This week's G-20 meeting will resemble a game of musical chairs. Everyone will think of themselves and scramble for a limited number of seats. Germany and other Western European nations want greater contributions to the International Monetary Fund, to help out Eastern European nations and former Soviet satellite states which today are major export markets for them. China, Japan, India and South Korea want to protect their export markets, the largest of which is America, and their dollar denominated investments. Canada and Mexico would want to maintain the stability of their biggest trading partner, the United States. Saudi Arabia and Turkey, the Middle Eastern members, are close U.S. allies and do not benefit from seeing America weakened. Even Russia, which wants to bluff America away from former Soviet republics, would lose out if America weakened so much that the world's economy nosedived, depriving Russia of desperately needed oil revenues and damaging its substantial holdings of dollar denominated assets.
A meaningful program of increased IMF funding requires American participation, since America would be the largest potential source of funds. The Asian export nations have little choice but to prop up America, or they lose export markets and suffer investment losses. Other G-20 members need a strong America much more than they need lectures from Western European nations about prudence and cowboys. Whether or not any of the G-20 will admit it, they all have an interest in American success at the meeting. Being the world's only superpower places singular burdens on the United States (most recently exemplified by President Obama's decision to ramp up U.S. military strength in Afghanistan while Western European nations look for quiet ways to slip their forces out of the country). But it also provides an occasional situational advantage.
The world's current economic problems are so severe that a meeting like the G-20's cannot accomplish much. It will take years of hard work and sacrifice to work through our problems. President Obama cannot hit a home run at this meeting. Indeed, he will have endure scoldings from a number of other participants, because much of the world feels the need to blame America. (So what's new?) But he may be able to bunt his way onto first, since just about everyone will, at least quietly, have an interest in seeing him succeed. A few small successes and no major blowups would be a good result--for other nations as well as America.
America's current advantage isn't necessarily permanent. When the President returns, he should focus on strengthening the nation's industrial base and increasing its worker productivity. We need to produce more wealth; we cannot continue to derive wealth by taking out second and third home equity loans or peddling incomprehensible derivatives contracts to investors. America's prowess in manufacturing, agriculture and other production were crucial to its rise in the 20th Century, and are the key to future prosperity. The U.S. produces a number of high value goods and services--such as aircraft, entertainment, computer software, and medical technology--as well as massive quantities of food, all of which serve domestic and foreign markets. In addition, America has the best university system in the world and can provide higher educational services to numerous foreign students. Ultimately, we can't borrow or use printed money to work our way out of our economic problems. The wealth of nations derives from creating things that other people want to buy. We're really good borrowers right now. We need to become better producers and sellers.
Showing posts with label G-20 2009 meeting. Show all posts
Showing posts with label G-20 2009 meeting. Show all posts
Tuesday, March 31, 2009
Sunday, March 29, 2009
The G-20 Meeting: Are All Economics Local?
All politics is local, the late Tip O'Neill said. This dynamic will underlie the proceedings of the G-20 meeting this week. As the worldwide economic downturn has progressed, governments are playing an increasingly important role, bailing out banks, catching the unemployed in safety nets, and sometimes stimulating economic activity. The politicization of the economic crisis means that political concerns will increasingly drive the statements and actions of the national leaders attending the G-20 summit. Even at the lofty level of the G-20, politics remain local; and that will make for a messy meeting.
Each nation's leader will focus on how he or she is covered by the press at home. "It's the economy, stupid," is a universal political principle, and the standing of numerous leaders rests on how well they deal with the current crisis. The Euro bloc nations will scold the U.S. for allowing its banking system to act so recklessly as to trigger a worldwide recession (not an unfair criticism). But the Europeans will reject American calls for increased stimulus spending, and argue in favor of heightened regulation that dampens financial sector risk taking. These views will play well in cafes and bier gartens on the continent.
The Chinese and Japanese will urge the U.S. to keep the dollar strong and trade barriers low. They want to protect the value of their vast holdings of U.S. dollar denominated investments (in the trillions when you add it all up), and they also want to export their way out of their recessions. Other Asian members of the G-20 will concur.
Russia will play the role of spoiler, taking every opportunity to yank America's chain. The Russians no doubt perceive America to have weakened itself with self-inflicted wounds from its financial sector, and will seek to regain influence lost with the fall of the Soviet Union.
The U.K. and most other British Commonwealth members of the G-20 will awkwardly look down at their hands and whenever possible clear their throats in lieu of speaking. They cannot publicly defend America, yet they are aware--as are most other G-20 nations--that America is the world's last, best hope. No other country can organize and implement a comprehensive response to the economic crisis. No other country has America's resources--the largest national economy and the issuer of the world's reserve currency and most favored sovereign debt. Most importantly, no other nation has the inherent generosity and open heart that America has. In the last century, America lost over 500,000 lives and spent untold billions fighting two world wars in order to bring peace around the globe. In spite of these enormous sacrifices, America obtained no new territory and extracted no reparations from its vanquished foes. America is the only major nation in the world trusted well enough to lead the process of recovery.
Barack Obama is reported widely to be a student of Lincoln and perhaps Roosevelt. He should spend some time studying Dwight Eisenhower--not the Eisenhower presidency, but the war years. In 1939, Eisenhower was a colonel who had long held staff positions and had scant prospects for becoming a general. With the instigation of the Second World War in Europe, the need for the United States greatly to expand its peacetime Army made Eisenhower, with his organizational and administrative skills, and diplomatic demeanor, a valuable officer. By mid-1940, he became a general, and by late 1942, he was given command of the U.S. Army's first major operation in the Atlantic theater, the invasion of North Africa. Eisenhower was promoted to this position ahead of over 100 more senior generals, enjoying a meteoric rise not unlike that of the Illinois state legislator who now occupies the White House. Eisenhower's diplomatic skills proved crucial in binding together the British and American Armies. The British superiority in combat experience and, initially, combat effectivess, had to be acknowledged and given due credit. The American role as the supplier of the resources that would provide the margin of victory, however, meant that America had to gradually and subtly assert itself as the senior member of the partnership. Eisenhower deferred repeatedly to the British, greatly annoying his fellow American generals. But in so often deferring while sometimes declining, he solidified America's standing as the dominant member of the alliance. British desires to use American military strength to preserve their empire were set aside. American desires to invade continental Europe promptly and get the war over with prevailed. Yet all this was done so diplomatically (by FDR and others as well as Eisenhower) that even today, America and the United Kingdom retain a special relationship.
Barack Obama will return from Europe with little in the way of immediate results except perhaps for a feel-good statement or two. But he is said to be a good listener. As such, and with some subtle pushing and prodding, he may be able to lay the foundation for a coordinated process of recovery. Let's hope he succeeds. Otherwise, it may turn out that, in this crisis, all economics are local, and that would not auger well for anyone.
Each nation's leader will focus on how he or she is covered by the press at home. "It's the economy, stupid," is a universal political principle, and the standing of numerous leaders rests on how well they deal with the current crisis. The Euro bloc nations will scold the U.S. for allowing its banking system to act so recklessly as to trigger a worldwide recession (not an unfair criticism). But the Europeans will reject American calls for increased stimulus spending, and argue in favor of heightened regulation that dampens financial sector risk taking. These views will play well in cafes and bier gartens on the continent.
The Chinese and Japanese will urge the U.S. to keep the dollar strong and trade barriers low. They want to protect the value of their vast holdings of U.S. dollar denominated investments (in the trillions when you add it all up), and they also want to export their way out of their recessions. Other Asian members of the G-20 will concur.
Russia will play the role of spoiler, taking every opportunity to yank America's chain. The Russians no doubt perceive America to have weakened itself with self-inflicted wounds from its financial sector, and will seek to regain influence lost with the fall of the Soviet Union.
The U.K. and most other British Commonwealth members of the G-20 will awkwardly look down at their hands and whenever possible clear their throats in lieu of speaking. They cannot publicly defend America, yet they are aware--as are most other G-20 nations--that America is the world's last, best hope. No other country can organize and implement a comprehensive response to the economic crisis. No other country has America's resources--the largest national economy and the issuer of the world's reserve currency and most favored sovereign debt. Most importantly, no other nation has the inherent generosity and open heart that America has. In the last century, America lost over 500,000 lives and spent untold billions fighting two world wars in order to bring peace around the globe. In spite of these enormous sacrifices, America obtained no new territory and extracted no reparations from its vanquished foes. America is the only major nation in the world trusted well enough to lead the process of recovery.
Barack Obama is reported widely to be a student of Lincoln and perhaps Roosevelt. He should spend some time studying Dwight Eisenhower--not the Eisenhower presidency, but the war years. In 1939, Eisenhower was a colonel who had long held staff positions and had scant prospects for becoming a general. With the instigation of the Second World War in Europe, the need for the United States greatly to expand its peacetime Army made Eisenhower, with his organizational and administrative skills, and diplomatic demeanor, a valuable officer. By mid-1940, he became a general, and by late 1942, he was given command of the U.S. Army's first major operation in the Atlantic theater, the invasion of North Africa. Eisenhower was promoted to this position ahead of over 100 more senior generals, enjoying a meteoric rise not unlike that of the Illinois state legislator who now occupies the White House. Eisenhower's diplomatic skills proved crucial in binding together the British and American Armies. The British superiority in combat experience and, initially, combat effectivess, had to be acknowledged and given due credit. The American role as the supplier of the resources that would provide the margin of victory, however, meant that America had to gradually and subtly assert itself as the senior member of the partnership. Eisenhower deferred repeatedly to the British, greatly annoying his fellow American generals. But in so often deferring while sometimes declining, he solidified America's standing as the dominant member of the alliance. British desires to use American military strength to preserve their empire were set aside. American desires to invade continental Europe promptly and get the war over with prevailed. Yet all this was done so diplomatically (by FDR and others as well as Eisenhower) that even today, America and the United Kingdom retain a special relationship.
Barack Obama will return from Europe with little in the way of immediate results except perhaps for a feel-good statement or two. But he is said to be a good listener. As such, and with some subtle pushing and prodding, he may be able to lay the foundation for a coordinated process of recovery. Let's hope he succeeds. Otherwise, it may turn out that, in this crisis, all economics are local, and that would not auger well for anyone.
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