Sometimes you can just see glimmers of something through the DC brain fog, other times it becomes so clear that you can't ignore it. The current DC brain-fog motto is, "if it doesn't work, do it more." Today's GDP-growth report shows that austerity isn't working, so the geniuses in DC want to do it more. And they say, "government just gets in the way of business" so we send our businesses out on their own to compete with governments, and the resulting trade deficits eat our jobs.
Cutbacks Cut Growth
How long ago was it that DC was all about cutting taxes for the rich even more? And how many minutes after that was DC all about cutting budgets -- "austerity" -- because of the resulting budget deficits? So instead of the jobs that will fix the deficits the government gives us cutbacks -- cutbacks in taxes on the rich, cutbacks in construction projects, cutbacks in teachers and police and other government functions, cutbacks in the things We, the People do for each other.
We watch as England, Greece, Ireland and other countries try cutbacks -- austerity -- to get out of slow growth and their growth gets slower as a result. The U.S. tries it, too, and our growth gets slower, too.
The first quarter growth figures are out: 1.8% for the first three months of the year:
Total output grew at an annual pace of 1.8 percent from January through March, the Commerce Department said Thursday, after having expanded at an annual rate of 3.1 percent in the fourth quarter of 2010.
But the DC fog machine blames the weather, not austerity.
Higher commodity prices and winter blizzards that shuttered businesses and delayed construction were among the main causes of the slowdown.
Our growth slows because of austerity. So they blame the weather and insist on more austerity. Because austerity "gets government out of the way" of the wealthy few and their accumulation of the rest.
Trade Deficit
As the economy recovered a bit and people started to buy a few more things , the things came from elsewhere, and the money and jobs just left the economy. Without government policies to deal with it, our trade deficit will continue to get even worse, costing us even more jobs and growth and draining even more money out of the country.
Germany runs a trade surplus, so German unemployment is at its lowest level in 19 years. Headline: German Unemployment Declines to 19-Year Low as Export Boom Drives Demand:
German companies are hiring as they increase production to meet booming export orders, fueling domestic demand. ... German factory orders and industrial production rose more than economists predicted in February. ... More than a third of Germany's medium-sized companies plan to take on staff in the second quarter...
Germany also pays workers more than we do, gives them lots and lots of vacation time, health care, pensions, rights on the job -- all the things that our leaders say hurt our businesses.
Our leadership is making every effort to return to the old economy that caused the crisis. This is because those who benefited from that economy are still in control of the system, still using their great wealth to get what they want, damn the consequences for the rest of us. (Hint, the first link is to a post titled, Nine Pictures Of The Extreme Income/Wealth Gap, and the second is a post titled, Corporate Propaganda Response To Town Hall Medicare Anger.)
Contractionary Policies Cause Contraction
Conservatives say so many silly things that are proven wrong by the simplest fact-checking -- cutting taxes increases revenue, taxes take money out of the economy, tax cuts grow the economy -- and the silly thing they say that is hitting us now: cutting back causes expansion.
Huh?
Here is what really happens in the real world. Following are a few charts showing the effect of the "stimulus" and what has happened since the stimulus ran out.
First, manufacturing. See the plunge through 2008? That's the collapse. See the sharp change to an upward direction through 2009? That's the stimulus. See the leveling off since? That's the end of the stimulus.
Now look at the following chart of job growth. See the downward slope, when we were losing more and more jobs every month? That's the collapse. See the upward slope, when we were losing fewer jobs every month, up to where we were actually gaining a bit? That's the stimulus. See the leveling off, standing still through 2010, going into 2011. That's the end of the stimulus.
You can see in front of your face what works and what doesn't. We should be doing what works, not what doesn't. Why did I even have to write that sentence?
Solutions
As I wrote the other day, we have to invest in rebuilding our infrastructure if we want to continue to be competitive in the world, so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
We need to retrofit our economy to be energy efficient, so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
We need more teachers, more police, more firefighters, more judges, more scientists, more social workers, more park rangers, more noise abatement and met and safety and environmental and other kinds of inspectors and so many other things that We, the People do for each other -- so right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
So right there are millions of jobs that need doing. And the payoff from doing that pays for doing that.
But wait, there's more:
National Manufacturing Strategy
The idea of a manufacturing strategy or industrial policy is hardly a radical concept. Alexander Hamilton constructed America's first industrial policy in 1791. Setbacks during the War of 1812 due to a lack of domestic capacity to build naval vessels and military equipment cemented the determination of the federal government to grow manufacturing, a policy that continued until the end of World War II.
To solve the trade deficit and create millions of good-paying jobs (like in Germany) we need a national manufacturing strategy -- a government-sanctioned plan to ensure that U.S. manufacturers remain competitive in the global marketplace. Click this link for a few examples of countries that have national manufacturing strategies.
Following is the Alliance for American Manufacturing's plan:
Expand American Production, Hiring, and Capital ExpendituresEstablish a manufacturing investment facility to leverage private capital for domestic manufacturing Expand and make permanent clean energy manufacturing tax credits and industrial energy efficiency grants to allow America to lead on green job creation Link federal loan guarantees for new energy infrastructure projects, including nuclear, wind, solar, other renewable energy sources, as well as the smart grid, with expanding domestic supply chains Adopt immediate, up-front expensing rules for plant and equipment to spur capital expenditures Enforce our trade-legal Buy America and other domestic procurement requirements to prevent leakage of tax dollars overseas Invest in America's InfrastructureCreate a National Infrastructure Bank to finance high-value, long-term infrastructure projects, such as roads, bridges, high-speed rail, and other needs Enact a robust, multi-year surface transportation infrastructure program of at least $500 billion financed exclusively by fuel taxes Enhance Our WorkforceRefocus on technical and vocational education, providing a seamless program that bridges high school and post-secondary education to produce the next generation of highly skilled manufacturing workers Reward companies that are investing in effective skills and training programs for their workers Make Trade Work for AmericaKeep America's trade laws strong and strictly enforced to provide a level playing field for our workers and businesses Penalize and deter mercantilist nations such as China that manipulate their exchange rates and implement non-tariff barriers to gain an unfair trade advantage As the Administration works to double exports, expand the goal to include balancing our trade account so that gains in exports are not overwhelmed by increased imports Rebuild America's Innovation BaseMake permanent the research and development tax credit and enhance it to incentivize commercialization and production in America Focus federal investments in new technology and workforce training on promoting regional clusters of innovation, learning and production
And finally,
It Never Hurts To Quote The Boss
WASHINGTON'S FIXATION WITH AUSTERITY IS HURTING THE ECONOMY Campaign for America's Future Urges Lawmakers to Put Job Creation FirstWashington, DC - Campaign for America's Future's co-director Robert Borosage commented on today's economic indicators. Borosage said:
"The first quarter growth figures -- 1.8% for the first three months of the year -- are an ominous reminder of the reality that Washington has forgotten.
"This economy is in trouble. For most Americans, the recession has not ended. Growth is painfully slow. Unemployment remains high. Home values are dropping; gas prices are rising; wages are not keeping up.
"Despite this -- and despite the warnings of economists -- Washington, driven by the new House Republican majority, has turned prematurely to austerity. Contractionary policies cause contraction. They will impede any recovery, and slow an economy that is barely moving.
"Washington offers no answer because it is fixated on the wrong question. The question is how do we get the economy going and put people back to work -- not simply how do we balance our books? Every deficit reduction plan -- from the President's to the House Republican's to the Congressional Budget Office projections -- assumes faster growth than we saw in the first quarter.
"The most powerful deficit reduction measure is to put people to work, turning them into consumers and taxpayers. If growth and unemployment stay at this level, deficits will rise, not fall. The White House and the Congress should turn to measures to put people to work, to stave off debilitating layoffs of teachers and police at the state and local level, instead of ignoring the reality that Americans are struggling with every day."
Sobotka, from The Wire:
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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We listened to the Republicans say for years, 'Bomb them' and 'cut taxes'. That was their answer for everything while they sent good jobs overseas
Quote:
"The movement of American factory jobs and white-collar work to other countries is part of a positive transformation that will enrich the U.S. economy over time, even if it causes short-term pain and dislocation, the Bush administration said" (end)
It seems that the end result is enriching the stock market but what good does that do?
They have not fairly solved a problem in the past 12 years. They have spent the last 30 years setting up our economy for the already wealthy and the corporations to rake in money. They have created more problems than they have solved for the middle class.
Who will they blame everything on now that Bin laden is gone?
http://4.bp.blogspot.com/_pMscxxELHEg/SXu-IBM6k3I/AAAAAAAAEXE/Q2KYO8ce_9Q/s1600-h/TradeDeficitGDP.jpg
Even the BUSH administration recognised this as an issue a few years after they liberalised trade with totalitarina China.
"The movement of American factory jobs and white-collar work to other countries is part of a positive transformation that will enrich the U.S. economy over time, even if it causes short-term pain and dislocation, the Bush administration said"
http://seattletimes.nwsource.com/html/nationworld/2001854367_bushecon10.html
If the U.S. enacted a scaled tariff, the Chinese government, which currently only lets its people buy 30¢ from the U.S. for every $1 we buy from them, would likely remove its barriers that prevent its people from buying more American products. Also, American and international businesses would once again find it profitable to build factories in America. An additional benefit is that the scaled tariff would collect well over $200 billion in revenue during its first year.
You know, it's a little bit more complicated. For example, China globally runs, as a percentage, a smaller deficit than Germany does - for example because they purchase much raw materials in Australia. On the other hand ofc, in absolute numbers a smaller percentage of Chinese surplus is much, much more than the absolute surplus of Germany (might have to do with the difference between a people of 80mn or 1300mn. ... which leaves us to consider the absolute numbers of 300+mn ppl in the US).
The US problem is that somehow you manage to run a defict with almost all the developed or the emerging markets. Your vast natural ressources you use up mostly for yourselves, you have a huge military industrial sector, but these products you wouldn't, for example, sell to China and you simply cannot sell as many (and which??) products to 80mn people as 80mn can sell to 300mn. ... It boils down to a simple question: What would customers buy from the US?
"Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards.
So the problem isn't that the government is spending now. The problem is that the government spent back when it should have been pinching pennies. But that doesn't lessen the need to spend now.
After a decade of tax cut after tax cut after tax cut, we now have lots of economists grasping at all sorts of excuses for the failure of theory. Tyler Cowen has come up with a theory of a Great Stagnation, defining an inflection point that coincides with the switch from the view that government policy promotes favorable economic growth to one that government interferes and harms growth, so government should be hobbled and disabled, with tax cuts being ultimate virtue. That was the point when taxes became purely "taxes are a dead weight cost to the economy" and thus something to be eliminated.
http://zfacts.com/p/1195.html
It does not take a mathematical genius to see that all of government has been starved by this reality. Math has never been a Republican strong point, though. The right leaning public may be bamboozled by the math, but many of the rest of us see something more like an insideous move by Republican leadership to destroy every program that a Democrat ever originated, completely without regard to its detrimental effect on the nation's future. To do nothing to facilitate jobs is to perpetuate this blackmail and to shrink this economy by diverting discretionary spending -- already falling under trade pressures -- to saving for an old age utterly stripped of predictability.
www.BenFrasier.com/blog
The pablum that you produce never ceases to amuse me:
a) The trade deficit has little to do with the fiscal deficit. Government spending and borrowing is not due to how much individuals buy from Canada, etc.
b) True Germany runs a trade surplus. It should, its entry into the Euro, allows them to reduce the cost of their goods, increasing employment, at the same time that it increases the cost of goods for other competitors in Europe, thus exporting their unemployment. It is one of the reasons that the Euro is in trouble, but not the only reason.
c) Austerity is an investment, meaning the benefits are not seen immediately, but the cost is. We hurt now because we are supposed to. The problem with America has been that we have been kicking the unemployment can down the road for too long by keeping employment and wages up through increased aggregate demand and loose monetary policy. It is the reason we are in this state now. Austerity is the way out.
d) Thanks for pointing out that manufacturing plunged as our imports plunged There is correlative and causal relationship between the amount we import and the amount we export. Even so, we manufacture as much now as we ever have. Trade has only made it better.
e) Thanks for also pointing out that stimulus does not create lasting jobs and is a waste.
Kai
Who is asking to let roads to crumble? The funding the infrastructure spending, much of it down through state taxation, is not driving our federal deficits, take a look at the deficit and break out the fixed amount spent on infrastructure as a percentage of the deficit.
Nice try, but your sleight-of-hand efforts to create a straw man in the debate is an epic fail.
I am generous, though. I will give you second chance to put forth an argument for continued debt and deficits that 81% of the population agrees is ruinous. Infrastructure is not the root cause of these deficits so…want to try another angle…perhaps…some items on the non-discretionary side of the budget, that now account for more expense than we bring in as tax revenue?
No, foreigners selling us stuff and then lending us money is not the reason for federal fiscal deficits…so please do not go down that laughable road.
Kai
Yes, Germany benefits from the fact that because a minor part of the Eurozone's GDP (Greece, Ireland, Portugal) drags down the exchange rate; thus, we are running even higher surplusses as we would do without. BUT these effects are the same for every European country exporting out of the Eurozone.
The interesting part is: The US, with QE 2 did everything to depreciate the dollar - you have more manufacturing output now? You are competative?
Because that is a thing German economics were surprised about: During the 80ies/90ies/ early 2000 our economy was very closely tied to the US. If the US sneezed, we would have a Pneumonia. They were surprised that didn't happen and then looked at the micro- data just to figure out: the businesses had long extracted their focus from the US market.
Regarding the unemployment: Even without the crisis, 2010 would have been a turning point simply because of demographic reasons. Our population is shrinking. One of the reasons why we don't invest absurd amounts of money into an army we cannot sustain.
As always you misunderstand how markets in equilibrium work. If all countries had their own currencies, strengthening economies would have stronger currencies and weaker economies would see their currencies weaken relative to the stronger countries. German internal factors of production should raise as their currency does, making them less competitive internationally and Spain Greece Portugal, etc, become more competitive. But in effect, Germany is benefitting from the same artificially weak currency that China is. This helps both with exports. Just in a different manner both within the EU and outside.
Manufacturing is up as is exports. However, the offset to weakening your currency is making your imports more expensive, with oil being more than 50% of our trade deficit, this is not a good thing and it offsets the benefits of a weakened currency by making one of the major factors of production higher relative to what it was.
Agreed, Germany has a competitive advantage in the machines that make machines, infrastructure, etc. Siemens comes to mind but there are others. Asia is now a bigger market and they came through the crisis pretty well which has also helped Germany.
Regardless my point on the currency still stands.
Kai
http://www.infrastructurereportcard.org/
Home | Report Card for America's Infrastructure
"...America's Infrastructure GPA: D
Estimated 5 Year Investment Need: $2.2 Trillion..."
When one of the deficient dams breaks and kill thousands of people, including some elites, perhaps infrastructure can be addressed.
http://zfacts.com/p/1195.html