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Doctor’s Orders For The Global Economy

Next time I see him, my doctor is going to tell me to eat better, exercise more and get plenty of rest. Just what he told me the last time I saw him and the time before that.

It's good advice, and I don't ignore it, exactly. But I don't really follow through the way he wants me to, or the way I know I should. Life seems to get in the way. Which is another way of saying that, shortsighted though it may be, the way I behave shows that other things are more important to me than following my doctor's sound guidance.

The call for a more balanced and sustainable global economy that came from last week's G-20 summit in Pittsburgh is, I'm afraid, likely to meet the same sorry fate as my doctor's exhortations. Americans should save more, borrow less, and quit being the consumers of last resort—and first resort—for the rest of the world. Europeans need more flexible labor markets and business regulations, and it wouldn't hurt them to have a few babies, too. Ditto the Japanese. The Chinese ought to stop cheapening their currency and degrading the environment in a bid to be the world's sweatshop.

None of this is really news. The International Monetary Fund pushed for similar measures in 2006 to no avail. While world leaders know what is necessary to promote global prosperity in the long run, they also know what is necessary to win elections in the short run, and, unfortunately, the two don’t always correspond.

During the summit, President Obama said “Because our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs and industries.” But, at home, he has shown an alarming tendency toward protectionism. Just two weeks before the summit, the president caved to the demands of organized labor and approved a tariff on Chinese tire imports. Dan Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute said Obama’s decision “opens the door to other countries to indulge their own protectionist constituencies.” Union members make up a much larger sector of the voting public than trade policy analysts do.

Americans are always in favor of fiscal discipline, but never right now. And China “understands that its economic-growth model has some flaws,” according to Ma Xin, the director-general of international cooperation at the country’s top planning agency, the National Development and Reform Commission. That understanding has yet to lead to any actual change, however.

The G-20 plan calls on the IMF to help oversee its efforts, but neither body is likely to be able to alter by fiat the way individuals produce, spend or vote. Without those changes, even the best-laid plans will come to naught. World leaders may want to please their peers, but, in the end, they must be responsive to their own populaces.

Kenneth Rogoff, a Harvard University professor and former IMF chief economist observed, “Unless the major surplus and deficit economies actually decide that they really want to go down this route, it’s hard to imagine anything will happen.”

While it is important that world leaders are able to agree in the abstract about how to achieve a more balanced global economy, the true test will come when they head home and must actually put words into action.

In the meantime, I will eat better, exercise more and get enough sleep. I’ll start tomorrow. Or maybe the day after.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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