Is the G20 Starting to Get Back on Track?

This past weekend’s meeting of the G20 finance ministers and central bank governors in Korea ended with a rejection of calls for more fiscal stimulus. This is a marked change from their meeting held just over a month ago in Washington. It’s a change for the better. Nowhere in this past weekend’s communiqué did the ministers and governors call on each other to stimulate aggregate demand with more expansionary fiscal policy. Instead, they said things like “Those countries with serious fiscal challenge need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.” At the previous meeting they were saying instead that fiscal stimulus in some countries “should be maintained until the recovery is firmly driven by the private sector and becomes more entrenched” and that this would “cushion a decline in demand” in other countries. In fact the word “demand” does not even appear in the recent G20 statement. You do not have to be an insider to know that this was a rejection of U.S. requests. A letter from Treasury Secretary Geithner to his G20 colleagues released just before the meeting was packed with calls for governments to maintain fiscal expansion in order “to reinforce the ongoing recovery in private demand.” The word demand appears 8 times in the Geithner letter and not once in the final G20 statement.

There are a number of reasons for the change. Most obvious is the serious crisis caused by the debt problems in Europe. In addition the new UK Chancellor of the Exchequer George Osborne has brought new focus to deficits. And perhaps some are beginning to wonder whether all those debt increasing stimulus packages have brought more harm than good and that policy should be put back on track as soon as possible, as I have been arguing in this blog or in opeds or interviews such as this Bloomberg TV segment from last Thursday just before the meeting: “Taylor says G20 needs to focus on debt, stimulus.”

Of course, we must wait to see if the G20 language change is a precursor of real actions. Watch to see if the G20 leaders have the same response as their finance ministers when they hear from President Obama at their meeting in Toronto next month.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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