President Obama's March 24 call for "bold, comprehensive, and
coordinated action" by the G-20 touched all the bases of common
concern and in doing so revealed the President's basic confusion
about the role of government in the economy.
The President cannot decide whether he wants growth or
stability, calling simultaneously for both. Wise policy requires
the establishment of a balance between the two. The President fails
to acknowledge the need for balance, identifying both growth and
stability as absolute values. In his confusion, he gives no
indication of what he will actually do in the real world of
political and economic trade-offs. This uncertainty robs the
economy and individuals of the most precious commodity government
could provide: the confidence to make plans, investments, and
Trying to Lead, but Where?
In an op-ed published simultaneously in 30 papers around the
world, President Obama has called for collective efforts to address
the "economic peril found in all corners of the globe." The
United States, according to the President, is "ready to lead."
After reading the President's statement, one might well ask: "Lead
The President has called on his G-20 counterparts to "jump-start
recovery" but also to increase "engagement to prevent a crisis like
this from ever happening again." He wants to "lift the
American economy out of crisis and reform this nation's regulatory
structure." He would "forge a secure recovery" while ensuring that
"future crises can be averted." He wants to "restore credit" yet
"stabilize America's financial system."
This last quote gets at the crux of the problem with the
President's entreaties. By all accounts it is not instability that
threatens America's system but rather an overabundance of
stability, with banks, though possessed of adequate capital,
unwilling to lend and investors, though sitting on mounds of cash,
unwilling to invest. The last thing America needs are new
regulations that would further slow growth in the name of
High levels of growth can, of course, involve high levels of
risk. You can eliminate the risk and increase stability, but the
cost will be lower levels of growth. Growth and
stability are not synonyms. Growth requires change; high
levels of growth can involve disruptive change. The essence of
leadership is finding the right balance between growth and
stability. The President, instead, implies that you can have the
full measure of both.
The President's confusion, ultimately, becomes that of the
American public. For example, he talks about the need to "restore
the credit that businesses and consumers depend upon." Two
paragraphs later he is railing against "spending beyond our means."
Which is it: more credit or less?
In the end, the President reveals a few ideas about the results
Americans might expect from the G-20 meeting. He endorses a
"collective commitment to encourage open trade and investment,
while resisting the protectionism that would deepen this crisis."
Any commitment to open trade and investment is welcome, but for
those used to parsing sentences, that the before
protectionism is potentially troubling, implying that there might
be some protectionism that would not--at least in the President's
mind--deepen the crisis.
Real Regulation or Rhetoric?
The President also calls for a wide range of regulatory
measures, including "a strong framework of capital requirements," a
"crackdown on offshore tax havens and money laundering," "rigorous
transparency and accountability," and an end to "out-of-control
compensation." It is not a surprising list, and it will be
problematic or not depending on what is actually done to implement
it. Capital requirements can be raised or extended at the cost of
reducing the potential supply of credit in the economy. It is a
question of balance.
It is not clear what the President means by "offshore tax
havens." If he is talking about eliminating jurisdictions that
cater to illicit transactions and encourage tax evasion, that is a
worthwhile endeavor. But if he is going to join the long-standing
campaign of some high-tax European countries to sanction other
countries whose only "crime" is to operate with lower tax rates,
then that will hurt worldwide economic growth and stifle
Perhaps most pregnant with possibilities for unintended negative
consequences is the President's call to end "out-of-control
compensation." The question, of course, is: Out of control by whose
standards? Do Americans want Members of Congress deciding how much
citizens are allowed to earn, or is that a decision best left up to
those who are actually paying the salaries and know exactly what
they are getting of value in return? The President says he wants to
establish "clear incentives for good behavior," an indication, it
would seem, that he views the American citizenry as children in
need of guidance, with the government in the role of parent.
Is International Action the
In calling for coordinated action, the President implies that
strong international action by the G-20 working together is
essential for recovery. Interestingly, however, the fundamental
things that need to be done require no international cooperation at
The U.S. needs to restore growth. Other countries need to do the
same. No doubt there can be some synergy in coordinated actions,
but the fundamental decisions--government spending, tax rates, bank
reserve requirements, the money supply--will be made
A government that acts intrusively and with market-killing
borrowing, taxing, spending, or regulating can do a lot of harm.
Governments doing such things cooperatively in a group like the
G-20 can do even more harm.
Some seem to believe that 20 governments meeting together may
produce wiser policy than one government acting alone. It is, of
course, at least as likely that a group like the G-20--whose
members include societies ranging from free market to avowedly
communist, and political systems ranging from democracy to
despotism--will opt for a lowest common denominator that reflects
not wisdom but rather banality and political expediency. The
President's statement of March 24 would seem to point in that
The Devil Is in the Details
As in all government actions, it is only by seeing the details
of what is actually done or not done that Americans will truly
understand what is being proposed or enacted. For the U.S., it will
be only when Americans see the details of any legislation that they
will be able to understand where the President is setting the
balance between economic growth and stability.
Those details are not forthcoming yet. Until they are clear,
Americans should recognize the President's statement for what it
is: a political declaration that temporizes, leaving options open
and avoiding real decisions. It is either the essence of statecraft
or a fatal delay while the economy drifts. On the positive side,
free marketers might even claim that it is a blessing in disguise
that will give the economy time to begin to recover on its own.
Time will tell.
Ambassador Terry Miller is Director
of the Center for International Trade and Economics at The Heritage