Visions of dysfunction

In a longer than usual read of the Times front section this morning, three tales abruptly coalesced in my mind as markers of U.S. political dysfunction.

First up, we have Republicans blocking the U.S. from fulfilling a core international commitment - a major adjustment to a changing world -- and the administration failing to go to the mat for the country's credibility:

The Senate on Thursday gave final approval to a $1.1 trillion spending bill for the current fiscal year, leaving behind what might have been the Obama administration’s best chance to overhaul the International Monetary Fund and meet its obligations to the world’s other economic powers.

End of the Age of America? Not quite so fast...

China's GDP is a bit less than half that of the U.S by conventional measures.; its population is about four times as large, and its rate of annual GDP growth about triple.  The IMF is now forecasting that China's GDP will surpass that of the U.S. by 2016.

The IMF gets to that watershed so quickly in large part by adjusting current figures for "purchase power parity" (PPP)-- that is, adjusting for the artificially low exchange value of the yuan.  PPP-adjusted, the IMF pegs China's current GDP at about 74% that of the U.S., as opposed to approximately 40% in 2010 as conventionally measured, according to IMF figures.

Brett Arends, reporting this forecast in Marketwatch, concludes:

This is more than a statistical story. It is the end of the Age of America. As a bond strategist in Europe told me two weeks ago, “We are witnessing the end of America’s economic hegemony.”

I wonder if that is necessarily so. Certainly not immediately.  At present, the European Union's economy is larger than that of the U.S., but it projects nowhere near the comparable military or soft power.

While China's population is about  four times that of the U.S., its per capita income, by conventional measures, was a bit less than 1/10 as large in 2010, according to the IMF. Call it 1/6, PPP-adjusted.  China spends 2.2% of GDP on its military, compared to 4.7% in the U.S (Stockholm International Peace Research Institute).  It collects 17% of GDP in taxes, compared to 28% for the U.S (Heritage).

New York Times Overreacts to Strife at G-20

Looks like the Times overreacted to the lack of substantive agreement at the G-20 with its print headline this morning:

Obama's Economic View Is Rejected on World Stage

From the Times' online report later this morning:

SEOUL, South Korea — Leaders of the world’s biggest economies agreed on Friday to curb “persistently large imbalances” in saving and spending but deferred until next year tough decisions on how to identify and fix them.

The agreement, the culmination of a two-day summit meeting of leaders of the Group of 20 industrialized and emerging powers, fell short of initial American demands for numerical targets on trade surpluses and deficits. But it reflected a consensus that longstanding economic patterns — in particular, the United States consuming too much, and China too little — were no longer sustainable...

The G-20 leaders largely endorsed an approach to imbalances that finance ministers, including Treasury Secretary Timothy F. Geithner, hammered out last month at a meeting in Gyeongju, South Korea, but added a timetable.

FT triptych: a "multilateral web" for China

Six weeks ago, I 'collated' the thoughts of a two China-watchers who advocate a multilateral approach to attempting to moderate China's de facto protectionism. To recap: Aryind Subramanian of the Peterson Institute argued in the FT 

It is time to move beyond the global imbalance perspective and see China’s exchange rate policy for what it is: mercantilist trade policy, whose costs are borne more by countries competing with China – namely other developing and emerging market countries – than by rich countries. The circle of countries taking a stand against China must be widened beyond the US to ramp up the pressure on it to repudiate its beggar-thy-neighbourism. But progress also requires that the silent victims speak up.

Looking to the longer term, Jeffrey Garten of Yale made a complementary argument (also in the FT) not only that broad groupings of nations need to cooperate to help move Chinese policy, but that they need to do so by institution-building --  strengthening existing multipolar organizations like the WTO in the short term and building new ones over time: