> Another key is ownership -- who *owns* the capital in question, and how it
> relates to other capital(s). Sweden, Switzerland and Norway all have large
> pools of state-controlled assets - credit unions, pensions, etc. So the
> argument that they should invest more sounds suspiciously like a plea for
> them to turn over their asset management to high-flying Wall Streeters.
> But maybe I'm just being cynical.
>
--------------------------
No, but as you know pressure to privatize health and retirement and other
sources of public funds like postal savings accounts is not unique to these
countries but is a general phenomenon across all of the OECD countries.
Wessel's column - reproduced below - is about restoring equilibrium to the capitalist world economy, and as such is not a bad summary of the broad agenda of American, European, and Asian central bankers, government officials, and CEO's: (1) reduce the US budget and trade deficits by squeezing US consumer and government spending through higher interest rates and changes to Bush administration fiscal policy (2) slowdown Asian exports and boost domestic demand through currency revaluation and increased investment in social programs and rural development, (3) strengthen European capitalism by lowering the level of corporate taxation, labour rights and social programs. Of course, easier said than done in terms of reconciling the competing interests and making the adjustments without triggering a global collapse and social chaos.
* * *
All Right, Let's Talk Cures By David Wessel Wall Street Journal October 6, 2005; Page A2
Several readers chastised me for last week's column1 warning that the U.S. can't count on borrowing ever-greater sums from abroad. Nice job on the diagnosis, they said. But what's the cure?
"An opportunity squandered not for want of knowledge, but for lack of courage," wrote reader Robert Freeman. "There's nothing the U.S. needs to do? Like restrain its runaway budget deficits? Like cut back the consumption it so patently cannot afford?"
Touché. It's easier to describe what has to happen than how to do it. Eventually, the U.S. needs to save more as a nation and spend less, particularly on imports that it buys on credit. And the rest of the world needs to save less, invest more at home and spend more, particularly on U.S. exports.
A recession in the U.S., perhaps triggered by a market-shattering crash in the dollar, would reduce U.S. consumer demand for imports, and thereby reduce the borrowing the U.S. does to pay for those imports. But the goal is to find steps to minimize the risk of that ugly outcome.
"We think there is a shared responsibility," says Timothy Adams, the top international hand at the U.S. Treasury. Look for solutions that "maximize sustained [global] growth," he says. Avoid those "that don't maximize growth." No one argues with that.
For the U.S., the prescription is: Save more at home so you borrow less from others. American households as a whole save next to nothing these days, and the government "dissaves" by running budget deficits.
The surest way to increase U.S. national saving is to reduce the budget deficit, which has been swollen by tax cuts, Iraq and, now, Hurricane Katrina -- and is soon to be further swollen by health and pension benefits for baby boomers.
Tax increases seem almost inevitable, like it or not. Harvard's Kenneth Rogoff, a former chief International Monetary Fund economist, suggests a carbon tax; it would reduce the budget deficit and prod the U.S. toward environmental sustainability. The IMF calls for eliminating tax exemptions, raising energy taxes or imposing a federal sales tax.
None of those is imminent. The Bush administration insists tax increases are neither necessary nor wise, though it has been unable to restrain spending today or persuade Congress to shrink expected future gaps between receipts and spending for Social Security and Medicare. Instead, look for the administration to count on Federal Reserve increases in interest rates to discourage consumer borrowing and increase savings, and to talk more loudly about changing the tax code to encourage Americans to save more.
One development that might increase Americans' saving quickly is the often-predicted slowing or decline in house prices. A major reason Americans are saving so little out of their paychecks is that rising housing prices make them wealthier. Still, it's hard to imagine President Bush trying to prick a housing bubble.
Whatever causes the U.S. to save more and its consumers to buy less on credit -- be it tax boosts, rate increases or a housing-price slump -- the global economy will suffer unless Asia and Europe pick up the slack.
For Asia, and not just China, that means budget, interest-rate and exchange-rate policies aimed at increasing spending to benefit the folks at home, instead of building more factories to make and export products to the U.S. and power its economies. "Countries like China, Korea and Taiwan should spend more on health care and education for their populations," says economist Barry Eichengreen of the University of California at Berkeley.
Unfettering the Japanese yen, the Chinese yuan and other Asian currencies so they rise against the dollar is part of the solution, because it will make Asian goods more expensive on global markets and U.S. goods less expensive. "As demand shifts from the U.S. to the rest of the world, prices have to adjust to encourage foreigners to buy more of our goods," says Mr. Eichengreen. "Currencies are part of the mechanism that brings that about." A cheaper dollar is not the entire answer, but it is part of the solution.
And then there's Europe, the mention of which produces deep sighs among economists. European households save a lot. Most European governments think their budget deficits already are too big. The European Central Bank, ever nervous about inflation, is reluctant to cut interest rates, though an upward move in the euro would give it room to do so.
The only option left is to renovate European companies, markets and rules so more Europeans get jobs and all Europeans shop more. But, Mr. Rogoff notes, three often-overlooked economies outside the euro zone -- Switzerland, Norway and Sweden -- can afford more expansionary fiscal and monetary policies. The three combined export more savings to the rest of the world than all of developing Asia does.
Fixing this would have been easier a few years ago before rising energy prices took some of the vigor out of the global economy. But if not now, when?