The Price Is Not Right

By THOMAS L. FRIEDMAN

I don't expect much from the G-20 meeting this week, but if I had my wish, the leaders of the world's 20 top economies would commit themselves to a new standard of accounting -- call it "Market to Mother Nature" accounting. Why? Because it's now obvious that the reason we're experiencing a simultaneous meltdown in the financial system and the climate system is because we have been mispricing risk in both arenas -- producing a huge excess of both toxic assets and toxic air that now threatens the stability of the whole planet.

The old system, which has reached its financial and environmental limits, worked like this: We built more and more stores in America to sell more and more stuff, which was made in more and more Chinese factories powered by more and more coal that earned more and more dollars to buy more and more U.S. T-bills that got recycled back to America in the form of cheap credit to build more and more stores and more and more houses that gave rise to more and more Chinese factories. ...

This system was a powerful engine of wealth creation and lifted millions out of poverty, but it relied upon the risks to the Market and to Mother Nature being underpriced and to profits being privatized in good times and losses socialized in bad times. This capitalist engine doesn't need to be discarded; it needs some fixes. For starters, we need to get back to basics -- accountable lending, prudent saving, reasonable leverage and, most important, more engineering of goods than just financial products.

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