No brave new world, yet

Depite all the talk of a new Bretton Woods, there is remarkably little reporting of the outcome of  this weekend's Washington summit in this morning’s press.  But then it was never likely that the Washington summit would make real progress towards addressing the underlying causes of the economic crisis.  There is little in the final communique to suggest that any real lessons have been learned.  Nobody is questioning the fundamental nature of the global economic arrangements that have brought us to this point, nor is anyone prepared to admit that the system of global finance, which is supposed to support the real economy, has morphed into monster that routinely undermines it.

There is a simple reason for this depressing lack of action:  Despite a string of bank failures, mounting unemployment, and general acceptance that the forthcoming recession will be long and deep, too few people in the countries that matter have yet to feel sufficient pain to force politicians into the kind of common-interest negotiating position that inspired the post-war economic consensus.

In 1944, the world was desperate for a new beginning after almost three decades of continuous turmoil.  Europe had barely begun to recover from the Great War when the Wall Street crash heralded a depression which saw unemployment reach 25 per cent in the United States - four times current levels - with Britain not far behind.   The outcome of World War II was still in the balance as representatives of the allied powers gathered at Bretton Woods.

The extent of the misery in the decades preceding that meeting bears no comparison to the situation today.  Despite the gravity of the current crisis, there is no palpable sense of fear for the future among ordinary people.  Indeed, compared with the reaction to the 9/11 attacks, there seems to be a remarkable degree of equanimity.

The agreement at Bretton Woods was motivated by a collective desire to avoid a repeat of the conditions that led to economic meltdown in the 1930s.  Although the Americans dictated terms to such an extent that US policy would ultimately bring about its collapse in 1971, it survived nearly three decades because, having been through so much, people were determined that their children should inherit a world free of war and poverty.  And because politicians had the vision and confidence to deliver economic and political conditions in which such a world could be created.

No such vision or determination exists today.  Most of the measures currently on the table are aimed at returning the economy to the supposedly rude health of the last decade.  Politicians are unable to accept that the current crisis is the direct and inevitable result of the way they chose the run the economy.  Until very recently, their hands-off approach was regarded as unprecedentedly successful.  They can only possibly perceive the current crisis to be a little local difficulty; to do otherwise would call into question the very assumptions and beliefs upon which they have built their careers.

With unmitigated hubris, most leaders still believe they can fix a machine they themselves broke in the first place with more of the same.  If they can just get people spending again, if the banks can be persuaded to start lending to each other, and to consumers, things will return to normal.  And as long as the pain of recession does not engulf entire populations like it did in the 1930s, they will probably pull it off, until next time.

As Clive Crook writes in this morning's FT, "Expectations will have a second chance to get out of hand in April. Another meeting has been called for then."  Things will have to get a great deal worse if politicians are to be persuaded to use that opportunity seriously to revisit the economic drawing board.  They have proved this weekend that they are certainly not yet ready to lay the foundations for the kind of brave new world that emerged from Bretton Woods in the summer of 1944.