Eric Schmidt’s Economic Forecast Misses Key Point


eric schmidt barack obama.jpg
Eric Schmidt has a somewhat optimistic short op-ed in today’s New York Times, “Back Online by 2010,” on the economy and when it might rebound.
He thinks that bargain hunters need to have their acquisitions of deflated assets in hand before things begin to bounce back mid-2010. Fine. But this won’t drive growth and won’t solve the “collapse of consumption” problem we have seen in this dramatic recession.
Schmidt writes:

There are, however, steps that need to be taken to speed up the process — getting credit flowing again, taking action to create jobs, repairing our broken infrastructure and increased transparency to ensure we measure the effectiveness of the dollars we spend. And the good news is that Congress and the president are pressing ahead in the knowledge that to stand still is no solution at all.
The result, I hope, will be that by the late summer our economy will start to show signs of life, with a slowing rate of economic contraction and small but noticeable upticks in areas like auto sales and real estate.
By the end of the year, we may see some growth, with gains in employment to follow a few months later. In early to mid-2010, as banks recover and begin to lend, we should see further progress with consumers taking advantage of the once-in-a-lifetime economic opportunities emerging from this historic collapse. After all, Americans love a bargain.

I hope Schmidt is right. I would love nothing more than this financial contraction to bounce back to some normality a little over a year from now.
But I don’t believe that the level of financial deleveraging we are seeing now can be turned around with quick fixes — but let’s say that much of Eric Schmidt’s forecast is on target. What will drive growth?
Our equation since the late 1990s is to encourage American consumers to spend more than they had. When 9/11 occurred, George Bush asked that Americans go out and “spend” and assured them that this was the way to keep the U.S. strong.
Global growth has depended on American consumers overconsuming and underproducing — while surplus economies like China, Japan and Germany wired their economies to grow by feeding the avaricious and under-resourced American economy. This was a macro-bubble that depended on fast growing economies loaning Americans the money to consume their products.
I think that Eric Schmidt is missing the vital need to get China, Japan and Germany to reorient a significant portion of their economic plans toward domestic consumption. They will, of course, continue to be strong export economies — and America will continue to import much, but we can’t keep up the level of imbalance that has characterized what we have seen over the last decade.
Eric Schmidt, one of those Obama listens to, needs to make sure that as the CEO of a global firm worried about achieving globally healthy commerce and trade, he needs to add to his equation the need to rebalance global growth — particularly as we tilt towards the April 2nd G20 Summit in London.
(Truth in advertising. Eric Schmidt, CEO of Google, is Chairman of the Board of Directors of the New America Foundation where I work.)
— Steve Clemons


15 comments on “Eric Schmidt’s Economic Forecast Misses Key Point

  1. Mr.Murder says:

    By the way, four hundred dollars a share stock is bullshit. If the POTUS were to have the SEC put the screws to Google a good portion of the market and its accompnaied GDP would also vanish….


  2. Mr.Murder says:

    Siverlado, it’s what’s for dinner.
    You people let them back at the controls after GHWB already proved how incompetent they were with your money.
    Now let’s have John Q. Public pay for it(again).
    Is our children learning?


  3. TonyForesta says:

    “There is nothing I detest more, than the stench of lies”
    FAILED institutions, manage by FAILED executives, pimping and bruting FAILED models, (ponzi scheme’s) policed by collusionary and FAILED regulators, and deceptively sanctioned by FAILED ratings agencies are doomed to FAIL!!!!
    It is a lie to pretend that these cronies, cabals, oligarchs, and predator class criminals will one day majikally heal themselve and shapeshift into leaders with compassion, some element of basic ethics, and reject lying to, manipulating, colluding against, robbing, pillaging, dismissing, disdaining, and ultimately heaping all the costs, debts, deficits, and burdens on poor and middle class Americans.
    How is it possible that the same management teams of all these many FAILED institutions, that are supposedly toobigtofail, that pimped and bruted ponzi schemes, and refused to calculate risk into their base assumptions, that funnelled hundreds of billions of dollars into their individual offshore accounts, and who were and remain dependent on pliant and collusionary crony, or casino, or bandit capitalist regulatory and ratings agencies predator class cabals controlling those agencies, – are still employed. Why have they not been fired? Why are those responsible for conjuring, cloaking, profiting wantonly from, and exacerbating the ponzi schemes, and insider cronyism and collusion that caused the most severe economic crisis since the depression?
    Class warfare, will morph into real warfare, if the predator class is not checked, balanced, and forced to recongnize and burden their fair share of the pain, suffering, and losses that are punishing poor and middle class Americans who never benefited in anyway from the bubbles-r-us, irredeemable debt, ponzi scheme economies the predator class conjured.
    Optimism is elusive in this environment. There is no prettifying this horrorshow, and painting lipstick on this pig Optimism can be found in a future of real CHANGE, wherein all the oldworld FAILED leadership, and FAILED institutions, and FAILED crony, casino, or bandit capitalist iredeemable debt economic models, are rejected and removed. New leaders managing new institutions adopting new more equitable, more balanced, more ethical, more LEGAL, more forcefully monitored and regulated economic models and policies must take over the FAILED institutions, leadership of models of the oldword financial system.
    The predator class bondholders, and shareholders must take the hits, and the losses, and play by the same rules and laws as poor and middle class Americans who lack the resources to bribe, coerce, or swindle politicians.
    Bailing out FAILED insitutions, maintaining the same FAILED management team, and FAILING to remedy or alter the FAILED models is a process that is glaringly obviously stupid and doomed to FAIL!!!
    The idea that 99% of the earths human beings are expected to suffer and burden the terrible imponderable costs, debts, deprivations, and losses so the predator class 1% can maintain their Olympian status, hyperluxurious lifestyles, and trillions of illgotten dollars in their offshore accounts is nefarious.
    Many of the downtrodden 99% are ignorant, injured, or week and will walk obediently to the ovens, – but not all us. There will be blood, and a reckoning, and a balancing.


  4. Dan Kervick says:

    …, your concerns are valid. National leaders don’t take much of an interest in global affairs unless they have skin in the game. Even then, it is hard for them to rise above their day-to-day political needs. All I can say is that they better *get* interested fast. Because they *do* have skin in the game, and unless they begin to address the global scope of this crisis in an coordinated and efficient way, each and every one of them is going to be swept from office during the next round of elections. And in some countries, their extraction from office might be somewhat less orderly and peaceful than typically occurs by electoral means.
    And you are right about the American aversion to foreign leaders and nations playing a role in US affairs. That’s from an unhealthy combination of traditional American isolationism along with triumphalist post-WWII and and post-Cold War snobbery. Well too bad. Reactionary right-wing nationalism and liberal exceptionalistic nationalism are bad national policy in the world as it exists. US leaders better start doing a better job communicating to their constituencies the global nature of the crisis, and educating those constituents or they are soon going to find those constituents impoverished, stupid, angry and confused, and looking for someone to blame.
    We’re at a cusp in world history. A new order is being born, one way or another. These guys can either get out ahead of events, or end up on their bellies in the middle of the road with tank treads down their backs.
    They need to start thinking big. Think Bretton Woods, but bigger.


  5. ... says:

    since when have local politicians been interested in global concerns? only in so far as they think they can win votes locally would they contemplate something broader then the boundaries of their own country.. most of them are too busy dealing with local problems anyway… jobs and jobs and more bs like that.. i call it bs because all the money just goes to fund mortgages( the banks need to be supported!) with anything left over meant to be directed to rampant mindless consumption..
    dan kervick quote “Will some bold leader step forward to seize the day and preach the gospel of a new global economic order?”
    how many americans would accept a bold leader from any country other then the usa?? american culture has been indoctrinated into thinking ‘patriotism’ is all important.. instead of thinking globally they have been encouraged to think the exact opposite.. another example is in bush and gang trashing the un… it seems to have worked in dumbing down a lot of americans on the need for such institutions.. i doubt the usa is much different then a lot of countries, however..
    teaching people to think globally while building up war machines doesn’t really seem all that honest don’t you think??? it is fun to hold a high view of ourselves in spite of the reality…
    schmidt sounds like an economic’s fun to listen to those folks who are optimistic, but i think there are many other voices worth listening to economically.. the shills for the market speak in a similar optimistic way and look where the market is today… it spells bs most of the time..


  6. Dan Kervick says:

    I’m anxious to see what global policies, if any, begin to take shape as we head into the G-20 meeting in April.
    So far, no global leader that I can see has managed to break through the ceiling of fear and national retrenchment that is holding down global restructuring, and the international organization of capital and governing power that will be necessary to rebuild the international financial system. They are all too afraid to tell their people that the ongoing train wreck is much more global than anything we have seen before, and that the fates of their respective nations will likely elude local national policies, no matter how dramatic.
    How much easier it is to believe that if we just insulate ourselves and attend to our own gardens, all will get better. How annoying it is to learn that economic collapse in Eastern Europe might be just as important to us as the devastation of the housing market in San Diego county. How daunting to contemplate how far beyond our borders the rational triage and bailout of financial institutions might need to extend.
    Will some bold leader step forward to seize the day and preach the gospel of a new global economic order?
    There is some challenging sequencing facing the leadership here in the United States. On the one hand, there is a need to be bold and expand the national discussion to take in global concerns. This is very difficult in a country still wracked by xenophobia and introversion on both the right and left, and addicted to patriotic pablum. On the other hand, there is probably a feeling among many both here and abroad that if the flagship of free markets and global capitalism starts talking about radical structural change, that will be the starting gun for all political and economic hell to break loose. What happens in the formerly communist nations of Europe when its citizens read in the paper that the postwar patron nation of global capitalism is nationalizing banks?


  7. rich says:

    Leaving aside the amorphous Mr. Schmidt,
    I agree that the transnational metabolism of trade and finance needs to be rebalanced. “[S]urplus economies like China, Japan and Germany wired their economies to grow by feeding the avaricious and under-resourced American economy,” and that export model can’t continue and was never sustainable.
    If Steve means per capita German/ Chinese/ Japanese consumption must rise to sustain the profits to which various corporations have become accustomed, he’s mistaken.
    Yes, there is a vital need to re-orient export economies. But raising global per-consumption to American levels isn’t sustainable–and Americans are headed in the other direction. Instead, there’ll be a continued move away from mass production processes that employ few people but overwhelm demand. The less our rapidly-eroding wages are gobbled up by car, mortgage, and tuition payments, the better off we’ll all be.


  8. WigWag says:

    Steve Clemons is right about two things:
    (1)As smart and public spirited as he might be, Erich Schmidt is far too optimistic about when the economy will recover. Given the timidity of Barack Obama, this recession/depression could last a very long time.
    (2)China, Japan and Germany are partly responsible for the disequilibrium we’ve seen in the world economy over the past two decades. Unless they renounce their thrifty ways the world economy is likely to remain in a tail spin for a long time.
    The problem is that it’s going to take alot more than jawboning from the United States to get these three nations to start to consume at levels appropriate to their wealth.
    Frugality is hardwired into their DNA. Japan and China come from the Confucian tradition where thrift is considered to be highly virtuous. Besides, these countries have vivid memories of the poverty they faced during and after World War II which exacerbate their desire to under consume. Germans are haunted by the hyperinflation of the Weimer days; as a result, expansionary monetary and fiscal policies are an anathema to them too.
    Obama’s response to this has been far too feckless and timid. The net result is that we are going to experience a very lengthy downturn.
    The entire non-profit sector (including the New America Foundation) is at grave risk. Fundraising from wealthy individuals will dry up if the stock market continues to fall. Foundation giving (which the New America Foundation is very dependant on) will fall dramatically if the endowments of those foundations continue to plunge.
    I’m afraid that when it comes to the economic downturn, we haven’t seen anything yet.
    What will it take for President Obama to wake up?


  9. DavidT says:

    Interesting piece Steve. Glad you are doing your best to focus on policies more than people. Also gutsy of you to reference one of our putative bosses in a mildly critical way.
    Wonder what you think we can do to encourage more consumption from the Chinese. If we could reduce our dependence on their savings (a reason at the moment we might wish to be careful about greatly increasing their consumption), what could we do along these lines? Thoughts you might share?
    Thanks as always for your blog and the spirit with which you accept comments, not all of which are supremely kind :).


  10. The Harvard Bubble says:

    How is the Harvard U endowment doing Larry? Scmidt might want to listen to Ann Pettifor. Time for some realism.


  11. JohnH says:

    Steve is asking exactly the right question: “What will drive growth?”
    Fact is, housing led the US out of every recession since WWII. That won’t happend this time around, because Greenspan intentionally overstimulated housing last time around to keep US economic growth positive at all. Now what?
    Until the US starts exporting more and those dependent on the US market to drive their economies start consuming more themselves, there will be no lasting recovery. And that is where the rubber meets the road.
    For any recovery to last, the dollar must be substantially devalued. And as the dollar declines along with the importance of the American market, American power and influence will accompany them on their downward journey.


  12. Matt says:

    Here’s a good blog for keeping track of this problem:
    China Financial Markets


  13. Spunkmeyer says:

    As Chicagoan clearly and rightly points out, Schmidt’s “hope” is just
    that — a hope, completely contradicted by the empirical data. My
    opinion of Eric Schmidt’s judgement just took a serious notch


  14. Dan Kervick says:

    What do you think of Jeffrey Sachs’s proposal. He suggest the global recovery should be lead not by stimulating domestic consumption, either here or abroad, but by a global campaign of government spending on public investing financed by long-term loans (40 years) from wealthy, savings-rich countries to poorer ones.
    A key paragraph:
    “Japan, with a surplus of saving, a strong currency, massive foreign exchange reserves, and factories without domestic orders, should take the lead in providing this funding for infrastructure. Moreover, Japan can boost its own economy and those of the poorest countries by directing its own industrial production to the infrastructure needs of the developing world.”
    As for your idea of re-orienting economies of Germany, Japan and China toward higher domestic consumption, while presumably re-orienting our own toward higher savings and greater exports, do you know if Warren Buffet still supports his Import Certificates plan? Do economists think the plan is viable? The way I understand this plan is that amounts to a kind of cap-and-trade system on imports, producing strong incentives to focus production on products for export.


  15. Chicagoan says:

    I realize that someone in Schmidt’s position has something like an obligation to optimism: Even if he thinks so, it’s not a good idea for such a powerful businessman to tell the public it’s time to lay in guns and canned goods. But publishing something like this has a cost in credibility. Ambrose Evans-Pritchard wrote this in the Telegraph:
    “Factory output is collapsing at the fastest pace everywhere. The figures for the most recent month available are, year-on-year: Taiwan (-43pc), Ukraine (-34pc), Japan (-30pc), Singapore (-29pc), Hungary (-23pc), Sweden (-20pc), Korea (-19pc), Turkey (-18pc), Russia (-16pc), Spain (-15pc), Poland (-15pc), Brazil (-15pc), Italy (-14pc), Germany (-12pc), France (-11pc), US (-10pc) and Britain (-9pc). Norway sails blissfully on (+4pc). What do they drink up there?
    “This terrifying fall has been concentrated in the last five months. The job slaughter has barely begun. Social mayhem comes with a 12-month lag. By comparison, industrial output in core-Europe fell 2.8pc in 1930, 5.1pc in 1931 and 3.9pc in 1932, according to RBS.”
    Even if this ferocious collapse were somehow to be arrested by what the seemingly incompetent Summers and Geithner are proposing, catastrophic losses in home equity and equity investments have destroyed the retirement security of tens of millions of people. To suggest that in this global climate and coming after such searing losses even a tepid recovery would lead to a revival of American consumerism on anything like the scale to which we’ve been accustomed is absurd.


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