"This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable," said Gordon Brown at the end of the G20 summit last week.
This was somewhat exaggerated. There was no plan for global recovery or even a commitment to increased fiscal stimulus. It remains to be seen what kinds of reforms will actually materialise.
But recovery and reform will not necessarily hinge on what the G20 agrees to do. Roll back to the last major economic crisis - that which began in Asia in 1997 and spread to Russia, Brazil, Argentina and other countries. In September 1998 Federal Reserve chair Alan Greenspan warned: "It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress." But the US economy kept booming right through the crisis, as a result of consumption driven by the stock market bubble. This continued until the bubble burst, pushing the US economy into recession in 2001.
It should not be surprising that the US economy has the potential to grow even while many other economies are contracting. Eighty-seven percent of what is produced in the US is consumed here. To be sure, the other 13% percent can make a difference - but US recessions are not brought on by falling exports. It is not comparable to the 47% of GDP that Germany exported last year, or even the 28% for Mexico.
Of course the current world recession is much worse and more widespread than the crisis of the late 1990s. The high-income countries that comprise the majority of the world economy, including the US, EU and Japan are mostly in recession. There are some big imbalances, built up over many years, that are adjusting at a pace that is not easy to predict - including the US savings rate, which had fallen to zero by 2007. And there are major weaknesses in much of the world's financial system.
Nonetheless the US is capable of recovering on its own, with a sufficient domestic economic stimulus and a sensible resolution of the major insolvencies in the financial system - regardless of what other governments do. The US recovery will in turn help the rest of the world.
The fact that the dollar is the key reserve currency of the world gives the US even more leeway. There are loud complaints from conservatives about our recession-induced free-spending ways, but investors world-wide are willing to lend the US government money at the historically low (both real and nominal) rate of 2.9% on 10-year Treasury bonds. This is not the sign of an impending fiscal crisis.
It is good that the G20 leaders are at least talking about increased international co-operation in order to deal with the world recession, and there are some areas - eg regulation of the financial sector or preventing illegal international capital flows and international tax avoidance - where increased international co-operation can be especially helpful. But even in these areas, many of the most important reforms can be implemented by individual governments.
The global nature of the "global economy" has been grossly exaggerated, as have been its implications. The world today is still much more a collection of national economies, and national governments - especially in the larger economies - have the potential to choose most of their economic policies much as they did 30 or 40 years ago.
The government of China, for example, has for decades controlled capital flows into and out of the country, regulated foreign investment in accordance with national development needs and plans, fixed its exchange rate and owned most of the banking system. In this way it was able to take advantage of "globalisation" - both international trade and foreign direct investment - to achieve the fastest economic growth in world history.
The contemporary idea of the "global economy" is based on a misapplied analogy to the historical development of national economies. For example, the US economy was much less stable, with more frequent and much longer recessions, before the creation of regulatory institutions, including most importantly the Federal Reserve in 1913 and the New Deal reforms of the 1930s. (The current crisis, which has occurred after decades of deregulatory reforms, appears to be the exception that proves the rule).
Thus, it is reasoned, we now live in a "global economy", and this too must be regulated to iron out some of the irrationalities and instabilities inherent in a market economy.
Of course there is some truth to this argument. The idea of a world reserve currency to replace the dollar, for example, most recently floated by China, is a potential reform that could improve world macroeconomic stability.
But the concept of the "global economy" is very often an exaggerated one, generating confusion and negative political consequences. Reforms that are both necessary and feasible at the national level, such as appropriate exchange rate, fiscal and monetary policies (especially in normal times) or capital controls, are rejected as incompatible with the "global economy".
At the same time, reformers often mistakenly look to supra-national institutions that are mainly deregulatory, unaccountable and regressive - the International Monetary Fund, World Bank and World Trade Organisation are prime examples - to resolve the problems that these institutions have themselves helped to create.
Finance ministers (or Treasury secretaries) that are beholden to powerful interests at home are even less accountable to the public when making decisions in these bodies that are another step removed from the electorate of member countries. If they won't do the right thing at home, they are far less likely to do it at the IMF or the World Bank. For the present, at least, reform at the national or perhaps regional level is a much better bet.
Indeed, "globalisation" under inappropriate rules and policies has contributed significantly to the current crisis. Even the EU, a project that compares favourably to the "race-to-the-bottom" economic integration of the Nafta variety, is currently hampering the Eurozone's recovery. The restrictions on budget deficits and the ultra-conservative central bank set up by the Maastricht treaty are making it more difficult for Europe to counteract this recession.
Efforts to redraw the rules for global commerce in a more equitable and rational manner - such as those of the UN commission headed by Joseph Stiglitz - are a vital part of creating a better future for the generations to come. But the world cannot wait for the time when the governments of the rich countries are willing to cede decision-making power to institutions - such as the United Nations - that they cannot completely dominate. Nor does it have to wait.