Interview with Martin Wolf on What We Should Expect from G-20 but Won't Get
Barack Obama and G-20 leaders will probably emerge from the sessions that start today with (1) commitments on international financial regulatory reform, (2) non-binding commitments to various (mostly modest) stimulus strategies within their own economies, (3) a commitment to significantly enhance the resources of the International Monetary Fund and (4) a joint commitment to "resist protectionism" in their countries.
But the major benchmark of whether this G-20 Summit matters or not will be the degree to which the surplus countries of China, Japan and Germany commit to a plan to rewire their economies to derive more of their growth from domestic consumption as opposed to export led growth.
For well over a decade, overall global growth and these surplus countries in particular have depended on the economic narcotic of an American consumer that vastly overconsumed in comparison to what he and she produced. In contrast, Germany, China and Japan chronically underconsume in relation to their exports and production.
Obama seems to get this, but it remains unclear how hard he will push other major global stakeholders to wake up and recognize their responsibilities in driving a greater share of global consumption than they have in the past. Germany is strongly resisting the Obama administration's nudges. China has taken steps forward. Japan, which continues to amass surpluses, seems to have lost a great deal of its ability to control the course of its economy.
The subject of "What Will Replace the American Consumer?" was the topic of this forum organized by the New America Foundation/Economic Growth Program last Thursday and featuring such voices as Martin Wolf, George Soros, Laura Tyson, Bernard Schwartz, Mark Zandi, Leo Hindery, Richard Vague, Clyde Prestowitz and others. A resource page of charts, graphis, and other materials prepared to educate about the subject matter being discussed by the G-20 is available here at the new site, New American Contract.
But as Martin Wolf says in his Financial Times essay yesterday -- and in the video interview I do with him above -- we must get the surplus counties to kick-start their consumption. . .on a much more massive scale than they are engaged in. Otherwise, despite the pleasant optics and generally chummy atmosphere, this Summit will be an unfortunate bust.
-- Steve Clemons directs the American Strategy Program at the New America Foundation and writes the popular political blog, The Washington Note
"But the major benchmark of whether this G-20 Summit matters or not will be the degree to which the surplus countries of China, Japan and Germany commit to a plan to rewire their economies to derive more of their growth from domestic consumption as opposed to export led growth."
Of course, the whole problem is the countries which are producing and exporting (at a profit) and not those countries which are consuming and importing (at a loss).
This is the free market at work. Those willing to work gain an advantage over those who only want to consume since money (and value) is constantly going from the consumers to the producers.
Why isn't the solution to stop the consumption in the consuming countries rather than complain about the producers in the producing countries?
Or even to encourage the consuming countries to make more of the goods they are consuming?
Are problems of this type always somebody else's fault?
April 2, 2009 9:57 AM | Reply | Permalink
In 2008, the United States ran a $810 billion trade deficit, while China ran a $290 billion trade surplus and Germany ran a $229 billion trade surplus. I'd think that the problem lies more with the lack of United States competitiveness than with China or Germany.
Japan ran a $24 billion trade surplus in 2008, but by the end of the year, Japan was running a trade deficit. Japan has a huge government debt and a generally disfunctional government that has been staying in power by imprudent spending. Its situation remains very unhealthy, and it is unable to spend its way out of its slump.
Trade deficits will be a lot lower in 2009, due to a decreasing world trade, of which a significant part results from the lower price of crude oil. A $100 / barrel price drop would knock roughly $3 trillion off the world's annual oil bill, much of which gets reflected in world trade figures and in GDP figures.
April 2, 2009 11:02 AM | Reply | Permalink
Sure. If Germans start living and spending irresponsibly, from pay-check to pay-check, like the American consumer, it will work out fine. Sure.
April 2, 2009 1:02 PM | Reply | Permalink