19 To 1 At G-20
Economics: The G-20 meeting in Seoul to create a new global economic order looks a lot like a rugby scrum, all arms and legs and little clear direction. Yet on one thing the leaders agree: The crisis is largely America's fault.
A couple of headlines show what we mean: "Obama Under Fire At G-20 Summit" (Agence France Presse) and "Obama Flies Into Storm Of Criticism At Seoul Summit," (the Sydney Morning Herald).
Why the anti-U.S. tone? Sure, legitimate gripes can be made about the Fed's renewed $600 billion quantitative easing plan to boost U.S. demand and weaken the dollar. And those who fault the U.S. for its massive debt buildup and trillion-dollar deficits will get no disagreement from us. Both policies are economically unwise.
That said, the idea that the rest of the world has innocently stood by over the last decade of financial turmoil while the U.S. messed things up doesn't stand up to scrutiny.
Take China and Germany. Both have followed policies that push up exports at the expense of imports and domestic demand. In 2009, the two countries accounted for 19% of the world's $12 trillion in exports.
The other G-20 countries run big trade deficits and want Germany and China to "rebalance" their economies. Such requests have so far been met with a polite "no thanks" at the G-20.
China in particular is following the same foolish mercantilist policy Japan did 40 years ago — focusing on boosting exports at all costs by undervaluing its currency and building foreign reserves.
Yes, GDP growth in China has averaged over 10% for more than a decade. But because of the frugality China has forced on its citizens, the savings rate approaches 50% — an unhealthy level that leaves little room for buying other nations' goods. So resentment is building.
Meanwhile, U.S. critics in Europe, the G-20's largest bloc of nations, are no less hypocritical. While insulting U.S. fiscal profligacy, their own finances are a bleeding mess — far worse, statistically, than even ours. And that's saying a lot.
In 2009, U.S. public debt as a share of GDP was 53%. In Britain, it was 68%, in Germany 72%, in France 78% and in Italy 115%. In Japan, the debt-to-GDP ratio is at bankruptcy levels: 190%.
True, some brave, bold moves have been made recently, especially in France, Germany and Britain, where political leaders have cut spending to regain control of their public finances. But that doesn't change the fact that plenty of economic policy mistakes have been made around the globe and we're all paying for them now.
These problems aren't easily resolved. G-20 watchers who keep hoping for a "grand bargain" — a deal on currencies, or trade deficits, or government spending, or whatever, that will somehow solve all our problems — are going to be disappointed.
The answer isn't in collective action, or in blaming the U.S. It lies in sound economic principles followed by each nation. These include lower taxes, smaller government, fewer regulations, freer trade, and a respect for private property and rule of law.
A commitment by the nations gathered in Seoul to return to those principles would do more than any deal on currencies or trade deficits to strengthen the world's economy.