It seems to us at Peace and Freedom that President Obama, in his lecture hall style economic address at Georgetown, left unsaid some of the biggest question marks in the future of the American economy: like growth and China.
President Obama is full of vision and hope and problem solving. We’ll end global warming. We’ll solve our health care problems. But without economic growth; where will the money come from? Right now we are borrowing from China as fast as ever, while China is building and rebuilding infrastructure the way we dreamed about and the stimulus promised. Pardon us for now starting to believe most of the stimulus was and is wasted and the infrastructure and associated jobs once promised will be an utter disappointment.
Despite Obama’s grand plan and all the hope, his economic system is a system of spending and borrowing more and not less. Where’s the economic growth? Where’s the engine?
As Fred Barnes wrote yesterday in The Weekly Standard about the Obama plan, “There are few incentives to economic growth except the dubious one of trillions more in federal spending.”
Obama’s future remains an American spending and consumption circus, as far as we can tell, if there is money enough to support that. But added to our economic burden in the future as envisioned by professor Obama is an overhaul of our health care and education systems plus a totally new economic limiter in the form of energy taxes and restrictions…..
And Obama never once mentions the debt (China already holds about $1 Trillion) or the interest on the debt….
Barack Obama is hugely popular and could set the nation toward a more productive and growth fueled future. Instead he is acting like the easter Bunny: we’ll give you the candy of free health care, a care-free environment and an education system bar none!
But who pays? And where are the new jobs, the new industries to sustain growth with workers who pay taxes all their lives and then retire in economic security?
Reality: without economic growth, do we borrow forever? U.S. President Barack Obama speaks on the balcony of the White House before the start of the 2009 Easter Egg Roll on the South Lawn in Washington, April 13, 2009.….Reuters
China stands ready to make more goodies if Americans can buy them. But if the American consumer holds back there are 1.3 billion Chinese consumers who have never yet spent much waiting in the wings….Transcript of Obama Economic Address, April 14, 2009:
Stocks tumbled Tuesday afternoon as disappointing data on retail sales overshadowed several positive earnings reports and optimistic comments from Washington officials about signs of an economic recovery.
Here is some of what Robert Samuelson wrote:
The trouble is that it may not work as well in practice as it does in Obama’s speeches.
Obama sets aside the standard logic of economic progress.
What Obama proposes is a “post-material economy.” He would de-emphasize the production of ever-more private goods and services, harnessing the economy to achieve broad social goals. In the process, he sets aside the standard logic of economic progress.
Since the dawn of the Industrial Age, this has been simple: produce more with less. (”Productivity,” in economic jargon.) Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose. By contrast, the logic of the “post-material economy” is just the opposite: Spend more and get less.
So that’s all right then. Almost a year into the worst recession to afflict Britain and the West since the Second World War and we are, say the optimists, over the worst. “The End” is no longer nigh but, suddenly, the end of the slump is. In the barren desert of economic gloom an oasis of hope, lush with “green shoots”, at last shimmers on the horizon.
Or does it? Alas these rose-tinted visions of a rapid revival from recession are almost certainly a cruel mirage. For fearful families, fretful businesses, edgy investors, and — most of all — tormented financiers and desperate politicians, all craving a swift return to the good times, the present chorus of upbeat and reassuring responses to the persistent question “are we nearly there yet?” is little more than wishful thinking.
Sure, there are the first, tentative signs that the vicious first phase of this wrenchingly brutal recession may be passing. The pace of the slump in the present quarter, here and across the world, is likely to be markedly less than the headlong plunge of the past six months. The massive response by governments and central banks, pretty much unprecedented in scale and speed, ought to have begun to slow the rate of decline — and seems to have done so. That much is welcome. But, crucially, we are still going down, and quite fast.
The yearning for the economy to “get well” this soon is wholly understandable. Yet to claim that recovery is already at hand is akin to arguing that the patient is out of danger when moved from intensive care to the “high-dependency unit”. The painful fact is that economies are far from out of danger.
A true recovery will eventually emerge. The huge doses of interest rate cuts, fiscal stimulus, and all the rest will stabilise the patient.
The big problem, however, is that while these remedies are starting to work, they amount to a quick fix rather than a long-term cure, treating the distressing symptoms of recession rather than the underlying disease. If the treatment is more of a palliative than a panacea, then the danger is that recovery could mean remission followed by relapse.
There are at least three big causes for concern that governments’ approach means that economies are only being patched up for the short-term rather than made fit to ensure long-term prosperity. Two of these are more immediately pressing, the third is less so, but is fundamental and imperative.
The first worry — explored compellingly here yesterday by George Magnus — is that, particularly in Britain and the US, existing policies to clean up and recapitalise banks that remain semi-paralysed by an enormous overhang of “toxic” debts are far too piecemeal and limited to resolve the problem.
The second anxiety is that the toll being taken on economies’ future productive potential by the sheer scale of global recession will mean that when growth does resume it will be only anaemic. As the slump drags on, companies will scrap capacity, as well as planned investment in more efficient future production; economies’ skills-base will be eroded as job losses spiral. And the vast bills for bank bailouts and fiscal stimulus mean that higher taxes will hamstring future growth. All of this risks ensuring that eventual recovery will be insipid.
But it is the third worry that is the gravest, most complex and most intractable. As Stephen Roach, of Morgan Stanley, highlights in a recent article for McKinsey, the consultancy, the most disturbing facet of the response to this crisis is that leaders of the key economies have so far failed utterly to confront the titanic, deep-seated global economic imbalances that lie at the root of the world’s present plight.
Instead, leaders have focused their energies on damage limitation. Yet by doing so, and by failing to address the big picture, they risk perpetuating forces that will be permanently and profoundly destabilising.
It is to these notorious “imbalances” that we can trace the origins of the catastrophic bust being endured in the US. On one side of the imbalance, America spent most of the last decade on a runaway binge of excessive consumption, fuelled by an unsustainable boom in house prices and a credit bubble inflated by cheap money.
On the other side of what turned out to be a Faustian pact sits China. A Chinese savings boom as excessive as the US consumer binge provided the ultimate source of the cheap cash that Americans proved so eager to spend on cheap imported Chinese goods. As long as China’s exports boomed, Beijing was happy to finance a ballooning American trade deficit by buying ever greater quantities of US Treasury bonds. In turn, as China piled up these seemingly limitless quantities of dollars, it kept its exchange rate low, its products cheap – and Americans eager to buy. And Americans’ access to the ever-bigger borrowings needed to keep on buying was subsidised, too, as China’s T-bond buying kept down US market interest rates.
As Mr Roach observes, that great game is now over. Yet both Washington and Beijing still seem intent on trying to press the reset button and resume playing. US measures to fight the recession are concentrated on shoring up and reviving consumption. In China, efforts are focused on infrastructure investment to enhance the country’s ability to produce rather than stimulate the higher levels of consumer demand needed if the world economy is to “rebalance”.
If these policies are expedient for the moment, as a prescription for a return to long-term global economic health they are liable to prove disastrous. This is the urgent challenge to which both America and China must rise.
Since the dawn of the Industrial Age, this has been simple: produce more with less. (“Productivity,” in economic jargon.)
Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose.
By contrast, the [Obama] logic of the “post-material economy” is just the opposite: spend more and get less.
Read all of Samuelson:
Obama Economics and Magical Technological Breakthroughs