The following piece was written by Peter Morici, a professor at the Smith School of Business, University of Maryland School.

The economy added 103,000 jobs in December but that was disappointing after recent surges in retail sales and business spending. Simply too many dollars Americans spend go to imports but don’t return to buy U.S. exports, leaving too many Americans jobless, wages stagnant, and Federal and State governments with budget woes.

Thursday, analysts expect the Commerce Department to report the deficit on international trade in goods and services was $40.7 billion in November, up from $27 billion when the recovery began. This rising deficit subtracts from demand for U.S. products, just as stimulus spending and tax cuts add to it. The deficit is taxing growth and jobs creation, and the Obama Administration has not offered a credible policy to reduce it.

Jobs Creation

By the end of 2013, about 13 million private sector jobs must be added to bring unemployment down to 6 percent. Current policies are not creating conditions for 5 percent GDP growth that could be achieved and is necessary for businesses to hire 350,000 workers each month.

Since December 2009, the private sector has added 112,000 jobs per month, but most of those have been in government subsidized health care and social services, and temporary business services. Netting those out, core private sector jobs creation has been a meager 58,000 per month—that comes to 18 new jobs per county for more than 5000 job seekers per county.

During the early stages of an economic expansion, temporary jobs appear first but 18 months into the recovery, permanent, non-government subsidized jobs creation
should be accelerating. Instead, core private sector jobs were up only 60,000 in December.

Trade Deficit

Imports grew so much more rapidly than exports that the trade gap subtracted 1.7 percent from demand for U.S. goods and services and third quarter GDP.

But for the growing trade gap, GDP would have increased 4.3 percent instead of 2.6 percent. At that pace, unemployment would fall to about 7 percent by the end of 2013.

Oil and goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unacceptably high unemployment indefinitely.

Limits on offshore drilling and otherwise curtailing conventional energy supplies—premised on false assumptions about the immediate potential of electric cars and alternative energy sources—are making United States even more dependent on imported oil and more indebted to China and other overseas investors.

Detroit could build many more attractive and efficient gasoline-powered vehicles now, and a national policy to accelerate fleet replacement would spur growth and create jobs much more rapidly than investments in battery and electric technologies.

To keep Chinese products artificially inexpensive on U.S. store shelves, Beijing undervalues the yuan by 40 percent. It accomplishes this by printing yuan and selling those for dollars other currencies in foreign exchange markets. Annually, those purchases exceed $450 billion or 10 about percent of China’s and GDP 35 percent of its exports.

President Obama has pleaded with China to stop manipulating its currency, but Beijing shrewdly recognizes President Obama lacks the will to meaningfully counter Chinese mercantilism with strong, effective actions; hence, Beijing offers token gestures and cultivates political support among U.S. businesses like Caterpillar who lead in outsourcing jobs to China and profit from Chinese protectionism at the expense of American workers.

President Obama should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35 percent. That would neutralize China’s currency subsidies that steal U.S. factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

International Competition in Electric Vehicles: How the US Can Win

Speakers:
David Goldstein: President of the Electric Vehicle Association of Greater Washington, D.C.; Policy Analyst, OurEnergyPolicy.org; Washington Representative, Electric Vehicle Industry Association

Charles Garlow: Advisor, United States Environmental Protection Agency

When:

Thursday, June 24, 2010, 10:30 a.m. - Noon

Where:

Wiley Rein LLP, 1776 K Street NW, Main Conference Room (Street Level), Washington, DC

Background:

Every U.S. administration since the 1970′s has vowed to break our country’s addiction to oil.  The linchpin to achieving this goal is to find an alternative to oil in the transportation sector.  Electric vehicles might just be the answer.  They are more energy efficient, environmentally friendly and economical than their conventional counterparts, and all of the major auto manufacturers have announced plans to produce them starting next year.  Where does the U.S. currently stand on EV technology and deployment?  What are the major roadblocks?  Most importantly, how can U.S. manufacturers benefit from homegrown innovation by competitively implementing it with regard to electric vehicles?  Our speakers will offer their perspectives on these questions at our next forum.  Then, as we always do at the Forum, the floor will be open to all participants to comment and pose questions.  This promises to be a lively and instructive session.

Cost:

$20: CPA members

$40: non-members

Free:  Government employees and media

A complimentary breakfast buffet will be available beginning at 10 a.m.

Register online, or contact Linda Marshall ([email protected], 202-904-2474), or Sara Haimowitz ([email protected], 413-203-1410) for more information.

The CPA is a unique grass-roots coalition of agricultural, labor, and manufacturing interests.  The Issues Forum is non-profit, non-partisan, and open to all, members and non-members alike.  The Forum seeks to facilitate informed discussion of a wide range of public policy issues that impact American competitiveness. For more information on the CPA, visit htttp://www.prosperousamerica.org.

Energy is a top tier national security priority.  Not just to power light bulbs, cars and factories, which is important as I type on my computer in a well lit room.  But current account deficits and geopolitics.

Oil is now about $62 per barrel, down from the $145 high.  Oil producing countries tend to be unfriendly to the U.S.  But, like us, they overextend when times are good and then get hammered.

After all, it was the collapse of global oil prices in the early 1990s that brought down the Soviet Union. And Iran today is looking very Soviet to me.

As Vladimir Mau, president of Russia’s Academy of National Economy, pointed out to me, it was the long period of high oil prices followed by sharply lower oil prices that killed the Soviet Union. The spike in oil prices in the 1970s deluded the Kremlin into overextending subsidies at home and invading Afghanistan abroad — and then the collapse in prices in the ‘80s helped bring down that overextended empire.

Thomas Friedman outlines more examples in a column today.

[T]his was exactly what happened to the shah of Iran: 1) Sudden surge in oil prices. 2) Delusions of grandeur. 3) Sudden contraction of oil prices. 4) Dramatic downfall. 5) You’re toast.

Iran is a big worry these days.  But they have spent into the oil price rise, with enthusiasm.  But no more.

Have you seen the reports that Iran’s president, Mahmoud Ahmadinejad, is suffering from exhaustion? It’s probably because he is not sleeping at night. I know why. Watching oil prices fall from $147 a barrel to $57 is not like counting sheep. It’s the kind of thing that gives an Iranian autocrat bad dreams. …

Under Ahmadinejad, Iran’s mullahs have gone on a domestic subsidy binge — using oil money to cushion the prices of food, gasoline, mortgages and to create jobs — to buy off the Iranian people. But the one thing Ahmadinejad couldn’t buy was real economic growth. Iran today has 30 percent inflation, 11 percent unemployment and huge underemployment with thousands of young college grads, engineers and architects selling pizzas and driving taxis. And now with oil prices falling, Iran — just like the Soviet Union — is going to have to pull back spending across the board. Fasten your seat belts.

Energy is one third, typically, of our trade deficit.  We need to continue diversifying our sources for at least two reasons.  We should eliminate that part of our trade deficit as best we can.  And we can keep world oil prices low to weaken geopolitical rivals who cause global instability.

What if we took a piece of our defense budget and dedicated it to alternative and home grown energy designed to keep oil at less than $50 or $70 or whatever.  Would that provide more geopolitical bang for the buck?

This WSJ editorial blurb spurred my thinking:

On the other hand, global economic distress doesn’t invariably work
at cross-purposes with American interests. Hugo Chávez’s nosedive
toward bankruptcy begins when oil dips below $80 a barrel, the price
where it hovers now. An identical logic, if perhaps at a different
price, applies to the petrodictatorships in Moscow and Tehran, which
already are heavily saddled with inflationary and investor-confidence
concerns. Russia will also likely burn through its $550 billion in
foreign-currency reserves faster than anticipated — a pleasing if
roundabout comeuppance for last summer’s Georgian adventure.

Does American energy independence equal effective marginalization of petrodictators?