Taking Stock / Don't Count Your Chickens

You could sum up the financial crisis roughly like this. A bunch of central bankers convened for their annual gathering at Jackson Hole, Wyoming, and declared that it's over. The alpha banker, Ben Bernanke, couldn't hold back and declared at the Kansas City Fed Bank symposium that the convocation had saved the global economy.

If you've ever visited Jackson Hole, you could understand the exuberance that gripped the bankers. No question about it, Hole is a misnomer: It's one of the most beautiful spots in the world. There's good reason the ranches and homes there are among the most expensive in the world.

The message emanating from Jackson Hole greatly increases the temptation to sum up the implications and lessons of the global economic crisis. Here are a few you'll be reading in the business press in the coming days and weeks.

? The central bankers of the world saved the global economy. They were right all along to pour trillions of dollars into the various economies. They didn't repeat America's mistakes of the 1930s; no, this time they leaped into action, let their mints work overtime - and it worked.

? Big Government won, too. The decision by the outgoing Bush administration and incoming Obama administration to approve a $780 billion incentive program proved that all the economy needed was a good boost from government. After decades of advocating the theory of allowing the business sector to lead investing and entrepreneurship, it turns out that government does it perfectly well. It brought home the bacon, so to speak.

? The best results are achieved by central government running the economy. In China, the party leaders decided they didn't want to participate in the global meltdown. They took matters into their own hands, creating a tidal wave of domestic demand to replace the diminishing demand for Chinese exports. The outcome is that China's gross domestic product will grow by 8% this year, as the leaders planned. All it takes is Chinese tenacity.

? Israel was also blessed by leaders of extraordinary stature. They didn't lose their heads. They didn't cut spending. They allowed the deficit to mushroom and didn't meddle with their macroeconomic policy. The results did not delay: Israel's economy is gradually leaving the recession behind.

? Economic theory can be rewritten. The financial crisis wasn't that bad after all. The moment the governments steamed into action, most of the problems were solved. Next year this whole thing will be a dim memory, like yesterday's nightmare.

Sounds simple and satisfying, doesn't it?

You might like to think before you leap

But if you're the kind who insists on "facts," "figures" and that sort of thing, you might want to wait before writing the history of the crisis or rephrasing economic theory. You might deem it unwise to focus your gaze fondly into the gauzy, happy future, while eschewing the lessons of recent history. For instance, here are some comments on the points with which we began.

? The people who "saved" the financial system from complete collapse are, in many cases, the very people who brought the system to its knees. They allowed the credit and real estate bubbles to expand to monstrous proportions, the ones who swore these bubbles posed no danger because the market would self-correct. Now they're the ones loudly proclaiming that regulation can't achieve anything: The responsibility belongs to the financial and economic institutions.

Until two years ago, Alan Greenspan was the unchallenged wise man of the economic world. By now, we know he bears major responsibility for the development of the biggest, most distended financial bubble in history. Even he was forced to admit he erred when thinking the market would regulate itself.

Nor should we hasten to measure the achievements of the knights who rescued the global economy from collapse. It will take much more time before we really understand the ramifications of the megaflood of trillions of dollars poured into the financial system.

? The Obama administration will take credit for the "big government" policy of the last year. But it's highly doubtful if the incentives Congress passed half a year ago is really the reason economic activity has stabilized. So even if the economic recovery proves sustainable, it probably isn't because of those incentives. Anyway, so far the incentives have consisted mainly of temporary tax cuts.

George W. Bush also stimulated the economy after the Internet bubble burst at the start of the decade, by cutting tax and increasing government spending. Greenspan and Bush pumped up the credit and real estate bubbles, which burst in their faces moments before the election, thereby helping the Democrats to unseat the Republicans in the White House. It is the nature of lavish government spending, mainly in the United States, to be fun at first. And a lot less fun later on.

? Do you think Big Government is the answer to economic problems? Well, let's look at figures The Wall Street Journal published last week regarding economic contraction in countries where government spends the most relative to GDP; for instance, Sweden, Italy, Germany and Britain. Their economies contracted by 6% on average in the last year, which is significantly worse than the economic contraction in the United States.

Countries with relatively low government spending relative to GDP, such as Australia, China and India, saw economic growth in the last year.

* The Chinese economy in 2009 certainly is a wonder. The government decided that it should grow by 8%, and made it so. Of course, the very accuracy of the prediction is a good reason for everyone else to worry that Beijing may have been pumping up a bubble of its own, which will burst down the line.

The power driving China's economic expansion in the last six months isn't the half trillion dollars of incentive programs that Beijing has been touting. It's a trillion dollars in fresh loans extended by China's banks. These banks aren't always guided by pure principles of economics or even banking norms. They take orders from government.

If that $1.5 trillion, altogether, were directed to fundamental restructuring, that would relieve China of its dependence on Western exports, one could applaud. But that isn't the case. We shall only know in a year or two how China's policies pan out.

And that goes for all those other miracles around the world. It is too soon to say that the global economy is heading for sustainable growth. It is too soon to say whether the medicines administered by the governments won't prove toxic, or that the handling of the bubbles by the central bankers and politicians isn't simply creating more bubbles, to be handled by their successors.