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April 10, 2005
David Warsh, Proprietor


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The Best (Macro)economics Columnist There Is

A good newspaper column puts a human face on a truth-seeking collectivity whose organizing principle otherwise may be too fragmentary to easily grasp. Such a lot of bright people are writing columns about business and economic matters these days.

Among them are Thomas Friedman and Paul Krugman in the New York Times; Homan Jenkins, Alan Murray and David Wessel in The Wall Street Journal; Robert Samuelson and Allan Sloan in Newsweek; and, in The Washington Post, Paul Blustein, who is not a columnist but should be. (His new book is And The Money Kept Rolling In (And Out): Wall Street, the IMF and the Bankrupting of Argentina.)

My absolute favorite columnists, however, are to be found in the stable of The Financial Times. There is Lucy Kellaway, for example, who writes on workplace issues under her own name on Mondays, and her evil twin, the fictitious executive Martin Lukes, whose ever-self-seeking  emails occasionally appear elsewhere in the paper, a serial novel chronicling his attempts to make his way to the top of A-B Global at the expense of all and sundry.

And then there is the best economic columnist in the world, or at least the best one writing in English. That would be Martin Wolf. His columns are one thing, but I heard him talk this week. He is a man (very quietly) on fire.

What does it take to be good at column-writing? Enthusiasm for the subject, the ability to understand and communicate it, a leash long enough to follow through, and enough of the showboat to attract attention. In Wolf’s case the subject is macroeconomics.

That sounds important, and it is.  But so inherently dry is the topic, and, in Wolf’s case, so restrained is the showmanship (though it is an unmistakable part of the act), that my aim here is simply to call a little additional attention to what is going on.

Outside of treasuries, central banks, international lending organizations, economics departments and foreign exchange desks, not enough people know about Martin Wolf.

A recent (and very good) book, Why Globalization Works, will help somewhat. But the real action is in the columns.

On the surface, there is nothing in his history to lead you to expect that Wolf would function well as a journalist. Born in 1946, he was trained as an applied economist at Oxford in the late 1960s. For a decade he worked at the World Bank under Robert McNamara, at a time when Holllis Chenery was the bank’s chief economist.

Working first in east Africa, then in India, Wolf “learned first-hand the damage done by dirigiste, inward-looking economic policies,” not just because of their grotesque inefficiencies, but because of the corruption they engendered. He read his Hayek, and gradually came round to the view that, about most things, Peter Bauer, the vociferous critic of aid programs, was right after all. So he quit the Bank in 1981 and became research director of the Trade Policy Research Centre in London, with a view to framing issues for the next round of trade negotiations. 

But it turns out that Wolf’s father had been a writer, a playwright who had fled Austria for London before World War II. His mother arrived from Holland, where thirty aunts, uncles and cousins who remained behind were killed by the Nazis. The young man grew up in an intensely literary and political household.

When his thinly-capitalized think-tank ran short on funds in 1987, not long after the Uruguay Round finally got underway, Wolf found himself looking for work.  It was then that the FT’s then-editor, Geoffrey Owen, offered him a job as chief economics editorial writer for the paper.  “I had never been — or intended to become — a journalist,” Wolf has written.  He took to it naturally, however, and soon began the kind of indeprendent and informed reconnaissance that is the essence of good journalism.

Why Globalization Works, which appeared last year, is a book of history and instruction. It is narrower in its aims than John McMillan’s Reinventing the Bazaar, more reportorial than Jagdish Bhagwati’s In Defense of Globalization. Its moral is that the international trading system broke down before, in the interval between 1914 and 1945, and that it could happen again.

Nearly half the book is devoted to rebutting a series of arguments against the international trading system — that it fosters inequality, despoils the environment, aggrandizes the power of corporations at the expense of legitimate states, and increases volatility. “The sight of the affluent young in the west wishing to protect the poor of the world from the processes that delivered their own remarkable prosperity is depressing.” And all this background is history is very useful.

But the real action is in the columns.  There is something about the flow of news that lends itself to being covered in columnar form. Things change, and the commentator must fit them into a coherent pattern. Formerly the role was performed by the FT’s singular Samuel Brittan, but after thirty years at the center of tumultuous events, he has gone emeritus (though as his most recent collection, Against the Flow demonstrates, he has scarcely lost his touch.)  Now the center ring belongs to Wolf.

The centerpiece of Wolf’s recent analysis is a series of four columns late last year, based on reporting the most recent discussion among international economists in governments and out, analyzing the nature of the growing interdependence between Asia and the United States — and the danger posed by circumstances in which the US serves as the world’s “borrower of last resort.”

That the economies of Japan, “old Europe” and the Middle East should be running surpluses and seeking save haven for their investments was not surprising, Wolf noted, since they are old and rich. But the fact that non-Japan Asia was lending large sums to the world’s richest economy required some explaining, since China and India were the world’s most dynamic economies. Why were they exporting rather than importing capital?

The answer, he hinted (and since has said), was to be found in the Asian nations’ experience of the financial crises of 1997 and ’98, when after a decade of open-handed lending to the developing economies, American officials jetted around the Pacific telling governments which parts of their overheated economies to shut down.

Throughout that dangerous time, the US economy ran at full steam, keeping the rest of the world going as importer of last resort — and, for a little while, the strong dollar still went a long way. Then the system tipped.  In order to forestall a global recession, the United States cut taxes dramatically — not once, but twice — and a large portion of the world’s savings began flowing to the US to buy government bonds to finance its government deficits.

Many misleading stories were told about the attractiveness of the US economy to foreign investment at the time, Wolf noted — that US real rates of return were high, that its economy was growing faster than anywhere else, that the tax cuts were solely to blame for America’s trade deficit. In fact, he said, the prices of US exports had gotten out of line, and could only be cured by a sizable depreciation of the dollar.

The trouble was that Asian nations were keeping the dollar artificially high by loading up on dollars for their reserve accounts, in order to keep their own currencies low. Why was it, he asked, that the Chinese government would  export real goods to the US in exchange for pieces of paper whose value will tumble when the Chinese government seeks to trade them in?”  Only in order to avoid the slump that inevitably would occur when its own currency appreciated against the dollar.

The moral, Wolf wrote, was that it takes two to tango.  There was no point in reflexively bashing the US for its profligate ways, since the surging nations of Asia were deeply complicit.  “But the dance is becoming ever-wilder… It is necessary to halt before serious injury occurs.”

That was December.  Last week, both the International Monetary Fund and the World Bank issued warnings about the growing codependence.  But no longer is it reasonable to go on browbeating Americans about their willingness to “live beyond” their means when the Chinese are willing to lend them the necessary wherewithal for little more than nothing.

What is the answer? According to Wolf, it is an all-around adjustment — a tacit agreement on the part of the US to slow its consumption, of China to begin importing capital instead of exporting it, and of all other nations to play their parts in arranging an orderly decline in the value of the dollar until its current-account deficit is something like half of its current level of nearly 6 percent of GDP.

Only then will exchange-rate risks become such that private investors will return to the game, permitting the system to regain its tendencies to milder forms self-equilibration. Otherwise, the world is headed for a wicked crash.  “Continent-sized countries should not go on playing the mercantilist game of piling up reserves indefinitely,” Wolf says of China.

Sound complicated?  It is. International economics is terribly difficult to translate into newspaper language of cause and effect, which is why it must be followed on a systematic basis; otherwise, it doesn’t make sense. Wolf appears on Wednesdays and alternate Fridays, covering the most exciting economic story of our times.

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