Shattered Glass at the G20

While the world's economic powers are acknowledging President Obama's leadership, by doing the opposite of what he urged them to do, the streets of Toronto are sparkling with shattered glass, bathed in the light of burning vehicles. I am waiting for all those pundits who complained about violence and sedition in the Tea Party movement to notice this. I am not holding my breath.

While I am waiting, I note that the Krugman approach to economic policy that the President is pushing seems to have come a cropper in Toronto. From the WaPo article:

In a news conference at the meeting's conclusion, Obama said that the world's largest economic powers had agreed on the need for "continued growth in the short term and fiscal sustainability in the medium term."

"A number of our European partners are making difficult decisions," Obama said. "But we must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today."

I like that bit about the short term, the medium term, and "today". Obama wants the governments of the world, and his own, to spend lots on stimulus packages today, and in the short term. Then they can start behaving in a fiscally responsible way in the medium term. What about the long term? Well, as Keynes said, in the long term we're all dead.

If you are curious about the precise meaning of the terms involved, I can enlighten you. "Today" means the remaining months between now and the November elections in the United States. Creating jobs today is obviously very important right now.

The "short term" includes "today" and extends to the November 2012 elections, when Obama will presumably, but no longer obviously, be running for a second term. Thus, the "medium term" is any time after Barack Obama has been safely reelected for a second one.

Now that we've got that straight, why did the G20 insist on emphasizing deficit reduction, even if

that deficit reduction needed to be "calibrated" to avoid harming growth, paced differently in each country and paired with other reforms to strengthen the economy.

There are three policies tearing at each other's flesh here. One is the idea favored by the President. Cuts in public spending can retard economic growth. Increases in public spending can, Krugmanite believers believe, generate economic growth. So we need to spend today.

Good, but the thing about spending is that you have to spend someone's money. The problem is that the governments of the developed world have run all out of everyone's money. There is simply no reserve of cash in anyone's pockets that they can pilfer for another binge.

Unless, that is, they start cutting the privileges of the voting blocks on which their governments depend. "Calibration" means precisely protecting those voting blocks, or protecting them enough to get deficit reduction passed. But what happens when you threaten to cut the privileges of public union members, or perpetual students enjoying endless apprenticeships?

That would be broken glass as burning cars. It's easy to razz President Obama about his untenable position. It's not at all easy to say what a tenable position would be. That's where fifty years of the welfare state have left us.

Comments

[BillW]

We have spent thirty years converting to a 'service economy', draining our manufacturing base to the tune of 20 million manufacturing jobs and running up an enormous trade deficit, all so we could enjoy the fruits of cheap labor. The net effect is that we have borrowed ourselves into near ruin so we can buy stuff at China prices from Walmart, and the last four administrations have facilitated it.

It is not a coincidence that the three countries who have flat out told Obama no - no more stimulus, they are reining in spending and not propping us (and the UK) any longer are China, Germany and Japan - three countries that focus their economies with manufacturing policies and are huge net exporters.

It is embarrassing to see Obama, hat in hand, begging the rest of the world to prop up our economy.

[Stan Gibilisco]

From where do these protesters come? What do they want? From whom do they expect to get it?

[caheidelberger]

These protestors disgust me. They've been up to the same tactics for what, more than a decade? Smashing windows does nothing but alienate the local citizens and hurt the local economy. I may share some political sympathy with the slogans they mouth, but their regular resort to violence only makes it harder for me to argue for the various causes they use as cover for their violent urges. Their message is completely lost in the press coverage of their criminal behavior.

Now I can hear the justification the smashers might offer for their violence (not condoning here, just test-driving someone else's worldview): We're fighting the violent economic imperial oppression of the common man! We must meet violence with violence! Even if that justification had legs, their violence is woefully misplaced. They harm mostly defenseless local shopkeepers rather than directly attacking the the forces of oppression. But I doubt these vandals have done anything close to the serious thinking Bonhoeffer did to justify his ultimate support for very focused violence. Nor have they come anywhere close to exhausting the potential for serious, sustained non-violent protest of the sort used by Gandhi and King.

[KB]

BillW: I don't think the service economy is the problem. Quite the opposite: I think our service economy, including WalMart, has served us well. It's the welfare state that has drained our resources.

Stan: they are bundles of anxieties and overactive imaginations.

Cory: I can't disagree with anything you say here. Mark that on your calendar.

[BillW]

KB,

Walmart does not create wealth. It only serves to facilitate transfering wealth from one party to another. Wealth is only created with real things - manufacturing, agriculture, mining.

I share your view that Walmart serves its function well. However, without manufacturing in the USA, Walmart largely serves to facilitate transfering massive amounts of American wealth to the People's Republic of China.

What would your thoughts be if the USA deliberately and systematically decided that all of agriculture was best done cheaper in Asia and we transfered farmers to the service sectors - made college professors, bloggers and coffee baristas out of them ... if we became a net importer of food to the tune of a trillion dollar annual trade deficit. Would that strike you as sound economic policy? Would having half of your food spending end up in some offshore farmer's bank account rather than into that hands of South Dakota farmers be OK with you? Would the fact that Kroger and Walmart do a good job of distributing and selling all of that imported food make it good policy?

[BillW]

KB,

Walmart does not create wealth. It only serves to facilitate transfering wealth from one party to another. Wealth is only created with real things - manufacturing, agriculture, mining.

I share your view that Walmart serves its function well. However, without manufacturing in the USA, Walmart largely serves to facilitate transfering massive amounts of American wealth to the People's Republic of China.

What would your thoughts be if the USA deliberately and systematically decided that all of agriculture was best done cheaper in Asia and we transfered farmers to the service sectors - made college professors, bloggers and coffee baristas out of them ... if we became a net importer of food to the tune of a trillion dollar annual trade deficit. Would that strike you as sound economic policy? Would having half of your food spending end up in some offshore farmer's bank account rather than into that hands of South Dakota farmers be OK with you? Would the fact that Kroger and Walmart do a good job of distributing and selling all of that imported food make it good policy?