Key Questions Remaining from the G-20 Summit

Five fundamental questions went unanswered in the G-20 summit this past weekend.

1. What is protectionism?
Many of the country's representatives were advocating against protectionism and had agreed to revive the Doha Round of global trade talks. But there are questions raised regarding this. If the three auto industries in U.S. are offered a bail-out, then would it be categorized under a subsidy, which is illegal under the WTO?

2. There is the question of whether governments should encourage or repress consumer spending. Proponents of increased consumer spending believe that it will help revive the economy. That is why the U.S. bailout package was revised to include support to credit card borrowing, student loans and auto loans. Opponents claim that the financial crisis was partly brought in due to excessive spending and borrowing. Therefore, cutting back is exactly what Americans must do to restore balance to the global economy.

3. Is it important to put a price floor on homes?
Treasury's Paulson has argued that the financial crisis will not come to an end until the decline in home prices reaches a bottom. Therefore, many people are trying to prevent more foreclosures and are trying to offer incentives to buyers.

But other experts say that buyers who expect prices of homes to further decline would put off buying them until later when the actually drop. Therefore, trying to prop prices above the level they naturally seek would merely delay the necessary market adjustment resulting in keeping prices unaffordably high.

However, there is no universally approved answer to what the correct or equilibrium level or prices should be, so it is hard to take sides in this situation.

4. Should world leaders try to ensure that a financial crisis such as this one never occurs again?
The obvious answer is yes but there is a catch to it. The G-20's statement instructs the various nations to report back by the end of March about the progress they have made on restructuring financial regulation. In their zeal to show progress, government officials may push lenders to tighten up, offsetting the elaborate efforts to provide fiscal and monetary support.

5. Do we need global coordination?
The obvious answer is again yes. But the government officials focused more on the long run, and they do not have specific guidelines as to how to work together in the short term. This may be good since in the short run, each country has to use different policies to get out of the current situation. While the U.S. may need to consume less and save more, Chine may have to do the exact opposite to boost its economy.