Ian Fletcher, author of “Free Trade Doesn’t Work,” pointed out Ralph Gomory’s article called “The Innovation Delusion.”  I criticized, yesterday, Thomas Friedman’s focus on innovation as an exclusive economic solution, i.e. the only thing we can do.

As it turns out, Gomory has already performed a much more detailed criticism of Friedman’s innovation “delusion” last March.  Gomory’s piece, as always, is well worth reading.

Thomas Friedman champions free trade with a simple, cartoonish view of the topic.  He loves trade agreements even though he - literally - never read one (the title page was good enough for his “analysis”).  He is impervious to facts.

Today, he writes that - duh - the economic times are uncertain.  The way to fix it is with more innovation.  “There is no other way”.  No other way.  None.  Don’t even try something else.

I will repeatedly point out the techniques of the destructive old-style free trade crowd.  They champion “export and innovate”, because you can’t really oppose exporting and innovating.  The cleverness is in the distraction.  The distraction from the real problem of “net exports” which must include import competition.  They hate to talk about that.

So their schtick is to say, with a nice smile, that we must export and innovate and cannot do protectionism and isolationism.  Putting a bad rhetorical label on remedies that are compelled by math in terms of trade balance.

If we achieve net exports, our problem is solved.  It is the core.  From that solution, we will have jobs, wealth, innovation, investment, tax revenue, and paid down government debt.  The holy grail.

What is "the market?"  You can give an Econ 101 answer and stop, like the NY Times editorial board does.  Or you can write books that proceed from economics to social science to psychology to philosophy to spirituality.  Phil Gramm likes the spiritual part: 

When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place.

Does "the market" determine the value of credit default swaps?  If so, nobody has consulted "the market" because nobody knows what their value is.

Did "the market" set the compensation of Robert Rubin when at Goldman Sachs and Charles-Prince-The-Third, Citigroup’s CEO?  Or did some guys on a compensation committee do that.

Did "the market" assess the risks of Citigroup’s trading and lending excesses?  Nope.  Thomas Maheras, who oversaw trading at the firm, just said everything was ok.  Maybe he said that "the market" said it was ok, but the words came from Maheras’ mouth when Citigroup’s CEO asked him.

Thomas Friedman is "shocked… shocked, I say." Friedman.  Ya’know the guy that has never seen a trade agreement he didn’t like and has never actually read a trade agreement?  That Friedman.

Good old Tom had a bad and brooding Sunday.

I spent Sunday afternoon brooding over a great piece of Times
reporting by Eric Dash and Julie Creswell about Citigroup. Maybe
brooding isn’t the right word. The front-page article, entitled
“Citigroup Pays for a Rush to Risk,” actually left me totally disgusted.

I think that you must be surprised before you are disgusted.  The emotion may stop at "surprise," depending upon the stimuli, but often proceeds to "glee" if you won the lottery, or "disgust" if you placed your foot in a steaming pile of s*#%. 

Tom had the latter experience because he was did not expect to learn of the debauchery of Citigroup’s management.  Others, I suspect, were not so surprised.

Friedman read this broodiness-inducing-article:

Citigroup insiders and analysts say that Prince and Rubin played
pivotal roles in the bank’s current woes, by drafting and blessing a
strategy that involved taking greater trading risks to expand its
business and reap higher profits. Prince and Rubin both declined to
comment for this article.

When Rubin was Treasury secretary during the Clinton administration, he
helped loosen Depression-era banking regulations that made the creation
of Citigroup possible by allowing banks to expand far beyond their
traditional role as lenders and permitting them to profit from a
variety of financial activities. During the same period he helped beat
back tighter oversight of exotic financial products, a development he
had previously said he was helpless to prevent.

His disgust was expressed thusly:

Why [my disgust]? Because in searing detail it exposed — using Citigroup as Exhibit A — how some of our country’s best-paid bankers were overrated dopes who had no idea what they were selling, or greedy cynics who did know and turned a blind eye. But it wasn’t only the bankers. This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

Ethics.  I like ethics.  I also like personal responsibility, and try to exhibit it.  Can we rely upon these virtues in humans, even as some of us strive for them?  Not since the world’s oldest profession was created have we eradicated unethical and irresponsible behavior.  

So what do we do?  Well, let’s just look more at Friedman’s broodiness, surprise, disgust:

Citigroup was involved in, and made money from, almost every link in that chain. And the bank’s executives, including, sad to see, the former Treasury Secretary Robert Rubin, were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank’s risk managers and risk takers (and so bought off by their bonuses) that they had no interest in stopping it.

Yes, but what do we do?  Obama chose to hire Rubin’s protege’s, which either looks really good or could be really bad.  They are smart.  But they made mistakes.  So have I, though on a smaller scale.  Some mistakes I make over and over again.  Some I correct right away. 

Will the new Obama economic team, which claims to have learned since the Clinton days, be the best to remedy the problems because they were involved in the mistakes?  Or will they make the same or similar mistakes.

They are smart, in ways that I am not smart.  But they may be stupid too, though I hope not.

Friedman cites the essay "Liar’s Poker," which is about Wall Street excesses. 

Meredith Whitney, a little known banking analyst who declared, over a year ago, that “Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust,” wrote [author Michael] Lewis.

“This woman wasn’t saying that Wall Street bankers were corrupt,” he added. “She was saying they were stupid."

So now what.

That’s how we got here — a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash. These are the wages of our sins. I used to say our kids will pay dearly for this. But actually, it’s our problem. For the next few years we’re all going to be working harder for less money and fewer government services — if we’re lucky.

I think we need to hope for something more than a resurgence in "responsibility." 

The stimuli of the New Deal, whatever you may think of it, stayed primarily in America.  The CCC, the WPA, etc. was government spending, aggressively so.  But Grandpa Olson and Great Aunt Nellie spent the money on U.S. products.  Not foreign products or debt repayment to China.  The government money swirled around within our own economy.  Nothing against helping foreign countries, but leakage hurts the goal.

Tom Friedman is the guy that never saw a trade agreement he did not like… and never read any trade agreement.  This is our intellegentsia?  He’s not always totally wrong, but I have to point out his blinders on trade before quoting him.

Friedman writes today that the next stimulus package - and most believe there will be a next one - should include incentives for energy conservation and independence. 

[I]f Congress passes another stimulus package, it can’t just be another round of $600 checks to go buy flat-screen TVs made in China. It has to also include bridges to somewhere — targeted investments in scientific research, mass transit, domestic clean-tech manufacturing and energy efficiency that will make us a more productive and innovative society, one with more skills, more competitiveness, more productivity and better infrastructure to lead the next great industrial revolution: E.T. — energy technology.

Friedman has been making money speaking and writing these days on the green economy.   That’s better than championing economy-destroying free trade agreements.  And better than pushing strange financial products like derivatives and commodity index funds.

We do have a geopolitical imperative, and an economic imperative, to effectively wean ourselves from foreign energy.

Beware of the Columbia FTA in the lame duck, post election session of Congress.  It could be included in an omnibus package to convince Bush to sign it. 

And I’m going to be pushing this in most articles for a while.  Sign on the the Fixing America’s Economy document now.

Even a stopped clock is right twice a day.  Thomas Friedman has never seen a trade agreement he did not like.  But he is right in penning this:

The point is, we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering.

His buildup focuses on green industries, which is great, but there is more than that to build.  I will just briefly mention that it is too bad he cannot make the causal link between the anemic real economy and his wacko free trader views.

In a green economy, we would rely less on credit from foreigners “and more on creativity from Americans,” argued Van Jones, president of Green for All, and author of the forthcoming “The Green Collar Economy.” “It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America. … You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.” 

Yes, Mr. Friedman, we should lead the world in those parts of the economy.  But we should make and grow things across the economic spectrum, not just build up in the areas connected to your book on green industries.  

Can someone tell me what this has to do with trade?   

The
U.S. has laws against online gambling.  The U.S. is part of the
WTO.  Antigua did not like our gambling prohibition, and filed a
WTO claim saying we are restricting trade.  

Antigua won.  They now have the WTO-granted right to violate copyright protections on U.S. goods like films and music. 

Does
David Brooks and Thomas Friedman think this should be a part of trade
agreements?  The striking-down-U.S.-laws stuff was in the part of
the agreement that they did not read.

Oh, but Friedman doesn’t read any trade agreement.  He just likes it if the cover page says free trade agreement.

"More trade" is the number one policy of our federal government,
even trumping national security as we can see with the
multi-dimensional China issue.  "More Trade Agreements" is the
questionable method of pursuing the Prime Directive - despite the lack
of quantifiable link between those bulky trade documents and actual
increased trade (see the WTO study on this).

Food
safety has been an irritating pebble in the shoe of the
globalists.  The environment could be the next pebble, conflicting
with the Prime Directive.  (Of course there are many potential
pebbles, amounting to a load of gravel).

We know that every
smokestack the U.S. outsources to Asia increases CO2 pollution by up to
eight times.  Scrubbers and efficient energy methods are not the
enforced norm in Asia.

But the transportation pollution itself is
astounding.  Supply chains that are several thousand miles long
have fossil fuel burning engines humming in aircrafts, ships and ports
that would not otherwise be humming as much. 

Thomas Friedman, a NY Times regular op-ed columnist who has not resolved his green-ness with his I-like-all-trade-agreements-but-don’t-read-them position, points out that a single transworld route for a major European delivery company has major environmental consequences.

“We operate 35,000 trucks and 48 aircraft in Europe. We just
bought two Boeing 747s, which, when fully operational, will do nine
round trips every week between our home base in Liège [Belgium] and
Shanghai. They leave Liège only partly full and every day fly back to
Europe as full as you can stuff them with iPods and computers. By our
calculations, just these two 747s will use as much fuel each week as
our 48 other aircraft combined and emit as much CO2. [says Peter
Bakker, the chief executive of TNT, the biggest express delivery
company in Europe].”

Friedman says this is because the world is becoming "Americans" in
the bad sense of resource consumption, but does not connect the issue
to his trade lust.

Sherrod Brown gets it on trade.  The nice thing is that he got
elected on trade, showing that the polls of the populace translate into
elected candidates.

Thomas Friedman may like every trade
agreement he has ever seen, and his regular columnist position at the
New York Times gives him a broad reach.  But, ultimately, he has
only one vote.  And no vote in 49 of the states.

Just so you know what I mean about Friedman, he was caught on tape saying this:

"We got this free market, and I admit, I was speaking out in
Minnesota-my hometown, in fact, and guy stood up in the audience,
said, `Mr. Friedman, is there any free trade agreement you’d oppose?’ I
said, `No, absolutely not.’ I said, `You know what, sir? I wrote a
column supporting the CAFTA, the Caribbean Free Trade initiative. I
didn’t even know what was in it. I just knew two words: free
trade." 

Brown’s
op-ed appeared in yesterday’s Cincinnati Enquirer.  The full op-ed
is below the fold.  But here are a couple notable quotes, as he
defends protecting America.

Some 40 percent of the economy is still government-owned and
provides a continuing source of revenue and employment. These
state-owned enterprises enjoy a wide variety of government-provided
subsidies, from cheap land, below-market rate loans and loan
forgiveness, to lax enforcement of environmental laws and worker
protections. American-owned corporations also enjoy many of these
benefits and are able to make products in China for export at an
artificially low cost, which can inevitably make these corporations
beholden to the various governments and to the Communist Party for many
subsidies.

We do not compete with Chinese companies.  We compete with
their government.  The colonists at the Boston Tea Party protested
because the East India Company/British Government joint venture was
imposed upon them through parliamentary decision making.  China’s
economy is the East India Company on steroids.

And here’s a good thing.

This fall I will introduce legislation to require enforceable
country-of-origin labeling on imported food. The law already mandates
some country-of-origin labeling but the Bush administration, at the
behest of large beef processors, has refused to enforce it. My bill
will also require importers of record to post a safety bond of
insurance to protect themselves - and the public - from hugely
expensive product recalls and liability.

We fought the meat packer lobby long and hard just to get country of
origin labeling on a few foodstuffs: meat, produce and seafood. 
It’s the law, but the packer lobbyists prevented it from being
implemented for meat and produce. 

Do you find yourself
looking at labels more these days?  Your shrimp, for
example?  Or catfish?  If U.S. companies want to sell cheap
food from countries without regulation, they can inform us even as they
make their profits. 

*** Cincinnati Enquirer 9/2/07
 
Trade? Yes, but demand product safety
U.S. Sen. Sherrod Brown (D-OH)

Anyone who disagrees with America’s trade experts is labeled a protectionist. As if that’s a bad word.

What is wrong with United States trade policy protecting American
workers? Or protecting our communities? Or how about our trade laws
protecting our families from unsafe Chinese food imports or our
children from toys coated with lead-based paint?

Last year, the United States imported $288 billion of goods - much of
it food, toys, and ingredients for toothpaste, vitamins, and dog food -
from the People’s Republic of China, a country with weak and unenforced
health and safety regulations. And as recent news reports document,
tens of millions of dangerous toys are being recalled, contaminated dog
food is being destroyed, and cough syrup and vitamins are suspect;
there are even warnings about children’s books.

Our country has worked hard to build safe work places, a reliably
healthy food supply, and pure drinking water. For a hundred years,
legislators and governors, county commissioners and senators, have
taken on some of the world’s most powerful corporations - chemical
companies, agribusinesses, automakers - to make our cars safer and our
air and food cleaner.

Unrestricted, unregulated free trade with China - with no protections - threatens these gains and jeopardizes our public health.

There is little interest among the Chinese in changing the way we and
they do business. Why would they when China’s bilateral trade surplus
with the United States may approach $300 billion this year? The Chinese
government at all levels - and the Communist Party - resist
jeopardizing the flow of profits into government treasuries and the
pockets of party officials and government authorities.

Some 40 percent of the economy is still government-owned and provides a
continuing source of revenue and employment. These state-owned
enterprises enjoy a wide variety of government-provided subsidies, from
cheap land, below-market rate loans and loan forgiveness, to lax
enforcement of environmental laws and worker protections.
American-owned corporations also enjoy many of these benefits and are
able to make products in China for export at an artificially low cost,
which can inevitably make these corporations beholden to the various
governments and to the Communist Party for many subsidies.

So what is to be done? Since the Communist government has ruled out
third-party inspections and U.S. consumer product and food inspectors
on Chinese soil, we have two choices - either buy less, much less from
China or license certain importers and hold them responsible for the
safety of the products they bring into our country.

This fall I will introduce legislation to require enforceable
country-of-origin labeling on imported food. The law already mandates
some country-of-origin labeling but the Bush administration, at the
behest of large beef processors, has refused to enforce it. My bill
will also require importers of record to post a safety bond of
insurance to protect themselves - and the public - from hugely
expensive product recalls and liability.

In addition, we need to increase the number of inspectors at the Food
and Drug Administration, the Department of Agriculture, and the
Consumer Products Safety Commission. And stop hiring inspectors who
used to work for the regulating industry or have plans to return there.

Everyone agrees: We all want more trade with countries across the
world. But let’s protect the safety and health of our children and our
families first.

Sherrod Brown, a Democrat from Avon, Ohio, is a U.S. senator representing Ohio.