I am just back from Washington where the green shoots of recovery have sprouted into a jungle on Wall Street, if not yet on main street or in other countries. I was addressing a meeting of US and European diplomats to survey the geopolitical horizons.
As the world economy gradually returns to something approaching normality after the catastrophe triggered by the Lehmans bankruptcy on September 15 last year, thoughts naturally turn to the longer-term effects of the crisis.
Economic models are never good at predicting turning points in cycles, but in these conditions they are completely useless. To assess the long-term political and ideological impact, it makes more sense to consider two scenarios.
In the first, which has dominated thinking throughout the crisis, the deflationary forces of the credit crunch prevail and the world sinks into a recession lasting many years, with unemployment soaring to levels last seen in the 1930s. In that case, this crisis really will mark the end of US dominance, not only as a global power, but also as an economic model and source of political inspiration. But rather than neatly shifting the mantle of global leadership to China or maybe Europe - if we take seriously the triumphalist rhetoric of President Sarkozy after the London G20 summit about the death of the Anglo-Saxon model - a prolonged recession would usher in chaos.
China is far too poor, too technologically backward and too inward-looking to be a credible economic leader and its social arrangements are hardly a model for the democratic world. As for Europe, it would suffer even more institutional damage than the US from a prolonged depression, as it did in the 1930s. In short, the widely predicted depression would lead to what some investors describe as the Mad Max world: a state of global anarchy in which the only assets worth owning would be farmland and oil wells - and the guns and ammunition to protect them.
The alternative possibility is that monetary and fiscal stimulus succeed and the world returns to normal growth and moderate unemployment within a year or so. To judge by much commentary, this benign outcome is unlikely. But on Wall Street and in much of Asia it is becoming the mainstream assumption.
In my view, the benign scenario should be the focus of all policy discussions for two reasons. First, because economic theory tells us that fiscal and monetary reflation will succeed and hints of success are starting to show. The second reason is an economic equivalent of Pascal's Wager: if the world is about to collapse into anarchy and nothing can be done, there is no benefit in predicting it. If, on the other hand, the end of the world can be averted, acting on this assumption, will make recovery more likely. But even on this benign assumption, some big upheavals may lie ahead.
The financial crisis has profoundly changed US politics. It has convinced voters of the need for government, and of leaders who believe in government. With the election of an Administration dedicated to competent government, things have improved, as voters have noticed. Thus US and European ideology have moved closer together. Many Bush Administration foreign, social and environmental policies have been reversed, sending the signal that Americans no longer live on a different planet from the rest of us. As a result, America has become more attractive as a political model throughout the democratic world.
Less obviously, the US economic model, far from being discredited, may be strengthened by this crisis. If the US returns to growth much faster than Europe and Japan, the crisis will reaffirm the resilience of Anglo-Saxon capitalism, provided that it is not confused with totally deregulated market fundamentalism.
Moreover, the crisis may strengthen the US economy structurally by promoting President Obama's agenda of clean energy and healthcare reform. Developing new energy sources will play to America's advantage in technology, while correctly-managed healthcare reform could reduce the cost burden that has crushed many US industries.
For Europe, the crisis has exacerbated three distinct problems. First, global deleveraging is having a bigger impact on Germany than on the US or Britain. Second, Eastern Europe faces a catastrophic financial crisis, like the one in Thailand and Indonesia 12 years ago. Third, the euro has been transformed into a source of vulnerability rather than strength because Europe's sovereign borrowers can no longer print their own money, making them prone to default in the same way as state and local governments in the US.
The result of this perfect storm is that Europe will probably become more inward-looking. The question of more or less Europe will have to be debated anew, as maintaining the status quo may not be compatible with the survival of the euro or the new financial regulations now widely demanded. In Central Europe the painful consequences of the harsh economic reforms imposed by Germany, the European Commission or the IMF in exchange for financial support will probably strengthen the influence of Russia, which handled its own financial crisis surprisingly well.
Turning to Asia and China, does this crisis mark the moment of transition from US to Chinese dominance? Probably not. For Japan even more than Germany, the crisis has been a total disaster and the concept of export-led growth has been discredited.
China's leaders understand the dangers of excessive dependence on exports and are trying to shift emphasis to domestic growth. But this will slow productivity growth and economic development and it is not clear if China's authoritarian politics can adapt to a society emphasising consumption rather than production.
Finally, what of the dollar's status as a reserve currency? Those who argue that US budget deficits and monetary expansion will destroy its international status must point to another currency underpinned by stronger fiscal and monetary foundations. At present, there is no such currency, except possibly the Chinese yuan, which cannot be legally owned by foreign investors.
Those who argued that the dollar would collapse because of the global crisis forgot that to sell one currency it is necessary to buy another. The currency game is not a beauty contest but an ugly contest, in which investors must choose the currency that is least ugly.
In some ways this is true of global geopolitics. The crisis may have revealed grave flaws in the US economic and political models. But the weaknesses in other countries have become even more obvious. The logical conclusion is that President Obama's post-crisis America will be more powerful and influential than it was under President Bush.
Please note the maximum number of characters is 300.
* Name
* Town
Country
* Required
Remember me
Terms and conditions Print Email Post to del.icio.us Post to Fark Post to Yahoo! Post to Digg Also in Anatole Kaletsky America will still rule the post-crisis world Now for the longest assisted suicide in history Also in Columnists Italy’s economy is doing surprisingly well despite Silvio Berlusconi Death on camera: tasteless and verging on the obscene Brixton: the depressing symbol of Britain's multicultural failure Times Recommends Real people enjoy morris dancing The bizarre is insurance for the future Tasteless and verging on the obscene
OUR COLUMNISTS
Columnists
Select David Aaronovitch Anjana Ahuja Chris AyresJoan BakewellSimon BarnesCherie BlairCamilla CavendishJeremy ClarksonRobert CramptonDaniel FinkelsteinMichael GoveSimon JenkinsRachel JohnsonAnatole KaletskyIndia KnightDominic LawsonRod LiddleMagnus LinklaterBen MacIntyreBronwen MaddoxMinette MarrinCarol MidgleyAlice MilesCaitlin MoranRichard MorrisonMatthew ParrisMichael PortilloLibby PurvesWilliam Rees-MoggMelanie ReidPeter RiddellHugo RifkindSathnam SangheraGraham StewartAndrew SullivanRachel SylvesterJanice TurnerGuest contributors
Blogs
Select Alpha Mummy Archive Blog David Aaronovitch Asia Exile Baby Barista Blockbuster Buzz Gerard Baker Charles Bremner Big Brother Mary Beard Comment Central Consumer Central Cricket Blog Eco Worrier Faith Central Fashion Formula One Ruth Gledhill Inside Iraq Ariel Leve India Knight Money Rafael Nadal News Blog William Rees-Mogg Rugby Sinofile Mick Smith Sports Commentary Irwin Stelzer Peter Stothard Surf Nation Technology Travel Urban dirt Video Wimbledon
Anatole Kaletsky
Anatole Kaletsky writes for The Times Comment pages on Thursdays. One of the country's leading commentators on economics, he was formerly Economics Editor and is now Editor-at-large of The Times. He has won many awards for his financial and political journalism. Before joining The Times, he worked for 12 years on the Financial Times
Read more from Anatole Kaletsky Camilla Cavendish wins award for family justice campaign
Columns urging greater openness in family courts win Paul Foot Award
Cartoon More cartoons Peter Stothard
The Editor of the TLS writes on books, people and politics
A Don's Life
Mary Beard of Cambridge and the TLS on culture ancient and modern
Was America's most famous journalist a spy? Comment Central Award-winning Iraq coverage from Deborah Haynes
A series on the plight of Iraqi interpreters took the Tony Bevins Prize for investigative journalism
MOST READ MOST COMMENTED MOST CURIOUS Most Read Skip Most Read Today Gordon Brown's YouTube fightback (shame... Chinese and American ships clash again in... Giant spiders invade Australian Outback town Max Mosley's son found dead from suspected... MOST COMMENTED Skip Editor's Pick Today Jacqui Smith says ID cards could be... Barack Obama hints at tougher line on Israel Giant spiders invade Australian Outback town Chinese and American ships clash again in... MOST CURIOUS Skip Most Curious Today Prince Charles, Harrison Ford and Dalai Lama... Jacqui Smith says ID cards could be... Convicted teenager Kane Beales wins legal... Three Billy Elliott stars set for Tony... Focus Zone Northern Lights:
Win a luxury weekend to Newcastle and its neighbour Gateshead, find out more here
Business Solutions:
Risk, resilience and embracing new technology
Need to Know:
Industry sectors news at a glance. Interactive heatmap, video and podcast
Business Wisdom:
Discover the collective power of smart thinking. Submit a solution and be in with a chance to win a £500 Selfridges voucher
Social Entrepreneurs:
The inside track on current trends in the charity, not for profit and social enterprise sectors
Business Travel:
Everything the Business Traveller needs to know to make a better trip
More reports:
Enjoy further reading from Travel to Fashion, Business to Sport, discover more
Northern Lights Business Solutions Need to Know Business Wisdom Social Entrepreneurs Business Travel More reports Births, deaths, marriages
Place your announcement
Find a Lawyer
Cut your legal costs
Free CV Review
Sell yourself! Have your CV reviewed by experts
Crossword Club
Sign up today or try one of our free demo crosswords
Announcements
Search The Times Births, Marriages & Deaths
Online Sudoku with daily prizes Popular Searches on Times Online bollywood news | britain's got talent | chess | dating | fashion | mortgages | movie trailers | music | podcasts | recipes | redundancy | savings | slumdog millionaire | sudoku | twilight | university guide | watchmen | wine
Shortcuts to help you find sections and articles
Classifieds Cars Jobs Property Travel Cars Skip Cars of the Week Mercedes-Benz SLK 200 Kompressor
2006 21,950
BMW M5
2005 39,950
Bugatti Veyron
£POA
Great car insurance deals online
Car Insurance
Search for more cars and bikes Jobs Skip Jobs of the Week Commercial Director
£150 k Mark Spiers and Associates UK
Progressive Management Opportunities
Attractive salary Waitrose London,South East & Southern England
Area Manager (Wales)
£63,000 + benefits Environment Agency Wales
Chief Executive Officer
£80,000+Bonus YMCA East London
Search more Jobs Properties Looking to Buy? Looking to Sell? Kinleigh Folkard & Hayward
Completely London
Rushmore Condo's
Luxury Condo's in Manhattan with NYC views
South Africa - Cape Town
World Cup Investment Opp - 2 bed gated apartment
Octagon
Aspirational Homes from an Inspirational Company
Search for more properties Holidays Skip Travel of the Week Fly Non-Stop To New York
From 6 Major UK Airports From £585pp
Save up to 50% per person
Experience Zambia from £1,725pp with Africa Travel
HOUSES OF PELION
S/c accomm in beautiful mainland Greece. Great offers for May and June
Travel insurance
Great travel insurance deals online .
Search for more holidays Place your advert now
Search Ad Reference:
Read Full Article »