One major development that has offset such policy mistakes has been globalization. But of course, while policies from fiat currencies tend to likewise distort trade, the fact is that globalization has mushroomed in spite of fiat currencies.
Google Public Data: Global Merchandise trade has Doubled Since 1971
Global merchandise trade has more than doubled since the Nixon shock which closed the US dollar-gold convertibility in 1971 or the Bretton Wood standard.
Yet even when I harbored or expected a tinge of possible policy responses similar to that of the Great Depression, as it has been the natural impulse by governments to use crisis to usurp or expand the reach of political power, or in the words of former White House Chief Emmanuel Rahm[1], "Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before", this did not happen.
Well, not for most of the world.
DLC.org[2]: 155 temporary tariffs in 2008
In short, most nations opted to keep trade channels open in spite of the crisis.
Alternatively this means that nations have not responded in the same way as in the past or that most of the world has remained receptive to globalization to the disappointment of the protectionists.
And today, globalization isn’t only on trade but also in terms of bailouts. Not only that the US has been bailout the Europe[3] and the world, but also China[4] and Japan[5] as earlier stated have offered to bailout the Eurozone by buying the Euro debts.
Why then the international bailouts?
Bailouts always have political dimensions whether it is local or international. And the likely answer is that globalization has become a huge political influence from which the present crop of political leaders has latched on.
Where trade levels should diminish and magnify poverty levels, unsustainable political structures, like China and other autocratic regimes, could be exposed and risk destabilization that would result to the overthrow of the incumbent political leader or the system.
And considering that political dynamics have likewise been substantially affected by trade enabled innovations on technology, as evidenced by the recent People Power in Tunisia[6], rigid vertical government structures would be challenged by the political influences based on real time “flat world” connectivity, thus likely resulting to a new political order.
It’s either global governments prevents further advances of trade and technology, or governments adapts to the new political realities of the information age.
And given that people continually adjusts to the state of government affairs by circumventing policies or regulation, my bet is one of the latter.
Even the despotic regime of North Korea hasn’t stopped people from engaging in voluntary trade underground. North Korean authorities attempted to inflate the currency[7] in order to wipe out savings and stop the informal economy but this resulted to a huge backlash which the North Korean government eventually backtracked.
So while the politics of international bailouts may be meant to keep trade channels open, the longer term effects is for the mass distortions that could risks future trade via frictions from boom bust cycles or “super” inflation.
Nevertheless, one of the major fundamental positive developments is that connectivity enabled by technology would certainly pose as continuing hurdle to the advances of governments.
[1] Wall Street Journal Editorial A 40-Year Wish List, January 29, 2010
[2] DLC.org Governments imposed 155 temporary tariffs in 2008, September 23, 2009
[3] See The Phisix And The Boom Bust Cycle, January 10, 2011
[4] Los Angeles Times, China moves to prop up Europe's economy, January 15, 2011
[5] Wall Street Journal Japan To Buy Eurozone Debt To Help Europe Tackle Debt-Crisis, January 10, 2011
[6] See Tunisia’s People Power: A Combination Of Creative Destruction And The Politics of Obedience January 16, 2010
[7] Will North Korea's Version Of The 'Berlin Wall' Fall In 2010? January 3, 2010
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