Nov 11, 2012 11:38 Moscow Time
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Photo: EPA
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Sean Gibbons – who is the Vice-President at Third Way, which Reuters recently proclaimed as the future of think tanks.
We don’t think of ourselves as being in an economic crisis any more, we think of ourselves as being in an economic recovery, not moving as swiftly as anyone might like, but it is pretty clear that we are adding jobs steadily for the last several years, unemployment rate continues to drop, consumer confidence is up which is a very good thing and that is actually the reflection of how the consuming class, which is largely the middle class in America, feel about their economic fortunes.
And we just had an election and obviously some of the exit polls told us that people continue to be concerned about the economy. But I think the fact that they returned President Obama at office in the light of the fact that the unemployment rate is still over 7% and previously no President had even won with an unemployment rate above 7.5%, it suggests that American people are feeling confident and optimistic about what is to come over the next couple of years.
As far as I remember at the beginning of the first term of President Obama the economic situation and consumer sentiment were on the low.
That’s correct, yes. When President Obama was sworn in the office at the beginning of 2009 the US was in the midst of a global economic crisis. Credits were largely frozen and the US Congress and the President had to take emergency measures to try and rescue the economy. And that included a number of different things, including a bailout for an auto industry, as well as an agreement between the members of Congress and the Administration to pass what was a massive stimulus. It was the combination of tax cuts and also Government spending on a variety of projects where money were to be granted to the states to help them pay for unemployment insurances and other things of this nature.
And then we think it has started to prompt the recovery, that we are no longer in recession for economy is no longer contracting, it is expanding at a rate that is good but not great, but that is typical of what you see after these sorts of crises. It takes a little while to first find the bottom and then start building on that. That’s what we’ve been doing over these last months.
I remember that in pre-election debates when economic issues were looked at, there were some discussions about moving part of the production back to the US from the overseas destinations.
It certainly is a priority for the President and his Administration I think and for many members of Congress to see a return to manufacturing here in US. There are ample opportunities for what’s called advanced manufacturing where you actually need high skills and high-tech equipment to actually manufacture things. These are potential targets of the US to deal with in the next couple of years. The truth and the matter is that we are an extraordinary innovative country and society and over the last decade or two our economic policy, our industrial policy hasn’t necessarily been as thoughtful as perhaps it maybe should have been. We have not rewarded companies who have located their manufacturing here in the US. And in some cases we’ve taken technology we’ve developed here, a good example might be the flat screen television, and rather than seeing that as an intellectual property behind the design of this television but to in fact also make sure that we are manufacturing it here in the US. There is more of an emphasis on that now than there has been in the past and that’s a good thing.
How are you going to convince the corporations that they need to move manufacturing from places where labour is cheaper?
So, think the question is – is labour cheaper? You know, you have to remember that in some places the flight of capital and manufacturing abroad was because there was yes, cheaper labour. But the truth is that as we see the emergence of global middle class in places like India, China and elsewhere, particularly in South Asia, the costs of doing business there is going to increase, and never mind the fact that you have a built in cost of transporting these goods. The US is still the largest consumer economy in the world. And so, when you manufacture television in Taiwan or Korea or Vietnam or China or wherever it may be, it ultimately still has to make its way back to the US which incurs obviously some costs.
So, not every manufacturing job that is moved overseas is going to come back to the US but I think it is reasonable to believe that both as Asia stands up economically and as their consumer base grows there is a great opportunity for the US to export more goods to places in the Asia-Pacific region.
Mr. Gibbons, do you think that the case story of the US could be somehow applied to the Eurozone countries?
I think that we are in very different places as societies. The US has a challenge before us in the next few months in terms of coming to grips with what’s called the “fiscal cliff”. That’s where we will see the end of austerity tax cuts enacted by President Bush, its mandate by law is to expire. The US Congress is going to impose something called “a sequester” – which is an across the board cut of Government funding for programs. This was done to try to arrest the deficit and the nation’s debt that decreases if you run successfully of deficit over a number of years. And then finally the fact that we have in the US something that’s called “debt ceiling”, so the Congress actually requires a lot being passed in order to expand the amount of money that the US Treasury can borrow. All those things I said, they sort of come together in the next 90 days.
And so that could be an action-forcing event here in the US where we think not only President Obama and the Congress will have an opportunity to fix those discreet items, it may also be an opportunity for them to address the longer term potential issues, including the cost of entitlement spending here in the US. Those are the social programs, things like social security, medic care and medic aid which, if they are modestly treat right now, would probably be on track to remain solvent and well decades into the future. If we do not do that however, given to the demographics here in the US and aging population that is living longer, that is going to potentially cause some massive stresses on our economy looking out into the next 10-15 years.
Europe is in a different place. Europe made those sorts of similar obligations, social programs, and has now demographically an older population and a smaller workforce – that is you basically have a lot of people who are older or pensioners and you have a fewer working age folks in the Eurozone. That’s a challenge for them. I don’t know how they fix it. I think they’ve figured it out quite how to fix it. There are also obviously some monetary policy questions there as well. But it is very hard, it is sort of staunch if to compare the US to the Eurozone just because we are simply very different in terms of demography of our country and the Eurozone.
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