A Time of Tests

LONDON – This is a tough time to be a decision-maker. We live in an era of low predictability. The world appears in constant flux. The challenges are immense. And most of all, there is, in many instances a clash between the correct short term politics and the correct long term policy.

On the economy, the climate debate and security, the immediate pressures pretty much run one way: increase the role of government in the economy; put the climate deal off to more congenial financial times; and get out of substantial military commitment to fighting global terrorism. Yet in each case the right long-term policy almost certainly points to the opposite course.

What is the way to bridge this gap between short and long term? To decide how to do that is to decide fundamentally what we believe in and what we want from our future. In deciding this, only the head can guide us in how to do it; but the heart must tell us what it is we truly believe in doing.

In the economy, the near universal conventional wisdom after the collapse of the banking system, was that the market had failed and the state had to step in. Old copies of John Kenneth Galbraith’s The Great Crash of 1929 and Keynesian tracts were dusted off and avidly re-read. And it is true: the market did fail and the state had to step in. The fiscal and monetary stimuli were important in themselves, but even more so because they indicated that the strength of government was going to be utilised to prevent contagion and further collapse.