Davos Newbies Home


Carpe diem. That should be the watch word on international affairs, as today’s difficult times give leaders the will to do something about the many intractable problems we face.

Unfortunately, Colin Powell – perhaps held back by hawks in the White House – seems to have intoned business as usual in a much-heralded speech today in Louisville. Of course he’s right to chastise both Israelis and Palestinians, but unless the US is truly willing to get deeply engaged, putting one’s faith in the Mitchell report is not going to swing matters in the Middle East.

I thought at a minimum, the US would move to the crucial phrase of supporting a “viable” Palestinian state. That means one that can’t be shut down as soon as the Israeli government determines there’s a security crisis. I’m relying on reports of the speech, so maybe I have missed something. I hope so.

What about economics?  

When I was at a brainstorming meeting for Davos 2002 at the end of September, I said something that jolted quite a few of the participants: “Economics doesn’t matter.” When you are the World Economic Forum, and when many of the brainstormers are economists, that might not make much sense.

What I meant, however, was that in the context of the 2002 programme, economics would not be very interesting. It’s not that the economic side of things is a done deal. As I’ve written here, I think the world economy is in absolutely terrible shape. It’s just that most people seem to agree what to do about it. And agreement does not make for an interesting programme.

There was some support for my view this weekend at the abbreviated and postponed meetings of the IMF and World Bank. As the Financial Times reports, “Apart from disagreements about individual forecasts, the recent actions of central banks in slashing interest rates meant there were few immediate actions that they could recommend.”

Those disagreements, incidentally, matter. According to the IMF, the US is poised for 0.7% growth next year; Treasury secretary Paul O’Neill insists it will be more like the earlier 2.2% estimate. I’m on the side of the pessimists on this and the other forecasts.

The hard game of politics 

“If you’re in the game long enough, you’re going to be the toast of the town one day, and the next day you’ll be toast.” So says Alan Simpson, the former senator from Wyoming, in an interesting summary of who’s up and who’s down in US politics.

One thought on “Davos Newbies Home

  1. Eric Mauro

    Economics: I asked my guru about Martin Wolf’s article which you linked to a couple days ago, where he recommends that Japan inflate. To paraphrase his response, he said that Japan could never inflate now, because to do so would be seen as devaluing the yen against the dollar in a predatory way to encourage Japanese exports, and American industrialists would raise holy hell about facing competition from a weak yen during a time when America is in a bad slump.

    It seems to me that your picture of economic action is cloudy because you are viewing rate cuts as the only tool of central bank policy. Most action from the US Fed, however, occurs in the “open market operations” which are basically secret.

    I’ve written an article about how these operations have pushed the US into deflation and how they’re killing Malden Mills, a local hi-tech manufacturer here in Massachusetts.


    The best solution would be for BOTH Japan and America to inflate decisively, at the same time, and admit that the Fed and the BOJ made mistakes, and clearly say how much the dollar and the yen will be worth.

    How does this relate: our Fed governors are unelected and basically immunized against political pressure. This is the model for the international institutions as well. When the Fed goes wrong however, there is no feedback loop (election) to tell them that they are screwing up. Our representatives to the WTO and IMF are not elected either, and they all, WTO, IMF, Fed, have an institutional bias to believe that popular (or market) opinion is probably wrong, and safely discounted. This is why people start throwing rocks and bottles, because the are not allowed to make their points politically.


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