In the 1970s, governments lived in dread of the misery index, the combination of unemployment and inflation rates that underscored the decade’s troubled economic conditions. Today, we may need a new twist on that idea: Call it the suffering index.
There is a decidedly uneasy atmosphere among business and political leaders attending the World Economic Forum in Davos, Switzerland, considering that most forecasters are calling for a broadening economic recovery this year. CEOs here say they feel relatively confident about the short-term outlook, but they worry about a number of issues looming on the horizon: Europe’s debt crisis could erupt again, the massive U.S. budget deficit risks spooking the bond market, strong growth in emerging markets might trigger a rise in inflation or a surge in global commodities prices, rising inequality could spark social unrest.
James Forese, co-head of global markets at Citigroup, calls the mood “near-term optimistic, long-term anxious.” The riots in Egypt that feature on TV screens here play on those worries, adds Mike Rees, CEO of Wholesale Banking at Standard Chartered. “There is a cloud hanging over the market.”
In this uncertain climate, the sense of competitive pressure among government officials is acute. European leaders, with as much as anyone to prove, have courted the Davos crowd and promised to address their economic ills. On Thursday, French President Nicolas Sarkozy said he and Germany’s Angela Merkel were “fully determined to defend the euro” and prevent a worsening of the debt crisis. Officials lauded the Spanish parliament’s approval of a measure raising the retirement age to 67. On Friday, Prime Minister David Cameron vigorously defended his government’s tough austerity program even as news earlier this week of a surprising drop in U.K. fourth quarter output have raised concerns about the economic outlook.
Emerging markets countries are also in a sober mood, notwithstanding their robust economies. Latin American countries may be growing at the fastest pace in a generation, but countries have to radically improve their educational systems, upgrade their infrastructures and adopt other reforms to ensure that today’s commodities-driven boom is sustained for the long haul, says Juan Carlos Echeverry Garzón, the Colombian Finance minister. He’s confident they will do so because officials are determined to avoid a relapse into the crises that hit the region in the 1980s and ‘90s. “We are willing to do all the reforms that are needed,” Echeverry says.
By contrast, many officials here question Washington’s ability to address U.S. economic problems, beginning with the deficit. The Federal Reserve’s quantitative easing program demonstrates that the U.S. “is not willing to suffer” to tackle its root problems, Echeverry says. He poses a brutal question for those who hope to succeed in today’s global economy: “Who’s going to endure the most suffering?”
By that measure, the U.S. remains an outlier. Treasury Secretary Timothy Geithner, who became the highest-ranking member of the Obama administration to come to Davos, told attendees Friday that although the U.S. deficit was “unsustainable” and would have to be tackled, now was not the time given the country’s 9.4 percent unemployment rate. “There’s much more confidence now that we’ve got a sustainable expansion,” he said, but added, “It’s not an expansion that’s going to offer a rapid decline in unemployment.”
Suffering, it seems, can’t be avoided, even if it isn’t embraced.
