The G-8 was born out of the 1973 oil shock and the subsequent worldwide recession, and for years it operated like an Ivy League gentlemen's club, with the U.S. as the 'Iviest' of those Ivies. Twenty-five years later, in 1999, the G-20 was created in the aftermath of the 1997 Asian financial crisis, and finally last September in Pittsburgh the G-20 largely overtook the G-8 in perceived importance and became, as the Obama administration now describes it, "the premier forum for international economic cooperation" among wealthy nations.
President Obama has often cited four "agreements" reached at last year's G-20 summits in London and Pittsburgh - increased government spending, reform of global financial systems, balanced global growth, and avoidance of protectionist trade measures - as clear evidence of the "cooperative" nature of the new energized G-20. Last Wednesday, in the run-up to this past weekend's G-20 Summit in Toronto Geithner and Summers ("G&S") elaborated on this in an op-ed in the Wall Street Journal in which they called on the other 19 members to:
And though the U.S. wants to be the economic leader of the G-20, as it clearly was of the G-8, some of our own actions have been the biggest impediments to the G-20 being that "premier forum" that the administration recently declared it to be.
With the Toronto Summit now behind us and with very little really accomplished beyond agreement on the nuclear aspirations of Iran and North Korea, dealing with the continuing AIDS epidemic, and maternal and infant health care in desperately poor countries, we need to go back and reflect on those four London/Pittsburgh 'agreements' which President Obama thought were going to reposition and redefine the G-20 for years to come, and that would certainly carry forward to Toronto.
"Increased Government Spending"
Following the script laid out by his advisors, President Obama urged each of his counterparts to continue a relatively high level of stimulative spending, despite the fact that for months the European heads of state have been calling for substantial spending reductions, reacting as they must to the confluence of dramatic financial weakness in large parts of the Continent and of an increasingly 'entangled' and problematic Euro.
As reported by the Financial Times, the advanced economies entered the financial crisis in 2007 with an average budget deficit of 1.1% of national income that by this year had risen to 8.4%, and according to the IMF, their general government gross debt is set to rise from 73% of national income in 2007 to more than 110% by 2015. Against this strained background, the U.S. keeps insisting that the G-20 members 'increase government spending' for its stimulative effect, while all the while the U.S. Congress can't find any more stimulus here at home and instead very publicly just let lapse (for now or forever, who knows) a puny $55-billion 10-year bill that would have provided desperately needed aid to state governments and public-schoolteachers and extended jobless benefits to 1.3 to 1.6 million long-term unemployed Americans who are now instantly left without assistance.
With the U.S. mired in a jobless recovery, with a persistent real unemployment rate of 19% overwhelming more than 30 million workers, and with a largely ineffective stimulus plan dating back to the spring of 2009 that sixteen months later still claims only "2.8 million jobs saved or created" (mostly saved), it takes a lot of chutzpah for our administration in a formal letter to the G-20 heads to caution them not to move too quickly to cut their stimulus efforts.
The truth is that for most of the G-20 nations - especially the United States - both effective stimulus spending and responsible deficit reduction are needed right now.
"Reform of Global Financial Systems"
Last Friday the Obama administration declared that the United States can now take credit for "lead[ing] the world in financial reform", and the G-20 should quickly follow.
While the bill coming through the Senate and House and headed toward passage is much better than might have been expected three weeks ago, thanks to the resoluteness of a few stalwart Democratic Members, one commentator rightly called it the "bank overhaul too weak to hail" and former NY Fed general counsel Ernie Patrikis described what was once "horrendous" as now "merely very horrible" - thus it was no surprise that the big U.S. banks traded up a full 3% once the final details of the bill became known.
Specifically, (1) the bill does not solve the too-big-to-fail distortions that led to so many problems; (2) the important Volcker and Lincoln rules for derivatives trading by the banks were way too softened (for which down the road we will pay another huge price); (3) public companies now have even more opportunities to avoid meaningful internal audits while the number of small and medium sized companies exempt from the Sarbanes-Oxley audit requirements was foolishly expanded; (4) inexplicably Freddie Mac and Fannie Mae were left unmodified and unconstrained; and (5) far too much imprecision was left to underfunded, undermanned and outgunned regulators who are now at the mercy of the anything-but-outgunned lobbyists.
America's new financial reform bill may well 'lead the world' in timing, although I know that's not what the administration spokesman had in mind, but until we see the reforms of the Germans, Canadians and French the jury is still out as to whether our own much-delayed bill will lead the world in effectiveness, which is hard to envision right now.
And as for the much-needed uniform global bank levy that was to have been adopted with relative ease in Toronto, it was in fact abandoned at an earlier meeting this month of the G-20 finance ministers at the objections of Canada, Australia, Japan and China. Just further evidence of the actual non-cooperation of the G-20 when it comes to things economic.
"Balanced Global Growth"
With each of the U.S., India, Brazil and the U.K. having very negative current account balances as a percentage of GDP, especially the U.S., and with each of Japan, Russia, Germany and China having very positive balances, especially China, how could we ever think that without decisive actions on our part there was or could ever be agreement to make the G-20 economies "more balanced" as a whole? Our own inconsistency on this issue is evident in the fact that, in less than a year's time, at the obvious expense of sustainable long-term demand, America's current account deficit was 'stimulated' to grow back to $109 billion in Q1 2010 from its decade low of $84.4 billion in Q2 2009 through ill-advised very-short-term consumer spending initiatives not unlike the consumer gimmicks that marked the Bush administration and helped bring our national economy to its knees.
"Avoidance of Protectionist Trade Measures"
In many ways, saddest of all was watching the alleged 'agreement' to avoid protectionist trade measures get completely turned around into 'let's not upset the Chinese so long as they hold $2.4 trillion of foreign reserves (mostly dollars)'.
Just before the Summit, an Obama administration official said that the 20 leaders would mostly focus on Europe "now that China had announced plans to allow the yuan to rise". Having personally railed against China's unfair trade practices for the better part of the last four years, notably including its outrageous 25 to 40% undervaluation of the yuan, all I can say is, 'talk about kissing your sister'! The very most we can hope to get from China is a 4 to 6% annual rise in the yuan against the dollar, when either a very large one-time revaluation or legislation allowing for compensating tariffs on Chinese imports is demanded. Senator Sherrod Brown (D-OH) always says it best, "China has been great at gaming the system," on trade, and the president "shouldn't just check the box" and view this currency abuse as closed.
"Measures" which seek to correct unfair trade practices - currency manipulation, illegal subsidies, labor abuses, and environmental degradation - are absolutely not "protectionist trade measures" unless, it seems, it's Tim Geithner and Larry Summers who are making the determination.
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The Canadians just spent an unbelievable $897 million providing only the security for the three-day G-20 Toronto Summit ($12 million an hour!), to find that the institution is inherently dysfunctional when it comes to global economic and trade issues and that there was in fact not the four fundamental agreements that were the Summit's premise. Stewart Patrick at the Council on Foreign Relations artfully describes the tug-of-war that just ensued as watching the "fellowship of the lifeboat breaking apart".
And as the lifeboat continues to break up, faster-recovering economies like Germany's and China's highly centralized economy and other emerging-market economies are increasingly going to lead not just the global economic recovery but also the G-20.
The vision we have of economic and trade harmony is completely belied by the realities bound up within the twenty incredibly diverse nations that comprise the G-20. With the U.S., Germany, the U.K., Canada and Japan on one side of the G-20 spectrum, complex nations like Russia, Brazil, Saudi Arabia and South Korea in the middle so to speak, and China clearly on a path of its own, the G-20 may never be more than a convenience and certainly not the supremely "cooperative" body - with the U.S. at the top - that we would like it to be.
Wouldn't it be far better for the United States to first get its own stimulus and job creation efforts in order, with all possible conviction and action by President Obama and his administration? Wouldn't it be far better if in turn all the G-20 nations, including the U.S., sought to perfect and balance diplomacy between and among themselves rather than try to balance their (currently) un-balanceable economies and trade practices?
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
This is the most crucial election. Senators should get only 3 years to make the country again.
If they perform well they get another 2 year extension.
Vote wisely in November!!
"Talk about kissing your sister" ?
Enlighten us on this new way of being meaningfully cutesy, will you, Leo?
Thanks.
And give an example of how we can use it to make a point using linguistic dexterity. Seriously.
This is what stimulus is supposed to be about. Putting millions to work on projects that will benefit us as a nation that would be in place when times get better and help the economy recover.
When people have jobs, they purchase, pay taxes to local, state, and Gov coffers, not to mention SS and Medicare. This in turn brings life back to a dead economy that is fast on it's way to a major Depression.
What is so hard to understand here----fix the sick economy or let us die a slow death? Maybe the powers that be really don't give a damn about those who have made this country great till Reagonomics kicked in.
If things were done the way they should be,stimulus would improve conditions to get projects done that would actually do some good.
I also think we should tax other countries the same as they tax us on imports. Our country loses billions from the unbalanced trade policies we have.
If we could cut the corruption factor in this country, we could possibly be on a path to recovery.
The same principal that inspires every human being to seek the highest wages and lowest prices for himself is simply inevitable. One cannot change human nature, even if it was the best thing to do in the economic sense, which it certainly is not.
sounds like a winner,but that just won't do. This Country is mine and it's yours too, necessity is the mother of all invention and some inventing we must do.
So lets ask GOD to bless us and continue to pray, LORD help us invent some stuff to create a better way,but first let us return to village life cause its a better way. I'am my brothers keeper and a Team Effort is needed to restore to life what selfishness has depleted. We were a great Nation and that greatness is still there, it's just broken down and in disrepair. Lets repair breaches and as for the Government leaches they'll have to come around or go home and pick peaches. Maybe bring some back in the next election loop when they've learned some life lessons through pickin fruit.
Have a Great 4th of July remember Independence didn't come cheap, but by the blood,sweat and tears of our Ancestors and if America is to change We the People will hold the truth to be self evident and that all Americans helped create our problems, those who really love her can return her to glory with GOD'S help!
African Americans fought in this country's revolution and look what it got us... continued Slavery. Sad but true. Until this couintry is washed of greedy evil people, we will continue on this spiral down.
and loving our neighbors even the greedy evil ones is the way. No one said it would be easy. What worth while thing ever is. Keep the faith!
No biz is hiring!!! The republicans wont pay for the unemployment and the democrats are too dumb to understand how to fund small business.
Plus all they want to do is pork up any bill anyone wants passed for their friends and family but not for people that need it.
This is a joke, right? Honestly, why would any country follow the example/strategies/policies of the US.....
Sorry - financial reform? There is only one place to look and that is Canada and only one model to follow .....they did not have to "reform" - strongest banking system in the world.
We need to do WHAT CANADA DID. :)
Nationalize our currently PRIVATELY OWNED Federal Reserve Central "Bank".
We can eliminate MOST of our debt - because most of our debt is owed to OURSELVES.
They CHARGE US INTEREST on PRINTING OUR CASH FOR US. Our cash represents the debt we "owe" the FED. :) What a racket~!!!
Can you say SCAM?
Can you think of a bigger scam perpetrated on any people anywhere?
I can't.
We need to abolish the filibuster. For decades, the filibuster was responsible for the blockage of civil rights bills. Now it is being used to block one of the most essential human rights - the right to a decent job - either through the public or through the private sector.
Then there's Congress, voting for and funding TWO illegal and immoral wars, literally bankrupting the country, and worse yet, ironically we're saying we want to "help them get their economy on it's feet."
Keep our focus on job growth. Our only leverage as citizens is our labor and our consumerism but only if used consciously and collectively. Corporations speak the language of numbers. It is the only language they speak. Speak to them directly through their quarterly profit margins. Support corporations that engage in sustainability, fair labor, clean energy, policies that promote peaceful trade instead of stealing resouces through unjustified wars and the world will change naturally.
Be a Conscious Consumer - have a direct affect. http://theconsumerparty.org