No finagling at the top alone will restore the American economy. 75 percent of the economy is driven by the spending of ordinary consumers and they are frightened. Call it PTS and it will not be cured easily. The distribution of free booze and Prozac will jerk start spending again. That is the only quick fix that is possible.
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Business as usual would be a terrible solution
Bill George, author of "True North," professor of management at Harvard Business School and former chair and CEO of Medtronic
The U.S. economy is—and will continue to be—the world's largest, with the most open markets. But global firms, often based in the United States, are more aggressively expanding their export businesses and building their franchises outside the United States. This is the inevitable effect of slowing U.S. growth and the rapid growth of developing countries. CNN commentator Lou Dobbs and others call these shifts "outsourcing," painting them negatively. In fact, the strengthening of global companies—especially those making enormous investments overseas—is extremely good for the United States. The success of global giants like General Electric, IBM, Wal-Mart, Exxon, Boeing and Avon Products creates wealth that enables them to invest both overseas and in the United States.
They are creating high-paying jobs—"knowledge positions" in engineering, marketing and high-tech manufacturing. Left behind are the low-tech manufacturing workers, many of them unionized, whose jobs are being shifted overseas. But trying to constrain or to slow those shifts will weaken the ability of U.S. companies to compete on a global scale, and only accelerate the loss of jobs to rising powers like India and China. The United States needs to invest massive sums into educating knowledge workers and retraining employees so they can compete in the global economy.
If oil prices stay at or above their current level, they will accelerate another dramatic shift: the growing power of energy-producing nations—Russia, Nigeria, Venezuela and countries in the Middle East. They are gaining, while net energy importers (the United States, Japan and Europe) are losing economic power. Oil wealth has helped push nations away from democracy to centralized dictatorships and led to more corruption. When governments choose to hold oil and other commodities instead of the declining U.S. dollar, they contribute to the up-ward spiral in oil prices. At the same time, countries with favorable trade balances that lack their own energy resources are rapidly moving to secure the energy they need, again shifting U.S. dollars into oil and other commodities, further driving up prices.
How should the United States respond? The worst response would be to try to stem the flow of imports by restricting free trade, or to try to control global energy prices—a mission as futile as trying to control the value of the dollar. The next worst solution is the laissez-faire attitude of business as usual. Instead, the United States needs to launch an aggressive program of opening up new energy sources in North America for oil and gas while developing renewable sources. At the same time, we need to reduce energy demand through improved efficiency and become much more aggressive in increasing exports by unleashing U.S. innovation.
Could all this lead to a global recession?
Bart van Ark, chief economist of The Conference Board and professor of economics at the University of Groningen in the Netherlands
The international fallout of the crisis in U.S. financial markets has fueled concerns about a global recession. While financial volatility seems to have moderated, there is still substantial risk around the world. Credit spreads—the difference between riskier and safer debt—remain wide in the United States and Europe, and stocks in emerging-market countries are weak. Given the huge amount of global liquidity, simply preserving wealth continues to be a major preoccupation for investors.
Global inflation is another threat. The recent spikes in the price of oil, metals and food are at least partly related to the repackaging of futures contracts into exchange-traded funds, which are readily bought and sold like mutual funds, creating new liquidity. Such bubbles will ultimately burst or at least deflate. The process has begun: when the price of oil rose to $130 a barrel in late May, investors retreated and the price began a downward trend. Nevertheless, it may remain uncomfortably high, at around $100 a barrel, for some time. This will increase pressure on the United States to focus on greater energy efficiency and alternative energy sources—two new sources of growth.
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