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The System is Working

As the G-20 meeting of finance ministers starts in Cairns, Australia, the Legion of Gloom is at it again, claiming that the system of global governance structures ranging from the WTO and the G-20 to the major central banks is in desperate need of repair. In fact, the global economic order has worked remarkably well since 2008.

MEDFORD, MASSACHUSETTS – As the latest G-20 meeting of finance ministers starts in Cairns, Australia, the Legion of Gloom is at it again. Their conventional wisdom is that “the system” – global governance structures ranging from the World Trade Organization and the G-20 to the major central banks – is badly broken and in desperate need of repair. In fact, the global economic order has worked remarkably well since 2008.

True, the first year of the Great Recession was more severe than the first year of the Great Depression. But, despite this initial shock, the system responded in a surprisingly nimble fashion. Compared to previous global downturns triggered by a financial crisis, the global economy bounced back robustly. Trade and output levels exceeded pre-crisis levels in most countries a few years ago, and global poverty continues to decline rapidly.

One key to this rebound was that, in contrast to the 1930s, the global economy maintained existing conditions: trade barriers remained low, as did restrictions on foreign direct investment, and cross-border exchange continued to spread with the Internet.

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