Triple Crisis has a Spotlight-G20 series and Jayati Ghosh has an article aimed at leaders of G-20 who meet next week in Mexico: Spotlight G-20, If Not Now, Then When
… the G20 appears to have lost its way. Its original intention – to provide a relatively speedy and workable arrangement for global governance (especially economic governance) at a time when co-ordination of macroeconomic measures is seen as essential – has clearly fallen by the wayside in the past two years. Indeed, if it cannot deliver this time around, it risks sinking into irrelevance, at a time when the global economy badly needs some institutions to respond to what is more and more evident as a crisis of massive proportions
As global imbalances have reached unsustainable levels, the G-20’s role has become more and more important. It is now been forgotten by the economics profession that coordinated reflation of demand is important for growth and that the coordinated action after the crisis hit in 2008 had an important role to play in preventing a deep implosion.
James Tobin realized how shouts used to be ignored. In his article Agenda For International Coordination Of Macroeconomic Policies , he said:
Coordinate policies! So economists urge governments. Financiers, journalists, pundits, politicians take up the cry. Central bankers and finance ministers agree, as do presidents and prime ministers. They meet, they talk, they announce progress. It turns out to amount to very little…
With its balance of payments at critical levels, the United States is no longer in a position to reflate demand and in the process continue to drive growth in the rest of the world by acting as the importer of the last resort. Hence it is no longer possible for the rest of the world to grow on the path it had taken before the crisis – i.e., depending on the United States. A recovery for the medium-term is only possible if there is a strong reflation of worldwide demand by governments.
More importantly even this will not be sufficient as it just postpones the reversal of global imbalances. However for now immediate action is required and a strong forum is needed to work out a plan to address the bigger challenge.
- James Tobin, Agenda For International Coordination Of Macroeconomic Policies, Ch 24, p 633, Essays In Economics, Volume 4: National And International, The MIT Press, 1996