When the financial crisis hit in 2008, the world’s leaders and central bankers acted decisively. They saved the financial system, pumped liquidity into the markets, and used Keynesian policies to jump start economies on life support.
They were bold and imaginative and they probably saved the world from another Great Depression.
Now comes the hard part.
Throughout the developed world, leaders are in trouble. French president Nicolas Sarkozy has a high-30% approval rating and is far behind his principal opponent in next year’s election. President Barack Obama is also getting weak approval ratings, and many of his former supporters are deeply disappointed in him.
British prime minister David Cameron, whose Conservatives unseated the incumbent Labour Party last year (in a coalition with the Liberal Democrats), has been slipping as his austerity plan bites deep. Dysfunctional Japan has had six prime ministers in the last five years. Italian prime minister Silvio Berlusconi, whose country is at the epicenter of the European debt crisis, is an embarrassing buffoon.
Even Angela Merkel, chancellor of Germany—which has been a relative winner in the current crisis—is on a tight leash with a narrow majority in a divided Bundestag and an unenthusiastic electorate.
What’s going on?
We’ve gone from an acute illness to a chronic disease. Stubbornly high unemployment. A crushing debt load everywhere. Sluggish economic growth. Volatile markets that go up, down, and nowhere. Rising competition from China, India, and emerging economies
And governments have pursued one failed policy after another. Keynesianism has done some good, but it hasn’t gotten us out of the deep hole. Friedmanesque monetarism hasn’t worked, either. And if there’s one thing the 2000s taught us, it’s that free-floating tax cuts don’t spur growth or create jobs.
Voters are angry, restless, and divided. Here in the US, one party wants more government spending to boost the economy while the other wants to cut spending to spur growth. How can both be right?
It’s not a climate that encourages politicians to take risks. With every decision a damned-if-you-do, damned-if-you-don’t proposition, few have shown real leadership.
The Depression and World War II produced FDR and Churchill. Maybe this crisis has to become acute enough for great leaders like them to step forward. Let’s hope they’re there when we need them.