The leaders of the world’s leading economies convened at Camp David this weekend—only they didn’t. The Chinese, Brazilian, and Indian heads of state couldn’t find their names on the guest list. Russia’s Vladimir Putin sent his regrets.
The G8 isn’t what it used to be. Though the Group of Six has added two members (Canada and Russia) since its 1975 founding, its share of the world’s economic pie has diminished. What were the wealthiest countries are now just the snobbiest.
All aristocracies eventually evolve into cliques. The best act like the worst, maintaining status not by achievement but by exclusion. Who, really, still regards Italy—with its negative “growth” rate and debt eclipsing its GDP—as a global economic powerhouse?
The world has changed. The G8 hasn’t changed with it.
The sclerosis is especially grotesque in the group’s pervading economic philosophy of stimulus spending to jumpstart activity, deficit financing to bankroll the stimulus splurge, and putting printing presses on overdrive to alleviate the ensuing debt burden.
The 20th century economic superpowers holding onto 20th century economic delusions caused the European mess. The cause of the crisis is strangely touted as the cure to it.
France, the founder of the G8, pushes the ideology that has pushed it down. Taxes absorb almost half of France’s gross domestic product. That still isn’t enough to fund the government, which engorges on more than half of the country’s GDP. The European Commission foresees this year’s growth at a half percentage point.The socialist president of France, Francois Hollande, calls these policies “austerity”—the gall of the Gauls.
He has an ally across the Atlantic. Barack Obama, president of the United States and, at least for the weekend, of the G8, spoke the French line near the Mason-Dixon Line in Thurmont, Maryland (perhaps the least Parisian enclave in the lower 48). He wants to save the European economy the same way he “saved” the American economy: tax, spend, borrow, and print.
Two years after Recovery Summer, a recalcitrant German President Angela Merkel still rejects Obama’s way as the way. Weary of bailing out the deadbeats—Ireland, Portugal, Greece, etc.—of Europe, Merkel grasps that one man’s stimulant is another man’s depressant. Germany has been stuck with Europe’s bills. Staying in with the “in” crowd can be an expensive endeavor.
When you incentivize failure, expect more failure. That’s the European Union. It’s also the United States, where financial institutions, automotive companies, and other corporate entities have enjoyed federal funds only after they wasted their own funds.
The market punishes bad decisions. Governments reward them.
Socializing losses means that the Greeks, Portuguese, and Irish don’t learn from their mistakes. But Germans do. Paying for another’s errors buys a reluctance to continue the errors.
So the G8’s push for profligacy over restraint came more as peer pressure than as intellectual persuasion. Everybody else is doing it, so why don’t you?
As the New York Times reported Sunday of the Franco-American combination, “And even before they showed up at Camp David to gang up on Ms. Merkel, Mr. Hollande and Mr. Obama had forged a new alliance at a prearranged meeting at the White House to focus on growth,” i.e., government spending. When bullying fails, ostracizing begins.
But Germany’s Angela Merkel knows that being liked by the world’s cool kids requires doing a lot of stupid things. The price of popularity is sometimes one’s individuality. Germans spending money they don’t have will be good for Angela Merkel’s popularity within the G8 elite. It won’t be good for Germans.
Doing what’s right isn’t usually doing what’s cool. And being cool doesn’t amount to becoming successful. High-school heroes, like Old World powers, painfully discover this.
If your friends told you to jump off a bridge, would you do it? On this question, Germany wisely defies the clique.