Sept. 16, 2003

That thud you heard was the collapse of Global Trade Talks…trade ministers meeting in Cancun, Mexico broke off talks over the weekend.  A group of developing countries banned together and refused to discuss trade concessions that the developed nations were seeking.  The so-called Group of 22, made up of a variety of developing nations balked at calls to discuss foreign investment rules, antitrust issues and the need for government transparency.  And this was all before they got to really sticky issues of agricultural subsidies.  What to make of this?

Some argue it’s really not that big of a deal since the multilateral trade negotiations have been overshadowed by regional trade agreements in recent years.  For example, here in the U.S. the FTAA (Free Trade Agreement of the Americas) the extension of NAFTA, is getting more attention than the Doha round of global-trade talks.  America, it seems, is more interested in expanding trade with its neighbors than with the world in general.  We also see in Europe and Asia the push for regional trade blocs.  So maybe the Cancun collapse isn’t really that big of deal.

Or maybe it is…maybe we should take a closer look at what is happening.  A number of developing countries are growing more and more upset over what they see as one way trade negotiations.   They see the U.S., Europe, and Japan pushing issues that are important to them (intellectual property rights, financial market reforms, etc.) but these same countries drag their feet when it comes to opening their markets to goods from developing countries (agriculture, textiles, etc).  They may have a very good point.

It will be interesting to see if the wealthy nations learn anything from the collapse of the Cancun talks.  This “get tough” attitude of the developing nations may carry over to their regional trade talks.  If something is not done the result could be a slowing down of global trade.  This would hurt everyone, rich nations as well as poor nations.  That would not be good.

U.S. Government Budget Deficits.  The news seems to be filled with discussion of the growing U.S. Federal government budget deficit.  At first glance the numbers seem staggering:  The Congressional Budget Office is projecting a deficit of $401 billion for fiscal year 2003 and a $480 billion deficit for fiscal year 2004.  These are similar to the estimates made by the Administration’s Office of Management and Budget.  Wow!

But, as I am fond of saying, the first lesson of economics is:  everything is relative.  One needs to look at the size of these deficits in comparison to the oversize of the U.S. economy.  As a share of GDP the deficits for 2003 and 2004 will probably be around or under 4% of GDP, which in all honesty, is not that big.  Plus, if the economy starts to grow rapidly, with unemployment falling quickly, these deficits may decrease rather rapidly, ceteris paribus.

The ceteris paribus hinges on Congress behaving.  Once the deficits start to fall we have to be careful that Congress does not open up the spending floodgates for pork barrel projects.  If one is really concerned about the deficit let’s talk about things like the Farm Bill.

But, for all of the discussion of the current budget deficit, the REAL problem with the government spending is still not being discussed:  the coming retirement of the Baby Boomers.  The real issue we need to talk about is what we are going to do with Medicare and Social Security once the Baby Boomers start to retire.  Can we please have a discussion about that?

-MB