Reshape Global Economy? What Will You Do, Mr. President?

September 21, 2009

The good news is that President Obama understands that global trade imbalances – especially America’s enormous trade deficit – is what collapsed the global economy, and he will push the G20 at the meeting in Pittsburgh to reshape the global economy:

U.S. President Barack Obama said on Sunday he would push world leaders this week for a reshaping of the global economy in response to the deepest financial crisis in decades.

The bad news is that he, like everyone else – including economists – is clueless as to the root cause of the imbalance:

… Obama said the U.S. economy was recovering, even if unemployment remained high, and now was the time to rebalance the global economy after decades of U.S. over-consumption.

Overconsumption in the U.S. is a myth, perpetrated by images of fat Americans returning from the mall with their gas-guzzling SUVs filled to the roof-line.  While this may be an accurate portrait of the top 2-3% of wage-earners, reality for the vast majority of Americans is quite different.  When American families’ median income is something in the range of $48,000, how much money is left for “over-consumption” after paying the mortgage (or rent), putting food on the table, paying the utilities and buying health care?  Precious little. 

The problem with our trade imbalance isn’t that Americans over-consume.  The problem is that virtually everything we do consume is foreign-made.  Would President Obama have us stop consuming altogether?  What would we wear?  Every stitch of clothing sold in this country is foreign.  Would he have us stop maintaining our homes?  Nearly everything on the shelves at Lowe’s and Home Depot is foreign made.  Would he have us stop maintaining our cars?  Try finding an American-made auto part.  Should we stop replacing burned-out televisions?  There hasn’t been an American-made television in decades.

We have no choice but to continue buying foreign-made products, perpetuating the global trade imbalances.  Nothing is going to change until Obama, or some subsequent president with the guts to do it, finally says to the WTO (World Trade Organization) “enough is enough.”  “It’s clear the rest of the world won’t voluntarily eliminate its dependence on exports to America, so we’re putting tariffs back in our trade policy tool box.”  Only then will there be any hope of rebuilding the manufacturing sector of our economy and fixing the trade imbalances that have brought us to our knees.

Obama understands the problem.  He truly does, as evidenced by this last statement:

“We can’t go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we’re taking out a bunch of credit card debt or home equity loans, but we’re not selling anything to them,” Obama said in an interview with CNN television.

OK, Mr. President, the question now is what are you going to do about it?  Talk, talk, talk and asking other nations to fix the problem for you isn’t action, it’s shirking your responsibility.  What are YOU going to do? 

One final comment about the following paragraph is in order:

For years before the financial crisis erupted in 2007, economists had warned of the dangers of imbalances in the global economy — namely huge trade surpluses and currency reserves built up by exporters like China, and similarly big deficits in the United States and other economies.

What a crock.  Economists’ zeal for one of their pet 18th century theory, Ricardo’s principle of comparative advantage, is what led to the creation of this globalized mess in the first place.  For anyone to claim that economists have been “warning of the dangers” is laughable and the epitome of historical revisionism.  If the U.S. ever does take real action to unwind the mess, it’ll be over the howls of protest from economists. 

The only good news here is that Washington’s patience with globalization’s parasitic predation on the American market is clearly wearing thin.   But real action still seems to be a big leap from where we are today.