Taking Stock / Clueless in Davos

The dirty secret among the economic elite is that nobody knows what to expect, let alone what to do.

Davos this year featured plenty of statements and pledges. The entire spectrum of opinions, from optimism to pessimism, found expression at the World Economic Forum's annual meet among the snows of Switzerland. But the speakers - bankers, economists, and statesmen - kept jealous guard of their true secret. None has a clue what the future holds in store. The economic and financial world has become too complex and the number of potential risks and possible complications just keeps growing from year to year.

"In 2008 everyone here was in a state of terror after the U.S. banking system collapsed," I was told by one of the world's leading economists who has, over the years, filled senior positions at international financial institutions. "But we knew, more or less, what to do: Open the taps. And we did that. Now it's all much more complicated, with enormous political hurdles." How can you tell how economist is good? he pressed. "One who can identify the root of the problem, or at least two or three of the important issues. But now, for the first time ever, I can't put my finger on the core of the problem. There are so many problems." In the past, when crisis arose, economists would analyze the problem's sources, build understanding of the core story, and build possible scenarios. Then they'd brainstorm ways to deal with them, the economist said.

Davos - AFP - 31012012

This time he couldn't tell what the big story is. He can't formulate scenarios. "Will it be Greece going bankrupt or pulling out of the eurozone? Bankruptcy for Italy? I couldn't say."

The two most-discussed subjects in Davos 2012 were Europe, the eurozone, the political standoff between Germany and the other countries - and inequality everywhere in the world.

The bankers, businessmen, and country leaders prefer talking about Europe and its difficulties. They describe many scenarios and the politics of the European Union.

"In the end everyone has reached one conclusion: The Europeans can't let the euro fail - so it won't," says the senior economist. "Then they change subject."

Ultimately the European Central Bank will have no choice but to print money and buy up the bonds issued by Europe's weakest countries, he said: Italy. Spain. Perhaps Greece too. The Germans don't like it. They think if the weak countries are bailed out, they won't execute crucial reforms. "The risk is that the financial system will collapse - and the crisis will intensify."

If the ECB prints money and buys bonds, will that solve the problem?

"Of course not," he says. "It only buys us time."

What will they do with this time? Take care of the problems?

"That depends on the politicians."

And what will the politicians do?

"They understand that if they don't act they'll lose their constituents."

This, of course, is just part of the story. The politicians can be expected to lose their constituents whether they act or not, since the economic problems of the West are profound and severe. The governments promised the public much more than they can deliver, and the European recession is gripping the governments in a budgetary and financial vise that gets tighter every day.

Most of the people who led the world into the deepest and longest financial crisis of the last century came to Davos. They have no idea what to do.

The people responsible for the biggest change in the public discourse and awareness aren't in Davos.

These are the world's protesters, most notably from the Occupy Wall Street protest. These people, then and still considered marginal, can mark at least one success: they put inequality at the center of public discussion.