Is the Obama administration starting to recognize that, contrary to decades of willful blindness and therefore needlessly counterproductive policies, the United States can do quite nicely economically without much help from the rest of the world? That’s surely an exaggeration. But some awfully suggestive clues can be found in Treasury Secretary Jack Lew’s testimony to Congress today.
At first glance, the relevant passages in Lew’s prepared remarks on President Obama’s new budget sounded like the longstanding conventional wisdom about America’s economic fate being inseparable from the world’s. The Financial Times certainly thought so, headlining its report on the House Ways and Means hearings, “US economy cannot go it alone, says Jack Lew.”
Dig deeper though, and you see how misleading (though not necessarily intentionally) the FT phrasing was. Lew decidedly did not say that America couldn’t go it alone because its own growth would falter without better growth abroad. He said that:
“While the recovery in the U.S. economy has helped to drive global growth, the rest of the world cannot depend on the United States to be the sole engine of growth. At the recent G-20 meeting in Brisbane, there was agreement that more needs to be done to stimulate domestic demand around the world. Our strength allows us to maintain our leadership in the global community, and while we must lead by example, we cannot do it alone.”
The reference to the G-20 – a quasi-formal grouping of the world’s 20 largest economies – may have amounted to Lew simply repeating a longstanding American warning (which never seems to go beyond rhetoric) that the United States can’t long power global growth without producing the kinds of record economic imbalances that can lead to financial crises – and did so in 2008. But Lew never referred to any of those considerations.
What’s left is a declaration by the Treasury Secretary that what the United States is unable to accomplish by itself isn’t sustaining its own recovery. In fact, in sync with President Obama’s assessment in his State of the Union address, Lew said that this recovery “appears” to be self-sustaining. The only remaining obstacle he mentioned was domestic – the lingering effects of recent Washington political gridlock. Instead, what’s left is a Lew statement that what America can’t do singlehandedly is stoke the rest of the world’s recovery. At least by implication, he suggested that the U.S. economy has in fact become decoupled from the world economy.
As I’ve written, given the nation’s immense wealth (both natural and human-made) and still-dynamism-friendly social structure and economic institutions, America’s capacity for such decoupling (i.e., domestic-based prosperity) has been staring policymakers in the face for its entire history, but has only been studiously ignored since the 1930s. Nowadays, it seems at least as strong as ever. Yet so far, globalist dogma still seems to be trumping the facts.
Thus the president’s policy continues taking a tack exactly opposite the one suggested by Lew’s words (assuming they were carefully chosen). Although the rest of the world is lagging America economically, Mr. Obama is working to tie the nation more closely to the slowpokes with the Trans-Pacific Partnership (TPP) and the rest of his trade policy agenda. Lew of course incongruously endorsed these measures as an “important component of our growth strategy.” In addition, there’s no sign that the administration is entertaining second thoughts about a thoroughly boneheaded decision reported by The New York Times last fall – to allow the dollar to keep rising against the currencies of America’s leading trade partners.
For a country believing itself to be tightly tied to growth elsewhere, this approach – which would enable other economies to trade their way to faster growth by ramping up sales to the United States while reducing their U.S. imports – at least embodies a certain logic. But for the country described today by Lew, the decision makes no sense – unless you believe that the U.S. economy is just strong enough to keep growing short-term without better global growth, but not strong enough to keep up the pace over any significant timespan.
Indeed, if this is their thinking, how do Lew and the president think they’ll continue even the current recovery’s lackluster pace if they wink at trade-and currency-related hits to growth? Are they counting on faster global recovery to kick in just in time? These would add up to one heckuva riverboat gamble.
So the burden of proof remains squarely with the optimists to show that some genuinely strategic lights are going on in the ranks of senior U.S. leaders. Conveniently, the upcoming TPP fight will be a genuinely momentous test. If the administration flunks – meaning that it finishes the deal and successfully steers it through Congress – the links between America’s economy and the world’s could grow broad and deep enough to ensure sluggish-at-best domestic growth for many more years.