Thoughts for Today

No Plan. Did You Notice?

What is the economic plan for the recovery of the US economy? Has anyone put forth a plan? Obama, Pelosi, Gingrich, Geithner, Palin, Beck or Reid….not one has a plan. Weekly we debate issues by these talking heads. There are tax increases, tax cuts, financial reform, healthcare, extended unemployment but no one has put forth a plan for recovery. These weekly debates are about individual issues not a comprehensive recovery plan.

It can only be assumed that the Administration’s plan is that the original stimulus package would carry the economic recovery. We know that is not working and for all appearances will never work to recreate jobs on the scale necessary for recovery. Are deficits a problem? Sure they are but whether they go up or go down the result will not create jobs.

Our country’s economic makeup has gone through some structural changes over the last 20 years that have been ignored. The lack of management of these changes was conveniently obscured by two bubbles that allowed the appearance of well being but were really nothing but an opportunity for our citizens to incur huge debt balances on imaginary assets. The bubbles obfuscated the inconvenient truth that we were becoming a nation without sustainable jobs and a disappearing middle class.

There are 4 inescapable problems that face our recovery that not one of those talking heads will address. Why? Because they are tough problems that none of the so called leaders want to lead a plan for fixing this economy.

The first two problems and likely the most difficult and at the same time controversial are that we have let a full 1/3 of the manufacturing jobs leave this country since 2000 and that we continue to allow a 25% to 40% currency imbalance with China to exist. 6,000,000 manufacturing jobs have disappeared since China was admitted to the WTO in 1999. Preceding that event, in 1995 The US entered into what is known as the Reverse Plaza Accord to prop up the currencies of China and other Far East currencies against the dollar.

As our country began to evolve into the so called service economy from one based on manufacturing we began the decline in our ability to manage our economy. Much has been written about why the “stimulus” failed. The easy answer to that is that under the Keynesian rules, injection of money into the economy should increase demand and create jobs. What Mr. Keynes did not anticipate is that those injections would only increase imports because the goods were not made within the economy that was stimulated. As China and Germany report recovery growth we can see the result of our stimulus helping them and not America.

Similarly and in the same context we allow the currency differential to promote foreign manufacturing of the goods consumed in this country. Obviously, manufacturers in the US cannot compete with a 40% price differential before the cost of labor differential is even considered.

The third issue is the bleeding ulcer known as Fannie and Freddie. Why is no one talking about these debt bombs in our economy? The taxpayers have paid, already, $145 billion to keep the mortgages and guarantees afloat. It has been estimated that this cost could reach $1 Trillion. That is only a few hundred million less than Obama’s projected deficits for 2010 and 2011 but no one will talk about it. And, oh by the way, these cost are not part of the projected deficit but none the less will become part of our national debt.

As demonstrated with manufacturing, the big cause of ignoring this issue is that China bought many of the mortgage bonds that we now guarantee as a country. We seem unable to confront the many issues that China is causing by being a large investor in the US.

Finally we are continuing to let jobs slip through our fingers. While it was a bit pricey, President Obama underwriting the solar businesses a couple of weeks ago is the right thing to do. Without the Government underwriting, these businesses would likely have gone overseas. As taxpayers we bought GM. Remember that? There are about 120,000 jobs in the remnants of Saturn and Pontiac and those mothballed plants we own. Why would we not recreate these American jobs instead of continuing to send these jobs overseas?

What should we plan? For the first two items, Andy Grove had a wonderful piece recently that detailed the necessity of having a tariff war with China to end the currency problems and he detailed the necessity of encouraging investment in manufacturing jobs at home. The latter item could be accomplished by re-instituting the Investment Tax Credit that JFK used so successfully starting an economic renaissance in 1962. The credit existed until 1986 and was a huge lift to our economy.

As for Fannie and Freddie, there is a simple plan that could be instituted. Our citizens are struggling with foreclosure and mortgages that are underwater. As so many times we have elected to support others; not our taxpayers. It is apparent that our politicians would prefer to pay out 100% of the unsupportable mortgage guarantees rather than stop foreclosures with a 25% haircut to the bond and mortgage holders. This answer does not add to the deficit. Do we really believe that our credit rating will be diminished? In comparison to whom? Is China going to invest elsewhere or sell goods elsewhere? We have not opened Venus just yet.

Finally, we must plan to underwrite every sustainable job we can find. The previously mentioned Pontiac and Saturn jobs are two that are on my mind. We already own the assets and the minimal Government finding required would result in real jobs not census takers. (see www.savingpontiac.org) .

Summarily, I believe it is scary that we cannot have a discussion about the real problems that face us. Of course wars and deficits are important. We seem however to be stuck on these things rather than those that could create a genuine recovery and could help the taxpayers of the United States quickly. What is really scary is that no one has a plan.