The Trouble Today with the Economy

The trouble today with the United States economy is that the U.S. refuses to compete in the globalized economy, even though, as The Economist magazine reported recently, "Business these days is all about competing with everyone from everywhere for everything."

In globalization, the so-called "comparative advantage" is no longer God-given or determined by the weather, as was the case, two centuries ago, with David Ricardo's English woolens and Portuguese wine. Now commercial success is largely created, or not, by government policies, and the United States government refuses to compete for such success. In fact, our high standard of living has become a "comparative disadvantage."

In the United States we rightly require manufacturers, beyond competing, to comply with: clean air, clean water, labor rights, a minimum wage, Social Security, Medicare, a safe working place, safe machinery, plant closing notices, parental leave, etc. China requires none of this, and China, Japan, and Korea compete in international trade for market share, by closing or controlling their markets, trading at cost, and making up the profit in closed markets. Is it any wonder that Toyota is now the #1 automobile manufacturer as GM, Ford and Chrysler struggle just to survive?

We need to compete, to trade.

When I was in the Senate, I worked with Corporate America to keep our textile industry strong by passing a protectionist trade bill in 1968. President Lyndon Johnson, however, had Wilbur Mills, the powerful Chairman of the House Ways & Means Committee, block the measure.

Again with the assistance of Corporate America, I helped pass four protectionist trade bills through both Houses of Congress only to see each of them vetoed -- one by President Jimmy Carter, two by President Ronald Reagan, and one by President George H. W. Bush.

As Sir James Goldsmith testified before the Committee of Commerce in the United States Senate in 1994:

"It must surely be a mistake to adopt an economic policy which makes you rich if you eliminate your national workforce and transfer your production abroad, and which bankrupts you if you continue to employ your own people."

But sadly, that's our policy today.

Denied protection by Democratic and Republican administrations, Corporate America began outsourcing and offshoring. Now Corporate America opposes our government competing in globalization with chants of "free trade," "protectionism," "don't start a trade war." Our nation's business leaders and their economists, use every trick in the book to mislead on "protectionism." They form organizations like The Trilateral Commission and The Business Roundtable, and promote books like "The World is Flat" to warn against protectionism. Even Time magazine joins the conspiracy by rating the United States #1 in the global-competitiveness race. The truth is globalization has become nothing more than a trade war, with the U.S. AWOL.

The irony is that we started the United States with protectionism. In his very first message to the first Congress in 1789, President George Washington counseled: "A free people should promote such manufactories as tend to render them independent on others for essential, particularly military, supplies." And the first bill to pass Congress, on July 4, 1789, was a 50% tariff on numerous articles. We financed and built the United States of America almost entirely with tariffs for more than a century. We didn't adopt a federal income tax until 1913.

Edmund Morris, in his remarkable book "Theodore Rex" about President Teddy Roosevelt, describes the United States winning the trade war with England. Roosevelt exclaimed at the time, "Thank God I am not a free trader."

Yet as jobs and production hemorrhage in this century, rather than stopping the outsourcing, the President and Congress shortsightedly stimulate the economy over and over again - to the tune of over $4 trillion in the past eight years. And it is not just jobs and production we are offshoring, but also research and development, high-end services and critical military materiel.

Congress must vigorously (re)assume its responsibility under Article I, Section 8, of the Constitution for regulating trade. It must protect our important production and standard of living. It must make it profitable to invest and produce in the United States.

As Paul Krugman suggests, we must "engage in some serious infrastructure spending." But a value added tax is in order, long overdue. Every industrialized country except the United States has a value added tax, which is levied on all imports and rebated to manufacturers whenever they export. Today, however, imports into the United States come without any taxes being imposed on them, and U.S. manufacturers not only must pay all corporate taxes but the VAT on their exports.

A U.S. VAT would immediately remove a tremendous disadvantage to production in the United States and begin to deter outsourcing, and the revenues from it would help eliminate both our massive fiscal and trade deficits. Since it would take a year for business and the Internal Revenue Service to gear up for a VAT, in the meantime, we should institute a 10% surcharge on imports as President Nixon did so successfully in 1971.

We must also activate the Commerce Secretary's list of materials critical to our national security. By placing tariffs or quotas on items necessary to our national security and producing them in-country, we will not only be better prepared to defend ourselves but we can put American workers back to work. In 1991, Admiral William Crowe, who was then Chairman of the Joint Chiefs of Staff, warned against the outsourcing of military supplies. In Desert Storm we had to await Japanese flat-panel displays before invading Kuwait. We had to await Swiss crystals before invading Iraq. Now we can't produce planes unless we get certain parts from India, and helicopters unless we get parts from Turkey. This nonsense has got to stop.

As President Lincoln said:

"As our case is new, we must think anew and act anew. We must disenthrall ourselves ... and then we shall save our country.

Comments

[Andy764383]

The fundamental problem with our economy is it's based on spending, not saving. Any arguments about other aspects are red herrings meant to confuse and baffle the easily confused and baffled.

http://blog.topicaltopics.net

[WgS]

Seriously, if we all put in the same amount of time picking up the garbage than we put into slinging it around, the same amount of time re-building and fixing the things we already have that are broken than we do breaking everything and blaming everybody but ourselves and nourishing and nurturing life and creativity than we do denigrating and destroying most living things, it would solve an awful lot of the problems that face us today. Be my guest, I guess, it's a free country in theory so long as you got the right credit rating. Personally, I think we all just a tad lazy, so I am back to doing what I can when and where I can.

[NABNYC]

I disagree. We, the people, own this country. We have the right to set things up the way that benefits us. It does me no good at all to have U.S. corporations send most of their jobs to third world countries to be done by child, slave, and prison labor. The CEOs of those same corporations make hundreds of millions in labor "savings," but I get nothing. In fact, I lose because my neighbors are either thrown out of work, or their wages and working conditions are crushed as more U.S. corporations flee to the draw of slave labor and unrestricted corporate rights to throw poison everywhere in third world countries.

We, the people, do not need to "compete" in the global world. For example, let's grow all our own food and ban imports (which are so often disease-ridden or poisoned). Let's make our own clothes and buy fewer. Let's build and use public transportation. Let's create solar and wind power and get out of the oil racket. Let's make our own computers.

Let's build homes, provide healthcare, educate and take care of our children. Those are the things we "need" to do. The whole globalization frenzy is just a big con that's been used to divert working people by claiming that they somehow will benefit when all the jobs are gone. Nonsense. We would benefit if the people who have been running this con were in prison. Bring the jobs home, stop the imports, start over.

[WorldGriot]

Isn't that what the Senator said? With what do you disagree?

[TheFriendlyAtheist]

Senator, you are spot on. No nation can survive as a great jpower if it ousources it's manufacuring base. No nation should be able to import duty free into the U.S. unless they have comparable wages and working conditions. To let American industries relocate to other countries and then ship their wares back to the U.S. duty free is economic suicide; to give them tax breaks for doing so is insanity.

[jotunloki]

Ah but the great and powerful Reagan said we needed to become a service based economy.

[LanguagePolice]

Actually, we need to become a value-based economy- and I can't say I disagree with Sen. Hollings.

Here's an article written in April of this year that seems to predict pretty much what will happen.

I think that, if our economy "contracts" significantly, which I think we can expect it to, then prices realtive to income may come down. Then if Sen. Hollings protectionist policies are adopted, the money stays here in the US.

[demockracy]

Senator Hollins was the lone Democrat in the Senate who supported Gramm-Leach-Bliley. This bill ended the depression-era protections provided by a law called "Glass-Steagall," and led to our current Wall St. meltdown.

Ricardo's "comparative advantage" specifically counted on immobile capital and labor to be operative. Neither is true now.

The U.S. has practiced protectionism regularly unless it wanted entry to a market with infant industries that its own commercial heavyweights could beat up (think of Admiral Perry in Tokyo harbor, threatening the Japanese with cannon if they don't open their markets). For the complete story read Ha Joon Chang's "Bad Samaritans."

As for the Senator's VAT proposal -- this is clearly a mostly regressive tax. It's perfect if you're a Reaganite. Reagan lowered the top tax brackets, then, between him and Bush 41, quadrupled the regressive payroll tax. In this environment, if minimum wage had kept up with CEO compensation over the last decade, it would be $25 an hour (says the NY Times).

What about re-raising the income taxes on the top brackets? What about closing the outrageous loopholes that allow our current president to "earn" three-quarters of his net worth by scamming the citizens of Arlington TX out of a stadium? Why isn't there a tax on securities trades like there was in World War II?

Is VAT and Gramm-Leach-Bliley really the best you've got, Senator?

Should we really be taking economic advice from you?

[harveyr2]

Protectionism is not a winning strategy. It never has been and it never will be. It is not allowed in sports competitions, it is not allowed between companies within the United States, and it should never be suggested as a strategy between companies inter-country.

Americans, all of us, including myself, need to work harder. Not just at work, but in everything we do. Our public schools are a mess. The drop out rate is too high. The academic standards are too low. Listen to the liberal's excuse and you'll hear that we need to ship more money to the teacher's union. Nope, that hasn't worked for the last forty years and it certainly won't work today or tomorrow.

Pay for performance is the answer. There is absolutely no reason why an outstanding public school teacher is paid any less than an outstanding manager. It is time for this to change. Likewise, there is no reason that a lousy public school teacher remains in his/her job.

[Overd0g]

Yes there is: supply and demand.

[jsarets]

When Smith and Ricardo formulated the basis of market capitalism, they assumed partially globalized markets for commodities and products but strictly nationalized markets for capital and labor. The theory of comparative advantage, which is the underlying justification for global capitalism, degenerates into absolute advantage if the factors of production are internationally mobile. That's why capital is flowing toward lowest productive cost rather than toward lowest opportunity cost as predicted.

So while Fmr. Sen. Hollings' proposal of productive protectionism is one possible solution, another solution is capital protectionism, whereby banks are prohibited from exporting credit. This option has the advantage of not causing regressive price increases on imported consumer goods. It simply recognizes that if capital is the basis of production, then there is no public interest in trading our nation's capital abroad in exchange for anything.

If we want to have an employment society rather than an entitlement society, then we need a public financial system that issues interest-free currency and directs the flow of capital to private enterprise on the objective basis of employment. Businesses earn credit by employing Americans, and so long as there are unemployed Americans, there is credit waiting to be issued to any business who would employ them. This would almost entirely replace the role of government in Keynesian interventionism.

[WmC]

Fritz Hollings should be remembered for one of the all time great zingers. An opponent running against him challenged him to take a drug test and make the results public (as the opponent had done.) Hollings said, "I'll take a drug test, if he takes an IQ test."

[TRIATHLON]

(DC) CANDY MEN TO WALL ST., CASINO ADDICTED GAMBLERS (PART ONE)

Now, we have both (NIP"s) Nominee for the Imperial Presidency acting in concert to provide a fix, an injection of more capital to the addicted gambles in the City State of New York City, The Economic Arm or the (USMIC) United States Military Israeli Complex the (NYSE) New York Stock Exchange, some have referred to this action a Rich Man or Corporate Socialism.

Another school of taught is that Wall St., own"s both K-Street, and the Beltway professional politicians, "the best politicians money can buy", and this is just a return on their investments.
And, others as just plan nuts, giving addicted gamblers more chips to double down with, the same addicts, in the same game, with no action to stop the game, pull the addicts, and set casino rules as to the limit of risk a customer can take pay as they go unless they can prove a line of credit, just as much as stopping card counters or insider information from being used to change the odds.

[Realization]

It is obvious that comparative advantage is created. Every advanced economy except the U.S. realizes this. Lack of rational policy puts U.S. industry is at a tremendous disadvantage. It is like playing basketball with one team playing full court and the other (us) not allowed to penetrate beyond the three point line. The result is obvious. It is time for an industrial policy to target industries. Can you always get it right? Probably not but is is better than no game plan. The main difficulty is doing this is free marketeers or those who have been bought by the competition (foreign) who get in the way.

The goal should be to provide the best products at the best price. If you have to redraw some things so be it. The VAT is essential. Targeted depreciation is essential. For port security there should be fees on imports to cover all costs. And on and on....

If American products are not up to snuff the question should be how do we make them the best? I suggest looking for best practices from overseas. This includes allowing foreign firms to access our market as junior partners in jount ventures - with transfer of technology (use the Japanese model).

Time for Americans to take pride in Made in America and for us to get back on top.

When it opened to the West, Japan's motto was "Rich Country, Strong Army". We might adopt that ourselves.

[DoTheMath]

Now even Greenspan is admitting the "free-market" philosophy that he followed as Federal Reserve Chairman was "flawed." According to today's Bloomberg article on his testimony to Congress:

Greenspan said he was "partially" wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected. Forecasting is an inexact science, he said.

"If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,'' Greenspan said. ``Forecasting never gets to the point where it is 100 percent accurate.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=ah5qh9Up4rIg&refer=home

I've got news for Greenspan. You don't have to be an economist or a fortuneteller to predict that if you allow people to get rich by gambling with other people's money, it's not going to end well.

[BobsNotWorking]

Particularly when 90% of the money supply is based on debt. The "not going to end well" is an understatement. The world has never before seen a 90% de-leveraging like it is about to see. If the central bankers don't find the magic pill this will become far worse than any of us can now imagine.

[Overd0g]

In other words, if you allow people to freely associate, bad things will happen. Nice.

[DoTheMath]

When a "creative" lender can sell someone who wants to buy a home, not just a mortgage, but an "innovative product," which the homebuyer has little chance of understanding and which transfers all risk of loss from the lender to various unsuspecting investers, how hard is it to predict problems?

How hard is it to predict that lenders who have everything to gain and nothing to lose might not be particularly careful in deciding whether homebuyers can afford the "products" that will rake in the biggest profits for the lenders? How hard is it to predict that lenders might sell higher cost subprime mortgages even to homebuyers who could have qualified for cheaper traditional mortgages if it meant more money for the lenders?

[tea in the harbor]

For the most part Senator, you are probably right. What you fail to take into account is the treasonous nature of both political parties. They are both far more interested in political power than they are in the good of the country. Mr. Washington referred to this problem as well, calling political parties "The bane of Democracy" in his final address as President, and warning the people that they are absent from our Constitution for a reason!

Serving two masters, party and country, will always create conflicts of interest. Political parties also create a conduit for malfeasance, they supply the infrastructure for corruption. When I see a President renounce their party as part of their inauguration, I will believe, until then I consider all politicians enemies of the people, they have sworn allegiance to an organization whose goals are in conflict with those of our nation and should be disqualified from public service on that ground alone!

[JacqueItch]

Couldn't agree more, TitH.
The even more insidious contention following along the lines of what your said is that both parties now operate in collusion.
At least when their agenda conflicted--- like two warring tribes over the same hunting ground rights--- their disagreements held in check the tendency to allow greed to completely dominate.

That is no longer the case.

As in the mad rush to confer anti-Constitutionally the power onto Bush to wage an illegal pre-emptive war of aggression, both parties have blantantly showed that their common desires are now to share whatever they can poach without regard for their starving families back in the village.
Most of Congress should be prosecuted and found guilty using the RICO clause.

[gabbinjane]

Let's see - Protectionism, higher taxes, concessions to Big Labor, forcing higher wages - sounds pretty much like what Hoover and FDR did, producing the longest and worst depression in this nations history!! Insanity - (def) - doing the same thing over and over, expecting to get a different result. Ann Coulter was RIGHT!! American Lefties ARE all crazy!!

[tea in the harbor]

Have you been awake at all in the last eight years?

I'll give you Hoover, but FDR's policies ended the depression and enabled us to help defeat Hitler, that isn't all bad, is it? Nice little piece of political hackery though, the unthinking minions of the right will pat you on the head! The problem is that neither your ilk or the lefties are going to do anything but bleed this country dry to enhance your own situation.

[Overd0g]

Hirohito ended the depression. FDR extended it.

[cjgnew]

Part II

McCain's insistence on total victory in Iraq/Afghanistan (whatever that means) will be our downfall, just as he went down over Hanoi by insisting on dropping his ordnance even though he had a locked SAM on him. Instead of taking immediate evasive actions, he waited until the SAM took his wing off, at which time he had no other choice but to eject from his plane right over a lake in the middle of downtown Hanoi. McCain is a poor tactician, just as managing his campaign has shown. Those who will vote for McCain on November 4th have no understanding that what we need in the White House is a real tactician, not some hot-headed, washed-up wannabe top-gun who has no clue of the
interrelation between economic and military strengths.

Carlos Jean-Gilles
Saint Louis, MO

[jeffrey678]

United States Politicians are for sale. Sen. John McCain's in-laws (wife's family) received an exclusive alcoholic beverage contract from the country of Vietnam for his support of a trade pact with that country. It is worth tens of millions of dollars. This is just one example.