One school of thought about the so-called jobless recovery of the American economy blames high unemployment on the federal deficit. But that’s blaming the wrong deficit.
To achieve an authentic recovery that includes new jobs, the deficit we need to cut is in trade.
For 20 years, America’s exports have been surpassed by its imports, with a big bite of that trade deficit composed of oil imports. Addressing the imbalance could have a huge effect on the job market, but only if it goes beyond reducing imports. We need to actively strengthen exports as well.
Even if the economic recovery continues, as is likely, joblessness will remain a colossal disaster. The unemployment rate is hovering at about 9 percent, and for some groups it is far higher. Nearly 16 percent of African-Americans are unemployed, with young people and Latinos not far behind. The United States is about 19 million jobs behind the curve if employment is to return to its pre-recession levels. Among the world’s most developed nations, the G-7, we have the highest unemployment. Here at the Levy Economics Institute, even in our best-case growth scenario, we see unemployment dropping only to about 7 percent — way above healthy levels — by 2015. We’re not alone in that pessimism: The figures vary, but the prevailing outlook, including from the Federal Reserve, is that job-seekers face years of pain.
Exports are key to meeting the urgent need for new jobs. The White House estimates that every $1 billion in exports creates 5,000 jobs. This makes it crucial for companies to find more customers in the rest of the world.
In addition to aircraft and other transport vehicles, U.S. industrial equipment, pharmaceuticals, chemicals, semiconductors and agricultural products — raw and processed — have a track record of success in the global marketplace, along with millions of goods from medium-size and small companies.
There are things that could be done to help American exporters. A devaluation of the dollar beyond the current downward creep would be a start. A weaker dollar would reduce the cost of our exports in foreign markets, in turn generating demand from buyers abroad. It would also encourage American consumers to buy domestic products because our goods would have a price advantage over imported ones. And the resulting rise in exports would have a side benefit: reducing the national budget deficit, because GDP growth and lower unemployment would mean larger government revenues and less spending on safety-net programs.
Devaluation does have some downsides, of course. Over the long haul, it can cause inflation, but that is not an immediate danger because core inflation is currently at or near record lows. Still, consumers would probably be paying more in the short term for oil and other imports.
In the long term, international monetary reforms would certainly be a preferable route to devaluing the dollar. Global imbalances are on the G-20 radar screen, but a serious policy response has yet to be floated. One helpful monetary reform would be to expand Special Drawing Rights — artificial, blended currency units governed by the International Monetary Fund — as supplemental currency reserves. This could only be done by an accord among the G-20 countries. International agreements take time — the World Trade Organization’s Doha talks will soon celebrate their 10th anniversary — so moving the dollar’s exchange rate is a better short-term solution.
Even then, ramping up American exports will be difficult. The White House has set a goal of doubling exports over five years, but the current mania for spending cuts may work against that ambition. In the House of Representatives, the Small Business Committee has advocated rescinding $30 million in Small Business Administration grants to states for promoting exports and sharply cutting the SBA’s Office of International Trade. These savings would be counter-productive and would work against the nation’s best interests.
It’s true that our trade account balance has recently improved. The better figures, though, aren’t a sign of healthy growth or an upcoming job surge. They reflect more a drop in imports rather than a growth in exports, and the drop has come because of less demand for goods in the recession’s shadow and amid ongoing financial fears.
Exports are starting to rise. But making sure that the upward curve continues will be crucial to addressing our still-worrisome unemployment rate.
• Papadimitriou is president of the Levy Economics Institute of Bard College and a professor of economics there.
Comments (12)
Add commentMakes sense
But since it comes from some fluffy educated elist professor it's ok to ignore it.
higher production and lower employment
I feel sometimes there is a failure to comprehend the ability to produce more goods with fewer employees. As I read articles like this one indicating the need for increases exports I envision additional production lines. Except the production line of the 20s are now almost obsolete as robotic assemble has replace many of the mundane operations previously done by individuals.
Many of the annual reports I read from manufacturing businesses contain huge reports on the increased production facilities with state of the art automation requiring few employees. The reality is some of these reports show higher production than ever before with lower production cost due to automation.
It was not long ago when many American companies produced goods for export in plants located in the US. Now those same companies produce good in foreign locations. Caterpillar for example no longer builds the huge mine equipment for export to Australia in the US. They have established plants in Australia to build these pieces of equipment.
The trend of foreign production is not new. Henry Ford had plants in many locations (Brazil;, France, Switzerland, Australia, etc.) Henry did this to lower transportation (export) cost. Companies now do this due to lower labor cost and foreign government incentives to establish in-country production.
I do not believe we are ever going to return to the employment levels of the past in the US manufacturing industries.
Spoken like a true academic -
Spoken like a true academic - he doesn't have a clue how the free market works - kinda like the president we have in the White House.
This guy actually thinks devaluing the dollar is a good idea? Must be another puppet of Soros.
The haughty professor forgot to mention that America has the highest corporate tax rate in the world. Think that might be causing these corporations to go overseas with manufacturing? What about the onerous regulations imposed on our manufacturing sector? What about the legacy costs associated with alot of our manufacturing companies? Now these same corporations are having to deal with high fuel prices. The list of impediments to doing business goes on and on.
Here's a link explaining the taxation American corporations deal with on foreign earnings.
http://www.scribd.com/doc/54432375/Taxation-of-American-Companies-in-the...
The biggest, solitary reason I see for our lack of competiveness is the ideology coming from the left and the Democrats. They believe in shared sacrifice and income redistribution and class warfare and that type of thinking does not let a capitalist society prosper.
Take a look at how many jobs were killed by the $1T stimulus - we got nothing for our money except the propping up of BO's base. Disgusting...
http://townhall.com/tipsheet/katiepavlich/2011/05/17/stimulus_killed_1_m...
Hi Calypso. It's funny you
Hi Calypso. It's funny you would say that an educated economist knows less about economics than someone who is not an educated economist. Perhaps you'd care to explain that rationale.
You should also explain your latest incorrect statements. The U.S. does not have the highest corporate tax rate in the world.
http://www.nationmaster.com/graph/tax_hig_mar_tax_rat_cor_rat-highest-ma...
Oh, and it's worth noting that the ACTUAL taxes corporations pay in the U.S. are far lower:
http://www.nytimes.com/2011/05/03/business/economy/03rates.html
We are also at a historical low point in corporate taxation. Outsourcing of jobs and manufacturing has less to do with taxation (very little, in fact), and more to do with low tariffs and workers in other countries who are willing to work for FAR less than Americans are.
Also, way to completely not get fiscal policy. But I guess you're not one of those effete, educated types who actually think about these things while sitting in their ivory towers. China has been purposely devaluing its currency for years for exactly the reasons stated in this article. Very simply, devaluing our currency doesn't affect prices of domestic goods, but it raises the prices of foreign goods, which encourages domestic production. Read: jobs. Aren't you FOR jobs? Or are you just against anything requiring a modicum of thought?
Anyway, congrats on completely failing to understand what you're talking about. I suppose it's easier to just blame democrats and liberals.
Ouch
And for the record I was never really sure if Pub/Madison was the same person as Conservative. But I'm pretty darn sure Calypso is one of them. All I need to see is a "boy senator" and it'd be obvious.
PP, I've linked to articles that show how China is beating our "free market capitalism" at it's own greedy game. Nicely put. They are in it to win and smiling while our guys play politics with reality and buy BP ads.
Like I said. The usual suspects will spew the same tired whine about lower taxes means jobs (without demand there won't be hiring) just like tax breaks to oil companies wouldn't mean a damm thing at the pumps when the legal collusion just means they will continue to squeeze what can be squeezed from what the market will bear. At higher profits to themselves no less.
Yawn.
romper - I'm waiting.....
for a 'you betcha'. Calypso is Mrs. Palin in disguise. :)
My favorite part is all the blogs (read: completely made up stuff) linked as "evidence".
At least this time there's a very pretty, official-looking document - - - - created of course by a group of large company CEO's. (naw, no bias there!)
"romper - I'm waiting.....
"romper - I'm waiting..... for a 'you betcha'. Calypso is Mrs. Palin in disguise." Actually I'm not but I always say when one has nothing to contribute to the discussion, resort to immaturity.
pp, I'll wait for your apology...you're just too smart by half and you're wrong, again.
Ask Bernanke how QE2 is panning out. Here's a link that you can probably relate to, even though you told us yesterday that you didn't prescribe to any ideology - ha, ha!! You're so far left you've lost sight of reality.
http://www.socialismtoday.org/144/economy.html
Keep waiting
As I see it the facts are on MY side. The facts never change year to year. Reaganomics didn't work. Jobs weren't created without the costly reduction of tax revenue collection. Whether any of that was in doubt the decade of Bush II results of job growth:taxes, wealth consolidation, etc., is proving ruinious to our national economic health and it is surely having cultural implications no one gets to talk about without being accused of potectionism, elitism, affirmative action, etc.
GOP 101: Repeat your talking point ad nauseum, even if proven to be a lie. If no longer effective switch to new talking bout. Rinse and repeat endlessly.
History proves you wrong before you've even opened your mouth. You've been debunked repeatedly and can not effectively refute it. We can catagorically item for item prove you wrong (and have) and you'll be back tomorrow linking to the latest fox crap. I don't need to check your latest link. I read plenty on my own. I even watch Fox Business during lunch much of the time. But news? Virtually none of what Fox entertainers consider news is actual news. It's pure drama made up of nothing by impatient politically motivated people that are incapable of admitting they make mistakes or lie regularly in effort to push an agenda. FACT.
Facts do not have maturity or morality. And you seem hellbent to avoid the facts. This is definitely one of the times you pretend to take high ground where you had none to stand on. That light in your eyes? It's the sun burning out your retina while you defiantly protest that the sun is not out. That is transparency. Truth does not change.
On a more friendly note and more back on topic. You know, because I ask you all the time. If you as an employer had your tax rates reduced, why would you hire more people if you didn't need to? And if employers aren't hiring regardless of tax rates how would you provide incentive? Zero tax rates?
Cuz, there is a reason this is called a jobless recovery.
(psst, you know, where rich people have recovered and the rest of working america just got screwed?)
Amusing......
That those who are so far RIGHT they've fallen off the edge of the world, apparently think they are somewhere in 'center-reality'.
akromper - very strong rebuttal. Nicely done.
Romper, you have to know that
Romper, you have to know that GOP101 came from the dem's play book, right?
akbrdguru - -
If it did, I must be too young to remember when, and I think that for the last 8-12 years for certain, there's no question who's used that particular strategy better. The Democratic party doesn't hold a candle to the Republicans when it comes to staying on message and repeating the phrases the party wants used verbatim. Anyone watching the news can see that. In and of itself, that's an admirable trait. It's just too bad that the burden of truth isn't always a consideration in this tactic, even after a lie has been exposed.
Rubber/glue?
That was it?
Ditto Swimmer. Very successful with little consequence.