Wednesday, January 7, 2009
FREE TRADE FANTASIES
The January 5 Washington Post editorial, “Terms of Trade” Why the U.S. lost manufacturing jobs, and how it can replace them,” illustrates what’s wrong with the establishment’s rote cheerleading for “free trade.” The editorial is a commentary on a recent report by the Congressional Budget Office that had concluded that “much of the relative decline in U.S. manufacturing was due to imports.”
Hardly earth-shaking, but apparently too strong a dose of reality for The Post. The editorial tries to flip the CBO piece on its head by arguing that the “spur of global competition” had made the remaining American producers stronger, and the country as a whole richer by providing cheap imported goods. The editorial concludes darkly: “We hope that the Obama administration helps U.S. firms adapt. But we hope it also understands that no one can abolish economic reality – and that it would be futile to try.”
Haven’t we heard this all before? Of course. Can we settle the argument, of course not.
But we can set a few ground rules for a more informed and productive debate:
First, The Post and every one else should stop talking about “global competition,” “foreign competition,” “trade” and “free trade” as if they were interchangeable. Global competition is a reality; “free trade” exists only in text books. Much of today’s global trade is rigged by price-fixing in the form of undervalued currencies, the targeted development of hot-house industries propped up by subsidies and other benefits conferred by foreign governments, and excessive corporate power over both the marketplace and regulatory agencies. Competition makes one stronger, as The Post argues. Of course it does, provided the competition is fair. But unfair practices destroy competition, distort the free flow of trade, and undermine confidence in the trading system. No less committed a free trader as Ronald Reagan acknowledged these distinctions and based policy on them.
Second, The Post and others should make it a policy not to comment on our disastrous trade performance without calling for fundamental changes in the U.S. tax, energy, and health care policies. Our outmoded policies are not immutable “economic realities” nor are they the product of some grand march of historical forces, as The Post seems to think. They are choices that we, or more precisely our elected representatives, make. Reverse counterproductive policies, and you can expect a quite different set of results. I think I’d know an immutable economic reality if I saw one, but self-inflicted policy wounds simply don’t make the cut.
Third, The Post and others should stop mixing up the long-run productivity gains and concomitant job losses in manufacturing with the artificial advantages given to imports thanks to our own stupid domestic policies and our trading partners’ unfair practices. Productivity gains have been occurring for a long time, of course, and to our great benefit. Even The Post acknowledges that something changed in the current decade when “the loss of manufacturing jobs was especially sharp and sustained.” However, it shows remarkably little curiosity as to what might have caused this devastating destruction of good jobs and fails to deliver on its promise to tell us how to replace them.
Fourth, The post and others should use only real numbers to make their case. The much trumpeted “productivity” numbers of the US Department of Labor, for example, are based on a simple-minded calculation: divide the dollar value of the economy’s reported shipments by the number of hours worked. A moment’s reflection should enable anyone to realize that our so-called productivity gains are a mixture of real improvements in efficiency and off-shoring. The plant that off-shores all its components and now ships the same amount of shipments into the US market with half its former workforce cannot fairly be credited with a doubling of productivity. But that’s what DOL statistics report, and that’s what The Post and others rely to bolster their shaky arguments.
Finally, The Post and others should stop pontificating on the virtues of more “free trade” without discussing our rapidly mounting external debt. Trade deficits drive the debt problem. In fact, more than 35 years of trade deficits have wiped out our status as the world’s leading creditor, morphing us into the biggest debtor in history. The solution to that still worsening problem simply cannot be more of the same trade policy. And if we don’t begin to solve the problem soon, the Great Inflation that will accompany the widespread abandonment of the dollar will do it for us.
Hard-working Americans now and in the future deserve better public policies than we’ve had for decades of decline. Small wonder that so many have soured on international trade agreements and regard our government and our media as out of touch with reality. The next time The Post is tempted to lament the lack of support for the current trading system, it should point the finger of blame squarely into the mirror.
Charles Blum
Hardly earth-shaking, but apparently too strong a dose of reality for The Post. The editorial tries to flip the CBO piece on its head by arguing that the “spur of global competition” had made the remaining American producers stronger, and the country as a whole richer by providing cheap imported goods. The editorial concludes darkly: “We hope that the Obama administration helps U.S. firms adapt. But we hope it also understands that no one can abolish economic reality – and that it would be futile to try.”
Haven’t we heard this all before? Of course. Can we settle the argument, of course not.
But we can set a few ground rules for a more informed and productive debate:
First, The Post and every one else should stop talking about “global competition,” “foreign competition,” “trade” and “free trade” as if they were interchangeable. Global competition is a reality; “free trade” exists only in text books. Much of today’s global trade is rigged by price-fixing in the form of undervalued currencies, the targeted development of hot-house industries propped up by subsidies and other benefits conferred by foreign governments, and excessive corporate power over both the marketplace and regulatory agencies. Competition makes one stronger, as The Post argues. Of course it does, provided the competition is fair. But unfair practices destroy competition, distort the free flow of trade, and undermine confidence in the trading system. No less committed a free trader as Ronald Reagan acknowledged these distinctions and based policy on them.
Second, The Post and others should make it a policy not to comment on our disastrous trade performance without calling for fundamental changes in the U.S. tax, energy, and health care policies. Our outmoded policies are not immutable “economic realities” nor are they the product of some grand march of historical forces, as The Post seems to think. They are choices that we, or more precisely our elected representatives, make. Reverse counterproductive policies, and you can expect a quite different set of results. I think I’d know an immutable economic reality if I saw one, but self-inflicted policy wounds simply don’t make the cut.
Third, The Post and others should stop mixing up the long-run productivity gains and concomitant job losses in manufacturing with the artificial advantages given to imports thanks to our own stupid domestic policies and our trading partners’ unfair practices. Productivity gains have been occurring for a long time, of course, and to our great benefit. Even The Post acknowledges that something changed in the current decade when “the loss of manufacturing jobs was especially sharp and sustained.” However, it shows remarkably little curiosity as to what might have caused this devastating destruction of good jobs and fails to deliver on its promise to tell us how to replace them.
Fourth, The post and others should use only real numbers to make their case. The much trumpeted “productivity” numbers of the US Department of Labor, for example, are based on a simple-minded calculation: divide the dollar value of the economy’s reported shipments by the number of hours worked. A moment’s reflection should enable anyone to realize that our so-called productivity gains are a mixture of real improvements in efficiency and off-shoring. The plant that off-shores all its components and now ships the same amount of shipments into the US market with half its former workforce cannot fairly be credited with a doubling of productivity. But that’s what DOL statistics report, and that’s what The Post and others rely to bolster their shaky arguments.
Finally, The Post and others should stop pontificating on the virtues of more “free trade” without discussing our rapidly mounting external debt. Trade deficits drive the debt problem. In fact, more than 35 years of trade deficits have wiped out our status as the world’s leading creditor, morphing us into the biggest debtor in history. The solution to that still worsening problem simply cannot be more of the same trade policy. And if we don’t begin to solve the problem soon, the Great Inflation that will accompany the widespread abandonment of the dollar will do it for us.
Hard-working Americans now and in the future deserve better public policies than we’ve had for decades of decline. Small wonder that so many have soured on international trade agreements and regard our government and our media as out of touch with reality. The next time The Post is tempted to lament the lack of support for the current trading system, it should point the finger of blame squarely into the mirror.
Charles Blum
Labels: Debt, Free Trade, Productivity, Trade, U.S.Economy
Monday, November 10, 2008
BACK TO BASICS
Here we go again. After throwing checks at consumers in the vain hope of averting a recession and hundreds upon hundreds of billions at Wall Street in the hope of stemming the financial meltdown, there is constant talk about doing more of the same in the hope of promoting a “recovery.” This makes our economic malady sound like a bad cold. In fact, it’s more like learning to walk again after a crippling accident. We need rehabilitation, not recovery. We need a fundamental restructuring of our economy to address the inescapable central fact of our national economic life: we have lived beyond our means for decades, owe the rest of the world a staggering amount of money (every dollar is an IOU), and lack the means to repay our debt with goods and services.
If we do not solve this problem and make ourselves fit for international competition again, the dollar will lose its value and we’ll have to balance our lopsided accounts through a massive inflation. Americans will “enjoy” a lower standard of living. However richly deserved, this sort of economic purgatory won’t be pleasant.
Yet that is the default setting for a debtor society. If we want to avoid it, we need to get back to basics:
• The central problem in our economy is a chronic lack of investment. Not in stocks, bonds, derivatives or any other paper asset. Not in existing assets. In new productive assets.
• With more such investment, we can expand our domestic production of services and especially goods.
• With expanded production, we can increase our exports. This should always be considered in net terms: that is, it is just as valuable to replace imports with domestically produced goods (think energy) as it is to ship surplus goods abroad. The cheerleaders for the mindless process of “competitive liberalization” -- one faulty “free trade” deal after another – value increased exports but seem to regard any effort to reduce imports as an unattainable or even undesirable goal. They are wrong.
• With increased net exports, we would require less borrowing from abroad. Eventually, increased savings in this country can help reverse the flow of capital and make the United States a creditor nation again.
It’s that simple: more investment leads to more production; more production to an improved trade position; and an improved trade position to reduced dependence on trading partners for financing. Let us hope the incoming administration will adopt a coherent, comprehensive national trade strategy – one that melds trade and domestic policy into a powerful force to transform our economy -- that gets back to basics and frees us, our children, and our grandchildren from the crippling burden of debt.
Charles Blum
If we do not solve this problem and make ourselves fit for international competition again, the dollar will lose its value and we’ll have to balance our lopsided accounts through a massive inflation. Americans will “enjoy” a lower standard of living. However richly deserved, this sort of economic purgatory won’t be pleasant.
Yet that is the default setting for a debtor society. If we want to avoid it, we need to get back to basics:
• The central problem in our economy is a chronic lack of investment. Not in stocks, bonds, derivatives or any other paper asset. Not in existing assets. In new productive assets.
• With more such investment, we can expand our domestic production of services and especially goods.
• With expanded production, we can increase our exports. This should always be considered in net terms: that is, it is just as valuable to replace imports with domestically produced goods (think energy) as it is to ship surplus goods abroad. The cheerleaders for the mindless process of “competitive liberalization” -- one faulty “free trade” deal after another – value increased exports but seem to regard any effort to reduce imports as an unattainable or even undesirable goal. They are wrong.
• With increased net exports, we would require less borrowing from abroad. Eventually, increased savings in this country can help reverse the flow of capital and make the United States a creditor nation again.
It’s that simple: more investment leads to more production; more production to an improved trade position; and an improved trade position to reduced dependence on trading partners for financing. Let us hope the incoming administration will adopt a coherent, comprehensive national trade strategy – one that melds trade and domestic policy into a powerful force to transform our economy -- that gets back to basics and frees us, our children, and our grandchildren from the crippling burden of debt.
Charles Blum
Labels: Debt, Trade, Trade Deficit, U.S. Economy
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