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Ian Fletcher speaks about Ron Paul, the Great Recession, and America’s future

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Reposted from The Washington Times.  This is the third in a three part interview with Ian Fletcher, CPA’s Senior Economist.

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Ian Fletcher speaks about Ron Paul, the Great Recession, and America’s future

Joseph Cotto  |  The Washington Times  |  June 28, 2012

FLORIDA, June 28, 2012 — No matter how hard the federal government tries to stimulate the economy, the Great Recession always seems to win out in the end.

It has been nearly four years since the global financial crisis began, and we have yet to figure a way out of this mess. Is America doomed to a future that resembles the third world more and more each year? Something serious must be done to turn this trend around, needless to say, but what?

The Ron Paul movement has taken root inside of the Republican Party. Generally speaking, it promotes hardline libertarianism; something which has no use for ideas like trade protectionism. Will this political force permanently reshape the GOP? Should libertarianism be regarded as a viable philosophy for governing? Are abolishing the Federal Reserve and going back to the gold standard really good plans?

In this third and final part of our conversation, Ian Fletcher, the senior economist at the Coalition for a Prosperous America, shares his opinions on these pressing subjects. He also explains what motivated him to become such a strong advocate for fair trade policies.

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Joseph F. Cotto: One of the reasons that the American economy consistently fails to emerge from the Great Recession is that it produces a decreasing number of material goods. What would you say can be done to reinvigorate our manufacturing sector? Honestly, is this even possible now? 

Ian Fletcher: The single biggest thing we can do to restore the strength of American manufacturing is cut the trade deficit.  And yes, we can restore American manufacturing.  Those industries that have survived in this country have shown enormous productivity growth in recent years: it’s a myth that Americans can’t do these things well anymore.  And other nations with factory wages even higher than the U.S., like Germany, have booming manufacturing exports—you don’t have to be a cheap-labor economy to win at this game.  You do have to have a coherent national economic strategy, which is something the U.S. used to have.  Strategy has got to stop being a dirty word, like it’s Soviet-style central planning.

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Read also How far has America’s economy sunk? and What’s so free about free trade? Part one and two of Joseph Cotto’s interview with Ian Flectcher

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Cotto: Illegal immigration poses an astounding threat to America’s economy. Just a short time ago, President Obama signed a mini-DREAM Act of sorts which will allow an estimated 800,000 illegals to avoid deportation. What do you think that the ramifications of this will be?   

Fletcher: Immigration isn’t an issue I work on.

Cotto: Many political forecasters are saying that the future of the American center-right belongs to libertarians; specifically those of the Ron Paul variety. Do you share this view? Regardless, from your perspective, would the U.S. economy would fare well under strong libertarian influence?

No, I do not. Libertarians are a noisy minority in the Republican party but not even close to numerous enough to take it over.  Love of liberty is very much in the American grain, but libertarianism is something else: a philosophical cult that is superficially attractive on first glance but ends up disappointing most people when they realize all its weird implications, from crank economics to sexual libertinism to this odd “we’re not racists but people should be free to discriminate” position that Ron Paul has come under fire for. Libertarianism is like socialism: it attracts precocious teenagers but most people grow out of it as they get experience in real politics and see that you can’t reduce it all to one thing, not even freedom.

If all you mean by a “strong libertarian influence” is giving free markets and private property their due, then we’re there already and have been for a long time: this country is more free-market and private-property oriented than most other major economies. The results, the pluses and minuses, are all around us: we’re good at things that depend mostly on a strong private sector, but lag other nations in the provision of public goods. If you mean having the U.S. adopt libertarian crank ideas like abolishing the Fed or returning to the gold standard, then we’d be in for a rough ride.  The U.S. economy in the late 19th century, when we actually implemented such policies, was considerably poorer, nastier, and more volatile than what we have today.  The hard data is out there if you want to look.

Cotto: Now that our discussion is at its end, many readers are probably wondering exactly how it was that you came to be one of America’s foremost advocates for fair trade. Tell us a bit about your life and career.  

Fletcher: Well, I studied at the notoriously free-market University of Chicago, but they were actually fairly honest about the limits of free-market thinking, much more honest than some of the ideologues out there. They taught that there were all these anomalies in markets, that you couldn’t just believe in markets as a matter of faith, you had to have empirical evidence. So I was never an outright Kool-Aid drinker of free trade or any other form of free-market extremism.  Then I ended up, years later, as an economist in private practice, serving hedge fund operators, private equity guys et cetera, researching quirky outside-the-box stuff that other economists didn’t want to touch.  And I eventually got tired—this was before the crash—of helping people with too much money make even more.  About this time, I was also getting worried about the trade deficit, so I went looking for a book that would really put the idea of free trade on trial and let me decide if I supported it.  And there wasn’t one. So I decided to write it myself, and I found out that free trade really doesn’t stand up to serious scrutiny.

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Very few Americans, from my experience, think highly of free trade fundamentalism.

However, when push comes to shove during election season, the very people who should be speaking about trade deficits and anti-tariff legislation usually choose not to. Instead, we hear about antigay, antiabortion, and pro-creationism rallies.

Aside from the fact that these are all largely judicial issues, which mere congresspersons and senators have little control over, their presence detracts attention from far more practical concerns. Economic policy, along with national security strategies, are what really determine whether a nation succeeds or fails.

Hopefully, enough voters will acknowledge this glaring reality before their jobs, or the jobs of loved ones, are outsourced.

5 Responses to “Ian Fletcher speaks about Ron Paul, the Great Recession, and America’s future”

  1. Frank Shannon says:

    Fletcher’s 3rd segment of this interview is critical to anyone who is still a Republican. Knowing the internal struggle of the Republican Party is key to reforming it into the powerhouse it was at its formation in 1854.

    th

  2. Frank Shannon says:

    Fletcher’s 3rd segment of this interview is critical to anyone who is still a Republican. Knowing the internal struggle of the Republican Party is key to reforming it into the powerhouse it was at its formation in 1854.

    th

  3. Maggie says:

    Isn’t protection of private property “protectionism”?

  4. Shawn says:

    My understanding of libertarian free-trade theory comes from Ricardo’s comparative advantage, that trade imbalances self-corrects due to movement of gold but Ricardo lived in the time where central banks didn’t pervade almost every aspect of the economy. Ricardo may not have forseen how nations manipulate their currencies to gain an edge. Even if we return to the gold standard as Ron Paul wants and keep a free trade system, other countries will simply peg their currency to ours and change that peg whenever they feel like it.

    I do not paint all libertarians with a broad brush. The social libertarians (marijuana, guns, gay rights, etc) are one group but free-traders have hijacked the label to support de facto foreign mercantilism. We have to eject the free traders from that label so if a marijuana-rights person is asked if he’s a libertarian because they support free-trade, they can say,”Oh, I’m not THAT kind of fake libertarian!” Someone who supports free-trade should identify themselves as a free-trader instead of some more benign shield of liberty.

    If arguing with libertarians about free trade, please quote Ayn Rand herself on how we should deal with non-democracies:

    http://aynrandlexicon.com/lexicon/foreign_policy.html

    PLAYBOY: What about force in foreign policy? You have said that any free nation had the right to invade Nazi Germany during World War II . . .

    RAND: Certainly.

    PLAYBOY: . . . And that any free nation today has the moral right—though not the duty—to invade Soviet Russia, Cuba, or any other “slave pen.” Correct?

    RAND: Correct. A dictatorship — a country that violates the rights of its own citizens—is an outlaw and can claim no rights.

    PLAYBOY: Would you actively advocate that the United States invade Cuba or the Soviet Union?

    RAND: Not at present. I don’t think it’s necessary. I would advocate that which the Soviet Union fears above all else: economic boycott, I would advocate a blockade of Cuba and an economic boycott of Soviet Russia; and you would see both of those regimes collapse without the loss of a single American life.

    Apparently, the goddess o Libertarianism herself has no problem with restricting trade with hostile nations.

  5. Mo says:

    The problem is we don’t have free trade but managed trade where certain sectors benefit at the expense of others. Un-sound money along with managed trade agreements are the main distortions to trade. A trade deficit is not necessary a problem but the current trade deficit is a problem because of the horrendous terms of trade. When the US had sounder money from 1850-1900, average GDP growth was 3-4% a year and the US ran trade deficits because it incurred debt to import capital goods where it then used these imports to manufacture goods to pay back the debt. Today the US exports jobs, factories, technology and trades ownership of US companies to import consumer goods, and to fund overseas military bases and conflicts. This is like trading the cow for milk which is not good terms of trade.

    Even if the exchange rate with China is adjusted, what’s to stop a country from just selling the product below cost and then printing the money to subsidize their exporters under the current un-sound monetary system? The question then is why would a country in the first place want to sell a product below cost because that would be subsidizing consumers in the importing country. The reason countries do this is because with dollars they can buy up US companies with their capital. A possible solution to currency manipulation would be to prevent any countries that manipulate their currencies from buying up US assets if it was found to be the case. Also with US having the worlds reserve currency and it being overvalued according to many economists; why not just print money and buy all the high tech goods in the world that’s avaliable to make US industries the most productive?

    Only un-sound monetary policies can distort exchange rates and cause them to be either undervalued or overvalued and cause over-consumption. Hayek over 75 years ago described how economies devoted to too much consumption would lead to capital consumption and lower living standards. Countries with over-valued exchange rates would notice the emergence of “rust-belts” where there would be less domestic capital investment and increased imports of goods leading to deteriorating current account deficits as the economy became more services oriented. In such an economy one should expect to witness an excessive expansion of the financial and service sectors along with delirious claims that the economy has now entered a “post-industrial” phase (1). A country with an over-valued exchange rate engaged in policies to artificially stimulate consumption would only accelerate this process. More than 80 years ago Bresciano-Turroni noted how a rapid and sustained monetary expansion could expand the financial sector (2):

    The increase in banking business was not the consequence of a more intense economic activity. The work was increased because the banks were overloaded with orders for buying and selling shares and foreign exchange, proceeding from the public which, in increasing numbers, took part in speculations on the Bourse. The banks did not help in the production of new wealth; but the same claims to wealth continually passed from hand to hand. (Bresciano-Turroni, The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany, John Dickens & Co LTD, 1968, p. 404).

    Notes:

    1.http://brookesnews.com/093011useconomy.html
    2.http://brookesnews.com/093011useconomy.html

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