G20 Leaders Fret About Deficits, But Fortunately Not Too Much

Given that the Obama administration has days when it's fiscally dovish and days when it's hawkish, we should count ourselves lucky that the president stood his ground against the Germans at the G20 meeting in Toronto.

You'll recall that President Obama, in panic mode early this year when it looks like Republicans were gaining on him, invoked conservative rhetoric about the need for the government to "should tighten its belt." That proved an awkward position to be in once the global recovery had the European debt crisis to contend with -- what the world needed was more stimulus, not less. (We've long known that the unemployed need more stimulus, but that's another matter.)

Protesters howling about what governments are doing -- the Toronto summit drew the usual crowd of anti-globalization types -- had it backwards; they ought to be more worried about what governments are not doing. And what they aren't doing is throwing their support behind a global recovery.

Still, it could have been worse. Steaming into the meeting, the tone among western leaders was being set by the likes of British Prime Minister David Cameron and German Chancellor Angela Merkel. The former has a plausible case for austerity, the latter none whatsoever, and yet together they were gunning for a clear focus on deficits. Merkel got a fig leaf she can take back to Germany in the form of a commitment by G20 members to halve budget deficits as a percentage of GDP by 2013 and then stablize debt-GDP ratios by 2016. It certainly sounds impressive, and Merkel called it "more than I expected because it is quite specific."

Fortunately, this course of action doesn't limit the flexibility of the United States to start consolidating finances when the time is right, and now when dogma dictates such. Based on projections by the Congressional Budget Office, the U.S. budget deficit will come within striking distance of that number by 2013 anyway, and will get there with no problem if Congress lets the various Bush-era tax cuts expire and -- though this part is less likely -- allows the Alternative Minimum Tax to start biting for more Americans.

And even this seemingly firm commitment includes plenty of wiggle room, according to the summit declaration:

[S]erious challenges remain. While growth is returning, the recovery is uneven and fragile, unemployment in many countries remains at unacceptable levels, and the social impact of the crisis is still widely felt. Strengthening the recovery is key. To sustain recovery, we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand. At the same time, recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, properly phased and growth-friendly plans to deliver fiscal sustainability, differentiated for and tailored to national circumstances.

So, abroad Obama has kept the world a place safe for stimulus, if it is needed. But there are still problems on the home front with the mini-stimulus bill Obama had been plugging.

The jobs bill that would have included an extension of unemployment benefits died a painful death in the Senate late last week, as Republicans and one Democrat who loved the Bush tax cuts but apparently dislikes the jobless (Ben Nelson of Nebraska) sent it down to defeat. Will Obama now fight for it?

Let's hope so. He's proven himself a once-in-a-generation campaigner, and there are elections coming up in November. Seize the opportunity, paint the Republicans as the callous country-club set that don't care much for the little people. It has worked before.

And besides, it's not just good politics. It's good policy -- abroad and at home.

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Carter Dougherty

Carter Dougherty, a former economic correspondent for the International Herald Tribune and The New York Times, is fascinated by the intersection between policy and business, in the United States and abroad. He shared in a Loeb Award, business journalism's most prestigious, while at the NYT. But he still looks back fondly on his days trudging through central Africa, reporting on Congo, Darfur and other rough spots.

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