As Greece hangs by a thread because of its sovereign debt crisis, US economic recovery lags and the global stock market teeters on the brink of disaster, US President Barack Obama finally unveiled his highly anticipated jobs stimulus package last week. The proposed US$447 billion American Jobs Act includes tax cuts for workers and businesses, increased spending on infrastructure, and subsidies for state and local governments — it basically amounts to slashing taxes while increasing public spending. Although responses to the plan have been polarized, it has still received more support than rejection among industrial, government and academic circles. However, when looking at the highly frustrated stock markets in Europe and the US, it seems stock traders are not confident that the jobs package will have a positive effect on the global economy.
The Liberty Times (the Taipei Times’ sister newspaper) believes Obama is on the right track with this plan, but the increasing vitriol of party politics in the US is a huge impediment for Obama as he tries to get an unamended version of the stimulus package passed in Congress. Although Nobel Prize-winning economist Paul Krugman is pessimistic about the proposed act, he still lauds the bill for its potential to significantly decrease unemployment. Besides cutting taxes — an apparent effort to meet Republicans -halfway — and placing more importance on infrastructure, Obama’s proposal also proposes subsidizing local governments to pay teachers’ salaries and renovate schools. Compared with previous policies that injected money into the market, an increase in public spending to ameliorate infrastructure as a central goal would be more effective in stimulating the weakened economy.
Most major countries have relaxed monetary policies by printing more money and injecting it into the financial system as a quick fix for impending systemic and liquidity crises. This does allow a patient on the verge of death to continue breathing, but it does not do enough to get the global economy out of the emergency room. In particular, injecting money into markets creates an array of adverse side effects.
The big Wall Street banks were the chief offenders in the global financial crisis, but the US government still bailed them out because they were considered “too big to fail,” meaning taxpayers were left paying for the mistakes of these financial monsters. Not only did those who were responsible escape punishment, but most of the executives who committed egregious mistakes were also given lucrative severance packages. Wall Street continued to manipulate highly leveraged risk assets because bank executives remained solely concerned with their short-term profits, keeping the financial system stuck in a highly unstable and volatile state.
Furthermore, relaxed monetary policy generates high liquidity, lowering the cost of capital. It eliminates systemic and liquidity crises, but because the public still lacks confidence, they save more and spend less, weakening consumer demand.
With most businesses still trying to recover from the heavy losses suffered during the financial crisis, they are not willing to make more investments even if they do have the money. Therefore, this flood of capital has failed to enter the real economy, meaning few jobs were created. Instead, this money is going straight to housing, stock and commodity markets, where it is used for wild speculation in the name of avoiding risk and maintaining value, in effect creating a bubble of rapidly increasing asset prices.
This has produced a contradictory and asymmetric situation: Markets don’t lack capital, yet the government insists on quantitative easing, with the result that the inflow of money causes asset prices to increase at an alarming rate. In this way, the financial market is becoming a paradise for speculators, exacerbating inflation and resulting in a sharp rise in the public misery index.
Another important aspect of this trend is that the real economy is suffering from lack of investor confidence and remains incapable of stimulating job growth and increasing real incomes, resulting in a widening gap between the rich and the poor. The simultaneous existence of a stagnant economy and an overheating asset bubble is subtly brewing into what economist Nouriel Roubini, also known as “Dr Doom,” calls the “perfect storm.”
Looking at world economic events from this perspective, we see that if monetary policies continue to be used, and if governments are the lender of last resort, then the overall effectiveness of such policies has been exhausted.
If at this point governments switch to fiscal methods, increase spending, boost infrastructure and create demand in a return to Keynesian economics, the world just might get through this massive economic recession. Of course, most governments are weighed down with monumental debt, fiscal deficits and ineffectual politics. Thus, any call for more spending risks being labeled a failure from the start, while governments are accused of passing debt to later generations, making such policies unlikely.
However, Taiwanese politicians could still learn from Obama’s goal of creating jobs.
Translated by Kyle Jeffcoat
The central bank and the US Department of the Treasury on Friday issued a joint statement that both sides agreed to avoid currency manipulation and the use of exchange rates to gain a competitive advantage, and would only intervene in foreign-exchange markets to combat excess volatility and disorderly movements. The central bank also agreed to disclose its foreign-exchange intervention amounts quarterly rather than every six months, starting from next month. It emphasized that the joint statement is unrelated to tariff negotiations between Taipei and Washington, and that the US never requested the appreciation of the New Taiwan dollar during the
Since leaving office last year, former president Tsai Ing-wen (蔡英文) has been journeying across continents. Her ability to connect with international audiences and foster goodwill toward her country continues to enhance understanding of Taiwan. It is possible because she can now walk through doors in Europe that are closed to President William Lai (賴清德). Tsai last week gave a speech at the Berlin Freedom Conference, where, standing in front of civil society leaders, human rights advocates and political and business figures, she highlighted Taiwan’s indispensable global role and shared its experience as a model for democratic resilience against cognitive warfare and
The diplomatic dispute between China and Japan over Japanese Prime Minister Sanae Takaichi’s comments in the Japanese Diet continues to escalate. In a letter to UN Secretary-General Antonio Guterres, China’s UN Ambassador Fu Cong (傅聰) wrote that, “if Japan dares to attempt an armed intervention in the cross-Strait situation, it would be an act of aggression.” There was no indication that Fu was aware of the irony implicit in the complaint. Until this point, Beijing had limited its remonstrations to diplomatic summonses and weaponization of economic levers, such as banning Japanese seafood imports, discouraging Chinese from traveling to Japan or issuing
The diplomatic spat between China and Japan over comments Japanese Prime Minister Sanae Takaichi made on Nov. 7 continues to worsen. Beijing is angry about Takaichi’s remarks that military force used against Taiwan by the Chinese People’s Liberation Army (PLA) could constitute a “survival-threatening situation” necessitating the involvement of the Japanese Self-Defense Forces. Rather than trying to reduce tensions, Beijing is looking to leverage the situation to its advantage in action and rhetoric. On Saturday last week, four armed China Coast Guard vessels sailed around the Japanese-controlled Diaoyutai Islands (釣魚台), known to Japan as the Senkakus. On Friday, in what
RSS