Jonathan Todd

Barack Obama may have granted his first UK interview to the FT. But, may be, he should read the FT a little more carefully. In particular, if he had of been following Martin Wolf’s column more closely, then he may not have stalled when responding to the question that Nick Robinson put to him yesterday.

“Unfortunately, no consensus exists on the underlying causes of this crisis or on the best ways to escape from it”, as Wolf notes. Robinson suggested to Obama that one’s views on the underlying causes of the crisis go a long way to determine one’s views on the best way to escape it. France and Germany are supposed to blame the crisis on “Anglo-Saxon capitalism” and so see its solution in a new global architecture of regulation. The UK and the USA are the citadels of “Anglo-Saxon capitalism” and are taken to be more attracted to fiscal stimulation. Thus, Robinson asked Obama to comment on the dividing line that he constructed between France/Germany and the UK/USA.

However, perhaps, if Robinson wanted to construct a dividing line he may have found a more solid foundation for it in the Pacific, rather than the Atlantic. Hamish McRae argues that the real summit has been between the USA and China. China runs the world’s biggest current account surplus and the USA runs its largest deficit. The massive imbalances between surplus and deficit economies are at the root of our economic malaise, while correcting these imbalances is also the key to future prosperity.

“In 2007″, writes Wolf, ”three countries ran current account surpluses of $835bn (€629bn, £585bn). Logically, counterpart deficit countries must spend that much more than their incomes. Yet today deficit countries have run out of willing and creditworthy private borrowers”. The credit cards of the deficit countries have been more than maxed out but the surplus economies will continue to decline until they find sustainable, alternative sources of demand. It’s easy to chide the excessive spending and sub-prime mortgages of the USA. Yet more domestic spending in China is part of the long-term solution. Just as much as the USA needs to get closer to Chinese levels of saving, so too the Chinese need to get closer to American levels of spending.

It’s hard to see how “Anglo-Saxon capitalism” can actually be the great evil in this context; nor is the dividing line really to be found in the Atlantic. But there is something of a dividing line in that ocean, as Germany is a leading surplus country. Indeed, there is also a dividing line in the British channel as the UK is a leading deficit economy. Wolf paraphrases Angela Merkel’s position as being: “The rest of the world needs to find a way of absorbing our excess supply, but sustainably, please”.

Merkel may point a disapproving finger towards the deficit countries of “Anglo-Saxon capitalism” but Wolf thinks that some of the solution is to be found zu Hause. “The answer lies partly in changing the policies of surplus countries”. We still seem too far from realising this. However, another part of Wolf’s solution was moved towards at the G20: special drawing rights. So, thankfully the G20 moved somewhat in the direction advocated by Wolf, even if Obama might read his FT more vigilantly. To be fair to Obama, though, so could Robinson. As could Merkel.