It looks like the G20 on Friday will emphasize its new “framework” for curing macroeconomic imbalances, rather than any substantive measures to regulate banks, derivatives, or any other primary cause of the 2008-2009 financial crisis.
This is appealing to the G20 leaders because their call to “rebalance” global growth will involve no immediate action and no changes in policy – other than in the “medium run” (watch for this phrase in the communiqué).
When exactly is the medium run?
That’s an easy one: it’s always just around the corner. Not today, of course; that would be short run. And not in 20 years; that’s the long run.
The medium run is perhaps in 3 years or perhaps in 5 years. It feels close enough not to be meaningless at the press conference, but it’s not close enough to be meaningful.
And – here’s the key – whatever you agree on for the medium-term, you know that the world will change, quite dramatically, 2 or 3 times before you get there. At that point you can say, quite reasonably: But the conditions today are quite different from what they were when we made this medium-term commitment, so we really need to rethink it.
Of course, having the IMF report back every year on progress towards these medium-term goals is equally pointless. This is what the IMF has been doing since 2006 and what it was preparing diligently to do just as the global crisis broke out.
Expectations for the G20 summit are low. But unless and until the leaders take any steps to address our pressing financial sector vulnerabilities, the summit is not worth its carbon footprint.
Remember what the financial experts said at the previous summit (April) and the one before that (November): we can’t fix the financial system in the height of the crisis. True enough, although the opportunity to break the power of the largest players was squandered in both the US and Europe.
So, now the crisis is over – as the G20 heads of government will affirm – where are their efforts to fix the financial system? Please don’t tell me, “that’s what we’re doing, in the medium-term.”
By Simon Johnson
The Baseline Scenario 
As children, if any of us had told our parents when asked to clean our rooms, “I’ll get to it in the medium-run…”, I suspect beatings would have be in order.
G30 (Group of 30) is bigger and supposedly brighter and much more independent, yes? Can we ask them to take time out of their busy days to write a single paragraph each with their best recommendations? They have a lovely website, but it’s not terribly interactive.
It used to be called “mañana” government.
Still not 1932…
Like the bumper sticker says:
“Fusion is the Future… and it Always Will Be.”
Thats why G20 is always winning…expectations are so low.
http://www.pewfr.org/task_force_reports_detail?id=0019
I’m here in Pittsburgh, where the G20 is.
They are going to showcase the city … by closing it down.
Talk about low expectations.
Economists will talk sensible when graduates have a degree in double-entry book-keeping, using a full cost accounting with real-time audit trails to all data. There is no reason today for this to not become a matter of fact. The difference would then be that in place of using probability models they would be using a real time modeling method. Balancing cultures will be a relatively simple matter of budgeting and a tax polity designed to keep the ship of state on course.
Imagine for a few seconds a fictional character I created myself. Any similarities to real people is purely coincidence. He’s the G20 mascot I call “Maggot”. Here’s what “Maggot” would say:
“It’s the new strategy of international cooperation for global economic stability!!! Watch my left hand–nothing. Watch my right hand–nothing. I make some quick movement with my hands and do a 360 spin–look STILL nothing in my hands!!!
It’s a magic trick takes years of international diplomacy experience to master. We got nothing done, made no progress, but I got an airplane ticket to Pittsburgh and a nice hotel room! You know what kinds of entertainment they have around hotels!?!?!?! Don’t you love universal forms of communication?? Woohoo!!!”
I heard a funny throw-away line the other day that seems appropriate here, especially since most governments in the world today are left of center. It appears that “the left hand doesn’t know what the extreme left hand is doing.” But then, these are professional politicians who are experts at doing what politicians do….kick the can down the road. So they actually DO know what they’re doing.
Simon Johnson “But unless and until the leaders take any steps to address our pressing financial sector vulnerabilities, the summit is not worth its carbon footprint.”
I am not at all sure, because under the do no harm principle we might be better if they do nothing.
The most urgent problem in our financial sector at this moment, a problem that is not even discussed, is that with all the credit risk downgrading going on, those operations that previously only required 1.6% in capital are now starting to require 8% in capital and with that they are crowding out all the previous ordinary more growth related loans that as they were perceived as more risky from the very beginning required the banks to hold 8% in equity. You can almost hear the sucking sound.
And so if we on top of this let lose those who want to cast themselves as puritan angel avengers, like Simon Johnson, screaming for blood and more capital cross the board, our small entrepreneurs would be squeezed out completely and only the biggest, who also have more access to the bailouts would survive. That is why the big always love regulators… like Simon Johnson. Tell me a regulator that truly works in favor of the small, short, medium or long term?
tjscott, it’s the “lefties” who are cleaning up the mess “W” Bush, Phil Gramm, and Henry Paulson left behind. Save your revisionist history for the people who read National Review.
Out of curiosity… can you give us an example of the “cleaning”?
Ted K. Actually I prefer “Reason”, “TNR”, “The New Individualist” and “National Journal”. And I can’t wait to see how the “cleaning up” goes. Trust me, 20 years from now we’ll look fondly on these as the good ‘ole days. Also, I don’t recall revising anything, just made an observation on the banality of the G-20. So, a diversity of ideas is not welcome here??
It took everyone working together to make this mess, and they’re all working beautifully together to prolong it. Don’t fool yourself in to thinking either side is interested in “cleaning up” at all. They’re all quite determined to simply get theirs; your interests and the interests of average Americans be damned.
The G20, by its nature, is rarely going to agree on anything. Political power rests in nation states and their individual domestic situation. Expand the group to 20 and one is not going to find much agreement.
3-5 year “medium term” economic plans that are revised annually? I remember everybody laughing their backsides off at the Soviets when they put out each year’s annually revised “Five Year Plan.” I guess it’s less funny when our government is the one doing it.
Let’s be real here – “medium term” is just the political class’s way of saying we’re going to “kick the can down the road” and let someone else worry about real change.
I’m befuddled by how so many supposedly smart people have acted like chronic drunk drivers. First the car almost goes over the cliff. It’s only because of luck, quick (though belated) and massive policy response did they keep the car from going over (granted we still missed the road). As with any chronic drunk we’re in denial of how bad our problem is.
Yeah, I heard about that. Didn’t they close schools and ask residents not to leave their homes?
It really makes it clear how the global leadership thinks of the people.
One has decoupled from the other – finance from production – and nether the twain shall meet. That’s right, nether, the G20 is an anachronism not worth its energy footprint.
Mr Johnson has suggested previously an administrative coup of the financiers … to no effect. Not one drop of new oil can they conjure from their various swindles, they can only tax and tax some more against a declining base of (questionably) useful industry.
Medium term would be usefully addressed if G20 would work together to insure the basic survival tools for their unwary populations. They won’t and that is the end of their credibility.
Doesn’t all of this read like a chapter out of “Atlas Shrugged”? The parallels are hard to ignore. Accomplishment is seen as subservient to “need”. Sacrifice for the sake of the collective is a virtue. Businesses become corrupted by government handouts and favors. And all this will probably end in a manner similar to the ending of the book; badly, very badly. I could be wrong. I hope I’m wrong but I fear I’m not.
“In The Medium Run We Are All Retired” Yes and our kids are all in the thick of it Ha!
Sorry. Mi intention was only to send the link and not have it embedded… nonetheless it is not a bad thing reminding the baby-boomers that there is also a world after them… that supposedly also has some rights.
The “medium term” reminds of the Friedman Unit in the political blogosphere, but the FU is only six months.