Saturday, October 23, 2010

The Sad Lessons of History

Here's a bit from a post by Justin Fox on his Reuters blog:
Tim Geithner has proposed to his fellow G-20 finance ministers that trade surpluses and deficits be capped at 4% of GDP. ...

The sad irony in all this is that some other guy proposed limits on trade surpluses and deficits 66 years ago, and did it in a far more elegant and thought-through manner than Geithner has. And it was the U.S. that torpedoed the plan. ...
At this point Fox puts in a brief description of John Maynard Keynes' plan.
Brilliant, right? Not impossible-to-enforce targets, but a system with incentives built in that would have made big trade imbalances unattractive to both sides. There’s that little matter of creating a new global currency and getting everybody to accept it, but this was at the tail end of World War II. If the U.S. had decreed that the International Clearing Union was a go, the International Clearing Union would have been a go. But at the time, the U.S. ran big trade surpluses and assumed it would do so forever. Its delegates at the Bretton Woods meetings were vehemently opposed. So the idea went nowhere. Now Tim Geithner is pushing for clunky trade-surplus caps. It might be better if he just asked for a do-over.
That's the tragedy of history. The US was in a perfect position to put in place a world economic system that would have managed trade tensions. But it was an idea from a Brit. And the US lived under illusions that its trade surplus would last forever. So a chance at a world with a solid, safe future was thrown overboard.

Hmm... reminiscent of the plans to put nuclear weapons in the hands of an international organization, the UN, to prevent a nuclear arms race. But the US saw itself as the only holder of those weapons of mass destruction and believed it would take the Russians 15 years to develop a weapon, so they passed up the chance to divest the world of a terrible threat that would waste trillions of dollars over the following decades. Tragic.

History is filled with temporary "winners" who are convinced they are "God's chosen" and can never be displaced. They end up making mistakes like this. And we "little people" of the world are forced to live with the consequences. Sad.

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