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
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of