Tag: growth

Obama’s SOTU Export Promise: Bold and Unrealistic

In his State of the Union speech, President Obama vowed to double U.S. exports in five years to (all together now) “create jobs.”

Exports are dandy, and they do support higher-paying jobs, but the president’s pledge was unrealistic and raises false hopes that it will make any dent in the unemployment rate.

U.S. exports have not doubled in dollar terms during a five-year period since the inflation-plagued 1970s, not exactly a golden era for the U.S. economy. In real terms, according to the U.S. Bureau of Economic Analysis, exports have not come close to doubling during any five-year stretch in the past 40 years. The fastest growth in inflation-adjusted exports came in the second half of the 1980s, when they grew by two-thirds from 1985 to 1990. Other periods of robust growth were the mid-1990s, and during the second term of George W. Bush, when five-year export growth approached 50 percent.

Export growth is certainly enhanced by a weaker dollar and lower trade barriers abroad, but the primary driver of export growth is rising GDP and demand abroad, and that is something outside even this president’s direct control. The key to reducing U.S. unemployment is not primarily selling more to growing markets abroad, but selling more in a robustly growing market at home.

Other Obama policies will actually make it more difficult to achieve his export pledge. The president renewed his misguided pledge last night to raise taxes on U.S. multinational companies that “ship jobs overseas.” Yet, as I pointed out in a Free Trade Bulletin last year, U.S.-owned affiliates in other countries sold $4 trillion worth of U.S. branded goods and services in 2006. A large chunk of our exports go to those affiliates to help them make their final products for sale. Forcing U.S. firms to cut back their foreign operations will douse an important source of demand for U.S. exports.

The only major foreign market that has recently doubled its demand for U.S. exports in a five-year span is China. Yet President Obama has needlessly antagonized potential customers in our fourth-largest export market by imposing tariffs on Chinese tire imports and threatening other trade-reducing actions.

We can best promote more open markets abroad by setting a good example ourselves.

ObamaCare Threatens Innovation

That’s the conclusion of economist Glen Whitman and physician Raymond Raad, who write in Forbes:

Unfortunately, the health care bills moving through Congress could curtail medical innovation. Imposing price controls on drugs and treatments–or indirectly forcing their prices down by means of a “public option” or expanded public insurance programs–would reduce the incentive for innovators to develop new treatments.

Proposed reforms could also retard business model innovation–an area where innovation is weak. Congress has already used its control of Medicare to limit the growth of specialty hospitals. A nationally mandated insurance package would severely curtail innovation in payment methods and insurance products, which have the potential to improve the coordination and delivery of health care services.

The health care debate should address more than just covering the uninsured and controlling costs. When the U.S. generates medical innovations, the whole world benefits. That is a virtue of the American system that is not reflected in comparative life expectancy and mortality statistics.

The op-ed is based on the authors’ Cato Institute policy analysis, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation.”

Monday Links

  • Michael Tanner says the difficult part of passing the health care bill has only just begun: “The bill must now go to a conference committee to resolve significant differences between the House and Senate versions. And history shows that agreement is far from guaranteed.”
  • Gene Healy on the new decade: “Yes, it was a rotten 10 years for America. But cheer up: Things aren’t as bad as they seem, and there’s a good chance they’ll get better.”
  • Will the market rise or fall? Richard Rahn: “The long-term outlook for the stock market is not good, and here is why. For the past 100 years, there has been an inverse relationship between changes in the size of government and the growth or decline in the stock market.”

Spending Our Way Into More Debt

Huge deficit spending, a supposed stimulus bill, and financial bailouts by the Bush administration failed to stave off a deep recession. President Obama continued his predecessor’s policies with an even bigger stimulus, which helped push the deficit over the unimaginable trillion dollar mark. Prosperity hasn’t returned, but the president is persistent in his interventionist beliefs. In his speech yesterday, he told the country that we must “spend our way out of this recession.”

While a dedicated segment of the intelligentsia continues to believe in simplistic Kindergarten Keynesianism, average Americans are increasingly leery. Businesses and entrepreneurs are hesitant to invest and hire because of the uncertainty surrounding the President’s agenda for higher taxes, higher energy costs, health care mandates, and greater regulation. The economy will eventually recover despite the government’s intervention, but as the debt mounts, today’s profligacy will more likely do long-term damage to the nation’s prosperity.

Some leaders in Congress want a new round of stimulus spending of $150 billion or more. The following are some of the ways that money might be spent from the president’s speech:

  • Extend unemployment insurance. When you subsidize something you get more it, so increasing unemployment benefits will push up the unemployment rate, as Alan Reynolds notes.”
  • “Cash for Caulkers.” This would be like Cash for Clunkers except people would get tax credits to make their homes more energy efficient. Any program modeled off “the dumbest government program ever” should be put back on the shelf. 

  • More Small Business Administration lending. A little noticed SBA program created by the stimulus bill offered banks an “unprecedented” 100 percent guarantee on loans to small businesses. The program has an anticipated default rate of 60 percent. Small businesses need lower taxes and fewer regulations, not a government program that perpetuates more moral hazard.

  • More aid to state and local governments. State and local government should be using the recession to implement reforms that will prevent them from going on another unsustainable spending spree when the economy recovers. Also, we need fewer state and local government employees – not more – as they’re becoming an increasing burden on taxpayers.

The president said his administration was “forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it to others to solve.” Mr. President, nobody has forced you to do anything. You’ve chosen to embrace – and expand upon – the big spending policies that were a hallmark of your predecessor’s administration.

Wednesday Links

  • Drop the neocons: “Republicans should take this opportunity to return to their traditional noninterventionist roots and throw their neoconservative wing under the bus.”
  • John Samples on the national impact of this week’s elections: “The evidence suggests the Obama administration might be on the same path that led the Clinton presidency to the election of 1994. But there is an important difference: In 1994, the public had some faith in the alternative to Clinton and the Democrats in Congress.”

Feds Giveth Jobs & Cars, Then Taketh Away Again

The bad news this morning on the impact of both the federal stimulus and the Cash for Clunkers program should not come as a surprise to anyone who has paid attention to the history of government intervention in the economy.

New data that the jobs created by the stimulus have been overstated by thousands is compelling, but it’s really a secondary issue. The primary issue is that the government cannot “create” anything without hurting something else. To “create” jobs, the government must first extract wealth from the economy via taxation, or raise the money by issuing debt. Regardless of whether the burden is borne by present or future taxpayers, the result is the same: job creation and economic growth are inhibited.

At the same time the government is taking undeserved credit for “creating jobs,” a new analysis of the Cash for Clunkers program by Edmunds.com shows that most cars bought with taxpayer help would have been purchased anyhow. The same analysis finds the post-Clunker car sales would have been higher in the absence of the program, which proves that the program merely altered the timing of auto purchases.

Once again, the government claims to have “created” economic growth, but the reality is that Cash for Clunkers had no positive long-term effect and actually destroyed wealth in the process.

Right now businesses and entrepreneurs are hesitant to make investments or add new workers because they’re worried about what Washington’s interventions could mean for their bottom lines. The potential for higher taxes, health care mandates, and costly climate change legislation are all being cited by businesspeople as reasons why further investment or hiring is on hold. Unless this “regime uncertainty” subsides, the U.S. economy could be in for sluggish growth for a long time to come.

For more on the topic of regime uncertainty and economic growth, please see the Downsizing Government blog.

Understanding the Consequences of Internet Regulation

In an effort to achieve “network neutrality” online, the FCC is starting to write new regulations for Internet providers.  Reuters reports:

U.S. communications regulators voted unanimously Thursday to support an open Internet rule that would prevent telecom network operators from barring or blocking content based on the revenue it generates.

The proposed rule now goes to the public for comment until Jan. 14, after which the Federal Communications Commissions will review the feedback and possibly seek more comment. A final rule is not expected until the spring of next year.

Cato Director of Information Policy Studies Jim Harper appeared on Fox News this week to discuss the FCC decision. “This is governmental tinkering with a market place that is working really well and growing right now,” said Harper. “The last thing we need is to cut that off.”

Watch:

There are ways to achieve net neutrality without regulation, says Timothy B. Lee:

An important reason for the Internet’s remarkable growth over the last quarter century is the “end-to-end” principle that networks should confine themselves to transmitting generic packets without worrying about their contents. Not only has this made deployment of internet infrastructure cheap and efficient, but it has created fertile ground for entrepreneurship. On a network that respects the end-to-end principle, prior approval from network owners is not needed to launch new applications, services, or content.

…Like these older regulatory regimes, network neutrality regulations are likely not to achieve their intended aims. Given the need for more competition in the broadband marketplace, policymakers should be especially wary of enacting regulations that could become a barrier to entry for new broadband firms.

Read the whole thing.