CR thanks for bringing this piece of information. I would hope that those on this thread would pick up on this and present their toughts instead of providing links to gutter sites of Drudge and Rush.
I surely do hope that these folks would post something like this which would support the theory of the Bush economic team. But instead they just keep posting garbage. So here goes:
In economic policy too, US ignores the global rules
Janadas Devan
FOREIGN MATTERS
AMERICAN exceptionalism - the conviction that the United States is so unique, the usual rules don't apply to it - besets not only US foreign policy, but also its economic policy. Consider the following:
US Federal Reserve chairman Alan Greenspan told Congress on Wednesday it was of critical importance that soaring fiscal deficits be brought under control. 'Given the already substantial accumulation of dollar-denominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on US residents,' he said.
That actually is not just a possibility, it is a near certainty. With the US current account deficit already at US$550 billion (S$918 billion), continued gargantuan fiscal deficits in excess of US$500 billion every year will, sooner or later, lead investors to demand higher returns to offset the risks of holding dollar assets. But administration officials reject this argument, pointing to current low interest rates and the willingness of foreigners, especially Asians, to hold treasuries as evidence that 'deficits don't matter'.
Former treasury secretary Paul O'Neill says in a recent book that those were precisely the words that Vice-President Dick Cheney had used. He also says that President George W. Bush had dismissed his suggestion that tax cuts come with 'triggers' that would automatically revoke the cuts in case of deficits, with the airy remark: 'I won't negotiate with myself.'
Given such attitudes, it is not surprising that discretionary spending has increased by a larger percentage under Mr Bush than it did under Lyndon Johnson, the spendthrift who created the 'Great Society'. And that a fiscal surplus amounting to 2.4 per cent of gross domestic product in 2000 - under yet another spendthrift Democrat, Mr Bill Clinton - is now a deficit of 4.6 per cent of GDP.
Mr Gregory Mankiw, chairman of Mr Bush's Council of Economic Advisers, said on Monday that the outsourcing of service jobs overseas was good for the US economy.
'When a good or service is produced more cheaply abroad, it makes more sense to import it than make or provide it domestically,' he said.
There is ample evidence to suggest he is correct. A recent McKinsey study showed that US companies reduced costs by 58 cents for every dollar that they offshored. This saving not only benefited US consumers, but it also made US companies more competitive in the global marketplace.
Jobs have been lost in the process, of course - 473,000 so far, by one estimate - but as a study by International Institute of Economics' Catherine Mann noted recently, these estimates 'frequently use the peak of the US economy and technology boom as the base of their analysis'. When data excluding the peak is examined, we find job losses in manufacturing (2.7 million or 16 per cent since 1999), but not in services, including in those white-collar occupations deemed particularly 'vulnerable to IT-enabled international trade'.
Engineering and architecture job levels stayed stable between 1999 and last year, jobs in computer and mathematical occupations increased by 6 per cent, and those in business and financial occupations by 9 per cent.
The bottom line is plain: Globalisation of software and services, enhanced IT use and the transformation of business activities in the US and elsewhere, and job creation are 'mutually dependent. Breaking the links will put the entire prospect for robust and sustainable US economic performance at risk'.
But that is precisely what some US politicians are proposing to do. US companies that outsource are 'Benedict Arnolds', Senator John Kerry, the likely Democratic presidential nominee, regularly intones on the stump. Another senator, Mr Charles Schumer, has announced that high-end jobs migrating overseas 'doesn't fit the free trade model'. Open trade, he says, doesn't make sense in a world of free capital flows, instantaneous communication and an increasingly better-educated global workforce. (It made better sense, presumably, in the age of capital controls, carrier pigeons and universal illiteracy.)
The Bush administration has not uttered such patent nonsense about trade, but it, too, has made the odd obeisance to protectionism. It has imposed steel tariffs, increased agricultural subsidies massively and reportedly insisted on excluding sugar from the just-concluded US-Australia free trade agreement. Sugar constitutes less than 0.5 per cent of US agriculture, but it happens to be big in Florida, a must-win state for Mr Bush this year as it was in 2000.
Imagine if a developing country had done the same to protect some favoured industry. Imagine if a developed country had amassed huge fiscal and current account deficits, refused to do anything about them, and went on adding to its debts by introducing new welfare benefits, as Mr Bush has done with his US$530 billion prescription drug programme.
There is no doubt what would happen to such countries: Investors would punish them, swiftly and severely. As Asian countries discovered in 1997-1998, there really is such a thing as the 'Washington consensus'. Only, that consensus doesn't apply to the US itself. That is why Washington can get away with policies that would have long sunk Argentina.
But what happens when the party stops, and foreigners, especially Asians, cease aiding and abetting US profligacy, as they sooner or later must, as Mr Greenspan acknowledges? What happens to global trade liberalisation when other countries respond to America's bending of the rules by throwing up road blocks of their own, as India has threatened to do in response to protectionist US legislation on outsourcing?
What happens to the Washington consensus when Washington itself ignores it?
..contd. at straitstimes.asia1.com.sg |
