As I write this column, leaders of the major industrial countries,
the so-called G-8 nations, are fiddling in Genoa, Italy, while the world
economy goes 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
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 can find to talk about are 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, injuring more than 120 and killing at least one person, the
political leaders of the world had absolutely no new proposals forincreasing
global economic growth? Reports from inside the G-8 meeting indicate that
the leaders are 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. Maybe Putin can pull Japan's prime minister aside before he leaves
Genoa and 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 be discussing 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 be seriously considering how to create a stable
monetary anchor for the world.
Instead, the G-8 leaders are putting 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 be weighing proposals
to loosen the regulatory noose and halt protectionism in its tracks?
Instead, they are conniving 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
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.