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G-20 to Announce Global Hooverism Scheme

In an announcement that portends misery for much of the world’s citizens (and I’m only slightly exaggerating), the G20 communique will include a pledge from the largest nations on Earth to halve their budget deficits by 2013. Coming at a fragile time for the global economy, this descent into austerity could lead to a return to recession or worse.

The group of 20 leading and emerging nations, meeting in Canada, are split over the pace of budget cuts.

US President Barack Obama has warned against fast and deep budget cuts, fearing damage to global growth.

But German Chancellor Angela Merkel said on the Sunday the G20 was moving towards a deal to co-ordinate cuts by 2013.

“This will be part of the final document,” Mrs Merkel told reporters as she arrived at the meeting in Toronto for the final day of talks.

However, she stressed the deal would only apply to the most developed economies, after emerging countries protested that deep cuts would hurt their export-dependent industries.

People are skeptical of President Obama’s commitment to growth over deficit reduction, and given his Administration’s actions they have a right to be. But it’s worth noting this article from the Financial Times, suggesting that Peter Orszag left the Office of Management and Budget because the White House wasn’t as bloodthirsty about budget cuts as he liked:

Peter Orszag, Barack Obama’s budget director, resigned this week partly in frustration over his lack of success in persuading the Obama administration to tackle the fiscal deficit more aggressively, according to sources inside and outside the White House.

Mr Orszag, whose publicly stated reasons for leaving were that he was exhausted after years in high pressure jobs and also that he wanted to plan for his wedding in September, is seen as the guardian of fiscal conservatism within the White House.

Other members of Mr Obama’s economic team, notably Lawrence Summers, the head of the National Economic Council, have placed more emphasis on the need for continued short-term spending increases to counteract what increasingly looks like an anaemic economic recovery in the US.

Orszag’s main problem, according to the article, was that Obama wouldn’t lower his pledge not to raise taxes for those making under $250,000 a year. People don’t want that, either.

Maybe Summers planted that, but surely a look at the leading economic indicators shows a sluggish recovery, if there is any at all. Like Ben Nelson’s Nebraska, Germany has a low unemployment rate and may be coasting on that to boost for austerity. But this is not true of the rest of the world, for the most part, where more government investment is needed. One country should not decide fiscal and monetary policy for the entire Eurozone, let alone the entire world.

Despite the Obama Administration’s entreaties for growth, they appear ready to sign on to the communique. There’s nothing binding in it, of course, but it adds pressure to come up with something to satisfy this hunger for Hooverism bouncing around the world. So the deficit commission, and their desire to cut social spending, takes on added importance.

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David Dayen

David Dayen