My friend Jon Ward who blogs at Potus Notes for the Washington Times is traveling in the press pool with President Obama in Europe now. He just showed how good a journalist he is.
Ward attended the conference my colleagues and I helped organize last week on the subject of global economic imbalances and how the world would recover if it deals with the probable reality that Americans will not return to irrational levels of personal consumption.
Jon Ward got the opportunity to put a question to both President Obama and to German Chancellor Angela Merkel about global imbalances — knowing full well that both have pulled in different directions on this one.
I’m so proud of Ward for asking exactly the right question at the right time and was mostly pleased with Obama’s response — though its clear that the Germans need work.
The one thing President Obama needs to understand that in this time of crisis he needs to steward a new era of major, deep infrastructure investment in the United States that not only triggers job creation in the near to mid term but helps generate recurring benefits to the economy over future generations. We have a major “infrastructure deficit” today that should not be left to future generations — and the plans he has outlined thus far don’t go as far as they should.
But overall, Obama’s response to Ward was excellent.
And as Financial Times uber-pessimist economics commentator Martin Wolf said the other day in Washington, Germany does not realize its vital hegemonic responsibilities within the Euro Zone, and I think Wolf’s observation is clear in the Chancellor’s response.
Here is the exchange:
PRESIDENT OBAMA: Jon Ward.
Q Thank you, Mr. President. I’m going to read my question; I hope that’s not too much of a breach in protocol here. I have a question about surplus and deficit countries and trade imbalances. Mr. President, you said in London that the world may not be able to rely any longer on the U.S. as a “voracious consumer market.” Did you talk with Chancellor Merkel about Germany’s enormous trade surplus and its impact on the global economy going forward?
And, Madam Chancellor, some say that Wall Street — Wall Street’s excess was fueled by easy money, supplied from surplus countries such as yourself, and another large bubble and bust is inevitable if Germany and China and others do not move closer to balance. What is your response to that?
PRESIDENT OBAMA: Well, Jon, I do think that even as we are trying to solve the immediate crisis we’ve got to learn some lessons from the previous years to figure out how do we avoid another crisis. And if you look at the U.S. economy, what we’ve seen is a series of bubbles and then busts, much of it having to do with huge flows of capital into speculative sectors of the economy.
Part of the problem that we saw was a lack of regulatory oversight, and so we’re moving very aggressively on that front. And in the short term, my biggest concern is how do I just make sure that people get back to work? So our stimulus package, our efforts to stabilize the housing market, our efforts to remove the toxic assets from the banks so that banks start lending more effectively and businesses can open, people can get hired again — all that is focused on my top priority right now, which is making sure that we’re no longer hemorrhaging jobs and we start creating jobs.
As we emerge from the crisis, though, we’re going to have to take a look at how do we ensure — a term that Chancellor Merkel spoke quite a bit about at the summit, and that is sustainable economic growth. And in order for growth to be sustainable it can’t be based on speculation, it can’t be based on overheated financial markets or overheated housing markets, or U.S. consumers maxing out on their credit cards, or us sustaining nonstop deficit spending as far as the eye can see.
So once we stabilize the economy, we’re going to have to start bringing these huge deficits that our government is running, we’re going to have to start bringing those down.
Families are going to have to start making more prudent decisions about spending, and increasing their savings rate. Businesses are going to be making investments, and we want to spur as much investment as possible, but the whole point is to move from a borrow-and-spend economy to a save-and-invest economy.
Now, the U.S. will remain the largest consumer market, and we are going to make sure that it’s open. One of the principles that we very clearly affirmed in London was that protectionism is not the answer. It’s not the Germans’ fault that they make good products that the United States wants to buy. And we want to make sure that we’re making good products that Germans want to buy. But if you look overall, there is probably going to need to be a rebalancing of who’s spending, who’s saving, what are the overall trade patterns.
And it, by the way, it doesn’t just include developed economies like Germany and the United States; it also means we want to encourage emerging markets to consume more. If you start seeing China and India improve the living standards of its people, now those are huge markets where we can sell. And that’s why the last few days that I’ve spent talking about the international economy relates directly to the jobs that are being lost in the United States.
I know this was a long answer but it was a big question. The bottom line is that as long as the United States and Germany are keeping our open trading relationship, as long as our approach to currency is one that ensures fairness — which generally speaking, the relationship between the United States and European central banks has been very cooperative and very solid — as long as we have proper rule of the road and regulatory frameworks in place, then the key is to have friendly economic competition, the United States making the best products, making the best decisions, making the best investments, and Germany doing the same, and then all of us can do well together.
CHANCELLOR MERKEL: Well, we love competition. We love competition for the best possible products. And I don’t think we’re in such a bad position. And that is what drives us. That is what drives markets, economies — to have good ideas, bright ideas that turn into good products that you can actually sell.
What we — what all of this is about, we need to combat this crisis. We need to fight it resolutely. And I think we’ve done something very good in London. We tried to lend a helping hand to those who are not strong enough to, out of their own resources, combat this crisis. And that we can do this, that we still have a certain leeway to do that, shows how strong our countries really are.
But we have to do whatever we can in order to prevent such a crisis from ever occurring again. And this is what I mean very seriously. I mean, this was a great disturbance. Ever since the ’30s, we haven’t seen this without purpose — such a crisis hasn’t occurred.
So we have to take a very clear look at whether the economy is actually driving our politics and politicians, or do politicians still have the power to shape global economics. And I think we have to regain the ground that we have lost. That was a very important step to prove this to our people. And this is something that we cannot do nationally; we can only do this together and in concert.
If you look at the Federal Republic of Germany, for example, where we have a tremendous demographic change, this is a super — aged society, people getting older. So can we actually afford to incur so much debt? Do we have in a few years’ time really the power to innovate? We are paying an enormous amount of interest on each and every cent that we spend, and at some point in time, if the burden of debt becomes too big, then we lose innovative power.
And standards, for example, that, too, is important for us. Is it really so — that is really necessary, not losing sight of the future and innovation, and research and development.
But we have to emerge from this crisis as quickly as possible, which is why we actually pursued this on two parallel tracks in London. And we have every interest in not only seeing our own country get back on its feet again, the United States getting back on its feet again, but the whole of the world — emerging countries, Africa, Latin American countries. And this is why we will offer to them our help so that this happens time and again [sic].
We’re grateful for the fact that each and every one around the table assured us that we will not resort to protectionist measures. That is something that we were at one about. And this only will make it possible, incidentally, to emerge from this crisis. The fact that this wasn’t done in the ’30s was one of the big mistakes that was made then and that we don’t want to repeat.
Fascinating, important exchange.
I hope the other members of the press corps construct questions with as much weight.
— Steve Clemons