It’s encouraging to see that the dynamic between France and the NATO alliance is resuming a military footing. Last week, French troops rejoined the organization, which is currently supporting US-led efforts in Afghanistan—a break with 40 years of policy under president Nicolas Sarkozy’s predecessors. This cooperation with Barack Obama may, however not translate to the economic front.
A conference at the New America Foundation last week exploring "What Will Replace the American Consumer?" sketched out the predicament in which team USA finds itself as it heads into the G-20 negotiations this week. There, Clinton and Obama economic adviser Laura Tyson and FINANCIAL TIMES columnist Martin Wolf laid out an interesting case for how the US might proceed—and from what I understood, we’re not in great shape.
Both speakers took as a point of departure that the US government has spent the last several years spending itself into a large deficit, but not alone: Only three of the major economies that will meet in Berlin this week are running account surpluses—China, Japan, and Germany. Worse, most of these countries, particularly the US, are experiencing a deflationary moment, where consumer demand is down (pace unemployment statistics) just at the moment when you’d want cash for goods and services to power the national economy.
Tyson added that it does not mean American workers are entirely to blame for irresponsibility. Banks have done their fair share of damage to credit markets, and US median family income has dropped $2,000 in recent years—all the while financial obligations like education, child and health care, transportation and homes became more costly investments. This financial instability hasn't missed many targets, including nations like China now contemplating a social safety net to boost spending and improve middle class life.
Naturally, depressed demand in bigfoot global consumers like the US—which spends two times the GDP of China and Germany combined—sends reverberations around the world. But both Tyson and Wolf acknowledged that the US could not shoulder the spending binge needed to get the global economy on track; any shot at world economic resurgence will require partnership between surplus and deficit countries, with most of the burden coming from the former.
It’s not good that one of the three surplus countries, Japan, has now experienced a steep drop in GDP in the last few months. Or that Germany is still decrying/undercutting the US focus on stimulus over regulation. Or that China, per Wolf, “sees themselves as the entirely innocent victims of overspenders.” Protectionism of a protracted and unproductive kind could creep into the world’s attempt to shake off recent dramatic losses of equity.
But it is good that the first stone has been thrown regarding France and NATO. And that the White House has also announced its leadership on a Major Economies Forum to “facilitate a candid dialogue among key developed and developing countries” in advance of the Copenhagen negotiations on climate change this December. Obama’s apparent message: The world better get used to teamwork. If ever there were a reason to engage in clear, untheatrical negotiations of these interlocking priorities, this meltdown would be it. According to Tyson, we're at "the financial equivalent of war."
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