President Obama's Jobs Plan

With the United States mired in an economic slump and fears growing of a double dip recession, President Obama did what he does best.....he gave a speech.

Obama's skills as an orator are well known.  I don't think the Oval Office has had a better orator post Reagan.  However, his plan is doomed to fail.

I have heard that one definition of insanity is repeating the same behaviour and expecting a different result.  So what is the Obama jobs plan?  Well it's a $447 billion dollar package of tax cuts and public works spending....to be paid for later.  Excuse me but haven't we seen this before?  What does anyone think that a half trillion dollar program of spending will do for the economy what three years of trillion dollar deficits did not?

Bill Gross (of PIMCO) speaking on CNN stated flat out that it will not work because the unemployment problem in the United States is a result of structural changes resulting from technological change and the migration of jobs to cheap labour countries like China.  A modest lowering of payroll taxes will not suddenly cause businesses to start hiring.  Bill Gross is right.

However let me take a step back and address a more fundamental assumption that everyone seems to be labouring under.  How exactly did it become a fundamental underlying assumption that the economy will continuously grow at rates that will lead to ever greater prosperity?  Everything I've read in my studies of economics says that boom and bust are part of something called the business cycle.  Recessions are as much a part of growth as death is to life.

Recessions aren't all bad.  During boom times, people drive more, eat more, waste more and save less.  Why wouldn't they?  Greater future prosperity makes thrifty ways seem pointless.  The environment suffers and the garbage dumps fill up while waistlines expand.  During recessions, businesses become more efficient, energy costs are costs that need to be cut, lights are turned off more and carbon emissions go down.

Stimulus spending will not work now because it simply attempts to fast forward future consumer demand to the present.  This works temporarily but there is a limit.  The downgrading of US Treasury debt to less than triple A tells us that this point is near.  That point was reached after a decade of deficit financed prosperity under George W Bush.  That is certainly not Obama's fault but it does mean that the stimulus gun has no more bullets that are effective.  Besides, bringing forward future growth to today inevitably means a hangover of low growth.

It is now time for society to readjust their expectations, live with lower growth and wait until the gloom passes.  It may take years or even a decade or two....that is simply a reflection of how long and prosperous the boom was.  It's time to recover from the hangover and there is no quick way to do it.