The veteran global investor Mohamed El-Erian, who runs Pacific Investment Management Co. Llc and has lived through many a financial crisis, recently issued a report describing the new, perilous state of today's global economy. He described it like this: “The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tyre.”
Thomas L. Friedman is a New York Times columnist
I like that image. The US used its spare tyre to prevent a collapse of the banking system and to stimulate the economy after the subprime market crash. The European Union used its spare tyre on its own economic stimulus and then to prevent a run on European banks triggered by the meltdown in Greece.
This all better work, because we’re not only living in a world without any more spares but also in a world without distance. Nations are more tightly integrated than ever before. We’re driving bumper to bumper with every other major economy today, so misbehaviour or mistakes anywhere can cause a global pile-up.
And that leads to the real point of this column: In this kind of world, leadership at every level of government and business matters more than ever. We have no margin of error any more, no time for politics as usual or suboptimal legislation. But what does that mean, “leadership”?
When El-Erian says we have no spare, he means we have a much diminished pool of resources, whether to moderate the impact of markets when they go haywire or to fund better healthcare, schools and infrastructure for growth. So leadership today is all about taking innovative actions that generate new capabilities and resources—and being smart and disciplined about every dime we spend and invest.
We just emptied our treasury for a bailout. Did it merely provide a needed short-term jolt to the economy, or will it end up making us much fitter and more competitive so we can drive our economy farther and faster? I am still not sure. We just passed a healthcare Bill. Will that increase our leverage and resources as a society or just add another set of liabilities that will require new credit lines from China? I am still not sure. We’re passing a new financial regulation Bill. Are we just pretending to solve the problem or will this new law add to our capacity to generate the resources to cushion the next crisis and fund the next start-up? I am still not sure. A lot will depend on the execution.
Similarly, in mother nature we are also losing our margins for error. The National Oceanic and Atmospheric Administration said on Monday that the planet's average temperature for April was 58.1 degrees Fahrenheit, the hottest for any April on record. The more we keep pumping greenhouse gases into the atmosphere, the more we expose ourselves to a sudden, unpredictable climate disruption. The more we blithely remain addicted to oil, and not face up to all its negative geopolitical and environmental consequences, the more we invite sudden catastrophes such as the Gulf spill.
I think many Americans understand this at some intuitive level. In this economic climate, people know they need to be smarter, more frugal and make tougher choices in their private lives. They know they can’t fake it or fool themselves any more, so they have much less tolerance for politicians who want to do that in our public life.
And I don't think they are alone. I was in the UK for the recent election there, and I was struck at how easily they put together a rare coalition government, bringing together Conservatives and Liberal Democrats, to generate the broad political base needed to make the sacrifices and hard choices they can't avoid. German lawmakers on Friday voted to fund the Greek bailout. Greeks are protesting the austerity being imposed on them, but they are also taking their fiscal medicine—for now.
Writing about the recent US elections, the Politics Daily columnist Walter Shapiro noted: “The hopeful message buried in all these election returns is that voters are tired of being toyed with. The problems afflicting America are too grave to tolerate the cynical, cling-to-power-at-all-costs cynicism of Arlen Specter and other Capitol Hill Machiavellis. The choices voters make in their desperate quest for authenticity are not always wise or well grounded in reality. But politicians and pundits—obsessively calculating partisan advantage like Scrooge counted shillings—will ignore at their own peril the stirrings of idealism among voters in both parties.”
I really hope he is right. Winston Churchill famously observed, “You can always trust the Americans. In the end, they will do the right thing, after they have eliminated all the other possibilities.” Is that still true for our generation? We’re going to find out. The time for bluffing ourselves is over. Are we going to do what it takes to fix our country, or are we going to be remembered as the generation that received more poker chips from their parents than any other and then had to turn around and toss a single chip to their kids and tell them to put it on “Lucky 21”—and hope for the best.