The President’s Asia trip doesn’t seem to be going well. The Times says he’s lost his overseas mojo–and it’s true that much of the rest of the world seems to be turning against the Keynesian path of deficit-spending as a ladder out of a recession, even Keynes’ homeland which saw French-style rioting yesterday as the result of increased college tuitions proposed by David Cameron’s Tory government.
I’m in a very on-the-other-hand mood about this. Certainly, Keynes has been used as a fig leaf for fiscal slovenliness for the past 50 years (and in the U.S., ever since Lyndon Johnson decided not to pay for the war in Vietnam). That’s why long-term deficit reduction is so important. But we’re in a short-term crisis, with an immediate risk of deflation. The idea that less government spending will solve this crisis seems fanciful (and there should be a good debate about whether a temporary reduction in certain taxes would be more efficacious than, say, a major infrastructure plan). In the best of all possible scenarios, Obama has said, he’d like to see a two track approach: stimulus now, long-term deficit reduction fixed now as well. Thus, his deficit reduction commission–which produced a flawed, middle-class bashing initial report this week (I’ll have more to say about that in days to come). Obama’s approach makes sense, but given the fecklessness of the Congress, it also has been traditionally impossible. I’d guess that the same old baloney will obtain in the new Congress, but the new global mood–and the U.S. election results–will provide a gentle nudge toward the path that Obama wants.
On a second front, Obama’s inability to get a trade deal with South Korea is frustrating, but the right thing to do. The Koreans are balking on lifting various non-tariff measures that make it harder to sell American cars and beef over there. Obama wants those measures lifted and he’s absolutely right: a level playing field should be a level playing field. In the past, we’ve allowed the allure of lower prices to divert us from a more important goal: truly opening the world to American exports. If we don’t have the latter–and the jobs that come with it–the latter is a hollow achievement and perhaps a retreat. It’s good that the President is hanging tough on this one.