Reviving Domestic Demand is Key to U.S. Prosperity
Posted by Michael A. Kamperman on November 17, 2009
The mantra that is being repeated over and over again amongst the political intelligentsia is the U.S. economy consumes too much, imports too much, doesn’t produce enough, and exports too little. The Whitehouse shares this view. President Obama would like to see Americans consume less, save more, and export more. He is in the middle of a trip to Asia telling China, Japan, and others that they can no longer rely on the U.S. consumer and that trade needs to needs to be rebalanced. The reception he has received can best be described as a cold shoulder. The President and his collection of academic advisers seem oblivious to the real world reality that these nations are not going to shutter their own factories and let go their own workers go just to buy more goods made by U.S. workers. Exports will not revive our economy because the overseas consumer markets are not large enough to absorb all of the products they can make, no less the products we can make.
The U.S. is currently only using about 70% of its industrial capacity because of a lack of demand, both internal and external. Normally a country needs to use over 80% of its industrial capacity before it begins to invest in more production capacity. The U.S. doesn’t have a production problem. We have the capacity to produce a lot more than we are currently producing. What the U.S. has is a demand problem. We do not have enough demand from consumers in our country, or in other countries, to buy all of the goods and services we can produce. For example, while we can produce over 16 million cars a year and we are currently selling a little over 10 million cars a year. We used to sell over 16 million cars a year when our consumers could easily access affordable credit, even if they didn’t have a prime credit rating. What we need to weigh as a nation is the cost of losses from subprime lending versus the benefits of employing millions of people to make more trains, planes, and automobiles.
President Obama’s economic philosophy of restrained consumption, exports, savings, and responsible lending is boxing him into an untenable position. He cannot create the 10 million jobs the economy has lost unless U.S. consumers resume spending. The Asian nations just rudely told him don’t look to us to bail you out of your problems. The only way consumers can spend more is to borrow more. The President will have to choose between a country that continues to borrow and spend or a country that continues to have double digit employment and huge fiscal deficits for as far as the eye can see. The jobs situation is so bleak that Teach for America has created a waiting list for qualified applicants because they are not sure they will have as many teaching positions available as they have in the past. The coalition the President put together to win included enthusiastic young voters. He will not have these voters with him in 2012 unless he finds them jobs. And he will not find them jobs unless he fixes the broken credit markets allowing small businesses and consumers to borrow and spend again.
