By Paolo von Schirach
August 2, 2011
WASHINGTON – Whatever magic the August 2 Boehner-Reid-McConnell debt deal performed, it was not enough to sway Wall Street. As a way of celebrating Washington’s last minute compromise that avoided sovereign debt default, the markets tanked. The Dow Jones lost more than 250 points, closing well below the symbolic 12,000 mark. How so? Well, it seems that the markets are looking past the debt deal that changes nothing, focusing instead on a US economy so feeble that some are already talking about a possible relapse into recession, (1 in 3 chances, according to Larry Summers who used to run the economic policy shop at the White House).
A stalled US economy
Yes, it is true. While the basic dynamics of spending, deficits and borrowing need to be realigned, right now the most urgent issue is to rev up the economic engine. But this is going to be mighty difficult. Given the deficit and the mixed record (at best) of the Obama “stimulus package”, there is no appetite for more stimulus medicine. Besides, after all we have been through, who is going to propose, today, more stimulus that would require more borrowing?
The issue is de-leveraging, says Mohamed El-Erian of PIMCO
And so, how do you kick start this stalled American machinery? Well, according to the real experts, such as Mohamed El-Erian, CEO of Pimco, one of the largest bond traders in the world, it is really difficult, as the real drag on this economy is staggering consumer debt. Millions of Americans are trying to pay off massive amounts of debt incurred in the go-go years. They have no savings cushion. Their home equity vanished. They simply have no discretionary money to spend as they used to.
For a US economy driven by consumer spending, (75% of US GDP), this is a real problem. Paying off debts is a good thing. But this will mean less money for consumption and therefore no need to add to the jobs that produce the goods and services that feed consumption. Which is to say that until consumers are more financially healthy, demand for additional goods and services will stay weak. Hence weak demand, high unemployment and dismal growth.
Attracting entrepreneurs to America
In all this, can an additional supply of driven entrepreneurs spice up the mix, reigniting America’s dormant innovative spirits? Well, Alejandro Mayorkas, head of the US Citizenship and Immigration Services, a unit of the Department of Homeland Security, seems to think so. In an interview with The Wall Street Journal he outlined a new “entrepreneur visa” program, (EB-2), specifically aimed at super qualified foreigners who may want to start a business in the US, if the new business is deemed to be “in the national interest”.
Allowing Ph.D graduates to stay
This new program wants to address the problem of qualified foreigners who came to the US to get, for example, a Ph.D in computer science and, upon completion of their studies, are forced to leave the US because of visa restrictions. Now they will have a fast track to residency, (the coveted “green card”). By the same token, ordinary business visas, known as “H-1B” will be granted more liberally, not just on the basis of a job offer but based also on the employment offer of shareholders or corporate boards.
Good policy, good strategy
The intent of all this is clear: favor the immigration of smart people. And we should all welcome this. It will be now US policy to try and retain the talent of many qualified foreigners who can enrich America with their ideas, their innovative drive and their enterprise. If we look at America’s history, this is hardly a new concept. This country was built and strengthened by enterprising immigrants, starting with the early English colonists.
Yet, no immediate impact on growth and employment
Unfortunately, though, while this immigration policy shift makes perfect sense as a long term strategy, sending the right message to potentially tens of thousands of eminently qualified people who, if given a chance, would love to start a business in America, this will not affect short or medium term US economic growth. Unfortunately, it will not change next year’s unemployment figures. Until consumers will be able to consume again, do not expect much. De-leveraging will take a long time, as Mohamed El-Erian says. And, unlike the folks in Washington, when it comes to the economy, he knows what he is talking about.