Don’t Count on Global Governance

CAMBRIDGE – Everybody agrees that the world economy is ill, but the diagnosis apparently depends on which corner of it you happen to inhabit.

In Washington, accusing fingers point to China, blaming its currency policy for causing large trade imbalances and “destroying jobs” in the United States. Go to Seoul or Brasilia, and you will hear complaints about the US Federal Reserve’s hyper-expansionary monetary policies, which are leaving emerging markets awash in hot money and raising the specter of asset bubbles. Ask in Berlin, and you will get an earful about the absence of fiscal probity and structural reforms elsewhere in Europe or in the US. 

The fault, dear Brutus, is neither in our stars nor in ourselves. Thanks to globalization, it lies in our trade partners!

Self-serving as it may seem, this viewpoint is not without some merit. As economies become intertwined, decisions taken in one part of the world reverberate in other parts, often producing unintended consequences.