The $789 billion stimulus doesn’t fix what ails the economy and is doomed to fail.
Since 2007, the private sector has shed 6.6 million jobs-half in manufacturing and construction. Governments added 185 thousand employees, hired teachers, and no change in those trends can be detected since the stimulus began.
During the economic boom, a huge structural international trade deficit emerged. Imports exceeded exports by about $700 billion annually from 2005 to 2008. By the end of the boom, nearly all was manufactured goods from China and oil.
The failure to pay for imported consumer goods and gasoline with exports creates a huge shortage of demand for U.S.-made products. Money spent on imports that does not return as payment for exports can’t be spent on U.S. made products. Inventories pile up and layoffs result.
Americans solved that problem, temporarily, by borrowing against homes, cars and credit cards to spend more than they earned. Banks got the cash from China and Middle East oil exporters, stuck with dollars from selling to Americans but not buying U.S. exports.
A bubble resulted in home construction, housing prices and stocks that inevitably burst.
Voila, the Great Recession.
To lift the economy, President Obama must resurrect manufacturing, which requires exporting more and importing less, and shift idle construction workers from housing, which is in oversupply, to rebuilding schools, roads, hospitals, and factories.
Of the $789 billion stimulus, only about $100 billion is infrastructure. About $280 billion is tax cuts for individuals and businesses who are too scared to spend. The remaining, $400 billion mostly rewards Democratic Party constituencies-for example, huge increases in the Department of Education budget and grants to state and local governments are not laying off teachers and policemen as President Obama often asserts.
Cap and trade will only make matters worse-economically and environmentally. It will raise the cost of manufacturing in the United States and send jobs to China, where CO2 emissions are unregulated and higher.
Proposed changes in health care would increase the cost of insurance to businesses instead of lowering prices for drugs, doctor’s visits and malpractice insurance, as true reform would accomplish. That may reward yet other Democratic Party constituencies but it will further disadvantage Americans competing in global markets.
Real alternatives are available to failed Bush-era policies.
Recalibrate trade policy to promote exports, balance trade with China and develop domestic oil and gas. Abandon cap and trade until China and India sign on to the same disciplines, require drug companies and doctors to charge no more than they are paid in Canada, and find honest work for malpractice lawyers.
All would require Mr. Obama to think outside the box and abandon the conventional wisdom of the left.
Just as President Bush’s blind adherence to conservative ideology threw America into crisis, Obama must unshackle his policies from liberal group think to succeed.Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.
Peter Morici is a professor at the Smith School of Business, University of Maryland School, and the former Chief Economist at the U.S. International Trade Commission.
-
« Home
-
About This Post
- Written by
- July 13th, 2009 at 4:07 pm
-
Categories
Comments 13
Damn both their houses,says Professor Morici,
Morici is a frequent guest on Kudlow’s program;he also writes for the arch enemy website Counterpunch,but he’s no leftist. Some of the best,fact based economic writing on the net is found at CounterPunch including Morici,Mike Whitney,Mike Hudson,and Pam Martens. The economy put Contentions in a world of hurt,because how is this economy going to support all of those projects so close to the NeoCon heart. And Obama is certainly in no position to justify his economic programs,so two cheers for Morici,and damn all the villians. Speaking of Villians, does anyone believe that Bernie M is the only guy that should be in jail for financial fraud at this late date?
July 13th, 2009 at 4:17 pm
congrats on the by-line, RCAR
July 13th, 2009 at 4:18 pm
Balance of trade argumments have been around forever, and mean much less than normal, since in order to have perfectly balanced trade one must have protectionist policies in place to stop a China from flooding a market with cheap goods. The WTO has made this illegal. When was the last time we ran a positive balance of trade.
Of course willingly refusing to drill/explore for our own energy supplies when we have vast reserves available is just silly. It is a source of wealth we have refused to tap. In addition, our elites desires to effectively devalue our currency is the greater issue, placing large portions of our debt in the hands of our political adversaries. It fuels much of RCAR’s rant on the gold standard, which doesn’t prevent devaluation any more than any other peg. Politicians just love to spend. That seems to be the one true bipartisian impulse on capital hill.
July 13th, 2009 at 4:55 pm
JEM,It would be so much better to sell more than we buy,I’m not interested in “perfectly balanced trade”,I want to outsell our competitors,that way, we have their currency,rather than sending ours to them. Oh yeah,also,the sellers become richer than the buyers,it seems we’ve been on the wrong side of history for a while.
July 13th, 2009 at 7:18 pm
A very interesting article; although Morici’s association with Kudlow is not reassuring in that Kudlow has predicted fifteen or twenty wall street bull markets in the past ten years.
That said, Morici has my vote on everything except the vague “recalibrate trade policy” point. There is no policy we can take to stop them except eventual devaluation if China’s rulers want to continue to enslave her people to send us cheap goods for which we pay with colorful paper coming off high speed presses.
The only manufacturing it makes to protect is that which enables us to build cruise and ballistic missiles faster than them in the event we need to when we redeem the greenbacks with azure backs at one to the thousand for overseas central bank holders.
July 13th, 2009 at 7:20 pm
Sully,Morici has no association with Kudlow besides that he is a frequent guest on his show,very often PM disagrees with LK on most economic subjects.
“The only manufacturing it makes to protect is that which enables us to build cruise and ballistic missiles faster than them in the event we need to when we redeem the greenbacks with azure backs at one to the thousand for overseas central bank holders.”
Bullseye,that’s why we need a guy like Morici in charge of the Fed or the treasury.
July 13th, 2009 at 7:44 pm
The Neo-cons are sheep on the economy,those same hawks that are ready to take out Iran or NK,but when it comes to auditing the Fed,not a peep,as if the Fed isn’t as great an existential risk to us as Iran,different kind of threat,but in the end,we become a broken nation. And what about that audit of our Gold supply that is being blocked by Treasury,again,not a peep from the Lamblike Neocons.
July 13th, 2009 at 7:49 pm
RCAR…Why doesn’t Obama audit the fed? He won, right?
Steven from Indiana
July 13th, 2009 at 8:51 pm
Steven,Bernanke is Obama’s best friend & vice versa,the only way that could happen is for the Neo-Conservatives to make it happen,the Republicans are Bernanke’s best friend too. I’m afraid the fed runs the show.
July 13th, 2009 at 9:19 pm
You’ve lost me, RCAR. There’s a fillibuster proof Dem. majority in the Senate and Pelosi runs the house. Why can’t they just send troops to Fort Knox…they’re already there.. and have a look see?
Geraldo could MC in prime time. It would be just like that Al Capone’s vault episode.
Steven from Indiana
July 13th, 2009 at 11:02 pm
I believe that’s what RCAR is afraid of.
July 13th, 2009 at 11:15 pm
Not just like Al Capone’s vault. The secret would surely have gotten out if ALL of the gold was missing from Fort Knox. So there is at least a screening layer of real bricks – although the ones on the bottom of the screening layer may be plated lead.
Anyway, in the final analysis it doesn’t matter whether there actually are 4,600 tons of gold in Fort Knox as long as everybody (except RCAR) believes there are 4,600 tons of gold there.
July 14th, 2009 at 12:00 am
I’m not sure why he took that swipe at Bush (“blind adherence to conservative ideology”?) other than to preempt insults. Then again, I suppose someone who wants to impose Canadian medical pricing (and God knows what else) by fiat would probably confuse W with a laissez-faire advocate.
July 14th, 2009 at 9:03 am