Thursday, October 4, 2012

Where’s the Economic Recovery?

As the presidential campaign continues, the candidates talk about economic recovery. Although I’ve discussed these before, I would like to make a few points that will help you put all the rhetoric into perspective.

I. Jobs

The key to economic recovery is jobs. But where have all the jobs gone? Overseas, probably never to return. Some new jobs may be created as a result of new technologies (alternative energy) and rebuilding our crumbling infrastructure. However, many manufacturing, back office, and customer service jobs have left the U.S., so to the extent that consumer spending does increase, who benefits?
Korea and Japan, who have major consumer electronics companies (Samsung, Sony);
China, who manufactures most of these consumer goods (TVs, iPhones);
The U.S. (mainly stores, which are mostly low-paying jobs).

Of course how can consumer spending increase when so many people are unemployed or under-employed? So I think the recovery will be slow, and we will have quite a few years of a sluggish economy.

II. The Deficit

Typically the government and Federal Reserve use two tools to manipulate the economy, and those are fiscal and monetary policy. Fiscal policy means the government runs a deficit in bad times, and that button has already been pressed to the limit. Monetary policy means you lower interest rates in bad times, and that button has been pressed to the limit. So the President is very limited in what he can do to stimulate the economy in those areas.

As the war in Afghanistan winds down, perhaps the government and redeploy some of those saved funds to rebuilding infrastructure (including thee electric grid), investing in nuclear power plants, and perhaps establishing some programs similar to the WPA and CCC that we had in the 1930s.

In the recent presidential debate, Mitt Romney stated that he felt that having such a massive debt was “immoral.” I agree. We are leaving to future generations a terrible burden on top of student loans that some will have to pay. I’m glad I was born when I was, because I’d hate to think of inheriting the mess we’ve bequeathed to our kids and grandchildren.

III. Balance of Trade

Another aspect of the economy that is hurting us is that we buy more from overseas than we export to other countries. So we don’t go bankrupt, foreign countries buy our debt to prop us up. China holds a lot of that debt. Until we become self-sufficient in energy and start manufacturing more goods at home, this unfavorable balance of trade is going to grow.

In order to reduce our unfavorable balance of trade, we have to find a way to eliminating the benefits of moving jobs offshore. I don’t know how to do it, but until we can find a way, jobs will continue to leave the U.S. for greener pastures.

We also need to become energy-independent as soon as possible. We have to invest in new technologies, improve on existing technologies (nuclear, coal), and improve mpg on cars and trucks. I’d institute a hefty tax on gas guzzlers such as SUVs and pick-up trucks not required for employment.

IV. Banks and Financial Institutions

Lastly, we come to the financial institutions. They need to be regulated, but in an intelligent way, with clear guidelines. There has to be more oversight of their practices, and I’d even suggest that the SEC or some other agency monitors and controls executive bonuses. The flow of capital is critical for investments in new technologies and up-to-date equipment that will create jobs.

So when you listen to the debates, keep these facts in mind. Both candidates are quick with promises and fast and loose with the numbers. The question they must ultimately answer is, “Where are the jobs coming from?”

In the Great Depression of the 1930s, the jobs were there but were unfilled because of lack of demand. Only World War II brought us out of the Depression, filling those empty jobs because of the war needs. What will bring us out of this recession?

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