When Economics Meets Politics

By THOMAS L. FRIEDMAN
NYT

Doha, Qatar

One of the few pleasant surprises of 2009 was that the world’s biggest economies were able to concentrate on healing themselves without any major wars or world-shaking political or geopolitical disruptions. What are the odds that 2010 will be so benign? I’d say quite low. No question, the world’s major economies badly need 2010 to be another quiet year politically and geopolitically, but that will require, at a minimum, that three major struggles — the banks vs. President Obama, China vs. Google & friends, and the world vs. Iran — can be defused with win-win compromises rather than win-lose confrontations.

Let’s look at all three. Banks are like the heart that pumps blood — credit — to our country’s corporate muscles. If that heart is malfunctioning, any recovery will be anemic. But heart surgery is a very complex thing. You wouldn’t want yours done by a plumber or a politician. After all, a year ago there was a great clamor to nationalize some major banks; that would not have been a good idea. Moreover, our financial crisis was the result of a broad national breakdown in ethics — from borrowers to lenders to rating agencies to lawmakers. Don’t think for a second that bank reform alone is a cure-all.

We need a new banking regulatory regime that reduces recklessness without reducing risk-taking, which is the key to capitalism. It’s complicated. If the leading banks had any brains, they would take the initiative and offer their own ideas. Surely, they can’t argue everything is just fine given the number of bank failures. Let the administration and other leading central banks also offer their ideas, and then let’s try to forge something smart.

(More here.)