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“The depression of 1929 was so wide, so deep and so long because the international economic system was unstable for British inability and the lack of will of the United States to assume the responsibility of stabilizing it.”
Such was the conclusion of the economic historian Charles Kindleberger about why the great depression became an international catastrophe. The world economy, he argued, needs a Hegemon: a leader willing to incur some cost and risk for the whole. “For the world economy to stabilize,” he wrote, “there must be a stabilizer, a stabilizer.”
For decades after World War II, the United States was that leader. From the Latin American debt crises of the 1980s to the 1997 Asian financial crisis and the great recession in 2008-09, Washington coordinated the answer and prospered in doing so.
However, the ability of the United States to act as Hegemon was already in decline due to China’s growth. After the United States made clear in Munich last week that no longer guarantees European security, who can now believe that the global economy?
China, on the other hand, does not show will to assume responsibility. Rather, it acts as a destabilizing force by creating domestic deflation that other countries must absorb. Without a single country or block large enough to dominate, or willing to lead, we are entering a new era of instability.
Without an economic hegemon in the 1930s, Kindleberger wrote, there was no one to provide three crucial functions: maintaining a relatively open market where in -danger countries could sell their goods; provide long -term loans to countries in problems; o Act as a global central bank and offer short -term credit against the guarantee in times of crisis. The result was protectionism, currency devaluations, disputes over war debts and contagious financial crises that swept from one center to another.
Even in good economic times, the United States is no longer willing to offer these services, or only at a price. Donald Trump’s love for tariffs is being institutionalized. His attitude towards long -term support loans is well executed by the curious suggestion that American help to Ukraine was actually an investment, and demands financial performance: a new war debt in creation.
Americans could replicate: why should we do this for the world? Reasonable enough, but if it is not the United States, who? And if the answer is ‘nobody’, then we return to the 1930s and we must prepare for the challenges of that time.
There are differences between the 1930s and today that provide at least greater stability to the system. Floating exchange rates, if operating, should compensate Trump’s rates. While the United States continues to consume more than it produces, then it will provide a market to the world.
The institutions of Bretton Woods, the World Bank and the IMF, still exist to provide long -term credit to the countries in problems, while the network of currency exchange lines focused on the United States Federal Reserve is a mechanism for Provide international liquidity in problems of problems. The great foreign exchange reserves accumulated by China and other Asian countries offer some insurance.
But none of this should offer too much comfort. The IMF fought to accommodate Greece, Ireland and Argentina; A crisis in a great economy would overwhelm its resources. In general, leadership takes us so that the IMF moves anyway, and for similar reasons it is difficult to imagine that Asian countries lend as a group in times of necessity. The American will to tolerate a strong dollar and provide liquidity is part of the current framework, but in the bad times they would surely be proven.
Kindleberger published his book in The world in depression In 1973 and ended it with some words about “relevance for the 1970s.” His concern was then for a dead point between a decrease in the United States and a ongoing European economic community, a fear that, 50 years later, it seems so picturesque that he is lovely. I expected “international institutions with real authority and sovereignty.” Today, that also seems picturesque.
The “relevance for the 2020” of Kindleberger’s book is greater and more gloomy. We have two competitors, United States and China. Both fantage themselves as hegemons; None are willing to accept paper responsibilities. The United States promises revenge to anyone who threatens the primacy of the dollar, even when their own shares question that primacy. China crosses its lack of status in the current economic system, even when it plays a main role in destabilization.
With luck, there will be no crisis on a scale that needs leadership and global coordination to resolve, but luck is always exhausted at the end. It makes sense to strengthen international institutions as much as possible. It also makes sense to execute sensible domestic policies and not end up depending on the kindness of strangers, a true true, such as the advice not to let their home fire.
“If leadership is considered as the provision of the Public Belief of Responsibility, instead of the exploitation of the followers or the private good of prestige, it is still a positive idea,” Kindleberger wrote. The United States, despite all their failures, provided that type of leadership. The world expects, with restlessness, the experience of an economic or financial crisis without it.