This a difficult time to develop a sensible and effective approach to the serious financial problems facing the international economy. Much of the world is in recession, and it is unlikely that the worst is over. To make a positive contribution to the recovery process, the United States needs to acknowledge that the current approach - whereby our spokesmen hector leaders of other countries - has not been a conspicuous success. Nor have the expensive efforts of the International Monetary Fund succeeded in restoring financial stability to the distressed economies in Asia and Eastern Europe.
A more modest approach is in order. The first item of business is to get our own house in order. The US should begin by adjusting its economic policy so that it is more in tune with the realities of current global challenges. For example, historically the Federal Reserve's prime responsibility has been to maintain price stability. This objective surely has been achieved. It no longer makes sense to maintain a level of interest rates that encourages foreign capital to flow here at a time when the "safe haven" motive already brings substantial foreign funds to our financial markets, especially Treasury securities.
A decline in short-term interest rates - half a percentage point - would help stem the contractionary forces in our own country. The critical problem now is not to fight the fading specter of inflation. That may again be the key Fed motivation in the future, although a good case may be made for a deflationary outlook.
Similarly, for a while, the focus of fiscal policy needs to shift away from the long-term goal of budget surpluses. That should be a temporary rather than permanent shift, in view of the future needs of the Social Security system. Quick and substantial tax reduction - especially if it is coupled with comprehensive tax reform such as adoption of a savings-exempt income tax - could help to restore a healthy growing economy.
Simultaneously, it is important to exercise real restraint in one key aspect of public policy: dealing with international trade.
It has become fashionable in recent months to bemoan the shortcomings of the global economy, especially in view of the severe downturns in the hitherto rapidly growing economies of Indonesia, Malaysia, and Thailand. The negative economic trends in all of East Asia have also served to expand our already-large trade deficit.
These negatives have shaken the faith of many in the future of the international economy. In retrospect, we should have expected that economic developments would not move in a straight line for long periods of time.
Moreover, several of the hitherto fast-growing emerging economies had adopted only a veneer of capitalism. "Cronyism" often was the prevailing way of doing business. There were crucial missing ingredients, ranging from a judicial system protecting individual and property rights to modern accounting systems and financial markets.
In any event, many hard-hit emerging economies have cut back sharply on their imports and are trying to expand their exports. For the US, the result is a substantial rise in the excess of our imports over exports. However, it would be terribly misguided to respond to the rising trade deficit with protectionist measures.
Given the disarray that characterizes government in Washington these days, a very modest policy menu is now in order in the US.
A short-term and controlled shift to monetary and fiscal stimulus - especially if coupled with the maintenance of open markets in the US - would be this nation's compelling contribution to an improved world economy.
Meanwhile, we should economize on offering advice to others as well as in giving away money. Our ability to carry out sensible policy changes is the most desirable signal we can send to other nations, encouraging them to take tough action on their own.
* Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.