US President Barack Obama's jobs speech last week sets out a grandiose job creation plan that is again essentially sponsored by government spending, aka, federal debt. The American Jobs Act, if passed by Congress, is supposed to lead to new jobs for construction workers, teachers, veterans, first responders, young people and the long-term unemployed. The bill provides incentives for companies to hire new workers, mostly via temporary payroll tax reductions. Those all sound fine at first glance. But will this really lead to a long-term, sustained recovery of the economy and, particularly, the job market? And how should the government pay the US$450 billion price tag? After trillions of dollars of co-ordinated fiscal stimulus packages by major governments around the world over the past three years, and two rounds of monetary easing by the US Federal Reserve, the US economy is still growing much more slowly than is expected in a typical recovery. Housing prices remain depressed. The stock market is still way below its high point before the 2008 recession. The most troubling sign is the anaemic state of the labour market, underscored by the zero growth in the latest jobs report. A jobless recovery is not the only concern; another recession may be lurking. Keynesian economic theory is built on the premise that government spending will act as a multiplier that restores consumer confidence and thus stimulates corporate investment. But, this time, it seems it isn't happening. Corporate America is not investing because it doesn't see how domestic consumers will increase consumption given the high level of credit card debt and the retirement uncertainties associated with federal health-care programmes and social security payments, of which the root cause is again attributed to debt - government debt, in this case. As a result, the fundamental cause of this anaemic recovery is debt at all levels. In a nutshell, America is deeply and thoroughly indebted. In this kind of harsh environment, the model of job creation can only be targeted outwards - exports. America should look for markets where consumers have money to spend, and export its way out of its economic quagmire. Emerging markets, like China and India, are seeing a fast-expanding middle class that traditionally has a xenophile preference for US exports. Detroit-made cars are selling like hotcakes in China, despite the reduced growth rate of the car market this year. Exporting to China is particularly promising, as the Chinese government for the first time recognises the merits of foreign imports and is in the process of rolling out more import-boosting measures such as lower tariffs, and dismantling other non-tariff barriers. Increasing imports from the US can, to paraphrase a saying, kill three birds with one stone. First, it serves as a measure to combat inflation. Second, it downsizes the foreign-currency reserve that is dropping in value every day, as the dollar's worth spirals down. Third, it stimulates domestic consumption without further heating up domestic investment, while creating jobs and easing political pressure on China. Giving US exports greater access to China is actually also in Beijing's interest for another reason - as a means to forestall potential arms sales to Taiwan. In terms of generating jobs, any deal to sell F-16 fighter jets to Taiwan, estimated to be worth US$8.7 billion, pales in comparison to the growing millions of middle-class consumers on the mainland. Back in early 2009, Obama proposed an exports-driven growth strategy, but it seems to have fallen short of concrete follow-up measures. Most economies have some kind of government-sponsored measures or subsidies to encourage exports. In the European Union market, value-added taxes are waived for exports to non-member countries. In China, the 17 per cent valued-added tax is also refunded in many cases. Local governments also often provide free land and other utilities at discount prices to attract export-oriented business. Compared to other countries, the US government does a poor job of helping corporate America compete internationally, especially when it comes to small to medium-sized businesses. There are many policy instruments that the federal government can use, such as lower income and payroll taxes for export-oriented businesses. Instead of putting people to work on making things that nobody will buy, the government would be better off spending the money selectively on the exports sector where the demand prospect looks more sanguine. To fundamentally cure its debt woes, the US needs to embark on a long-term austerity course - at all levels of society, from individuals to state and federal governments. Unfortunately, austerity means scaled-down economic activities and slower growth. To compensate, the only hope is exports. In other words, Americans need to pay for their past excess. People used to lead a millionaire's lifestyle on US$50,000 a year. Now it is time to make millions from foreign consumers while living on US$50,000. John Gong is associate professor at the Beijing-based University of International Business and Economics. johngong@gmail.com
