Smith Faculty Opinion Article
May 17, 2010
The Not So Great Recovery
Americans have the economy scoped.
Polls indicate they sense the economy growing again, but many more believe
the job market is getting worse than see it improving.
Over the next three years, the economy must create nearly 13 million jobs to
bring unemployment down to 5 percent-still higher than pre-recession levels.
That requires 360,000 jobs every month and economic growth at 5 percent a year.
After a deep recession, robust growth is possible if businesses have enough
customers and capital, but President Obama's policies don't address the
underlying causes of the Great Recession. Neither enough demand nor financing
Domestic demand-consumer, business spending, etc-will accelerate to 3.5
percent a year, but much is tapped off by a rising trade deficit-Chinese imports
benefiting from an undervalued yuan and pricey imported oil. Troubles in Greece
and elsewhere in Europe dampen markets for U.S. exports.
President Obama won't back up talk with China about its protectionism with
concrete actions. The Chinese sense in Obama weakness, and in America decay.
The President talks tough on the speaking circuit, but hasn't stomach to
stand up to China any more than he confronted tort lawyers and drug
manufacturers in his health care reforms.
The BP oil spill is a terrible national tragedy but the hard reality is
costly imported oil is depriving U.S. businesses of customers. Much money that
leaves the country to pay for oil doesn't return to buy exports.
Obama tongue lashing Big Oil makes it more unlikely the United States will
drill a lot more offshore or onshore. His bold talk notwithstanding, promises to
build out domestic alternatives like nuclear and wind are not backed up by the
comprehensive actions possible given technologies available right now.
The President talks a good game but hardly plays-a fisherman boasting in the
tavern who owns no boat.
Add the troubles of the 8000 regional banks.
Obama spent the TARP to bail out Wall Street banks, GM and his pals at the
United Autoworkers but left the 8000 regional banks to sink or swim. Cash
strapped, those banks can't lend enough to small- and medium-sized businesses,
which create most new jobs.
Add the new health care law-with huge costs to employers and higher premiums
for individuals and the cost overruns the Congressional Budget Office now
admits. Voila, even fewer dollars for consumers to spend on U.S. goods and more
businesses offshoring jobs.
Now Obama wants to jack up taxes-repeal the Bush tax cuts, add a hefty
interest and dividend tax, and the mother of all confiscatory taxes, a value
I have an expensive education in economics. Nowhere do the textbooks state
raising taxes creates jobs.
President Obama reminds me of New York City before Mayor Giuliani. Mayors
Koch and Dinkins were always scrounging for new taxes rather than addressing the
dysfunctions of a broken government.
Democrats assume wealth and tax it to paint over problems.
Smart people cultivate wealth knowing tax revenues to solve problems will
Peter Morici is a professor at the University
of Maryland School of Business and former Chief Economist at the U.S. International