Obama obsessed with flawed economic plan

It’s clear that the U.S. economy is long overdue for a serious re-evaluation. For years, we deceived ourselves into believing a consumption-based economy supported by foreign credit was a sustainable model for prosperity. Believing we could spend our way into the future, we had little to no regard for the structural imbalances we were incurring along the way.

With the dust settled from the economy’s financial collapse, President Barack Obama seems to have recognized where and how the country went wrong.

One example of this is Obama’s often-repeated phrase, “America must learn to live within its means,” working the theme that we must break our dependence on easy credit and borrowing.

As the structure of the economy is re-evaluated, it becomes clearer and clearer that we’ve been out of touch with reality; people seem to have forgotten that the ability to consume comes from the capacity to produce.

America cannot have a true economic recovery until we rebalance our economy away from consumer spending in exchange for production and exports.

Unfortunately, despite Obama’s correct diagnosis, his administration has yet to provide a realistic solution to the problem. A report featured in the March 31 edition of The Economist said that Obama is pursuing policies “that actually slow the rebalancing.”

One reason the policies wouldn’t be effective is because consumer attempts to cut back and save money are being undermined and offset by increased government spending, so much so that net savings as a percent of the nation’s gross domestic product remains relatively unchanged. This is a serious problem, as it prolongs our dependence on foreign creditors such as China.

Another problem exists with regard to the administration’s disposition toward “industrial policy,” which simply amounts to government support for domestic manufacturing. While this sounds like a reasonable solution to spurring increased production and exports, according to the Economist piece, it would actually “inflame relations with trading partners, provoke retaliation and ultimately slow the restructuring of the economy.”

To bring about positive change, the government needs to stop undermining private savings by cutting government spending and borrowing. Next, it needs to scrap any policy that amounts to protectionism; such policies hurt the economy in the long run, and we already have enough long-term problems to contend with.

But if the government must do something active, it could start by supporting companies looking to join the international market. Currently, the startup costs attached to entering the export market dissuade many companies from expanding their businesses. By shifting the emphasis from protecting industry to encouraging new innovation and growth, we can accelerate the transition.

Undoubtedly the free market will see to it that the economy rebalances itself, but as consumers cut back and save, trade deficits go down, and exports began to rise. The government must do its best to not make an already difficult process even harder.

For the time being, however, it seems Obama is content to fix America’s borrowing and spending problems with more borrowing and spending.

Jason Cutbirth is a business junior and may be reached at [email protected]