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Saturday, January 31, 2009

A Productivity Based Economy is Needed

"We are a nation in search of an economy," the writer of Talking Points Memo blog post proclaimed. Over the last ten years U.S. economic growth has averaged 2.7 percent. BusinessWeek calculated that U.S. consumers ran up about "$3 trillion in excess borrowing and spending over the same period." In other words, the U.S. economy was based on consumption instead of productivity. The $10 trillion national debt is a good example.

BusinessWeek suggests that there are several things that can increase economic growth. The first thing that needs to happen is U.S. industries focusing on "generating more productivity gains at home." The U.S. needs less outsourcing and more manufacturing at home.

The second thing that needs to happen is investment from the federal government in "infrastructure, education and innovation rather than consumer spending."

Does the economic stimulus package passed by the House this week, contain funds for infrastructure, education and innovation? Let's start with infrastructure. The House bill provides $30 billion for highway construction. It provides $20 billion for renovating schools, and $5 billion for renovating and constructing public housing.

Now let's look at education. Over $140 billion in the House's bill goes toward education. Title I schools would receive $13 billion in two years, as would special education. The Head Start program would receive $2 billion, and the states would receive $79 billion so they can avoid lay-offs in education.

What about innovation? Research and development (R&D) would receive $16 billion: $9.9 billion for basic research, $3.4 billion for R&D facilities and equipment, $2.5 billion for science and technology related projects. Funding would have to distributed within 120 days.

Buy American plays role in stimulus plackage

The Senate stimulus bill contains a clause that would require using American made steel in all projects receiving funds. Although the clause has received much criticism, including from the European Union, Senator Sherrod Brown (D-OH) defended it saying, "It's pretty clear that American taxpayers want their tax dollars spent on projects where materials are made by Americans. I've seen across-the-board support -- with the exception of a few economists and a few newspaper publishers -- for 'made in America.' "

He added: "It is not a trade war for us to insist that products we use in this country are made in this country."

It certainly would be good news for the "Rust Belt" of America if the bill that is signed into law contains the "Buy American" clause.

For further reading:

Note to U.S. Multinationals: Be American, Produce in America

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