StanfordDude

China has now overtaken Japan as the world’s second largest economic power.  The news came with the inevitability we have come to expect, given their record of 10% annual growth. This rise from poverty has never been equaled in world history. Two hundred years from now, historians will remember this as the most important event of our times.

At almost the same moment came the news that Germany’s economy is charging ahead, growing faster than any other European economy. It is being powered forth by the reforms they have undertaken in the last five years. Those reforms ditched the old European social welfare system in favor of smaller government, lower taxes, less regulation and more market freedom. Germany is no longer the sick man of Europe.

(Indeed, in recent days the Cuban government has announced that they will be laying off more than one million government workers while loosening restrictions on the private sector, and the Swedes have voted in a center right government with the same goals. The private sector has been asked to shoulder a greater role in the provision of education, health care and welfare services. The move to the right is also evident in Britain, Norway, Denmark and Finland.)  

And yet here in the United States, we are looking at the prospect of continued economic stagnation, fearful that we will continue to lose our manufacturing base while or infrastructure deteriorates, and less confident than we have ever been for our children’s future.

What’s wrong with this picture? Simply put,…

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So, Treasury Secretary Timothy F. Geithner and the Obama Administration have now made a proposal for financial regulatory reform. Clearly, such a proposal was very much needed. But the proposal that the U.S. Treasury has now presented is sorely off target. It is neither comprehensive enough, nor does it address the core problems that everyone on Wall Street knows exist. It merely tinkers on the margins.

Until the fundamental problems are addressed, all we have been given is a fig leaf. This is dangerous as it has the potential of lulling us into a false sense of complacency. We have been here before with smaller crisis (such as with the Long Term Capital fiasco) and nothing was learned. Let’s not repeat our mistakes.

One of the principal reasons for the current financial crisis was the gross failure of the existing regulatory institutions. President Obama himself openly acknowledged this when he announced his reform package. Regulatory reform has been very much needed for a long time and very little has been done to fix the problems that plague our financial institutions.

The Geithner plan calls for a massive expansion of the powers of the Federal Reserve. Without a doubt, of the financial regulators that are examining the banks, the Federal Reserve is the most sophisticated. But, this is off a very low base. The Fed’s regulators are too young, inexperienced, under compensated and hardly the best we can get in the financial markets.

Nor is it clear…

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In a time of high unemployment, why isn’t NH doing more to promote job creation?

Despite all of our problems, America remains the most attractive market in the world for almost every product imaginable. In large part, this is why most American businesses don’t immediately think of exporting their products abroad – a major failing of ours. But foreign companies are well aware of the opportunities that exist in the U.S. markets. Anyone doubting this should immediately look at the auto industry. The U.S. still produces some of the best cars in the world. But, we do so primarily in the south, in such states as South Carolina, Kentucky, and Alabama and they bear the brand logos of BMW, Toyota, Honda, Infinity, etc.

And it is not just cars; Honda Aviation, for example, recently opened a new plant in North Carolina which will help offset that state’s loss of its old textile mills. Nor is it just manufacturing; the list of businesses is almost limitless, and includes high tech companies, software companies, call centers, etc. Indeed, without such businesses, American consumers would immediately encounter a steep bout of inflation and unemployment.

So here is the question: when Kia Motors or Hyundai were recently looking to open new assembly plants, why is it that no one tried to persuade them to build a plant in NH? With New Hampshire’s great lifestyle, low taxes, our high tech base and our business environment, our state should be an excellent destination for all kinds of business operations. More often than not, foreign businesses are looking to establish operations where the enabling business environment is considerably better than in their home countries. This usually means the U.S.A. It should also mean New Hampshire.

With New Hampshire’s economy softening, 

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In today’s economic environment, helping small businesses create new jobs needs to be our leading priority. Yes, we must take care of the displaced, but we must do it through job creation. The Democrats in Concord can’t seem to understand this.  They keep adding more and more weight onto the state’s business community, expecting them to continue to fly. They have just done it again this week by adding more social safety net legislation at the expense of job creation. While they will now crow about “helping people” their policies will have the exact opposite impact.

America’s economic safety net undoubtedly plays an important role in stabilizing the economy when events or economic situations take a turn for the worse. Markets have always had an unfortunate tendency to over-react in the short run. Therefore, such measures as unemployment insurance serve as a good short term shock absorber to slow the descent while economic policies and normal market forces bring the economy back into balance. Other social safety net policies can also be helpful to an economy and the quality of life.

But as the saying goes, “Taken to an extreme, any virtue can be turned into a vice.” Just as a wrong sized shock absorber on a car can be counter productive, so it is in economics. The Europeans have been seeing this in spades over the last few decades. Several countries like France and Germany have adopted such inflated unemployment and other social benefits that businesses are now very reluctant to hire new people. As a result, unemployment is the overriding problem because existing businesses can’t bear the load. This also means that new businesses are hard to start and job creating innovation is much slower than in the faster paced economies. There is clearly a balance to be struck.

America’s business community is now struggling to survive in the worst economic downturn in the past seventy years. Even the largest and once most successful of businesses are holding on by their fingernails. In the past year we have seen the bankruptcy of some of America’s business icons such as Chrysler and General Motors, Merrill Lynch, Circuit City, and many others. At the same time businesses have been scaling back and closing stores at an alarming pace. As a result, the country’s jobless rate jumped to 9.4 percent in May, the highest in twenty-five years. This figure is already higher than the “worse case scenario” of the government’s just completed stress tests. And there is more to come as unemployment will surely pass into the double digits.

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