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Three Cheers For Obama

I got an email this morning from a friend in Europe whose views mirror those of other Europeans I have talked to. My friend writes about Barack Obama at the G-20, “He wants only more stimulus from the rest of the world to rescue the fucking assholes in the United States that created the disaster in the first place. He doesn’t even want regulation except 'later.' Obama’s current stance on the global stage, the only stage that really matters  now, is pathetic.” I don’t agree with this, and in fear that others share my friend’s opinions, I’ll tell you why.

There are plenty of grounds on which to criticize Obama’s economic programs, and I certainly haven’t hesitated to do so, but as far as I can tell, his performance at the G-20 has been flawless. Obama and Treasury Secretary Tim Geithner are absolutely right in pushing for the other G-20 countries, and particularly Germany and China, to increase their stimulus programs. It’s not a question of rescuing the “assholes” here, but of a global economy that is woefully lacking in the private demand that could spark a recovery. The only way to stimulate the demand at this point is through public expenditures, which means running very large deficits.  

Can’t the U.S. do this for the rest of the world? If the U.S. is the only country running very large deficits, that exactly reproduces the problem that got us into this mess. You had a savings glut in Asia and a few other countries like Germany.  Instead of the trade surpluses being used to fuel domestic consumption, these countries were sending them back to the United States to buy Treasury bills and the like. With the real economy (of autos, high-tech etc.) slowing already, that meant much of these funds flowing back into the US went into speculative investments and fuelled the subprime mortgage crisis until the whole edifice finally collapsed last year, precipitating a world recession and, perhaps, depression. What’s needed now from the G-20 is massive public stimulation of private demand, but done in such way that restores balance to the international trade and monetary system. That means the surplus countries have to run huge deficits, too.

Is the U.S. lagging on regulation? I might have said that a few weeks ago, but Geithner’s recent proposals, which include provisions for government takeovers of non-bank financial institutions and strict federal oversight of hedge funds and other unconventional financial firms, are very tough. Without the U.S. adopting these kind of measures, international efforts to strengthen regulation are likely to be fruitless. So while I think one can find things to complain about, Obama’s performance in London is not one of them.  

--John B. Judis