07/16/2010 10:00 am
Sheconomics
More Trade, More Jobs: Clinton Economics
It will take more than hiring Jacob Lew to recreate the prosperity of the 1990s. President Obama appointed the former Clinton-era Budget Director this week to replace Peter Orszag, who as head of the Office of Management and Budget for the past two years oversaw mammoth growth in the government’s budget deficit, thanks to the financial crisis, and ramped up spending aimed at reviving demand. Sadly, Lew won’t bring economic fairy dust into the White House, but he may have some useful experience.
Certainly today’s financial picture is a lot different than that enjoyed during the Clinton years. The "peace dividend" that stemmed from the end of the Cold War boosted domestic consumption and reined in government spending. Taxes were raised modestly into an expansion, causing no great damage and indeed helping to balance the federal budget. Today, of course, we face towering government borrowings and the fear that any increase in taxes will prove counterproductive, so tender is our recovery. Just this week the Federal Reserve lowered its growth forecast for the economy; recent retail results echo diminished expectations.
There is one arena, however, where Obama could usefully borrow a leaf from Clinton’s playbook, and that is trade. Clinton, in league with Republicans in Congress and to the dismay of many of his backers, pushed through NAFTA early in his tenure, opening up a broader exchange of goods and services with our allies to the north and south. Though some observers criticized the measure, claiming it drove jobs to Mexico, most viewed the reduction of barriers as beneficial to all parties.
President Obama has made doubling exports a crucial plank in his economic platform. He has not specified how exactly he wants to accomplish this expansion, but he has at least embraced the adoption of a trade agreement with our ally South Korea and has championed in theory other such pacts. He has celebrated recent gains in exports; unfortunately, while exports are rising, imports are increasing at an even faster pace. In May the trade gap widened to its highest level in 18 months – up 5% to $42.3 billion from $40.3 billion in April.
We have to do better than this. We should do better. For one thing, the U.S. enjoys an incalculable language advantage. Yesterday I saw an Air France official in Istanbul trying to sort out the travel plans of an elderly Japanese couple trying to get to Hong Kong. Of course, they were speaking English. The Chinese have struggled (successfully) to overcome their huge disadvantage on this front; in Zimbabwe where the Chinese have made substantial investments, they have reportedly encouraged state schools to teach Chinese as an official second language. Such efforts may make some inroads, but English will continue to be the language of business for the foreseeable future.
This is a great advantage, as is our strength in technology, our efficient though outdated infrastructure and our educated workforce. We also benefit from having an undisputed rule of law. International companies risk everything investing in countries like Russia. Bill Browder, who at one time ran the largest hedge fund headquartered in Russia, flew home to Moscow after a marketing trip to find he was no longer allowed in the country. He had operated an "activist" fund, prodding oligarchs to grant shareholders more rights, dividends and other rewards. Clearly, he had stepped on one too many toes.
Still, we need to do more. I received a note this week from Bill Whyman from economics powerhouse ISI Group detailing his meetings with 20 tech/telecom companies in China. He reports that the visible hand of government is everywhere, with "many layers of non-transparent rebates, credits and subsidies for everything from cap-ex to R&D and training. This will be tough competition."
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You mentioned how European countries are pushing emissions reductions to boost business development in green industries. I’d like to see us focus on green industries here, too - especially alternative energy development.
Nice read and well done, thank you.
Liz - Informative article, as always.
I did see Governor McDonnell of Virginia on a TV program this week. The State has been able to climb out of deficit spending and is now enjoying a surplus. How did they do it? According to the Governor, the State was forced to reduce spending "immediately"…. the current budget is very similar to the State’s budget of four years ago in 2006. Interesting but I wonder if other States can do the same…. especially California? Virginia has certainly shown the way.
Also, Liz - why is not your photograph up at the top of the masthead with all the other wowowow ladies? Your articles and those of Margo Howard receive many comments yet neither of you are on the masthead.
I know the Dow Jones is down a couple hundred points … in reaction to the new Financial Reform bill? But in the words of Senator Dodd, no one knows how effective the bill will be until it has been in place for a while. I guess we also cannot say how counterproductive the bill will be for the same reason. I hope it will be more of the former than the later.
A lot of those jobs are credited to the federal stimulus package, as well as, the nearly 15,000 folks in Virginia hired as census workers.
Those 71,000 people getting a paycheck don’t include the more than 7,000 new jobs McDonnell has announced since February, yet to be filled.
However, according to the Virginia Economic Development Partnership the “substantial majority” were started in the Kaine Administration and finished off by Governor McDonnell.
As for your question about why Liz and Margo are not on the masthead, I assume it’s because they weren’t part of the group that put up the bucks for this site.
Hello Phyllis,
The fact that the State Budget for Virginia has been reduced is newsworthy. Deber has posted a link for which I will soon read but I do not think it can be stressed enough that a State has been able to stop the downward slide in deficit spending and to bring the State back to fiscal sanity by a reduction in spending. No gimmicks … no raise taxes now but cut spending two or three years out …. just an immediate cut in spending.
This is what the Tea Party activists have been advocating.
Hi Bonnie & Liz,Thought you’d find this article about my home state of Virginia interesting. 80% of the jobs are in the private sector and 20% are government jobs.
I don’t believe the stimulus added the private sector jobs. Obama is still squeezing the air out of our small businesses….a slow death.
Hi Deber - The link did not get me to the article but once at the Hampton Roads website, it was easy to find. I found it very interesting that the Governor says that many of the those 80% private jobs came through an active recruitment program by the State to bring new businesses into Virginia. Bravo to him and his administration.
I must admit that California is not only losing jobs but also companies. There is little incentive for companies to move to California … dealing with the bureaucracy, the unions, the taxes make it very difficult for recruitment. Our Legislature often looks to corporate California to bail out the State with innovative thinking to bring jobs and taxes into the State. Much of that innovation so enjoyed by Californians in the past is now located elsewhere.
However, I cannot help but be pleased that your State is solving their fiscal problems with little assistance from the Fed.
I hope California turns around soon. McDonnell is one politician who delivered on his promises with little help from the fed.
This is interesting: http://comments.americanthinker.com/read/42323/633570.html
I have some problems with your last paragraphs; perhaps you can respond.
First: Why is the passed legislation that you mention harmful? I’m not clear exactly what you mean except perhaps you are referring to the health care insurance companies, the investment houses, large businesses? We should be worrying about regulations on them being harmful?
Second: David Cameron’s austerity programs are seriously hurting many of the populace. In this country when our Republican patriots in Congress withhold unemployment insurance when common sense (and stats) says that will put some honey back into the empty cone, and at the same time these stalwart Americans want to continue with the Bush tax cuts while moaning and groaning about the deficit, then you have to wonder where hypocrisy starts and where it ends.
Yes, businesses start the economy, so why don’t they? Are we in a recession or not, because if we are we are going to suffer from it for a long time and jobs will crawl back very gradually, I presume, and I always remind myself why we are in a recession in the first place.
Yesterday, the governor of Michigan spoke about the multiple factories that have sprung up in her state producing cell batteries for all the electric cars and the many jobs that have resulted from this. Jennifer said they could not have done that without the stimulus. Perhaps we need another one?
Charles Krauthammer wrote this article today and as far as I am concerned he is one the smartest men out there today.
"In the political marketplace, there’s now a run on Obama shares. The left is disappointed with the president. Independents are abandoning him in droves. And the right is already dancing on his political grave, salivating about November when, his own press secretary admitted Sunday, Democrats might lose the House.
I have a warning for Republicans: Don’t underestimate Barack Obama.
Consider what he has already achieved. Obamacare alone makes his presidency historic. It has irrevocably changed one-sixth of the economy, put the country inexorably on the road to national health care and, as acknowledged by Senate Finance Committee Chairman Max Baucus but few others, begun one of the most massive wealth redistributions in U.S. history.
Second, there is major financial reform, which passed Congress on Thursday. Economists argue whether it will prevent meltdowns and bailouts as promised. But there is no argument that it will give the government unprecedented power in the financial marketplace. Its 2,300 pages will create at least 243 new regulations that will affect not only, as many assume, the big banks but just about everyone, including, as noted in one summary (the Wall Street Journal), "storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus."
Third is the near $1 trillion stimulus, the largest spending bill in U.S. history. And that’s not even counting nationalizing the student loan program, regulating carbon emissions by Environmental Protection Agency fiat, and still-fitful attempts to pass cap-and-trade through Congress.
But Obama’s most far-reaching accomplishment is his structural alteration of the U.S. budget. The stimulus, the vast expansion of domestic spending, the creation of ruinous deficits as far as the eye can see are not easily reversed.
These are not mere temporary countercyclical measures. They are structural deficits because, as everyone from Obama on down admits, the real money is in entitlements, most specifically Medicare and Medicaid. But Obamacare freezes these out as a source of debt reduction. Obamacare’s $500 billion in Medicare cuts and $600 billion in tax increases are siphoned away for a new entitlement — and no longer available for deficit reduction.
The result? There just isn’t enough to cut elsewhere to prevent national insolvency. That will require massive tax increases — most likely a European-style value-added tax. Just as President Ronald Reagan cut taxes to starve the federal government and prevent massive growth in spending, Obama’s wild spending — and quarantining health-care costs from providing possible relief — will necessitate huge tax increases.
The net effect of 18 months of Obamaism will be to undo much of Reaganism. Both presidencies were highly ideological, grandly ambitious and often underappreciated by their own side. In his early years, Reagan was bitterly attacked from his right. (Typical Washington Post headline: "For Reagan and the New Right, the Honeymoon Is Over" — and that was six months into his presidency!) Obama is attacked from his left for insufficient zeal on gay rights, immigration reform, closing Guantanamo — the list is long. The critics don’t understand the big picture. Obama’s transformational agenda is a play in two acts.
Act One is over. The stimulus, Obamacare, financial reform have exhausted his first-term mandate. It will bear no more heavy lifting. And the Democrats will pay the price for ideological overreaching by losing one or both houses, whether de facto or de jure. The rest of the first term will be spent consolidating these gains (writing the regulations, for example) and preparing for Act Two.
The next burst of ideological energy — massive regulation of the energy economy, federalizing higher education and "comprehensive" immigration reform (i.e., amnesty) — will require a second mandate, meaning reelection in 2012.
That’s why there’s so much tension between Obama and congressional Democrats. For Obama, 2010 matters little. If Democrats lose control of one or both houses, Obama will probably have an easier time in 2012, just as Bill Clinton used Newt Gingrich and the Republicans as the foil for his 1996 reelection campaign.
Obama is down, but it’s very early in the play. Like Reagan, he came here to do things. And he’s done much in his first 500 days. What he has left to do he knows must await his next 500 days — those that come after reelection.
The real prize is 2012. Obama sees far, farther than even his own partisans. Republicans underestimate him at their peril."
Barack Hussein Obama should’ve never been allowed in our White House. He simply cannot be trusted by either the Democrats or the Republicans. He has his own socialist agenda for America.
Obama needs to go in 2012 to a socialist country and live with his personal agenda. Let’s see how he likes it.
SadieBB, maybe some middle eastern country will be looking for a dictator in 2012….that way Obama will get his robe and tiara LOL!
I have to hand it to Obama. He is now tied with Sarah Palin in the polls. He must be experiencing nose bleeds from the fast decline in his ratings. Obama doesn’t care about that. His job from the beginning was to transform our country. So far he is accomplishing that. What were those Obama voters thinking when they voted for him? Now many of those voters are looking at Mitt Romney.