Categorized | Politics, Trade

What’s Romney Really Up To? Softball Nationalism

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on RedditDigg thisShare on StumbleUponBuffer this pagePin on PinterestShare on TumblrEmail this to someone

In my 2010 book “Free Trade Doesn’t Work,” I speculated that the following might occur:

Both political parties are feeling the heat of an intensifying global economic challenge to the U.S. and are looking for ways to take the pressure off their voters

Withdrawing from free trade (to an as yet undefined extent) is emerging as the consensus Democratic response, even if the party’s leadership doesn’t yet realize how deep are the forces driving this or how far it is likely to go.

The emerging Republican response seems to be keeping free trade while opposing immigration – which does not enlarge America’s shrinking economic pie, but does cut it into fewer slices per voter and is therefore politically salable.

The clearest sign of this emerging twin consensus was a pair of congressional votes: on the Central America Free Trade Agreement on July 27, 2005, and on immigration amnesty on June 28, 2007. Prior to these votes, American politics was aligned on roughly nationalist vs. internationalist lines, with pro-free-trade and pro-immigration views tending to coincide on one side and anti-free-trade and anti-immigration views on the other.

But these two votes revealed a majority of congressional Democrats embracing a pro-immigration, anti-free-trade position that may fairly be described as leftist, while a majority of congressional Republicans embraced an anti-immigration, pro-free-trade position that may fairly be described as rightist. The nationalist and internationalist positions now have few remaining supporters in either party.

Both parties are thus inexorably reverting to their natural partisan positions of offering competing left- and right-wing solutions to the same underlying problem. (Protectionism is intrinsically neither rightist nor leftist, but as long as Republicans remain free market-oriented, it is a left-of-center position in contemporary American politics.)

This firming of the ideological battle lines suggests that the trade issue may ultimately be resolved in a classic Left vs. Right firefight. This kind of transparent and accountable partisan choice is, of course, precisely the way democracy is supposed to work.

However, the trade issue has not yet fully crystallized in this way, so this process may well be aborted – most likely by the veto power of interest groups in each party – depriving the democratic process of a firm grip on the question. Or the debate could crystallize neatly along partisan lines but get bogged down in secondary issues, making other issues decisive for the electoral fortunes of the two parties. This could easily place a party in power whose trade position opposes what a majority of voters want.

I was wrong.

Instead of the Democrats turning against free trade and the Republicans turning against mass immigration, the Republican convention and platform reveal we’re getting something else.

The Democrats are plunging ahead with free trade and mass immigration both. Indeed, with Obama’s support of the Trans-Pacific Partnership and his partial amnesty by executive order, they’ve further upped the ante on both policies.

The Republicans have turned against illegal immigration, and appear reasonably serious about deporting millions of illegal aliens over time. And Romney has pledged to crack down on China’s currency manipulation. He has threatened the use of countervailing duties if necessary, a repudiation of free-trade purism which would upend currency manipulation more generally and thus significantly reduce America’s trade deficit.

So the Republicans have grabbed both horns of the anti-globalization agenda, rather than one horn going to each party in a left-right split.

But before economic nationalists rejoice, they should note that the price of this double enthusiasm has been an, er, lack of enthusiasm. Because while the Republican party and its present standard-bearer appear to be sincere in these positions, the positions they’ve actually taken are fairly tepid.

Immigration isn’t my issue, so I’m not going to comment on the merits of the Republican position per se. But the party’s proposal includes a guest-worker program. So what the Republican proposal amounts to is expelling illegal aliens and then taking back either the same or similar people, only this time within the ambit of the law.

From an economic standpoint, i.e. from the point of view of labor markets, this isn’t much of a change at all. It even preserves, for the convenience of employers, the reduced set of rights that non-citizen workers have – either because they’re illegal and afraid of being deported, or because they’re gastarbeiter and don’t have citizen rights any more than tourists or holders of student visas.

Of course, there’s some wiggle room here, depending on the relative number of guest workers admitted vs. illegal aliens deported. So maybe it’s not a quantitative wash after all. But barring a radical tilt in one direction or the other, this is a soft-nationalist policy, not a hard one.

On the currency manipulation side, retaliating against Chinese currency manipulation while not specifying what other supporting policies will or will not be applied, is also a fairly mild gesture. It could mean a whole lot, or not that much.

If, for example, America forces China to stop manipulating the dollar-yuan exchange rate, but does nothing about the backdoor protectionism and industry subsidies of China and other nations that run surpluses with the U.S, the effect on our deficit will be muted. Or if America responds to Chinese currency manipulation with countervailing duties, but these duties are too low to make a difference, again we will have pulled our punch.

Above all, currency manipulation is only one tool among many that mercantilist nations can use to manipulate their trade. We need to stop it, but doing so is not a panacea.

Furthermore, Romney has counterbalanced his promise of a crackdown on China with a promise to negotiate more free-trade agreements. So, as in the case of immigration, he’s playing nationalist softball, not hardball.

This mushiness and uncertainty in the Republican positions is maddening from the point of view of the voter. It’s a tease. The party is saying that it might give the voters two fairly big things the voters actually want, according to polls, but just how much is up for grabs.

Looked at one way, the Republican party is actually playing a fairly rational game. It’s offering voters just enough to entice them away from the other side, but no more. There are good reasons the party doesn’t want to go hard core on either immigration or trade, most of them being Republican vested interests that benefit from one or the other.

Before the readers asks – I believe the Republican pledges on both immigration and trade are probably sincere. For one thing, if the party were simply spinning lies to win votes, they could certainly gin up much more popular lies on these issues. Both positions have been hedged with the kind of equivocation that says “let’s not go too far on this, as we might actually have to live up to it if elected.”

I suspect the Republicans’ tactical embrace of these policies stems from the fact that significant sections of the Republican establishment are actually getting comfortable with them on the policy merits. It’s a lot easier for a political party to embrace something for political reasons when it feels it can accept the actual policy results.

It’s no secret that the business interests that fund – and feel entitled to control what they paid for – the Republican party – like cheap foreign labor. So they’ve pushed for mass immigration for years. A majority of House and Senate Republicans voted for the epoch-defining Hart-Celler immigration act of 1965. Ronald Reagan passed an amnesty in 1986. George W. Bush tried to in 2007. The anti-immigration Tom Tancredo wing of the party hasn’t been in control until fairly recently.

But I think these same business interests realize that, in an America where immigrants can actually become citizens and vote, they vote mostly Democratic, threatening the party’s electoral grip and thus its ability to deliver the rest of the business agenda, from low taxes on down.

So it’s a trade-off for Republican kingpins. More immigrants means more cheap labor, but also more immigrant votes.

For two decades now, they’ve tried various expedients to square that circle. But none has succeeded in getting enough immigrants to vote Republican to neutralize their political threat, and immigrant numbers continue to grow.

So business interests have flipped to the obvious alternative: admit cheap foreign labor on a guest-worker program without a path to citizenship and thus voting.

Similarly, Chinese currency manipulation was tolerated for a long time because it was part of the corrupt bargain Beijing has with the Fortune 500: tolerate our manifold abuses, from slave labor to theft of American technology, and you get to make lots of profits producing in China.

Trouble is, this bargain can’t go on forever. Eventually, China’s stripping of America’s industrial base starts to become a problem. For example, as China grows in technological sophistication, there grows the threat of China cutting out the Fortune 500 middlemen and just selling direct to the U.S.

Profits are nice, but not if the ultimate price is being shoved aside entirely by a Chinese company. The bottom line is that there’s a growing restiveness about China in corporate America. At the very least, they want China shown that America can stand up to it, if only to firm up their own bargaining position.

Why hasn’t this same logic had any traction on the Democratic side?

On immigration, the party sees mass immigration as a political plus, as it ceased to care about the native-born working class per se in the 1960s.

On trade, I’m not sure. As noted in the quote at the beginning of this article, I actually expected the Democrats to shift on trade, not the Republicans.

One key to my mistake was probably just overestimating the power of organized labor in the Democratic coalition. This power is real, but it’s mostly based on government-sector unions, whose workers don’t compete with imports, not the old industrial unions of yore.

Another possible explanation is simply that, as the party out of power, the Republicans know they have to offer something different to give the voters a reason to reject the incumbent. They know there are a limited number of things they can offer the voters, and they’re putting together the most generous package compatible with the need to possibly have to fulfill their promises if they’re elected.

If Romney actually gets elected, what will he do? My guess is, enough on both promises to avoid looking like he’s broken them, but no more.

If the election heats up on these issues, or the public warms to them in particular, he may double down his bet, at which point voters will need to ask if he’s outrun his sincere intentions.

Way the game is played, folks.

Ian Fletcher is senior economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously research fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of “Free Trade Doesn’t Work: What Should Replace It and Why.”

26 Responses to “What’s Romney Really Up To? Softball Nationalism”

  1. Dan DiFabio says:

    If Romney is elected,he would impose tariffs on Chinese goods.

  2. Frank Shannon says:

    Brilliant, excellent analysis, Ian

  3. Joe Brooks says:

    Mr Fletcher provides an excellent breakdown of the information made available to the Serfs, by the candidates.

    I must admit I was taken completely by surprise by Romney’s selection of Ryan as running mate.

    I understand that there has been a long concerted effort to turn the US away from our Founders, but I had no idea that the power brokers felt the US population was ready to embrace Eastern Civilization criminality over our long held Western Civilization values, morals and ethics.

    Ryan has been furiously backing away from his complete embrace of Objectivism for the last few months, but for 10 years he has said many times that Ayn Rand was totally correct in every aspect. Many Catholics are organizing to ascertain just where he really stands on this issue.

    Does this sound like American values?

    http://www.youtube.com/watch?v=1ooKsv_SX4Y&feature=related

  4. Tom T. says:

    Whether it be communism, socialism, crony capitalism, fascism or any other political ideology, there must be an underlying intellectual defense. Marx provided this, Hitler provided this, Mao provided this, and so have others who were vanquished from history by their fellow man. Ayn Rand provides a philosophy for the voluntary good will of people but denies the fact that many of these people have gained their wealth by breaking the rules that benefit society.

    Today we see that more than ever.

    In our trade discussion we see the Chinese undermining the economy of the United States with their mercantilism and the political elite benefiting from that arrangement because the self interests of a few are over riding the self interests of the many. These are the current rules our politicians have give us to play by in “free trade” which has been costly to the average family in the United States. It would seem that the philosophy that allows this, as espoused by Ayn Rand, becomes the same justifications that the above leaders have all employed to gain control over their fellow man for their self interests. Our founding fathers worried greatly about this and so gave us 3 branches of government with a division of power to make sure none obtained unstoppable power. I would argue that in some ways this type of tyrannical power has thwarted these protections. There is a reason why a great philosopher once said that the love of money (power) is the root of all evil. Those who abuse power always want a justification and it seems that Ayn Rand gives this by ignoring the tendency of power and self interests to corrupt. It would seem as though, by ignoring this law of human tendency, Ayn would support any abuse of power by those who have gained that power by whatever means. This rules out the objective realism our founding fathers had on the very nature of humans and their tendency to abuse power for themselves as was the tendency by the monarchs or dictators of the day.

    To allow one to rationalize themselves as the only judge of their actions negates the competing self interests of others. The strong walk all over the weak and steal their potential value because they can. There is no remedy or justice. There is only a rush by those lower in power to cater to the one(s) at the top of the power pyramid to strengthen their own position.

    None of this is American, nor a valid view of how to obtain the maximum human value (though it seems to be working for the Chinese elite and their oligarch partners around the world). It creates a sub par level of value whether it be in the economy as a whole or the sum of the value of all the people in society. Quite simply, it is a sub par existence that has been known throughout history that our founding fathers wanted to avoid.

    I did have a successful businessman and Tea Party advocate who seemed to rationalize their success and their disdain for taxes speak to me on this subject. He wanted no taxes yet he spoke little of the rightful position of the government in society. This as the balance sheet of the nation was growing incredibly worse and we were sending men and women to war to protect “his” way of life. This Ayn Rand objective realism was quickly countered by me saying, “So I get it, you want taxes to be voluntary?”. Taxes are the fee paid to have all the collective value that society offers. I wouldn’t trade that value here in the United States with any other country or system of government. I am still equally offended by the political elite’s irresponsibility in their judgments on the allocation of those resources and their inability to make and follow the rules, laws and actions that maximizes it.

    Ayn Rand self professes that her philosophical utopia of the absoluteness of self interest (objective realism) does not exist. It never has, and given the overwhelming evidence in history of human nature, never will. It will only be used to justify the tyranny of the few over the many. It is hard to be objective when your own self interests are calling the shots.

    Tom T.

    • Joe Brooks says:

      Excellent, Tom T. You may recall a similar analysis I made a few months ago, I use it in a slide show I give away.

      As an old engineer and “free trade” fighter, I probably am a little too blunt. Can I steal your stuff?

      • Tom T. says:

        Sure, this is a sharing site. Improve on it and educate others. Sadly, this was really the first time I was exposed to Ayn Rand so thanks for posting the link–you educated me through a first hand interview. I think one needs the source to make a cohesive argument for or against something (I thought Mike Wallace did a good interview) so it was very helpful.

        Tom T.

        • Joe Brooks says:

          Thanks, Tom

          I have studied Rand and Objectivism, closely and extensively. My conclusions would be considered severe, by most.

          Suffice it to say she was one quarter short of a college degree, when miraculously the USSR gave her a passport and let her emigrate to the US. This during the period when the USSR used barbed wire and machine guns to keep the highly educated and skilled in-country. She was a text book sociopath. A few minutes of research will shock you, I mean degenerate, repulsive.

          Btw, she collected Social Security and Medicare, at the end of her life, after denigrating those programs for decades.

          • Tom T. says:

            It sounds like her objective realism was a theory she did not practice.

            What is surprising is that there are so many people who are so interested in anyone who will validate them that they become subject to such philosophical nonsense.

            I don’t have a problem with philosophy to help a person see a different perspective, often one with some truth in it. What I do have a problem with is that there are some people who seemingly don’t think objectively about how real (or unreal) it is.

            Hitler was a master at feeding people’s ego to be able to control them. Goebbels was a master at spin. So was Stalin and many of the other totalitarian dictators. I think our founding fathers were the best objective realists in a literal sense because they actually learned human nature from history and from what was happening around them. They saw what man was capable of and wanted limits to protect themselves and others from the abuse of power it can lead to.

            Anyone using Ayn Rand to justify harming others or chipping away at the common good is either too incompetent or corrupt to govern. I don’t know where Paul Ryan’s philosophy on Ayn Rand’s influence but everyone has to grow up one day.

            By the way, I have been reading one of my kid’s college history book. Tariffs were used to help industrialize the United States over many, many years.

            Tom T.

          • Joe Brooks says:

            Tariffs were used, with a few hiccups 1789 to 1970, then again by Reagan.

    • Bruce Bishop says:

      Tom,

      You say: “Ayn Rand provides a philosophy for the voluntary good will of people but denies the fact that many of these people have gained their wealth by breaking the rules that benefit society.

      Today we see that more than ever.”

      Could you please provide an example of someone who has “gained their wealth by breaking the rules that benefit society?”

      Thanks,

      Bruce

      • Tom T. says:

        You could take my case, for one.

        You could also see the example in our trade policy. If you believe Bill Clinton (I am not so sure that I do– from his book) we are not enforcing the rules of trade and are thus in the mess we are in because of it.

        Walmart is notorious for running out competition by their geographical location strategy. They open a small but competitive store on one side of town to run all the businesses out of that side of town and then after that is accomplished, they put a larger store on the other side of town.

        Any company, including Apple, that uses what amounts to slave labor to get a lower cost of goods and higher profit margin does the same. Our laws on labor are supposed to prevent this type of abuse but they are ignored across borders.

        I just wrote a small quip replying to Krugman’s assertion of economic benefit that fits into the same theme:

        http://www.businessinsider.com/paul-krugman-on-the-iphone-5-2012-9#comment-504f6e72ecad04526300000f

        The whole advantage that corporations have attained in our economy by shipping jobs overseas yet keeping the domestic markets for those products is another example that theme.

        Lowering the effective rates of taxes for high income earners while maintaining a larger percent tax rate on lower income earners is another. I believe there is a place for making incentives to save and invest but those incentives should not be skewed towards the very rich because of definitions of income. For example, why not have low to no capital gains taxes on everything under the amount that SS taxes stop– about 105K per year? This would increase the incentive of regular Americans to save and invest but cut out the extraordinary benefit to the very very rich of not paying SS tax on most of their income (the present system undermines the stability of our balance sheet). The borrowing of SS tax surplus while no similar pool of the super-wealthy’s money is taxed and surreptitiously borroed (they even get offshore loopholes).

        At the base of this is the philosophical understanding of the golden rule. There are two golden rules:

        1) Do unto others as you would have them do unto you and,

        2) He who has the gold rules.

        They are diametrically opposed philosophies. One benefits those who have acquired the gold and the other benefits everyone in society and maximizes societal and economic value.

        On a side historical note, Machiavelli wrote of the rules that rulers must follow to continue their rule. Mary Antoinette, perhaps being misunderstood or just out of touch with the “Let them eat bread” attitude cost her and the monarch’s head.

        These monarchs were the personification of abuse of absolute power (along with others like Stalin, Mao, Hitler and others) and reaped the benefits of the second golden rule while their outrageous contempt to the first lost both their heads.

        Ayne Rand seems to embrace the selfishness of the show where Gordon Gecko exclaims and makes the case that “Greed is Good” while ignoring its ramifications that lead to ones own destruction when it is followed over the first golden rule.

        Tom T.

        • Bruce Bishop says:

          Tom,

          As much as I admire you for your efforts to organize your fellow producers, you presented a threat to a huge corporation (Tyson Foods). They believed they were within their rights to end the relationship with you; and the courts agreed. I understand your anger at Tyson, but they did what they had to do to eliminate a threat. If I had known you at the time, I would have tried to talk you out of it.

          I have worked for seven Fortune 500 companies, and I have never seen the “greed” that you see. In every case, it was a struggle to survive against an endless stream of threats.

          The attacks on Wal-Mart are the same sort of whining, by the same people, that I heard in the sixties, when the Independent Grocers Alliance (IGA) began opening tiny “supermarkets” in the South, thus driving out of business, hundreds of dirty, smelly, over-priced, limited-selection Mom & Pop stores that were often, unfortunately, the only-game-in-town. Then, in the seventies, it was the bigger outfits, like Kroger, Winn-Dixie, Houchens and Malone&Hyde, that drove some of the old IGAs out of business. Then, in the nineties, along comes Wal-Mart to “vindicate” all of those nasty little stores from the fifties and sixties, by driving out of business the “bullies” that had destroyed them. It’s called progress, which everyone is for except for the people who call themselves “progressives.”

          Incidentally, Wal-Mart pays better, has better benefits, has better working conditions, has more career opportunities and provides better job security than the “Mom&Pop” businesses they supposedly replaced.

          Gordon Gekko was a fictional character, created by liberals, to appeal to liberals and to continue the anti-business drumbeat that has helped to drive manufacturing out of this country.

          As to your invoking the “Golden Rule,” a critical element of the “progressive” left’s strategy to turn the U.S. into a socialist utopia is to drive out religion. I totally agree with your point, but bringing up religion will get you shunned by the elites.

          Bruce

          • Tom T. says:

            Bruce, I will leave your reference to my particular case to private email but I will answer the rest, however inconsistent your progressive views are on trade with your other rhetoric may be.

            I see Walmart and the other importers of Chinese goods the beneficiaries of our current trade policy that arbitrages away the bargaining power of the labor force. They did not amass the wealth they did by being stupid, but their actions did help reduce the demand from the labor markets culminating in a regression in relative economic earnings of labor vs. capital. In doing so, they have helped contribute to the malaise of our current economy. Blame is rather judgmental but the the facts remain the facts. I am happy to know that you are progressive enough to see trade as a problem in our current economy.

            Gordon Gecko was a fictional character but the destructive faults of his type of Wall Street greed lead us into the largest public bail out in the history of our country. These people use every means at their disposal to “win” with the current rules that enforcement of those rules allows. Gordon Gecko, in the movie, went to prison, something sore-fully missing with the lack of accountability of the recent bail outs. The Gordon Geckos of the world were able to catch their part of the income stream and for the most part have no accountability as to their actions. That lack of accountability and the blank check from the last administration goes counter to the accountability often a part of the republican party. I guess accountability depends on who you know in government. The underlying change of rules from the Glass-Steagall Act days to now was the reason for the failure to be as big as it was. Moral hazard was thrown out the window and moral hazard was what sold the change from the Glass-Steagall Act to the post G-S Act. I totally remember the arguments at the time which were put forward by Rep. Senator Phil Gramm in selling the “modernization”.

            The sad fact is that policy makers are being duped by the arguments of the Gordon Geckos of the world into changing the rules for them at the expense of the rest of society.

            As far as my use of the “golden rule”, it is the basis of almost every just law. Laws are enacted to prevent one person or group of persons from reaching beyond their interests into capturing another’s interests. The golden rule by the first century philosopher was a summation of the just intent of all the other laws. It requires one to not only see things from their perspective, but to see things from the perspective of those they are affecting. The world’s golden rule is the rule of tyrants. Mao, Hitler, Mussolini, and all the other dictators of history abused this rule. None of this really has to do with religion although it is part of the some of the greatest philosophers of the world.

            Whether this offends the elitea or not I do not care. Sometimes there needs to be a little truth to power for the sake of society as a whole so that society is not easily fooled into a tyrant’s world.

            Tom T.

          • Bruce Bishop says:

            Tom,

            Wal-Mart would be better off if we, as a nation, stopped importing cheap goods from China?

            If half of their sales ($200b) were Chinese imports, and they switched to U.S. made products, at triple the cost, this would take their sales from $400b to $800b — effectively doubling their sales. At their 3% profit margin, they would make an extra $12 billion in profits.

            The extra $400b in revenue would come from the 200 million Wal-Mart customers who would no longer save the average $2000/year by buying cheap Chinese products. That extra $400b would also represent the wages and benefits of 4 million new U.S. manufacturing jobs.

            Of course, if Wal-Mart was the only retailer to stop selling Chinese-made goods, they would quickly go out of business. At one time, Sears, JC Penney, K-Mart and a host of other companies were bigger than Wal-Mart. They all started selling Chinese-made products before Wal-Mart did. Wal-Mart passed them up and continues to grow because of a superior business strategy — not because they sell Chinese stuff.

          • Tom T. says:

            Bruce, sorry, but there was no reply button on your last post so this may be out of place in the discussion.

            Yes, I do understand that Walmart or any other major importer can not undertake trade policy by themselves as they have to compete with others who might not. This has to be a national policy where everyone must follow the same rules or some system like the one Buffet proposed (I really like his solution).

            Walmart and the other retailers using Chinese goods should have to pay all the taxes that would have been earned by all the U.S. workers who did not produce those goods (the 4 million you suggested, if I am following you). Yes, buyers of goods would pay more for their goods but we would get 4 million new manufacturing jobs. The 4 million jobs that are not there are an externality that Walmart is not paying.

            Yes, I know that it is because our politicians are incompetent with current policy, but economists look at trying to make externalities being tied back to those creating the costs on others. In this case it is the wages of 4 million jobs AND the taxes they would pay.

            I am not against Walmart making money or even more money than they currently are as long as their externalities are paid for by them. Currently they are not and neither are their competitors.

            Tom T.

          • Bruce Bishop says:

            Tom,

            I agree with you on Warren Buffett’s “balanced trade” solution. So far, it is the only idea I have heard that I think would work.

            As to forcing Wal-Mart to pay the taxes on the wages that are being lost to China, let’s assume 4 million jobs at $30k per job. The taxes would be about $6k per job, times 4 million = $24 billion. That would just about equal Wal-Mart’s annual profits in my simplified scenario. Since that plan would effectively “destroy” Wal-Mart, we will have to look for another villain. Should we not also force Wal-Mart to reimburse the government for unemployment benefits, food stamps, medicaid, job retraining and whatever else the government has been doing for those 4 million would-be factory workers? (I am not serious; I am just pointing out where your line of thinking would lead us.)

            There was no “reply” button on your last post either. I guess that is the webmaster’s way of telling us this thread is closed.

            Bruce

          • Tom T. says:

            Bruce, I am not looking to put Walmart out of business here, just to take care of the externalities. Walmart would have to pay these costs and so would everyone else who imports. That would mean either Buffet’s plan or tariffs on imports. I do think trade can be good but we need a competent government that manages it. Warren Buffet would be much more competent than the current crowd doing this job in is sleep.

            Our problem in this time in our economy is that we consume too much and produce too little ourselves compared to our trading partners. The free market solution would be to increase prices on foreign goods and stop taxing domestically producing industries to pay for the common good while excluding foreign goods from that taxing. We have the wrong policies.

            I am not “out for Walmart”, I just want the problem fixed even if the solutions mean thinking outside of the “box”.

            Trade can be a mutually beneficial thing for the people in all countries. Right now it seems to be good for the oligarchs who are able to transfer capital and goods across global lines and arbitrate labor to the lowest common denominator while creating huge costs to the people in their country. It doesn’t have to be that way.

            China has its monetary and fiscal policy all controlled by the same party and the same arms of the government. I have said that our problem can not be solved just by monetary policy but must include fiscal and trade policies. Our system is much harder to transform and China can do it on a pinhead. We are being outmaneuvered.

            Tom T.

  5. Jim Cochran says:

    Ian’s point is well made that there are Republican supporters that have bought into Free trade and invested heavily in it. So making a redical turn in policy will give them pause which would be a major political mistake. This issue has been up to bat in the 2006 race and scorched earth in 2008 for Repbulicans and against the Dems in 2010. The answer is to settle trade policies like the 21st century pursued by CPA and then competiion for our own markets must be started by simultaneously creating an new corp struture that is globally competitive, lean and mean, and causes gov to be tied to their success for tax revenue —only AFTER they are successful for income on wages and staekholders — and stop the overtaxing and regulation of the means of production. This will help those invested in the China model to return home where they can host in the USA successfully or stay in China. Forcing folks to do something never works but offering an alternative is more palitable.

  6. Maggie says:

    Global labor arbitrage via offshoring or cheap labor immigration policy is all to the same effect, and matches up with “trickle down” (in truth trickle up and out the door) economics. Left/Right politics just does not address the leaky flat tire problem here. Strip out all the social sentimental mumbo jumbo and the physical model is exactly like a leaky flat tire.

    • Joe Brooks says:

      “trickle up and out the door) economics”

      Good metaphor, behind the Red Chinese, German, Japanese, Canadian, Mexican, Indian, European Union, OPEC, South Korean, etc. door.

      Coming soon to a bankruptcy near you, a TPP and Russian door.

    • Mo says:

      Global labor arbitrage is a montery phenomenon. The reason why countries like the US had high labor costs is because US workers used more capital like machines and tools as compared to cheap labor. With capital, workers can make more goods per a given period than cheap labor without capital. So its cheap labor that cannot compete with higher paid workers with capital.

      Today capital is transferred because based on a paper exchange rates it gives the illusion that foreign labor is cheaper. When capital is transferred the workers that receive the captial should be earning more. So in essence when capital is transferred out of the US, the companies are really just trading customers from one country to another because if Americans make cars or goods in equivalent value then they can buy cars. Incurring debt to buy goods can only last so long.

      In today’s world trade is really just a money printing game. There is no free trade today. Under real free trade the world monetary system would be backed by gold. Today trade is dictated where the money flows. In the US money is printed to fund wars, overseas military bases, consumption, offshoring and financial speculation. While in other countries money is printed to fund manufacturing, healtcare for citizens, etc.

      • Tom T. says:

        Mo, I would really like to believe what you are saying but I still just do not get it.

        Let us say that the answer is a gold standard and not a relative rate of conditions between countries.

        If the USA is more wealthy because they have the right balance of labor (paid adequately) and capital, then they would retain currency backed by gold. Since currency = gold, then the U.S. would retain the gold.

        While I will completely concede the fact that the flows of trade is based on the relative conditions of countries which can be manipulated by currency values by the government, I am not so sure it is just a money printing phenomena and not a relative condition phenomena.

        Let us say that gold (wealth) was acquired by the residents and corporations of the U.S. What is stopping U.S. residents or corporations from transferring their gold to a country like China to buy capital equipment there instead of the U.S. to capitalize on the lower cost of labor? In the past, it was the absence of “free trade” that stopped this from happening, not monetary policies.

        Gold transfers to China would continue under today’s circumstances because of the imbalance of relative prices (yes, it is partly a factor of the exchange rate supported by the policies of the respective governments) for labor and capital make it beneficial for those with gold (capital) to do so. China has calculated what it must get its citizens to work for and the enticements that appeal to those with the gold to transfer that gold or wealth to that country. It is undermining the working middle class in the U.S. and is partly to blame for the budget deficits (almost all economists agree that the way out of our government budget deficits is a growing economy that creates more taxes and less requirements by the government to support and ever increasing unemployed).

        If the United States just printed money for wars, military bases overseas and other things I think we would be better off. Instead, our system issues IOUs that are backed by the monetary system we all live under. They are promises to pay in the future a debt incurred today. If we just printed that money (seigniorage), we would not owe that money to holders of debt (the Chinese government who hold the surplus of U.S. dollars). In essence, that is what QE easing does.

        Even considering the national monetary effects of policy on the markets, we still have the problem of differences in the relative conditions in the countries’ underlying economic variables like labor (which Bruce adequately states is the current real problem). When wealth can move to such a country as China to take advantage of these circumstances, we get into problems of the balance of resources between labor and capital in our country. The solution, for republicans, seems to reduce labor costs in our country to those of China as well as regulations (environmental and other). For democrats, it seems the answer is deficit spending.

        The real answer, is to make these relative prices more favorable towards labor in the United States producing their own goods instead of investors farming it out to the cheaper Chinese. Dr. Bob G. says to increase wages by decreasing hours worked (to take up the extra slack caused by real productivity and the “productivity” claimed by farming out labor). In our system it would take more than just monetary policy of a gold standard. It will take both fiscal and monetary policy, and as you correctly put your finger on, non debt incurring spending on things like health care, infrastructure or manufacturing here in the U.S.

        As long as the relative policies and prices in the economies can be arbitraged (Ian Fletcher claims it must be over the 30% additional costs like transportation and other costs from China), they will be. Monetary policy or a gold standard would not achieve this. It will take a combination of monetary, fiscal and most importantly, TRADE POLICY to do this. This continual capitulation to capital and their income streams we currently have because we have a sold out political system will not address the situation as it needs to be. A gold standard will not fix that.

        Paul Ryan is right about a lot of things but it isn’t the gold standard. What we need, it is as competent a government as China seems to have with regard to its mercantilism.

        Our current QE will encourage more leveraging because it reduces capital’s costs here in the U.S., something we don’t need. It will not solve the problems we face directly, just indirectly. To solve the problem more directly, we need fiscal and monetary policy working to tackle it together. I am not so sure that is going to happen when our political system is so influenced by the power of capital and its wishes.

        Tom T.

        • Tom T. says:

          Sorry, I meant to say Rand Paul and his father Ron Paul and their gold standard stance, not Paul Ryan. The world’s gold trading to settle trade surpluses and deficits pretty much stopped after the guys at Fort Knox decided to stop carting gold from one country’s vault to another (no just kidding). Why do that when you could change it on paper or simply stating the value of your currency?

          Here is a pretty good discussion on the gold standard:

          http://blogs.law.uiowa.edu/ebook/faqs/what-is-the-gold-standard

          The gold standard will not stop politicians from creating bad policies. It is kind of like getting a con man to swear on a Bible. It might sound plausible it really isn’t worth any more than a nation’s ability to back its promises. Politicians get elected on promises but rarely deliver the goods.

          Tom T.

          • Tom T. says:

            Bruce, I just watched a great documentary/movie on the financial crisis and bubbles in the economy. The name of it is “The Flaw” with director David Sington. It touches on the topic of trade (and reduced incomes for Americans that helped bring on the financial crisis). You can find it on Netflix.

            Politicians make the policies that allow flaws in our capitalistic model. They make the rules of the game and thus the distribution of wealth that an economy provides to its members. To maximize the wealth of a nation, the distribution of wealth is very important. Mexico has all the natural resources that the U.S. has had but they falter when compared to the economy of the United States. Much of the reason is the economic reality of the distribution of wealth in that country. A more even distribution creates a bigger pie. A more uneven distribution makes a smaller pie. The oligarchs in Mexico keep the rules where they want them with their power.

            We get to the maximum size pie by adjusting the rules of capitalism to get the intended result. I say that right now those rules are for sale to the highest bidder. We just bailed out the banking system after adjusting the rules that allowed the system to be milked. (we need Glass-Steagall Act back!!!).

            We are not getting the needed rules in part because the interests of money and its power to influence elections and policy is so great. We have created a monster that we can’t control and it is eating our pie.

            Watch the film and see a bigger picture of our economy and its flaws explained very well.

            Tom T.

        • Mo says:

          Tom under a world unfettered gold standard or commodity backed monetary system, exchange rates would be kept within specie points (cost to export the commodity) that would link price levels and interest rates between countries. So there would be no printing of money out of thin air to fund various malinvestments that have caused or contributed to offshoring.

          For world trade to function as distortionless as possible, every currency would have to be backed by a certain weight of a commodity and every banking system would have to have 100% reserves not fractional reserve banking like today that causes and contributes to bubbles, redistribution of income, offshoring etc.

          Assuming the world was on a system where money was backed by a fixed weight of gold and every system had 100% reserves; the following would happen when it comes to offshoring:

          If a company were to offshore to a country that had cheap labor which would mean the country has a higher ratio of labor to captial (capital is machines, tools, equipment that allow workers to make more goods per a given time period) then real wages holding everything else constant would decline in the country losing capital and would eventually rise in the country gaining capital. Besides real wages declining in the country losing capital like the US today, prices for goods would also decline because money would be flowing to the country that gained capital.

          So as the country that gained capital is now able to produce goods cheaper with the new capital than the country that lost capital, the increasing flow of money and demand for goods from that country causes the price level and exchange rate to rise relative to the country that lost capital. The country that lost capital and money would now have lower prices for labor and goods as well as an exchange rate that may be lower and favorable to more investment. So offshoring under a sound monetary system could not be as pervasive as today.

          It’s important to note that what causes economic growth is capital accumulation which means there’s an increase in the number of tools, machines and factories per a given population. The US ran current account deficits from 1850-1900 and had a growing standard of living with a vibrant manufacturing sector. During this time period under sounder money (its important to note that the classical gold standard where gold coins circulated, was still a fractional reserve system) the US incurred debt and became a debtor nation to import capital goods in which it used these goods to manufacture goods and provide services to repay back its debt. This occurred even with tariffs. So what matters is the terms of trade.

          In the 1930s for example, the US was a creditor nation, had trade surpluses and tariffs but had a declining standard of living due to declining capital accumulation. This was a period of an unsound money and various monetary distortions.

          Today with the US terms of trade, the US offshores jobs, factories, transfers technology and trades ownership of US companies so that it can fund military adventures, artificial consumption with debt, offshoring investments and financial speculation. Today shows another example like in the 1930s on how monetary mismanagement has the distorted the economy.

          • Tom T. says:

            I am not so sure that is true, Mo (again, I am just trying to sort your point out here).

            The Economist wrote an article on the documentary I suggested:

            http://www.economist.com/blogs/buttonwood/2011/06/inequality-and-financial-crisis

            I think his point on the Bretton Woods Agreement is your point.

            The problems with this argument is that we are not operating under the Bretton Woods system anymore, China manipulates its currency and does not have a floating exchange rate nor a free market economy where natural supply and demand forces are at work.

            We have a China that is capturing those dollars to strategically challenge us as the world currency and on buying raw materials and resources around the globe as well as those here in this country.

            I totally agree with you that it is the terms of trade we are doing all the things you suggest in your last paragraph. The simple fact is that China is running way ahead of the U.S. at using trade to capture both physical and intellectual capital.

            If anything, I would argue that our dollar is too strong and the U.S. could have spent all the money it did on the bail outs on something that would make us more competitive like paying for all of health care by creating money and not through deficit spending.

            “Household wealth, or net worth, is the value of assets like homes, bank accounts and stocks, minus debts like mortgages and credit cards. It bottomed during the Great Recession at roughly $49 trillion in the first quarter of 2009.

            Americans have been gradually recovering the wealth they lost to the recession. But it remains about 5 percent below its pre-recession peak of $66 trillion.”

            http://www.dailyfinance.com/article/as-household-wealth-rises-so-do-hopes/675399/

            “Health expenditures in the United States neared $2.6 trillion in 2010, over ten times the $256 billion spent in 1980. [1] The rate of growth in recent years has slowed relative to the late 1990s and early 2000s, but is still expected to grow faster than national income over the foreseeable future.[2] Addressing this growing burden continues to be a major policy priority. Furthermore, the United States has been in a recession for much of the past decade, resulting in higher unemployment and lower incomes for many Americans. These conditions have put even more attention on health spending and affordability. [1]”

            Lifting the burden off of businesses to pay health care would make the U.S. much more competitive in world trade.

            Our policy makers make real choices in policy that have real consequences. If China is playing the trade game, there are much more effective ways to counter them and enhance the quality of life and competitiveness than the policies they have put forth in the last decade.

            And Bruce, Obama’s health care IS NOT NEAR SOCIALISM. That is one of the most misinformed political mantras put out there. If we had socialism we could probably cut the cost of health care by 20 percent (no I am not willing to back up that number, just a guess).

            Tom T.

Trackbacks/Pingbacks


Sign up to receive periodic updates

Frequency