Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

March 5, 2010

Economy Sheds More Jobs: Obama's Policies Not Enough

The Labor Department reported the economy shed 36,000 jobs in February and the unemployment rate held 9.7 percent. Counting workers compelled to work part time for lack of full time opportunities and discouraged workers that have quit looking, the unemployment rate rose to 16.8 percent.

Continuing job losses indicate President Obama's stimulus spending and support for the banks have failed to turn the economy around. In an economic recovery, jobs are a lagging indicator, not a never indicator.

Eight months into the much touted recovery, the economy should be adding jobs not losing jobs at a slower pace. No study of economic history could yield a conclusion other than that the U.S. economy walls along the precipice of a double dip recession.

To add jobs, businesses need customers and capital. Businesses lack customers because of the yawning trade deficit with China, and capital because the Bush-Obama bank bailout enriched Wall Street financiers without fixing the problems of the 8,000 regional banks that do the tough lending.

Nearly all the sustainable GDP growth accomplished in the second half of 2009-GDP growth less adjustments for inventory changes--went into the pockets of Wall Street bankers as bonuses.

When dollars leave the United States to purchase imports and do not return to purchase exports, Americans cannot sell all they make-be it manufacturers, software makers, movie producers, or clean shirts from the corner laundry.

From 2005 to 2008, by consuming more than they produced and earned, through excessive foreign borrowing, Americans sustained a false prosperity with a trade deficit in excess of 5 percent of GDP. That line of credit has run out, and either Americans balance their trade accounts or reconcile to slow growth, no jobs and economic decline.

Stimulus spending and subsidies for Wall Street financiers are palliatives-more accurately, an ice pack for the hangover from the Bush years of heavy borrowing, and shabby financial practices that began with Enron and continue at Goldman Sachs today, through shameful tactics such financial engineering to cover up Greece's financial blight to selling of mortgage backed securities to investors while it shorts the market.

Regional banks have not benefited from the TARP, which was intended to create an elaborate analog to the Savings and Loan Crisis Resolution Trust Corporation. Instead, the 8,000 regional banks lack money to lend businesses.

No customers, no capital, no jobs

Failing to address root causes of economic malaise invites decline.

President Obama and speaker Nancy Pelosi obsess about income redistribution in every piece of legislation, ranging from health care reforms to road construction.

A just distribution of wealth is a noble goal, but there must be wealth to distribute.

The American economy is at sea. Without rudder or compass, America navigates an iceberg field while the ships' captain and pilot focus on a well stocked bar, lest the passengers become aware of their imminent peril.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.