G20

What’s in Play at G20 Pittsburgh? by Andrew Jackson

The London G-20 summit last fall may go down in history as the meeting that
saved the world. That’s a huge exaggeration of course, but leaders did
agree to a program of co-ordinated monetary and fiscal stimulus which may
have arrested an economic free-fall, and they agreed to an agenda for
financial re-regulation with a view to making sure that it never happened
again. At a minimum, the G-20 process provided cover for governments to
temporarily deviate from the imprisoning economic orthodoxies of sound
finance and balanced budgets which tipped the world into the Great
Depression of the 1930s, and it opened a space for serious discussion about
a “new architecture” for global economic governance.

Several months on, the debate before the G-20 Pittsburgh summit which takes
place later this month is about the need for “exit strategies” and, still,
about the need for financial re-regulation.

There are now clear signs that the global economy has bottomed out (at
least temporarily) in terms of the sharp contraction of industrial
production, trade and GDP which began last October. Some governments, such
as Germany and France and, probably, Canada as well as the OECD want to at
least set a time line or agenda for withdrawing massive monetary stimulus
before provoking inflation, and returning to fiscal balance before public
debt rises too sharply. That translates into an agenda for medium — term
spending cuts. Pittsburgh is likely to see the development of a broad
framework for a return to normal. At the same time, the IMF, the OECD and
most governments do recognize that the recovery is extraordinarily fragile
and narrowly based on the stimulus that has been and will be injected this
year and next. It is widely recognized that downturns which are globally
synchronized and those that follow financial crises tend to be followed by
very slow recoveries, and this crisis scores very high on both counts. Any
premature tightening could easily tip the world back into a double-dip
recession. Like the young Saint Augustine who prayed to God to make him
chaste, but not just yet, the dominant line among governments appears to be
that they should stay the stimulative course through this year and next,
and only gradually raise interest rates and return budgets to balance.

The main problem with this view is that it is assumed that stimulus will
eventually, indeed sooner rather than later, return the world to something
like normal.
However, it is far from clear what will lead to renewed global
growth as stimulus is withdrawn given that the old engine — debt fueled
household spending in the U.S. and elsewhere — is not about to resume
anytime soon given the huge loss of housing wealth, uncertainty about jobs,
and increased savings rates.
Moreover, there is a very real risk that the crisis will continue to deepen as unemployment and underemployment continue
to increase.

Unemployment is conventionally seen as a “lagging indicator,”
meaning that job growth will follow the return of output growth as night
follows day, but output growth must be more than slow and tepid to have any
impact on jobs. There is a real danger that a still intensifying jobs
crisis could further depress household spending and choke off any “nascent
recovery.” In the U.S. (and Canada), high unemployment and a shift into
part-time jobs and self-employment risk producing a generalized fall in
wages long before the economy can get back on its feet. In some European
countries, especially Germany, unemployment has been held in check by
subsidized work-sharing schemes, but the risk is that there will be huge
layoffs before any recovery really gets off the ground.

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capitalist crisis severe