Morici: Time Is Running Out for President Obama
Either Barak Obama fixes what’s broken in the economy, or he will be remembered for spending his entire first term blaming George Bush.
Last week’s jobs report was terrible for the eleventh month of a recovery. With nearly $800 billion in stimulus spending at its point of maximum impact, federal employment—net of temporary census jobs—was up a mere one thousand in May.
Private sector employment was up an insignificant 41 thousand, only one fourth the pace of the prior two months. Retailers are again cutting employment, as consumers turned pessimistic, flee the malls. Making worse a stock market panicked by European debt woes, the President claims his policies are working.
After all, health care reform and the prospects of much higher taxes and more regulations are causing U.S. businesses to rush out and hire everyone they can before all the able bodied are gone.
The economy is skating precariously on the edge of a second dip—this time into a depression—and the President should radically alter policies to ensure that doesn’t happen.
The private sector provides good examples. The Motor City is motoring again. U.S. automakers are gaining market share over import rivals, because Ford has convinced car buyers Americans can still make quality vehicles—without a government bailout or blaming prior management for a heavy debt burden.
Now Americans are finally willing to test drive, not just Fords, but GM and Chrysler products too. Amazing what focus on the customer can do!
Now is the time to apply that thinking to Washington. The recovery is faltering because U.S. businesses lack customers to justify new employees and the capital to expand, and they want help on both scores.
Demand for U.S. products is growing a faint two percent a year because of a gapping trade deficit—purchases of oil and from China are sending too many dollars abroad that don’t return to buy U.S. exports.
Businesses don’t have the capital they need, because the TARP did not fix the balance sheets of the 8000 regional banks, which finance most small and medium sized businesses. Instead, it was used by the Bush and Obama Administrations to finance more trading and big bonuses at Wall Street banks.
Rather than denying the lousy jobs report, President Obama should use it to justify tackling the trade deficit and shortage of capital with the same energy he condemns his Republican predecessor, whose policies he continues with fruitless talks with China and soft financial reforms.
Now, China, thanks to its artificially undervalued yuan, is suffering inflation, and is raising interest rates. And, Europe has run through the bond market’s patience and must cut spending.
Those policies are hauntingly Hooveresque and could cast the global economy into a long and painful depression, unless U.S. policy counters.
The United States already has the most stimulative fiscal policy imaginable and rock bottom interest rates, but President Obama has other options if he can well up the courage to ignore his Ivy League advisors.
Detroit has the technology to produce much more fuel efficient vehicles now, and a national policy to rapidly build those would push out imported oil and create many new jobs.
China buys dollars and sells yuan to keep artificially cheap its currency and products on U.S. store shelves, and Beijing will not quit this mercantilism until the United States acts.
The United States should tax dollar-yuan conversions to raise the price of Chinese imports to their true cost to the U.S. economy. This would increase demand for U.S. manufactures and impel China to refashion policies toward internally driven growth, lower inflation and more reciprocally beneficial bilateral commercial relations.
A Savings and Loan Crisis era Resolution Trust could relieve regional banks of troubled loans and mortgage-backed securities, make a profit for taxpayers, and get banks lending to businesses and home buyers again.
At some point a successful President must abandon textbook economics, embrace pragmatism and stop blaming his predecessor for the hand he was dealt.
For Barack Obama, that time is now.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.