The Helplessness of Economists and Decision Makers

The interdependence among countries was one of the key reasons for the expansion of the crisis from the United States to the international economy in 2008. Now, as in 2008, every country is affected by the crisis. The complex links among countries and corporations require integrated moves among countries, as well as mutual consideration and genuine willingness to support faltering economies. It seems that the message, “we’re all in the same boat” has indeed sunk in. Yet, attempts to resolve the crisis through monetary or financial stimuli have failed bitterly in both the U.S. and Europe.

The world’s inability to deal with the roots of the global crisis since 2008 perplexes our economists and decision-makers. They ponder how to conduct trade and use the vast financial system in a world turned global and integral, as well as how to manage countries’ desire to maximize their profits separately, using economic reciprocity. The gap between the mandatory reciprocity imposed by the interdependence among countries in the global-integral world, and the current nature of the international economic system—based on narrow and self-centered approaches—is now recognized by the international economic community as a crisis.

Nouriel Roubini, Professor of Economics at New York University and one of the few who predicted the global credit crisis back in 2004, stated in the summer of 2011 regarding the escalating global crisis, “Karl Marx had it right. At some point, capitalism can self-destroy itself.” [8] Likewise, Nobel Prize winner Joseph Stiglitz, stated, “In a way, not only is there a crisis in our economy, there ought to be a crisis in economics.” [9]

Also, in September 13, 2011, Mohamed A. El-Erian, CEO and co-founder of PIMCO, the largest investment firm and bond fund in the world, stated in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt, “We’re getting close to a full-blown banking crisis in Europe. ... We are in a synchronized global slowdown. There’s very little confidence in economic policy making both in Europe and the U.S...” [10]

On a different occasion, Mr. El-Erian, “Gave four reasons constraining an improvement in the global economy. Oil prices ... are too elevated, housing markets haven’t sufficiently stabilized, Europe hasn’t solved its debt crisis, and world leaders are concerned that U.S. politicians are ‘arguing too much.’ Different sections of the orchestra are playing a different tune and it sounds confusing.” [11]

These statements and others by leading economists and financiers demonstrate how countries’ aspirations to maximize their profits have led them to interdependence. At the same time, these statements testify to their bewilderment and inability to cope with the global economic reality.

[8] Nouriel Roubini Blog, http://nourielroubiniblog.blogspot.com/2011/10/karl-marx-had-it-right.html (originally said in a video recording to the WSJ: http://online.wsj.com/video/roubini-warns-of-global-recession-risk/C036B113-6D5F-4524-A5AF-DF2F3E2F8735.html)

[9] “Short films from the 2011 Lindau Nobel Laureate Meeting in Economic Sciences,” The New Palgrave Dictionary of Economics Online, http://www.dictionaryofeconomics.com/resources/news_lindau_meeting (the above-mentioned statement is in Stiglitz’s video after 10:05 minutes.

[10] John Detrixhe and Tom Keene, “Europe Close to Banking Crisis, El-Erian Says: Tom Keene,” Bloomberg (September 13, 2011), http://www.bloomberg.com/news/2011-09-13/europe-close-to-banking-crisis-el-erian.html

[11] Jason Kelly and Laura Marcinek, “Pimco’s El-Erian Says U.S. Unemployment Is ‘Stubbornly High,’” Business Week (May 2, 2011), http://www.businessweek.com/news/2011-05-02/pimco-s-el-erian-says-u-s-unemployment-is-stubbornly-high-.html