steps we should take to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth.
The declaration praises the decisions of finance ministers and central bankers ever since late 2008. We are assured that the largest peacetime government deficits in history, when coupled with the most rapid expansion of central bank balance sheets and the lowest interest rates in history have restored private demand.
3. Our efforts to date have borne good results. Unprecedented and globally coordinated fiscal and monetary stimulus is playing a major role in helping to restore private demand and lending. We are taking strong steps toward increasing the stability and strength of our financial systems.
There is, of course, the nagging problem of America’s commercial banks. They are not lending. They are contracting their loans. They are replacing loans with excess reserves held at the central bank. But never mind this. The important fact to remember, according to the declaration, is that massive deficits and massive monetary base expansion saved the day.
There must be more, we are assured. There will be more — much more.
There must be black and white. There must be up and down. There must be narrow and wide.
4. . . . To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand. At the same time, recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation. This should be combined with efforts to rebalance global demand to help ensure global growth continues on a sustainable path. Further progress is also required on financial repair and reform to increase the transparency and strengthen the balance sheets of our financial institutions, and support credit availability and rapid growth, including in the real economy. We took new steps to build a better regulated and more resilient financial system that serves the needs of our citizens. There is also a pressing need to complete the reforms of the international financial institutions.
The remainder of the declaration outlines what must be done. It does not say how this can be done, only that it must be done and will be done. This includes the following:
Strong job growth (5)
Social protection for citizens (5)
Full accountability (6)
Increasing sustainable global growth (9)
Sound but flexible budgets (10)
Cutting future debt (10)
International planning (“adjustment”) (10)
More infrastructure spending (10)
More savings in trade deficit nations (11)
More domestic demand for exporting nations (12)
Fewer moral hazards for banking (15)
International peer review of planning (16)
More international regulation of banking (18)
Higher capital requirements (18)
Effective supervision of banks (20)
Restructuring of financial institutions (21)
No more taxpayer bailouts of banks (21)
Transparent international assessment (22)
More IMF and development banks funding (23)
A more resilient monetary system (31)
More money for Haiti (32)
More food security (34)
More foreign aid (“Aid for Trade”) (39, 45)
Rolling back government corruption (40)
A green recovery: sustainable global growth (41)
This is the beginning. We are only at page 9. There is lots more to come. In ANNEX I, we read about these.
Again, the finance ministers and central bankers have done a spectacular job.
As a result of the extraordinary and highly coordinated policy actions agreed to at the Washington, London and Pittsburgh G-20 Summits, the global economy is recovering faster than was expected. Our decisive and unprecedented actions over the past two years have limited the downturn and spurred recovery (1).
Then comes the call for what is essentially a new era of international central planning. It begins with coordinated meshing of national central plans.
We have completed the first stage of our Mutual Assessment Process. As we requested in Pittsburgh, G-20 Finance Ministers and Central Bank Governors, with the support of the IMF, World Bank, OECD, ILO and other international organisations, have assessed the collective consistency of our individual policy frameworks and global prospects under alternative policy scenarios (5).
They plan to do much better in the future. “If we act in a coordinated manner, all regions are better off, now and in the future” (8).
The deficits are too large. The document does not say this explicitly. Nor does it use the word “austerity” with respect to budgets. Instead, it uses the word “consolidation.”
However, it is clear that consolidation will need to begin in advanced economies in 2011, and earlier for countries experiencing significant fiscal challenges at present (10).
The next meeting of the G-20 will be held in Seoul in November. By then, the foundation of the new planning system must be ready.
To facilitate this process, the second stage of our country-led, consultative mutual assessment will be conducted at the country and European level. Each G-20 member will identify the measures it is taking to implement the policies we have agreed upon today to ensure stronger, more sustainable and balanced growth. We ask our Finance Ministers and Central Bank Governors to elaborate on these measures and report on them when we next meet. We will continue to draw on the expertise of the IMF, World Bank, OECD, ILO and other international organisations, as necessary. These measures will form the basis of our comprehensive action plan that will be announced in the Seoul Summit (17).
Then comes ANNEX II. This section (pp. 15—21) goes into detail about the new system of banking regulation.
The financial crisis has imposed huge costs. This must not be allowed to happen again. The recent financial volatility has strengthened our resolve to work together to complete financial repair and reform. We need to build a more resilient financial system that serves the needs of our economies, reduces moral hazard, limits the build-up of systemic risk and supports strong and stable economic growth (1).
The push to international control over banking is now moving into high gear.
The G-20 has no available sanctions. The fiscal policies (deficits) are beyond any central agency’s power. So are monetary policies. So are bank capital ratios. None of the G-20 nations has honored any of the earlier accords.
Yet the document calls for more coordinated policies. It calls for the creation of a new international order, yet without calling it this. ANNEX III devotes five pages to a promise that the IMF and other international governmental agencies will increase money for the Third World beggar nations. This means that lenders will pour billions more into these sink holes, all with government guarantees and taxpayer funds. There is no end in sight. The document ends with these words:
There is still an urgency to accelerate research and development to close agricultural productivity gaps, including through regional and South-South cooperation, amidst growing demands and mounting environmental stresses, particularly in Africa. The private sector will be critical in the development and deployment of innovative solutions that provide concrete results on the ground. We commit to exploring the potential of innovative, results-based mechanisms such as advance market commitments to harness the creativity and resources of the private sector in achieving breakthrough innovations in food security and agriculture development in poor countries. We will report on progress at the Seoul Summit (24).
The central bankers created the crisis of 2008. They are now telling us in no uncertain terms that they are the saviors of the system, and that their work has only just begun.
They talk a good line. The politicians showed up and did the dance of the marionettes. But what the G-20 is all about is the creation of a new international order. Our best hope is that they will not trust each other enough to pull off their plan. That has been true in the past. Let us hope that it will be true in the future. But let us not be nave about what they are planning. They have posted the outline for everyone to see.