Moving Forward with the US Economy

So here we are. The unemployment rate just went below 9%. Manufacturing jobs are on the rise. Oil prices are now at $104 per barrel, the highest since the recession began. The numbers of jobs are rising but not by nearly enough to make a real dent in the unemployed. Participation rates have fallen, so there are many folks who have just given up looking for work. The dollar is falling. And so on, and so on.......

So what does it all mean? Here is the simple answer: Tell me what the oil prices do and I will tell you about the likely path followed by the economy. If oil prices continue to rise, even in a slow pace from here, the growth in the economy will be choked off and we are likely to see another recession. Higher oil prices mean higher prices at the gas pump. It is a cost that everyone sees and everyone feels. It makes people cut back on other purchases, so it reduces consumer spending on non-energy goods. If the economy were roaring along, the downward push from the higher gas prices might be overcome, but with an anemic recovery like the one we are in now, even the slightest bad push could lead to disaster. (And these oil prices are far from a slight matter.)

To make matters worse, if there is a downturn, there is not much that can be done to change it. The Fed cannot lower interest rates - they are already at zero. The government cannot increase spending; we are already spending way too much. All of the conventional remedies (many of which do not work) have been tried already.

The sad thing about this mess is that things could be much better right now. Just imagine if Obama had taken the following five steps:

1. Suppose the stimulus funds were actually spent on real investments that would spur the economy. No subsidies for state workers or grants for dubious academic research! Instead suppose that the spending was on infrastructure like highways, subsidies for energy saving private investment, and similar type projects.

2. Suppose that rather than a moratorium on off shore drilling for oil, there was a presidential finding that production of domestic oil and gas was critical to the economic well being of the USA, so that accordingly, drill sites around the country and off shore were opened to exploration.

3. Imagine that Obama proposed during his first days in office a national nuclear power initiative. We already have well over 100 nuclear power plants, which have functioned well for decades. A law that made regulation and oversight of such facilities and exclusive province of the federal government could remove all local roadblocks to construction of more of these plants. Then, a pre-approved set of plans for plants of this sort could speed the approval process so that it would once again be feasible to construct new ones. If twenty new nuclear power plants were under construction, the boon to the economy would be substantial. Once the go into production, the new sources of energy would also be extremely important for growth.

4. What if Obama had come forward with a natural gas initiative. This is not a new idea. T. Boone Pickens was promoting such an agenda during the end of the Bush years. Had Obama embraced natural gas usage for cars and trucks, we might already have a few million of such cars on the road. In the next year we would see millions more. Again, this would mean less expensive oil and a much more robust economy.

5. Suppose that Obama had actually honored his promise to go line by line through the federal budget to see which programs deserved continuing suport. How many of the 100+ job training programs would have survived? How many of the 85 teacher training programs would still be there? How much of the unneeded overhead would be removed from these programs so that the people who are supposed to benefit would get more benefits while the government would spend less. Indeed, just suppose that Obama had done something, anything to try to carry out his promise to remove 500 billion dollars of waste and fraud from medicare.

It is truly sad that when the USA needed a competent leader we got and ideological and incompetent egotist instead.