Trade Deficit Drags on Growth, Jobs

NEW YORK (TheStreet) -- Friday, the U.S. Commerce Department is expected to report the deficit on international trade in goods and services was $49.3 billion in April, down from $51.8 billion in March.

The $600 billion annual deficit is the most significant barrier to achieving a robust economic recovery and adequate jobs creation; oil and consumer goods from China account for virtually the entire problem.

Economists agree the pace of economic recovery has disappointed, because of weak demand for what Americans make. Consumers are spending; however, every dollar that goes abroad to purchase oil or Chinese consumer goods, and does not return to purchase U.S. exports, is lost demand that could be creating American jobs.

Jobs Creation

In the first quarter, the economy added only 226,000 jobs per month, but the pace slowed to 77,000 in April and only 69,000 in May; whereas, 362,000 jobs must be created each month for three years to bring unemployment down to 6%. Growth of at least 4% to 5% a year is needed to accomplish that.

Budget deficits after a major crisis, like the 2008 financial collapse, can be like an opiate Initially, those boost employment and make most folks feel better, but if underlying structural problems go resolved deficits become addictive -- the economy collapses without them.

Nearly all the reduction in unemployment from 10% in October 2009 to 8.2% in May 2012 resulted from adults deciding to quit the labor force altogether. The percentage of adults participating in the labor force has fallen from 65% to 63.8% -- representing 2.9 million more Americans neither working nor looking for a job.

It appears the most effective jobs program has to been to convince adults they don't need or want a job, and offer access to cheap or free health care for their kids if they sit on the sidelines.

Economic Growth

The economic recovery began five months after Barack Obama assumed the presidency, and GDP growth has averaged a disappointing 2.4% a year.

Barack Obama

This is in sharp contrast to Ronald Reagan's economic recovery. Like Obama, he inherited a deeply troubled economy, implemented radical measures to reorient the private sector, and accepted large budget deficits to get his plans in place. As Reagan campaigned for reelection, his post-Carter malaise economy grew at a 6% rate. That expansion set the stage for the Great Moderation -- two decades of stable, non-inflationary growth, which in time, erased the Regan deficits.

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