Don’t Count On U. S. Consumption
This morning a Christian Science Monitor editorial sounds precisely the right note on turning the current global economic downturn around:
Unless export-heavy countries such as China, Japan, and Germany shift their policies away from favoring such producers and limiting consumption, the danger remains of perpetuating the root cause of the sharpest decline in the global economy since World War II.
An excess of US dollars earned from these countries’ exports was a big contributor to the global financial crisis. Those dollars flooded the US, allowing credit to flow to Americans who bought homes they could ill afford.
An agreement to prevent a repeat of this imbalance would be the best outcome at the April summit of G-20 nations, which represent 85 percent of the world economy. The last G-20 summit in November warned of “unsustainable global macroeconomic outcomes” behind the current crisis. Clearly, artificially pumping up exports is now seen as having left the world askew.
You can point to subprime mortgages, credit default swaps, or greed for the financial crisis and the economic downturn that followed it but all of these were consequences rather than causes. And unless we deal with the real causes we won’t be dealing with the real problem.
We cannot solve the world’s economic problems either by buying less or buying more. But China, Japan, and Germany may well take major steps towards solving the problems by cultivating their own domestic markets as engines of economic growth.