Timothy L. Geithner, President-elect Obama's choice for Treasury, has a problem. He is not only a free-trade ideologue but he also failed to pay some of his taxes. The Senate hearing on his nomination, originally scheduled for today, was just postponed for a week, perhaps to give Obama time to find a replacement. If Obama were to pick a balanced-trader like Warren Buffett for Treasury, then America would immediately start to boom. Unfortunately, Obama has chosen to continue Bush's economic policy of stimulating the economy without balancing trade. This plan has failed twice and is about to fail a third time:
- February's $150 billion stimulus package actually hurt the economy because borrowing from abroad to finance stimulus packages causes the dollar to strengthen which causes American products to be more expensive in world markets which causes US manufacturers to lose market share in world markets. Although temporary jobs were created by the stimulus package, permanent jobs were lost in US manufacturing.
- October's $850 billion Wall Street bailout and stimulus package actually hurt the economy because borrowing from abroad to finance stimulus packages causes the dollar to strengthen which causes American products to be more expensive in world markets which causes US manufacturers to lose market share in world markets. Although temporary jobs were created by the stimulus package, permanent jobs were lost in US manufacturing.
- Obama's $1 trillion stimulus package will actually hurt the economy because borrowing from abroad to finance stimulus packages will cause the dollar to strengthen which will cause American products to be more expensive in world markets which will cause US manufacturers to lose market share in world markets. Although temporary jobs will be created by the stimulus package, permanent jobs will be lost in US manufacturing.
This is not rocket science. Doing the same thing again and again when it hasn't been working and expecting a different result is just dumb
The irony is that Obama campaigned on a program of "change." He claimed that he would do something about Chinese trade manipulations. He correctly claimed that McCain would just continue to repeat Bush's mistakes. Then as soon as he got elected, Obama decided to continue Bush's strategy!
Meanwhile, Republican commentators still don't have the faintest idea why Bush failed and why the Republicans have now lost the Presidency, the House, and the Senate. For example, in the commentary W's Mistakes: Ten that Hurt his Presidency, Richard Lowry attributes Bush's problems to lousy management style. Not one of the mistakes mentioned has anything to do with economics.
In a May 15 commentary, we summarized Bush's economic mistakes with the following words:
There are four major Republican economic ideas. Two of them work and two of them don't. Unfortunately, President Bush chose the two that don't work, and that is the reason for the current U.S. economic stagnation. These two Republican economic ideas work:
1. Reduce the size of U.S. government.
2. Cut business taxes.
These two Republican economic ideas don't work:
1. Cut capital gains taxes.
2. Welcome foreign investment that costs jobs.
It's time for America to start learning from its mistakes. There's no reason why Obama should be continuing Bush's disastrous strategy. Timothy Geithner's tax troubles give Obama a chance to get it right.
