Monday, September 12, 2011
President Obama is sending a legislative initiative to Congress this week, based upon his last week’s speech, offering a set of proposals for attempting to reduce the country’s unemployment rate, and to get the economy growing at a faster rate. A number of commentators embraced the proposal, including some recent critics of the President.
At the very least, it helped move the public discussion away from long-term debt problems, and back to the immediate, and more important, matter of jobs. Moreover, the sheer size of the proposal, nearly $450 billion, was more than many folks had been anticipating.
Unlike the Republican’s offerings, which are mostly oriented towards the supply or production side of the equation (reduce taxes and regulations on business, so that they will produce more and hire more people), Obama’s plan, in typical Keynesian fashion, focuses on demand. Richard Nixon once, following Milton Friedman, declared himself a Keynesian. But the Republican Party abandoned common-sense economic theory long ago, as it embraced supply-side, the gold standard, and the tenets of Ayn Rand.
Most conventional economists at this point, see the economic problem that we face as a matter of slackness on the demand side: Individuals have lost assets, due to the collapse of housing prices. Many have lost jobs. Others are worried about losing theirs. People with assets are paying down their debt. As a result, less money is circulating through the economy. We don’t face a business profitability crisis, so much as a demand, and consumer confidence crisis. There’s no reason for businesses to produce goods if there’s no one out there to buy them.
The President’s proposal then is welcomed, but there are longer term problems. And I am not referring here to the obsession with debt. In truth, U.S. economy continues to grapple with the consequences of 40 years of deindustrializaton.
In the 1990s, the internet economy was hailed as the replacement for the old industrial economy. And while it’s continuing economic and social impact cannot be discounted, the digital economy actually produces very few jobs. Facebook, for example, employs only 2000 people total. The last decade was bouyed by the housing bubble, which created construction jobs, but which also tended to make Americans believe that they were much wealthier than they actually were, generating a spending spree that encouraged debt and then exacerbated it when housing prices declined.
In other words, we haven’t found an adequate job generating replacement for the manufacturing economy yet. Without a resurgence of manufacturing, it’s hard to see what will stabilize the economy and cause it to grow over the next decade or two.
There are grounds for some hope. The big three car manufacturers are doing relatively well, partly due to the government bailout that many conservatives continue to criticize (although with far fewer workers than they once had). The green energy sector may provide some jobs, but it seems to be gravitating more and more to China, in terms of both production and ownership. What’s becoming increasing clear is that if manufacturing doesn’t return to the U.S. in a major way, inequality will continue to increase, demand will continue to weaken, and everyone, including business owners, will suffer.
But these longer term issues cannot be addressed until the economy is somewhat stabilized, which is why the President’s plan is both important and worthwhile.