Slow Growth in a Globalized U.S. Economy
William R. Hawkins
Saturday, March 13, 2004
Speaking to the National Association of State Treasurers on March 8, U.S. Treasury Secretary John Snow admitted that the lack of job growth in the U.S. economy was a “mystery” to him. Only six months ago, Snow told The Times of London. “Everything we know about economics indicates that the sort of economic growth expected for next year, 3.8 to 4 percent, will translate into 2 million new jobs from the third quarter of this year to the third quarter of next year.”
The Bush Administration’s team of mainly neoclassical economists has constantly overestimated job creation as the economy has clawed its way out of the 2000-2001 recession. In 2002, they estimated there would be 138.3 million nonfarm payroll jobs in the economy by February 2004; they revised this downward in 2003 to 135.2 million jobs, but this was still well above the 130.2 million nonfarm jobs that actually existed at the end of February.
Last month, the Council of Economic Advisers (CEA) predicted 1.6 million new jobs would be created in 2004, but an oft-burned White House immediately backed away from the prediction. The job report for February showed only a net gain of 21,000 jobs – about one-tenth what Secretary Snow was predicting would be the monthly average last fall, and these were all in local government service, not the private sector. Manufacturing employment continued to drop. There were 8.2 million persons unemployed and 4.4 million working only part-time because they could not find full-time work. Another 1.7 million persons were sporadically looking for work, but not “officially” unemployed even though they were without jobs.
Huge amounts of economic stimulus have been pumped into the economy. The federal funds interest rate is down to 1 percent, and the money supply has been growing quite briskly. Tax cuts have reduced federal tax revenues appreciably, from $2,025 billion in 2000 to only $1,783 billion in 2003, while spending has jumped from $1,788 billion to $2,157 billion in the same period, converting a budget surplus into a deficit. In 2004, the CEA estimates that tax revenues will increase by only $16 billion while spending will increase by another $143 billion to generate a $520 billion budget deficit.
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The problem is that the economy has changed radically in twenty years, in ways that make it more difficult to use fiscal policy to stimulate growth. But the Bush administration does not seem to understand the changes, thus its officials and economists are continually surprised that their policies are not working as well now as in the past.
The biggest change is that the United States ran a $496 billion trade deficit in 2003, and has suffered the loss of 2.7 million manufacturing jobs do mainly to imports. In an “open” economy targeted by foreign-based producers (including nominally American firms that have moved their factories overseas), too much of the money put into consumers’ pockets by tax cuts and low-interest loans gets spent on imports. This counterproductive behavior creates jobs for foreign workers, profits for foreign firms, and tax revenues for foreign governments rather than benefits for the American economy. The added aggregate demand generated by a $375 billion budget deficit last year was not enough to offset the drag on the economy from the trade deficit.
This negative impact is even more direct when government itself sends work overseas by outsourcing or foreign procurement. Money taken out of the domestic private sector via taxes should be returned to the domestic private sector when the government spends the money, otherwise the government is contributing to the current economic imbalance.
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This makes all the sense in the world to me about why the tax cuts consumers got (or what little they got) are not working to create more jobs. Consumers have spent their tax cuts on imported products. The tax cut money leaves the country as revenue to foreign companies and pays for foreign workers to work to create more inventory to be produced then sold to the US. In effect, the money from tax cuts is flowing overseas. But consider also that consumer spending still increases. How can that be? Because of purchases on credit cards. And last week, once again, a record was set for personal bankruptcies.
More at
http://www.americaneconomicalert.org/view_art.asp?Prod_ID=1075Contrast the above information with what Robert Reich says is the Democratic plan for more jobs:
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Republicans think you grow the economy by giving rich people tax breaks so they'll turn around and invest in new factories and equipment and research and development. On the face of it, this "trickle-down" theory makes sense. But we're in a global economy now, which means rich Americans don't have to invest their extra money in America. In fact, they'll take those savings and invest them anywhere around the world where they can get the highest return. The investments trickle out, rather than down.
In the new global economy the only national asset that doesn't trickle out—on which our future growth uniquely depends—is our people. I'm talking about their capacity to be productive, which depends on their education, their skills and their health. This is the core of the Democrat's economic strategy, shared by every Democratic candidate. The only sure way to grow the American economy is not from the top down by giving bigger tax breaks to the rich, but from the bottom up by making more Americans more productive.
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More at
http://www.tompaine.com/feature2.cfm/ID/9950
One of the things that made the Clinton administration so great was Clinton's willingness to sink billions into 1) job training and 2) tax incentives to companies to hire and train people and 3) direct grants to the public sector for police, fire and other services. This was investing in America.
Until we get back to investing in America with the intent of making American workers more productive and therefore better able to compete with less productive and less efficient but cheaper foreign workers there will not be any job creation in this country and the same thing we have seen for the last 3 years will continue.
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