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Article 1: THE RETURN OF ECONOMIC

NATIONALISM

“A spectre is rising. To bury it again, Barack Obama needs to take the

lead.”

MANAGING a crisis as complex as this one has so far called for nuance
and pragmatism rather than stridency and principle. Should
governments prop up credit markets by offering guarantees or
creating bad banks? Probably both. What package of fiscal stimulus
would be most effective? It varies from one country to the next. Should
banks be nationalized? Yes, in some circumstances. Only the foolish
and the partisan have
rejected (or embraced) any solutions categorically.

But the re-emergence of a spectre from the darkest period of modern

history argues for a different, indeed strident, response. Economic
nationalism--the urge to keep jobs and capital at home--is both turning
the economic crisis into a political one and threatening the world with
depression. If it is not buried again forthwith, the consequences will
be dire.

DEVIL TAKE THE HINDMOST

Trade encourages specialization, which brings prosperity;

global capital markets, for all their problems, allocate money
more efficiently than local ones; economic co-operation
encourages confidence and enhances security. Yet despite its
obvious benefits, the globalized economy is under threat.

Congress is arguing about a clause in the $800 billion-plus stimulus

package that in its most extreme form would press for the use of
American materials in public works. Earlier, Tim Geithner, the new
treasury secretary, accused China of "manipulating" its currency,
prompting snarls from Beijing. Around the world, carmakers have
lobbied
for support (see article[1]), and some have got it. A host of industries,
in countries from India to Ecuador, want help from their governments.

The grip of nationalism is tightest in banking (see article [2]). In France

and Britain, politicians pouring taxpayers' money into ailing banks are
demanding that the cash be lent at home. Since banks are reducing
overall lending, that means repatriating cash. Regulators are thinking
nationally too. Switzerland now favours domestic loans by
ignoring them in one measure of the capital its banks need to hold;
foreign loans count in full.

Governments protect goods and capital largely in order to protect jobs.

Around the world, workers are demanding help from the state with
increasing panic. British strikers, quoting Gordon Brown's ill-chosen
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words back at him, are demanding that he provide "British jobs for
British workers" (see article[3]). In France more than 1m people stayed
away from work on January 29th, marching for jobs and wages. In
Greece police used tear gas to control farmers calling for even more
subsidies.

Three arguments are raised in defense of economic

nationalism: that it is justified commercially; that it is justified
politically; and that it won't get very far.

On the first point, some damaged banks may feel safer retreating to
their home markets, where they understand the risks and benefit from
scale; but that is a trend which governments should seek to
counteract, not to encourage. On the second point, it is reasonable for
politicians to want to spend taxpayers' money at home--so long as the
costs of doing so are not unacceptably high.

In this case, however, the costs could be enormous. For the third
argument--that protectionism will not get very far--is dangerously
complacent. True, everybody sensible scoffs at Reed Smoot and Willis
Hawley, the lawmakers who in 1930 exacerbated the Depression by
raising American tariffs. But reasonable people opposed them at the
time, and failed to stop them: 1,028 economists petitioned against
their bill. Certainly, global supply-chains are more complex and harder
to pick apart than in those days. But when nationalism is on the march,
even commercial logic gets trampled underfoot.

The links that bind countries' economies together are under strain.
World trade may well shrink this year for the first time since 1982. Net
private-sector capital flows to the emerging markets are likely to fall to
$165 billion, from a peak of $929 billion in 2007. Even if there were no
policies to undermine it, globalization is suffering its biggest reversal in
the modern era.

Politicians know that, with support for open markets low and falling,
they must be seen to do something; and policies designed to put
something right at home can inadvertently eat away at the global
system. An attempt to prop up Ireland's banks last year sucked
deposits out of Britain's. American plans to monitor domestic bank
lending month by month will encourage lending at home rather than
abroad. As countries try to save themselves they endanger each other.

The big question is what America will do. At some moments in this
crisis it has shown the way--by agreeing to supply dollars to countries
that needed them, and by guaranteeing the contracts of European
banks when it rescued a big insurer. But the "Buy American" provisions
in the stimulus bill are alarmingly nationalistic. They would not even
boost American employment in the short run, because--just as with
Smoot-Hawley--the inevitable retaliation would destroy more jobs at
exporting firms. And the political consequences would be far worse
than the economic ones. They would send a disastrous signal to the
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rest of the world: the champion of open markets is going it alone.

A TIME TO ACT

Barack Obama says that he doesn't like "Buy American" (and the
provisions have been softened in the Senate's version of the stimulus
plan). That's good--but not enough. Mr. Obama should veto the entire
package unless they are removed. And he must go further, by
championing three principles.

The first principle is co-ordination--especially in rescue packages, like

the one that helped the rich world's banks last year. Countries'
stimulus plans should be built around common principles, even if they
differ in the details. Co-ordination is good economics, as well as good
politics: combined plans are also more economically potent than
national ones.

The second principle is forbearance. Each nation's stimulus plan should

embrace open markets, even if some foreigners will benefit. Similarly,
financial regulators should leave the re-regulation of cross-border
banking until later, at an international level, rather than beggaring
their neighbours by grabbing scarce capital, setting targets for
domestic lending and drawing up rules with long-term consequences
now.
The third principle is multilateralism. The IMF and the development
banks should help to meet emerging markets' shortfall in capital. They
need the structure and the resources to do so. The World Trade
Organization can help to shore up the trading system if its members
pledge to complete the Doha round of trade talks and make good on
their promise at last year's G20 meeting to put aside the arsenal of
trade sanctions.

When economic conflict seems more likely than ever, what can
persuade countries to give up their trade weapons? American
leadership is the only chance. The international economic system
depends upon a guarantor, prepared to back it during crises. In the
19th century Britain played that part. Nobody did between the wars,
and the consequences were disastrous. Partly because of that mistake,
America bravely sponsored a new economic order after the Second
World War.

Once again, the task of saving the world economy falls to America. Mr.
Obama must show that he is ready for it. If he is, he should kill any
"Buy American" provisions. If he isn't, America and the rest of the
world are in deep trouble.
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Article 2: ANATOMY OF AN IDEA

Barack Obama shuns the L-word. But his speeches brim with liberal
ideas and ideals. What is it about the doctrine that dare not speak its
name?

AUTHORS who defend liberalism must often struggle just to get the
word out without facing incomprehension or abuse--even today. To the
left, particularly in Europe, liberalism means the free-market dogma of
clever simpletons who created the present financial mess. The
American right's complaint is quite different. Forget that Hamilton,
Jefferson and Madison fathered liberalism in the United States. For nigh
on 30 years conservative Republicans persuaded American voters that
liberals were godless, amoral, tax-happy hypocrites.

Intellectually, little of either charge makes sense. Twinned with

"democracy", as in what the West stood up for during the cold war,
"liberal" was a term of pride. Since communism failed, the case for
liberal democracy has only strengthened. Think of outstanding
alternatives: illiberal Russia, undemocratic China, populist Venezuela,
and theocratic Iran.
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Odder still, put this question to people who live, or would like to live,
in a liberal democracy: "Which of the following values do you espouse--
personal freedom, rule of law, active but accountable government, free
but responsible markets, mutual toleration and equal concern for all?"
It is a fair bet that people will tick most or all items on this list. Ask
them if they are liberals, on the other hand, and many will turn
contemptuously away.

That 20th-century connoisseur of doublespeak, George Orwell, would

not have been surprised. Political language, it seems, has taken leave
of political facts. Alan Wolfe, a professor of politics at Boston College,
thinks it time to reunite them. His welcome and readable essay lays
out what he thinks liberalism really amounts to and why it demands
support.

Liberal politics, on his account, is rooted in a view of what matters in a

human life. A gifted guide, he opens with a brisk Grand Tour of the
liberal tradition. Glimpses of leading thinkers and the human values
they argued for include Immanuel Kant (moral and intellectual
autonomy), Benjamin Constant (protection from arbitrary power) and
John Stuart Mill (promotion of human individuality).

The link with politics is that those three values all involve
freedom. Whatever else it is, liberalism is about nourishing
human liberty. Where liberals disagree is how that fits with a
second powerful ideal, equality.

Right-wing liberals contrast "classical", small-government liberalism

and the modern, active-government kind. The one, so they claim,
leaves people free while the other wrongly infringes freedom on behalf
of equality. That story became popular in the 1970s, both as a history
of liberalism and as a view of government's limits.

Mr. Wolfe, like other left-wing liberals, finds the contrast historically
inept and conceptually confused. Making enemies of freedom and
equality ignores, in his view, the democratic presumption that any one
person's liberty matters as much as the next person's. It is deaf also to
the fact that modern citizens' freedoms are often limited by
big social forces beyond their control. If all citizens are to be free in
any effective sense, they require help from countervailing forces.
Government is one such force.

If, the argument goes on, you take concern for everyone's liberty
seriously; you will treat the proper scale of government as a matter of
circumstance, not principle. At times, government is overweening and
ought to be cut back. At others, active government is required to
steady markets, help the needy or serve the public good. Put
abstractly, government may be called on to foster or restore equal
liberty. Pragmatic, socially minded liberalism of that kind underpinned
American and British government, from the New Deal until Ronald
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Reagan, from Clement Attlee to Margaret Thatcher. It seems, from
necessity, to be with us again.

Mr. Wolfe touches many topics. He defends liberals against the charge
that they seek, illiberally, to keep religion and morals out of public life.
In his most policy-minded section, he traces how liberal commitment to
openness plays out with regard to free speech, immigration and
transparent government. He notes the illiberal undertow of what he
nicely calls "self-incapacitation books", or popular-science writing in
behavioural economics and evolutionary psychology claiming to show
what little part reason and responsibility play in how we behave. He
rebuffs the frequent charge that liberals are wobblers or dreamers. The
true liberal temper, he tells us, is realistic, ironic and disabused.

Through no fault of Mr. Wolfe's, this fine defense of liberal values risks
seeming to lag behind the news. He completed his book before Wall
Street imploded, the American economy slumped and Barack Obama
won the White House. Whether or not they buy the reasoning behind it,
many readers will think Mr.. Wolfe's call for active government is now
merely pushing at an open door.

Faster than anyone expected, the argument among liberals has

shifted. It is no more about active versus limited government, but
about what active government should be doing. On that Mr. Wolfe
could have said more. No one with an open mind, however, can come
away from "The Future of Liberalism" treating "liberal" as a term of
abuse. Before long, who knows, even Mr. Obama may drop his reserve
and embrace the word with
pride.