Morici Blames Economic Woes on Trade Deficit!

September 2, 2011

I almost fell over when I saw this editorial by economist Dr. Peter Morici.  The following paragraphs say it all:

Jobs creation remains weak, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and increased health care mandates and costs do not address structural problems holding back dynamic growth and jobs creation-the huge trade deficit and dysfunctional energy policies.

… Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power. Consequently, the U.S. economy is expanding at less than 1 percent a year instead of the 5 percent pace that is possible after emerging from a deep recession and with such high unemployment.

Without prompt efforts to produce more domestic oil, redress the trade imbalance with China, relax burdensome business regulations, and curb health care mandates and costs, the U.S. economy cannot grow and create enough jobs.

Perhaps this is why the head of the WTO has been wringing his hands over a possible return of “protectionism.”  (See my previous post.)  Is it possible that Morici is expressing in public something that American economists have been, in private, been grousing about for some time now?  Is it possible that change is in the wind?  I doubt it, but you can’t blame me for grasping at reasons for optimism when there are so few to be seen.

Morici Blames Trade Deficit for Economic Flop, but Offers No Solutions

August 26, 2009

The above link will take you to an article by Dr. Peter Morici, University of Maryland professor and former Chief Economist at the U.S. International Trade Commission.  The gist of Morici’s article is that while Wall Street is experiencing a rebound, there will be none for Main Street.  I found Morici’s comments on the trade deficit most significant:

Dollars spent on imports that do not return to purchase exports can’t be spent on American products. That saps demand for American-made products, keeps factories and offices shuttered, and idles workers.

The trade deficit is mostly oil and Chinese consumer goods. Export more, import less, or the economy flops.

Although I take issue with his emphasis on China, since our trade deficit in manufactured products with China, when put into per capita terms, is dwarfed by those with many other countries like Japan and Germany – this last sentence says it all:  “export more, import less, or the economy flops.”  In other words, get rid of the trade deficit.  Actually, Dr. Morici, a small correction is in order.  The economy has already flopped.  It’s been in a state of “flop” for a long time and will remain there until your advice is heeded. 

As former Chief Economist at the U.S. International Trade Commission, Morici shares some of the blame for trade policy that got us into this mess.  It would be nice if he would now offer ideas for changes to trade policy that will get us out.  It’s easy to say, “export more, import less,” but saying it doesn’t make it happen.  Obviously, some move toward protectionist policy is required to drive such a shift.  We need economists with the guts to come out and say it.

Morici: Double-Dip Recession if Trade Deficit Not Addressed

March 4, 2009

Dr. Peter Morici, former Chief Economist of the U.S. International Trade Commission and business professor at the U. of Maryland, in this linked editorial makes his most sweeping condemnation of the U.S. trade deficit yet.  Aside from blaming the deficit with China on currency manipulation (when, in fact, it’s actually due to the huge disparity in population density between China and the U.S.), you might think that it was I who wrote this piece.  He makes the key point that, without eliminating the trade deficit, the stimulus package will have been wasted when the economy sinks back into recession/depression. 

I encourage you to read the whole piece, but here are some key quotes:

Trade deficits and shoddy banking practices pushed the economy into recession, and until both trade and the banks are fixed, sustained economic growth cannot be accomplished. The trade deficit will rise again as the effects of the stimulus package are felt, but if its underlying causes are not addressed, the trade deficit will drag the economy back down into a double dip recession.

In 2008, the United States had a $144.1 billion surplus on trade in services. This was hardly enough to offset the massive $821.2-billion deficit on trade in goods.

The following really caught my eye:

However, China  ….  has beefed up subsidies on its exports in an effort to export its unemployment to the United States and other industrialized countries.

This is a key conclusion of my book, Five Short Blasts, that free trade with badly overpopulated nations dramatically increases our own “effective” population density, sending our unemployment soaring by importing the effect of overpopulation that nations like China, Japan, Korea and Germany (among others) should otherwise experience.  It’s very encouraging to me that Morici seems to grasp this relationship. 

More key excerpts:

Dollars spent on imported oil and cars and consumer goods from China cannot be spent on U.S. goods and services, and every dollar that U.S. imports exceed exports negates at least one dollar of federal stimulus spending. Overall, the trade deficit overwhelms the positive effects of the Obama stimulus package on demand for U.S. goods and services, GDP and employment. Along with the banking crisis, the trade deficit is a primary cause of the U.S. recession.

Were the trade deficit cut in half, GDP would increase by at least $400 billion, or about $2750 for every working American. Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.

Cutting the trade deficit in half would boost U.S. GDP growth by 1 percentage point a year, and the trade deficits of the past two decades have reduced U.S. growth by 1 percentage point a year. Lost growth is cumulative. Thanks to the record trade deficits accumulated over the past 20 years, the U.S. economy is about $3 trillion smaller. This comes to about $20,000 per worker.

(Note:  In inflation-adjusted dollars, the cumulative trade deficit since 1975, the year of our last trade surplus, is now $9.1 trillion and growing rapidly.)

Had Washington acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the federal deficit would be much smaller. The recession would be much less severe.

If the Obama administration relies on stimulus and bank reform alone, the economy will fall back into recession once the spending has run its course. A pattern of false recoveries, much as occurred during the Great Depression, will likely emerge. Conditions will not be as bad, but unemployment will stay at unacceptable levels.

President Obama, your cabinet could benefit greatly by giving Dr. Morici a key role in your council of economic advisors.

Morici: Trade Deficit a “Fundamental Structural Problem” for the Economy

March 3, 2009

The linked article reports on comments by Dr. Peter Morici, economist and business professor at the U. of Maryland, in which he discusses the possibility that we are entering a depression. 

“We’re probably in a depression now. But it’s not going to be acknowledged until years go by. Because you have to see it behind you,” said Peter Morici, a business professor at the University of Maryland.

The article then goes on to list those factors that economists have traditionally used to define a depression.  But it’s this comment by Morici that really caught my eye:

Morici said a depression is a recession that “does not self-correct” because of fundamental structural problems in the economy, such as broken banks or a huge trade deficit.

This may be the boldest criticism of our trade deficit that I’ve seen yet from Dr. Morici , someone who’s gotten a lot of “face time” in the media since the start of this crisis and whose credibility seems to be on the rise.  By identifying the trade deficit as a fundamental problem making this recession/depression unable to self-correct, he’s calling for government action to eliminate it.   Let’s hope the Obama administration is listening.

Dr. Morici Sees Urgent Need to Cut Trade Deficit

December 6, 2008

I’ve posted links to the writings of Dr. Peter Morici, former Chief Economist at the U.S. International Trade Commission,  a couple of times over the past few months.  This linked article is another.  In the past, he’s expressed concern about the trade deficit and has accused China of currency manipulation.  Now he’s seems to have an even greater sense of urgency:

Today, the Labor Department reported the economy lost 533,000 payroll jobs in November, after losing 320,000 jobs in October and 403,000 jobs in September. This was much worse than was expected and represents wholesale capitulation. The threat of a widespread depression is now real and present.

The economy has shed 1.9 million jobs since December, as the full weight of the banking crisis, trade deficit with China and burdens imposed by high-priced imported oil are bearing down on manufacturing, construction and the broader economy with unrelenting pressure.

Unemployment increased to 6.7 percent in November; however, factoring in discouraged workers, unemployment is closer to 8.7percent. Add workers in part time positions that cannot find full time employment and the hidden unemployment rate is nearly 13 percent.

You’ve heard me say repeatedly that the weekly jobless claims number, now over 500,000 per week – an annual rate of 26 million workers (or about 17% of the work force) – is a far better measure of unemployment in this country than the 6.7% rate suggested by the monthly unemployment report.  Here Dr. Morici corroborates that. 

But more interesting to me is that Dr. Morici is ratcheting up his concern about the trade deficit, and the lengths to which he would be willing to go to fix it:

The challenges facing President-elect Barack Obama could not be clearer. The current economic slowdown has two structural causes—bad management practices at the large money center banks and the huge foreign trade deficit.

To accomplish lasting prosperity, President-elect Obama will have to fix the banks and the trade deficit.

… Obama must address the huge cost of imported oil and trade deficit with China or any effort to resurrect the economy is doomed to create massive foreign borrowing, another round of excessive consumer borrowing, and a second banking crisis that the Treasury and Federal Reserve will not be able to reverse.

… Fixing trade with China will require a tax on dollar-yuan transactions if China continues to refuse to stop subsidizing dollar purchases of yuan to prop up its exports and shift Chinese unemployment to the U.S. manufacturing sector.

“… a tax on dollar-yuan transactions …”  This is about as close as I’ve ever heard an economist come to advocating tariffs – especially one with the esteem of Dr. Morici.  After all, what is a “tariff” but a tax, and what “dollar-yuan transactions” could he be talking about but imports from China? 

Dr. Morici goes on to discuss Obama’s plans to get wages and incomes rising again:

… stimulus spending, alone, won’t fix what’s broke. It didn’t end the Great Depression. Japan has had a succession of stimulus spending over the last two decades and that has failed to restore its economic dynamism. Similarly, President-elect Obama’s massive stimulus package, alone, won’t fix the U.S. economy. He must also reach into the management of the banks, and dramatically reduce U.S. dependence on imported oil and the trade deficit with China. The alternative is economic stagnation or worse, a depression.

Going forward, solutions that create better jobs will require cutting the trade deficit by at least half to substantially boost domestic manufacturing …

Finally, diplomacy has failed to redress the currency issue with China. If President Obama is not willing to take tough steps to redress the trade imbalance with China and reduce oil imports, together the Persian Gulf oil exporters and China’s sovereign wealth funds may be able to buy the New York stock exchange eight years from now. Americans, outside those working for the New York banks that facilitate this sellout, will find their best futures waiting on tables for Middle East and Chinese tourists.

I’ve warned repeatedly about the dangers of bankrolling the trade deficit with the sell-off of American assets.  Finally, an economist is looking far enough down the road to see the consequences of what happens when those assets are exhausted. 

Now President-elect Barack Obama must alter his position, and get behind a policy to reverse the trade imbalance with China, or preside over the wholesale destruction of many more U.S. manufacturing jobs. These losses have little to do with free trade based on comparative advantage. Instead, they deprive Americans of jobs in industries where they are truly internationally competitive.

My only criticism of Dr. Morici’s article is this:  why stop with cutting the trade deficit by half?  And why pick on China alone?  Why not do the same thing with Japan, Korea, Germany and others?  Why not tax their currency transactions?  If cutting the deficit by half will improve the economy that much, then why not go all the way? 

This is all very good news.  The cracks in the parasitic aspects of globalization are growing into gaping chasms and sentiment for taking action is gaining traction with each passing day of this economic melt-down.  Now people with real influence like Morici are getting more vocal and insistent that something has to be done.  If Obama is listening and if he heeds such advice, then much brighter days are ahead.

Economist Peter Morici: The Trade Deficit is An Enormous Drag

September 12, 2008

The linked article is about Dr. Peter Morici, professor at the University of Maryland and former International Trade Commission economist, who bucks the trend of globalization cheerleading economists and sees our trade deficit for what it is – “… an enormous drag …”

Since Dr. Morici hasn’t read my book yet (as far as I know), he still believes that the deficit is due to currency manipulation, especially by China.  So he hasn’t come around to my theory that the deficit is actually due to disparities in population density between the U.S. and nations like China, but at least he acknowledges that the deficit is a real problem.

The $62.2 billion July deficit reported Thursday by the U.S. Commerce Department amounts to economic opportunity shipped abroad, Morici said in a statement.

“Simply, money spent on Middle East oil, Chinese televisions and coffee markers, Japanese and Korean cars can’t be spent on U.S. made goods and services, unless offset by a comparable amount of exports,” he said.

“Since U.S. imports exceed exports by more than 5 percent of GDP, the trade deficit creates an enormous drag on demand for U.S.-made goods and services. Along with the credit crisis and resulting slowdown in new housing and commercial construction, the trade deficit is driving up unemployment,” he said.

But I draw your attention to this article because of the very last paragraph:

Morici estimated balanced currencies would cut the deficit in half, increase the gross domestic product by $300 billion and restore 2 million U.S. manufacturing jobs.

I find it very interesting that he still believes we’d have a significant deficit (it would only be cut by half) even if there was no currency manipulation.  Whether or not we agree with his estimate of how much it would be cut, if at all, this seems to be a tacit admission that there is still something else at work causing the deficit.  If he sees a huge benefit to be realized by cutting the deficit in half – increasing GDP by $300 billion per year and restoring two million manufacturing jobs – then isn’t it logical that these benefits could be doubled by eliminating the remaining half of the deficit as well?  Obviously!  GDP would increase by $600 billion and four million manufacturing jobs would be restored. 

If Dr. Morici believes that currency manipulation is only half of the problem, then it would clearly be worth our while to figure out what’s causing the other half and to take action to correct it.  Well, if you’ve read Five Short Blasts or if you’ve been following this blog, you already know the cause and know what needs to be done.  The trade deficit will never be eliminated until we extract compensation from overpopulated nations like Japan, Germany and China for their inability to provide access to a market equivalent to ours.  Yes, this means tariffs, indexed to their population densities. 

But, again, at least there’s economists out there who recognize the damage being done by misguided trade policies.  Teach your students well, Dr. Morici.  We need a whole new breed of economists.