Obama's was one of the better inaugural addresses, and in emphasizing the need, in an age of globalization, for collaboration between all sectors of society including the government and on the necessity of executing the rights of each in order to assure those of all it struck a resonant chord.
However, executing those rights will be a lot easier in a robust, growing economy than in a stagnant one. In the past several months and in the past week there has been much talk of budgets, debt, taxes and tax cuts, borrowing ceilings, economic recovery, social insurance programs, and lower interest rates through quantitative easing (printing more money, essentially). But what I have heard neither the president nor anyone else explain, is what we Americans are going to sell.
We talk about all of these programs, policies, and initiatives as if they are the main game and as if the U.S. economy is a constant that can be automatically pushed and shoved in different ways to achieve desired ends. In fact, this is not at all the case. Take quantitative easing as an example. The economy is not recovering from the recent crisis as quickly or creating as many new jobs as everyone would like. The Federal Reserve has already reduced interest rates to virtually zero. So to push things along faster, it decides actively to buy assets in an effort to reduce the cost of money even more and thereby to encourage bank lending, borrowing, and investment. But do investors borrow and invest just because money is cheap? Look at Boeing. It's new 787 Dreamliners, absolutely key to the company's future, are all sitting on the ground waiting for engineers to figure out how to stop their lithium-ion batteries from burning and setting the planes on fire. Is Boeing going to take a big loan and redouble Dreamliner production right now?
But at least Boeing has something to sell if it can fix the batteries. For the United States the question of what it will sell is much more vexing. You say Boeing jets, as one obvious example. But those batteries are actually made in Japan along with the wings of the new Dreamliner and lots of other parts. And if it's not made in Japan, much of the rest of the plane is made in a wide variety of other countries. Nothing wrong with this, in principle, in a globalized world economy. But for the United States it means that even if the batteries get fixed, there won't be a huge wave of investment to take advantage of the Fed's cheap money.
Amid all the debate and speeches of the past several weeks, no important officials or commentators have mentioned the U.S. trade (technically current account) deficit. Economists generally consider that a deficit equal to three percent or more of GDP is unsustainable in the long term. The U.S. deficit has been at that level for a number of years. That deficit is worth 6-10 million jobs, enough to virtually wipe out unemployment in the United States. Getting rid of that deficit would or even halving it would go a long way toward executing the self-evident rights of each American while also resolving the split between those who wish to tax less and those who wish to spend more.
Yet, even as that deficit and the international debt to which it constantly adds remain un-discussed, they are getting worse. This may sound counter-intuitive because of all the recent media talk of cheap shale gas and rising labor costs in China making U.S. based manufacturing more competitive and driving a wave of re-shoring and relocation of global production to America. But while it may be the case that some of this is occurring, the numbers don't reflect it. While U.S. oil and energy imports have fallen dramatically as a result of the U.S. shale gas and shale oil production booms, the fact is that the U.S. trade deficit has remained about the same and even grown a bit. This is because U.S. imports of manufactured goods, services, and agricultural products have increased enough to more than compensate for the fall in energy imports. In other words, we have swapped imports of Saudi Ariabian oil for imports of Japanese lithium-ion batteries and British banking services.
Obama won't see the execution of rights for everyone that he wants to see and that he has promised unless he reduces unemployment. He won't be able to do that with more fiscal stimulus because the congress will not appropriate more stimulus funds in view of the deficit and debt issues. Nor will the Federal Reserve be able to loosen money much more. It has pretty much used up its ammunition, and as we noted above, it's not clear that it could have much practical affect even if it had more ammo.
The only way out of this situation is to reduce the trade deficit. But to do that America must have something to sell. Maybe the president can tell us what it will be in the forthcoming State of the Union address.
SAUL LOEB/AFP/Getty Images
Clyde Prestowitz is the president of the Economic Strategy Institute and writes on the global economy for FP.