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.

Economists at NBER Wake Up to Reality, Make Recession Official

December 1, 2008


The National Bureau of Economic Research has finally made official what has been obvious to everyone else for months:  the economy is in recession, and has been for a year now, just as I observed last week.

The economy slipped into recession in December 2007, the National Bureau of Economic Research, the prestigious private research institute that is regarded as the arbiter of U.S. recessions, declared on Monday.

They were probably worried that if they waited for a 2nd consecutive quarter of declining GDP like they usually do, data that wouldn’t be available until the end of January, they’d be in danger of calling a recession at a time when everyone else was starting to talk of a depression.  Or maybe they didn’t like me getting the jump on them. 

Here’s a quote from the article that I find particularly amusing:

The current downturn was particularly tricky to define because gross domestic product remained positive until the third quarter this year.

This was “tricky to define?”  Our entire financial system is in complete collapse, along with the construction and manufacturing sectors of the economy.  We’ve had ten straight months of job losses and weekly jobless claims topping a half million.  The government bail-outs now top $8 trillion and the entire global economy is in free fall.  All of this, and the NBER finds this recession “tricky to define?”  Maybe that tells us something about economists when a “presitgious private research institute” has such difficulty seeing and analyzing what’s going on around them.  Perhaps the receptionist at the NBER, frustrated with her co-worker economists, finally got up and whacked one of them upside the head with a two-by-four to wake him up!

But I suppose we shouldn’t expect more of the NBER than we get from our government economists.  The Bush White House maintained right up until the financial system’s collapse in October that “this economy is fundamentally sound!”, only a slight concession to reality from their earlier version, “this economy is strong and getting stronger!”  The only thing that was getting stronger was the smell. 

The White House acknowledged the NBER’s declaration, but said that did not change its course on coping with the financial crisis that has raged since August 2007.

“The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that’s where we’ll continue to focus,” White House spokesman Tony Fratto said.

You do that, Tony.  You wouldn’t want to do anything really wild and crazy like maybe address our $700 billion trade deficit, bring our manufacturing jobs home and get real incomes rising again.  No, it’s much better to focus on restarting the debt machine.  If only we can find some suckers to lend us the money.

Cause of U.S. Economic Melt-Down Captured in One Photo

November 23, 2008


Check out the photograph at the top of this linked story.  Bush is flanked on either side and holding hands with Japanese Prime Minister Taro Aso and South Korean President Lee Myung-bak at the meeting of APEC leaders in Lima, Peru yesterday, November 22nd.  This photo captures perfectly the root cause of our economic melt-down, the leaders of two of the most parasitic economies in the world standing hand-in-hand with the leader of their “host” economy.  And everyone is all smiles.  Bush is all smiles because he’s clueless about the global trade welfare state that he supports on the backs of working Americans and is just happy to be fawned-over and well-fed.  Aso and Myung-bak are all smiles because the leader of the host economy upon which they feed is all too willing to keep the blood flowing.

U.S. President George W. Bush, Chinese President Hu Jintao, Japanese Prime Minister Taro Aso and other members of the 21-nation Asia-Pacific Economic Cooperation group, or APEC, said they would refrain from raising trade barriers over the next 12 months.

… Bush joined APEC peers in rejecting protectionism even if economies worsen.

Isn’t this the very definition of madness, to keep doing the same thing while expecting different results?  Of course, how could we expect anything else from Bush when his economic team of Paulson and Bernanke never utter a peep of protest about the trade deficit? 

But not everyone is happy.

Before the group met, Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon blamed the United States for starting the crisis and called for better banking regulations.

“Our closest neighbor and largest trading partner is the epicenter of the financial earthquake and global slowdown,” Harper said in a speech to business leaders.

Calderon said structural problems in the global economy were allowed to fester before spiraling out of control.

Of course, Calderon’s protests are a bit like a parasite complaining that the blood of its host tastes funny.  Mexico never complained while they racked up huge trade surpluses with the U.S. year after year.  But now that the parasitic economies like Mexico have sickened the host, all of a sudden it’s our fault.  Well, in a way it is our fault, in the same way it’s an owner’s fault for not giving his dog a flea bath, allowing it to be sickened by the parasites.  Our government is the owner of our economy and it has kept the flea powder of tariffs on the shelf for far too long.

We’ll be fortunate to survive another two months of Bush.  Obama seems like a very smart man.  Is he smart enough to understand the role of the trade deficit in bankrupting the nation?  If he is, does he also have the guts to do something about it?  He’ d better, while the nearly lifeless carcass of our economy still has an ounce of blood left.