Remedies of the past, challenges of the future

This recession has a funny feeling to it; it’s not just that it’s gone on so long or came on so unexpectedly. To the contrary, what seems odd about it is our culture’s and society’s ongoing unwillingness to engage intellectually with its underlying causes, to look at and understand what is truly unique about this crisis and to analyse correctly exactly what it will take – apart from time, the universal cure all – to get us back on the path of sustainable progress.

A few quick observations:

1) This downturn is the first recession to strike in the age of 21^st century globalization, an era when information flows freely, instantly and largely uncontrollably around the world thanks to the Internet and other advances in technology. What this means is that a recession can come on quickly – especially one based on the evaporation of confidence like this one. Information spreads with blinding speed, and views are formed on a global scale – often fed by minute pieces of information generated elsewhere and taken into contexts where their meaning is seldom accurately understood. We know what’s happening in Indonesia in real time, and they know what we’re thinking on an almost hourly basis, as well. Information has been radically democratized, which is a good thing. But it has given birth to a global herd – an echo chamber where wild predictions can lead the pack astray as surely as if someone yells “fire!” in a crowded room. And the herd I am referring to here is the vast majority of us: consumers, home owners, workers, pensioners, government employees and more.

2) The crisis came on the back of two periods of unprecedented economic expansion, which was not necessarily a bad thing. Among other achievements, it has lifted literally hundreds of millions out of poverty on a global basis. But there is one big problem: it was not based on a sustainable model of consumption. First and foremost is the problem of global dependence on fossil fuels. But just as bad is the disturbing tendancy to over-reach, to rely on credit to fund consumption that we simply cannot afford and in many cases do not need.

So what does this mean? I have two policy recommendations:

1) Policy makers and analysts need to use more caution in their public pronouncements. Too often, there has been a real competition to grab the biggest headline with the wildest prediction – “longest recession, deepest recession, worst recession, highest unemployment.” The fact is, most of the pundits I read – and even the established international organizations where they work – missed the onset of the recession in the first place; so why are they suddenly experts on how it will end? The media is global now, but it still runs by the same rules: if someone yells “fire” in a crowded room, the media will report it. Policy makers in particular owe us better, more reasoned forecasts; if they don’t yet know what is happening, they should tell us that. And they should stop falling all over each other to outdo one another with wild predictions. A bit of humility from the world’s economists would go a long way right now. Folks, you live in an echo chamber, where your views will do much to determine the reality in which we live and the length of this “confidence-based” recession we are experiencing. It’s not just a quiet little conference among academic elites anymore. The world is listening. And your views count. You should wield that power more responsibly, and be prepared to look for flaws in your own assumptions as well. A bit of open-minded humility would go a long way right now.

2) We need to move towards a much more ambitious policy of sustainability across the board – in our public and private finances, and in the environment, too. This does not mean that we should forego growth – to the contrary, growth remains as important to social progress as it has ever been. But it does mean that we need to rebuild the basis of that growth, switching to a low carbon economy and moving towards public and private finances that are sustainable long term. This means, among other things, that financial markets can and should be better regulated, with higher standards of transparency. But it also means a stronger commitment from us all to quit living beyond our means, to shore up our pension systems, to prepare for demographic change and to learn to live in harmony with this earth, which is our common home. Excess demand drives up petroleum prices, which brings on recession – it’s an ugly trap. And I haven’t even mentioned the long-term damage of continuing “to treat our atmosphere as a giant sewer,” as Al Gore so memorably put it in “An Inconvenient Truth.” And we must share prosperity, too – partly through a free and open trading system, which has been the engine of access that has lifted so many out of poverty in recent decades. This time around, it must be green growth, however, combined with a system of equal access, opportunity and the right of every individual to be all that he or she can be. We must insist on that, and show that we are capable of delivering it ourselves.