I’ve been side-lined for a while dealing with some issues, so there’s lots to catch up on.
I think the title of this post pretty well summarizes the major stories of the past week or so. The names in the news evoke images of childish things like a Dr. Seuss book and the iconic giraffe representing Toys-R-Us. (OK, so the spellings are different.) The policies on display with the visit by Chinese premier Hu Jintao and Obama’s naming of GE CEO Jeffrey Immelt as the head of his new “jobs and competitiveness” council are no less simplistic.
These fairy tales about the big push to boost exports and competitiveness are designed to create the illusion of doing something to help the economy. After all, perception is reality. Reality is not. As long as the electorate perceives that something is being done, what do results really matter? These approaches have been tried by every administration for the past three decades, all with the same result – failure. This time will be no different.
Let’s begin with Hu’s visit. (See the first link above.) Much was made of the $45 billion export deal that Obama struck with Hu during his visit – most of that deal consisting of a Chinese commitment to buy 200 Boeing planes in the next couple of years. First of all, does anyone believe that these aren’t planes that the Chinese had planned to buy anyway? Did Obama convince Hu to buy planes China didn’t really need? Perhaps Hu figured he might find some use for them somewhere over there.
Prior to this deal, if China went to Boeing to place an order for planes, do you think that Boeing would have turned them away saying, “sorry, but you first need to make a public show of striking a trade deal with the administration?” Of course not. If British Airways needs to order ten planes, does Britain first have to strike a trade deal with Obama? Don’t be ridiculous. They simply go to Boeing and place an order. If these 200 planes were something that wasn’t already on Boeing’s horizon, there would have been a big jump in the price of Boeing stock. There wasn’t. It’s been basically flat since Hu’s visit.
If anything, the number of planes involved is probably a disappointment. After all, how long will it be before a nation capable of building its own stealth fighters begins cranking out their own civilian planes, likely putting Boeing out of business sometime in the not-so-distant future? It’s not as though China lacks the techology, labor force or money to start up their own airplane manufacturer.
And what other concessions did Obama extract from the Chinese premier? To quote the article:
China agreed to “delink its innovation policies from its government procurement preferences,” and also repeated a promise not to discriminate against foreign goods or services based on where their intellectual property content is developed or maintained, the White House said in a fact sheet.
Wow, there’s a real iron-clad guarantee for you! Anyone care to place a bet on how soon we’ll see concrete results from that concession?
Trade talks like these are the root of our economic problems, not the solution. The problem is that, while the best interests of China are at the top of the Chinese premier’s list of priorities, that’s not the case with Obama, just as it has not been the case for any of his modern-day predecessors. The best interests of the American people are well down on the list of priorities, somewhere below world peace, providing leadership for the free world, and the principles of free trade and fair play, just to name a few. Take care of these, American leaders believe, and the interests of the American people will be served. Foreign leaders like Hu Jintao, on the other hand, take a much more direct approach. Give us your market, your jobs and your money.
Then there’s the story about Jeffrey Immelt, CEO of GE, being named to head up the president’s new “council on jobs and competitiveness.” I like the title of this article: “Obama names GE’s Immelt to lead fresh push on jobs.” This distinguishes it from the previous, stale pushes. In fact, that’s why this “council” is new – to avoid labeling Immelt’s predecessor a failure. Immelt has done a good job of talking about American manufacturing in recent years. (See G.E. CEO Immelt’s Comments a Glimpse into Economic Policy? and then forgive me for unjustified enthusiasm.) But his record as a “Chief Executive Outsourcer” tells a different story.
Regardless, Immelt has been tasked with boosting America’s global competitiveness. Uh oh. You probably know what that means. Increasing competitiveness means boosting productivity. That means only one of two things: cutting workers or boosting output while maintaining the same workforce. The latter approach will only happen if demand picks up. Until it does, it’ll be the first approach that prevails. It has for years … for decades.
No doubt, it involves other approaches as well, most notably reductions in business taxes, accelerated depreciation for capital spending and lower capital gains taxes. And probably some job retraining programs. The end result is that corporate profits are going to do very well the next few years. And, to be fair, that will provide at least some small boost to the economy as rising stock prices catalyze optimism and borrowing.
Ultimately, though, this approach is doomed to failure, just as every such attempt before it failed. The problem is that our loss of manufacturing is not about competitiveness. It never was. The U.S. was always the most productive nation on earth by far. If it’s a matter of competitiveness, then how does one explain the fact that the U.S. has a large trade deficit in manufactured goods with a nation like France, perhaps the least competitive and productive nation in the developed world – where workers enjoy a 35-hour work week, vacations, pensions and other benefits that American workers can only dream of?
I suppose that there is some good news in all of this. If nothing else, for the first time in decades, it has dawned on an administration that manufacturing is crucial to the health of our economy. For decades the attitude had been “good riddance, who needs it?” Manufacturing is so “yesterday.” We don’t need the smoke stacks and polluted rivers. Let someone else do the dirty work. We’ll build a new economy, an economy built on service jobs, on dot-com ventures, on building McMansions we can’t afford and, finally, on smoking and eating ourselves nearly to death and then paying others to make us well again.
Obama’s epiphany came when he challenged his economic team early in his administration with “why can’t we be like Germany?” “Why can’t we be a major net exporter of manufactured products?” Had I been in the room, he’d have gotten his answer. It’s because Germany has us, a gigantic trade patsy lacking the common sense to protect its market from parasitic, overpopulated nations utterly dependent on manufacturing for export to sustain their bloated labor forces. Do you see another United States out there? What nation, besides us, has such a huge appetite for manufactured products while lacking the domestic labor force to produce them? There is none.
So now, at least, Obama appreciates manufacturing. Let’s hope another fifty years doesn’t pass before some future administration finally concludes that we can’t export our way out of our trade deficit mess and maybe – just maybe – we need to look at putting a lid on imports.