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Bernanke solves the wrong deficit

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opednews.com Headlined to H4 10/19/09

Federal Reserve chairman Ben Bernanke recognized today that America's trade deficit played a central role in the global economic crisis. Then after he recognized the problem, he went on to solve a different one.

Start with the real problem, America's trade deficit. America is spending more than it earns, and buying more than it's selling. Our trade deficit in 2008 was $706 billion.

We know we're addicted to oil. We're also addicted to cheap stuff imported from China (made cheap by devalued currency and near-zero workplace or environmental protections). America's problem is a huge efflux of dollars, as our wealth departs for foreign lands.

The Asian export tigers have a smaller problem, but they have one too -- an excessive reliance on excessive American consumption. The danger is, in Bernanke's own words, "ever-increasing and unsustainable imbalances in trade and capital flows."

So America has a trade deficit. The world has an unsustainable imbalance. That's ungood.

Bernake's solution to this trade deficit? Reduce the federal budget deficit.

If you listen quickly, it may sound like reducing a deficit to reduce the deficit. But listen carefully. Bernanke wants to reduce a different deficit.

Sure, the federal budget deficit is high. It may be a problem (though not as bad as it seems) but it's a different problem.

The ultimate underlying problem is this trade deficit. And we need to solve it. We need to solve it the good old fashioned way. By making things, building things and selling things. Fundamentally, we need to sell more than we buy. That's what Bernanke said the problem was.

And to solve that problem -- the trade deficit -- government spending may be needed in the short term. We may need to stimulate the economy by building roads, train tracks and windmills -- investments that increase our productivity over time. We may need to invest in research and development of ideas whose commercial application will come later (think internet). In short, we may need to eat some federal budget deficit in the short run to solve the problem of both deficits in the long run.

Ironically, the recession has been good for our trade deficit. We can't buy as much and don't have as much money to spend. But it can't last and we don't want it to. We want to rebuild our economy, though differently this time. The current crisis must plant the seeds for the economy of the future. That's the conclusion Bernanke flirted with, but didn't say.

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This post originally appeared at Campaign for America's Future.

We're hosting a conference on the New Economy in DC on October 29.

 

Eric Lotke is Senior Research Analyst at SEIU and author of 2044, an update of George Orwell's 1984. In 2044, the problem isn't Big Brother, it's Big Brother, Inc. In years past, Mr. Lotke was Research Director at the Campaign for America's (more...)
 

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October 19, 2009Bernanke solves the wrong deficitB... by liecatcher on Tuesday, Oct 20, 2009 at 2:26:10 AM