Phil Levy's blog

By Phil Levy

In Tokyo, President Obama spoke out in favor of trade. It was not exactly the much-heralded Trade Speech, in which he would lay out a detailed agenda and soothe U.S. public fears that he himself had helped to arouse. Instead, this talk was addressed to an Asian audience, but it offered some tantalizing new details and a near embrace of some free trade agreements. The President said:

Continued integration of the economies of this region will benefit workers, consumers, and businesses in all of our nations. Together, with our South Korean friends, we will work through the issues necessary to move forward on a trade agreement with them. The United States will also be engaging with the Trans Pacific partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement.

Rather than drawing inspiration from the president's oratory, as U.S. and European audiences often had, Asian leaders greeted the president's trade stance with skepticism. As the Financial Times reported:

Lee Kuan Yew, Singapore's first prime minister and a regional elder statesman, said the US risked economic exclusion from Asia unless it reversed its protectionist stance. ...

Najib Razak, Malaysia's prime minister, ... told the Asia Pacific Economic Cooperation summit in Singapore that progress on trade liberalisation was "imperative" for global recovery. "The thing I liked about President Bush's foreign policy is that he was very pro-free trade. I hope the same message will be repeated."

- some evidence that the Bush administration did not entirely neglect Asia for eight years.

One might have expected Obama's vague statements in favor of the Doha trade talks, moving forward with South Korea, and engaging with the mysterious Trans Pacific Partnership to have at least created a warm glow about U.S. sentiments. After all, similarly vague statements about avoiding protectionism and supporting the WTO garnered kudos at G-20 summits in London and Pittsburgh earlier this year.

Whether the APEC leaders were more discriminating than other audiences, cared more about trade, were more astute in their reading of American trade politics, or had just learned from past experience, they seemed unsatisfied. Perhaps with recent disputes fresh in their minds, they seemed to ask, "where's the beef?" And they were right to worry.

The global trading system has not been lacking in kindly thoughts and well wishes. It's been lacking in strong leadership and specific proposals. Fingers have been pointing at the Obama administration. The Doha global trade talks that were declared essential in the G-20 sessions have been foundering. Last month, the European Union and Brazil criticized the United States for failing to put forward specific demands. This month, WTO Director General Pascal Lamy commented that "the U.S. is proving to be slow in reaching a clear and articulated negotiating position." If it were translated from the excessively cordial language of international diplomacy, that remark would likely be unprintable in a family publication.

Ostensibly, the Korean FTA is unacceptable to President Obama and Congressional Democrats because the Koreans have had the audacity to intervene in their auto market. Korea, as a major trading nation, has not been as pliable as other U.S. FTA partners and has made clear in the past that they are not interested in renegotiating the agreement with the United States. Instead, Korea has just concluded a similar agreement with the European Union that will put American exporters at a disadvantage in the Korean market.

The novelty in the president's announcement concerned the Trans Pacific Partnership (TPP) and was sufficiently obscure to leave many people scratching their heads. In fact, the United States had already joined TPP talks with Brunei, Chile, New Zealand, and Singapore late in 2008 under President Bush's direction. Obama's announcement in Tokyo seemed to indicate a lifting of his administration's suspension decision from earlier this year: small wonder that it received a tepid response. Even had the President wholeheartedly embraced a TPP deal, that would not have meant much on its own, since the United States already has FTAs with Chile and Singapore. Brunei's entire annual GDP is roughly $20 billion, which is less than the U.S. government has poured into Citigroup.

The reason to care about the TPP was its potential to serve as a platform for serious integration throughout Asia. For a region that places a high value on trade, the Asia-Pacific has had a great deal of difficulty finding the right path toward liberalization. APEC has made trade pledges in the past, but the group has a very diverse membership and likely cannot serve as the vehicle for a high-standards regional FTA. More promising was the idea that if Australia and Japan were coaxed into joining a sophisticated TPP, the resulting FTA might then have opened its doors to any other Pacific nation willing to accept its terms. Unfortunately, the Obama administration has given no indication that it's willing to lead such an ambitious undertaking

A prerequisite for a serious U.S. trade policy would be new trade negotiating authority for the president, which the Obama administration has not even requested from the Congress. For any of these trade initiatives to advance would require persistent and detailed effort of a sort we have yet to see. Obama may be a Pacific president, but he has not been a very specific president. Asian leaders last week were asking for more than platitudes.

MANDEL NGAN/AFP/Getty Images

By Phil Levy

Wherever else the status quo ante may reign, the Obama administration has brought change to the tradition of sending foreign dignitaries home with lovely parting gifts. Back in September, the chairman of China's legislature was dispatched with a new set of tire tariffs. Now, German Chancellor Angela Merkel has been sent home with an auto jobs program that won't start.

This latest gesture flows from the U.S. government's majority ownership stake in General Motors. GM is a global company and its empire includes ownership in a European subsidiary, Opel. Half of Opel's 50,000 employees are in Germany. Thus, when GM was facing bankruptcy this spring, the German government took a strong interest. It offered a $2.2 billion loan to help Opel survive and preserve German jobs.

The Obama administration guided GM through bankruptcy and on to a distinctive ownership structure. U.S. taxpayers now hold a 61 percent stake in GM, with an additional 17.5 percent stake granted to the United Auto Workers. The bankruptcy process concluded in early July, at which point GM set about trying to become lean and mean. One aspect of that was a move to sell Opel to a Russian-backed Canadian group called Magna.

What does any of this auto arcana have to do with foreign policy? Aren't these just the obscure fiddlings from the back of the business pages? Well, consider the level at which this has been handled in foreign governments. In August, when GM was still pondering whether to sell Opel to Magna:

German Chancellor Angela Merkel expressed her regret at General Motors' failure to choose a buyer for its German unit Opel, and said that a decision was 'urgently' needed for the carmaker's future.

German Foreign Minister Frank-Walter Steinmeier was on the phone with his U.S. counterpart and reported, "Secretary Clinton said she would communicate the German government's position within the U.S. administration."

That sounds a lot like a foreign policy issue. There's more. After announcing its decision to sell Opel to Magna in September, GM's board reversed itself yesterday. Here was some of the commentary from abroad:

General Motors' behavior toward workers is completely unacceptable," German Economy Minister Rainer Bruederle told reporters the morning after GM's shock news, adding: "General Motors' behavior toward Germany is completely unacceptable."

In Moscow, Russian Prime Minister Vladimir Putin hinted the battle for carmaker Opel was not over..."

President Obama has made clear that he never aspired to run a car company and would like to get out of the auto business. But the administration is in the same position as an absentee landlord of a rundown property -- responsible, like it or not. The promises that GM would be run in a hands-off, all-business fashion have not been credible either to members of Congress or leaders abroad. (This is not the only uncomfortable aspect of GM's awkward ownership structure; GM's minority owners, the UAW, recently refused to cut costs for GM's private-sector competitor, Ford. Imagine.)

If the administration is truly eager not to run a car company, it could always divest. Sen. Lamar Alexander (R-TN) put forward a plan to do just that in July. It was voted down in the Senate, with leading Democrats explaining that the time was not right. That raises the question of just what the administration is waiting for. Unless the government plans further infusions of cash into GM, or plans to intervene in GM's decision-making, what benefit could there be to holding on to the company and inviting unwelcome domestic and foreign pressures?

One possibility is that the government is better able to predict GM's worth than the market. Perhaps the administration's financial seers believe they can time the recent run-up in stock market prices and ride it further with their $60 billion bet on GM. Alternatively, the divestment delay may just serve to hide the ultimate cost of the administration's auto intervention.

Whatever the reason, the entanglements deepen. The administration has been asked to provide further billions for GMAC, a key financier of car purchases (formerly known as General Motors Acceptance Corporation). Overseas, the Chinese have launched an investigation of U.S. auto subsidies (the pot calling the kettle red?).

And we still have the issue of German Opel angst. Perhaps this is why President Obama declined Chancellor Merkel's invitation to travel to Germany to celebrate the anniversary of the Cold War's End. Maybe he was worried about what she'd give him in return.

Bundesregierung/Steffen Kugler-Pool/Getty Images

By Phil Levy

Surprises?

I have been most surprised by President Obama's policy toward China. Trade with China was a major concern of labor groups in the election and then-Senator Obama signed pledges about the aggressive approach he would take. This included a commitment to find that China was a currency manipulator -- a stance reiterated by Treasury Secretary Geithner in his confirmation testimony. If anything, the facts shifted in favor of a currency finding against China: the exchange rate has not moved in over a year and the United States is borrowing less from abroad (suggesting less dependence).

Praiseworthy?

However, in April and October, the Obama Treasury repeated the finding of the Bush Treasury, that there were no currency manipulators worth mentioning. If you combine this with the docile stance on human rights that my Shadow Government colleagues have already mentioned, it might be explained as a surprising but consistent attempt to engage China as an important economic player. Yet the administration also chose to confront the Chinese with a weak decision on low-cost tires.

Constructive Criticism?

For constructive criticism, I would turn to the administration's broader trade policy. President Obama has attempted to warm international relations while chilling commercial relations. In China, Colombia, S. Korea, Brazil, India, and the European Union, there is growing aggravation at the administration's lack of a trade policy. It is high time that the president deliver his long-promised speech and resolve the conflicts within his party on trade. That could clear the way for reengagement with the rest of the world.

Prediction?

Finally, as a prediction for one year hence, I forecast serious international rancor over the environment. President Obama is in a bind. If there is no U.S. action on climate change, there will be sharp condemnation and disillusionment from abroad. If there is action, it seems likely to entail border measures (tariffs) that could threaten the global trading system. It is hard to see how this ends well.

PHILIPPE WOJAZER/AFP/Getty Images

After my previous posts in this series grappled with the likely plight of the falling dollar and some of the economic implications of its privileged status in the global economy, this concluding post will consider the question:

What do the dollar's role and value mean for U.S. foreign policy?

There is a macho tinge to the U.S. Treasury mantra that a strong dollar is in the U.S. interest. After all, isn't it always better to be strong than weak? There is a suggestion that at $1 to the euro, we are virile and able to bend other nations to our will, while at $2 to the euro, we will be feeble and submissive.

It is not obvious why that should be so. There are a couple upsides to a weaker dollar. Fred Bergsten, in a new Foreign Affairs analysis, argues that "the United States itself would benefit from a reduction in the international role of the dollar." In Bergsten's view, the easy credit that has accompanied dollar primacy has tempted the country into misguided policies. He writes: "Unless the United States quickly achieves and maintains a sustainable economic position, its ability to pursue autonomous economic and foreign policies will become increasingly compromised." A falling dollar is thus a mechanism whereby excessive U.S. borrowing from abroad can be rolled back. To the extent a weakened dollar would bring about such global rebalancing, it would help to meet a stated goal of world leaders in recent G-20 meetings.

Beyond this indirect gain, the most direct effect of a weakened dollar would be to hike the cost of goods imported into the United States and make American goods appear cheaper to the rest of the world. This, over time, would likely ease the pressures for trade protectionism that have increasingly strained U.S. relations with countries like China, Canada, Mexico, and the members of the European Union.

Each of those benefits to a diminished dollar shares a similar quality. Under a strong dollar, the argument goes, we cannot resist the temptation to sin. We know that excessive borrowing is a bad idea, but we just can't help ourselves. We know that trade protection is ill-advised, but who can resist the political pressure?

As soon as we move away from introspection, we see some of the foreign policy downsides to a weaker dollar. The first and most direct are the economic impacts. With a weaker dollar, all U.S. ventures abroad become more expensive. During the period of the dollar's decline, the United States becomes less attractive as an investment destination, since foreign investors would expect to recoup fewer yen, yuan, or euros when they cash out. Future financial crises - and they are sure to come -- will be much more painful if global investors do not rush to the dollar as a safe haven.

An even greater difficulty, from a foreign policy standpoint, could be a sense among allies that the United States is an unreliable partner. As the provider of the world's reserve currency, America has had both special rights and special obligations. The rights have included the ability to print money to pay for whatever we liked (technical term: seigniorage). The obligation has been to keep the value of the dollar relatively stable. From the reactions to the dollar's recent slide, we can anticipate the sort of discord that might accompany a more significant move. From Thursday's Washington Post:

The weak dollar is becoming a source of international tension, particularly in U.S.-European relations. Officials in the 16 countries that use the euro warn a continued slide of the dollar may pose long-term structural problems for Europe, forcing down wages and hurting employment in the months and years ahead. This week, a top aide to French President Nicolas Sarkozy called the value of the dollar "a disaster" for Europe, warning of dire consequences to the global economy if it remains at its current levels.

China reacted to U.S. borrowing plans at the beginning of this year with a call for guarantees of the value of its dollar lending. They were clearly worried about a depreciation of the dollar, which would undercut the value of China's massive reserves.  While G-20 nations were calling for global rebalancing at their Pittsburgh summit (by which they really meant that China should appreciate its currency and import more goods), Chinese President Hu Jintao said:

"Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets."

This nicely captures the dilemma facing the Obama Administration. How do you catch a falling dollar? A classic approach would be for the U.S. government to stand ready to raise interest rates and adopt plans for future fiscal austerity. It would be responsible, but it would not be much fun, particularly at a time when U.S. unemployment is approaching 10 percent.

Suppose, instead, the dollar continues to slide and loses its premier status among world currencies. There could be domestic political benefits, but it would leave key countries economically bruised and seething. It is very difficult to tell such a story in which the United States' standing, prestige, and ability to project power do not decline along with its currency. U.S. foreign policy prowess would not be immune should the dollar fall from grace.

John Moore/Getty Images

The U.S. dollar enjoys a privileged position in the world. The federal government can print up the little slips of green paper and exchange them for barrels of oil or digital cameras. That trick is not unique to the United States; almost all countries print money and spend it at home. The difference is that the dollar can be so easily spent abroad and that foreigners are so willing to hold on to large quantities of those little slips of papers, instead of trading them back in for American-made goods. This raises the question: Is the dollar likely to be replaced as the world's reserve currency?

There have certainly been similar shifts in the past. Some time in the first half of the last century, the dollar took over the exalted position long held by the British pound. Nor are the questions about the dollar's status as a reserve currency merely conservative fantasies aimed at stirring doubts about President Obama's leadership. As with so many other things, this idea was made in China. Alarmed by his country's exposure to a potential slide in the dollar, the head of China's central bank floated the idea of a global currency to replace the dollar. The Russians liked the idea. The United Nations and the IMF were intrigued.

If we're to hold auditions for a new dominant global currency, we can start by considering the job description. We're really looking for three things in an aspiring new currency:

1. It must be widely traded.
2. It must be linked to deep and open capital markets.
3. It must provide a stable store of value.

The dollar excels on the first two counts. Given the size of the U.S. economy, the dollar has a broader reach than any other currency. U.S. capital markets (bonds, stocks) feature enormous trading volumes; that means that a government wishing to adjust its reserve position by selling Treasury bonds generally need not worry about whether it can unload them.

The dollar concerns stem from fears about U.S. fiscal incontinence. The Obama administration often deflects such concerns by arguing that it is necessary to run large deficits in a time of economic crisis. This conflates the short-term and long-term deficit problems. The administration declared early on that America's fiscal position was unsustainable because of burgeoning entitlement costs, especially in health care.  Yet the plans under consideration would likely increase overall health spending while raising the government's share of costs. Nor has the administration earned much credibility for its promises to offset costs.  The situation beyond health care does not look much brighter.

Runaway deficits can spiral out of control and have frequently ended in bouts of serious inflation, as governments print money to cover costs. That directly undermines the currency's role as a store of value. Inflation means that those green slips of paper buy less tomorrow than they do today.

Hence, the search for a successor to the dollar. But a review of the serious applicants suggests the dollar's position is secure, at least for a while.

At the front of the line is the euro. It already accounts for almost 30 percent of global reserve holdings, compared to the dollar's roughly 60 percent. The euro zone certainly has the economic size to be a viable contender. But the recent crisis has shown up some serious weaknesses in the currency. First, there was the question of how the euro zone would deal with bank failures, as in Ireland and Iceland. The European Central Bank does not have the full panoply of powers enjoyed by U.S. federal bank overseers. Europe also faces its own deficit problems, exacerbated by the fact that some members are more profligate than others.

In line behind the euro are the British pound and the Japanese yen. The economies are smaller, but still large enough to be contenders. Yet British debt problems are even more serious than those in the United States. Japan's fiscal problems are severe as well, offset only by that country's great propensity to save.

Beyond the yen and the pound, we come to the long shots, such as the Chinese yuan or the Brazilian real. For all its eagerness, China is disqualified because it does not have an open capital account (the opposite of deep capital markets; good luck unloading those RMB bonds). Brazil recently got a small taste of what it is like to be a favored currency and started running in the other direction. After the real appreciated 36 percent against the dollar this year, the Brazilians decided to start taxing investment flows.

So who's left? Just the imaginary currencies. These are artificial constructs like the IMF's SDR (special drawing rights). It's not widely traded; there are no deep SDR capital markets; nor are there any special guarantees about its prospects as a store of value. It has gained a following because it seems to offer an escape from all the failings of the other currencies. In fact, the SDR is nothing more than a basket of those very currencies.

So the dollar's reign looks likely to continue for a while. It's not a very resounding victory -- champion because everyone else fell over -- but a win is a win, as the cliché goes. It does beg the question: is it a win? Has the U.S. benefited from the dollar's special role? More particularly, what do the dollar's role and value mean for U.S. foreign policy?

That will be the subject of the next and last post in this series.

By Phil Levy

Some discussions of the dollar’s recent fall have a tone of impending doom. They worry that the 15 percent drop of the last 6 months could accelerate out of control. The first post in this series argued that the recent decline has not been the result of manipulation, but that’s not saying that the dollar has reached a new equilibrium. This post will take on the question:

Has the dollar stabilized or is there risk of a further plunge in its value?

One way to rephrase this is to ask whether the dollar is reasonably valued right now. A classic measure is to take a bundle of goods (some groceries, some transport, some electronics, etc.) and ask what exchange rate would make that bundle cost the same in a pair of countries. The Organization for Economic Cooperation and Development (OECD) is one of several groups that produces these Purchasing Power Parity (PPP) estimates.

With these numbers, one can argue that it should take about $1.67 to buy a British pound. As I write this, the exchange rate is $1.63 – pretty close, with the dollar slightly overvalued. Other currencies look much different, though. For Germany, a PPP rate of 1.11 dollars to the euro compares with the current rate of 1.49. Instead of the PPP rate of 130 Japanese yen to the dollar, the rate is 91. In those cases, the dollar is badly undervalued.

While we’re playing with PPP exchange rates, we might as well check in on China. We’ve just been told that China is not a currency manipulator, but the PPP exchange rate is 3.4 RMB to the dollar, versus the market rate of 6.83 RMB to the dollar. That says several things. First, China’s currency is seriously undervalued. Second, PPP exchange rates are imprecise and can vary a lot. More careful estimates of China’s undervaluation run from 20-40 percent, not 100 percent. Finally, we can see that PPP rates offer only loose, long-term guidance about where currencies might go. They say very little about what will happen in the next six months.

In part, that’s because exchange rates are driven by investment decisions, not just the consumption of goods. Investors in Frankfurt and Tokyo ask whether they will make more money lending in euros or yen, or whether they would make more converting to dollars and buying American stocks or bonds. If they do invest in the United States, they’re going to have to venture a guess about what exchange rates they will face when it’s time to retrieve their funds.

How do they know what those rates will be? Here we land in the world of the Keynesian Beauty Contest, in which you get a prize for selecting the most popular contestant. While objective measures of beauty may offer a clue, the subjective preferences of the other voters are most important.

Applying this to exchange rates, we know objectively that currencies tend to suffer when countries have uncontrolled fiscal spending and growing debt. Persistent large trade deficits also suggest that a currency is due for a fall. Those are the situations facing the dollar. But the dollar retains value so long as everyone wants it – a self-supporting popularity. The concern is that a falling dollar will convince investors that their counterparts no longer find the dollar so beautiful and that a sharp unraveling in the dollar’s value could follow. In this scenario, the dollar wouldn’t fall without limit: at some point, US exports and facilities would look irresistibly cheap. But such downward spirals – the flip side of bubbling enthusiasm – can be dramatic and wrenching.

We thus have two contrasting views about where the dollar might go. On the one hand, cross-country price comparisons don’t look too bad for the dollar. They seem to support the more comforting story that the dollar’s recent fall is just the unwinding of its extraordinary rise as investors reacted to the crisis. On the other hand, the descent of the last six months looks very much like the start of a rush for the exits would look, as investors abandon the dollar and give in to their concerns about U.S. prospects.

It was just such a situation that prompted Harry Truman to cry out for a one-handed economist. In this case, though, the uncertainty is essential to the story. That’s one of the valuable economic insights that emerged unscathed from the recent crisis. To quote John Cochrane from the University of Chicago: “the central empirical prediction of the efficient markets hypothesis is precisely that nobody can tell where markets are going.” In a nutshell, if we knew for sure that the dollar were to fall another 15 percent in the next six months, the fall would occur right now. Financial titans like George Soros would borrow dollars and buy other currencies, guaranteed to receive glorious returns. That would push the dollar down immediately.

So the dangers are real, but uncertain. They are particularly troubling because the bad scenario could have lasting effects. It could undermine confidence in the dollar that has supported its role as the world’s principal reserve currency. This potential has already led to calls for dethroning the dollar in such official transactions. Whether that’s a likely prospect will be the subject of the next post in the series.

GABRIEL BOUYS/AFP/Getty Images

By Phil Levy

The dollar has been drooping. This week, a broad measure of the dollar's value against other currencies fell to a 14-month low. Depending on the commentator, this is either a global vote of no-confidence in the United States; or it is good news, a return to normality as worldwide fears subside. Without exactly leaping between Paul Krugman and his latest sparring partners, there are a number of questions one might ask about the dollar's recent decline. This post kicks off a short series to consider four of them, beginning with: Is the drop in the dollar "natural" currency depreciation or the result of "manipulation?"

The dollar has fallen roughly 15 percent from its recent high this spring. When we see sharp movements in a price, it's natural to look for an active protagonists driving those movements. Every now and then in the past, we've found some. There have been attempts to corner markets in silver, wheat, and even salad oil. Each of these instances involved attempts to drive up a price and some were spectacular failures, but that's not what sets them apart from the case of the dollar. The market for currency absolutely dwarfs these other markets.

The last time statistics were gathered on this (late 2007), the average daily turnover in foreign exchange markets was $3.2 trillion and growing rapidly (up 69 percent since the 2004 survey). To put this in perspective, if we divide U.S. GDP over 240 business days in a year, it was about $0.06 trillion ($60 billion) in 2008. So every business day, the value of currency transactions averaged about 50 times the total value of U.S. output. 

The implication is that it's very hard to manipulate the value of the dollar. In fact, this enormity of the market for dollars is one of its great strengths as a reserve currency; no one wants to keep their wealth in a thinly-traded currency that can be easily manipulated. As a general rule, the U.S. government doesn't even try to move the dollar around, and it gets to print the stuff. Every Treasury secretary since Robert Rubin has chanted the mantra "a strong dollar is in the U.S. interest" to avoid making any news that might move the markets in unpredictable ways. 

But how can it be "natural" for the dollar to drop as far as it has in the last six months? Ever since the dollar was de-linked from gold almost four decades ago, the value of the dollar is determined continually in those massive global markets. The markets are populated by investors and traders, some with business ideas, some with money to save, some with goods to buy and sell. Some of them want to turn their dollars into euros to buy some French wine, others wish to turn their yen into dollars to buy some oil, a Treasury bond, or an American office complex. Exchange rates balance dollar buyers against sellers.

That means, in part, that we can have many explanations for what happens in these markets. The dollar could go up because American vinophiles turned to Sonoma Valley, or because the U.S. commercial real estate market became more attractive. One popular explanation for the dollar's rise and fall in the recent crisis is offered by Paul Krugman: "the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it's falling again now that the fear is subsiding."

That certainly seems to be part of the explanation. But it gives the impression that all is well, that we have returned to normal and there's little to worry about on the currency front. In fact, there is no indication that we've reached a long-term equilibrium and there is a serious basis for worries about the dollar's fall. That, though, will be the subject of the next post in the series: Has the dollar stabilized or is there risk of a further plunge in its value?

PAUL J. RICHARDS/AFP/Getty Images

By Phil Levy

Barack Obama has inspired many people around the world, the Norwegian Nobel Peace Prize Committee members clearly high among them. The president has spoken of the need for common understanding and expressed dismay that there are nuclear weapons. This clearly struck a chord with the committee. 

Did President Obama deserve the prize? It depends what you think the prize is for. If it is to recognize a record of accomplishment, then he does not. He has achieved very little so far. He may yet do great things; it's not really fair to expect that he would have done so in his first nine months in office. 

If, instead, the prize is meant as an endorsement of an ideal, then it's easier to understand. President Obama has painted a vision of America's role in the world that has great appeal to many.

There is certain to be controversy because people confuse their Norwegians and their Swedes and they will confuse an aspirational Peace Prize (Norway) with the recognition of great accomplishment embodied by the prizes in chemistry, physics, economics, or medicine (Sweden). It will also provoke controversy because it appears to be a statement about American political choices. Most nations are touchy about having foreigners weigh in on their domestic debates.

The danger with a symbolic choice is that we are at a stage where aspiration is hitting up hard against reality. Will the president send more troops to Afghanistan? Will anything happen with Middle East peace? Will we have a trade war? Will the United States have anything to offer at the Copenhagen climate talks? Although the Norwegians may be very enthused now about the president's speeches, it will be interesting to see whether they are equally enthused in the future about his performance.

I will leave it to my fellow Shadow Government contributors to opine on the merits of a U.N.-based approach to global governance and the prospects for worldwide disarmament. In my arena of international economics, there has has been a sharp disconnect between the president's rhetoric about multilateral understanding and his unilateralist approach to trade and fiscal policy.