The White House is working with other nations to fight global terrorism. It also should be working with them to stave off a global economic meltdown.
There's no longer any doubt that we're in a recession. More than 400,000 jobs were lost last month, the biggest job loss in two decades. Meanwhile, national output is shrinking. Consumer spending is dropping. And consumer confidence is plummeting.
That's just the United States. The rest of the world is as bad or worse. Germany, the largest economy in Europe, is in a slump, dragging the rest of Europe down with it. The Japanese economy is nearly comatose. Argentina, until recently South America's powerhouse, is in deep recession and about to default on its international loans. The former "tigers" of Southeast Asia--Malaysia, Singapore, Hong Kong and Taiwan--are basket cases. The global economy is teetering. That's partly because American consumers--deep in debt, worried about keeping their jobs and now stressed out about terrorism--have been buying less from abroad. Gloom moves around the globe at the speed of an electronic impulse, so our fears about the future have spread to consumers in other nations. And because global corporations over-invested in factories, equipment and information technology and then put on the brakes so quickly, business spending has collapsed around the world.
Alan Greenspan and the Federal Reserve Board are almost certain to cut short-term interest rates again when they meet today, possibly as much as half a point, to 2%. But the Fed is paddling against a powerful current and can't restart the global economy on its own.
Other central banks will have to cut rates, too. The European Central Bank's current 3.75% rate is way too high, especially considering that inflation has all but vanished from euro-land. Ditto for the Bank of England, which, like the European bank, meets later this week. In Japan, prices are dropping so much that the central bank can't set rates low enough to spur borrowing.
Even if central bankers all row together, that still won't be enough to get the global economy moving. To make up for the passivity of consumers and businesses, governments will have to run deficits--spending more and taxing less--at least for the next year.
America's "fiscal stimulus" package, now working its way through Congress, is too small. At $70 billion to $100 billion, it's only 1% of the national economy. And if the House of Representatives has its way, it will be targeted to the wrong people--those with more wealth, who are less likely to spend extra dollars than poorer people.
Europe, meanwhile, has to break out of its fiscal straitjacket. The treaty setting up the euro currency makes it hard for member governments to run sizable deficits. Ministers will have to agree that the global economy is in sufficient danger that their agreement can be suspended.
Japan already is running a large deficit. It will need to gain public approval for an even larger one.
Developing nations must be allowed to spend more and tax less. The International Monetary Fund--the world's most important lender--must stop insisting on balanced budgets. Fiscal austerity may have been appropriate when the global economy was growing briskly. Now it's a recipe for joblessness and misery.
Who's going to coordinate this? Where's the capacity to gently prod central bankers to reduce interest rates more than they might like? Who can prod governments to go into deeper debt to spur the global economy? Where's the clout to get the IMF to relax its lending requirements on Third World nations? There's only one place: the White House.
A worldwide recession isn't as violently destructive as terrorism, but it can cause much hardship. Preventing it requires no less of a commitment to a global strategy.
Copyright 2001 Los Angeles Times