In a global economy adrift, leaders don't know where to take us next: Don Pittis

If you ever thought there wasa group of smart people who really understood the economy and you were just too stupid to figure it out, now is the time to disabuse yourself.

• Canada lost 5,700 jobs in January
• Seeking a bottom for an entire economic cycle

Despite putting on a brave face for the cameras, some of our best economic thinkersfrom central bankers to business leaders toeconomic scholars find themselves adrift as they tryto get the global economy back on track.

And while that doesn't mean we should despair, it tells us we can by no means be sure ofan imminent end to the world'seconomic turmoil.

As Japan steps boldly through the looking glass into theworld of negativeinterest rates and the globecontinues to spend its labour and capitalpumpingout more crude oil than anyone wants,it wouldbe fair to think that this is a problem that has to work itself out eventually.

Greece, Italy, China, Russia, South America andeven Finland are struggling. Despite falling unemployment, many fear the United States may be returning torecession.

Clever economist needed

You might think some clever economist would come up with asolution to put workers back to work andcalmjittery financial markets.

As someone who reads about economics for pleasureon days off, I can tell you there are lots of solutions on offer. The difficulty is that it is not clear which, if any, will work.

This was struck home hard last week while reading an economics commentary from the venerable and relatively non-ideological Martin Wolf, at thesimilarly venerable London Financial Times.

The article, titled Why it would be wise to prepare for the next recession, was interesting in its own right.But perhaps just asvaluable was the reaction expressed in the many thoughtfulcomments that followed.

Wolf had essentially offeredseveral potential solutionsshould Britain go into recession but the prescriptions could be applied elsewhere.

'Cleansing depression'

One solution was to let the economy crash and rebuild itself following what Wolf described as a "cleansing depression," similar to the catagenesis offered by Thomas Homer-Dixon.

Wolfdidn't like this idea. And it seems to me thatthe other proposals offered by him, and what is actually being doneby ourvarious central banks and governments, are all desperateattempts to avoid such an outcome.

Othersuggestions include more quantitative easing, where central banks further flood the economy with inventedcash, and negative interest rates. Japan seems to be trying this out in desperation after everything else has failed to stimulate their economy.

Wolf's final proposal is helicopter money, which has nothing to do with Canada's long-delayed plan to replace the Sea Kings with Cyclones. Instead it comes from a thought experiment by U.S. economist Milton Friedman.

"Let us suppose now that one daya helicopter flies over this community and drops$1,000 in bills from the sky, which is, of course, hastily collected by members of the community," Friedman imaginedin 1969.

The idea is that rather than hand out money to banksso they can lend it cheaply to those who can afford to borrow, as is the casein quantitative easingor low interest rate policy, governments could distributecashwilly-nilly to everyone.Certainly the poorest of us would be inclined to spend the cash immediately on things we need, thus stimulating the economy.

In some derivations, helicopter money is funneled into a basic income, or aguaranteed annual incomeplan, making sure that everyone has enough for rent and food.

Interestingly, Wolf saysthe helicopter-money plan is his favourite, though he stipulates it must be controlled by thecentral bank as part of itsmonetary policy.

No clear consensus

No offence to some of thewiserweb commenters out there, but the response to Wolf'scolumnwas far above thestandard fareof adhominemattackssooftenfound in online forums.

In addition to most comments being thoughtful and well-reasoned, the alternate solutions presented were diametrically opposed, even mutually exclusive.

As more than one commenter pointed out,there is absolutely no evidence that monetary stimulus, up to and including negative rates, has had any beneficial effect on the economy. We sink despitestimulus, all the while becoming more unequal.

Many commentersespecially those who sounded as ifthey had money and assetsrejected a return to inflation, even though so many economists say it's the only way of heading off one of those "cleansing depressions." In fact,asurprising number backed the depression option;thoughwere it to come to that, I suspect they may find they don't like it so much.

Most of all, as with so much other economic commentary,there was no single obvious solution.

There wasdefinitely no consensuson a strategy that governments could use to fix the economy while keepingvoters and other powerful interestshappy.

And here is the problem. For leaders who make policy, it is almost impossible to try radical and unprovenmedicinethat might work, for the simple reason thatit might instead precipitate a crisis for which they would be blamed.

So long as the global economy seems to bemuddlingon, governments and centralbankers prefer to kick the can down the road just a little further, and keep prayingfor a miraculous,spontaneouscure.

Follow Don on Twitter@don_pittis

More analysisby Don Pittis