Avoid Hooverism on a global scale

AVOID HOOVERISM ON A GLOBAL SCALE…. The Financial Times reports on the latest developments at the G20 meeting in South Korea, where the general trend seems to be moving in a ridiculous direction.

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” [a joint statement from the finance ministers and central bank governors said]. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

These words were in marked contrast to the G20’s previous communique from late April, which called for fiscal support to “be maintained until the recovery is firmly driven by the private sector and becomes more entrenched”.

Paul Krugman was justifiably incensed by this, explaining, “It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.”

Right. The G20 was on the right track in April, and the shift in priorities seems painfully misguided, or as Krugman put it, “utter folly posing as wisdom.”

If there’s any consolation here, it’s that a) there are additional G20 meetings coming up, and the direction can yet move in a more productive direction; and b) other media accounts of this weekend’s gathering in South Korea aren’t quite as discouraging as the Financial Times‘ article.

The New York Timesreport suggested the bulk of the discussion focused on financial industry reform. On growth vs. consolidation, the NYT piece characterized the debate as ongoing, with participants hoping to strike a balance.

And while the joint statement talked of “accelerating the pace of consolidation” in some countries, it added that countries will also “expand domestic sources” of growth, “within their capacity.”

The Associated Press report added that Treasury Secretary Tim Geithner was a voice of sanity, specifically urging his counterparts, in a letter to each, not to sacrifice recovery for debt concerns. “The G-20’s strong policy response has played a pivotal role in restoring economic growth but concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” Geithner said. He added, “Fiscal reforms are necessary for growth, but they will not succeed unless we are able to strengthen confidence in the global recovery.”

The G20 will reconvene in Toronto in three weeks. President Obama is scheduled to attend.