Atlantic Council: Will G-20 Counter-Power of Uncertainty?

Mirtchev, A. (2011, November 1). Will G-20 counter-power of uncertainty? Atlantic Council. 

atlanticIn 2009, G-20 leaders met in Pittsburgh and emerged with a mandate ‘to be the premier forum for international economic cooperation,’ endowing the G-20 with a leading economic role on the global stage. It appeared at the time that the leaders of the G-20 had successfully defeated pessimism. However, the rising tide of global economic turmoil and problems ranging from sovereign indebtedness to consumption and saving imbalances have created a ‘perfect storm’ that is far from abating. The question before the G-20 summit in Cannes this year is whether to just distribute life jackets or endeavor to overcome political differences and set forth a concrete, viable roadmap that genuinely addresses the range of outstanding global economic security risks. Such a roadmap could go a long way towards countering the uncertainty that has gripped the global economy. Although it is difficult to measure the economic effects of uncertainty, Professor Steven Davis at the University of Chicago Business School has created a ‘policy-related economic uncertainty index’ which underscores the fact that policy uncertainty exacerbates market volatility and has a negative impact on economic growth and the prospects for recovery. His data reveals that there were clear jumps in index values around the Lehman bankruptcy and TARP legislation, the Eurozone crisis and the U.S. debt-ceiling dispute. Looking ahead, Professor Davis’ estimates show that an increase in policy uncertainty foreshadows large and persistent declines in aggregate outcomes, with peak declines of 2.2 percent in real GDP, 13 percent in private investment and 2.5 million in aggregate employment. Given these projections, as G-20 leaders struggle to address a range of economic issues that threaten global recovery, they might consider that continued policy paralysis exacerbates uncertainty and undercuts market confidence. Adding to the general sense of economic anxiety is the feeling that policy makers continue to be misdiagnosing the underlying problem.