Obama Needs ‘Yes We Can’ Abroad to Help End Global Recession
by Rich Miller
Jan 19 (Bloomberg) — The U.S. led the global economy into its worst recession in at least a quarter century. Now the rest of the world is looking to Barack Obamato lead the way out. The trouble is, even the incoming commander-in-chief of the biggest economy can’t do it alone.
Yes he can!
And we would be better off if we did it ourselves.
With industrial nations suffering their first synchronous decline since World War II, Obama needs policy makers in other countries to pull their weight.
No he doesn’t!
He also requires a resurrection of animal spirits — among investors, banks, companies and consumers — if his government-led effort to revive growth is to succeed.
No he doesn’t!
“We’re facing a more pervasive, more widespread downturn in the global economy than ever before,” says Allen Sinai, chief global economist at Decision Economics in New York. “It cries out for other countries to stimulate their economies, and stimulate them strongly, rather than to rely on a U.S. upturn to recover.”
No it doesn’t!
‘Sweeping Effort’
Obama has said the budget package won’t solve all America’s ills.
Right, but the right fiscal package can solve the current financial ill- lack of domestic demand- in a matter of weeks.
In a Jan. 8 speech, he called for a “sweeping effort” to help people who face foreclosure remain in their homes. He pledged to prevent “catastrophic failures” of banks and promised to overhaul “weak and outdated” financial regulation.
That won’t do much for the macro economy in the immediate future.
While Obama, 47, may be trying to temper expectations in the U.S., “hopes are high in Asia” that the U.S. stimulus will help countries there weather a collapse in exports, says Tim Condon, head of Asia research at ING Groep NV in Singapore. “They were pushed into trouble by an external shock and so want another one to help them accelerate their way out.”
Let’s give it to them and thereby improve our real terms of trade dramatically!
Condon says he doubts the Obama plan will be much help to the region. About $550 billion of the program consists of spending on such things as roads, bridges, education, health care and other domestic projects that would do little to boost America’s imports from Asia or elsewhere.
Agreed, the fiscal package needs to be larger/better:
- Complete payroll tax holiday would add $20 billion per week to employees and employers.
- $300 billion to the state pro-rata based on population with no strings attached.
- Federal funding for national service jobs at $8 per hour that includes health care.
Pitching In
No matter how much governments do, it won’t generate a lasting recovery unless companies, banks and consumers also pitch in.
Yes it will!
“Fiscal expansion can’t be the answer forever,” says Peter Hooper, a former Federal Reserve official who’s now chief economist at Deutsche Bank Securities in New York.
The right fiscal balance always has been and always will be ‘the answer’.
“You need to get private spending going again. You need to get the financial sector working again.”
No you don’t.
That may take a while. U.S. retail sales fell for the sixth straight month in December, the longest string of declines in records going back to 1992, as the credit crunch led Americans to cut back on everything from eating out to buying cars.
For his part, Obama says he is under no illusion that things can be turned around anytime soon.
“There are no quick or easy fixes to this crisis,
Yes there are!
which has been many years in the making, and it’s likely to get worse before it gets better,” he said last month. “But now is the time to respond with urgent resolve to put people back to work and get our economy moving again.”
A mid February package from Congress is not urgent resolve.
Congress has been dragging its feet since it was clear in October that something had gone very wrong with aggregate demand.
Randall Wray, Research Director for the Center for Full Employment
and Price Stability and Senior Scholar at the Levy Economics Institute writes:
It is amazing that the media keeps going back to pundits who got it wrong during the boom and continue to get it wrong in the bust. The US does not need foreign help to restore its economy. It does not need to resolve problems in the banking sector before it can restore its economy. All it needs is a sufficient fiscal stimulus to create jobs, restore consumer demand, and improve private sector balance sheets. This will pull along the financial sector and the foreign sector. US banks will not work their way out of insolvency and begin lending again until the economy starts to recover. While it is in the interest of sovereign foreign nations to use their own fiscal stimulus to restore growth, their governments wrongly depend on export-led growth models thus will wait until the US recovers. So the solution is fiscal stimulus in the US, likely on a scale that is at least twice as big as what Obama is pushing. And there is no need to get into a fight about whether it ought to be tax cuts or spending increases–the answer is that we need both: a payroll tax holiday, public infrastructure, direct job creation, and help for state and local governments.
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