Markets Will Speak Louder Than All Our Talking Shops

Small groups, gathered in meeting rooms across the world and focused on a single issue, can affect the way we live, at least now and perhaps for a long time. Consider only last week’s conclaves.

In Washington the Federal Reserve Board’s monetary-policy gurus met and decided to keep interest rates low until unemployment drops, even though they agreed that the economy is already improving. Meanwhile, meeting in committee rooms and the corridors of power, Congress gave the White House what its economists and the president, meeting in the Oval Office, demanded: more stimulus spending. It is true that there is considerable excess capacity in the economy, as the deflation-worriers continually point out. But anyone who believes that the meetings at the Fed, in Congress and in the White House are not laying the ground for future inflation carries a heavy burden of proof.

Meanwhile, in Vienna the members of Opec, the oil cartel, met and decided that $80 is just about the right price for their crude oil. This means that the cartel is not prepared to support the fragile worldwide recovery by lowering oil prices. It will, of course, sooner or later have to confront the price-threatening problem of higher production from Iraq, perhaps to Saudi Arabian levels, a development that is increasingly likely as foreign oil companies step up work repairing old fields and discovering new ones. But that is for another meeting.

By deciding at its Vienna meeting to keep oil prices far above competitive levels, Opec is taxing consumers and in effect running a counter-stimulus policy, to the consternation of the groups meeting in Washington.

The Vienna gathering also affected meetings of airline executives and union leaders in London. The decision to keep oil and therefore fuel prices up added to the pressure being brought on the fuel-intensive airline industry by strikes and the threat of strikes. Lufthansa has already been put through the wringer by its union, and now BA has been hit as its cabin crews lay down their clipboards and serving trays. Passengers will not book in usual numbers on an airline under threat of a strike, never mind one that is actually experiencing a strike.

On to meetings in China. The regime’s annual gathering produced a moment of cheer for the world trading community when China’s central bankers hinted that the government might relax policies that have kept the nation’s currency undervalued. After all, that would dampen inflationary pressures in a country that is growing at an annual rate of close to 10%. But it is not to be: the regime’s leaders used their meeting to make it clear that the peg of the yuan to the dollar is here to stay for a good long while, and that America would have to solve its own problems without any help from China. The Opec meeting reduced the hopes of the Washington meeting that the economy would resume growth, and the Beijing meeting put a damper on hopes that America could engineer an export-led reduction in unemployment.

Not to be outdone by meetings in Washington, Vienna and Beijing, Europe held its own round. In Brussels key euroland and EU officials met and agreed that Greece would not be allowed to go under, and, more important, in effect agreed to extend monetary union to fiscal affairs. With no nation too small to fail, richer nations have taken the balance sheets of Greece, Spain, Ireland, Portugal and Italy onto their own books, and guaranteed investors that they would not be wiped out. Profligacy thrives on this sort of moral hazard.

To make sure they were not left out of the meeting orgy, Messrs Sarkozy and Brown met at No10 and agreed on big changes in their nations’ defence policies and might have reached a deal on the taxation and regulation of banks.

The real question is whether these meetings matter, whether they are full of sound and bottles of mineral water, but signify nothing. It is arguable that in the end you can’t fight markets. Take Opec: its members might like $80 oil twice as much as they like $40 oil, but if technology permits the vast amounts of natural gas known to exist in shale deposits to be extracted, and used in cars and trucks, Opec might be as effective as a cartel that controls the production of horse-drawn carriages. If the rating agencies decide that continued deficits in America are taking sovereign debt to levels that will place a claim on too large a portion of national income, nothing the Fed will be able to do will prevent interest rates from rising, and growth slowing. If the dollar peg unleashes inflation in China, no meeting can sustain the peg. If passengers decide they no longer can rely on BA unions to permit a reliable service, nothing the union bosses can do at their meetings will save the jobs of their members.

But that is for the long run. Politicians do not live in the long term. In America, they live in a two- to four-year cycle;

in Britain in at most a five-year cycle;

in many other countries in which democracy is the preferred form of organisation, many politicians live almost from day to day, as opposition parties wait for a stumble by the government of the moment, and demand elections.

So at least for now we are more or less certain to see results of these many meetings that are, to put it mildly, disconcerting. Fiscal policies that increase national debt. Continued loose monetary policy, either based on conviction by central bankers that the recovery is too fragile to allow tightening, or on their fear that to tighten while unemployment remains high will result in a further sacrifice of what remains of their independence from politicians who prefer not to face out-of-work voters. Continued maintenance of an undervalued yuan, forcing the American government to swing to protectionism to stem the flow of imports and increase exports so as to create “good, high-paying American jobs”. High oil prices.

Perhaps a meeting moratorium might be in order, and markets left to do their work.