Insanely Good Article About The Global Economic Crisis

My good buddy David Seaton linked to this article by Martin Wolf of the London Financial Times, who sure has a grasp of the big picture:

What makes rescue so difficult is the force that drove the crisis: the interplay between persistent external and internal imbalances in the US and the rest of the world. The US and a number of other chronic deficit countries have, at present, structurally deficient capacity to produce tradable goods and services. The rest of the world or, more precisely, a limited number of big surplus countries – particularly China – have the opposite. So demand consistently leaks from the deficit countries to surplus ones.

[snip]

Now think what will happen if, after two or more years of monstrous fiscal deficits, the US is still mired in unemployment and slow growth. People will ask why the country is exporting so much of its demand to sustain jobs abroad. They will want their demand back. The last time this sort of thing happened – in the 1930s – the outcome was a devastating round of beggar-my-neighbour devaluations, plus protectionism. Can we be confident we can avoid such dangers? On the contrary, the danger is extreme. Once the integration of the world economy starts to reverse and unemployment soars, the demons of our past – above all, nationalism – will return. Achievements of decades may collapse almost overnight.

My pedestrian reading of Wolf's article is that the only way to get the US out of its current crisis is to raise American workers' living standards by bringing back the jobs that have been exported to low-wage, high-repression countries by globalization and technological advances. With no private investment to do that, the government has to step in, but only through tremendous deficit spending, financed by the very countries we're interested in taking jobs away from, particularly China. That of course would threaten China's tenuous political stability, whose Tiananmen Square genie has been kept in the bottle by the economic reforms and tremendous growth of the last two decades. It sure looks like a perfect storm. International cooperation is therefore paramount, and Obama does not appear to be a unilateralist like W, but events may run away from even the most well-intentioned intervention...