Hidden Message in Obama Advisor's Report
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- Published on Thursday, 09 August 2012 14:11
- Written by Sara Nunnally, Editor, Inside Investing Daily
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The 10 largest cities in the United States are seeing an employment recovery. For example, Chicago's unemployment rate went from 11.5% in May 2011 to 9.8% in May 2012.
One of the reasons is a resurgence in industry. Last month, 25,000 jobs were created in manufacturing, and Austan Goolsbee, former economic advisor to President Obama, thinks the key to more job creation is manufacturing and export-led competitive industries.
From an interview with Goolsbee about the report:
The No. 1 most important force at work [in the economy] is we've got to shift what we're doing. We used to be building houses and consuming faster than our income was growing. Those were the two drivers of the economic growth of the 2000s, and that's not sustainable. We're not going back to that, hopefully. Please, let's not go back to that. So we need more manufacturing, more export-led growth, more investment-led growth. If we were asking what policy must take place for that to happen, anything that's emphasizing exports, that's emphasizing investment, that's trying to restore the competitiveness of American manufacturing, I think those are the things we've gotta do.
(Here's a link to the report, if you want to look it over.)
The key phrase we should all be focused on is "anything that's emphasizing exports."
There's a hidden message in there.
Way back in January, I told you of an overlooked part of President Obama's State of the Union speech.
In the address, President Obama boasted of manufacturing being on the rise and said that, for some industries, it now makes more sense to do business in the U.S. than in other countries with cheaper labor.
That's because we've debased our currency so much. The cheap dollar makes exporting more worthwhile.
It's almost as though our government and the Federal Reserve want us to become Japan.
Indeed, the Federal Reserve is seeing to it that the dollar stays cheap through the end of the year with its Operation Twist, and it has said that it will keep interest rates low until 2014.
And that's a policy that Goolsbee supports, even though it's hidden under patriotic competitiveness.
But he's not the only one advocating this kind of policy and hiding it in other language. I'm talking about Fed Chairman Ben Bernanke. And here's what he said in a speech prepared for the International Association for Research in Income and Wealth in Cambridge, Mass., earlier this week.
An interesting and unique case is the Kingdom of Bhutan, which abandoned tracking gross national product in 1972 in favor of its gross national happiness index... The ultimate purpose of economics, of course, is to understand and promote the enhancement of well-being.... Textbooks describe economics as the study of the allocation of scarce resources. That definition may indeed be the "what," but it certainly is not the "why."
In other words, we shouldn't be worrying about what our policies are actually doing to the economy. We should be worrying about how they make people feel.
Now, don't get me wrong. The market is made up entirely of trades based on how people feel. But that doesn't mean it's a good representative of how strong our economy really is.
It's a sore spot for macro traders who look at the unemployment figures and the stimulus figures and the housing figures and see an economy barely standing on its own two feet, while the market is trading higher than it did before the financial crisis.
The folks in high places, such as economic advisors and Fed chairmen, seem to think a policy of stuffing freshly printed paper down the economy's throat is a cure-all.
Has anyone seen Monty Python's The Meaning of Life? Have a mint... It's wafer-thin.
Once the economy has gorged itself on dollars and stimulus and low interest rates, it won't take much effort to pop the bubble.
The economy is groaning already, protesting its paunchy debt and unemployment... And Bernanke is standing beside it, holding a sliver of minty chocolate before its mouth.
"Come on," he says. "It'll make you feel better."
Yeah, right.
Looks like our bug-out kits for the coming fiscal Armageddon should come with full plastic suits.
(And some gold.)
Happy Investing,
Sara
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