Anchor Lisa Mullins speaks with BBC business correspondent Andrew Walker and Mauro Guillen, of the University of Pennsylvania's Wharton School, about international reaction to President-elect Obama's speech on the economy today.
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LISA MULLINS: For an international perspective now on President-elect Obama's economic plan we turn to two guests, BBC Business Correspondent Andrew Walker is based in London, and Mauro Guillen is a Professor of International Management at the University of Pennsylvania's Wharton School. I wonder if you would tell us first, your overall take on what Obama said today; the specifics, and then in general the message that you came through with--first, Andrew Walker in London.
ANDREW WALKER: Well, what really is strikingly new is the sheer scale of the deficit that the U.S. federal government is going to land itself with, and that may well make a useful contribution to generating a recovery. We won't know that for some time, but it's gonna leave us with some other more difficult questions to deal with further on down the road like just how on earth is the U.S. government going to borrow all this money. It's been very heavily reliant on, for example, Asian central banks as the ultimate lender over the course of the last decade or so. Are they gonna be willing to continue stepping up and providing the even larger sums of monies that are going to be needed? It's a big question.
MULLINS: Mauro Guillen, the answer to the question regarding the scale of the deficit and how the Obama Administration incoming is going to be dealing with that. Did you hear any, what you would consider, a sufficient answer to that today in Mr. Obama's remarks?
MAURO GUILLEN: Well, not really. I mean, he's essentially saying there's going to be a short on paying regarding the budgetary process, and some really tough choices are gonna be made. So I think there's a lot of question marks and that this is why I think the next two or three weeks are gonna be crucial in terms of, you know, watching and following the discussions in Congress as to exactly how, you know, the country's gonna pay for this stimulus package.
MULLINS: One of the things that many economists are saying is that this stimulus package is gonna have to be big enough to do two things; one reignite consumer demand for products that are made here in the United States and, secondly raise demand for products ready for export in places like China but now collecting dust on the shelves; this is surplus output. Did Barack Obama say anything today Andrew Walker, that would convince you that his plan will address both domestic and global economic woes?
WALKER: There was one point that he made which did strike me, which clearly does suggest his focus is on the domestic economy, was he talked about a lot of the new jobs that are going to be created by public sector spending rather than the spending specifically by consumers. But a lot of the new jobs are gonna be in areas which can't be outsourced, so he's clearly very sensitive to at least the idea that new spending might leak, if you like, into the wider outside world.
MULLINS: And this is where he was speaking about three million jobs that would not equate to another public works program. Mauro Guillen, what did you make of that?
GUILLEN: Well, I think the emphasis in the speech was certainly on the job market, and I actually believe that the job market holds the key to the resolution of the crisis in two respects. One is that if this is a consumer's economy we need people to have jobs so that they have, you know, money to spend. And then secondly, of course, we need the labor market to work very well because we cannot create the jobs in exactly the same industries or in the same areas as the jobs that we've had over the last ten or fifteen years. The U.S. economy needs to transform itself and shift people away from certain activities, especially, you know, distribution and trade towards new industries, for example, new technologies or infrastructure.
MULLINS: Was there more than just a recognition that something has to be done? I mean could you connect the dots for us, Andrew, with some of the proposals and whether or not they would have a direct impact on a market overseas. Or was it just simply a matter of confidence and confidence counting for a lot these days?
WALKER: Clearly a strong and viable American banking system is important for the health of financial systems around the world. I mean sure some of the specific spending programs that we will see coming out of this in terms of infrastructure and so forth, will predominantly be about American jobs. But tax cuts, things that benefit consumers just in terms of getting more money into their pockets, a lot of it will be spent on the products of American business but a lot of it will also be spent on imports.
MULLINS: And what do you say that, Mauro Guillen?
GUILLEN: Essentially, the additional spending that will take place here in the United States is going to help, you know, some economies from around the world export their way out of the problem in the sense that, you know, if there's more investments for example on broadband and Internet, well there's gonna be a lot of equipment that needs to sourced from Asia and from Mexico. This is just one example among several. The other important problem here, of course, is that the U.S. dollar continues to be the most important reserve currency, so it is extremely important for the well-functioning of the global economy that the U.S. banking system and the financial markets actually, you know, overcome the current turmoil. And that we start seeing the light at the end of the tunnel in terms of how the system is going to be, you know, reorganized and how the financial system is going to be regulated from now on.
MULLINS: If you can both imagine yourselves in a position to either encourage or discourage your foreign nation to invest in the United States, or to continue to finance U.S. debt, would this speech have convinced you positively or negatively? Andrew?
WALKER: I think on balance positively. It's very clear that President-elect Obama has got a lot of ideas about what to do about the U.S. economic problem. Lots of other countries have got problems so, you know, frankly there must be questions. For example, here in the UK we've got a big expansion of the government's deficit so there are some investors beginning to become a little bit wary about investing in British government debt. The same problem applies to some extent to the United States, but I think the fact that the President-elect has some clear vision, I think, suggests at least some possibility that in the medium turn, next year or the year after, the U.S. economy beginning to make some sort of reasonable recovery which will make it a somewhat more attractive place to invest in.
MULLINS: Mauro Guillen would you be looking toward the United States with a favorable view if your nation were looking to possibly invest?
GUILLEN: Absolutely, and not only because of what President-elect Obama had to say today, but most importantly because I think everybody is expecting the U.S. economy to be the first that comes out of this recession, out of this problem. And why is that expectation there? Well, for two reasons. First of all, it was the very first economy that went into the problem that started the whole, you know, crisis. And then secondly because it is the most flexible economy in the world, and specifically the labor market, and I would also say the financial markets are pretty flexible. So, that reallocation of resources that I was talking about earlier, I think is gonna take place much more rapidly. And it's going to be much more pervasive in the U.S. than anywhere else in the world.
MULLINS: Well, all eyes on the incoming Administration and, in fact, the regulators in Washington. Mauro Guillen, Professor of International Management at Wharton Business School, and BBC Business Correspondent Andrew Walker, based in London, with their reaction to Barack Obama's economic address at George Mason University today; nice to speak with you both.