Dr R Balashankar
The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It, Peter Temin and David Vines, Princeton University Press, Pp 315 (HB) , $ 29.95
NEW and newer perspective and analysis continue to come out on the economic depression being witnessed in the West. The Leaderless Economy : Why the World Economic System Fell Apart and How to Fix It is an attempt by two professors Peter Temin and David Vines to simplify and unravel the economic scenario. They have drawn parallels between the Great Depression triggered by Britain and the current crisis by the US. The lack of leadership, they say, is the biggest reason. “A hegemonic country has the power to help countries cooperate with one another for the maintenance and, when needed, the restoration of prosperity. When no country can or will act as hegemon, a world crisis erupts.” The Great Depression was the loss of hegemonic powers of the British Empire, and the failure of the United States to pick up the mantle.
The authors point out that the high unemployment rate now prevailing in the West is a dangerous sign. The actual rate of unemployment is much higher than perceived, they say, since most workers seeking work actively get disappointed and stop looking for work as recession drags on and on. “They will disappear from the lists of unemployed, but not into work.” Inevitably the discussion leads to the European Union, the much divided body. The economic depression has affected different European countries differently, thereby blocking a uniform policy and bailout. For instance, the EU has 27 member countries, but the European Monetary Union has only 17, clearly indicating that not all are on board.
America, the greatest military power and as on today the largest economy is fast losing sheen. It is yielding the space increasingly to China and is no more the leader of the world. At the same time, the China economy has not grown so big that it can step into the No 1 slot. This vacuum in leadership has led to the lingering of the crisis, say Temin and Vines citing the similar circumstances of the Great Depression.
The authors analyse the great economist John Maynard Keynes’ deep and extant study of the Great Depression and draw repeated comparisons. They also go through history with a comparative study on what happened then and now. Placing immense emphasis on restoring international balance (in trade and economy) they point out as to how the East is overtaking the West. But there is no explanation on why catastrophe did not strike the world when this balance was tilted in favour of the West! “The exchange rate set by Chinese policymakers has an influence on employment in the United States. A more depreciated value for the renminbi causes the United States to export less and import more, and so tends to reduce US employment… This asymmetric relationship makes the world economy difficult to understand.” The truth is world economy never was symmetrical. Only the see-saw has now tilted firmly in favour of the East.
Peter Temin is the Elisha Gray II Professor Emeritus of Economics at the Massachusetts Institute of Technology and David Vines is Prfessor of Economics at the University of Oxford.
(Princeton University Press, 41, William Street, Princeton, New Jersey 08540)