Poised for progress
This quote has a number of meaning perhaps. Jay offers one in the form of a question…and more from Bill Black in an interview:
BARACK OBAMA, U.S. PRESIDENT: Thanks to the grit and determination of the American people, we’ve cleared away the rubble of the worst economic crisis in our lifetimes. So we’re poised for progress.
JAY: It seems to me President Obama’s model, if you read between the lines, is that, number one, the objective is the United States should become more competitive globally, and the recovery will be led by exports, not by domestic demand, and what will fuel that is lower wages–he doesn’t say that, but that’s the model created in the auto industry, where starting wages went from $26 an hour to $14 an hour. So if you have lower wages in the United States and then you combine that with investing in innovation, so the United States stays or moves even further out front in terms of innovation in various areas, low wages plus innovation leads to more exports, and that’s supposed to lead to a recovery. Do you think that’s what he’s essentially talking about? And if so, what do you make of it?
BLACK: Well, yes, and we’ve talked about this before. You can’t have all nations be net exporters, right? My export is your import. So this is not a strategy that can work globally, this is not a strategy that can work for all nations. So my export is your import. So we can’t all be net exporters
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But y you have to offset these trends by the need to import capital.
As long as domestic credit demands — including the federal deficit –exceeds domestic savings the current account deficit has to be large enough to cover the savings-investment gap.
If you really want to take this line of analysis you should also treat the elimination of the federal deficit as part of the strategy to have export lead growth.
You know, this interpretation makes sense. Obama may well believe that exports will save us.
With the developed world in a slump, the obvious question is this: Who is going to buy our stuff?
Thought experiment time… Imagine that real wages had kept up with productivity since the 1970’s. Then answer the following questions…
1. Would productivity have grown less, the same or more over that period? (Is productivity affected by real wages?)
2. Would unemployment be even higher now?
3. Would the US economy be stronger or weaker with higher labor share of income? (labor share has fallen)
4. Would we be talking about exports to save the US economy if rising real wages had maintained internal demand? (Production searches out demand.)
5. Would easy credit during the bubble years have been so successful, and ultimately so damaging to the strength of the economy? (debt levels rose)
6. Would it still “make sense” to lower real wages to be competitive in the global market? (I have seen supply-side professors teach that lower real wages will permanently shift the LRAS curve to the right. It’s because they don’t see the effective demand curve shifting to the left.)
Not that my opinion matters, but I’ll bite.
1. Would productivity have grown less, the same or more over that period? (Is productivity affected by real wages?)
Productivity would have grown less. See next question.
2. Would unemployment be even higher now?
Unemployment would be lower now. With more workers producing the same output (I guess) productivity would be lower.
3. Would the US economy be stronger or weaker with higher labor share of income? (labor share has fallen)
Stronger. Less brittle.
4. Would we be talking about exports to save the US economy if rising real wages had maintained internal demand? (Production searches out demand.)
No. The richest nation in the world should buy other countries’ stuff, as a rule.
5. Would easy credit during the bubble years have been so successful, and ultimately so damaging to the strength of the economy? (debt levels rose)
With labor having a higher share of GDP, lower and middle classes would not have had to borrow to keep up. A similar credit situation preceded the Great Depression, for the same reasons.
6. Would it still “make sense” to lower real wages to be competitive in the global market? (I have seen supply-side professors teach that lower real wages will permanently shift the LRAS curve to the right. It’s because they don’t see the effective demand curve shifting to the left.)
Since we would usually be the ones for whose money other countries would be competing, we would not be in competition with them.