So much for the $700 billion bailout of Wall Street. Clearly, once the bailout passed, investors took a good look at the real economy and went to the mattresses. We're headed into a great reckoning. And at the heart of that, as illustrated in the new Institute for America's Future op ad in the New York Times -- "Even the Rope we're Hanging Ourselves with is made in China" -- is this country's unsustainable global strategy. To see the ad and supporting charts go here.
This is a result, as Barack Obama has stated, of a failed economic philosophy -- the "market fundamentalism" that dominated Washington over the last thirty years, the notion that markets are efficient and self-correcting and, as Sarah Palin repeated in the last debate, governments should just get out of the way.
What that meant in practice was the worst forms of crony capitalism. Abroad, global corporations and banks essentially wrote the constitution of the new global economy, protecting property rights but not workers, consumers or the environment. Financial flows were deregulated opening the casino up for business. Banks were favored; the military industries protected; agribusiness subsidized.
At home, Reagan launched the war on unions, and rolled back government and regulation. The minimum wage was frozen for a decade. Undocumented workers exploited to undermine wages and standards. Banks got rid of the protections built during the Great Depression. Companies used globalization as a club against workers. Pensions and health care benefits were rolled back... Over the last eight years, productivity and profits rose, but wages lost ground. We lost one in five manufacturing jobs. Now some 15 million service jobs are at risk of off-shoring.
Yet this global economy depends on American consumers as the buyers of last resort. Sustaining a low wage, high consumption economy is no mean trick. The gulf was bridged by mountains of debt and successive asset bubbles. Household debt soared to unprecedented levels, as Americans loaded up on credit cards and cashed out their homes. And the US is now the world's largest debtor, having added over $4.4 trillion in foreign debt since 2001. We must borrow or sell off assets with $2 billion a day simply to cover our trade deficits. We now run a high tech trade deficit with China. Mexico exports 50% more cars to the US than the US exports to the rest of the world.
What can't go on indefinitely, won't. And with the bursting of the housing bubble, the reckoning is here.
Clearly we need to change course. We need a national economic strategy for a global economy, a strategy for the nation, not for the multinationals that have very different interests.
Yet our political debate is still frozen into a silly spit ball fight about "free trade" and "protectionism." Barack Obama questions NAFTA-type accords and is charged with "protectionism" in editorials across the country. John McCain, a stalwart of the failed policies of the last two decades, still intones the old "free trade" mantras, denouncing critics as lacking "faith in the American worker."
This mindless debate has been going on for three decades, as the country has sunk deeper and deeper in debt. Surely in the wake of the current crisis, it is time for an adult conversation about a strategy that would sustain a prosperous middle class in a global economy.
That means deciding if America will remain a center of innovative manufacture. A concerted drive for energy independence will not only reduce the half of our trade deficits that go to oil, but could capture the green technologies that will drive the markets of the future.
It means deciding if we are going to sustain a broad middle class. That would require forcing business to compete within the framework of a high wage economy -- not by tearing that framework down. Empower workers to organize, raise the minimum wage, and build a public social contract starting with health care and pensions to replace the promises the corporations are shredding.
Then we've got to change our federal priorities from policing the globe and top end tax cuts to making the vital investments here at home -- in education and life long learning, in R and D, in the most efficient infrastructure.
Finally we'll need to dispel the myth that the mercantilist nations like China are playing by the same set of rules. With China now our leading creditor, this won't be easy. But we must find ways to bring our trade with that country into balance -- either by currency adjustment, by managing our trade, or by a surcharge on imports that will force the change.
These aren't the only answers; they may not be the best ones. But surely the question of our national strategy in the global economy can't be put off. That's why McCain's decision to turn his campaign over to the Karl Rove's protégés in character assassination is so dishonorable. We deserve a debate worthy of a great nation in trouble. Brickbats about Bill Ayers or Palin's Alaskan separatist husband are simply insults. Americans deserve better. And McCain and Palin may find out that they just may demand it.