The American Jobs Act would provide much needed stimulus to our ailing economy. However it is more like putting a bandage over the deep flesh wounds inflicted by globalization over the past two decades. The U.S. economy needs to be fundamentally restructured in order to address the prolonged recession in a sustainable way, a restructuring that involves political, legal, and business institutions. More stimulus is no silver bullet.
Germany provides a wonderful example of how a society can fight back and protect itself from the damaging effects of the spread of the market economy, (á la Karl Polanyi). Instead of just giving away manufacturing industries as the United States did, Germany took a very active role in preserving manufacturing. They have an entirely different institutional environment. Corporate boards have labor representation, the government works to encourage industries that provide jobs that they want in Germany, and the corporations are not chasing extraordinary short term profits like we do in the United States as a result of mandatory quarterly reports and their influence on the capricious stock market.
While it is important not to romanticize manufacturing, we must not ignore its benefits. Maintaining industry has had massive benefits for Germany. While unemployment is higher than it was before the crisis, it is much lower that we are still suffering in the U.S. (by some est., 6% vs. 9% in the U.S.). Industry provides jobs for middle skilled laborers; these jobs have left the U.S. and left a growing gap in income – and this is the cause of the disappearance of the middle class that everyone is talking about but no one understanding. In addition, R&D activities have been shown to follow manufacturing; certainly it is not difficult to imagine the benefits of having the research teams in close proximity to the manufacturing process. It is only a matter of time before R&D and “high tech” jobs also leave the U.S. in pursuit of the industries, unless we do something to protect our economy.
There are other spillovers, too. The article linked above details how German companies are exporting kitchens to China. These companies build the kitchens to fit European size ovens, which are smaller than American ovens. This has essentially blocked all competition from American companies that might want to export ovens to China, and has paved the way for a boom in German oven businesses as well.
The restructuring necessary for the health of the U.S. economy will require a multifaceted institutional reform, that includes the political system, the legal system, and the stock market.
Germany is monetarily non-sovereign, meaning it does not have the unlimited ability to create its currency. As with all monetarily non-sovereign governments, long-term survival requires currency to come in from outside its borders. For Germany this has meant tourism and, more importantly, exports.
In short, Germany survives on net exports, a formula that cannot be adopted by all countries, as mathematically, all countries cannot be net exporters. If the U.S. became a net exporter, much of the world would be impoverished.
The U.S. is Monetarily Sovereign, meaning it does not need currency coming in from outside its borders. The U.S. has the unlimited ability to create its sovereign currency. The economic solution for the U.S. is dollar creation, aka “deficits.”
Unfortunately, the Tea (apply leeches to cure anemia) Party, has captured Congress and the President. No amount of “restructuring” will cure the recession without substantial money creation, which obviates the need for exports.
Every depression in U.S. history, and nearly every recession, has come on the heels of reduced deficit (money) growth, and all have been cured with increased deficit growth. See: http://rodgermmitchell.wordpress.com/2009/09/07/introduction/ for data.
Only those who understand Monetary Sovereignty understand economics.
Rodger Malcolm Mitchell
[...] in America, “an economy to last,” as one of the more promising aspects of the address. As I have written before, we should not ignore the benefits of the manufacturing sector in the economy. A healthy [...]