At the Summit: Watching World Spin Out of Control : Economics: Lacking any coherent policy to tackle the recession, the G-7 leaders decide to pick on middle-class workers and their wages.

“The Seven Dwarfs Go Jurassic” is the theme of this summer’s G-7 Tokyo summit of the leaders of the world’s richest industrial countries. The dwarfs, of course, are the leaders themselves. Not since the 1930s have Western leaders been so unpopular at home and ineffective abroad.

This is company in which President Bill Clinton can stand tall--he is easily the biggest dwarf in the room. He is twice as popular as Britain’s feckless John Major, eight times as popular as Japan’s disgraced Kiichi Miyazawa; his budget is under better control than Germany’s under the inept Helmut Kohl and the problems of Clinton’s Democrats pale beside those of the governing parties of Italy and Japan, where most leaders are packing for jail.

So much for the dwarfs. The dinosaurs--the political and economic problems the summiteers must overcome--look far more fearsome. There are the velociraptors like Serbia and North Korea--vicious predators whose unpredictable violence can create hideous international crises overnight. There are dilophosaurs like Saddam Hussein--dangerous only in a limited way, but nasty, poisonous and damned hard to kill.

But the star of the show, the T-Rex of Tokyo, is the economic slowdown that is weakening the health of every major industrial democracy and threatens not only the political future of the Seven Dwarfs but international cooperation, world peace and, in many places, the future of democracy.

The message at Tokyo is simple: The dwarfs are whistling bravely, but the lizards rule the park. The world’s leaders have lost control of the forces reshaping the globe: Look for turmoil ahead. The seven dwarfs did their usual tricks. They passed another resolution against the vicious Serbs and the despicable Croats. “Bad Velociraptors! Bad! Bad! Put those Muslims down or you won’t get any dinner!” Amazingly, the velociraptors munched on.

They also made the usual hollow promises to Russia. G-7 meetings are becoming famous as places where heads of state promise Russian aid that never appears. According to Russian sources, more than 90% of the aid that the G-7 promises is either useless or doesn’t arrive. The old communist and nationalist dinosaurs continue to wander through the bleak lands of the former Soviet Union; four years after the fall of the Berlin Wall, the Western industrial democracies have still not developed a coherent common policy toward this suffering country and its 30,000 nuclear warheads.

The dwarfs also made another hollow promise: to finish up the Uruguay Round of trade talks. A hurried pre-summit meeting cobbled together a narrow agreement on some of the less important trade issues; the well-oiled PR machines of the seven leaders shamelessly hyped this as a “breakthrough.” The trade talks, dragging on since the extinction of the dinosaurs, will almost certainly not be completed on schedule--as usual.

Against T-Rex, against the international recession, they made even less progress. Not only did the dwarfs fail to agree on a joint plan to get the global economy moving; they recommitted themselves to the same bad policies that got them into trouble in the first place.

This was not Clinton’s fault. Indeed, Clinton’s economic proposals--for a group growth target of 3% a year, for a jobs summit and, in separate negotiations with Japan, for sweeping change in the U.S.-Japanese trade relationship--were the best things about the summit. These were the most sensible goals a U.S. President has ever brought to a G-7 meeting. But, as usual, the “allies” turned a deaf ear to American ideas about growth.

Worse still, it was clear from the response to the jobs summit--the one proposal everyone accepted--that neither the Europeans nor the Americans really grasped the jobs problem. All the talk was about “microeconomic solutions” to the unemployment problems of the Western nations. This is mostly economic jargon for something no politicians and few economists care to say. The Western leaders in Tokyo believe the root economic problem of their countries is basically this: Working people make too much money and have too much job security.

This is a crazy idea, as dumb as stocking a kiddie theme park with velociraptors--but it was the central economic idea at the summit. European leaders look at an EC unemployment rate of 10% and blame it on high wages, strong unions, unemployment insurance and similar factors. U.S. leaders look at 7% unemployment and reach some of the same conclusions: Real wages in the Untied States, down 20% since 1973, need to fall farther and faster to bring unemployment down.

This is political suicide. Most middle-class families--which is to say, most voters--do not think falling wages is an improvement over unemployment. The cure is as bad as the disease.

Low wages in the West is also a recipe for economic disaster. The political and economic elites have forgotten a basic truth: Middle-class workers are also middle-class consumers, and the money people earn as wages is the money they spend. If the Europeans, Americans and Japanese all lose income, they will buy fewer goods from each other. Stagnant or falling demand will slow the economy even more, resulting in more layoffs, more unemployment, lower wages--and, sooner or later, a rerun of the Depression.

As politicians, the G-7 leaders understand this--none better than Clinton. The trouble is that their economic advisers are living in the past. They are still worried about inflation, the monster that plagued the world economy 20 years ago. The new monsters--unemployment and recession--are far more dangerous and have to be fought with different tools.

Right now, the Clinton Administration stands between the two worlds. As a ‘90s politician, Clinton combines a program for international growth with populist rhetoric about increasing the U.S. standard of living. But the economic realities of the Clinton program--spending cuts, tax increases and a continuation of the George Bush trade policy--lead inexorably to the opposite: global recession and falling U.S. living standards.

Clinton is not the first U.S. President to face alternatives like this. Franklin D. Roosevelt was torn between his desire to balance the budget and his need to stimulate the economy. The hell with the deficit, he decided in the end--let’s get this country moving again. The result was an unprecedented four terms in the White House and a unique place in U.S. history. Maybe there is a lesson here for Clinton.

“Jurassic Park” and “Snow White” are very different movies, but they do have a common lesson for the world leaders returning from Tokyo: The little guys sometimes win--if they are smart. The velociraptors, dilophosaurs and T-Rex out there in the park look scary, but this movie could still have a happy ending. World leaders, however, are going to have to purge themselves of the blinkered thinking that got them into this mess--nothing can help you if you are little and dumb.