Understanding What Went Wrong: I speak from more than 30 years of experience in national economic matters reaching back to the Nixon Era in 1970. That was a time of big impact by Japan and the new global economy, and of course the first overtures to China. I believe that most of the jobs troubles we're having today stem from trade and financial policies adopted then and that are basically still followed today! Very simply we gave away far too much and are still doing so now. It's high time we change!
What's different since 1970? Then the US was beginning to run trade deficits, but only about $10 billion annually. Economists said "Don't worry -- if some policy decisions favor other countries some, we'll benefit in the global gains." They also said "We're going to float the dollar, so If we begin to run bigger trade deficits, the dollar's value will adjust to keep our exports competitive!" If anyone had said "With those policies, we'll later run $500 billion dollar annual trade deficits and lose many manufacturers and their good jobs, the economists would have said "Impossible -- It can't happen." But it did, and America's companies and employees are paying a very big price!
Our trade deficits grew steadily until they reached $700+ billion in 2004! Since the recession began in 2007, thousands of plants have closed, with millions of jobs lost. Our manufacturing employment is down from a peak of 20 million workers in 1979 to about 10 million today in a much bigger population. Those are the results of ineffectual policies over many years. Most economists now say "This is unsustainable!" The seriousness of the lagging jobs recovery and our ballooning trade debt demand that strong corrective action be taken now as a top priority.
What Are The Key Elements of A Fix It Program? Here's what's needed for a robust jobs recovery and a deep reduction in our trade deficits. Most of all, let the forces of fair competition revitalize our manufacturers and their good jobs!!
The Balanced Trade Restoration Act of 2006 (not enacted -- ready to update)
S.3899 provided for issuance of tradable import certificates based on the value of US exports. Purchase of certificates in a face amount matching the appraised value of any imports will be required. thus causing balanced trade and fair competition.. The Act is market-based and doesn't target or favor any country or industry. It permits all imports as long as the necessary certificates are submitted. It has the extra advantage of not needing government funding or deficit spending as do most other current proposals, such as for infrastructure or more "stimulus." And we can move very fast! No international negotiations or long trade disputes over claimed trade violations. Best of all, the US has by far the largest market in the world. We're quite willing to share it with all other countries if they'll compete in it on fair, level terms with US producers
Yes Balanced, Fair Trade is an important component of the recovery, but we must reign in the gambling Banksters first.
It is so unfortunately that the US has to literally legislate good behavior. We all understand why we have to do it for foreign trade – third world countries don’t apply the same safety standards to it’s workers or consumers as the rest of the world. The US and the world has changed a lot in the past few decades – it used to be children could walk alone to and from school with rare incidents, people married for life and rarely divorced, men wore suits and women wore modest dresses even to baseball games. So unfortunately, it appears we must legislate ethical behavior as well. Huge bonuses for the few at the top of corporations that wreak havoc to the nation’s economy. Huge short-term gains from stock increases due to massive off-shoring of American jobs. Something needs to change unless the ethics and morals of the world’s business leaders do. Anyone heard from Bob Moffat lately?
Another REAL problem that is mentioned in a few blogs - GREED of the very few at the top of American corporations. Some have mentioned IBM so I’ll be happy to throw out some facts:
IBM - after releasing positive 2008 year end results and BRAGGING that they were not impacted by the economic crises - LAID OFF 10,000 US workers in the first 90 days of 2009. The 10,000+ Americans that IBM laid off in 2009 equated to a 9% reduction IBM’s US workforce. In 2008, 2007, and 2006 they reduced their US workforce by 5% EACH year. And they are not yet done ! The rumors on the Alliance website (employee-run, non managers) now say that they will do this again in 2010 at the 10,000 level.
While reducing the US workforce, the foreign workforce is growing. This is where IBM has HIRED in 2009. In 2009 IBM hired TWICE the number they laid off in India alone.
India: 18,873
Asia/Pacific: 13,376
Latin America: 7,112
CEEMEA: 3,988
USA: 3,514
Europe: 2,923
This offshoring shift is strategic, IBM has a patent on how to do it. IBM in 2002 there were 240,000 US employees which equated to 80% of IBM’s Global workforce. Today, there are only 105,000 US employees, a mere 25% of its global workforce. In the last 7 years IBM has cut its US workforce in half, purposely moving work to foreign countries.
I think that Ken is one of the first to come forward with a REAL idea on how to solve the problem. Tough one to implement, but at least we have something that most of us can understand, is tangible, and could work.
Even IF American workers ALL lowered our standards of living (many are getting there whether they want to or not), like using public transportation exclusively, the REAL problem remains that the US (thankfully) has we have laws that protect workers from unsafe and unfair conditions and laws that protect consumers from unsafe products (i.e. lead paint). These measures alone increase the cost of goods - and we need to insist it be done around the world. Then, in time, the quest for the niceties in life will start to grow in the lesser-developed countries and hopefully we'll get closer to equilibrium on wages.
All of these ideas are great. People post good ideas on HP often.
However, one place they won't "go" is this:
None of this is "oops, miscalculation" or "oops, bad management" - this financial "chaos" situation was INTENTIONALLY created. The country will not move forward in any meaningful way until we come out of denial that this simply "bad management". Maybe badly informed management, true. But also complicit management.
Globalization NEVER meant raising the standard of living in 2nd and 3rd world countries. Over the years, too much was invested in propping up brutal dictatorships, especially in Latin America, to suppress and oppress workers. The US (though School of the Americas is a major training ground for this) had plenty of allies from other countries as well.
The intent was always to lower the standard of living wherever possible. That is globalization.
*Adam Smith describes the masters of mankind and their vile maxim in “Wealth of Nations,†Volume III, Chapter IV.
** I’m not saying our trade deficits are not an important problem. They are. But they are only a part of the solution.
1. Make it national policy to achieve a balanced trade account over a very few years.
What are the elements of this so called national policy? Will IBM agree to balance its imports and exports?
2. Keep our markets open with a new tradable import certificate system.
Import control and licensing? Every country adopts a similar policy ---- Trade War?
3. Recognize that a strong domestic industrial. base is essential for national security.
Talked about for a long time. Why hasn't it worked so far?
4. Create a level playing field here for our domestic producers vs. foreign competitors.
By imposing tariffs, higher taxes on foreign firms, subsidies for US firms?
5. Recognize that our past wide open "free trade" policies failed badly .Negotiate better deals. The floating dollar alone doesn't keep us competitive as was promised.
Reneg on all previous deals? What is a better deal? Fixed dollar --- at what level? Give specifics.
7. US parent companies must re-examine the claimed benefits of off-shoring jobs.
After re-examination they find the benefits are real. What will you do? Send them to re-education camps ?
8. Cheap foreign labor may not be a good trade-off for out-of-work consumers here.
Why does IBM go after cheap labour. What if that labour gives the same quality at lower cost. What about small savers who invest their savings in companies with the hope of getting an income stream during their retirement years?
Are they all waiting in line to get their hands on The Palin's book??
If we define toil as work not freely chosen, no matter how seemingly simple, all work we choose, no matter how difficult, falls under the psychological category of play. A long-term objective is to encourage efforts to reduce the time people spend -- at work they have not chosen -- to twenty hours each week.
The money earned during the remaining half of the nominal forty hour week would have to be replaced with diversified investment income.
Think of a twenty hour week as five four hour days. Alternatively, as a thought experiment, examine the possibility of two ten hour days – with five days each week to employ and enjoy as you wish. Some of the positive implications are obvious.
Many, if not most, people are trapped by mortgage payments, car payments, etc., in jobs they do not love. There is a simple test: Would they continue to do the same work without pay?
What man or woman will not benefit from expanded ownership opportunities which open doors to substantial second incomes? The toil component of the work week could gradually diminish.
See: The Brooklyn Project on the website: http://www.aesopinstitute.org for more.
I have been saying as much for years.
Productivity gains in in industrialized/information based economies are only partially realized "on the ground." The work week should be shrinking, not growing. Prices should be falling not rising.
This anomaly can not be explained only by the destruction of the value of the currency or the inefficiency of the make work mindset of "full employment." Something else is happening. Part of that "something else" is the maldistribution of wealth and/or the control of resources. Another part is the destructive, extremely low yielding investment in the permanent national security state.
We are still bound by an 18th and 19th century mindset with the ability to achieve 21st century productivity. The resulting drag on productivity is not only destructive to the world social order but the environment as well.
Thanks for the great post.