A9

GWYNNE DYER
WORLD AFFAIRS

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

Speaking on Friday, President George W. Bush assured Americans and the world that the medicine was working: the recent $700 billion rescue plan for Wall Street would restore order in the markets. "We are a prosperous nation with immense resources and a wide range of tools at our disposal," he said.

"We are using these tools aggressively."

Well, maybe, but the markets were not immediately convinced. By the end of Friday the markets were down by an average of 7 per cent from Tokyo to New York. Over the previous two weeks stocks on Wall Street had fallen by an average of 30 per cent, and they are almost 50 per cent down on this time last year. A lot of this has been driven by blind panic and herd psychology, of course, but there is certainly a case for saying that not enough is being done, especially in the United States, which is the origin and heart of the crisis.

One striking measure of the shortfall in the United States was the size of the rescue package for British banks that was announced in London on Wednesday. There are only one-fifth as many people in Britain as in the United States, and the British economy is about one-fifth the size of the American. British banks are probably holding proportionately less bad debt than American banks, and certainly not more. But the British rescue package was £500 billion ($875 billion), which is substantially bigger than the Bush administration's.

It is entirely possible that the White House, concerned to downplay the scale of the crisis in the midst of an election campaign, is not frightened enough.

Consider what John Maynard Keynes wrote in 1931, two years after the Wall Street crash and some distance into the Great Depression that ensued: "The present signs suggest that the bankers of the world are bent on suicide. At every stage they have been unwilling to adopt a sufficiently drastic remedy. And by now matters have been allowed to go so far that it has become extraordinarily difficult to find any way out."

This time around at least the governments are willing to get directly involved in saving the banks and other financial institutions from paying the full cost of their folly, which is why 99 out of 100 observers will tell you that there will not be another Depression.

They are probably right, but there is a depressingly similar pattern of too little, too late in the actions of governments in the face of this crisis. The rescue packages that are on the table now would have fixed most of the problem if they had been available three months ago. The packages that will probably be on the table in two weeks' time would save the situation now.

But politicians are just as scared of the voters as the bankers were of their shareholders, and so they do nothing big or radical until the last possible moment.

There are still lots of reasons to believe that no replay of the Great Depression is in the offing. Not only are governments now willing to save failing banks, but they do understand (thanks mainly to Keynes) that balancing the budget and cutting spending are the worst things to do when tax revenues start to fall. Running up enormous deficits when the economy is growing, as the Bush administration did, is fiscal lunacy, but deficit spending is the best cure for a shrinking economy.

Delay has a very high price at the moment.

If the current hesitancy in the United States persists, we may well end up with a Great Recession, worse than anything since the 1970s. Not 25 per cent of the population out of work for most of a decade (as it was in the 1930s in the United States, where the pain was worst), but quite possibly 10-per-cent unemployment for two or three years. Not an attractive prospect.

Gwynne Dyer is a London-based independent journalist. His column appears each Wednesday.