Obama Economic Plan Falls Short

November 23, 2008


Saturday, November 23rd, President-Elect Obama announced that he has tasked his economic team with creating 2.5 million new jobs by the end of 2010. 

“We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children and building wind farms and solar panels, fuel-efficient cars and the alternative energy technology that can free us from our dependence on foreign oil and keep our economy competitive in the years head,” he said.

I certainly hope there’s more to come because, although this would be a nice start, it will fall far short of what’s needed to breathe life back into the economy.  Two and a half million jobs in two years may sound substantial until you understand that our labor force grows by approximately three million workers in the same amount of time, due simply to populaion growth.  So, if this is all there is to Obama’s plan, we’ll fall behind by another half million jobs in the next two years, which will raise the unemployment rate by another 0.3%.  Since the year will end with unemployment somewhere near 7.0%, is Mr. Obama saying that the best he can promise is 7.3% unemployment midway through his term of office? 

There’s certainly nothing visionary about building roads and bridges and refurbishing schools.  Anyone could have come up with that.  Putting people to work building solar panels, wind “farms” and fuel efficient cars sounds good, but Mr. Obama hasn’t explained how this will be done without raising the ire of the WTO (World Trade Organization).  It’s not as though none of these devices aren’t already available on the global market.  Is he talking about the Chevy Volt, the electric car which is supposed to be available in 2010?  Why will people flock to that car in particular when, at the same time, virtually every import brand is expected to introduce their own electric car?  Does Mr. Obama have a plan for guiding electric car demand disproportionately to the domestic brands?  Similarly, Denmark is the world’s leader in manufacturing wind turbines.  Why would our power companies choose to purchase American-made turbines disproportionately over Danish machines or those from other foreign manufacturers?  The same goes for solar panels. 

If his plan is to somehow steer domestic demand toward domestic producers, the WTO will see it as a violation of trade rules and will quickly move to put a stop to it.  Then what?  The point I’m making is that anything that Mr. Obama attempts, beyond public works projects, to put Americans back to work in manufacturing any product of any kind will quickly get him cross-ways with the WTO.  Frankly, I hope that’s exactly what happens because a showdown with the WTO is long overdue.  Perhaps only such a confrontation will finally drive home the point that unfettered free trade is what lies at the root of our economic problems and that only a system of protectionist measures offers any hope of salvaging our economy. 

C’mon, Mr. Obama.  We’re expecting better.  With 25 million people filing for unemployment every year, we need to create 20 million new jobs, not 2.5 million.  We need to return to manufacturing everything we use, not just a few things.  If someone has sold you on the idea that transforming to a “green” economy  will put everyone back to work, then you’ve been mislead.  A green economy that still experiences a $700 billion per year trade deficit is still a fundamentally unsound economy that is doomed to collapse, just as our current economy has.

June Trade Deficit: Bad News and Good News for All the Wrong Reasons

August 13, 2008


The linked article reports on the U.S. trade deficit for June, released by the Census Bureau yesterday.  The good news is that it wasn’t as bad as Wall Street had expected.  The bad news is that it’s still really bad – $56.8 billion drained from our economy in only one month, continuing a trend dating back to 1975.  Since that time, the cumulative trade deficit is approximately $9 trillion.  Gee, do you think the U.S. economy could use that $9 trillion right about now?
Back to the June data.  The good news is that exports set a new record.  The bad news is that so did imports.  Records are set almost every month, thanks to inflation.  Also, the bad news is why exports rose – not because of a rebirth of manufacturing in the U.S., but due to soaring grain and oil prices.  
The bad news is that the deficit in oil imports hit a new record, thanks to a record increase in the price of oil.  The good news is that the deficit isn’t quite as bad as the article would have you believe.  
Imports also rose to a record of $221.2 billion, up 1.8% from the May level. But the increase was driven by a 14.6% surge in petroleum imports, which hit an all-time high of $44.5 billion as crude oil prices jumped to record levels.
What they’re not telling you here is that, because the U.S. also exported $8.2 billion of petroleum products, the deficit in oil was $36.3 billion – an annual rate of $438 billion.  
The good news is that, aside from oil, the trade deficit shrank to its lowest level since 2003.  The deficit in manufactured goods was $33.7 billion – an annual rate of about $405 billion, down noticeably from last year.
The country’s goods trade deficit outside of petroleum shrank to the lowest level since February 2003. Demand for a variety of consumer products from clothing to televisions and furniture has weakened, reflecting the sharp economic slowdown in the United States
The bad news is why imports shrank – not because manufacturing is returning to America but because America’s economy is in such terrible shape that demand is down – not just for imported products but for American products too.  A recession isn’t exactly the most effective way to reduce the trade deficit.  We want to reduce it by bringing our manufacturing jobs home, not by destroying Americans’ purchasing power.  
With this slow-down in imports, the recession will now begin spreading to our exporters.  Soon they’ll be cutting costs and cutting prices to recover their shrinking sales volume.  I’ve been predicting another Asian currency valuation crisis, and this may be the catalyst that kicks it off.  (See “The Start of a New Asian Financial Crisis?“)
Finally, expect the trade deficit to rise again next month.  We’ll never see any meaningful reduction until the U.S. returns to sensible trade policies that utilize tariffs to assure a balance in manufactured goods and until the U.S. comes up with an energy policy that frees us of our dependence on foreign oil.  (Halting the exporting of oil would be a good place to start.)