One school of thought about the so-called jobless recovery of the American economy blames high unemployment on the federal deficit. But that's blaming the wrong deficit.
To achieve an authentic recovery that includes new jobs, the deficit we need to cut is in trade.
For 20 years, America's exports have been surpassed by its imports, with a big bite of that trade deficit composed of oil imports. Addressing the imbalance could have a huge effect on the job market, but only if it goes beyond reducing imports. We need to actively strengthen exports as well.
Even if the economic recovery continues, as is likely, joblessness will remain a colossal disaster. The unemployment rate is hovering at about 9%, and for some groups it is far higher. Nearly 16% of African Americans are unemployed, with young people and Latinos not far behind. The United States is about 19 million jobs behind the curve if employment is to return to its pre-recession levels. Among the world's most developed nations, the G-7, we have the highest unemployment. Here at the Levy Economics Institute, even in our best-case growth scenario, we see unemployment dropping only to about 7% — way above healthy levels — by 2015. We're not alone in that pessimism: The figures vary, but the prevailing outlook, including from the Federal Reserve, is that job-seekers face years of pain.
Exports are key to meeting the urgent need for new jobs. The White House estimates that every $1 billion in exports creates 5,000 jobs. This makes it crucial for companies to find more customers in the rest of the world.
In addition to aircraft and other transport vehicles, U.S. industrial equipment, pharmaceuticals, chemicals, semiconductors and agricultural products — raw and processed — have a track record of success in the global marketplace, along with millions of goods from medium-size and small companies.
There are things that could be done to help American exporters. A devaluation of the dollar beyond the current downward creep would be a start. A weaker dollar would reduce the cost of our exports in foreign markets, in turn generating demand from buyers abroad. It would also encourage American consumers to buy domestic products because our goods would have a price advantage over imported ones. And the resulting rise in exports would have a side benefit: reducing the national budget deficit, because GDP growth and lower unemployment would mean larger government revenues and less spending on safety-net programs.
Devaluation does have some downsides, of course. Over the long haul, it can cause inflation, but that is not an immediate danger because core inflation is currently at or near record lows. Still, consumers would probably be paying more in the short term for oil and other imports.
In the long term, international monetary reforms would certainly be a preferable route to devaluing the dollar. Global imbalances are on the G-20 radar screen, but a serious policy response has yet to be floated. One helpful monetary reform would be to expand Special Drawing Rights — artificial, blended currency units governed by the International Monetary Fund — as supplemental currency reserves. This could only be done by an accord among the G-20 countries. International agreements take time — the World Trade Organization's Doha talks will soon celebrate their 10th anniversary — so moving the dollar's exchange rate is a better short-term solution.
Even then, ramping up American exports will be difficult. The White House has set a goal of doubling exports over five years, but the current mania for spending cuts may work against that ambition. In the House of Representatives, the Small Business Committee has advocated rescinding $30 million in Small Business Administration grants to states for promoting exports and sharply cutting the SBA's Office of International Trade. These savings would be counter-
productive and would work against the nation's best interests.
It's true that our trade account balance has recently improved. The better figures, though, aren't a sign of healthy growth or an upcoming job surge. They reflect more a drop in imports rather than a growth in exports, and the drop has come because of less demand for goods in the recession's shadow and amid ongoing financial fears.
Exports are starting to rise. But making sure that the upward curve continues will be crucial to addressing our still-worrisome unemployment rate.
Dimitri B. Papadimitriou is president of the Levy Economics Institute of Bard College and a professor of economics there. He is a former vice chairman of Congress' Trade Deficit Review Commission.