Obama is talking a talk that sounds great on the surface but can ultimately lead to a massive loss of jobs in America rather than creating jobs. Bernanke is helping to speed along this economically devastating Administrative policy with equally rash monetary policy. I understand where Obama is coming from. He wants to create jobs in America. The thinking by the Fed is that by the Fed devaluing the USD (US Dollar), American goods will become more affordable to China and other nations. Sounds great! On paper…

However, it is a clear indication that Obama and Bernanke don’t understand the United States’ position in the world economy. An import economy does create jobs, contrary to what the Obama Administration makes it sound like. Yes, manufacturing jobs have been lost in America. However, importing still creates jobs. A lot of jobs for that matter, and higher paying jobs! The major key to being a strong importing nation is having a strong currency. The stronger the USD, the greater the ability to import products from other countries.

The Federal Reserve, under Bernanke, has weakened the USD significantly over the least several years. The Obama administration is trying to create more manufacturing jobs in America on the backs of the import industry. Yes, import jobs will be lost as the USD continues to decline, but the result isn’t going to be layoffs, it’s going to be import businesses going bankrupt.

Now, this isn’t a too big to fail claim about the import industry. This is a claim that America doesn’t have the ability to produce all the same products that China does. What has taken decades to build in China is not going to happen overnight in America. Additionally, the typical Chinese worker makes a fraction of what an American worker would make for the same product. So, either American’s are going to have to take lower paying jobs or the cost of products are going to skyrocket!

Some argue that China is manipulating the RMB (Renminbi/Yuan) so that it’s export business continues to thrive at the detriment of America. There may be some validity to the claim the claim of currency manipulation, but it isn’t much unlike Bernanke’s QE and QE2, which are just fancy terms for devaluing the dollar. That is what Bernanke has done. He was devalued the USD. You can call it Quantitative Easing all you want, but a rose by any other name…

There is a large trade deficit between America and China, but it’s not across the board. For instance, where are Chinese airliners getting their planes? Where are they getting their MRI equipment? The advanced technology comes from America. A weaker dollar will lead to lower real profits by Boeing, GE, and other leading American businesses. Here’s the reality of a weaker dollar. So what if your widget sells for $500 when that $500 is only the equivalent to $300 from just 10 years ago!

A weak currency policy is a terrible monetary policy for America. An Administrative policy supporting exports is a good one when the focus is on exports that those other countries can’t make. Is the US really going to compete with the Chinese with making knock off MP3 players and cell phones that get thrown away every 2 years? Those will only be high paying jobs because the value of the USD will have declined to much to make America competitive with China that we’ll have gotten to the status of a 3rd world economy.

I’m being dramatic for a reason. The world economy has been centered on a strong America and strong USD for decades. The result of a devalued USD and trade restrictions with countries we’ve been importing from for decades is not what anyone in America is going to want. Enormous amounts of wealth has made its way to other nations like China, Mexico, and others. Those countries are seeing improvements in their quality of life. The US should continue to lead the world economy with a strong USD position and strong import position. The whole idea behind imports and exports is that countries export what they do/make best and import what other countries do/make best. The US still does and makes many products, services, and technology better than any other country.

The Solution: The Obama Administration should focus on leading technology industries (instead of rehashing dying industries in America) and creating greater tax incentives to grow those industries (just like Clinton did with the Internet)! Congress should act as well to impeach Bernanke. It is fully within the power of Congress to do so. Further, the Obama Administration can take action in the Treasury Department by not selling bonds to The Federal Reserve. These actions would send a sound message to the world economy that the United States is standing for a strong USD, strong US consumption, and leading the world economy out of this depression with swift action. These actions would take about 9 months to catapult the US economy and world economy out of this depression. The message to the rest of the world is that America wants to continue to *lead* the global economy rather than play a reactive role in the global economy.

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  1. [So, either American’s are going to have to take lower paying jobs or the cost of products are going to skyrocket!]

    They probably won’t skyrocket, but prices of goods will increase. But is that such a bad thing if we have more people working? In addition, if manufacturers are required to pay higher wages, they’re going to try to automate more processes, which is a boon to the automation industry, which may eliminate some manual labor, but it will increase engineering jobs, as well as other manufacturing jobs.

    • The price difference between China produces goods and American produced goods is far more than a minor difference. It is massive. Prices would have to skyrocket, not just “increase”.

      Wages aren’t the only cost that is saved in China vs. the US. Raw materials are cheaper. All factors of production to produce products in China are significantly lower than the United States. Anyone who has been in the import business knows that we aren’t talking about 20-30% but 200-300%

      How quickly are we going to start automating? It will take years if not decades to develop machines that would be able to automate processes that would then save on labor. Additionally, if it were so easy to develop these automated manufacturing processes, why wouldn’t we have developed them already? Could it be because even with the automation it is still cheaper to produce products in China? America needs to innovate and develop our workforce, not go backwards with our economy. More long-term jobs will be created by moving forward with an evolving economy than moving backwards.

      • Gee, that’s sounds swell, but what are you suggesting we do to “move forward?”

        And products made in the U.S.A. aren’t going to cost 300% more. Supply and demand determine price, as anyone who has studied economics knows. The only thing that will happen it will cut into the profits of the big manufacturers but will open the door to the little guys.

      • My blog states what we should do to move forward. Also, your supply and demand comment is rudimentary economics in a textbook. Textbook economics requires ideal market conditions. That’s basic economics and has very little to do with the scenario that would unfold.

        If you think it would be ideal market conditions, you’re fooling yourself. In real world economics, much of what is produced in China would cost 300% more to make in the United States. Some, even more. The substantial increase in cost on so many products wouldn’t fit into a basic supply and demand econ 101 model. The real world economics is significant job loss in the United States with no return of real manufacturing jobs in our country.

      • Also, your suggestion that big company profits will be cut and the doors will open fit the little guys is ridiculous. Even in textbook economics, that doesn’t hold water. Companies enter the market when profits are high. If big companies aren’t making money, little guys aren’t going to flood the market.

      • No, you believe in the myth that cutting taxes will fix everything. Most big corporations don’t pay taxes so how can you cut that. And if taxes were the solution, why is our economy so sluggish? It should be booming with the tax cuts that have been in effect for 7 and 9 years.

        Big corporations can cut the little guy out of the market because they can go anywhere in the world to find the cheapest labor and raw materials. They can also influence legislation to act in their favor.

        And if products made here would cost 300% more, how is it that we do have a few manufacturers in the U.S. who can sell their products at comparable prices to the ones who use slave labor overseas? It’s all about profit.

        While your right-wing economic polices are purely theoretical, the laws of supply and demand doesn’t just operate in ideal conditions; it is the commonly accepted laws of how prices are set. The only time it doesn’t work is when you have monopolies.

      • Ben, Where did I mention cutting taxes? I said tax incentives. They are completely different.

        Additionally, what gives you the impression that most big corporations don’t pay taxes? That is just ridiculous! Every corporation, large and small, has a significant tax burden regardless of whether they make a profit or not. The only exception would be a sole-proprietorship who is spending more money than he makes, but he’ll be out of business very quickly.

        Also, small companies can easily get products made abroad as well. There is no requirement to be a large corporation to make your products in a foreign market. Anyone in America can do that. It doesn’t require lobbying and special interests.

        You are leading a naive life if you think there is slave labor overseas, and if you think that every product produced overseas can be produced in America for anywhere near the same cost as overseas. There are a few products that can be produced in the United States at competitive costs. Emphasis on *few*. There are also products that American industry and ONLY American industry can produce. This is what we should focus on and where tax incentives should goto. A world economy is based upon countries producing what each produces best and most cost efficient. Leading technology, aerospace, and green technology (to name just a few) are all industries where no other country can compete with America.

        Your assertion that standard supply and demand curves do not require ideal market conditions and that my ideas are right-wing and is ignorant. First, supply and demand is theoretical. There is a law of demand, but there is now law of supply and demand. The theory is that in ideal market conditions, supply and demand meet in a magical point that makes everyone happy. That’s great for basic textbook economics. In the real world, businesses and governments aren’t charting supply and demand curves.

        Second, the notion that my ideas are right-wing indicates to me that you are so far to the left that someone standing in the middle sounds right-wing. The idea that the United States should maintain a strong dollar position is hardly right-wing. It is a sound monetary position based upon the fact that the United States is the single largest economy in the world. We are the backbone of the world economy and should take action to lead the world in economy. Isolationism is failed economic policy. We do not operate our businesses and run our governments in a vacuum.

        One more thing about your comment: “They can also influence legislation to act in their favor”, referring to big corporations kicking the little guys out of the market… Am I to read that to mean that you don’t support the 10,000 jobs Obama came with for Boeing? Because the big corporation, Boeing, had political sway to kick out the little guy? That same Boeing corporation that is going to purchase thousands of parts from small manufacturers throughout the United States… that’s bad, right-wing policy, correct?

      • [Ben, Where did I mention cutting taxes? I said tax incentives. They are completely different.]

        Tax incentives are generally tax cuts. Tax penalties are tax increases.

        [You are leading a naive life if you think there is slave labor overseas]

        By slave labor, I meant those who are paid slave wages, such as the workers in China.

        [First, supply and demand is theoretical.]

        Economic theory attempts to explain how the markets work. The laws of supply and demand explain how companies set prices to maximize profits.

        Here’s an example:
        A few years ago, the Amazon Kindle sold for over $300. (These prices are estimates.) Even at that price, there was a big demand and Amazon was often sold out. In that case, the selling price was less than the equilibrium price. Amazon could have raised the price until supply met demand and made more profit.

        Today, you can buy a Kindle with the same features for about $180. Why are they cheaper now? Many other companies now offer e-book readers — thus, the supply of e-books has increased, which caused prices to decrease. Had Amazon not lowered their price, demand for the Kindle would have greatly decreased.

        So prices settle into an equilibrium price. Usually, the times that the laws of supply and demand don’t work are when companies collude to keep prices high or when we have monopolies.

      • Monetary and fiscal policy have little to do with micro econ 101, which is where your example comes from. The value of an entire economy has very little to do with the evaluation of a single product or service. I suggest you read some Milton, Hayek, and Mises to get at least upper division knowledge of economics.

        Most countries in the world don’t even come close the the US per capita wealth. Not all workers in China are paid slave wages. It is a developing country and has millions of people making fine wages. An enormous amount of wealth has flowed into China over the last couple of decades. That has raised the quality of life in China considerably and also increased their wages.

        Tax incentives are not tax cuts. Tax cuts are tax cuts. Tax incentives are things along the lines of a corporation getting a tax credit by having a certain % of their workforce inside the United States or by having a certain % of their manufacturing, parts, etc done in the United States.

      • [Tax incentives are not tax cuts. ]

        That’s purely semantics.

        The Democrats proposed “tax incentives” for companies that hire here but the Republicans didn’t allow it to come to the floor for a vote.

  1. 1 Tax Cuts Are Not Tax Incentives « Feed My Blog

    […] are also those, like a commenter on one of my blogs about QE2 who think that tax cuts are tax incentives. It was a playful back and forth with Ben, and I hope that he’s reading up on his economic […]




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