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Back to the future

GB Geo-Blog

Back to the future

Nostalgia is the refuge of people with no imagination, of people who can no longer move forward with their lives. They yearn for the “good old days”, which for many such people ended in high school.

Why dwell on nostalgia? Because recently there have been suggestions to go back to a gold standard, to re-create the Bretton Woods system of fixed/managed exchange rates, and even to replicate the success of the Plaza Accord. And of course, there are the regular recommendations of ardent monetarists to adopt Milton Friedman’s rule for the growth of the money supply.

Perhaps, we should add to this list going back to the “joys” of carbon copies, or black and white television sets, or regulated monopolies like “Ma Bell”, or the model T. Why not abolish central banks altogether and return to the “stability and prosperity” of the pre-central bank era? Indeed, why not yearn for a return to the Middle Ages – sorry, there already are a large number of fundamentalist and ultra-orthodox groups that do.

There were very good reasons the gold standard was abandoned and why Bretton Woods collapsed. There also are good reasons why the Federal Reserve has never adopted Friedman’s rule. As for the Plaza Accord, it had some success, albeit limited, because only a handful of countries were involved, technology was simpler then and traders (i.e. gamblers) were not ubiquitous. Today the traders would overwhelm any such Accord, assuming one could even be negotiated.

Globalization and technology continue to march forward. The world continuously changes. If policies did not work in the past, they are much less likely to work now. And policies, that may be appropriate in today’s environment, may have a very short shelf life.

If Ben Bernanke had let the actions of his predecessors at the Fed influence what he should have done in 2008, much of the global economy would still be mired today in a very deep recession. He learned from the past, but he had the foresight and courage to innovate – to do things differently. By the way, this is a major problem that befalls many corporations. They get stuck in a rut and try to emulate their past success, not recognizing that the environment has changed.

Only in exceptional circumstances, such as the financial market meltdown in 2008, is it likely that governments, individually and collectively, are capable of leading the way. More likely they cannot agree on any common ground, and few politicians are willing to lead and be creative. Unilateral actions are the best we can expect despite the proliferation of many and more inclusive multilateral organizations (the G7 to the G8 to the G20 for example). Unfortunately, most leaders seem to be trapped in a time warp and are becoming increasingly nostalgic.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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