Too Early To Tell

In an op-ed in the Wall Street Journal economist Allan Meltzer returns to some themes I’ve sounded around here from time to time:

Another defect of Obamanomics was that part of the increased spending authorized by the 2009 stimulus bill was held back. Remember the oft-repeated claim that the spending would go for “shovel ready” projects? That didn’t happen, though spending will flow more rapidly now in an effort to lower unemployment and claim economic success during the fall election campaign.

In his January 2010 State of the Union address, President Obama recognized that the United States must increase exports. He was right, but he has done little to help, either by encouraging investment to increase productivity, or by supporting trade agreements, despite his promise to the Koreans that he repeated in Toronto. Export earnings are the only way to service our massive foreign borrowing. This should be a high priority. Isn’t anyone in the government thinking about the future?

Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That’s part of the uncertainty that employers face if they hire additional labor.

The president asks for cap and trade. That’s more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large.

There are a number of things to unpack here. First, I can’t disambiguate the reasons for the peculiar structure of the 2009 stimulus bill. If it had been up to me all of its spending would have taken place in 2009 and whatever couldn’t be spent in 2009 for logistical or other reasons would be deferred to another bill. As it is we’ve got a combination of too little, too late, featherbedding, itch-scratching, and, er, constituent service. That all adds to plausible deniability for the advocates of fiscal stimulus through deficit spending who live to fight their battles under the banner of John Maynard Keynes another day.

Maybe it’s just that my consciousness has been raised on the subject but I’m hearing a lot of kvetching about exports these days. For example, I’m reading a number of economists complain that while it’s possible for some countries to grow their way out of their economic problems by exporting it isn’t possible for every country to do so. Don’t they believe in comparative advantage? My own view is that every country can benefit by increasing its exports and they can all do it at the same time. That can’t happen if some major players, e.g. Germany and China, target their policies specifically at reducing domestic consumption and imports while increasing their exports.

We haven’t heard much about reviving the Doha Round lately and, specifically, we’ve heard precious little about pursuing our interest in intellectual property protections internationally. Banking our economic future on creativity doesn’t seem like a particularly good strategy if the incipient world’s largest economy, i.e. China, freely ignores intellectual property. I’ve posted figures around here before that suggest that the entirety of our trade deficit with China can be explained by China’s violation of U. S. intellectual property rights. I can’t honestly say whether that’s true or not but I have no doubt that the actual amount is substantial.

And, finally, there’s the issue of uncertainty. No company is likely to start any major capital projects while it’s holding on for dear life and waiting for the next brick to fall. If you’ve got a reform agenda and part of that reform is economic reform, you’ve got to expect that it’s going to dampen economic growth, at the very least in the near term.

I think it’s still too early (as Mao said when asked for his opinion of the French Revolution) to pronounce “Obamanomics” a failure. I don’t think it’s too early to suggest that it was oversold and hasn’t been a resounding success.

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