People act to achieve specific results, or avoid undesired outcomes. If your job is one of the seventy five thousands lost this year, you want to act. If you are a few years away from retirement and saw 45% of your life’s savings evaporate in a few months, then you should act. If the only savings you have after thirty or forty years of hard work is the equity in your home, and this equity plunged along with the prices of the uncared for houses waiting to be foreclosed in your neighborhood, you need to act. If your kid on his or her third or forth tour of duty, while his or her spouse can’t make ends meet, you must act. If you graduated college recently and your best options are flipping burgers, and moving back with your parents until the job market stop bleeding, you will act.
I have no doubt that Americans will act. It is most likely that consumers spending habits will change for the forcible future. It is also possible that the suffering, anger, and sense of betrayal will translate into votes in the upcoming election. These votes have the potential to transform the texture of the executive and legislative branches of our government, and possibly open the doors for a fundamental change in the make-up of the judicial branch.
While the immediate impact of this crisis like all powerful earthquakes is easy to predict, the after shocks of the economic turmoil are the ones difficult to forecast, and most likely will linger with us for many years to come. This crisis proved that a large GDP is as susceptible to weakness as any other; it demonstrated that the breadth of the American economy is the result of a vibrant and continuous flow of capital, and resources between many markets. After all, who would have thought that a mortgage in Wichita, Kansas, or Plain, Georgia, would bankrupt the government of Iceland, shut down the Russian stock market, and give the Hang Sang index a 65% haircut?
The engines sustaining the American economy as well as all others are the Chinese goods shipped every minute to consumers worldwide; the jobs sent everyday from the west to the east and the south, and the people packing and leaving their homelands chasing a dream. This integration that took place over the last twenty years is impossible to undo, and it is the new world order. So the question becomes how to deal with this new order?
The ongoing efforts to resolve the pressing credit crisis provide a glimpse of what to expect. The recent coordinated interest rate cuts across five continents, the G7 meetings in Washington, followed by the EU meetings in Paris, and the subsequent announced plan designed in London, and executed in all major capitals are just a few of the signs of the emerging reality. In addition, the fact that the plan is calling for the governments to inject cash in private banks is another momentous new reality.
While nationalism and extreme capitalism were the pillars of the world conceived after the Second World War, the early signs of the new reality delivered by this financial crisis indicate the urgent need for extensive international cooperation and active regulation. It is a multilateral universe where the unlimited control of national governments will subside, and the national interest will have to be redefined in light of global interests. It is a world where global institutions will succeed, or fail by, and for its member states. The same concept of cooperation will apply to defense, war on terror, energy, scientific research and all other fields that impact the daily lives and the future of our children.
Regrettably, this radical change comes to America on the eve of one of the most unilateral periods in our history. A period of time when mocking the UN, the World Bank, and the IMF among others became a sign of patriotism and strength.
The world needs America as much as America needs the world. The governments that will survive this transition and provide better opportunities to their citizens will be the ones willing to accept reasonable trade offs that will help achieve realistic goals.
Our future administration has to learn and apply the lessons of this economic crisis, while working hard to educate all of us on the value of international cooperation. Will the dissatisfaction of the American electorate bring about a government that is capable of understanding the job at hand and addressing the complexity of the new world order?
This remains to be seen.