Monday, April 20, 2009

Obama setbacks are good news

The NY Times notes how some key proposals are hitting resistance in Congress.

The administration’s central revenue proposal — limiting the value of affluent Americans’ itemized deductions, including the one for charitable giving — fell flat in Congress, leaving the White House, at least for now, without $318 billion that it wants to set aside to help cover uninsured Americans.

Lawmakers of both parties have warned against moving too quickly on a plan to auction carbon emission permits to produce more than $600 billion.

10 Senate Democrats joined Republicans this month in pushing to protect more wealthy American families from the reach of the federal estate tax.
Losing these sources of revenue means that it will be more difficult for Obama to push for a major expansion of government spending, and this in turn reduces the threat of significantly higher tax burdens in the future.

In a separate article, the NYT reports that, contrary to his campaign promise, Obama does not plan to reopen negotiations on NAFTA. This may be the main positive outcome of the recent Latin summit conference in Trinidad. Anything that preserves free trade agreements is a good thing for all economies.

These are political "green shoots" since they reduce the policy risk facing the economy.


Steve Grannis said...

Your title for this post is sad but true. I hate rooting against our President but given the choice between his plans and my kids' wallets the choice is easy.

On the free trade issue I'd be interested to hear your thoughts about how American workers can offset the downward pressure on wages from global competition. It seems hopeless in the long run, until 50-cents-per-day wages in China and elsewhere finally equalize with our average daily wage. It seems productivity gains can get us only so far. Isn't this challenge the biggest elephant in the room relative to our future prosperity? Even Obama seems to know we can't stop this train.

Scott Grannis said...

Check out this article in Business Week:

Some tidbits: the U.S. remains the premier manufacturer in the world. Our factories produce 2 1/2 times as much as Chinese factories. US factories produced $1.6 trillion in 2007, nearly double the $811 billion produced a decade earlier.

What's even more impressive is that the number of people working in our factories has been in decline for decades, yet our production continues to rise.

The people who make 50 cents a day in China are not a threat to us. On the contrary they make it possible for us to stretch our income in ways we never thought possible (i.e., it takes fewer hours of work these days to buy just about anything than ever before).

Trade is not a zero sum gain. Everyone wins. All the dollars we spend on Chinese stuff eventually find their way back to the US economy. Either the chinese buy our goods and services, or they buy our stocks and bonds and real estate.

Our workers are far more productive than Chinese workers. Our factories are among the most modern in the world. Our capital stock to worker ratio is extremely high.

Global competition is a fantastic thing because it increases living standards everywhere.

Donny Baseball said...

Just a little thought to chew on...there are many other considerations that businesses look at when choosing to invest than just the wage. While certainly a big factor, the raw wage is not the only factor holding the US worker back. As Scott rightly points out, productivity is a big part of it, but so are other factors like speed and project execution. China is taking so much more business than wages would explain because they get things moving. Want to build a factory? Good. Break ground tomorrow. No zoning problems, no lawsuits from "Friends of the Five-Legged Weavil". The Chinese want you up and running and employing their people. We have built up our regulatory and bureaucratic apparatus too much where it is a hinderance tp speed and efficiency. That is the deciding factor at the margin, not wages. Truth is, other countries just want the business more and will do what it takes to get it. Until we want all manner of industry again in this country, we will continue to lose production.