Global growth killers

Central Planning Going Global

By Terence Corcoran

The supreme political leaders of the world economy keep meeting and meeting and meeting - first the G8, then the G20, now Rio+20, with another round (the 14th) of the expanding Trans-Pacific Partnership trade negotiations set for San Diego on July 2. All this within a few weeks. Meanwhile, the world economy keeps tanking, not helped by other international gatherings of finance ministers, Basel bank regulators, Financial Stability Boards, IMF leaders and central bankers.

It would be too facile to claim that maybe the world economy is tanking because of all these meetings at which nothing happens, little is agreed upon and what is agreed to is often just a dodge of good policy - or, more often, a prescription for bad policy. On the other hand, nobody these days balks at facile analyses or empty slogans. Just read this week's G20 declaration, in which, among scores of other platitudes, leaders said they "are in full agreement that we need to intensify our efforts to reduce both internal and external imbalances."

In brief, the odds are good that these novel and experimental attempts at global governance and economic management are becoming sources of destruction. Instead of focused national policies around the world, we have global conflabs that generate orchestrated chaos for which nobody is responsible.

One destructive product of the internationalist approach to policymaking may well be a breakdown in central bankers' grasp of monetary policy. At least one economist, Steve Hanke at The Johns Hopkins University in Baltimore, says the combination of monetary mistakes and escalating bank regulation is creating a credit crunch in the United States and turmoil elsewhere.

While central banks, especially the U.S. Federal Reserve, have caused an expansion of government-created money, private-sector money growth has disappeared. In the United States and much of Europe, with the exception of Germany, money-supply growth has been non-existent and even negative.

The decline in money growth is a product of global banking uncertainty created by attempts by the G20 nations and central bankers to impose tough new capital and other regulations on banks. "They have done this via new and prospective bank regulations flowing from the Dodd-Frank legislation, new (more stringent) Basel III capital and liquidity requirements, and uncertainty as to what Washington might do next. All this has resulted in financial repression - a credit crunch." See more of Prof. Hanke's analysis below.

We have a surfeit of summits, a near-continuous string of sessions, meetings, communiqués and declarations, negotiations and impasses, agreements and breakdowns.

G8/G20 summits Like all summits, the 2012 versions produced blathering prose, vague commitments and uncertain policy directions. At the G8, Canada and its seven co-conspirators declared that they "welcome the ongoing discussion in Europe on how to generate growth, while maintaining a firm commitment to implement fiscal consolidation to be assessed on a structural basis."

France signed on to this at the Camp David G8 summit in May, but then back home this week introduced budget plans to tax the hell out of jobs and investment: top marginal tax rate of 75%, a 3% extra tax on dividends, legal restrictions on plant closures and the ability to fire workers, above-inflation minimum-wage increases, increases in wealth and inheritance taxes.

France could do this without much global criticism in part because at the G8 and G20 meetings, taxes are not an issue. The G20 declaration at Los Cabos, Mexico, titled The Los Cabos Growth and Jobs Action Plan, does not mention the word "taxes." The G20 did, however, rededicate itself to clamping down on banks with a slew of new regulations, apparently oblivious to the detrimental effect on bank lending and economic growth.

Rio+20 While not immediately tied to the current global economic crisis, the Rio+20 summit in Brazil is clearly a major background policy machine. Even though green activists have called the 20th anniversary of the 1992 Rio sustainable-development event a pathetic failure, the summit still produced a 282-clause draft declaration that is chock-a-block with growth-killing themes and ideas. The language is fuzzy and the commitments vague to non-existent, but the document - The Future We Want - is filled with proposals that would hamper economic development, even if only partially implemented. The basic Rio theme remains: Slow growth in the developed world and try to raise growth elsewhere.

Trans-Pacific Partnership agreement Canada and Mexico were brought into the TPP fold this week, subject to certain technicalities. The TPP project is called a free trade agreement, and maybe it will be some day. In the meantime, the Trans-Pacific remains a great exercise in strategic protectionism, with all countries - especially Canada and the United States - holding out for key sectors. Canada has supply management. The U.S. has autos. Nothing will happen fast at the TPP, which still lacks the membership of Japan.

Global trade talks drag on for years because the free trade objectives are often overtaken by traditional mercantilism, the belief that the prime objective of trade is to boost exports and export-related jobs. So long as that belief holds sway around the world, future progress will be slow in coming. So will growth.