13 Feb A Global New Deal?
Two items suggesting the possibility. First is this excellent piece from Harold Meyerson of The American Prospect, which sets out a strong case for the inevitability of global economic regulation (he is particularly interesting on the increasingly global scope of big labor). Meyerson draws on the old New Deal analogy, which is a powerful one — up to a point.
The very idea of a global New Deal would be altogether preposterous but for the fact that the return of prosperity may depend upon it. But then, the same once could have been said of a national New Deal, too. Finally, just as the creation of the national New Deal depended upon Roosevelt, the creation of a global one will depend upon Obama — a figure who seems uniquely suited to voice not just the nation’s but the planet’s aspirations. The world — its citizens and its economy — awaits him.
But where Roosevelt had an institutional framework to work with (the federal government), Obama doesn’t. And where Roosevelt made sense (from a democratic legitimacy perspective) as the innovator, it’s not so clear that Obama qualifies, since he’s not President of the World.
Second is a proposal from William Grieder in The Nation of a “global recovery compact.” Grieder notes, as have many others, that a stimulus package will be leaky, in the sense that there’s little to stop the money from being put to work outside the US: “Obama’s stimulus program might restart factories in China while leaving US unemployment painfully high.” Grieder argues that won’t work, for us or for China, insofar as US spending has to be the “main engine that pulls the global economy out of the ditch.” So he seems to suggest that China and other countries should agree to protectionist measures on our part, as part of a grand bargain.
This seems more farfetched. But both items supply further evidence that global institutional solutions are entering the mainstream policy frame.
A great label for an idea – Global New Deal. Of course the legitimacy would be in the form of the states assenting to the deal – for example in a treaty of a series of understandings. Another thought would be that what is happening is a step from the New Deal (us to us) to the Marshall Plan (us to others) to a Global New Deal (all (or as many as want) to all (or as many as want)).
BTW, is anyone going to post on the Financial Crisis as a security threat per DNI Blair today. It seemed to me that Al-Qaeda’s long term strategy was to provoke just this kind of meltdown in the west. It made me think that the Al-Qaeda threat is really much more sophisticated than we have tended to look at it over the past seven years requiring more international cooperation. This should be a longer post but it is a kernel of an idea for discussion.
Best,
Ben
“…further evidence that global institutional solutions are entering the mainstream policy frame.”
I hope you’re right, and I further hope (well, it’s all the rage of late, is it not?) that those working on these policy questions will have some knowledge of, be in some manner intrigued or inspired by, some of the recent work in global distributive justice and cosmopolitan political theory and ethics.
Paul Krugman had some thoughts similar to Greider a few weeks ago. Later, he’s insisted that he isn’t pro-protectionist– he was just pointing out that perhaps protectionism need not breed the disaster many assume it will.
Protectionism and stimulus (wonkish)
Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.
And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.
Now ask, how would this change if each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.
Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously.
What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.
The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.
But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.