Recent job creation numbers published in the US show a grim long term picture for the recovery of that economy. On the one hand US Fortune 200 companies are showing record earnings (almost all due to a cheap dollar and good export sales) and a bundle of under-deployed cash. The Dow is not far off record highs. On the other hand, there are about 13 million (and possibly more) unemployed persons in the US many of whom will never work again. State finances are a mess (or worse) and at every level there is not enough public money to replace crumbling infrastructure. Education facilities are on hold and teachers have been laid off by the millions. All the while politicians in Washington continue their gridlock. From a per capita point of view, the US debt is worse off than Greece. At current levels of borrowing interest payments in 10 years time (adjusted to 2011 dollars) will consume almost $1 trillion of the US budget. Not a pretty picture. Because the US is, currently, the world's largest economy everyone seems to have booked passage on the Titanic.
There is no doubt that these wounds are largely self inflicted. Some stem from 9/11 and the world's reaction to terrorist threats. Radical muslims have created emotional and financial havoc in world economies. Consider the cost of terror prevention programs in transportation and general local and federal policing. Aside from the purchase of capital equipment, these expenditures have not contributed greatly to the economy in general. Then, there were the wars. Not all of the blame can be put to George W. Bush's feet. Obama has continued the war in Iraq and Afghanistan at horrendous cost to the US treasury. I can think of very little net gain for the US economy for such forays. Add to that the fact that wages in the US have seen very little net gain over the past 10 years. Most Americans had been living on the value that accrued in their homes. That worked until everyone realized that the king had no clothes and home values plummeted. The economic scenario played out like the plot of a horror movie. Mortgaged backed securities lost value; banks were under liquidity pressure; lending to small business stopped; people lost jobs and their homes. In aviation terms when no amount of power can overcome drag the airplane is said to be in a death spiral. The same may be true for the US economy.
To rehash an oft told story, the US government threw tons of cash at the banking system (most of which has been repaid) and the auto industry (some of which has been repaid) in attempt to prime the pump. Public money led to some but not spectacular economic activity and there has not been enough credit at the small business level to fund significant job creation in that sector. Big business has used the downturn to increase efficiency--all of which has little impact on jobs. In the meantime there has not been a measurable impact on the unemployed. In many cases increased employment has come in low wage industries so that the average standard of living is falling.
The political picture in the US is no better than the economic one, Overall, I think that President Obama's administration has been a disappointment to even his most ardent supporters. Yes we can, became, yes we'll think about it. In trying to lead by consensus he missed an opportunity to have a more effective healthcare bill when the Democrats had majorities in both houses of Congress and the White House had a Democratic President. When he should have declared the Afghanistan war "won" and brought the troops home he committed another 30,000 soldiers to a war that was no longer against Bin Laden (now mercifully killed) but against a long time tribal conflict that has gone on for centuries and will go on for centuries to come. He has flinched on almost every major decision. He has the charisma of Clinton but does not have the political skills of that President. Obama is (but for the comical menagerie of the Republican wannabe candidates) looking like a one term President.
Most G-20 countries have gone through considerable belt tightening after great recession. There has been considerable down sizing of government (Canada and Great Britain) and tax increases. The US, with a modest tax on high income earners could make a considerable dent in the deficit. There is also no doubt that the US government is too big and a reduction of some of that bloat could save the country billions. The US (and Canada) should look at some of its subsidy programs generated through direct subsidies and tax subsidies and see whether the US is still getting the same bang for its buck that it when these programs were enacted. New Zealand, in one year, cut out all of its farm subsidies. Ten years later New Zealand farmers were some of the most efficient and wealthy farmers in the world. The problem with US politics and politicians is that no one wants his ox gored. Every party has ingrained interests that cannot be abandoned without considerable pain. Republicans can no more reign in the banks than Democrats can reign in the labour movement.
The US is playing with fire. An old saw said that if you owed the bank $5,000 you had a problem; if you owned the bank $5 billion the bank had a problem. Even the slightest suggestion that the US will run out of money sometime in early August is inflammatory in terms of world economic stability. We all know that these are but words that import the severity of the problem. However, the downgrading of US bonds by the bond rating agencies would have a disastrous effect on that country's ability to borrow. Those economies that bank US treasuries (China) could abandon the currency. It would make the great recession look like a pussy cat by comparison.
What is becoming obvious is that President Obama cannot negotiate his way out of this crises. The lunatics on the right want to shut down government without raising taxes. The lunatics on the left want to raise taxes to protect long standing fiscal and political shibboleths. With presidential elections looming Obama can't be seen as having any kind of political victory here that could be leveraged into his campaign for president.
There is also no doubt that a compromise of some sorts will be reached. Probably at the last minute so that everyone will draw back from the abyss. However, such a stop gap measure will not address the root problems facing the US and Americans. At one time I thought that Obama could bring about a new bipartisan era. I am now certain that he can't. We will continue to live in interesting times.
Bernie
Bernie
ReplyDeleteGood post. Keep up the writing!