The world is now indisputably gripped in a severe economic downturn. In fact, based on the economic outlook, many economists would venture to compare the current predicament with the Great Depression of the 1930s. The world is definitely experiencing a very difficult time, and the crisis is deepening with the continued rise of unemployment rate in both the developed and developing countries. While economists are scrambling for fresh ideas to put a stop to the carnage, no one seems to have any clue as to how to end it.
Anyway, the comparison of the present crisis with the Great Depression might be too early, but the talk of protectionism would not be. The passing of the massive stimulus bill last month in the U.S. that included measures favoring American companies over foreign competitors is very reminiscent of the protectionist sentiment that existed during the Great Depression. By including such a clause in the bill, the U.S. would appear to have it both ways – the free market system when it suits them or protectionism when it doesn’t. The clear danger of such a policy is that it would only deepen the crisis that the world now faces.
Because of market globalization, the world economy is much more interlinked today than ever before. As the single largest economy, the U.S. could create genuine economic turmoil, which would affect every part of the world. It’s like a hurricane with 150 miles an hour winds that no one escapes unharmed. The current disaster that was triggered by ill-conceived subprime loans in the United States which rapidly spread to other industrialized countries is openly impacting the rest of the world currently with a vengeance.
There’s no end in sight. And every indication is there to point to the deceptive policies of the U.S. for leading to this mess that has afflicted the world. Capitalism was supposed to promote prosperity everywhere through competition and not consternation or retrenchment through deception. Could it be the beginning of the end of capitalist system that the U.S. has been practicing and want others to follow? No consensus yet - the debate has only just begun. For too long the U.S. has been ignoring the warning signs, and allowing the financial gurus of Wall Street to devise dishonest plans to attract the world’s resources to finance their lavish lifestyles as well as their unjustified and costly war in Iraq. But the actual price of such extravagance had to be paid sooner or later. As the cardinal rule of living within one’s means was ignored, it finally caught up, and caught up very vigorously.
The U.S. economy is now clearly in a shambles, and the unemployment rate is soaring, and more importantly its banking system, the very engine of capitalism, is on the brink of collapse. Here’s what a recent U.S. Federal Reserve study reveals: “the U.S. economy soured further in the first two months of this year. The deterioration was broad-based, with only a few sectors, such as basic food production and pharmaceuticals, appearing to escape the reduced demand affecting U.S. and global economies”. Some would be quick to point out that the United States got what it deserves because its political leaders, instead of regulating Wall Street’s fraudulent activities, gave the unscrupulous gurus a free hand.
And also look at the biggest scam that was pulled off by Bernie Madoff, the so-called chief guru of NASDAQ, in swindling $50 billion of people’s money! Millions have lost their life savings and retirement funds, and many charities have lost their cherished endowments through his scheme. The scale of his scam would make the other CEOs grabbing millions of dollars bonus money from their failed businesses a child’s play. However, the stern reality is that if the banking crisis in the United States has failed to convince everyone that Wall Street is populated by a bunch of greedy, arrogant and unethical crooks, then the Ponzi schemes of Madoff and others that continue to unfold should. It can thus be argued that the present crisis is a self-inflicted wound of the Unites States. But here’s the dilemma: paying for one’s own mistake is one thing, but making millions of innocent others suffer for that mistake is quite another.
Given their resources, the United States and other industrialized nations are apt to recover from the current economic downturn, probably in a year or so, though not without a price. But the hardship that this crisis would impose on the developing countries would be much more daunting. Consider the situation of developing countries which, by accepting the free market doctrine promoted by the United States, established many of their industries for export products. These industries are already seriously hurting. If they stand to lose more of their businesses as a result of protectionist policies in the U.S. and elsewhere, not only that their hope of achieving meaningful economic growth soon will be dashed, the crisis might even put these nations’ survival at risk. According to a recent report of World Bank published in the New York Times, “The world economy is on the brink of a rare global recession with world trade projected to fall this year for the first time since 1982 and capital flows to developing countries predicted to plunge 50 percent. The projections are among the most dire in a litany of recent gloomy forecasts for the world economy, and officials at the World Bank warned that if they proved accurate, the downturn could throw many developing countries into crisis and keep tens of millions of people in poverty”. The developing countries look at the U.S. for its leadership in the economic arena. If the U.S. promotes or supports protectionism, which hurts them economically, it will create resentment and cause it to lose whatever credibility it still has in the world. The U.S. must, therefore, practice what it preaches and take full responsibility for its own mistakes.
It must also right its own wrong by cleaning up its own house and by establishing a responsible financial system that the world could rightly follow and live with. Otherwise, the U.S. will cease to have any moral authority to preach others how to behave on social justice. Hopefully, the present Obama administration of the United States realizes this situation very well, including probably the disastrous impact of its adopted protectionist policy. It seems to be doing all it can to steer the country in the right direction, although the cloud of protectionism continues to remain. It has made a courageous budget proposal that includes, among others, plan for tax reduction for the middle class, universal health coverage, reduction of farm subsidies, and decrease of carbon emissions.
The administration certainly deserves everyone’s support, most importantly the support of the American people. Not so amazingly, the conservatives in the country are trying very hard to put up all kinds of roadblocks to impede the administration’s budget proposal. Their effort must be thwarted by all means. The present economic crisis was inevitably brought about by the failed policies of the past eight years of the United States. If Americans fail to thwart the conservatives’ effort now, the agony of this economic disaster will only linger for the Americans as well as for the rest of the world. The world is eagerly waiting to see how the U.S. would tackle this economic mess.