November has been one tough month for President Barack Obama.
On November 2, the American voters largely rejected his policies on spending, debt, taxes and regulations, taking it out on the president’s Democratic brethren in Congress, governor’s offices and state legislatures.
But the rejection continued on the international front. The president emerged from the G20 meeting in South Korea last week with his ideas overwhelmingly snubbed by fellow heads of state.
What American voters rejected was pretty straightforward. The Obama administration has been focused on expanding the size and reach of government through big spending, more regulation and higher taxes. The results have been negative for the economy and jobs, and people sent an unmistakable message at the polls.
In the international arena, at first glance, the issues might seem a bit more complex, but they’re not. They come back to the same basic problem with the president — a lack of understanding of how markets and the economy work, and a misguided, yet undying faith in government action.
The president went into the G20 meeting with three key agenda items.
First, he was urging fellow leaders not to rein in government spending until the economy was fully “stimulated.” Leaders from nations like Germany and Great Britain, however, seemed to have a better grasp on the fact that government spending stimulates nothing positive in terms of the economy. Indeed, Germany’s Chancellor Angela Merkel declared, “I am not one, and Germany is not one, who says growth and fiscal consolidation are contradictory.”
Second, the president had to defend the Fed’s recent announcement that it would open the monetary floodgates further than it has — already unprecedented in U.S. history — over the coming months with its “quantitative easing.” The president received accusations about currency manipulation and criticisms that the U.S. was shunning its responsibilities as a major reserve currency. Those accusations, of course, are right on target. This effort by the Fed and the White House merely raises the risk of inflation, continued economic stagnation, and trade protectionism.
Third, there was the strange proposal from Treasury Secretary Tim Geithner to have nations limit their trade deficits or surpluses — whichever might be the particular case — to no more than 4% of GDP. How politicians would accomplish such a feat is something of a mystery, but it obviously would require a major intervention in the marketplace by the government, with politicians and their appointees trying to manipulate markets and overruling the decisions made by consumers, businesses, investors and entrepreneurs. And all of this effort would be, as Shakespeare wrote, much ado about nothing, given that trade deficits and surpluses are not intrinsically good or bad, but merely reflect what’s going on in the broader economy.
Interestingly, with all of the misguided efforts on the currency and trade fronts, even the Chinese communists criticized the U.S. for “central planning.”
The White House and the Fed earned the stern rejections they received at the G20 meeting. They are trying to play a dangerous game whereby the political class deems itself smarter than millions of individuals and businesses interacting in the market and disciplined by competition, prices, profits and losses. In contrast, politicians and their appointees are disciplined by very little. That’s a recipe for economic woe, including chasing away international capital from the U.S. due to the rising risks of dollar debasement and inflation.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.