December 30, 2010    Volume 17, No. 20

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Obama's Top Economist Discloses Why The Administration Refused To Support U.S. Manufacturing


By Richard McCormack
richard@manufacturingnews.com

For the past two years, executives of domestic manufacturing companies -- along with their workers -- were in a daze, wondering why the Obama administration pushed no policies to counter the hemorrhage and the continued offshoring of American production.

Now it is clear.

Obama's outgoing chief economist Lawrence Summers does not think it necessary for the United States to mass-produce products that would be consumed by hundreds of millions of Americans. Summers justifies this position by stating that even the number of manufacturing jobs in China is declining, when in fact, they are not.

"We are moving towards a knowledge and service economy," said the departing director of Obama's National Economic Council in a brusque farewell address at the Economic Policy Institute in Washington, D.C. "You don't succeed by producing exactly the same thing that other people are producing in the same way just at a lower cost," he added. "There is no going back to the past. Technology is accelerating productivity in mass production to the point where even China has seen manufacturing employment decline by more than ten million jobs over the most recent decade for which data is available."

The argument that it's okay for the United States to be losing manufacturing jobs because even China is losing them has been used by free-market economists for the past eight years to justify the de-industrialization of America.

The Obama administration's top economic policy maker's argument is not correct, however. The latest data available from the Department of Labor's International Labor Comparisons Program found that China's manufacturing employment is not in decline but instead rose by an astounding 11 million workers between 2002 and 2006, to 112 million. In four years, China added as many manufacturing jobs as exist in the United States.

But the Obama administration's economic policy team does not care about foreign labor rates. In its 2011 budget submission to Congress, Obama called for the elimination of the International Labor Comparisons program.

In his 3,982-word speech before the Economic Policy Institute, Summers only mentioned the word "manufacturing" once, in the above reference to Chinese manufacturing workers. He did not use the word "imports" or the words "trade deficit."

"The flatness of the world notwithstanding, by far the largest part of the activities Americans engage in and the goods they buy remain quite local," he said. "It is health care and retail services, recreation and education, haircuts and insurance policies, hotels and houses, and I could go on."

The Obama administration's top economic goal has been to stimulate demand, said Summers, through trillion-dollars increases in government spending and recently through continued tax cuts. "There cannot be any question that the constraint on our economy now and for the next several years will be lack of demand," Summers declared. "Without increased demand we are not in a position to pursue our longer-term objectives."

Here's how retired Sen. Fritz Hollings (D-S.C.) explains Obama's economic policy: "Stimulation won't do. President Bush increased the debt and stimulated the economy $5 trillion in eight years. In the same period, household debt increased or stimulated the economy another $7 trillion. The Federal Reserve stimulated the economy a trillion dollars in the remainder of 2008. By January 2009, when Obama was sworn in as President, the economy had been stimulated $13 trillion in eight years, and we were losing exactly 799,000 jobs a month. President Obama in two years has now stimulated the economy another $3 trillion and last month unemployment increased. Stimulation is spent."

Summers agreed. "Unfortunately, the approaches we have become used to over the last 50 years for supporting demand in a market economy are not open to us today." Lowering interest rates is no longer an option because interest rates are already as low as they can go. So the next best way of increasing demand is by increasing exports "a non-traditional approach," he said. "That is why agreements like the one we recently concluded with Korea are important as is the breadth of the support it has received."

But that trade agreement did not receive the support of the U.S. textile industry, nor of the United States Business and Industry Council, which represents domestic manufacturing companies, nor from the AFL-CIO, the Steelworkers Union, the Electrical Workers Union, the Communications Workers Union or the International Association of Machinists and Aerospace Workers. Upon announcing the Korea trade deal on December 6, 2010, the White House promoted on its website people in the business community that favor the deal, and included their remarks: Thomas Donohue, President of the U.S. Chamber of Commerce; Jeff Immelt, CEO of General Electric; Jim McNerney, President of Boeing; Jamie Dimon, CEO of JP Morgan Chase; Vikram Pandit, CEO of Citigroup; Alan Mulally, CEO of Ford Motor Co.; Greg Slater, Director of Trade Policy at Intel; Bill Toppeta, President of MetLife; Doug DeVos, President of Amway; Stephanie Burns, CEO of Dow; Harold McGraw, Chairman of the Emergency Committee for American Trade; Steve Bartlett, CEO of the Financial Services Roundtable; Gary Shapiro of the Consumer Electronics Association; and John Engler, President of the National Association of Manufacturers. There was not one person from a domestic manufacturing company listed on the White House Korea trade deal website.

Summers compared China's current rise to what happened in the last century with Russia and Japan. "America's history, in a certain sense, has been one of self-denying prophecy -- a history of alarm and concern, but alarm and concern averted by decisive actions to assure our prosperity," Summers concluded in his EPI go-away speech. "As one former CIA director warned of our largest competitor, that industrial growth rates of 8 or 9 percent per year for a decade would dangerously narrow the gap between our two countries. That was Allen Dulles in 1959 referring to the Soviet Union. And then the Soviet Union collapsed instead.

"The Harvard Business Review of 1990 proclaimed in every issue -- every issue -- in one way or another that the Cold War was over, and that Germany and Japan had won. Now we hear the same thing with respect to China. Predictions of America's decline are as old as the republic. But they perform a crucial function in driving the kind of renewal that is required of each generation of Americans. I submit to you that as long as we're worried about the future, the future will be better."


Quotable:

"I am not one who sees financial collapse on the imminent horizon."
-- Lawrence Summers, December 13, 2010.

"This financial crisis [in 2008] is unlike anything, frankly, I ever expected to see."
-- Lawrence Summers, December 2008, before the National Academies of Sciences' Board on Science, Technology and Economic Policy.

CNN's Wolf Blitzer interviewed Larry Summers, head of the Obama Administration's Council of Economic Advisors, on February 9, 2009. He was asked how the $787-billion Stimulus Bill would impact employment. Here is Summers's answer:

Summers: "You'll see the effects begin almost immediately. Layoffs that otherwise would have happened in cities in towns to cops and teachers won't happen. You'll see withholding schedules adjusted so that people have more money in their paychecks. You'll see orders go out to new roads, new bridges, new computers for hospitals. You'll start to see better maintenance of schools. So things will happen very, very quickly. The effect will build. The effect will build over time. And Wolf, this is one thing people do have to recognize -- the president inherited a very, very difficult situation, a $1-trillion deficit, an economy that, frankly, was in freefall. And so while there will be clear impacts of this package that one will see almost immediately, we've inherited an economy that was programmed for substantial decline before the president got here."
Blitzer: "So if the president gets what he wants and it looks like he will, at least right now, when do you see economic growth returning as opposed to economic loss? And when do you see job increases per month as opposed to huge job losses in January, almost 600,000 jobs were lost? In other words, when -- what month of this year would you tell us things are going to start to turn around?"
Summers: "There's one thing I'm certain of -- that day will come much sooner with the president's program than it will come without the president's program. But I'm not going to hold out for you the prospect that it is imminent. Perhaps it will be towards the end of the year. Perhaps it will be early next year. Perhaps, if confidence takes hold quickly, it will be somewhat sooner."


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