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
The gutting of Voice of America (VOA) and Radio Free Asia (RFA) by US President Donald Trump’s administration poses a serious threat to the global voice of freedom, particularly for those living under authoritarian regimes such as China. The US — hailed as the model of liberal democracy — has the moral responsibility to uphold the values it champions. In undermining these institutions, the US risks diminishing its “soft power,” a pivotal pillar of its global influence. VOA Tibetan and RFA Tibetan played an enormous role in promoting the strong image of the US in and outside Tibet. On VOA Tibetan,
Sung Chien-liang (宋建樑), the leader of the Chinese Nationalist Party’s (KMT) efforts to recall Democratic Progressive Party (DPP) Legislator Lee Kun-cheng (李坤城), caused a national outrage and drew diplomatic condemnation on Tuesday after he arrived at the New Taipei City District Prosecutors’ Office dressed in a Nazi uniform. Sung performed a Nazi salute and carried a copy of Adolf Hitler’s Mein Kampf as he arrived to be questioned over allegations of signature forgery in the recall petition. The KMT’s response to the incident has shown a striking lack of contrition and decency. Rather than apologizing and distancing itself from Sung’s actions,
US President Trump weighed into the state of America’s semiconductor manufacturing when he declared, “They [Taiwan] stole it from us. They took it from us, and I don’t blame them. I give them credit.” At a prior White House event President Trump hosted TSMC chairman C.C. Wei (魏哲家), head of the world’s largest and most advanced chip manufacturer, to announce a commitment to invest US$100 billion in America. The president then shifted his previously critical rhetoric on Taiwan and put off tariffs on its chips. Now we learn that the Trump Administration is conducting a “trade investigation” on semiconductors which
By now, most of Taiwan has heard Taipei Mayor Chiang Wan-an’s (蔣萬安) threats to initiate a vote of no confidence against the Cabinet. His rationale is that the Democratic Progressive Party (DPP)-led government’s investigation into alleged signature forgery in the Chinese Nationalist Party’s (KMT) recall campaign constitutes “political persecution.” I sincerely hope he goes through with it. The opposition currently holds a majority in the Legislative Yuan, so the initiation of a no-confidence motion and its passage should be entirely within reach. If Chiang truly believes that the government is overreaching, abusing its power and targeting political opponents — then
RSS