Smoot-Hawley here we come.
Willis Hawley and Reed Smoot, you may recall, sponsored the Tariff Act of 1930 that raised tariffs to record levels on more than 20,000 imported goods. The duo said this would protect American jobs and revive the economy. It did the reverse, plunging the nation into an even deeper depression. Other nations retaliated. Global trade plummeted. Americans got poorer, as did millions of others around the world.
Why do I think we're on the way back to Smoot-Hawley? Because with Republicans and blue-dog deficit hawks gaining ground after November 2, the chance of boosting the economy with an "infrastructure bank," another big spending package, or even a big round of middle-class tax cuts is roughly nil. This means a lousy economy -- possibly for years.
And that leaves trade as a sitting duck.
High unemployment turns the public against trade. In a recent Wall Street Journal/NBC News poll, more than half of those surveyed (53%) said free trade hurts America. That's up from 46% in 2007, and just 32% in 1999.
Traditional big-business Republicans support trade. But the tea partiers who are taking over the GOP don't. An astonishing 61 percent of people who describe themselves as "Tea Party sympathizers" say trade is bad for America. That's close to the 65 percent of union families who are against trade.
Think about it. The ground troops for both parties -- tea party Republicans and union Democrats -- believe free trade is bad.
The tea party movement represents the isolationist wing of the GOP. It's a direct descendant of Mr. Smoot and Mr. Hawley. Not only are tea partiers against trade; they're also against immigrants. At the first national convention of Tea Party Nation last February, former Colorado congressman Tom Tancredo brought the crowd to its feet by denouncing America's so-called "cult of multiculturalism" and accusing immigrants of threatening America's Judeo-Christian values. "This is our country!" he declared, to wild cheers. "Take it back!"
Neither trade nor immigration has been responsible for the huge job losses of the Great Recession. These losses have been due to the bursting housing bubble and collapse of domestic demand.
But dig deeper and you'll find a longer-term truth about trade. While all of us have benefited from access to lower-cost products made abroad, the burdens of free trade have fallen disproportionately on what we used to call the working class.
Globalization is part of reason the median wage of male workers hasn't risen in three decades, adjusted for inflation. Starting in the late 1970s, technologies like cargo ships, containers, and satellite communications, followed by computers and the Internet, enabled companies to efficiently parcel out work around the world wherever it could be done most cheaply. The result has been to undermine unions and destroy many good-paying routine jobs in America.
Meanwhile, the biggest benefits have gone to the top -- to executives of U.S. global corporations, Wall Street financiers, big-name entertainers, and the most successful digital entrepreneurs. All have been sufficiently educated and well-connected, or lucky enough, to find a huge and growing global market for what they sell.
The consequence has been a degree of inequality not seen in this country since the late 1920s.
The winners from globalization have gained so much that they could have fully compensated the losers and still come out ahead. They could have financed better schools and free higher education for most Americans, along with wage subsidies that brought almost everyone up to a higher standard of living.
But they didn't. Instead, they fought to keep their tax shelters, loopholes, and lower marginal rates, and they fought against more outlays for public investments and social safety nets. Wall Street got bailed out but Main Street got zilch.
So we're on the cusp of new isolationism that's likely to hurt all of us -- a backlash against free trade, immigration, and maybe even international bodies such as the World Trade Organization, the World Bank, and IMF.
Isolationism and nationalism are the handmaidens of an economically anxious and frustrated middle class. That was the lesson we learned 80 years ago, but forgot.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
However, schools are well funded. The problem with American public schools is that they are doing exactly what they were intended to do: to keep the people ignorant and pliable.
In inflation-adjusted dollars, we are spending twice as much per capita on education as in 1970, with much poorer results. We need a system such as is in use in Scandinavia and Japan, where funding follows the student to the school they choose. We need competition in public schools.
As for the economy: the bubble was part of the problem, another is the shift away from traditional manufacturing - as large a shift as the shift away from agriculture. New technologies are on the horizon that will make all of us unimaginably wealthy - if we don't kill ourselves first.
Protectionist policies lead to war. This has been a major cause of almost every major war in history, including the American Revolution, the War Between the States, and both World Wars. If we want a future, we must embrace Free Trade.
Man, it's not like we could miss Jeramiah Perot warning us what was coming.
The problem is when the "Big tent" tea party opens its door to those Bush style politicians that were thrown out during the past election. The Bush wing of the party was able to gather only a 25% approval rating from the voters.
Freed from that wing of the party, the tea party movement has gathered about a 35% approval rating. If the anti-trade , anti-immigration, anti- gay wing of the Bush Republicans, morphs into the tea party movement, the approval numbers will fall back into the 25% range. Everything that the tea party movement stands for will be lost.
My message to tea party members.
NO SOCIAL AGENDA !
Subsidies, especially in prosperous fields where only those nations with the highest technologic compete - green energy f.ex. - is a much smarter way and it will provide jobs faster because there is much more potential waiting to be unleashed.
Just an idea that comes to my mind: Advertise an offshore, wind turbine power plant. Offer state- backed credit lines for the necessary company investments. Just make it a condition that not only the price tag is considered in the biddings but same priority is given to built the whole plant as energy efficient as possible. What will happen is that whoever wins the bidding has to produce the turbines within the US because oversea transportation isn't efficient and many low- cost countries still have production lines which are too wasteful in comparison.
Power plants you need anyways, so overall the tax payer money used as an incentive has to be spent on this one way or the other anyways. No one can and will reasonably object that investments in green tech only make sense if the process it "green" from start to finish. And it will lead to developing skills and technology you can later sell abroad.
I think the big problem with Reich, is he refuses to acknowledge that a double digit percentage of the labor force simply doesn't have the ability to learn the new skills he constantly believes are attainable for those who have been outsourced/disinfranchised by trade/trade deficits with totalitarians.
Too manyLimo liberals don't recognise that there is a bell curve when it comes to IQ and it severely handicaps the abiity of millions to adapt to economic change at the rate he/they constantly advocate(s).
How many times has he stated the Pollyanish notion that free trade brings economic displacement, but offers an oportunity for the displaced to learn new skills that will lead to greater productivity?
But, what is Mr. Reich's solution to job losses caused by globalization? In his article, he addresses all the "could haves and should haves" of America's ruling class but fails to provide any alternatives to the widespread calls for trade tariffs.
The current situation encourages corporations to export jobs and then to import their products, manufactured by cheap foreign labor, back into the US. What's wrong with this picture? It's good for the oh-so-clever CEO's who reduced their company's labor costs and it's good for shareholders - it has been a disaster for workers and for America's middle class.
The current situation, if we are to maintain any semblance of the American dream, must be radically altered. Mr. Reich may be right that trade did not cause the job losses; he is not right to argue that, without other changes, tariffs are not a remedy.
Other changes, i.e. changes to globalization that could preclude the need for tariffs, should include:
1. make exporting jobs a crime equivalent to treason
2. change corporate charters to mandate a societal objective
3. give corporate voting power only to workers and public representatives (strip non-employee shareholders of voting power) and
4. eliminate the capital gains deduction for stock sales in companies that export jobs.
The current system is corporatism; not democracy. It's capitalism; not pro-people socialism. It's profits before people.
Sadly, too many of us have been duped into accepting, in the name of liberty, a system that will ultimately destroy us. There is no liberty in poverty.
We need to become a socialist nation. We need to put the American people back in charge of the country's primary economic engines (i.e. corporations). We need to empower workers over shareholders and work over capital. What good is the right to vote when we cannot vote to stop corporations from abusing American workers? What freedom do we really have when corporations take risks with our air and water and soil and the very health of our population? What hope can there be when we our forced to compete for jobs with foreign workers earning a fraction of what we require to sustain ourselves?
It's all about taking power away from the elite ruling class. Call it Marxism. Call it Socialism. I like to think of it as good old democracy in action. We need to make these corporations respond to the will of the American people.
Visiting any major country outside of the USA you will notice a form of "isolationism and nationalism" in most countries. These countries have industrial policies which the USA does not. Only in the USA has globalization penetrated so deeply and accepted as status quo. Cheap, low cost is the mantra while in most major countries citizens are not too bothered paying a bit more for locally produced products.
"Isolationism and nationalism" can be interpreted in a number of ways but what is most important is nations should look at it's industrial policy that benefits the broader citizenry. Having a functional industrial policy makes sense.
1) Trade is good.
2) The question becomes what kind of trade?
3) As the world markets are constituted today---globalism---Free Trade is meaningless. It is meaningless because the Global Corporations can dominate the rules of that trade to the best interest of the capitalists and the greatest damage to the workers.
4) So the issue is not Free Trade (that is what the capitalists and Wall Street wants), but Fair Trade (that is what the workers want).
Trade is not equal if wages in the producing country are a fraction of wages in the consuming country.
Trade is not equal if hours worked per person in the producing country is unrestricted and not in the consuming country.
Trade is not equal if the producing country does not have to pay to reduce or prevent pollution while the consuming country DOES bear those costs.
Trade is not equal if the producing country does not have to pay similar social costs as the consuming country.
There are other variables to consider, as well.
History is all about trade. Without it, we are the Republic of the Congo.
China's riding high on their Most Favored Nation status, a lot of people are trying to figure out how to invest in China, and maybe get a piece of all of that.
And, China's not the only overseas manufacturing center.
America just plain flat can't do it all. And, the cup will likely pass from us to whichever country/countries open their doors widest, and fastest, to market demand.
It's funny when I see people saying they're putting their kids into Mandarin classes. No doubt it's useful to learn another language; however, when I was in school everyone was saying how Japanese was the key economic language to learn and Japan would be the next big superpower, now its Mandarin, by the time my children finish school it will be Hindi. By that time India will have a larger and younger population than China with faster growing economy and far more economic potential. Don't say I didn't warn you.
That's exactly what we do. It's called the principle of comparative advantage. It's one of the reasons that we are the richest country in the history of the world.
The gross value of US industrial production in real terms is about 35% higher than in 1990, about 72% higher than 1980 and about double that in 1972.
This relative (not absolute) decline of manufacturing reflects the experience of all countries as they become more highly developed. see charts 9 and 10 at http://www.bls.gov/opub/mlr/2007/12/art4full.pdf and ftp://ftp.bls.gov/pub/special.requests/ForeignLabor/prodsuppt05.txt
The "percent of employment in industry" for Germany in 1970 was 48.7%. By 2009 it was down to 28.5%.
Manufacturing output has grown relentlessly except during recessions. Here is the real (ie adjusted for inflation) value add (i.e. subtracting inputs including imports) for US manufacturing for each year from 1987 to 2009 (in billions of 2005 dollars) - 864.6 925.1 935.8 923.4 909.2 939.5 977.2 1,041.7 1,084.6 1,119.3 1,186.5 1,245.8 1,312.7 1,396.5 1,332.1 1,365.3 1,404.8 1,517.9 1,568.0 1,636.6 1,709.8 1,647.4 1,550.6
You can get the numbers yourself at http://www.bea.gov/industry/gpotables/gpo_action.cfm?anon=563271&table_id=26690&format_type=0