Mr. President: Skip the Bus Tour, Fix the Jobs Problem
On August 15-17, the President heads off on a bus tour to tout jobs creation. He might do better to stay at the White House and get something done. Weak demand and slow growth are blocking cash-rich American companies from investing in new employees -- after all, why should General Electric (NYSE:GE) make more light bulbs if it doesnt have more customers. Digging into the data, I found Americans are spending, but they are not spending enough in America. Since the recovery began in mid-2009, consumers, businesses and even cash-strapped governments have been spending more -- demand is up at a 4.5% annual rate. The problem is payments for imported oil and goods from China have been rocketing, up at an 18% annual pace, and leaving American workers with little more than the crumbs. GDP growth since the recovery began has averaged only 2.5%, and in the first half of 2012, less than 1% -- small wonder jobs creation cant even keep up with adult population growth and unemployment is rising. Counting workers at part-time jobs wanting full-time work, college graduates clerking in book stores and the like, and discouraged workers who have quit looking, the real unemployment rate is closer to 20%. The U.S. trade deficit is now close to $600 billion annually, and oil and the deficit on trade with China account for nearly all of it. Simply, the U.S. economy suffers from too little demand for what Americans make, and every dollar that goes abroad to purchase oil or Chinese consumer goods that does not return to purchase exports is lost purchasing power that could be creating jobs. If the President wants to create jobs in America, he needs to skip the bus trip and start smartly regulating oil and gas production, defending the environment against hazards while jump starting oil and gas production, instead of shifting those dangers to developing countries where those are less well managed. Shutting down U.S. oil and gas development is costing the U.S. economy millions of jobs in privately funded infrastructure projects that would create jobs in construction, cement, steel, heavy equipment, refining and chemicals, and R&D that U.S. gasoline and heating oil purchases are instead sending abroad. With aggressive conservation, more use of natural gas for heating and transportation and increasing domestic oil production from less than six million barrels a day to 10 million, the U.S. could become energy independent -- maybe even an exporter again. China subsidizes its exports to the tune of 35% of the value of its exports by maintaining an undervalued currency. Beijings daily purchases of dollars and U.S. securities, to keep the yuan artificially low and exports artificially cheap, are depressing growth throughout Europe and North America. The yuan China prints to accomplish this mercantilism dwarf QE1 and QE2. That flood of currency is inflating prices and destabilizing western economies. A tax equal to Chinas currency market intervention -- determined by its purchases of dollars and other hard currencies -- would neutralize Beijings policy and restore order to the international financial system. It would correctly price in western markets Chinese goods -- per Chinas genuine comparative advantage. By rethinking regulations on oil and gas development, smarter use of petroleum and natural gas domestically, and addressing Chinas currency mercantilism, the trade deficit could be quickly cut in half, and U.S. GDP boosted by about $600 billion.President Obama, by staying at home and fixing these problems, would create six million jobs. No campaign tour can accomplish that.Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the U.S. International Trade Commission.