World economic engine sputters?

Wilberne Persaud, Gleaner Writer

So the US economy coughs, then we catch cold, develop pneumonia even. That is the common, basically true understanding. And so it shall remain until we change our economy's structure. This won't happen unless we clobber the monsters of chronic unemployment and skewed income distribution that render Jamaica a duotone image. Instead of two Jamaicas we have to make real, "Out of Many, One People". It is estimated that youth unemployment in the inner city is equivalent to half the able-bodied potential entrants to the workforce. This is a two-edged sword: unemployed youth without steady income cannot provide demand for products and services our business enterprises should be able to create.

For three decades at least, it fell to dons to alleviate the burden and enormous problems these conditions disgorge, while making others worse [disruptive behaviour, unwed fathers/mothers, inadequate educational attainment, low productivity, crime, etc - they are all connected]. This is the backdrop against which we must consider the potential impact of performance in the US economy as the primary engine of the interrelated and unevenly integrated global machine the OECD created, and within which we operate. The prospects, honestly, do not look pretty.

The inability of its highly polarised and seemingly, today, dysfunctional political-ideological system to confront baseline economic facts of the past two decades, suggests the US economy is set for anaemic growth with jobless and income-stagnant emergence from prolonged recession. A few undisputed statistics and two bits of breaking news paint this gloomy picture.

Today, China and India graduate seven times the number of engineers annually as does the USA. Should this continue, within a few years 90 per cent of all engineers working in the world will be located in Asia.

Long-term planning

The Bush Administration cut Federal-funded R&D throughout its eight years of tenure. China is the leader in wind-power technology; 40 per cent of the world's wind turbines are produced there. China pollutes abhorrently but its new output is set to change that. In 2009, the US ranked 12th in the world in the percentage of its population graduating from university. Not so long ago it was ranked No. 1. Federal spending on public universities is needed but republicans want tax cuts and reduced deficits - contradictory in terms. In the end, what is contemplated? Answer: there is need to plan for the longer term - five years, at least. No, government shall not plan for the private sector; rather, policy is so worked out that private enterprise knows how the playing field is going to look and what the rules will be.

Get this, these fears are openly and vigorously discussed by capitalists, hedge fund managers, tech-gurus of Silicon Valley etc, not liberals turned socialist. They wonder at the wisdom of subsidising growing corn for ethanol while taxing cheaper Brazilian-produced ethanol; spending billions of Federal dollars on tobacco growing and such like. They argue this is the dysfunctional politics - in the extant case, the farm lobby. But you have the oil and gas lobby, the Tea Party etc. So that's on the technical and policy side. What of the two bits of breaking news this week?

First, believe it or not, the great US recession ended in June 2009. During its 18-month drain, 7.3.million jobs were lost, economic output fell by 4.1 per cent and the US population's net worth was gouged 21 per cent - that is a lot of pain! You have to imagine it, numbers alone will not cut it. This has been the longest downturn since the Great Depression. These data are from the National Bureau of Economic Research's [NBER] Business Cycle Dating Committee [respected academic economists] that determines benchmarks for US recessions.

This announcement on Tuesday came as the Federal Reserve chose not to institute any new measures to drive sluggish US economic recovery. The worrying aspect was the Federal Open Market Committee's suggestion that government-debt purchases may become necessary, in light of the fact that inflation numbers have been "somewhat below those the committee judges most consistent, over the longer run," telescoping that corrective action may become necessary for the promotion of "maximum employment and price stability". This is 'central-bank speak' for a major worry over deflation.

The preceding prolonged US economic boom has been unique: middle-class incomes did not rise commensurately with growth in national income. Attempts to live the so-called American dream required sub-prime mortgages and credit-card debt. The bottom has dropped out of these while vital signs of a healthy, robust economy have not yet reappeared. Our economic policy making should overlook none of the foregoing facts.

wilbe65@yahoo.com