G20 Should Focus on Solutions, Without Obama

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Imagine your country is suffering from the worst financial crisis in nearly a century (as in the UK) or that your export market is collapsing along with the promise of prosperity you’ve made to hundreds of millions of peasants (as in China). You have hinged your public support on creating effective regulation and creating the next monetary system (Merkel, Brown, Sarkozy) and you are coming to Washington DC to meet with the leaders of the G20 to accomplish these multilateral goals.
Would you want to meet with President Bush or President-elect Barack Obama?
The answer is obvious, but as James Galbraith said in an interview with the Telegraph, “The one president at a time rule will apply.”
As leaders gather in Washington on November 14-15 for the G20 meetings, they should establish contact with Barack Obama but understand that he is constrained by his president-elect status, the magnitude of the Bretton Woods II agenda, and the limited resources at his disposal.
Members of the Obama team have rightly stated that they will maintain respect for the current president and have consistently responded “no comment” to questions about Obama’s role at the G20 meetings. They are cautious about the risks associated with overstepping his bounds. But there will be serious pressure to have Obama’s input on the problems facing the global economy and financial system in private discussions.
Deep involvement is risky for Obama, and it could be counterproductive and further complicate the already fractious G20. Furthermore, Obama and his staff are not ready to answer the questions at hand. The campaign, not the world monetary or regulatory systems, has been their focus for the past two years. The resources and expertise necessary to tackle these problems are only available to the current president.
Although foreign leaders would like to meet with Obama and forge a consensus on some of these key issues, they should recognize the constraints under which he is operating. They should also recognize, despite the pressure from Brown, Sarkozy and Merkel, that these debates will probably not be settled this weekend. In the future they can negotiate with a more informed and better equipped President – not President-elect – Obama.
— Sam Sherraden

Comments

13 comments on “G20 Should Focus on Solutions, Without Obama

  1. Kathleen Grasso Andersen says:

    Watching this financial fiasco, I can’t help but remember Richard Grasso, former Chairman of the NYSE…at least his bonus was for doing a good job, keeping the market stable after 9/11 and it didn’t come from taxpayers’ pockets…compared to this bailout bill, his bonus now looks downright paltry.

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  2. sam sherraden says:

    Bloomberg is reporting that Obama is sending former Secretary of State Madeleine Albright and former Republican Representative Jim Leach to the G20 summit.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aaaP4eqKLmYg&refer=home

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  3. SansS says:

    I think imagining ‘competent management’ points the way.

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  4. Carroll says:

    I am just going to quote Paul Krugman.
    “So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.
    As a friend said last night, we’ve become a banana republic with nukes.”
    I don’t expect anything from this summit, I also don’t expect Obama will be capable of handling what is coming down either and is pushing Bush to do another stimulus hoping it will give him some breathing space in January.
    Consider one thing….13 months before the FED even went to congress with their world is coming to an end story…they had already created 11 programs and given out 2 trillion to entities that they refuse to identify. Bloomberg is suing the FED under the FOIA to try and find out where the 2 trillion went so maybe we will eventually know.
    What we’ve got and have had for some time is capitalism from hell as a economic system.
    Here is how it operates…policies and actions are set for the benefit of finance and WS, then when the economy starts to squew a bit, they fix another policy to keep it afloat, they are constantly fixing and adjusting policy with weight on WS finance and the banks and just enough bones thrown to the real economy so it keep WS and the banks fed. Then when the day and circumstances come that all the fixes have been exhausted and they can’t squew the policies any further or blow the bubble any higher to keep WS and the banks fed, it all collapses.
    So..er…does anyone think those experts Obama has, the guy from the FED of NY and the other WStreeters are gonna dismantle their own system? I think not. They will prop it up first and then try to give just enough cpr to the public for the public to start the bubbles blowing again.
    Instead of letting WS criminal capitalism fail and take it’s lumps they are going to let the country fail…perhaps not on purpose, but they can’t consider anything different from what they have always done, it’s in their DNA…it’s all they know.

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  5. Arthur James says:

    In thinking about what Laura Harrison said both here and in response to Steve Clemons’ comment that Timothy Geithner is the modern version of John Maynard Keynes, and also thniking about Paul Krugman’s NYT column on “Franklin Delano Obama”…
    … it seems to me that the world was extremely fortunate that at the time of the shaping of the iunternational economic order that was to come out of World War II there was under Franklin Delano Roosevelt a US administration that was committed to, or at least very open to:
    1. the need for effective US leadership in multilateral international economic cooperation – in that case shared with the Brits, who helped provide intellectual leadership even if they were mighty short of dollars!
    2. Keynesian policies to promote/ensure high (full?) employment – I didn’t realize till I read Markwell’s book on Keynes and international relations just how important this US commitment or opennes was to Keynes during WWII (e.g. Hansen and Gulick, even Henry Wallace, dare I mention him?)
    3. free trade – Cordell Hull, FDR’s Secretary of State from 1933 to 1944, was famous for his belief, once widespread, that free trade promotes peace (again, Markwell’s account is fascinating of how this was the classical 19th century English liberal belief, on which Keynes was ‘brought up’ from his childhood among Cambridge, England, economists)
    The economic policy-makers and advisers of the wartime planning for the postwar internaitonal economy all believed that the war had grown out of the Great Depression, so economic policies and institutions were crucial both for their own sake and to prevent another war.
    These three beliefs I’ve mentioned in the FDR camp were surely important in helping to ensure that from 1945 on we had an era of managed/semi-managed global capitalism that helped to prevent a recurrence of the world wars of the first half of the 20th century. Lest we forget, especially on this 90th anniversary of the end of “the war to end all wars”.
    It seems to me that we need exactly this today.
    If we are to have Franklin Delano Obama, which I’m all in favour of, then it is essential that he and his administration also be committed to
    1. US leadership in multilateral international economic cooperation
    2. Keynesian policies to ensure high employment
    3. free trade
    This seems in the spirit of the Baldwin/Eichengreen collection for G20 that Laura H linked us to.
    Whatever happens at G20, it’s important that we are assured that under F D Obama we will, as under F D Roosevelt, have those three commitments.

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  6. SansS says:

    I’m betting that Obama is already taking a lead. He’s got the leader’s mantle on already.
    Besides what worth would there be in any resolution that binds the BHO administration and plans without consideration acknowledgement.
    Considering his needs, input and approval has to be on everyone else’s mind and if it’s not they’re going to be pretty awkward. Not one of the world leaders has gone through a 2 year campaign and organizing effort that’s comparable or as focused.
    He needs to be leading, drawing out the framework and the limitations to be addressed in his administration.

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  7. Dave says:

    I would hope that the president elect would at least send someone with “observer” status to the meetings, like Jason Furman. That person could at least take notes and report back to Senator Obama, and also work with the Bush administration’s representatives behind the scenes, while not actually participating in actual policy decisions.

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  8. Laura Harrison says:

    The contributions at
    http://www.voxeu.org/index.php?q=node/2544 are just what we need – intellectual leadership for international economic cooperation in this crisis.
    Now we need political leadership, especially from the US, to give effect to this.
    As you may have read me say elsewhere, this is what we can learn from Keynes which is so crucial for our interdependent world economy, on the prosperity of which depend also the chances of lasting international peace(see Donald Markwell, “John Maynard Keynes and International Relations”).
    Everyone in an economic or foreign policy position in the new administration should be committed to international economic cooperation as a centrepiece of US foreign relations.

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  9. Laura Harrison says:

    For those like me who think that international economic cooperation is desperately needed, with US leadership towards it, this is worth a look – http://www.voxeu.org/index.php?q=node/2544

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  10. Juro Jordan says:

    The reason for this economy crisis is huge imballance between investments and buying power/consumers. Too many investments for diminished buying power to be able to enrich those investments with returns. So many questions today about where to invest, and nobody is sure which kind of stocks are going to give returns. That question says two things: there is too much money waiting to be invested, and no sector of economy is going to grow. Why is there too much money waiting to be invested? Because wealthy had to many tax cuts and they accumulated money excess which is invested, which says that raising the tax rate for the wealthy 5% of the population will not affect the economy, it will just take excess investments out of circulation and help pay for growing defficit that was initially incured on unnecessery Iraq war and mostly useless terorist attack preventions.
    Clinton himself said that there was an excess of money in the end of his term. That excess created .com bubble that burst because of overload of investments into overly risky projects that failed en mass. The burst caused investors to pull out of IT sector and search for another good investments. While searching for good investments, investors transfer huge amounts into T-bills and gold, which creates devaluation of the dollar.
    Investors found good investments in real estate sector of economy, and overloaded it causing it to burst this bubble also. Next sector to bubble and burst was oil and commodities, which put extreme strain on buying power in an economy by increasing production costs. While real estate bubble created huge jump in buying bower, it was created by borrowing against the asset. Signs of a bubble burst in real estate caused investors to search for another viable investments and found it in energy and materials (comodities). When bubble in energy and materials prices diminished the buying power, it also destroyed higly leveraged homes as a source for buying power, which in turn destroyed banks and caused the credit freeze.
    Credit freeze is there cause there is no sector of economy that will give returns, not because banks have no money. Banks can not find viable investments and they will not lend no matter how much tax money we give them. Why is there no sectors to invest in? Lets take manufactoring sector as an example. To invest in a furniture company there has to be a growing demand for furniture in order to expect returns on an investment. To have a growing demand there has to be a growing buying power of population as a whole. No matter how much money is invested in the company, that money will not have returns if there is no growing demand. That money will be spent on taking over another company’s market or for menagement salaries but it will have no effect on the furniture production as a whole. The conclusion is that if there is no segment of economy to grow, it says that there is no growing demand in any segment. Growing demand can come only from growing buying power of a population. This says that last 20 years populations earnings were stagnating. Earnings were rising only in wealthy 5% of population, which does not increase buying power of the population as a whole. Rest of the population were using home equity as a mean to increase their buying power which masked their stagnating real earnings. No more home equities means that buying power is slashed dramtically. When Henry Ford was asked why he pays his workers so much more then others do, he answered: ” So they could buy my cars and they work much better”.
    Now we have too many investments and diminished buying power all across the board. Investments were jumping from one segment to another destroying investments and new businesses in the process. Investments were wasted in skyrocketing menagement salaries without raising labor wages, stagnating buying power. Growing menagement salaries created even more rampant investments, without creating more demand for products and services.
    Dawn slide of the economy will stop when exces production is destroyed and excess investments are out of the economy (in the mattress), but that will not provide growth untill buying power is increased. Destruction of excesses creates unemployment, which diminishes buying power as a whole even further. This slide destroyes poor and wealthy and the middle. Only fast solution is to transfer from excess investments into diminished buying power untill the ballance is reached. Only way to do that in organized way is trough the taxes and Fed reserves can provide transitional source and that is a smart revolution. Other way is trough a violent revolution which creates communisam. Communisam or fashisam is created when this huge imballance exist in an economy, from one extreme to another. Communisam is when population (government) owns companies, and fashisam is when companies own population (government) and unemployment is mennaged by millitary mobilisation. (We were going toward fashisam when banks were taking over failing banks leaving only 5 huge banks in US that have too much influence on the government also by being too big to fail, and now GM is going to merge with Crysler). Remember when Texaco was split into 4 companies? That is the reason for WWII after the Great deppresion which was global. I would recommend going back to school by giving huge incentives for hungry and angry population, just as Obama recomends. Only problem is how to present this problem and the solution to the masses. Another way is public works for those that can not go back to school.
    If we are smart then we will alow Obama to tax wealthy/ investments and give to masses/ buying power for a determined time (3-5 years) with an automatic stop when dollar revalues/ untill there is lack of investments that causes economy to stop / ballance between investments and buying power. I would suggest 70% tax to those earning above $1 million in order to speed up recovery and CEOs to cutt their earnings dramatically in order to save companies. If i was Obama i would publicly ask CEOs to colectively cut their sallaries to save their own jobs or i will do it trough taxes to save the country.
    Another element that is killing buying power and companies is the cost of the health insurance. The worst thing is when health insurances do not cover some illnesses or do not cover enough of hospital costs. It causes those cases to loose buying power or to loose a job and that puts extreme costs onto government that provides total care trough medicaid for unemployed. Some influent people (republicans) recomend entitlement reforms (to save it) making it impossible to use medicare which will artefficialy cutt unemployment by letting them to die. Extreme costs come from accumulating too many sick people, comparing to the ratio of chronic illnesses in private health insurance providers. Private companies, on the other hand, carry too much overhead and buirocracy that waste a lot of health benefit costs and their greed stop them from really effectively provide the health care. Only way to stop such destructive practices is to introduce cheaper and more effective health insurance competition into the private market and let free market forces work. Only way to do that is to allow any company to buy into cheaper separate government medicare program (this can save GM) that will have better ratio of sick and healthy individuals and provide unrestricted health care. There has to be a law that will curb private companies from refusing the care for their customers and in 10-15 years we can have an universal health care system wihtout painfull transition. And those private companies that refuse to provide reall care will go out of business. There is some pain but not nearly as much pain as those that get sick experience today.
    Another Obamas plan for economy is to prevent sudden change in price of oil and materials from affecting our economy by being energy independent. After any economy segment crashes there is a sudden influx of investments into comodities which tremendosly raises costs of production, which kills buying power, which in turn kills demand for comodities. Such fluctuations have to be stoped from occuring by banning non users from entering comodities market, just as agriculture market does not allow non comodity user into this market today. If that is not the case, can You imagine how much damage the skyroceting food prices would cause today.
    How to be energy independent? Would free oil drilling provide oil independence for our country? Only if there is millions of new drilling platforms included suddenly today, which is impossible. It would take 30 years and closed US oil market to open so many new platforms and in the meantime the first platforms would pass their production peak, which says that at any given time there would be not a signiffican increase in the oil production to control the prices. Moreover, lets not forget impact on the environment and lost reserves in the case of world wide war, but new drilling should start very slowly just to keep US oil production on present levels. Compressed Natural Gas can replace gassoline with a small inexpensive alterations to todays internal combustion engines. Moreover, CNG does not require distillation as the production of gasoline does and it burns more cleanly and there is almost unlimited reserves of natural gas in the US.
    But still, we should use this reallignment opportunity to invest in renewable resources, in order to save the planet by cutting on greenhouse gases and provide additional jobs. Clean coal does not exist because the process of making it clean releses the same ammount of gasses as the dirty coal burn. Hydrogen cars will never come into play, because their price is about a million dollars per engine, that will come in 100-200 years. Only way is battery powered cars, and ways to recharge them while moving. Nikola Tesla had the solution on wireless transportation of electricity and if we increment that with solar recharging to plug in cars then we have a solution for new 0 emission cars. Small inconvinience for huge bennefits. Increased demmand for electricity will raise prices and force population to learn to save it, but we will need more solar, wind and nuclear energy. We all are interconnected, even if we are not aware of it. Let’s help ourselves by helping and supporting Obama to push his plans trough resilient greedy congress and lobbyists.
    Juro Jordan
    Phoenix,

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  11. Dan Kervick says:

    According to news reports, Obama pushed Bush fairly hard on enacting a stimulus package now, before the inauguration.

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  12. Dan Kervick says:

    This sounds very politic. But it is unrealistic. The global economy is close to unraveling and we don’t have two and a half months to spare. The world needs to know what macroeconomic policies the new president is going to implement, so it can enact complementary policies immediately. And Obam needs to begin to exert direct leadership and moral suasion to get the lame duck session started on his own package. Bush needs to join the Obama parade or get out of the way.
    Obama and Bush should make a deal on at least part of a package for the lame duck session that that is a substantial initial installment on the Obama plan, and that Bush will not veto. Obama holds all the cards here. Bush and the Republicans cannot stand in the way of action that is going to be taken anyway, and then accept all the blame for a super-recession that kicks in while the US government goes into somnambulant hibernation for two and a half long months, and goes about its fuddy-duddy business of picking out new drapes and changing the furniture. The whole world is watching and waiting for us to act!
    Our hyper-extended presidential transition period is an antiquated relic of a vanished, slower-moving time. It belongs in aqttic along with the top hats worn during inaugurations. The world’s economic well-being can’t be held hostage to these niceties of protocol and tradition.

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