Mark Twain once warned America that Congress was again in session, and no man's life or property was safe. Today we have widened the focus, and the warning that must be given is that the leaders of the free world are about to meet again in solemn conclave--well, in conclave anyway.
This time, it is to be amid the canals of Venice, where an agreement in 1980 that the world was in good hands presaged the arrival of double-digit inflation with double-digit unemployment in almost all the participating countries.
These economic dangers are with us again, if only on the distant horizon, and the summit is all too likely to bring them closer. Right now the markets really can't afford to have the leaders of the free world off their reservations doing harm.
One of the useful lessons that seemed to have been learned by the world's governments in the 1980s is that a nation-state cannot fine-tune its economy. Only one aspect of economic affairs is still considered a suitable victim of detailed government intervention and control: the international aspect.
In fact, the attempt to fine-tune "the world economy" has been disastrous from the word go. The effort began in Rambouillet, France, in 1976, when U.S., French, West German, British and Japanese officials met to solve the foreign trade and foreign exchange problem once and for all--and to their own satisfaction, of course, succeeded.
At the second meeting in 1977, President Jimmy Carter and then-Treasury Secretary W. Michael Blumenthal persuaded the reluctant Japanese and Germans to make their economies the "locomotives" of an economic recovery that had already, although the government didn't know it, occurred.
The government leaders of the Big Five (now Big Seven, including Italy and Canada) have met in an economic summit every single spring since, and we haven't had a really prosperous year in more than a decade.
While it's easy in economics to confuse correlations with causes, I, for one, have come to believe that governmental pressure for international "adjustment" is among the roots of our troubles.
Interestingly, Jean-Claude Paye, secretary-general of the Organization for Economic Cooperation and Development, seems to have reached a similar conclusion.
Releasing the results of a two-year study on Structural Adjustment and Economic Performance, Paye concluded that the world's economy grew twice as fast between 1950 and 1973 as it has since 1973.
That, he found, was mostly because in the first period governments were steadily relaxing their grip on their economies, while since the oil shock, all the governments have insisted that they must be price setters rather than price takers. And that can't work.
The world already has a device for coordinating economies, and it's called a market. Our "global market" is imperfect: It rewards nations with lax environmental laws, it puts wage rates in the rich countries under pressure and it lacks the supervising authority to standardize the weights and measures that have been the fundament of markets since the caravans visited the fair grounds of Europe in the Middle Ages.
But even these imperfect markets are good enough to do the one key thing the politicians never will do to each other--compel the recognition of mistakes.
For example, the combination of our fiscal deficit and our savings rate would yield a quite substantial inflation in this country in the absence of action by the Federal Reserve to absorb the inflow of foreign funds that balances our trade deficit.
Appreciation of Yen
That inflation would serve as a tack to reduce American consumption, and because the income elasticity of our demand for imports is so great, the reduction would show up most dramatically in our trade balance. It also would persuade Congress and/or the President that the deficit problem is something more than a political slogan.
The appreciation of the yen has not been permitted to play through to the Japanese consumer.
For instance, nearly two-thirds of Japanese electricity production is from oil, and the yen-denominated price of oil last year was about one-third of what it had been two years before. Japanese households and industries pay as much as they ever did for power, however, and the power companies are keeping the windfall.
Nobody who wanders through Japanese department stores, as I did in April, can fail to be impressed by how extraordinarily high the prices of American and European goods are, because the trading companies that import them are tied in with the companies that produce the competitive Japanese products, and they protect their friends.
I couldn't find a pair of American or European shoes for less than $250, but the perfectly satisfactory Japanese-made shoes I bought in a Japanese shoe store cost me only $70.
If the Japanese permitted foreigners to establish import distribution businesses in Japan and deal directly with retailers, the stimulus to Japanese consumption in general and consumption of imports in particular would be worth some multiple of the special program the government has put before the Diet (Parliament), to the applause of the Reagan Administration.
Though the price the market exacts in higher interest rates could be painful, the fact is that the United States needs inflation now, to reduce the burden of repaying the debt we have loaded onto our public and private sectors.
And Japan, where corporate debt is matched by financial assets and the average household has a substantial net position (that is, its liquid savings far exceed debts) need have no worry about deflation.
The only debt that would default in a modern Japanese deflation would be mortgages on property recently acquired at what were clearly speculative prices (roughly 100 times the land prices of a generation ago).
And there's nothing Japan needs more than a series of real estate bankruptcies to get the price of land to a level where people can build houses and corporations can use the land they own instead of holding it for "investment."
The point is that these things or things like them would happen if governments stopped trying to protect their economies from the consequences of political mistakes, and let the markets enforce the disciplines that are talked about but never achieved by the International Monetary Fund and the OECD and the finance ministers and the heads of state.
The leaders who go to the annual summit justify the immense expenditure of energy and time with the argument that these things "force decisions." But in fact, their purpose is to postpone or even frustrate the decisions that might otherwise happen in the market.
Economic summit meetings, like airplane hijackings, are staged mostly for the publicity. As former Undersecretary of State George W. Ball noted some years ago: "The one international distress signal recognized by politicians all over the world . . . is the cry of another politician in trouble."
We already have more than enough forums where such cries can be uttered, where political leaders can arrange to have their sense of self-importance puffed up still further.
Chairing the recent OECD meeting in Paris, West German Economics Minister Martin Bangemann said: "It is high noon for politicians. The international organizations are not at the center of public interest. We want to change that." God forbid.
After some years of bumbling about with comments about understanding the real roots of terrorism and the need for the powerless to make a statement, even the mushiest of our political analysts have come to the conclusion that airplane hijackings are a bad idea. Now we need a comparable consensus about summit meetings.