The Failure of the G-20 Summit

The President emerged today from a meeting with the heads of state and finance ministers of the 20 biggest economies, in Soeul, South Korea, saying they had agree to “get the global economy back on the path of recovery.”

But where are the specifics? The three-page communique that also emerged from the session brims with bromides about the importance of “rebalancing” the global economy, “coordinating” policies, and refraining from “competitive devaluations.”

All nice, but not a single word of agreement from China about revaluating the yuan, or from the United States about refraining from further moves by the Fed to flood the U.S. economy with money (thereby reducing interest rates, causing global investors to look elsewhere for higher returns, and lowering the value of the dollar).

China and the U.S. are the only big players in the currency game. And with neither of them stepping up to bat, the game is in dangerous territory. Other nations will now do whatever they can to reduce the value of their currencies in order to stimulate more exports — and therefore create more jobs.

The underlying problem isn’t just or even mainly an international imbalance. It’s an imbalance within many nations — especially inside the United States and China. In the U.S., more and more income is concentrating at the top, thereby reducing the relative purchasing power of the vast American middle class. That means more pressure on exports to fill the gap.

In China, more and more income is going to the productive sector of its huge economy rather than to Chinese consumers, thereby reducing the relative purchasing power of the Chinese relative to what the nation is producing. That means more pressure on exports to fill the gap.

It’s always nice to talk about international cooperation, and to create global photo ops. But the truth is much more needs to be done to ease tensions that are moving the global economy closer to the brink of outright protectionism. The key responsibility falls to China and America — both in terms of what they do internationally and also what they do domestically.

Both have failed.

About Robert Reich 545 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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