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Obama’s economic plan won’t fix the crisis

This article is over 12 years, 11 months old
Debates about protectionist policies miss the real problems of a deep recession, writes Sadie Robinson
Issue 2137

Barack Obama’s plan to save the US economy has been caught up in a growing panic among world leaders over protectionism.

The $819 billion scheme was passed in the House of Representatives last week and will be debated in the Senate this week.

The key elements of the plan are widespread tax cuts and funding for infrastructure projects – which Obama claims will create millions of jobs and stimulate economic growth.

The plan also includes a clause that would require companies engaged in the infrastructure projects to use US steel and iron rather than import them – the so-called “Buy American” clause.

It is this that has led to a debate over protectionism.

Union leaders in the US have backed the Buy American clause. Leo Gerard, the international president of the United Steelworkers union, says that workers have to be “economic patriots” in response to the recession.

But neither Obama’s plan nor the clause address the fundamental causes of the crisis – declining profitability and overproduction.

The constant drive for profit lies behind the housing and debt bubbles that were allowed to build up. It also lies behind the increase in speculation and trading in debt that triggered the credit crunch. This has now developed into a full-blown recession.

Governments have responded with various bailouts. All have failed and the recession has deepened.

According to the Federal Reserve, the US government has allocated a whopping $7.8 trillion in various bailouts and stimulus packages since December 2007 – around $3.3 trillion of which has already been spent.

This does not include Obama’s latest scheme.

But even if banks do increase their lending – which is not guaranteed – this will not solve the problem, as businesses will only invest if they are confident they can make profits.

What’s more, the US cannot insulate itself from the global economy. Protecting some jobs in the US steel industry can have a negative impact on industry in other countries, which then impacts back on the US.

The growing recession in China, for example, has meant that the Chinese government is becoming more dependent on exports and is limiting imports to try to protect its own economy.

This has provoked fear in the US ruling class. Obama’s treasury secretary Timothy Geithner has accused China of manipulating its currency, keeping it low to encourage exports.

Protectionist measures have been used in the past to try to save jobs.

They failed. The British government tried to limit imports in 1931, especially in industries such as coal, iron, steel, shipbuilding and textiles.

In 1929 there were around 2.3 million workers employed in these industries. After eight years of protectionist policies this had fallen to 1.8 million.

The rate of unemployment in these industries was double the average for the country.

The key factor behind workers losing their jobs was not how many imports were allowed into the country but the fact that the system was in recession.

The steel industry in the US today is in trouble because there is less demand for steel.

There are fewer cars being produced because the market for them has dried up. The problem is not steel imports – it is the recession.

At the same time as Obama introduces the latest bailout, his government is looking at how to use the second half of the $750 billion bailout that was passed late last year. Part of this will try to tackle the problem of bad debts in the financial system.

Geithner has said he is considering creating a “bad bank” to buy up these toxic assets, which some have estimated could cost over $1 trillion.

Again, there is no guarantee that this would have an impact on lending. And it would mean the US government taking on these debts – raising questions of how they will be paid for.

Obama has brought in several positive measures in his short time in office. He has signed three executive orders that give workers and trade unions in federal government more power.

And his Lilly Ledbetter Fair Pay Act makes it easier for workers to challenge pay discrimination.

These are all changes that should be welcomed.

But the question is – are any of them a solution to the crisis?

Unfortunately for the millions of Americans who are bearing the brunt of the recession, they are not.

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