When will the global economy get its groove back?

Vancouver - - The US economy has slowed to the negligible growth rate of 0.2 percent. Japan’s economy continues to be mired in quicksand shrinking at an annualized rate of 3.2 percent in just April-to-June. The Internet stock bubble has burst as “dot coms” are making a hasty retreat in markets far and wide. According to the International Monetary Fund (IMF) the world economy will grow at a revised rate of 2.7 percent down from 3.5.

So when will the global economy get its groove back?

Already lower oil prices, lower central bank interest rates, and continual technological innovation will provide the basis for a recovery which some, such as IMF Managing Director Horst Koehler, suggest will comes in 2002.

At a weekend meeting in Suzhou, China finance ministers from 21 Asia-Pacific nations have begun to deal with just that. They agreed to continue to work towards lowering trade barriers as the way to avert a total economic meltdown. But that will simply not be enough.

As important as eliminating and lowering trade barriers are, when the world’s two largest economies are in trouble there may be a need for drastic action.

In Japan the now 12-year recession is becoming an ongoing nightmare. For those liberal Keynesians out there who believe that if we just continue to deficit spend someday the stimulus of that activity will come to fruition have only to look at Japan. Japan has been spending like a sumo wrestler eating at a Las Vegas buffet for over a decade and it has done nothing.

This is not to say that the US will follow Japan, but already there are calls for swift action. Republicans and supply-side economists are calling for capital gains tax cuts to stimulate investment for the over 100 million Americans who own stocks including the one third of stock owners who earn less than $30,000 per year. Not to mention that in 1982 and 1997 when capital gains taxes were cut revenue actually increased. It would be a win-win that could infuse the budget with more money. All of this would help to restore confidence in investors and business alike.

But what really should be put on the table is phasing in the Bush tax cuts quicker-not waiting until 2009 by cutting rates now.

The nonsense of lock boxes and protecting the surplus is absurd. It reflects a mentality adverse to growth. Growth of course will always be able to deal with any short-term deficit problems.

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