As Greece hangs by a thread because of its sovereign debt crisis, US economic recovery lags and the global stock market teeters on the brink of disaster, US President Barack Obama finally unveiled his highly anticipated jobs stimulus package last week. The proposed US$447 billion American Jobs Act includes tax cuts for workers and businesses, increased spending on infrastructure, and subsidies for state and local governments — it basically amounts to slashing taxes while increasing public spending. Although responses to the plan have been polarized, it has still received more support than rejection among industrial, government and academic circles. However, when looking at the highly frustrated stock markets in Europe and the US, it seems stock traders are not confident that the jobs package will have a positive effect on the global economy.
The Liberty Times (the Taipei Times’ sister newspaper) believes Obama is on the right track with this plan, but the increasing vitriol of party politics in the US is a huge impediment for Obama as he tries to get an unamended version of the stimulus package passed in Congress. Although Nobel Prize-winning economist Paul Krugman is pessimistic about the proposed act, he still lauds the bill for its potential to significantly decrease unemployment. Besides cutting taxes — an apparent effort to meet Republicans -halfway — and placing more importance on infrastructure, Obama’s proposal also proposes subsidizing local governments to pay teachers’ salaries and renovate schools. Compared with previous policies that injected money into the market, an increase in public spending to ameliorate infrastructure as a central goal would be more effective in stimulating the weakened economy.
Most major countries have relaxed monetary policies by printing more money and injecting it into the financial system as a quick fix for impending systemic and liquidity crises. This does allow a patient on the verge of death to continue breathing, but it does not do enough to get the global economy out of the emergency room. In particular, injecting money into markets creates an array of adverse side effects.
The big Wall Street banks were the chief offenders in the global financial crisis, but the US government still bailed them out because they were considered “too big to fail,” meaning taxpayers were left paying for the mistakes of these financial monsters. Not only did those who were responsible escape punishment, but most of the executives who committed egregious mistakes were also given lucrative severance packages. Wall Street continued to manipulate highly leveraged risk assets because bank executives remained solely concerned with their short-term profits, keeping the financial system stuck in a highly unstable and volatile state.
Furthermore, relaxed monetary policy generates high liquidity, lowering the cost of capital. It eliminates systemic and liquidity crises, but because the public still lacks confidence, they save more and spend less, weakening consumer demand.
With most businesses still trying to recover from the heavy losses suffered during the financial crisis, they are not willing to make more investments even if they do have the money. Therefore, this flood of capital has failed to enter the real economy, meaning few jobs were created. Instead, this money is going straight to housing, stock and commodity markets, where it is used for wild speculation in the name of avoiding risk and maintaining value, in effect creating a bubble of rapidly increasing asset prices.
This has produced a contradictory and asymmetric situation: Markets don’t lack capital, yet the government insists on quantitative easing, with the result that the inflow of money causes asset prices to increase at an alarming rate. In this way, the financial market is becoming a paradise for speculators, exacerbating inflation and resulting in a sharp rise in the public misery index.
Another important aspect of this trend is that the real economy is suffering from lack of investor confidence and remains incapable of stimulating job growth and increasing real incomes, resulting in a widening gap between the rich and the poor. The simultaneous existence of a stagnant economy and an overheating asset bubble is subtly brewing into what economist Nouriel Roubini, also known as “Dr Doom,” calls the “perfect storm.”
Looking at world economic events from this perspective, we see that if monetary policies continue to be used, and if governments are the lender of last resort, then the overall effectiveness of such policies has been exhausted.
If at this point governments switch to fiscal methods, increase spending, boost infrastructure and create demand in a return to Keynesian economics, the world just might get through this massive economic recession. Of course, most governments are weighed down with monumental debt, fiscal deficits and ineffectual politics. Thus, any call for more spending risks being labeled a failure from the start, while governments are accused of passing debt to later generations, making such policies unlikely.
However, Taiwanese politicians could still learn from Obama’s goal of creating jobs.
Translated by Kyle Jeffcoat
Former president Ma Ying-jeou (馬英九) in recent days was the focus of the media due to his role in arranging a Chinese “student” group to visit Taiwan. While his team defends the visit as friendly, civilized and apolitical, the general impression is that it was a political stunt orchestrated as part of Chinese Communist Party (CCP) propaganda, as its members were mainly young communists or university graduates who speak of a future of a unified country. While Ma lived in Taiwan almost his entire life — except during his early childhood in Hong Kong and student years in the US —
Prior to marrying a Taiwanese and moving to Taiwan, a Chinese woman, surnamed Zhang (張), used her elder sister’s identity to deceive Chinese officials and obtain a resident identity card in China. After marrying a Taiwanese, surnamed Chen (陳) and applying to move to Taiwan, Zhang continued to impersonate her sister to obtain a Republic of China ID card. She used the false identity in Taiwan for 18 years. However, a judge ruled that her case does not constitute forgery and acquitted her. Does this mean that — as long as a sibling agrees — people can impersonate others to alter, forge
Chinese Nationalist Party (KMT) lawmakers on Monday unilaterally passed a preliminary review of proposed amendments to the Public Officers Election and Recall Act (公職人員選罷法) in just one minute, while Democratic Progressive Party (DPP) legislators, government officials and the media were locked out. The hasty and discourteous move — the doors of the Internal Administration Committee chamber were locked and sealed with plastic wrap before the preliminary review meeting began — was a great setback for Taiwan’s democracy. Without any legislative discussion or public witnesses, KMT Legislator Hsu Hsin-ying (徐欣瑩), the committee’s convener, began the meeting at 9am and announced passage of the
In response to a failure to understand the “good intentions” behind the use of the term “motherland,” a professor from China’s Fudan University recklessly claimed that Taiwan used to be a colony, so all it needs is a “good beating.” Such logic is risible. The Central Plains people in China were once colonized by the Mongolians, the Manchus and other foreign peoples — does that mean they also deserve a “good beating?” According to the professor, having been ruled by the Cheng Dynasty — named after its founder, Ming-loyalist Cheng Cheng-kung (鄭成功, also known as Koxinga) — as the Kingdom of Tungning,
RSS