Estimates are that the US economy has actually slowed a bit since the initiation of the Federal Reserve Bank’s “quantitative easing” program (known as QE2) last November.
This leaves many economists puzzled. Why isn’t QE2 working? Clyde Prestowitz thinks he knows the answer.
Even with super-cheap money from the Fed, it still makes more sense for companies to make their investments overseas:
The incentives that tend to draw manufacturing out of the United States also operate to draw the provision of tradable services out as well. The off-shoring of financial back office operations, software programming, and even such advanced medical procedures as the reading of brain scans is well known and well advanced. It so happens that U.S. based manufacturing production has been losing share of the global export market (Ernest Preeg, MAPI) over the past decade, but dynamics are similar whether we are talking services, manufacturing, design, or R&D. They are all moving abroad.
That’s why the Fed is having difficulty creating jobs with its quantitative easing program. The lower interest rates it is fostering are not nearly enough to offset the incentives for off-shoring being offered by the likes of China, Singapore, France, and Israel.
Professional economists, especially macro-economists, don’t like to face up to this reality for two reasons. First, to do so would be to acknowledge that the win-win, free trade globalization theory which they have long embraced is seriously flawed. Second, facing up would require getting into the real nitty gritty of economic development and job creation. It would mean descending from the macro-economic Olympus to the actual fields of production and of service provision to determine in which America can compete and what policies are necessary to enable these industries to compete.
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