Fareed Zakaria gave his take on CNN this morning on Obama's compromise with Republicans on tax cuts and why China is leaving the United States in the dust.
President Barack Obama should have negotiated a more fiscally responsible deal with Republicans on extending tax cuts, analyst Fareed Zakaria says.
After insisting on the campaign trail in 2008 and through much of his first two years in office that extending tax cuts for high-income earners was irresponsible, Obama agreed to extend the Bush tax cuts for all Americans.
"Obama was exactly right to try and make a deal with the Republicans. But it does seem somewhat lopsided in that the Republicans got exactly what they wanted, which makes one wonder whether there was a better negotiating strategy that might have been adopted," Zakaria said. Read on...
Transcript from Fareed's Take in the clip above below the fold.
The best that can be said about Obama's compromise with the Republican Party on taxes is that it might not cause too much harm. The extension of unemployment benefits will keep putting money into the economy. There are some good provisions in the bill to encourage businesses to create jobs, but on the whole, a great chance has been lost to start putting America's fiscal house in order.
If we had repealed some part or the whole of the Bush tax cuts, it would have gone a long way toward reducing the structural budget deficit the United States has. And more importantly, what the bill does is to try one more time to encourage Americans to spend more money.
Now, we got into this mess because Americans borrowed and spent too much and now, we're trying to get out of it by borrowing and spending more. The Republican Party has come to power in the recent election by denouncing Keynesian economics, that is the government's effort to stimulate the economy, but it turns out they are actually as committed to Keynesian economics as the Democrats.
You see, John Maynard Keynes simply said that when businesses and consumers stop spending, the government has to step in. He advocated two kinds of government actions, public spending or tax cuts. The Republicans simply prefer the latter. In fact, the cost of their Keynesian bill is about the same as the cost of the Democrat's stimulus bill of 2009, $900 billion.
What no one is talking about as we add to the deficit by encouraging consumer spending is that the only path to long-term growth is to have consumers borrow less, get their balance sheets in order and for the economy to focus more on investments for the future in industries of the future.
And while we shy away from that kind of thinking about government funding, the fastest growing country in the world, China, has uses precisely this approach to achieve its extraordinary growth rates and now, China is moving to a whole new level. Reuters reports this week on a plan by the Chinese government to invest $1.5 trillion over the next five years in strategic industries.
Beijing wants China to move out of low wage manufacturing and has identified seven key areas where it wants to quadruple its output in five years. The targeted sectors are alternative energy, biotechnology, new generation information technology, high-end equipment manufacturing, advanced materials, alternative fuel and energy saving and environmentally-friendly technologies.
So, the Chinese will now move into these sophisticated industries while lending us the money, which we will use to give ourselves a tax break. Someone in Beijing is laughing.