MONEY DOESN'T CARE ABOUT YOUR BORDERS:

Obama's G-20 Misfire (Zachary Karabell, 11/11/10, Daily Beast)

hatever Obama’s personal stature, this isn’t an argument that other countries are buying. The problem isn’t a looming currency war or any imminent backlash—global currencies are so linked that no one can retaliate without doing themselves great harm. The problem is that in the search for common frameworks to create a more stable future, the United States government is advocating policies that treat the world as a 20th-century collection of nations rather than a 21st-century mishmash of competing and intertwined state and non-state actors.

The U.S. is hardly alone in clinging to this anachronism. One could argue that all governments see the world through the lens of national sovereignty. But the steadfast mantra, coming from the United States and urged on the leading nations of the world, that global imbalances caused the recent crisis is a bigger problem than if a similar perspective were coming from, say, Argentina.

For all Obama’s creativity and nimbleness, his international economic team embraces an orthodox economic view of the global system that treats trade deficits or surpluses, current account deficits or surpluses, and differing patterns of consumption and production as imbalances in need of correcting. But just because that thesis has been repeated endlessly doesn’t make it true. In a world where trillions of dollars in public and private capital flows unimpeded daily, where every major company in the world has constructed global supply chains extending through dozens if not hundreds of countries, where any individual good may be manufactured in five or 10 countries, what is the point of holding each country to some theoretical notion of “balance”?

Take the ubiquitous BlackBerry, made by a Canadian company whose shares trade on the New York Stock Exchange; whose devices may be produced with rubber from Malaysia, chip sets from Korea or Taiwan, assembled in a plant in Mexico, Hungary or China, with intellectual property from the United States; shipped on Greek container ships to Long Beach, California, over CSX rails to a German T-Mobile store in New York. Is that an import from Mexico, or from Canada, or from anywhere?

Or take current accounts. If China has a $2.6 trillion surplus, over half of which is then invested in U.S. Treasury bonds, how is that purely a current account deficit, when the money is pumped directly into the U.S. economy?

There is no orthodoxy that the UR questions.

Posted by Orrin Judd at November 12, 2010 6:46 AM