Yesterday, the White House released a statement announcing that the Group of Eight nations will meet “in the near future to adopt an agenda for reforms to meet the challenges of the 21st century.” French President Nicolas Sarkozy said the conclave should be held “preferably in New York, where everything started.”
Sarkozy betrayed what is wrong with the concept of solving economic problems with global summit meetings. The financial crisis began not in the world’s financial capital but in its geopolitical one-Washington committed numerous sins of both intervention and regulation. Misperceiving the problem, the G8 participants will undoubtedly make things worse by creating an overly restrictive financial regime. “We need to found a new capitalism based on values that put finance at the service of companies and citizens and not the reverse,” Sarkozy said.
By now, the leaders of the G8 should realize that equity markets are continuing their collapse because underlying economies are fundamentally weak. These economies will continue to deleverage and shrink until they, on their own, reach equilibrium. Governments can nationalize banks, buy stocks, and purchase troubled assets-all of which they have done in recent weeks-but they are merely delaying the adjustments that have to be made. Economies have cycles, and no government has ever been able to eliminate them. The Alan Greenspans of the world can smooth out the highs and lows and even postpone the downturns, but by doing so they only create more monumental downturns, like the one we are witnessing now.
And there is one other major objection to yet another international gathering. As recently as July, the 34th Group of Eight meeting focused on African development, the global food crisis, and climate change. “But now we have learned how ridiculous it is to entrust the future of our planet Earth to someone who can’t even foretell what is happening on his home turf in the next quarter,” writes TokyoFreePress blogger Yamamoto Yu. The G8 has no more credibility yet still continues to function. In the past, what the group said was meaningless. But now it looks as if all this talk of “new capitalism” just might mean implementation of “old socialism.”
Said the White House statement: “We are confident that, working together, we will meet the present challenges and return our economies to stability and prosperity.” I’m not.