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Copley News Service, 07/24/2001
While the leaders of the major industrial countries, the so-called G-8 nations, fiddled in Genoa, Italy, the world economy was going into a deep freeze. Global trade is shrinking. A deflating dollar is squeezing international economic activity and putting currencies around the world at risk. The IMF continues to force poisonous tax increases and austerity measures down the throats of floundering economies like Argentina.
European bureaucrats are out of control, throwing sand in the gears of private enterprise in the name of antitrust regulation. And all the G-8 politicians could find to talk about were ways to squeeze more revenues out of their citizens by eliminating tax competition and hypothetical and improbable risks like global warming and the hazards of biotechnology?
Can you believe with 40,000 demonstrators rioting in the streets outside their meeting, leading to injuries for more than 120 and the death of one, the political leaders of the world had absolutely no new proposals for increasing global economic growth? Reports from inside the G-8 meeting indicated that the leaders were reassuring each other and the media that the U.S. economy will soon rebound and pull the rest of the world to prosperity along with it. Canada's Prime Minister Jean Chretien said, "Yes, we are in a slowdown, but everybody thinks there is a turnaround. We're not going into recession."
They are deluding themselves, misleading the public and threatening the prospects for democratization in Eastern Europe, Russia and China, not to mention the effect on the Third World and Africa.
In the United States, more than 1 million jobs have been lost already this year, the manufacturing sector remains in recession and technology is in a depression. Federal Reserve Board Chairman Alan Greenspan told Congress last week that the U.S. economy continues to face a "litany of risks" and that "uncertainties surrounding the current economic situation are considerable, and . . . the risks would seem to remain mostly tilted toward weakness in the economy." Hey folks, that's Greenspanese for "the U.S. economic outlook ain't so hot." What a mess!
According to Bear Stearns economist David Malpass, world GDP will probably shrink 1.1 percent in 2001, making the worldwide slump even worse than the one touched off by the 1997-98 meltdown in Asia, Russia and Brazil. Industrial production in the 12 countries of Euro-Land fell again for the third month in a row in June. Germany, the largest economy in Europe, may grow as little as 1 percent this year. Japan, trapped in severe monetary deflation of its own making, is heading for its worst recession since 1974 and could well drag the rest of Asia down with it. Singapore already is in recession, and economic weakness is creeping across Asia.
The one bright spot, ironically, is Russia, where, thanks to President Vladimir Putin, the IMF's advice was ignored and the economy is growing and revenues are flowing into Moscow because income tax rates were cut to 13 percent. We can hope that Putin pulled Japan's prime minister aside before he left Genoa to explain how to cut tax rates and raise revenues at the same time.
In light of this downward economic spiral, one would think the political leaders of the world would have discussed matters such as the havoc being wreaked by U.S. deflation and the ever-strengthening dollar, which has increased more than a third in the last few years. Rather than waiting for another round of currency meltdowns caused by floating fiat currencies, one would think they would have seriously considered how to create a stable monetary anchor for the world.
Instead, the G-8 leaders put out press statements praising Argentina's coerced austerity actions: "We commend these efforts (by Argentina) and encourage the continued implementation of their reform programs in close collaboration with the IMF and other relevant international financial institutions." Another spoonful of austerity toxins down Argentina's gullet. By the way, if you want to know where the next riots will occur in the world, just follow the IMF around.
In light of the stifling effect government regulation is producing (especially antitrust regulation) and the rising protectionist sentiments it is producing, wouldn't you think the world's political leaders would have weighed proposals to loosen the regulatory noose and halt protectionism in its tracks? Instead, they connived to create new bureaucratic schemes of carbon trading to limit carbon dioxide output in a chicken-little response to speculative "science" about how man's activities might be altering the climate.
The more these fellows get together to discuss economics, the worse things get. It's time for a vacation from economic summits for a while, a long while. President George W. Bush would be better advised to spend his time explaining to Greenspan how to get monetary policy right, telling Congress to cut the capital gains tax rate and reform the tax code, and making sure his Social Security Commission comes up with a plan for creating personal retirement accounts. If the United States moves unilaterally to adopt these three critical reforms, there won't be a need to get together in another G-8 economic confab. The United States will be leading by example, and the rest of the world will follow.
Copyright 2001 Union-Tribune Publishing Co.