The Joys of Global Gridlock

The G-20 Summit in London on April 2 will feature politicians from around the world jockeying to promote bad ideas. Thankfully, there is a silver lining to this dark cloud since the United States and Europe do not agree on which bad idea deserves the most prominence. As the Wall Street Journal explains, the United States wants more nations to squander money of Keynesian‐​style schemes (see here to understand why bigger government is not stimulus). The Europeans, meanwhile, want to persecute tax havens and give the Keystone Cops at the IMF more money:

The U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation. In President Barack Obama’s first foray into economic diplomacy, Washington will urge the shift at a summit next month in London, U.S. officials say, as markets look for a unified plan of action from the world’s most economically powerful nations. Washington’s focus is at odds with France, Germany and other European nations that want the Group of 20 summit on April 2 to focus on rewriting rules governing financial markets. … U.S. officials, who could receive support from China and other countries with big stimulus programs, contend additional government spending is needed to reduce the depth and length of the downturn. Britain also may have an easier time seeing eye‐​to‐​eye with the U.S. than other European countries because both London and Washington are concerned that tighter financial regulation could harm their financial centers. Administration officials also say the G-20 isn’t ready to put new regulations in place, so focusing in that area would be counterproductive. … Even if the U.S. gets its way, the G-20 won’t ignore financial regulation. The G-20 has approved the concept of regulating the world’s largest financial institutions through international “colleges” of regulators.

The International Herald Tribune has more details on the misguided European proposals. At no point, though, is there any explanation of why the global economy would benefit from a bigger and more powerful IMF. The IMF certainly did not correctly predict the current financial turmoil. Nor has the IMF either correctly identified the government policy mistakes that caused the crisis or proposed policies that would help resuscitate the global economy. So why reward the bureaucrats with more money and power? The attack against tax havens is even more dubious. Desperate politicians like Gordon Brown are seeking scapegoats to distract voters, but it is unclear why tax havens should be blamed for asset bubbles caused by weak monetary policy and housing subsidies in “onshore” nations:

European finance ministers intend to push for a doubling of resources for the International Monetary fund to $500 billion, and to back the use of sweeping new sanctions against tax havens, according to a draft document. Confronted by a deepening global economic crisis, the top financial officials in the 27 European Union member countries are expected to agree in principle Tuesday to provide additional temporary funding for the IMF if necessary, and to support significant tightening of financial regulation. At a meeting in Brussels, the EU finance ministers are due to endorse a draft document, already approved by senior officials from national capitals, that will align the positions of European governments before the meeting of the heads of the Group of 20 developing and emerging economies in London next month. “It is essential,” the document says, “that the IMF has the appropriate financial means to assist countries particularly affected by the current crisis. EU member states support a doubling of IMF resources and are ready to contribute to a temporary increase if needed.” … The draft document…calls for the definition of a set of criteria by which to judge those that do not comply with international standards. “A tool box of sanctions” would be used to deal with such tax havens, the draft adds. These would include “the capacity to prohibit sales of financial products generated in these jurisdictions and the capacity to restrict companies’ operations into and from these jurisdictions.”

Gridlock generally is a good thing in Washington. If Republicans and Democrats are fighting, it slows the pace of legislation – which almost always protects liberty and prosperity. On the international level, where politicians scheme to set up cartels for the benefit of governments, gridlock is even more desirable.