Nexus of Change

Toward Sustainable Habits and Durable Prosperity

Sustainable Growth: Back to the Drawing Board

Dollar versus Employment

 

Wednesday night’s address to the nation to provide details on troop withdrawal from Afghanistan served both the purpose of fulfilling a campaign promise and of announcing new priorities. As the President said, “the tide of war is receding” and “it is time to focus on nation building here at home”. In the following days, the President announced new federal initiatives to establish strategic partnerships with industries contributing to sustainable growth and the reasons that had been provided to withdraw troops from Afghanistan were mentioned again to remind the nation of the opportunity to focus on building new infrastructures for sustainable growth.  This brings us back to debates from the early days of the American Reconstruction and Recovery Act which was passed immediately after Obama was sworn into office.

For the next several months, the President is likely to be back on the offensive against the “no” stance to everything adopted by the new legislature. Objections from his political opponents have been based on the conviction that we shouldn’t spend so much money while waiting for the business cycle to bring us back to full employment; and that rich households and corporations regardless of how much profits they make should be the ones benefiting from additional gifts from the federal government because “they” are the ones creating jobs.  In the eyes of a middle class learning that they are paying higher tax rates than the superrich benefiting from “trickle-down” loopholes, the “no” stance became inconsistent and unfair.  The President will be on the offensive and is likely to have enough support from the population to renew the debate on national strategic investments but much derision is still expected to be dished at those who, like me, are saying that this time is different and that the business cycle that started at the end of the second world war is now unable to generate enough opportunities to sustain the kind of long-term expectations needed for a majority of businesses to commit to hiring people or for a majority of households to commit to a new mortgage loan.  Despite the ridicule associated with the “this time is different” attitude, all statistics line up to present a clear picture where, what was known as The Third World, is now furiously competing for natural resources. We don’t hold all the aces and kings in the deck anymore.

The above chart is the best I could come up to depict the overall picture.  Exchange rate trends reflect a nation’s capability to produce additional wealth, since a dollar or a yen is a measure of wealth like a meter is a measure of distance, while the labor force participation rate is affected by the same factors but moves along a much smoother and longer trend that seems to reflect economic super-cycles – very long business cycles.  The reversal of fortune suggested by the chart seems unavoidable and potentially very dramatic but I will argue in future blog posts that this downward trend can be reversed.

In the meantime, and also on a positive note, if the President were to promote the cause of sustainable growth as his top priority, as he was in February 2009 when markets started to rally, and found ways to contribute to that cause with the money made available by Republicans to corporations, financial markets would probably welcome and celebrate improvements made in the political arena for the implementation of much needed policies promoting the kind of growth that is not immediately accompanied by skyrocketing oil prices.

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This entry was posted on June 26, 2011 by in Public Policy.

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