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LEAD STORY
Voices of a New Generation:
Eight young leaders head to Davos with huge hopes for Europe and big ideas about how to make a difference
Across the Great Divide
The Davos' élite must listen, say Thierry Malleret and Klaus Schwab
War And Peace
Thinking a fast win in Iraq will fix what's wrong with the global economy? TIME's panel of economists sees plenty of gloom ahead
Doubts At Davos
Misgivings about America are the talk of the town
Killer Worm
Can anyone stop the Slammer Worm ... and its imitators?
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Forecast 2003: TIME predicts global political, economic and social trends
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WEF 2002 With 9/11 fresh in the mind the World Economic Forum moves to New York
Davos 2001
Much of the talk was devoted to closing the techno gap
Davos 2000
TIME's Don Morrison tells of sensitivity training for the rich |
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| War And Peace |
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Thinking a fast win in Iraq will fix what's wrong with the global economy? Don't get your hopes up. TIME's panel of economists sees plenty of gloom ahead — even if the war goes well | By JAMES GRAFF
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| JOE RAEDLE/GETTY IMAGES |
| WAGES OF WAR: The long-term burden of financing a war against Iraq could further slow the U.S.'s faltering economy
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As it pushes toward an attack on Iraq, the Bush Administration braves political sandstorms along with literal ones. But such courage, if that's what it is, seems to dissipate outside the Beltway. While Washington gears up, the world economy cowers in the shadows. Companies and individuals aren't in anything like a punchy mood, let alone a preemptive one. A "culture of caution" has taken stubborn hold almost everywhere, says Robert Hormats, vice chairman of Goldman Sachs International. He and the rest of Time's Board of Economists, meeting during a heavy snowfall at the close of the World Economic Forum's Annual Meeting in Davos, Switzerland, agreed that even a quick, clean victory in Iraq may not be enough to overcome the timidity, because the prospect of war is only one cause of the global economy's slough of despond. There are plenty more sources of uncertainty, some so acute that the coming year amounts to an "international economics laboratory," says Moisés Naím, editor of the Washington-based journal Foreign Policy. And since we're all guinea pigs, these lab tests are hardly academic. How can companies improve their debt-laden balance sheets when a bearish global stock market has gutted their worth? How will American consumers keep performing their role as the shaky prop of the world economy if their home values collapse? Who else besides that highly hocked group is confident or crazy enough to step in and create demand? And most ominously, are governments merely pushing wrongheaded economic policies as usual — or have they finally lost traction entirely against a world economy that's in serious danger of spiraling into greater debt and deflation?
The answer to many of those questions will come from Washington, but the Board fears that no one there is really minding the world economy's switches. "We're very prepared for war from a military point of view, but not from an economic one," says Hormats. The U.S. government, which quietly slipped from surplus to deficit last year, is heading into a period of "chronic deficits," he contends, even if the Bush Administration gets only part of its 10-year, $674 billion tax-cut proposal through a skeptical Congress. Hormats worries that the weak federal balance sheet makes no provision for unforeseen costs ahead.
Yes, the active phase of the war is likely to go off without major hitches, but the U.S. will then face a long-term burden of years of costly peacekeeping and nation building in Iraq. If oil prices shoot up and further degrade consumer confidence and business investment, the U.S. government could find it has no fiscal reserves left to spend on stimulating the economy. Hormats argues that much of the cost of the U.S.'s ongoing war on terrorism — particularly increased security and policing — has to be borne by state and local governments, many of which have all but run out of money. For years the Time economists and others have warned that the U.S.'s insatiable hunger for imported products and capital has made its foreign exchange deficit balloon dangerously. Well, this year it is bigger than ever at 5% of GDP. "There is very little room for mistakes in U.S. economic policy," warns Kenneth Courtis, the Tokyo-based vice chairman of Goldman Sachs Asia. In other words, think hard before you push through those new tax cuts, Mr. President.
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