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Originally published Saturday, October 23, 2010 at 8:21 PM

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Jon Talton

We're stuck with economic problems no matter who wins in November

National politicians won't take on the big challenges come January. We outline the biggest issues.

Special to The Seattle Times

I hate to bring you down. But whether you're a Republican anticipating a big victory in November or a Democrat fighting against the presumed enthusiasm gap, come January the victors won't do much to address the major economic trials facing the nation.

Republican gains might translate into some symbolic moves, such as defunding Amtrak or further checkmating the Obama administration. If Democrats surprisingly hang on, they can point to stimulus spending that created jobs and avoided another Great Depression, but they will be paralyzed for the next two years.

The Internal Revenue Service won't be abolished. The health-care overhaul won't be repealed. A new stimulus program to make up for the continuing gap in output won't be attempted. With some exceptions, national politicians won't take on the big challenges.

Among them:

The overhang of the Great Recession. Unemployment remains near 10 percent and is likely to stay that way for years. Millions will remain at risk of losing their houses to foreclosure. Consumer spending will continue to lag because of lack of job creation.

Tea-party activists argue that low taxes and light regulation are the keys to reviving the economy. But the Bush tax cuts and the general reluctance to raise taxes have not translated into job creation; indeed, large companies are sitting on record amounts of cash yet not hiring. This, along with off-shoring of jobs, may be a new paradigm holding back the once-great American jobs machine.

No one paying attention during the BP oil-well disaster in the Gulf of Mexico could assume that regulation, as with the financial collapse, is controlled by anyone other than big business. So that also failed as an economic tonic.

With the collapse of the real-estate bubble, we're a poorer nation (excepting the richest, who are now richer). It will take time and pain to work out all the debt, bad bets and swindles of the 2000s.

China. The world's second-largest economy is destabilizing the trade and currency structure overseen by the United States for the past six decades. China's state capitalism is proving highly effective in propelling growth for Beijing but at the expense of other nations, not least jobs and growth in America.

China's insistence on keeping its currency artificially low is prompting worries of a trade war. But that's only part of the conundrum facing us. China has cornered the market for rare-earth metals, essential for high-tech products and much military hardware. It is using the export of these metals as a weapon against other countries. Its attempt to dominate other "strategic industries," such as renewable energy, is naked protectionism.

In reality, the trade war has begun and perhaps been won by Beijing. Large American companies, benefiting from a huge market and cheap labor, don't want to rock the boat. American policymakers, running a nation deeply in debt to China, the largest holder of Treasury bonds, are left to make empty pronouncements.

Government spending. Sound bytes aside, the biggest causes of the deficit are the recession, the Bush tax cuts and two trillion-dollar wars. As for government spending, neither party is willing to slash agriculture subsidies, defense spending or assorted corporate welfare.

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Meanwhile, cuts at the state and local level are turning into serious drags on recovery. Washington state's September employment report is emblematic, where government job reductions overwhelmed meager private-sector job creation to keep unemployment high. Cuts to education will have long-term consequences in competitiveness. Elimination of human services hurts real people; in a purely economic calculation, it holds back the development of human capital.

Infrastructure. The American Society of Civil Engineers estimates that America faces a $2.2 trillion infrastructure deficit. This may actually understate the problem because it focuses on repairing existing roads, bridges, railways and airports. The task is much larger when seen in the context of global competition. Here 21st century infrastructure is part of improving productivity and living standards.

For example, New Jersey's conservative Republican governor recently canceled a rail tunnel to Manhattan 20 years in the planning. New Jersey is more densely populated than any European country. But the new austerity targeted this piece of essential infrastructure. Switzerland, meanwhile, is finishing the world's longest rail tunnel, adding to Europe's impressive rail network. China is funneling $100 billion into building high-speed rail this year alone while the United States still studies it.

In the Great Depression and through much of our history, America led the world in impressive public works. Now we struggle to do even small things.

Climate change. Washington is paralyzed in addressing the biggest challenge of our times, a dead-stop abetted by powerful fossil-fuel industries. This, even though the Pentagon considers it a national-security risk. We hear much of the huge economic cost of doing something. Yet the cost of doing nothing is likely much higher. Hundreds of millions of people are likely to be displaced worldwide as crop yields decline, sea levels rise and weather becomes more extreme.

The cost of doing nothing is also high if one denies climate change. For example, the United States borrows $1 billion a day to buy imported oil, much of it from unstable or hostile places. We're doing little to prepare for a future of more scarce and higher-priced oil.

This is an abbreviated list. I could add the danger of the too-big-to-fail financial system, the unsustainability of the national security economy, income inequality, falling living standards and others.

But none of these real-life threats is on the agenda of most candidates as they do their cable television sound and fury. Come January, American government will once again try to muddle through.

You may reach Jon Talton at jtalton@seattletimes.com

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About Jon Talton

Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest
jtalton@seattletimes.com

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