The global economy as illustrated by Gibbet Hill Road: Coordinating our way towards economic recovery
Imagine if you will Gibbet Hill Road, the university’s stately entrance, and how it might look if no government rules existed to coordinate its use. Which side should drivers use, left or right? How fast should one drive? How should pedestrians cross safely? Clearly, coordination of the rules at work is necessary. Otherwise the ride to and from the university would be chaos.
Gibbet Hill Road provides us with a metaphor of the conditions facing so many nations as they contemplate how to steer the best course toward economic recovery. Is it best to steer toward the left or right? How fast should we reduce government spending? What is the best way to make markets successful and economies productive, while not producing a wild ride of ups and downs?
The fraught situation cries out for policy coordination, a matter that often has been overlooked. As recent events in Greece so painfully illustrate, the problems there are not Greece’s alone. They are problems for us all. Indeed, only a few weeks ago, EU leaders met and moved toward ways to strengthen budget disciplines and economic policy coordination among the 27 member states to contain a euro zone debt crisis. A levy on banks blamed for the current economic crises requires, furthermore, a coordinated approach for this to lead to the desired effect.
These are global crises, and they demand the coordination of economic policy across the globe. The best economic minds debate how nations can effectively balance the twin needs to reduce government debt without harming economic recovery. But in times such as these, in which a Lehman Brothers bankruptcy can send repercussions around the globe, the importance of having a coordinated policy cannot be overstated. The policies that can best help individual nations will be the ones that stem from the coordinated efforts of many nations.
Coordination in the arena of financial regulation has been discussed, but many other avenues ought to be a more prominent part of the world conversation. A variety of environmental problems now affects our entire world. As globalization continues and the earth's natural processes transform local problems into international issues, few societies are being left untouched by major environmental problems. Some of the largest problems now affecting the world include global warming, water pollution and rain forest destruction. It is true that these conversations are contentious, bringing up matters where the sovereignty of a nation and the interdependence of many nations are potentially on a collision course.
Again, Gibbet Hill Road comes to mind. Traffic coordination has resulted in a university entrance in which drivers stay to the left, speed limits are set and pedestrians use a lighted crosswalk. Despite these measures, there are times when the traffic is, far from ideal, crawling along at a maddeningly slow pace.
All of which suggests that coordination does not solve all of what ails us on Gibbet Hill Road, or in the worldwide economy. In light of how the traffic would look absent these rules, however, it does suggest that coordination is a necessary foundation.
Abhinay Muthoo is director of the Economic Research Institute and chair of the Department of Economics.