Sunday, March 29, 2009

The G-20 Meeting: Are All Economics Local?

All politics is local, the late Tip O'Neill said. This dynamic will underlie the proceedings of the G-20 meeting this week. As the worldwide economic downturn has progressed, governments are playing an increasingly important role, bailing out banks, catching the unemployed in safety nets, and sometimes stimulating economic activity. The politicization of the economic crisis means that political concerns will increasingly drive the statements and actions of the national leaders attending the G-20 summit. Even at the lofty level of the G-20, politics remain local; and that will make for a messy meeting.

Each nation's leader will focus on how he or she is covered by the press at home. "It's the economy, stupid," is a universal political principle, and the standing of numerous leaders rests on how well they deal with the current crisis. The Euro bloc nations will scold the U.S. for allowing its banking system to act so recklessly as to trigger a worldwide recession (not an unfair criticism). But the Europeans will reject American calls for increased stimulus spending, and argue in favor of heightened regulation that dampens financial sector risk taking. These views will play well in cafes and bier gartens on the continent.

The Chinese and Japanese will urge the U.S. to keep the dollar strong and trade barriers low. They want to protect the value of their vast holdings of U.S. dollar denominated investments (in the trillions when you add it all up), and they also want to export their way out of their recessions. Other Asian members of the G-20 will concur.

Russia will play the role of spoiler, taking every opportunity to yank America's chain. The Russians no doubt perceive America to have weakened itself with self-inflicted wounds from its financial sector, and will seek to regain influence lost with the fall of the Soviet Union.

The U.K. and most other British Commonwealth members of the G-20 will awkwardly look down at their hands and whenever possible clear their throats in lieu of speaking. They cannot publicly defend America, yet they are aware--as are most other G-20 nations--that America is the world's last, best hope. No other country can organize and implement a comprehensive response to the economic crisis. No other country has America's resources--the largest national economy and the issuer of the world's reserve currency and most favored sovereign debt. Most importantly, no other nation has the inherent generosity and open heart that America has. In the last century, America lost over 500,000 lives and spent untold billions fighting two world wars in order to bring peace around the globe. In spite of these enormous sacrifices, America obtained no new territory and extracted no reparations from its vanquished foes. America is the only major nation in the world trusted well enough to lead the process of recovery.

Barack Obama is reported widely to be a student of Lincoln and perhaps Roosevelt. He should spend some time studying Dwight Eisenhower--not the Eisenhower presidency, but the war years. In 1939, Eisenhower was a colonel who had long held staff positions and had scant prospects for becoming a general. With the instigation of the Second World War in Europe, the need for the United States greatly to expand its peacetime Army made Eisenhower, with his organizational and administrative skills, and diplomatic demeanor, a valuable officer. By mid-1940, he became a general, and by late 1942, he was given command of the U.S. Army's first major operation in the Atlantic theater, the invasion of North Africa. Eisenhower was promoted to this position ahead of over 100 more senior generals, enjoying a meteoric rise not unlike that of the Illinois state legislator who now occupies the White House. Eisenhower's diplomatic skills proved crucial in binding together the British and American Armies. The British superiority in combat experience and, initially, combat effectivess, had to be acknowledged and given due credit. The American role as the supplier of the resources that would provide the margin of victory, however, meant that America had to gradually and subtly assert itself as the senior member of the partnership. Eisenhower deferred repeatedly to the British, greatly annoying his fellow American generals. But in so often deferring while sometimes declining, he solidified America's standing as the dominant member of the alliance. British desires to use American military strength to preserve their empire were set aside. American desires to invade continental Europe promptly and get the war over with prevailed. Yet all this was done so diplomatically (by FDR and others as well as Eisenhower) that even today, America and the United Kingdom retain a special relationship.

Barack Obama will return from Europe with little in the way of immediate results except perhaps for a feel-good statement or two. But he is said to be a good listener. As such, and with some subtle pushing and prodding, he may be able to lay the foundation for a coordinated process of recovery. Let's hope he succeeds. Otherwise, it may turn out that, in this crisis, all economics are local, and that would not auger well for anyone.

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