Everybody knows that we are in the midst of a slow recovery from a major economic crisis. Everyone knows that growth (or lack thereof) in employment is a source of major political and economic concern. And, believe it or not, the politicians are listening, and worrying. But that may well end up being a part of the problem.
Economic and associated political desperation lead to a contracting global economy by leading to increasing protectionism, a race to the bottom in currency devaluation (competing to make one’s own products cheaper abroad than those of other nations), and an increasing need to come up with short-term fixes at the expense of long-and-medium-term economic growth. Some would argue that ARRA was a prime example of this error; I don’t agree (in fact, one of ARRA’s greatest defects as a recovery mechanism was its degree of investment in human infrastructure, which only really pays off in the long-run). But the delusion that we live in a national rather than global economy, which persists on both the right and the left of the political spectrum, is a dangerous fantasy, and one we need to strive to avoid indulging in.
Concerns about the devaluation war are starting to rumble through that sphere of the collective consciousness which pays attention to such things (http://www.economist.com/node/17202341?story_id=17202341; http://www.economist.com/economist-asks/should_america_place_punitive_tariffs_china_if_it_continues_maintain_artificially_wea; )http://www.denverpost.com/search/ci_16299595). As the first Economist article explains, it’s a strategy that has, paradoxically, boosted stock, bond, and gold markets simultaneously, but not because of the strength it imparts on our long-term economic prospects. As The Denver Post article points out, “the concern is that such efforts could trigger the trade wars that contributed to The Great Depression of the 1930s as country after country raises protectionist barriers to imported goods.”
There is perhaps no economically more volatile and dangerous combination than a suffering population demanding immediate results, and a set of policies which provide immediate results at long-term peril. This is a time when a higher degree of self-restraint and long-term responsibility is required than populist-driven democracies are wont to provide. It’s a time when both elected officials and those who elected them have to recover a stronger sense of how important leadership is in a crisis. We need elected officials who are courageous enough to piss us off in order to do the right thing, rather than give us what we want at our own long-term expense.