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Economists Debate Government Role In Global Recession

  • Andrew Tully

The Nikkei stock index board in Tokyo

The Nikkei stock index board in Tokyo

WASHINGTON -- The United States has long been considered an engine of global growth. And the American consumer is an important part of that equation.

Consumer spending makes up some 70 percent of U.S. GDP. As a result, many countries rely on the United States, the ultimate consumer society, to buy their goods.

But since the worldwide recession that began last year, Americans have been spending less and saving more.

So what does that mean for hopes of a global economic recovery?

Desmond Lachman, a former International Monetary Fund economist, who is now a resident fellow at the American Enterprise Institute in Washington, believes that over the long term, there will have to be a rethink to global saving and consuming patterns.

Lachman says that to keep from going into crippling debt, Americans are going to need to save more and spend less. Meantime, he says, consumer spending should increase in European and Asian countries, particularly in Germany and China, the biggest economies in their regions. But so far that hasn't happened.

"If the United States government didn't step in to try to pump up the economy, we would have global problems, because people describe the United States as the world's consumer of last resort," Lachman told RFE/RL in a recent interview.

"So if this consumer is sputtering, and you're not getting Germany or China taking adequate measures to get their consumers to increase their spending, then we've got a problem from the global economy's point of view."

A Global Stimulus

Now Lachman says the United States runs a different risk, of overwhelming debt, or what's called an "imbalance of payments."

What should have happened when the crisis hit, Lachman argues, is that leading export countries such as Germany and China should have worked with the United States to better coordinate their response to the crisis.

"The global economy needed a stimulus, but there should have been a larger stimulus in Europe and China, and the United States should have had less of a stimulus. So you would have got the balancing," Lachman said.

"Instead of which, what we're going to get is, we'll get the recovery, but as soon as the United States recovers, what we're going to get is the United States having a problem on its balance of payments."

That in turn will cause problems for exporting countries, potentially squelching the recovery they now appearing to be seeing.

Allan Meltzer disagrees. Meltzer, a professor of economics at Carnegie Mellon University in the eastern U.S. city of Pittsburgh, says too many people believe the only way to resolve economic troubles is through government intervention.

In fact, Meltzer says, countries like Germany don't need massive government intervention, particularly government stimulus plans, to get out of the current recession. He contends that private industry is perfectly capable of doing the job, if government doesn't get in its way.

"I think the Germans are pursuing a cautious and, on the whole, sensible policy. They're not panicked the way the Obama administration has been panicked. So I think [the Germans] are going to recover," Meltzer said.

"There's a lot of vitality in the private sector [in Germany], if they're not hampered by regulation and taxation. So the Germans are relying on the recovery that will come, quite probably, next year as a result of private action."

In Meltzer's view, the current attraction of saving money is temporary, simply because a lot of people -- not only in America but elsewhere -- have lost a lot of money. Once they feel they've recovered enough of their losses, they'll return to spending and investing more generously.

Meltzer argues that if governments don't try to impose their will on national economies -- and if they don't hinder businesses and business investors with taxes that leave them with less to spend on economic growth -- the world's economies will find their own way out of recessions.

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