South By North Strategies, Ltd.

Why Did the Stimulus Run Out of Steam?

In a recent column in The Nation, Thomas Geoghegan argues that the trade deficit helps explain why the stimulus “ran out of steam.”

When we have a big trade deficit, the feds can’t run up a debt just to re-employ Americans. As long as we’ve so much trade debt, we have to figure that a distressing amount of any stimulus will go ultimately to re-employ the workers in China, Brazil, Japan and even Europe, who fill the gap between the “demand” we pump up and what we actually “supply.” When we have a big trade deficit, it means that the more we prime the pump, the more we drain out this distressing amount of our national wealth.
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And why else did the stimulus run out of steam?
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It was probably not big enough, but an even bigger one might have run out of steam. The bigger the trade debt, the less punch there is in running up a deficit. You can’t just blame the GOP for cutting the stimulus down.

Editor’s Note

Policy Points will not be published on September 13, 2010. Regular posting will resume on September 14, 2010.

Thank you for your interest in the blog!

Around The Dial – September 10

Economic policy reports, blog postings, and media stories of interest:

• Joe Stiglitz asks how to fix America’s housing market.
• Simon Johnson wants more than “tinkering” at the economic margins.
• Naked Capitalism considers the “the latest Obama economic plan.”
• Calculated Risk breaks down the new trade data.
• Economist’s View wonders about community types and views of regulation.

Picturing Income Inequality

In a series of recent articles, Slate.com explored the factors contributing to income inequality in the U.S. The articles contain a series of interactive charts and graphs that illustrate the trends. Click here or on the image below to view a slide show of the information.

A Skills Deficit?

Scholar Daniel Gros wonders if the U.S. has lost the workforce skills needed to produce high-tech exports.

Like Southern Europe, the US economy must move away from the consumption/housing-led growth model of the last decade. President Barack Obama has encapsulated this challenge by setting the goal of doubling US exports over the next decade. But this is easier said than done.
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The structural shift towards exports will be difficult and time-consuming mainly because producing the high-tech goods that the US should be exporting requires a skilled workforce, which has largely been lost and cannot be re-created overnight. During the ten years preceding the peak of the bubble in 2007, about four million jobs were lost in the US manufacturing sector, whose share in total employment fell from more than 17% to 12%. Unemployment remained low because the booming domestic economy created enough jobs in services and construction.
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Reversing this shift quickly seems impossible. Most construction workers are rather low-skilled and thus cannot be re-deployed to modern high-tech manufacturing. The same applies to real-estate agents, social workers, and managers of credit-card accounts.