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Gman Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Mar-17-04 11:04 PM
Original message
Slow Growth in a Globalized U.S. Economy
Edited on Wed Mar-17-04 11:08 PM by Gman
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 Administrations 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.
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.

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

Contrast the above information with what Robert Reich says is the Democratic plan for more jobs:

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 outon which our future growth uniquely dependsis 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.

More at

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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Centre_Left Donating Member (129 posts) Send PM | Profile | Ignore Wed Mar-17-04 11:36 PM
Response to Original message
1. Jobless Recovery
The economic "growth" of the past year is the result of a massive fiscal stimulus, reckless monetary policy, and the position of the dollar as the world's default currency. While these factors have helped prop up a sagging economy over the past three years, none of them has generated the kind of real economic growth required for job creation, growth grounded in savings and investment.
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kalian Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:30 PM
Response to Reply #1
10. And imagine what will happen if Kerry wins....
he'll have this economic timebomb served to him on a silver platter.
It will be spun as having been his creation...
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TreasonousBastard Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Mar-17-04 11:38 PM
Response to Original message
2. Well...
I said from day one of the tax cuts that the average taxpayer will use the 20 bucks a week or so to buy a couple more Happy Meals or sone Chinese-made trinket at Wal-Mart. Neither of which helps the job picture.

Of course, now that 20 bucks goes to higher gas prices.

I also said from years ago that supply-side economics is a strange rehash of Marxist theory of top-down decision making. Build a factory and they will buy. This is stupid-- nobody builds a factory unless they see a market for the goods.

Ultimately, all economies are demand driven. People buy stuff, and everything leads toward that buying. People need jobs and money to buy stuff. Don't give them temporary tax cuts,-- give them permanent income increases.

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swinney Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:11 PM
Response to Reply #2
5. I am starting new plant anyone want to buy my product
Cabbage Patch Dolls.

I will make zillions.Charge nothing. What can be better?

Demand must be present before I build a plant.

Maybe China-Mart will buy some.
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Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-18-04 12:33 AM
Response to Original message
Edited on Thu Mar-18-04 12:47 AM by DanSpillane
All the research I have done over the past few months supports the above viewpoints!

It's actually quite scary when you get into the outflows, and the dependence on credit in the US essentially supporting the investments of the US rich--which are now in other countries.

"TRICKLE OUT" is an understatement. RECORD GDP numbers recently are a sign of record outflows for mostly imported goods, borrowed for in large part against US homes! Bush's cabinet appointee who oversaw Fannie Mae quit...Freddie Mac's lobbyist just quit. Greenspan and the FDIC, not knowing what to do, are preparing for a collapse.

The scariest part of this is all the home equity which is being sent overseas and isn't coming back into the local loop as jobs to pay for the homes (see why the US mortgage system may collapse soon?)

And outsourcing kills the need for immigration of highly-paid workers--which was supposed to keep the housing boom going, but now cannot.

The current path leads to a depression style breakdown...didn't people lose houses in the Great Depression?

I honestly believe the only outcome on the current path is a disaster. The signs ALL point in the same direction!

I welcome any contrary argument!
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brokensymmetry Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-18-04 08:13 AM
Response to Reply #3
4. Sorry...but...
I can't disagree! :)

There's a real chance that the Fed will use their "secret weapon" - the printing press - and start buying back debt and printing lots of greenbacks to pay for it.

That would make the value of the dollar go down, and would tend to ignite inflation. Funny, is it not, that the spot price of commodities is up about 20% in the last year? And a basket of gold stocks is up in value roughly 30% over what they were a year ago?

I think we're in for some interesting times...
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kalian Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:24 PM
Response to Reply #4
7. And then you'll have a massive depression with....
HYPER-inflation. Joy. :eyes:
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kalian Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:25 PM
Response to Reply #3
8. Been saying that for a while now...
most people virtually DO NOT own their own homes anymore. With all
the equity loans that have been generated, it makes one wonder what
people DO own nowadays.

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swinney Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:18 PM
Response to Original message
6. Scary. Home building boom.
It is unreal here.

Expensive homes.

Moderate priced condos. Elderly selling homes (trying to sell) and moving into condos.

Problem. Cannot sell the old homes.

It is low interest rates with small down payments and long term payments. It scares me. Five years out. Takes two wage earners to tango. Wife gets pregnant and know some who will lose the home.

It will be nice for some time but watch out.
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kalian Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-21-04 12:29 PM
Response to Reply #6
9. Long-term is OK....
if you don't plan to speculate with your home, i.e., try to see what
you can get out of your "investment". If you plan on staying and
actually LIVING in your don't have anything to worry

The issue will affect those that 1) bought into very over-valued
homes and took out equity loans and 2) are planning on trying to
"ride the housing bubble". When the bubble pops, they will be involved
in upside down mortgages and sitting on equity loans as well...not
to mention any other debt that they might have acquired with their
beloved credit cards....

Debt=slavery... There have been some articles posted here in DU
that have already talked about debtors prison making a comeback. The
best advice: get rid of any and all debt as quickly as possible.
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German-Lefty Donating Member (568 posts) Send PM | Profile | Ignore Thu Mar-25-04 06:11 AM
Response to Original message
11. Thanks that is a really nice clear arguement.
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.

Gloabalism makes trickly down economics work even less. So we're in competition with other countries to have:
* low taxes
* nice infrastructure
* an educated work force
* rule of law (a trasparent, predicatable, efficient legal system)

I hope it turns out to be race to the top and not to the bottom. We'll see.
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