Retreat from globalization.

• Author: Campbell, Ian
• Position: Outmaneuvering Terror

Nothing is more usual, among states which have made some advances in commerce, than to look on the progress of their neighbours with a suspicious eye, to consider all trading states as their rivals, and to suppose that it is impossible for any of them to flourish, but at their expence.

--David Hume, Of the Jealousy of Trade

THESE are days of optimism about U.S. and world economic prospects. The U.S. economy is poised for strong recovery, most Wall Street economists say. The optimism seems as misplaced as it was in 1999 when the U.S. economy was generally described in miraculous terms yet was on the verge of downturn and two years short of outright recession.

In many regards, the U.S. economic picture now looks far worse than it did in 1999. In 1999 there was a stock bubble that Federal Reserve Chairman Alan Greenspan had, it appeared, inadvertently allowed to build. Four years on, resorting actively to unsustainable bubbles in asset prices has become the mainstay of U.S. policymaking. What Greenspan refers to as "solid gains" in housing prices are no more than a bubble in the prices of households' most important financial asset.

Cheap money has also helped to re-inflate stock prices. Meanwhile, the Bush Administration's fiscal policy, which floods the American consumer with windfall cash, seems just as unsustainable. The counterpart of these policies is the precipitous fall of the dollar.

All the mistakes are part of a general loss of direction in economic policymaking, an abandonment of ideas of sound money and honest reward. The United States is now pursuing a new goal in policymaking: the permanent consumer boom, instant wealth created by windfall. Perhaps this is a true measure of America's decline: immediate gratification has become not just the vice of the couch potato but that of Washington, DC.

This makes a mockery of American attempts to advise other countries on economic policy. The "Washington Consensus" emphasized sound fiscal and monetary policy, privatization and faith in free markets. It is dead because Washington has abandoned these policies. This will harm not only the U.S. economy but the world one as well. The world no longer has a leader in economic policymaking. Nowhere is that lack of leadership more evident than in trade.

The failure of the ministerial summit meeting of the World Trade Organization (WTO) in Cancun, Mexico in September was prepared by the prior positions adopted by the main players: the United States, the European Union and developing countries. The positions of all were characterized by hypocrisy. Perhaps the greatest hypocrisy, however, was that of the United States, which preaches the merits of free trade more strongly than almost any other country and yet spends tens of billions of dollars to prevent its own markets from being free and has taken fresh measures in recent years to discriminate against other countries' producers.

The biggest blow to the Doha Round was struck in 2002 when a new farm bill was passed by the U.S. Congress. The new bill authorized, in the words of the U.S. trade representative, Robert Zoellick, "up to $123 billion in all types of food-stamp, conservation and farm spending over six years."

The U.S. position--and that of the EU--is immoral. Developing countries that depend utterly on agriculture are forced to compete with a U.S. agricultural sector that is hugely subsidized. Yet the United States constantly urges countries to open their own markets and allow freer access to U.S. goods and services. The blatant hypocrisy is doing nothing to win the United States friends and allies and is therefore a political problem as well as an economic one. And there are many other problems with it. The subsidies for the agricultural sector add to the U.S. budget deficit. The protection granted to U.S. producers means consumers pay higher prices. Poor countries that might earn more in exports and therefore be able to import more from the United States remain impoverished--to their detriment and to that of the United States and other countries.

Those who fail to appreciate what harm this is doing might have done well to attend a small meeting of west African cotton producers at the WTO Cancun summit, shortly before the meeting's collapse, in which these producers reacted to the draft text that had then been drawn up. It was hard to judge which was greater: their sense of betrayal or their anger.

One of the delegates pointed out that the cotton farmers he represented earn less than $1 per day; and that, internationally, the argument that these farmers were producing competitively and were the victims of subsidies and restriction of trade in the developed world had been well accepted. And yet, in the view of these delegates, there was nothing in the text to encourage them, no sign that the developed world was ready to give ground. The unhappiness culminated in this lament from a delegate from Senegal: "What is the point of us Africans coming to summits such as this when nothing is going to be done?"

This...