Building A New Economy: What Obama's Next Big Speech Should Be
At a delightful dinner party the other night, our host, a cosmopolitan man with interests ranging from water in California to Sufism in India, punctuated a brief complaint about the economy by noting, "and of course, I'm a nut on trade" (meaning an ardent advocate of our corporate "free trade" policies). You aren't the only one, I thought, and you've got to be a nut to be able to defend that position -- but I bit my tongue, choosing the pleasures of a soft evening over the delights of a sharp argument.
Over the next few weeks, however, President Obama has little choice but to descend into that argument. Just as in his health care speech tonight, he must address a fundamental threat to our security that can no longer be ignored, which challenges powerful and entrenched interests -- and that is coming to a head over the course of this month.
Next week, the president will address the convention of the labor federation, the AFL-CIO, as delegates convene to elect new leadership. That same week, he must decide what to do about the ruling of the International Trade Commission recommending that he slap tariffs of up to 55% on rubber tires being dumped in the U.S. market by the Chinese. The week after that, the heads of the leading economic nations in the world -- the G-20 -- with gather in Pittsburgh to discuss next steps in reviving the global economy.
Given the health care battle, the president may well decide to muffle the core issues in the soporific diplomatic quilting of shared principles and professed intentions. (Also on his plate is the stark question of whether to dispatch more U.S. men and women to a distant place called Afghanistan).
But this can't be put off for long. The reason is simple, although not accepted by the self-professed nuts on corporate trade. We can't recover the old economy -- and shouldn't want to. In that economy, the U.S. served as the world's consumer. America ran up deficits as high as 6% of GDP, borrowing some $2 billion a day from abroad. Global growth -- particularly in mercantilist export nations like China and Germany -- relied on Americans spending more than they earned, running up debts purchasing goods made abroad, often by branches of U.S. multinationals. We were shipping jobs, not goods abroad, losing three million manufacturing jobs under Bush before the crash while the economy was growing. Not surprisingly, wages stagnated, family incomes lost ground, debts soared. And that was in the good times.
In his "Sermon on the Mount" economic speech, Obama summoned America to build a new economy, not on the quicksand of speculation and debt, but on the rock of investment and production. He laid out core elements of a new strategy -- investment in education and training to create the best educated workers in the world, investment in research and development to stoke new markets, building a 21st century infrastructure from a new electric grid to fast trains and modern broadband, getting health care costs under control.
But central to this new economy must be a more balanced global economy -- one where the U.S. makes and sells more, and consumes less -- and the mercantilist nations like China and Germany consume more at home and export less abroad.
That sounds simple but it requires wrenching changes. For the U.S. a first order, one reason Obama has made new energy a centerpiece of his agenda, is to reduce our dependence on foreign oil, the import of which spiked at over half of our trade deficits, sending billions abroad to the corrupt emirates that aren't exactly a hotbed of enlightenment.
Second, we'll have to change our relationship with our largest creditor -- China. Our deficit with China has peaked at an astounding 83% of our non-oil good trade deficit.
It lends us the money to buy the goods that American companies make with jobs and technology they sent there. It does so because it pursues what has been a remarkably successful mercantilist policy designed to make it the dominant global center of manufacturing, a 21st century version of what the U.S. did in the late 1800s and early part of the 20th century.
Obama's commitment to new energy as a centerpiece of the new economy illustrates the question. It isn't sufficient to wean ourselves from dependence on foreign oil if, as Steelworkers President Leo Gerard notes, we become dependent on imported solar cells and windmills. But China has designated wind and solar as strategic industries that it intends to dominate. We need a clear industrial and trade strategy of our own.
That's why the decision on rubber tires is so important. The nonpartisan commissioners of the International Trade Commission have recommended the president slap tariffs on Chinese tires now being dumped on the market. The case arises under the laws that the Chinese agreed to as a condition of joining the World Trade Organization and gaining most favored nation status. Needless to say, the Chinese are not subtle in expressing their opposition to the tariffs, and suggesting that any such action would damage our relations. This is our banker talking. Bush faced similar choices several times and folded.
But the tire industry simply exemplifies the broader challenge can't be ducked. The Chinese are intent on capturing this industry. They encourage U.S. tire makers to open factories in China, offering cheap labor and lax environmental standards and an underpriced dollar. They aren't subtle. One manufacturer was allowed to open a factory on the condition that the entire production be exported.
China has to be weaned of its export addiction, just as America has to revive its ability to make things in America. This is best done cooperatively, with a grand bargain revaluing the Chinese currency, while both nations join others in creating a more balanced global economy. But at the end of the day, it won't happen unless the U.S. is ready to stand up and act to protect its interests. Obama has already told the G-20 that the U.S. could not return to being the world's consumer of last resort. But in the midst of the global financial meltdown, the administration has chosen to postpone calling China on its currency manipulation. Eventually, however, words must be turned into action.
One last note: Change like this, however imperative, is hard, forbidding. Big interests with powerful and rich lobbies are challenged. Conservative shibboleths have to be shattered. Politicians in both parties have no stomach for it. It is a hell of a lot easier to go along and get along. This country doesn't have that luxury anymore. On the economy, health care, energy, public investment, progressive taxation, global economic strategy -- this president has inherited not simply the failures of the Bush years, but the catastrophic consequences of the conservative Age of Reagan -- 30 years in which the U.S. squandered its assets while failing to make investments vital to its future. Remember that when people say Obama is taking on too much. He has little choice if he is to be the transformative president that we need to get us out of the hole we are in.
Each Medicare patient feels entitled to have it with few strings attached. But the truth is that it is one more tax-funded program. Just like the stimulus money. Just like the wars. Just like everything else.
Robert Kuttner: A Virtuous Tax
A little bit of populist retribution is overdue against the people who brought down the system -- and will bring it down again if the hegemony of the traders is not constrained.
William J. Astore: A Seven-Step Program to Return America to a Quieter, Less Muscular, Patriotism
While ending the steroid era in baseball proved reasonably straightforward once the will to act was present, we as a country have yet to face, no less curtail, our ongoing steroidal celebrations of pumped-up patriotism.
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I suggest that two or three "manufacturing centers" be set up at different key locations in the U.S. Each would be sponsored by a different consortium of our top engineering universities. Each would offer graduate degrees in manufacturing engineering. Each would have top flight facilities available to the professors, the students and businesses. Each would be sponsored by the universities, businesses, states and the federal government.
Agree 100%; Wile the US does not protect it's manufacturing sector, China and everyone else does and are not ashamed of it. We buy cheap crap and have our money sent abroad, like idiots, while our workers go unemployed. This is bizarre. I'm in the manufacturing sector and watch China dump their goods here year after year. While it grows by an average of 10% a year, we're here waiting for Washington to wake up and stop selling out the american worker. The president thinks our problem is that health care is too high. We don't even think of health care, cheap or expensive. We're literally trying to survive, competing with factories that pay their workers $.20/hour. How the hell can we compete? I'm in the store fixture manufacturing business. We work with sheet metal parts, which get plated or powder coated. It used to employ thousand of people, until manufacturers decided that it would be cheaper to make everything in China, maximize their profits and fire the american worker. The store's continue to pay the same price. Half a dozen people take all the profit. We've been betrayed . Factories are closing every year. We need to level the play field. Tax goods coming into our ports at least 50% since China will not flout it's currency. We're being screwed and don't know whom to turn to. Washington seems to have gone deaf. Some how, Washington seems to be afraid of China..
Future imports from China need to be contingent on China fairly pricing its currency at realistic exchange rate.
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"We need a clear industrial and trade strategy of our own. "
Well said. One of the problems in implementing that approach is that the word protectionism has become a dirty word. Wen need a new word.
Levelism is that new word. Levelism merely removes the unfair advantage of low wages, low currency and low environmental controls:
http://cor
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The Obama administration in the 1st seven months of its term has borrowed over a trillion dollars from China.
And if Health care reform passes, guess who will be financing the additional debt that program creates?
If you guessed China, you would be correct.
Timothy Geithner, our tax cheating treasury secretary, has already been to China twice to convince them to lend us more money., so don't look on any trade restrictions on China anytime soon.
At the same time, here at home, the head of the Federal Reserve has been running the printing presses non-stop deflating the value of our currency.
How's that Hope and Change working out for you?
I was disgusted by the Bush Administrations failure to enforce fair trade agreements by putting sanctions on China for it's unlawful trade practices. I sincerely hope that President Obama will take this opportunity to show China that he is serious about creating a new trade policy. Slapping China with the Tariff recommended by the International Trade Commission seems to be the best way to do this.
China will, of course, come to the next G-20 very angry. So what? They need a wake up call. I can't see the rest of the G-20 siding with China when the tariff has been recommended by the International Trade Commission. This seems like the perfect opportunity to stop the downward spiral of our manufacturing sector.
Borosage is right, of course, in every respect. But if you think creating a health care system is proving to be difficult, wait until you leap into this catastrophe waiting to happen (already happened?). I think Borosage is proposing something our corrupted, conservitive moneyed political system simply cannot and will not handle. I realize this is like saying we are doomed. So, even if it sounds crazy, I will say it. We are doomed.
Maybe if we were an authoritarian capitalist society like China, this type of change could be accomplished. But the "No we can't!" center of the Backwoods Governmental Universe? No way.
I can understand your feelings of hopelessness, but giving up is the worst thing you can do. I think the the over-riding issue right now is getting corporate money out of politics. Once that is done, we can then address the other issues more rationally. But, in the meantime, we must do the best we can to address the other issues within our flawed system of government.
Repeal NAFTA, GATT and Bush tax cuts, place tariffs on imports to get manufacturing jobs back, legalize cannabis to feed, clothe the world and end the drug war/private prison complex, make higher public education free and forgive student loans to give US a competitive advantage, end war-profiteering and mercenary armies, abolish the Fed and let our Dept. of Treasury do its job, shift the Pentagon budget to building a green economy, remove corporate person-hood to prevent their buying the government, restore the Fairness Doctrine and improve it, end the revolving door, let the people vote to decide contentious issues like ending war, pollution and establishing progressive taxation, say that we got our ton of flesh as revenge for 9/11 and leave AfPak, establish a Department of Peace, understand that to fix our economy we have to fix our ecology,..
Hope springs eternal.
I agree with you Mr. Borosage, this is a troubling issue facing this country and President Obama as he proceeds through the myriad of troubles that he has inherited.
The hour is late now; it is long after those doors were flown open with President Reagan, right up through the most recent Trade agreement under President Clinton. All the while, we rushed to the best prices and built the empire of Wal-Mart.
At this point, American workers will be hard pressed to afford our own tires, let alone the cheaper imports. We can implement Tariff’s and Cap and Trade but how will the growing sector of the working poor afford gas let alone new tires?
We have a Congress that can and does vote themselves raises (How else can they afford the increased cost of living?) perhaps having their pay attached to minimum wage on a percentage basis could help alleviate the disparity from their world to the one they so charmingly claim to understand and solicit votes and more insulting, donations for their job quest.
Everyone wants the best price: Retailer’s, Wholesaler’s buying component parts, Shippers, Oil and Gas suppliers, and yes, the consumers too.
So we shall save the tire manufacturers now? Save the largest; banks, brokerage houses, insurance firms, and auto?
We should only buy from those who follow environmental guidelines, employment standards and our companies that don’t ship overseas and find tax shelters to protect the assets or our own investment.
Regarding the President's address on health care:
"Let me say this about that" J.F.K.
Congratulations President Obama! Your outline of what you propose could not have been made more clear, and can only help everyone in America. To those that still oppose this progressive approach I can only say. " Oh ye of little faith", and I'll add "little charity".
To Rush, Beck and the like who only care about their ratings, I say, "You are nothing compared to the President of the United States" who's only true goal is for the betterment, and to do right for all the American people.
The U.S., for better or worse, has been the leading supplier of international liquidity for many decades now. The recent surge of liquidity out of U.S into the world market is the latest example of how the entire globe is highly dependent on the well being of our economy. Traditionally, the monetary policy has been used as a hedge against inflation. Only now we are realizing the tremendous role the American monetary policy as instituted by the Fed is playing in international economic growth and prosperity.
It is time we took another hard look at the merits and practices of the monetary policy in the U.S. in the light of a more globalized economic system that is emerging to dominate the world. The key question is how can we continue using monetary policy as an engine of growth while we maintain currency valuation fluctuations within a reasonable range to foster stability in the global markets?
Economists need to take an even closer look at monetary policy as it has been the source of our greatest surge in global prosperity and likewise the cause of our latest peril in the collapse of the global financial system.
"To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort." Rand
Mr. Borosage fails to point out that the USA is the world biggest arms merchant. A hell of a way to get foreign currency.
Maybe there should be some diversifying away from arms sales!
Central planning and protectionism fail- see Soviets (circa 1985) and Chinese (Red).
While you think more tires should be made here, perhaps more tires should be made where the booming market for tires is headed, and where there is a greater supply of manufacturing workers (given the Chinese have lost more manufacturing jobs than we have). I'd much prefer the market determine this than you, or Obama.
Thank goodness you weren't in charge of the US in 1870, you probably would have made sure the tenement dwellers got three squares and health care while leaving the rest of the country to native americans. And we'd all be speaking German now.
You seem a bit delusional. Industrial policy and protectionism work just fine when done well. Note Japan, Korea, and China. Agreed that overly tight central planning isn't likely to work. That is because ideology taken to an extreme fails. That is what we have done with free market laissez faire.
The U.S. has to eliminate trade deficits and rejuvenate manufacturing and tech or sink lower and lower. China is not leaving things to chance. It has strict exchange controls, limits FDI, requires tech transfer, pegs its currency to its advantage, and on and on. Comparative advantage is created these days. We have to step up and play the game.
"The U.S. has to eliminate trade deficits and rejuvenate manufacturing and tech or sink lower and lower" I agree
After WWII America was at the top of its game for many decades.
But the party is over.
Do you really think we can tweak ourselves out of this?
The very last thing we need is more Bush - more Obama - spend - spend - spend - war - war - war.
Americans, thus far, have fallen for the same old bs from these broken political parties and special interests.
A change I can believe in:
Freeze all federal spending increases and at the same time federal spending is reduced by .5 % each year.
Force the taxpayers - i.e. the voters to pay for what these politicians
are actually spending - as they spend it.
A couple election cycles of reality will help the voter decide who best to
govern.
That is how you get honest government.
unless and until the govenment can reduce federal spending by 1% each year.
I disagree. Much of our prosperity can be traced to our large and innovative infrastructure. Much of that infrastructure was built through the use of debt. Debt can be a useful tool. To ignore the usefullness of debt, appropriately used, is to ignore basic financing and investing knowledge.
" Much of our prosperity can be traced to our large and innovative infrastructure. Much of that infrastructure was built through the use of debt."
Excellent, I agree.
All this is true but you need to add the idea of environment. Corporate America abandoned manufacturing in America when environmental restrictions got teeth. Clean air and water made them flee. The solution is not to weaken our environmental laws but to get the Chinese to take responsibility for the pollution they create especially CO2. If the planet has sensible rules that are universal it will make moving manufacturing less appealing.
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