by afew
Tue Jun 19th, 2012 at 06:00:37 AM EST
Brad DeLong and Barry Eichengreen have written a preface to the new edition of Charles Kindleberger's The World in Depression, 1929-1939 (first edition 1973). After summarising Kindleberger's writing on panic and the speed of contagion, they reach a third point concerning hegemony. Kindleberger stated that the 1930s crisis was deepened and prolonged by the absence of a benevolent hegemon capable of stabilising the financial system: Britain was no longer able to take on that role, and the US not yet willing to do so.
EconoMonitor » New Preface to Charles Kindleberger, The World in Depression 1929-1939
...to our surprise, alarm and dismay, we find ourselves watching a rerun of Europe in 1931. Once more, panic and financial distress are widespread. And, once more, Europe lacks a hegemon – a dominant economic power capable of taking the interests of smaller powers and the operation of the larger international system into account by stabilising flows of finance and spending through the European economy. The ECB does not believe it has the authority: its mandate, the argument goes, requires it to mechanically pursue an inflation target – which it defines in practice as an inflation ceiling. It is not empowered, it argues, to act as a lender of the last resort to distressed financial markets, the indispensability of a lender of last resort in times of crisis being another powerful message of The World in Depression. The EU, a diverse collection of more than two dozen states, has found it difficult to reach a consensus on how to react. And even on those rare occasions where it does achieve something approaching a consensus, the wheels turn slowly, too slowly compared to the crisis, which turns very fast. The German federal government, the political incarnation of the single most consequential economic power in Europe, is one potential hegemon. It has room for countercyclical fiscal policy. It could encourage the European Central Bank to make more active use of monetary policy. It could fund a Marshall Plan for Greece and signal a willingness to assume joint responsibility, along with its EU partners, for some fraction of their collective debt. But Germany still thinks of itself as the steward [of] a small open economy. It repeats at every turn that it is beyond its capacity to stabilise the European system: “German taxpayers can only bear so much after all”.
It would more probably be argued here on ET that Germany's power as hegemon has been used in this crisis to heap coals of fire on the heads of debt-"sinners", while the advantages of the single currency for the hegemon have been obfuscated. But on to the final point:
DeLong and Eichengreen quote Kindleberger, looking forward from 1973, as seeing three negative developments to fear:
EconoMonitor » New Preface to Charles Kindleberger, The World in Depression 1929-1939
The negative outcomes were: “(a) the United States and the [EU] vying for leadership… (b) one unable to lead and the other unwilling, as in 1929 to 1933… (c) each retaining a veto… without seeking to secure positive programmes…”
As we write, the North Atlantic world appears to have fallen foul to his bad outcome (c), with extraordinary political dysfunction in the US preventing its government from acting as a benevolent hegemon, and the ruling mandarins of Europe, in Germany in particular, unwilling to step up and convince their voters that they must assume the task.
Kindleberger's conclusion: "In these circumstances, the third positive alternative of international institutions with real authority and sovereignty is pressing."
Right, wrong, half-right, half-wrong?
