It’s the Economy

As an administration’s term approaches its end, the media increasingly focuses on signature accomplishments and the president’s legacy. Usually, what turns out to be important is not what the administration thought or planned for when it took office – witness George W. Bush’s 9/11 and subsequent war initiatives as the prime example. Planning and proposing policies with the sole objective of creating a legacy, which the media tends to suggest is any administration’s prime motive, can be a huge mistake. The talk in President Obama’s case is that Obamacare will be his signature accomplishment. Given that we are only in the early implementation stage of the Affordable Care Act,  it is uncertain what its true impacts will be, and we may not know until well after President Obama has left office whether it qualifies as a legacy accomplishment or not.   So the question is what more can and should this administration do?

Improving the economy is still the biggest need, as it was from the day this administration took office.  Yet one is hard-pressed to point to signature accomplishments in this key area. Government spending has ballooned, yet few can identify where the money has gone or what the economic benefits have been. Government employment has declined since 2009 at both the federal and state levels. To be sure, there has been some recovery in private sector employment, but the gains have been slow and consist mostly of low-paying and part-time jobs. We still have not recovered all the jobs that were lost and hidden unemployment in terms of the number of discouraged workers and workers who are employed part-time but want full-time jobs remains unacceptably high. Economic growth has been, at best, modest. Congress has only added to our problems by engaging in petty wrangling, precipitating a government shutdown, and punting on fiscal issues and the debt ceiling, and the Federal Reserve was left with the task of dealing with the economy. This is not the stuff that contributes to legacy discussions.

But there are two policy areas that could prove bigger and more important than anything that has been done to date to get the economy growing and create jobs.  The party that takes these up could solidify a legacy and engineer a change in the political balance in Washington, possibly for decades to come. These two areas are energy and agricultural policies.

With regard to energy policy, the recent shale oil and gas discoveries have many far-reaching economic and political implications. The kinds of energy we are talking about, especially natural gas are green, and their extraction and use could set the standard for the world in terms of reducing greenhouse emissions while supporting economic growth. The oil being produced from these new discoveries is some of the sweetest in the world. These new, low-cost energy sources have already lowered domestic energy costs and promise to benefit all segments of our economy, especially consumers and businesses. We already have a competitive advantage over any other part of the world because of the recent natural gas discoveries. This advantage could be enhanced, not to mention the jobs that could be created, if progress were made on the Keystone Pipeline, just to mention one initiative.

But the benefits of access to low-cost natural gas extend far beyond just reduced energy costs and the associated jobs that might be created, because natural gas is a key input to all sorts of products, including plastics, paints, chemicals, fertilizers, insulation materials, glues, ammonia, and many others. Low natural gas prices mean lower input costs, enhanced international competitiveness, more secondary- and tertiary-industry job creation, and ultimately lower product prices to end users.

Natural gas is cheap now because it is abundant; and there are sufficient supplies, given current documented reserves, to last more than one hundred years, which makes expenditures on wind, solar, and corn ethanol production costly, with low immediate prospects for payoffs. Moreover, getting rid of subsidies for such sources can substantially improve the country’s fiscal balance. If it were not for current export restrictions, we could export not only natural gas but oil, and that would further improve our trade balance.

Finally, and most importantly, expanded energy policies would make the US politically independent from current oil producers, many of which are located in politically unstable and dangerous parts of the world. That independence would reduce other nations’ suspicions of our motives in our international dealings and be a real game changer for our position as a leader in the world.

The second area where we could accomplish many of the same benefits is the promotion of agricultural exports. The US is the most efficient producer of agricultural products in the world, and with lower energy input costs, our competitive advantage can only be further enhanced. We should be promoting free trade in agricultural products rather than paying farmers not to produce or supporting their product prices. Furthermore, there is no justification for continuing to use corn to produce fuel when corn could be used to help feed the rest of the world. Putting political efforts into relaxing international trade barriers and employing some of those farm subsidy dollars to promote and encourage agricultural exports would take billions off government expenditures, put farmers on a subsidy-free diet, and improve our trade balance.

Changes in our energy and agricultural trade and subsidy policies are the potential source of real political legacies, and right now these policies are low-hanging fruit for one of the two main political parties to seize upon. Such policies create lasting legacies that would be a shame to waste.

About Robert Eisenbeis 16 Articles

Affiliation: Cumberland Advisors

Dr. Robert A. Eisenbeis serves as Cumberland Advisors’ Chief Monetary Economist. In this capacity, he advises Cumberland’s asset managers on developments in US financial markets, the domestic economy and their implications for investment and trading strategies.

Dr. Eisenbeis was formerly Executive Vice-President and Director of Research at the Federal Reserve Bank of Atlanta, where he advised the bank’s president on monetary policy for FOMC deliberations and was in charge of basic research and policy analysis. Prior to that, he was the Wachovia Professor of Banking at the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. He has also held senior positions at the Federal Reserve Board and FDIC.

He is currently a member of the Shadow Financial Regulatory Committee and Financial Economist Roundtable and a fellow member of both the National Association of Business Economics and Wharton Financial Institutions Center. He holds a Ph.D. and M.S. degree from the University of Wisconsin and a B.S. degree from Brown University.

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