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Global Policy Failure on a Massive Scale

Ryan Avent

Global crisis: Policy failure on a massive scale: MAYBE everything will turn out all right…. As each day passes, however, frustration grows. Leaders in America and Europe are dallying with failure on an epic scale.... America and Europe are flailing because their leaders are failing. They seem to be too small for the tasks at hand, too petty, and too myopic. 

The challenges facing Europe and America are big, but they're not mysterious. In Europe, the issues are sovereign debt, vulnerable banks, and a poorly designed currency area. It's not tricky to see what must be done…. European leaders know what they need to do. They have been slow to do it for two reasons. First, the magnitude of the commitment necessary to save the union is uncertain…. And second, the distribution of the costs of the commitment is uncertain, and no individual entity wants to pay a penny more than is necessary. The concerns are understandable, but this thrift is fundamentally wrong in the context of the current crisis….

In America, the situation is more ridiculous still. The economy is vulnerable. New data continue to reveal just how weak growth was in the second quarter. The economy may scarcely have expanded at a 1% annual pace. Unsurprisingly, job growth was too slow to keep up with a growing labour force, and the unemployment rate began rising again…. Washington seems practically excited to stamp out optimism. Congress has spent the first month of the third quarter dangling the prospect of a full blown fiscal crisis over the heads of American firms and households…. [W]hile tens of millions of workers are un- or underemployed and wages flat, the government is doing its absolute best to kill the latest growth rebound in its crib. It is shocking.

Again, it's not like the correct policy path is incredibly complicated. Here, I'll sum it up in three quick steps:

  • Don't cause a major crisis.
  • Do spend more and tax less for the next year or so. D* Do spend less and tax more after that.

See? That's really easy! If you wanted to move up to more complicated ideas, you could talk about using the opportunity of record low borrowing costs to make needed, long-overdue investments in critical American infrastructure. Instead, Congress seems determined to convince the world that America shouldn't be allowed to borrow at all, except at highly punitive rates…. It's inexcusable. And it is a direct result of a leadership in Washington that is too small-minded to see the danger it's courting by recklessly pursuing a foolish ideological agenda.

Right now, Angela Merkel doesn't look like the leader Europe needs to spare it a wrenching crisis. Jean-Claude Trichet looks like the wrong man in the wrong place at the wrong time. Barack Obama looks like a man who picked a fight he couldn't finish. John Boehner looks to be too worried for his political future to cow a caucus apparently hungry for catastrophe….

Maybe everything will turn out all right. Shame on the leaders of Europe and America for working so diligently to ensure that it doesn't.