Stimulus works....just not here!

The Stimulus Works! Just not in America.

The New York Times ran an interesting opinion piece today entitled “Return of the Killer Trade Deficit”. The conclusions were both fascinating and, frankly, unfounded.

In this article the American trade deficit was essentially blamed on others; specifically Germany and China. This is in lock step with the Obama administration’s requests at the G-20 for Germany to not end stimulus spending (deficit reduction), continue spending wildly and, oh yeah, cut back on those exports. In sports terms this is like the St. Louis Rams asking the New Orleans Saints not to score too many points, as that might make the Rams look bad.

The trade deficit is not a living thing or even a tool of other countries. The US trade deficit is in fact the culmination of years of neglected trade management in the US that has resulted in the destruction of the manufacturing base in America. Just as the Rams made many poor decisions in player and coach selections over the years the Saints made sound choices that resulted in the Saints being a better team. America has made poor choices related to trade.

In the last year, unemployment in Germany has dropped from 8+% to 7% and appears to be on a trajectory to move lower. Over the last year or so the economies of Germany and China have grown significantly and yet the US, as it is phrased, continues to lose steam and thus our President is compelled to ask that those countries quit scoring points. This, despite huge stimulus spending in the Untied States.

Just like the bailout of AIG to the tune of $165 Billion there is a direct flow-through pipe to foreign countries for our stimulus spending. When we bailed out AIG, within minutes the money was wired to overseas banks that were the so called counter-parties. Similarly, when the stimulus money was put into the hands of the general public in the form of a Keynesian demand stimulus, it did create demand; just not for American goods because we no longer manufactured the goods demanded. Germany and China were the beneficiaries of the demand creating stimulus.

Our Country abandoned managing trade policies and started assuming that the world economy would act rationally with the admission of China to the WTO in 1999 and adoption of NAFTA and similar free trade agreements. We are, however, still individual teams known as countries competing for an economic trophy. The choices of Germany and China were to protect and grow their manufacturing base and thus create a way to manage their economy in the face of world wide recession and they recovered quite nicely (won the trophy).

Blame is pointless for the past. Our leadership now must acknowledge we made bad choices and change our direction. As an old boss used to say: There are three rules of decision making: 1) Never make a decision until it is time; 2) when the time comes make a decision; 3) If the decision is wrong, change it! It is time to change our trade policies and change to support manufacturing again in the United States. (visit www.savingpontiac.org for more)