What strategy should America follow to create jobs?

Politics International Politics
1

There have been plenty of people on these boards espousing different economic theories. The right leading seem to detest government intervention and support the rule of the ‘free market’ . They frequently complain about US government support and handouts and decry the stimulus and US government attempts to create jobs. Now the stimulus money is running out.

For me the critical issue for the health of the American economy is the number of people working and their incomes to support a healthy domestic economy. What are the conservative’s approach to create jobs? What do you think about free market policies that are easily gamed by countries such as China nytimes.com/2010/06/25/opini … aulkrugman .

Quote from above article
'The effect of this currency undervaluation is twofold: it makes Chinese goods artificially cheap to foreigners, while making foreign goods artificially expensive to the Chinese. That is, it’s as if China were simultaneously subsidizing its exports and placing a protective tariff on its imports.

Isn’t it obvious that having a fixed ideology is a major weakness in any negotiation or battle. China has a free market because of the WTO and non-tariffs agreement?

To my mind this economic failure is a failure of holistic and long-term thinkng by corporations and those in leadership (e.g. war mongering without thinking about the cost first), sheer lack of common sense (continous outsourcing of manufacturing base, the backbone of any economy) and also a lack of patriotism by American employers and companies. Patriotism became bringing ‘freedom’ to Iraq and chasing Osama Bin Laden, where is the patriotism at home?
Americans forgot, just like the British, why their country was so prosperous and strong and instead went for the quick money of mergers and acquisitions, constant cost-cutting and off-shoring of manufacturing. The quick buck of making it cheap in Asia but selling it at the same price as they ever did at home. The seemingly easy money from the finance world of upleveraging and selling dodgy bonds and stocks to overseas buyers. Productivity gains became the buzz word but too much productivity at the expense of workers means less jobs, less income, lower quality of life and in the end a much weaker country.

So whether you agree with my assessment or not how would you get Americans back to work and stop this recession becoming a depression?

2

I disagree with your assessment…to an extent. I have my own views on what would best help the economy . However, I think it’s clear that the biggest roadblock to economic recovery is uncertainty. Consumers are uncertain about the future, so they aren’t buying that much. Businesses, big and small, are uncertain about the future so they aren’t investing and hiring. Some of this uncertainty is uncontrollable economic circumstances. But I think it is fair to say that congressional leadership and the President have been giving very vague hints about big changes coming up in the near future. President Obama made some comments at the G20 that left me wondering

http://www.realclearpolitics.com/video/2010/06/27/obama_calling_bluff_of_those_complaining_about_debt_he_created.html.

What are those tough choices Mr. President? Of course, that’s just the latest example, but surveys of small businesses and large businesses indicate that a large reason they aren’t expanding is because they are uncertain what the business climate will be like in a year or two.

Now, of course I know that everybody has their opinion on what should be done. I think decreasing the scope of the central government would be best. Others think increasing it will help. That’s a debate we should have…civilly I hope. But I think it’s very clear that in the short term, businesses are not growing because they are uncertain about the near future.

3

So what would you do to get Americans back to work, it’s a simple question? Is it patriotic to let China take American jobs by using the cover of the free market?

I don’t agree with the uncertainty by the way, certainty or uncertainty can only be artificially manufactured and maintained for a certain time (easy credit anybody). The same argument is also commonly used in the real estate market. I think real tangible changes that can be felt by the population and employers at large are what is required for people to have confidence. Confidence comes from income, solid stable income! What creates that income at the base level of society, good old MANUFACTURING JOBS.

A poster here made an interesting point that technological change allied with productivity advancement has created a permanent structural deficit and that unemployment up to 20% will have to be an acceptable part of society. I’m not sure I buy that argument 100% either but undoubtedly it has some bearing on the situation.

http://roomfordebate.blogs.nytimes.com/2010/06/24/can-obama-create-more-jobs-soon/

'13.Meg Woods
NJ
June 25th, 2010
9:45 pmThe root cause of current massive unemployment in the nation is result of rapid transformation of technology landscape and management innovation. The nature and aim of majority technological advance is to enhance efficiency and reduce (labor) cost.
It is just unrealistic to expect after we invested trillions on technology to improve productivity over last 3 decades yet we still have the same level of employment as 30 years ago.
Anyone fly recently? Did you notice self-check in lane (you make your own boarding pass in advance online) at most airline counters. 40 years ago, you need to call plumber to fix a clogged kitchen sink, today half bottle Liquid plumr would do the trick. All those translated to Structural Permanent job loss.
Over last 10 years, IBM sales have increased 23% and it work force has decreased 14% during same period time.
Simply put, just as most European nations, we just don’t have enough jobs for every able body. And the current high unemployment rate will be with us forever. Blame politicians don’t do any good. What we need is out of box thinkers to explore how to lead a meaningful life without full employment for about
A quarter of US adult population at any given time from now on.

4

Fair enough, but I don’t think you’re really disagreeing with me on the uncertainty.

I agree with you 100% on income, so the question is, how do we increase income. Obviously cutting taxes would work, but only for the short term. If we cut taxes but don’t cut spending, then you’re only increasing taxes on my generation. Not exactly the best policy, which explains why the selfish baby boomers have been doing that for decades. If we cut spending and taxes, people will have more money, but they will have to spend it on services that were previously provided by the state. I think we would gain by doing that, but only marginally. The state is inefficient, but not THAT inefficient.

Personally, I think devaluing our currency is the #1 thing we could do to grow our economy. No one ever talks about it, but I am convinced that the biggest cause of the loss of our manufacturing base is our over priced currency. Using the US dollar as a reserve currency may have been a good idea decades ago, but it’s outlived its usefulness. I’m not oblivious to the drawbacks. Oil prices would go up, relative to the US price. Large investors would not be able to purchase as much property overseas. American financial firms would be less competitive. Traveling abroad would be more expensive. OVerall though, things would turn out better for the average Joe.

5

Devaluing would work, but it would cause panic for foreign bondholders, so they’d have to do it slowly. In the end it might be countered with competitive devaluations worldwide. But anyhow the effect can be easily acheived with tariffs from the start. The damage to American exporters would be less than the damage of Asian exporters as Americans could sell to the strong domestic market again.
I just don’t get the difference? Why tariffs bad, currencies (supposedly but actually manipulated) floating good? It’s ideology, religious and it’s silly.

The other point I think a lot of people are missing is that America is still by far and away the biggest economy in the world. So it makes an awful lot of sense to sell to the domestic economy as much as export, which is what American companies always dominated until recent times with the introduction of WTO and then cheap outsourcing to Asia. You’ve outlined the points related to devaluing USD well enough though. Minor issues when you’d have more money in your pocket…

6

The US GDP is 14.8 Trillion. China’s is 5.4 Trillion. To put that in perspective, Japan is 5.3 Trillion and Germany is 3.3 Trillion.

The US GDP is larger than the next three economies by almost 1.0 Trillion.

Why give away the golden goose to foreign manufacturers?

7

I forgot about China. Absolutely I think we need to change our trade policies toward China. In the '90s the argument was that if we opened up trade, political reform would follow. I’m not sure I would have bought that. I’m not sure that’s a good reason for trade either. But I think it’s clear that the goal was not achieved. The opening up of trade with China has only benefited the elite in China and investors from America. American consumers have benefited from cheaper goods, but they’ve also been hurt by the loss of jobs. I support trade restrictions on China 100%. They don’t play by the same rules as we do with many things, but the #1 offender is their currency policies.

I have big problems with US economic policy, but China is operating on a completely different playing field and free trade benefits them at our expense. But you seem to think it’s the only thing out there. I disagree, free trade with China is a detriment to us, but it’s not the only, or biggest, problem we have.

8

I definitely wouldn’t say the problems US are facing are all China’s fault or even possibly the majority, but they do play a significant part. It’s the way the US had ceded it’s manufacturing base to large competitors such as China that has perplexed me. I think it’s been great for China, much of Asia, not so much for the US.

The argument was indeed that opening free trade policies would create massive markets for American goods and services. I think they helped to produce a market for multinational goods and services, but not neccessarily American sourced goods and services. Now China, Korea etc are selling into worldwide markets and competing strongly in all sectors including advanced energy and infrastructure projects. It also omitted the fact that it damaged tax take at home (loss of tariff income/loss of income tax/loss of corporate tax/loss of sales tax/loss of benefits to workers/loss of spin-off services) and caused such a deficit in balance of payments that it has definitely contributed to the American budget deficit in a big way. People will point to Apple and say, look at these guys, they are massive worldwide, American born and bred, but it’s not like the old days as they are produced in Asia rather than the US. Are all the Apple phones in the US made in China? The number of direct jobs created in the US from the world’s no.1 hit phone, from the US biggest market cap company, is a paltry 15,000. One of the reasons for low job creations, suppliers of components are almost all based in Japan, Taiwan and China. These companies are not making plastic gadgets, they are making advanced stuff like displays, hard drives etc. America ceded this base for a quick cost benefit. A large part of the revenue of iPhone sales stays in the US of course.

http://www.businessweek.com/the_thread/economicsunbound/archives/2008/12/how_many_us_job.html
http://pcic.merage.uci.edu/papers/2008/InnovationAndJobCreation.pdf

To balance other issues are military spending, healthcare, aging population (although not so bad like Europe), technological change etc.

The fact remains that I haven’t seen arguments on how to get people back to work from Republicans/Conservatives. Maybe they can accept this high unemployment, but high unemployment will make America weaker and less confident too. Maybe they care about multinational companies more than their own citizens or their own country?

9

Lower the cost of creating wealth in the U.S.

Everything else is just static and self indulgence.

10

You see this type of argument is useless, there are no concrete details here. Creating wealth, what does that mean? Wealth from where, wealth to who? At what environmental or social cost? Do you want to lower the cost of opening a company and hiring worker’s to China’s and India’s level. Sure that will work well :unamused: Maybe you would like streets with no pavements (like Taiwan, admittedly not a big deal as things go but still, no decent pavements in 2010?) or streets with people living under shacks on the side of motorways (like India).
I agree it’s nice if somebody can setup a business and hire somebody easily, that is important. But what’s the plan? As if a one line ‘cost-cutting’ statement could solve a country’s complex issues…

11

I’m in the middle of a multimillion dollar project now which involves shutting down production in Pennsylvania and moving it to Mexico and Taiwan. Why? Simply because the cost of production (wealth creation) is too high in Pennsylvania and lower elsewhere and nothing I can say or do will change this fundamental law of economics.

Forcing the U.S. corporation I’m working with to keep production in Pennsylvania will only result in putting it out of business because all of its competitors have moved production out of the U.S. or aren’t U.S. based to begin with.

Wealth transferal schemes such as raising taxes on the still-haves and filtering it through the government to the unemployed is no long-term solution to being on the wrong side of the laws of economics.

As an employer here in Asia who began his career in the U.S. and rose to the level of vice-president there I’ve had the unique opportunity to see both systems from the inside. The fact is that the U.S. system is so larded up with public and private special interests with their fingers in the pie that it would be relatively easy to reduce the cost of creating wealth in the U.S. by 30% without reducing the standard of living of workers and this 30% reduction would have a tremendous effect on employment levels there – given the relative advantages of much lower transportation costs and the high productivity level of U.S. workers.

An example of this lard? The lottery mentality torts system in the U.S. which sucks a tremendous amount of resources out of the U.S. economy in direct and hidden costs.

I generally don’t bother going into detail though when talking with fellow westerners about how to reverse the long-term decline of the U.S. and British economies because I’ve learned that the majority of them simply want things to go back to the way they were and don’t really want to hear about structural change.

12

Do you agree, though, that the low level of import taxes on products manufactured overseas contributes significantly (primarily?) to this effect? Not asking you to agree that this is a good or bad policy, but would you agree that increasing import taxes on foreign goods - gradually, to support repatriation and not cause outright business failure - would reduce the amount of overseas manufacturing jobs lost, and increase the number of manufacturing jobs (and the cascading effect of increased support work such as transportation jobs, building and repair, raw materials jobs, etc) in the US again?

No argument from me there, definitely agree, but 1. we probably disagree on some of the so-called “special interests”, but that’s OK, and more importantly 2. what actions are you actually suggesting that would “reduce the cost of creating wealth by 30%”, and why would that necessarily increase jobs, and not line pockets, increase already wealthy people’s savings, etc?

I think there is a basic economic fallacy, sometimes referred to as “supply side economics” and “trickle down theory”, that says putting more money into businesses and wealthy people by reducing taxes and regulation will result in increased investment, more jobs, progress. The fallacy is not that this doesn’t happen to some extent, the fallacy is that it always happens and that the value added by returning the dollars translates into the same value of jobs and social stability/security than it would if the money were put towards social programs and safety nets including retraining, and government sponsored R&D etc, which results in DIRECT job stability and growth. Supply side economics fails because people are, in our culture, greedy by nature, and because of “rules” like executive management of large corporations are responsible for the growth of company value as reflected in share price, and failure to make that a primary goal is somhow unethical and unbusinesslike.

I also contest the “economic theory but not a practical fact” statement a previous poster made about foreign manufacturing keeping prices cheap - very little that I can recall as an American consumer ever got cheaper, mostly prices may have stayed the same or gone up slowly as manufacturers and importers took the additional profits as profits and did not necessarily pass them on to the customer. The only cheaper products I see over time are the normal reduction in prices over time as R&D and setup costs are recovered from the “early adopters” e.g. LCD TVs. Economic theory makes bold, concise statements about effects on supply and demand and cost and labor, but I’d add economists to meteorologists and fortune tellers as basically best-guesswork, things don’t happen precisely as advertised, and often don’t work as planned at all. Economics is more like Chaos theory, there are too many factors, and too many actors acting in unpredictable and often irrational ways.

13

Politbureau, is your company’s main market in the US? Depending on the industry we can say it makes sense or not to move it overseas. Maybe you could have maintained the factory in America, with a cheaper dollar or a small tariff on imports, that wouldn’t have prevented you opening a production site overseas. These things are not mutually exclusive. I don’t pretend to know much about torts or special interests there. I take issue with the statement ‘fundamental law of economics’. Economics is not a science nor has laws. This statement sounds like the twin of the ‘fundamental law of maxism’. This is ideology.

But taking a holistic look at this, a bird’s eye view of 1000s of companies doing the same thing, then you see the problem it creates unless industries can come in and take their place. I don’t think they can because there is only so much innovation that can come in to a base of industries.

So what is the plan I wonder among conservatives/republicans or there is no plan and just wishful thinking? They support open trade but for what purpose, it has categorically failed to improve the American economy. It brought in quick profits over the last decade selling the same stuff at the same price in the US, but long-term it seems a failed policy. Why? Fundamentally America was not an export led economy like Germany, America is and always will be a huge domestic economy, that is where it’s strength lies and that is what I mean when I say they are killing the golden gooses in their own backyard. It’s like everybody is rushing headforward for the quick buck of the next quarter or two. What’s wrong with selling your own stuff in America, it might be 5% more expensive than the Chinese stuff but it might last twice as long? It might be 5% more expensive but create 1000s of jobs in the local economy through suppliers and services. So somebody has to pay 5% more for shoes, so what, now your market for shoes just got 20% bigger!

Obama seems to have stated as much in his last address as byushguy noted.

14

I think the Conservative idea of less government and low taxes is a worthy goal. It’s just when they leap from that to no taxes and no government that things get screwed up. I think capitalism works best with the government as the public safety watchdog and rule enforcer. Good ideas come out on top and money starts to flow. It’s just when extremism from one side or the other gets the upper hand that things start to get screwed up.

15

But how does that translate into jobs? Don’t you also believe that a person willing to work and with some decent education and/or skills should be able to find a job that will support himself and a reasonable size family? Do you believe that if a business decides to reduce labor for efficiency or to move manufacturing abroad to increase profits, that the people who were working should be able to be financially secure enough to either find another similar job if one is available, or to receive some training free or cheaply while they re-educate? Or should they be at the mercy of the market and business cycles, be forced to spend whatever savings they might have on their own form of personal work security…? …while people “experienced and talented” enough (not to mention lucky enough) make the decisions that wreck a working family so they and the shareholders can get even richer.

16

America should just make jobs out of papier maché. There’s lots of old newspapers lying around that people aren’t using as bedding because it’s summer.

17

That’s just a farce used by the left to scare people. There are NO conservatives advocating for no government. I doubt you can name even one.

18

TT, I’d like to hear your thoughts on our overvalued currency. I know we disagree on the role of the state in society, but I’d like to hear what your thoughts on the matter are. You and Head Honcho want higher tariffs. That’s an idea, but I think you gloss over the reaction to higher tariffs. Do you think Mexico would continue buying our subsidized corn if we stopped buying their manufactured goods? Would the Asians continue buying our meat if we stopped buying their electronics? Would Taiwanese continue buying Fords if we slapped Tariffs on their computers? If we just stopped meddling with our currency and stopped forcing it to be used as the world’s reserve, I have no doubt we see a stop to our loss of manufacturing jobs.

19

Who is the guy that wanted to make government so small that it could be drowned in the bathtub. Ronnie something wasn’t it?

20

Fear of change is not a reason not to change if the system is not working. It’s also true you can’t make a move without some ill effects elsewhere. You just need to outweigh them and see if it is worth it overall. BTW the agricultural sector in America is heavily subsidised. It also doesn’t create many jobs , perhaps less than 1% of all jobs in the US. Anyhow at the moment China is getting a free ride, if you don’t play ball they are just going to run you over.
You need to bring in all the levers otherwise nobody will take your negotiations seriously on the world stage. Did the US not learn from the Cold War tactics? Who is the big boy in the playpen, you think the Taiwanese (by the way Fords in Taiwan are made in Taiwan) or Koreans or Chinese would dare to ratchet up the game, which country needs which export markets more? America has backed itself into a corner with free market ideology. Many American companies have already gone multinational and they do not have the interests of America at heart. There is a disconnect between the country and their multinational interests. You need to force them to change their behaviour. There are two ways to do that, push and pull, a combination of both factors is usually the best way. Make it imperative for them to invest in America to get access to American markets.

As I predicted the Chinese would bring in yet another ‘fob’ to keep the US and others off their back for a while. Do you know they have been playing that game for almost 10 years (and it was enthusiastically supported by American corporations who loved the profits on the juicy currency split). They are now ‘floating’ their currency and maybe will adjust their currency 5% to 10% over the next couple of years while still creaming in overseas investments and exports…big deal!

The tariff system is one way to encourage American companies to invest at home. Feel free to suggest other methods, the key is to get investment in productive industries going in America again (not investment in banks and traders and casinos and real estate firms). No investment, no jobs.

So far I’ve only seen one concrete idea proposed, currency devaluation.