Looking at the Candidates: Barak Obama Part II

This is part II of a series of posts regarding Barak Obama's economic plan. The introduction can be found here and Part I can be found here. In this note, I will focus on trade and manufacturing plans.

In reviewing the plans of for Trade and manufacturing, I found some interesting and not so interesting ideas. The most interesting to me is the idea focused around creating an alternative energy leadership position in the world. I think it was GE Energy's CEO who said that we the ability to create the most wind power in the world here in the United States. Personally, living in the northeast end of this country, I might agree given the weather this summer. The plan is to provide incentives to the industry (a fund in this case) that forces innovation in the alternative's universe. While forcing anything in a free market economy is normally useless, I think this might actually have some potential (as the government forced ethanol and that industry has grown).

On the other side of this trade and manufacturing ledger that I cannot agree with is renegotiating NAFTA. I think it is very important to have low to no trade barriers with our closest economic friends. Canada and Mexico are not the US but they provide means for the US to become more efficient. Overtime that will change and jobs will flow from one country to the other. In the meantime, the US takes the brunt of the job loss. Longer term, I think it makes the US stronger and creates better conditions of living as a result for its citizens. Also, going back on an agreement is not something we should be in the habit of doing. Lastly, Canada has enormous amounts of oil and energy products - by having an economic agreement with them, those flows will not be disrupted. they are an ally (along with Mexico). We should treat them both like such.

Before looking at the rest of the plan, lets look at the key points that Obama argues on the trade side (already mentioned NAFTA).

• Fight for Fair Trade into Foreign Markets
• Improve Transition assistance
• Penalize companies that send jobs overseas and reward those that keep them in the US

On the first point, Fair Trade into foreign markets, I cannot agree more on it. however, this is a global issue and our government has been fighting this issue for over 20 years. Maybe he can open up some countries with his diplomatic sway but I don't hold out much hope for this. As long as we are at war in Iraq, our global diplomacy power is less or weakened and that will slow down everything else.

Improving transition assistance is important. John McCain said last night that transition assistance in this country is based on the 1950's model of an economy. Perhaps. In any event, I think some sort of government/non government joint effort should be put forth here. While I am not too up to speed on this issue, the free market has a remarkable record of creating jobs. As a result, some sort of joint operation in this regard should be employed on the job and education side to get people back into the workforce as quickly as possible.

I touched on the last topic in Part I in regards to the tax side. As I said then, it is a ridiculous measure to employ. We live in an global economy. Our companies must take advantage of that. if they don't, they disappear and innovation is crushed. Giving gifts to those companies who are not globally sales oriented to start with (the second part of the note above) is just a waste of money. Why give Joe and Mary's Supermart a tax break for hiring local people?

In terms of the manufacturing side of the ledger here, Obama indicates the following

• Invest in next generation manufacturing and job creators
• Double funding for the manufacturing extension partnership
• Invest in a clean energy economy creating 5 million green jobs
• Create new job training for clean technologies
• Boost the renewable industry and create new jobs.

This is all about clean energy buildup (away from big oil) and new jobs. It appears he believes that funding on this side of the ledger will be the best way to lead the US into the rest of this century. While I agree this industry is growing, does it really need government interference? On one hand, more money into the industry may encourage much more innovation as the costs to alternative fuels are still higher than that of the established ones in crude and natural gas. On the other hand, if the industry is expecting government handouts, innovation will be slowed. I guess it is a catch 22. The idea is a good one. How to implement it on the other hand is a difficult one.

As for the manufacturing ideas, protecting an industry that really ebbs and flows with the US dollar, is something that is not wise. My guess is that they Dem's will call for a stronger dollar - this in turn will make our manufacturing industries less competitive. Giving incentives to this industry to keep jobs and invest in new technologies is admirable. however, if everyone can make the same widget, ultimately cost becomes an issue. Furthermore, you can bet that if the US companies are employing a very low cost manufacturing process, the international markets will find it too. thus, marginally, this plan is like swimming up a raging river - you get nowhere.

All told, Obama's plans are ambitious to some degree. It argues for moving tax incentives from one industry to another which is ok. creating new one and not eliminating old incentives is not ok because it implies more government involvement in the free market. this historically is a negative and I believe it will continue to be an negative. Let the private sector benefit where the inventive is needed and take it away from the sector that does not need it anymore. As for the other measures mentioned, NAFTA should be enhanced and improved - not renegotiated. Job training is very important and I would make this a top 3 issue. if everyone can be trained quicker for a new job, then the loss of one or two key sectors is not that big of a deal as we can just retrain those who suffered and get them back on their quicker.