Lou Dobbs: Right on Trade, Wrong on the Reason

As my wife and I returned from the northwoods on Wednesday, we tuned into the Lou Dobbs radio show.  One particular exchange with a listener caught my attention.  Lou complained that “it’s unfair for the middle class of America to be expected to compete with the low wages in other countries – people working for a dollar an hour or less.” 

Before I go further, let me be clear that I admire Lou for his stands on trade and immigration.  But I’m afraid that the reason for the trade deficit that Lou implied with this comment only helps to perpetuate the deficit.  As long as people believe that we have a deficit because of low wages in other countries, there will be at least as many people who believe that we can “compete” our way out of the deficit.  While acknowledging that we shouldn’t reduce our wages to match theirs, many believe that some combination of reducing wages, improving productivity, shifting the health care burden to the government and better use of technology will ultimately turn the tide in our favor.  IT WON’T!!  IT CAN’T!!  IT’S IMPOSSIBLE!!

These measures can’t possibly work because there is no relationship between the trade deficit and low wages in other countries.  If there were, then how do you explain the fact that, of our top ten per capita trade deficits in manufactured goods, only two are with nations that are relatively poor – Trinidad and Israel?  Why do Ireland, Japan, Taiwan, Switzerland, Malaysia, Germany and Austria – all wealthy countries with highly-paid workers – literally kick our butts in trade?  It’s because population density is what drives our trade deficit, not low wages.  All of the countries I’ve mentioned above are more densely populated than the U.S.  Most are many times more densely populated.  If you’re new to this web site and this concept, I won’t rehash the logic behind this here, but suggest that you read the “Free” Trade page of this site, or consider purchasing my book, Five Short Blasts.  We’ve been trying to improve our competitive position for decades – cutting jobs, cutting wages, cutting benefits and improving productivity – and the end result of working ourselves to death is that the trade deficit gets worse and worse. 

Lou Dobbs and other well-meaning critics of our trade policies need to consider that perhaps the reason that we’re making so little progress on changing our trade policy is that they have the whole cause and effect relationship wrong, encouraging free trade supporters to believe that it’s just a matter of getting more competitive.  Solutions based on false premises can never work.  It’s critical that we see clearly how trade really works if we are to have any hope of restoring our economy.

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3 Responses to Lou Dobbs: Right on Trade, Wrong on the Reason

  1. FJ says:

    I don’t know much about the Israeli economy, but just to interject some of my own thoughts here, not sure how you can call them “relatively poor”. Firstly I thought they had a budget surplus, and I could be wrong about that. But secondly, AIPAC (well, that should be enough to make a point all its own) is slowly seizing control of our political system, billions in cash and weaponry still go there each year directly from the US, etc. I don’t consider them poor in that sense.

    Speaking of false premises, haven’t read your thoughts on the bailout yet, but wondering if you’re getting a sense of satisfaction that Ron Paul is out there interviewing when only a few months ago people were calling him “insane” for his beliefs about the economy?

  2. Pete Murphy says:

    FJ, in 2006 Israel’s “Purchasing Power Parity,” which is roughly their GDP divided by their population, was only $9,700. By comparison, PPP in the U.S. is $40,000. Israel is an extremely densely populated country, approximately ten times as densely populated as the U.S. There are some wealthy people in Israel but far more poor.

    I have to admit that I never paid much attention to Ron Paul since he’s a supporter of completely unfettered free trade, as are all libertarians. But if he predicted this crisis, then kudos to him. But I suspect his trade policies would make things worse instead of better.

    Regarding the bail-out, I believe it’s ultimately doomed to fail, meaning that we’ll back at the same place soon – in a year or two – needing to do it all over again, because it does nothing to address the root cause of the problem – our $700 billion per year trade deficit. In the short run, it’ll probably provide some psychological boost. In the long run, it really worries me that now the banks are being sucked into the government mentality where balance sheets are meaningless.

  3. Tim says:

    Nice article… thanks for sharing.. keep it up ^^

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