As I predicted, last night the president offered a lot of good job creation suggestions that should be adopted but won't be and wouldn't be enough fundamentally to solve the stagnant growth/unemployment problem if they were.
Look, the $447 billion headline number for new stimulus isn't real because much of it will simply renew spending that otherwise was slated to stop. So the actual amount of new spending will be about $200 billion if the plan is adopted by the congress as Obama presented it. Okay, that's better than nothing, but in a $15 trillion economy it's not really very much -- only a bit over 1 percent of GDP. And as I noted in my last post, much of that leaks out of the U.S. economy because of the enormous U.S. trade deficit. In any case, the plan isn't going to pass the Congress as proposed. So the final amount of actual new stimulus could be much, much less even than this.
What I don't understand is why Obama went ahead with this. He knows as well as or better than I that much of what he is proposing will not be voted through by the Congress. So, is this set of proposals just a political maneuver to put the Republicans on the defensive or does the president really want jobs? With the just-proposed plan, it will be months before any of it is adopted and months after that before much of the money starts to flow. All the while, the political infighting and critique of the White House will be fierce and unrelenting.
Why, instead of proposing things to the Congress for its disposal, did Obama not announce the unilateral executive measures he was going to take starting tomorrow?
I have said before and I'll say it again, there will be no effective job creation program that does not in some way substantially reduce the U.S. trade deficit. This will be true even if by some miracle the Congress passes the new plan immediately. It will be true because of the points I made yesterday. Stimulus spending that leaks abroad and that involves net new long term borrowing without creation of sufficient new investment to make it self-financing will not significantly reduce long term unemployment.
He could have gone straight for the trade deficit by simply stating that the fastest way to create about 3 million new jobs is to halve it. He could then have announced his plans to countervail foreign export subsidies, to take measures such as intervention in global currency markets that would offset the policies that many governments use to subsidize their exports with under-valued currencies, to create an aggressive Invest In America program to match the Invest in China or Invest in Ireland, or Invest In Singapore, or other well known and successful Invest In programs, to refrain from proposing ratification of any trade agreements that the International Trade Commission says will cost U.S. jobs, and to establish an Invest In America task force that would identify all the economic sectors that could be competitive in supplying the U.S. market from a U.S. production base and then ,working together with the various state economic development offices, create plans and packages of whatever it takes to move this production to a U.S. base.
I think he just doesn't understand the significance of trade and the trade deficit for the outbreak of the crisis and for the failure of any kind of serious recovery to get launched. This was his golden opportunity and he missed it. Maybe he'll get another chance, but time is running out.
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Clyde Prestowitz is the president of the Economic Strategy Institute and writes on the global economy for FP.