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The World Knowledge Forum

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Last week I took part in a truly extraordinary three day conference in Seoul, the 2012 World Knowledge Forum.  In this blog I would like to share with you what I learned. 

For the past 13 years, the World Knowledge Forum (WKF), organized by Korea’s Maekyung Media Group, has brought together hundreds of thought leaders each year from around the world to discuss and debate the most important developments and trends affecting the global economy, and humanity more generally.  This year’s theme was “New Solutions for the Global Crisis: Leadership, Integrity, Creativity and Happiness”.  Speakers included half a dozen former heads of state, former US Secretary of State Condoleezza Rice, World Bank President Jim Yong Kim and a number of the world’s leading economists.   For a list of all the speakers and sessions please follow this link to the WKF 2012 homepage.

Rather than trying to describe the speeches and debates in chronological order, let me tell you what were the highlights of this conference for me.  There is a lot to cover, so I will be concise.

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At a cocktail party on the first night I was able to meet and have a brief conversation with Dominique Strauss-Kahn, former Managing Director of the IMF.  Under his leadership, the IMF increased the number of Special Drawing Rights (SDRs) by a factor of ten, creating the equivalent of roughly US$300 billion.  SDRs are effectively fiat money issued by the IMF. That operation was of particular interest to me because in my book, The Dollar Crisis, I had advocated exactly that – expanding the number of SDRs to mitigate the global economic crisis that was rapidly approaching at the time that book was written.

I asked Mr. Strauss-Kahn if the decision to increase SDRs had been difficult to drive through and if it would be possible to do it again, perhaps on a larger scale.  He said that it had not been particularly difficult.  The situation in 2009 was dire and the countries directing the IMF were desperate for solutions.  He said something like, “It’s easy to put through an idea when it’s the only idea anyone has.”  However, he also said that it would not be easy to do again now because the central banks are opposed to the idea. 

In my view, the expansion of SDRs in 2009 was very effective in enhancing global monetary liquidity at a time when liquidity had dried up.  I also believe that another large round of SDRs could be created and used effectively for global developmental purposes, so long as deflation remains a greater threat than inflation.  This subject fascinates me, so I was very happy to be able to learn a little bit from Mr. Strauss-Kahn on how this bold experiment in global monetary policy had come about.

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I also had the opportunity to put a question to Nobel Prize winning economist Paul Krugman – this time in a Q&A session following his speech.  The Financial Times recently reviewed Professor Krugman’s latest book, End This Depression Now.  The review was favorable, but questioned why Krugman had not recommended even more aggressive government stimulus (going beyond the infrastructure spending and spending to rehire teachers that he had advocated in his book).  I had wondered the same thing because, as readers of this blog will know, I have recommended a much more aggressive program of government spending on transformative 21st Century technologies that I believe could completely restructure the US economy.  So, I asked him to respond to this point raised in the FT book review.

He replied that when the crisis erupted, it was necessary for the government to spend money quickly to prevent economic collapse – and that spending on infrastructure and rehiring teachers could be done quickly.  That, of course, is true.  Then he said that he did not think this crisis would last a very long time, and, therefore, spending of the kind he advocated would suffice so long as it was done on a larger scale.  Here I disagree.  Japan’s crisis has been going on for 22 years.  In my opinion, the global crisis that began in 2008 has many more years to play out and could result in a catastrophic breakdown if the right policies are not implemented.  Unfortunately, I did not have the chance to discuss this with him further (although I did give him a copy of my latest book, The New Depression).

One of the best sessions was entitled “Economist Roundtable: Austerity vs. Growth”.  The panelists were all economic superstars: Nouriel Roubini; Paul Krugman; Martin Wolf, the chief economics commentator for the Financial Times; and Barry Eichengreen, most famous perhaps for his book Golden Fetters, which blamed the Great Depression on the attempt to reestablish the gold standard during the late 1920s (after its collapse during World War One).

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There was general agreement on this panel:  1) more stimulus is needed, 2) economic growth would be slower in the future than during the decade before the crisis and, 3) the Euro would survive, although saving it would not be easy or quick.

Professor Eichengreen stated that before the crisis he had believed that we had learned the lessons from the Great Depression and that we would not again experience severe economic crises in the future.  He acknowledged that he had been wrong about this.  That was refreshing.  I had long disagreed with his theme expressed in Golden Fetters that attempting to go back on the gold standard had caused the Great Depression.  My view is that going off the gold standard in World War One had created a world-wide credit bubble (The Roaring Twenties) and that it was that credit bubble that had caused the depression when the credit could not be repaid in 1930.  Unfortunately, before 2008, Alan Greenspan and Ben Bernanke shared Professor Eichengreen’s earlier views.  Those beliefs led to the disastrous monetary policies that have brought the global economy to the brink of collapse in recent years.

The session “Listening to European Leaders: How to Overcome the Eurozone Crisis” was moderated by Martin Wolf and comprised five former European heads of states:  John Bruton, former Prime Minister of Ireland; Christian Wulff, former Federal President of Germany; Jose Maria Aznar, former President of Spain; Willem Kok, former Prime Minister of the Netherlands; and Esko Aho, former Prime Minister of Finland.

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The general consensus was that the Euro would be saved because the alternative is too disastrous (economically and politically) to contemplate.  The panelists also believed that greater fiscal and political integration of the Eurozone member states would occur in order to make the Euro sustainable.  Many commentators in the United States and England believe the Euro will fall apart.  I think they are mistaken.

I took part in two panel discussions.  The first was called “Debate: China Grows on?”  Here my position was that China’s economy is in much worse shape than generally realized.  The second was “Economic Risks 2013”.  During this discussion I stressed my fear that total credit in the US will begin to contract and the danger that the world economy will collapse into a debt-deflation death spiral if it does.

Finally, during this event, I was able to meet and spend some time with Fraser Howie, the co-author of Red Capitalism, an award winning book on China’s fragile financial system.  I highly recommend it to anyone who wants to understand why China’s great economic boom is built on clay. 

I think the only way I could have enjoyed this fantastic conference any more was if the Korean mega pop star Psy had appeared and personally taught me how to dance “Gangnam Style”.  I hope they invite me back some day.

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Original publish date: October 15, 2012

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