At first glance, the statement from the G-20 summit today in London seems an exercise in nostalgia. It looks back more than forward — back at what might have been if a series of mistakes had not been made.
Some good could come out of that, of course: regulatory reforms that might keep some of the recent financial disasters from recurring. The collapse of the financial system was put in motion in gaps that were allowed in financial system regulation and accounting rules, and the G-20 statement recognizes that those gaps are a problem. But the more important issues, about transparency, derivatives, and governance, were seemingly too controversial for the G-20 to take on.
As for working our way out of the recession, the initiatives the G-20 announced are much smaller than those already undertaken by the United States and will probably not have a detectable effect in rousing the world economy. It is large enough for the leaders involved to say they did something, but not so large that it would put any major government’s treasury in peril. This also means that it is not enough to turn the recession around, but it is perhaps enough to allow a more gentle, coordinated global collapse. It is left for someone else to figure out how to revive the world economy.
In truth, no one knows whether the most powerful national governments in the world will be able to do more than they are already doing. This is part of the reason the G-20 was able to reach agreement so quickly on this occasion. They were constrained by the situation they found themselves in. On many of the key issues they were considering, they did not have a wide range of options to consider.