If Our Economy is More Global, Does That Change Our Strategies?

Editor’s Note: Paul recently answered “Five Good Questions” on the economy for the PBS Engage blog. You will also be able to find those answers here on the Business Desk all week.

Question/Comment: How does our economy being more globally interconnected today alter the effectiveness of strategies we used in the 1930s? – Babs

Paul Solman: A very good question, which reveals what we DO know and what we DON’T.

DO know: we’re globally interconnected as never before.

DON’T know: what that implies for recovery, or further worsening.

Now that I’ve started with one dichotomy, let me try another: the bright side of connectedness v. the dark side.

Bright side: We can coordinate global strategy. The Fed has been providing billions of dollars to foreign central banks, for example, so their currencies won’t collapse. The World Trade Organization can try to parry protectionist thrusts that would further cripple the global economy. The IMF can bail out marginal economies on the cusp of utter collapse.

Dark side: Any economy is a venture in confidence – in the belief that the wealth you entrust to others is being put wisely to work. The larger that economy, the more complex. The larger that economy, the more opaque.

An interconnected world is a larger and perhaps less diversified world. As I never tire of pointing out, credit comes from the Latin “credere”: to believe. When the whole world’s drinking the Kool-aid, things go swimmingly (though, of course, there are always plenty who sink). When the world suddenly thinks Jim Jones stirred the drink, we say “no thanks” and the downward eddy begins. What, then, is to stop it from becoming a worldwide whirlpool?

You might consult “bright side” above at this point and say: coordinated government intervention. But as my dear friend, the esteemed PBS executive producer Zvi Dor-Ner pointed out when I shared this answer with him, in a larger world, you need larger interventions. And they may not be feasible at the level decisions are made: nationally.