“Brexit” Another Failure of Economics

June 30, 2016

Why is it that all the big stuff happens while I’m on the road and unable to comment?  So it was with the “Brexit” vote last week when Britons voted to split from the European Union – the EU.  Well, better late than never.  So the following are some thoughts regarding the “Brexit” vote.

There has already been a lot of analysis of the underlying reasons for the surprising results of this vote.  They focus on three main issues:  immigration, trade, and the fact that Britain was being fleeced by the EU to the tune of about $350 million per day – only about half of which was returned to Britain in the form of “subsidies.”

The real root cause goes much deeper.  For decades, the main thrust of the United Nations has been the eradication of hunger and poverty among undeveloped nations – a noble goal.  But instead of helping such countries by fostering real, organic economic growth that begins with self-sufficiency and nurtures domestic industrialization to meet the growing wants and needs of the people, economists decided on an easier route.  They relied instead on “free” trade and population growth.

There was once a time when nations were free to strike trade deals with one another that were of mutual interest to both.  Both sides benefited.  Each gave something and each got something on terms that worked out to the best interests of both.

But faced with the challenge of elevating the fortunes of undeveloped countries, the United Nations and the World Trade Organization seized on a quick fix – the implementation of a trade regime that would tilt the playing field such that jobs and money would slide from the developed world to the undeveloped world.  “Don’t worry,” they assured the developed world.  “It’ll benefit you, too, when these nations develop into customers for your goods.”

Well, they haven’t, and now we have a system of trade where the rules are rigged in favor of one country over another – where developed countries are forced into trade relationships that are actually detrimental to them and their citizens.  This situation is now referred to as “free trade” while the previous system in which countries were free to make their own trade deals is decried as mercantilism.

The other tool in economists’ bag of tricks is population growth.  Population growth translates to GDP (gross domestic product growth), something that business loves, so the economists found ready and willing allies among global corporations, chambers of commerce and others.  None recognize that such cancerous growth actually degrades the quality of life of individuals and fuels more poverty.  The EU is no different and has seized upon immigration-driven population growth as a tool to prop up GDP.

There is just one problem with this grand scheme – democracy, and the fact that all of the ballyhooed intangible benefits of these approaches couldn’t obscure from the people the fact that they’re getting screwed.  I’ve occasionally high-lighted cracks that have been appearing in “globalization,” mostly in the form of skepticism about whether “free” trade was really any benefit at all for the donor countries or if it was actually dragging them down.  Now comes the “Brexit” vote, ripping a gaping hole in it.

Congratulations to the British people who rejected the econo-babble of the EU elites and applied common sense to their evaluation of what’s become of their country.  And it doesn’t stop with Britain.  Other EU nations who find themselves being fleeced to prop up the likes of Greece and Spain are also ready to jump ship.  In the wake of “Brexit,” EU leaders commented that, with the loss of British revenue, the EU may now be forced to raise taxes and implement even more austerity.  Smooth move, Brussels!

Speaking of dumb moves (dumb from the perspective of the globalists), how about Obama’s trip to Britain in which he chastised the “leave” supporters and threatened that the U.S. would relegate them to 3rd class status in trade negotiations if they did, in fact, leave the EU?  If any Brits were on the fence on this issue, Obama’s comments offered proof that Britain had been subjugated to the interests of the global elite.  Obama may very well be responsible for pushing Brits over the edge.  Yet another foreign policy blunder on his part (right on the heels of his disastrous trip to Japan, during which he was publicly berated by the Japanese president).  Continuing down that tangent, just yesterday he met with the Canadian and Mexican leaders in support of NAFTA, a meeting that the press hailed as “the three amigos.”  Could he possibly have made a more tone-deaf move when the nation is already fed up with illegal immigration from and job losses to Mexico?  Now Obama is known as an “amigo?”

As proof that sentiments that drove the “Brexit” vote go beyond the EU, Donald Trump has also blown a big hole in America’s one-party Republi-crat support for free trade and mindless pursuit of population growth as a crutch for a sick economy that was long ago ceded to the World Trade Organization.  The Republican elite are abandoning him in droves, but voters couldn’t care less.  They’re fed up with their leadership, just as the Brits were fed up with theirs.  America’s “Brexit” from globalization may come in November.

 

 


Euro Zone Unemployment Hits New Record

June 1, 2013

 

http://www.reuters.com/article/2013/05/31/us-eurozone-economy-idUSBRE94U0DJ20130531

As reported in the above-linked Reuters article, unemployment in the Euro zone hit a new record in April – 12.2%.  And that rate only begins to tell the story:

Almost two-thirds of young Greeks are unable to find work … in Italy, the unemployment rate hit its highest level in at least 36 years, with 40 percent of young people out of work

This should come as no surprise to anyone who understands the relationship between a high population density (the euro zone is nearly as densely populated as China) and low per capita consumption.  And per capita consumption and unemployment are inextricably linked. 

The reasons for Europe’s unemployment crisis are clear:

  • As anyone who has ever visited Europe knows, out of necessity, the vast majority of its people live in small apartments and consume very little, yet they are as productive as workers in the U.S.  High productivity and low consumption spell trouble for employment, and makes Europe utterly dependent on manufacturing for export to gainfully employ its vast labor force.
  • Following its ascension to the World Trade Organization over a decade ago, China has steadily “muscled in” on Europe’s export business.
  • For decades, Europe has relied heavily on deficit spending on social programs to prop up consumption and maintain an illusion of prosperity.  Their debt level has reached an unsustainable level,  and austerity programs have kicked government employees to the unemployment lines and falling incomes have bitten into Europe’s already-meager rate of personal consumption.

There is no escape from this trap that has been set by economists’ reliance on population growth to stoke macroeconomic growth.  Beyond the euro zone, unemployment around the globe will worsen as the world’s population continues to grow.  More and more nations turn to exports to bolster their economy while fewer and fewer net consumers remain.  How long will it be before this crisis begins to rip at the fabric of civilization?  It sounds like Europe may be approaching that point.


U.S. Trade with The E.U.

May 13, 2013

In his State of the Union address in February, President Obama called for a new free trade deal between the U.S. and the European Union, or EU.  (See this article for more information:  http://www.nytimes.com/2012/11/26/business/global/trade-deal-between-us-europe-may-pick-up-steam.html?pagewanted=all&_r=0.)

It’d be a huge deal, no doubt.  But would it be a good deal for the U.S.?  Since the signing of the Global Agreement on Tariffs and Trade in 1947 and since the inception in 1995 of its offspring, the World Trade Organization, the U.S. has been steadily moving toward freer trade with the rest of the world, including the 27 member states of the Euroean Union.  It only makes sense to examine the results of free trade with the EU thus far before deciding whether or not a further move toward freer trade would be a good deal for the U.S.

But first, a few facts about the EU are in order.  The European Union was established in 1993 and includes 27 members:  Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.  In other words, most of Europe, with a couple of noteworthy exceptions:  Norway and Switzerland. 

If the EU were a nation, it would be the 7th largest in the world in terms of suface area with over 1.6 million square miles and would be the 3rd most populous, with just over a half billion people, exceeded only by China and India. 

So how have we fared in trade with the EU, particularly in the all-important, job-creating category of manufactured goods?  Here’s a chart of our balance of trade with the EU since 2001:  EU.  As you can see, the U.S. suffers a large trade deficit with the EU.  Though it began to shrink beginning in 2006 – a process helped along no doubt by the overall decline in global trade that accompanied the onset of the “Great Recession” in late 2007, it began to deteriorate rapidly again in 2010.  In only three years since 2009, our trade deficit with the EU in manufactured goods has more than doubled. 

Now, let’s consider the factors involved:

Population Density:

With 503 million people, the population density of the EU, at 309 people per square mile, is only slightly less than that of China (359 per square mile).  It is approximately 3.6 times as densely populated as the U.S. (85 per square mile).  In per capita terms, our trade deficit with the EU in manufactured goods is $223, remarkably similar to our per capita trade deficit with China ($210).  Once again, we see that population density is a consistent predictor of whether we will have a surplus or deficit with any particular country and what the size of that imbalance might be expected to be. 

Currency Exchange Rate:

Economists are fond of blaming trade deficits on exchange rates that are kept artificially low by “currency manipulation,” accomplished by tactics such as currency printing by central banks.  The theory is that a currency that is kept artificially low makes that nation’s exports cheaper for American consumers while making American exports more expensive for that nation’s consumers. 

In 2012, the Euro weakened against the U.S. dollar by 14.3%.  And, in fact, as economists would predict, our trade imbalance with the EU worsened by 14%.  But that’s just one year in which the Euro took an uncharacteristic dip.  Since 2001, the Euro has risen by 31% against the dollar.  But, instead of improving, our trade imbalance with the EU worsened by 104%. 

Wealth:

Economists also blame trade deficits on low wages in other nations.  We have no data on average or median wages, but what’s known as purchasing power parity (“PPP”) – roughly a nation’s GDP (gross domestic product) per capita – is pretty analogous.  By that measure, the EU has a PPP of $34,500 and, if it were a nation, would rank in the top 20% of the world’s 229 nations.  The EU is not poor and wages are not low.  Since 2001, of the 26 EU member nations, 14 have experienced a PPP that has grown faster than the U.S.; that is, they have grown wealthier vs. the U.S.  In spite of that, our trade imbalance has actually worsened with 10 of these 14 nations. 

That leaves twelve EU nations whose wealth deterioriated vs. the U.S.  since 2001.  Of these 12 nations, our trade imbalance worsened with 9 of them. 

So, of these 26 member nations, our trade imbalance responded as economists would predict (based on the “low wage” theory) in 13 cases – exactly half.  In other words, there’s no relationship between low wages (or wealth) and trade imbalance whatsoever.   Falling wealth and wages are no more likely to worsen our trade imbalance than they are to improve it. 

Exports to the EU:

Well, OK, maybe our trade imbalance with the EU has worsened because we’ve imported more from the EU.  Maybe a new trade deal can make that up by boosting our exports to them, right?  Not likely.  In the past year, exports of manufactured goods to the EU actually declined by 1%.  This is in spite of President Obama’s goal of doubling exports within five years.  If the EU had any capacity for absorbing more American exports, shouldn’t we have seen some evidence of that in 2012 in light of the president’s push? 

Given the results of steadily liberalizing trade with the EU – results that were quite predictable given the relationship between population density and trade imbalances – further liberalization of trade with the EU makes absolutely no sense whatsoever.  It makes no more sense than liberalizing trade with China.  The result if the same.  It only makes sense to those vested in 19th century trade policy, economists too afraid of pondering the ramifications of population growth out of fear of being exposed as frauds.


U.S. Trade with China: A Trade Policy Disaster

March 13, 2013

In my last article, we examined trade with Canada, America’s largest trading partner.  We saw that free trade with Canada, a nation with a population density of less than 10 people per square mile, is a resounding success.  America actually enjoys a significant surplus of trade in manufactured goods with Canada. 

Today we turn our attention to America’s second largest trading partner (in terms of total imports and exports) – China.  China is a large nation, almost exactly the same size as Canada.  But, while Canada has a population of 34 million people, China’s population is 1.35 billion people – 40 times as many – yielding a population density of 361 people per square mile.  They are more than four times as densely populated as the U.S. and 37 times more densely populated than Canada.

China is still a relatively poor nation, with a per capita purchasing power parity (PPP, essentially their GDP divided by the population) of $9,100 per year.  (America’s is approximately $48,000 per year.)  But their economy is the fastest growing in the world, and their PPP is double what it was only ten years earlier.  In fact, China now ranks 118th out of 228 nations in terms of its PPP.  At today’s rate of growth, they will rank in the top 50% of nations next year in terms of wealth. 

It’s a common misconception that American manufacturers fled for China in order to take advantage of cheap labor there.  The end results certainly seem to corroborate that theory, but that’s not really how it happened.  American manufacturers did indeed flock to China to set up shop, not to save a few bucks on cheap labor (much of which is offset by high logistics costs), but to position themselves in an untapped market of 1.35 billion new consumers.  But, once there, Chinese consumption was very slow to develop, leaving all those newly established Chinese manufacturers with lots of product to sell.  Naturally, they exported it back to the U.S.  American manufacturers, already running on thin profit margins and dependent on maintaining market share for their survival, were driven out of business in droves.  The belief among economists has been and continues to be that, if we’re just patient enough, the Chinese will develop into American-style consumers and the whole process will reverse itself.

Folks, it ain’t happenin’!  It’s not going to happen – ever.  With each passing year our trade deficit with China worsens dramatically.  The year 2012 was no different.  Here’s a chart of trade with China since 2001, shortly after they were granted “most favored nation” status by the U.S. and were admitted into the World Trade Organization:  China Trade.  In 2012, our overall trade deficit with China worsened by another $20 billion.  Of course, the Obama administration, with its myopic focus on exports, is quite pleased with the $9.7 billion increase in exports to China (of which, only $2 billion were manufactured products).  They completely ignore the $26.3 billion increase in imports from China – and the corresponding loss of manufacturing jobs. 

This is an economic and trade policy disaster for the U.S.  Our trade deficit with China alone has cost us five million manufacturing jobs and probably an equal number of ancillary, supporting jobs.  What’s going wrong?  Economists can’t admit that there may be a flaw in free trade theory that makes free trade with badly overpopulated nations a losing proposition.  Instead, they have two popular scapegoats.  The first is that the Chinese currency is kept artificially low, making their exports cheaper and making our exports more expensive to Chinese consumers.  It sounds logical.  But, if the theory is valid, then any strenghtening of their currency should begin to reverse our trade deficit with China or, at the very least, begin to slow its growth.  Here’s a chart of our trade deficit in manufactured goods with China, plotted against the Chinese yuan – U.S. dollar exchange rate:  China Trade vs Exchange Rate

Since 2005, the exchange rate has fallen steadily from 8.22 yuan to the dollar to 6.31.  (A drop in the exchange rate means that the yuan has gotten stronger.)  That’s a drop of 23.3% – enough that we should begin to see some effect.  But, aside from an improvement in the trade deficit in 2009 that was due entirely to the global slow-down in trade resulting from the deep global recession, there’s been absolutely no slowing of the growth in our trade deficit.  Does the stronger yuan hurt Chinese manufacturers’ profits?  Absolutely.  But does it make them stand idly by and watch their U.S. market share erode?  Of course not.  They respond as our own manufacturers do when profits are squeezed; they cut costs in order to hold onto (and even grow) their market share.  The result is that our trade deficit with China has actually gotten worse as their currency has strengthened.

We saw the same thing happen in trade with Japan.  While the yen-dollar exchange rate plunged from approximately 300 in the late ’60s to about 90 today, our trade deficit with Japan, instead of shrinking as economic theories suggest should happen, actually exploded.  The data shows that economists have the cause and effect backwards.  Instead of trade deficits falling in response to a falling exchange rate, it’s actually the exchange rate that falls in response to a worsening trade deficit. 

So much for that theory.  What about the claim that low wages in China are to blame for our trade deficit?  Again, it sounds logical.  But then it’s also logical that rising wages in China should be reversing or at least slowing the growth of our trade deficit with China.  Here’s a chart of our trade deficit in manufactured goods with China vs. China’s PPP, a good approximation of Chinese incomes:  China Trade vs China PPP.  Instead of our balance of trade improving while China’s PPP grew by 348%, our deficit in manufactured goods has exploded by 380%, from $83 billion in 2001 to $315 billion in 2012! 

And, by the way, if low wages are what’s fueling our trade deficit with China, then how does one explain that, in per capita terms, we have much larger trade deficits with fifteen other nations (including Ireland, Switzerland, Israel, Taiwan, Denmark, Austria, Japan, Germany, S. Korea, Mexico and Italy), all of whom have much higher incomes than the people of China?

How can this be?  It seems completely illogical – that is, until you understand that, once again, economists have the cause and effect backwards.  Instead of rising incomes producing an improvement in our balance of trade, incomes are rising in China because of our trade deficit.  Incomes in China will continue to rise as China drains more money from the American economy.

So, economists, now you’re left with nothing – no explanation whatsoever for why the same trade policy so highly successful with Canada has yielded such disastrous results with China.  The answer lies where economists dare not go – overpopulation.  People living in crowded conditions are incapable of consuming products at the same rate as Americans or Canadians.  On a per capita basis, Canadians import 135 times more from the U.S. than the Chinese.  The problem is not that Americans import too much from China, but that China imports far too little from the U.S.  They can’t.  Their overcrowding renders them incapable of absorbing their own manufacturing capacity, let alone importing more from the U.S.

When it comes to America’s trade deficit, China gets all of the attention simply because of the sheer magnitude of their trade imbalance.  But in upcoming articles we’ll see that our trade results with China are consistent with other overpopulated nations and are exactly what should have been expected when we applied a failed trade policy to a nation with one fifth of the world’s population.  China isn’t the problem.  The problem is our own trade policy, rooted in a flawed, antiquated and failed 19th century theory.


Walmart’s “Buy American” Push a Publicity Stunt

January 16, 2013

http://www.reuters.com/article/2013/01/15/us-walmart-us-idUSBRE90E0MB20130115

As reported in the above-linked article, Walmart announced a new “buy American” push in which it plans to boost its purchases of American-made products by $50 billion over the next ten years.  Sounds great.  It conjures up images of American factories adding shifts and hiring more workers.  That’s the American spirit, Walmart!  Man, this is a great American company!  Let’s all go shopping at Walmart today!

Not so fast.  This is just another example of a trend that has swept the government and corporate America – creating an illusion of supporting American manufacturing in cynical attempts at political or commercial gain.  In this case, Walmart is trying to break  its image of selling cheap Chinese junk at the expense of American workers.  In actuality, as the above-linked article points out, the majority of products sold at Walmart are already “made in America.”  That’s hard to believe until you remember that Walmart is a major grocery retailer – products that are heavily sourced locally. 

“Last year, 55 percent of Walmart U.S. sales came from groceries like food and drinks as well as other products that are typically sourced locally.”

Walmart coud easily meet this goal of boosting its sales of American-made goods by simply running sales on grocery items and cannibalizing sales from Krogers and Winn-Dixie.  The impact on American jobs?  Zip.

So don’t be fooled.  Here’s how you can tell when a company is sincerely interested in promoting made-in-America manufactured goods:  when they begin lobbying Congress to change our trade policy, abandon the World Trade Organization and begin slapping tariffs on imported goods.  Anything short of this is nothing more than an image-polishing gimmick.


What Happened to Obama’s Goal to Double Exports?

October 11, 2012

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

In January, 2010, President Obama set a goal of doubling U.S. exports in the next 10 years.  He referred to that goal during the debate with Romney, as though it was a goal that was being met.  (Nobody called him on it.)  The objective was to emulate Germany, an economy that thrives on manufacturing for export, and thus whittle away our huge trade deficit.  I said then that any plan that focuses on exports was doomed to failure from the outset, since the U.S. has absolutely no control over exports, which are driven by foreign demand.  (The only thing we can effectively control, if we ever tried, is imports.)

This morning the Bureau of Economic Analysis released its report of international trade for the month of August.  (See above link.)  Both overall exports and manufactured exports declined for the 2nd month in a row.  Overall exports are at their lowest level since March, and manufactured exports are at their lowest level since September of 2011.  Overall exports lagged the president’s goal for the 13th consecutive month by over $24 billion – a new record.  Manufactured exports lagged the president’s goal for the 11th consecutive month by more than $15 billion – a new record.

This economic strategy – the bedrock of Obama’s plan to boost the manufacturing sector and the overall economy – is an abysmal failure.  It’s a failure because it never had any chance of succeeding.  Aside from begging our trade partners to boost their imports of American goods – a tactic that has been a proven failure for decades – no other action was taken by the administration to actually work toward the goal because there’s nothing it can do. 

Will there ever come an American president with the backbone to say “enough is enough” and turn his focus on imports?  Will there ever come a time when we bid farewell to the World Trade Organization and its avowed goal of running a rigged trading scheme that favors undeveloped and developing nations?  Not in the next four years.  Obama has proven that he’ll do nothing about it.  Romney has vowed to make matters worse by pursuing even more destructive free trade deals. 

Here are the charts of the data:  Obamas Goal to Double Exports     Balance of Trade     Manf’d exports vs. goal     Manf’d Goods Balance of Trade

When Obama took office, I predicted that, if he didn’t address the trade deficit, he’d be a one-term president.  In a month, that prediction will come true.  And my prediction regarding President Romney will be the same.


Ford’s Mulally on China, Trade

September 18, 2012

Allen Mulally, CEO of Ford, was a guest on “CBS This Morning” today.  When asked about the complaint filed with the World Trade Organization by the Obama administration about Chinese subsidies for their auto industry, Mulally dodged the question and gushed praise for trade with China, noting that the Chinese auto market is even bigger than the U.S.  (I can only assume he was talking about the potential  Chinese market, as far fewer autos are currently sold there than in the U.S.)  He also praised President Obama’s trade deal with Korea and free trade in general. 

Like other CEOs of other companies, Mulally is focused on one thing only – total sales volume and profits.  He couldn’t care less where Ford builds its cars.  If it builds cars in China and sells lots of them there – great.  If it builds Fords in Mexico and sells lots of them in the U.S. – that’s great too.  If building some of them in the U.S. makes a great selling point for the “buy American” consumers, then that’s what they’ll do.  More trade equals more potential customers.  For that reason, Ford and every other company will support any politician who promises more of it. 

There are a couple of points that need to be made here.  As I pointed out in Five Short Blasts, the interests of corporations have long since diverged from the interests of the common good of Americans.  What does Ford care if America is bankrupted by an enormous trade deficit with China?  That’s of no consequence to them.  All they care about is selling more cars to the Chinese.  Meanwhile, Americans are put out of work and the government runs huge deficits to offset the negative effects of the trade deficit. 

Secondly, I’ve been saying for some time that nothing will change until economists grow spines, pull their heads out of the sand and once again consider the full spectrum of economic consequences of population growth.  In the meantime, our leaders will continue to take their economic advice from economists wedded to a flawed 19th century trade theory.  But I’m afraid it’s worse than that.  Even if economists did come to see that free trade with overpopulated nations is a sure-fire loser, the people who bankroll political campaigns still won’t care.  They’ll continue to pay their politicians for policies that serve their interests. 

It would take a grass roots uprising by voters, demanding that the newfound wisdom of economists (if you can imagine such a thing) be heeded, and it would take a strong leader who puts America’s interests first above all others to really make a difference.  Any one of these three things is unlikely.  A combination of the three happening in concert seems almost beyond the realm of possibility. 

Sorry for the pessimistic outlook but, since writing Five Short Blasts, my appreciation of the challenges associated with changing the course of globalization has steadily grown.  Nevertheless, I’ll keep plugging away at trying to make a difference. 

Hey, Mulally, I’m more glad than ever that I bought a new Chevy Malibu last year instead of that Mexican-made Fusion your people tried to sell me!


Manufactured Goods Deficit Rises to 2nd Worst Level of Obama’s Administration

July 12, 2012

On the surface, yesterday’s release of May trade data sounded like good news.  The trade deficit fell for the 2nd consecutive month to $48.6 billion after hitting $52.6 billion in March, preceded by the worst level of the Obama administration in January – $53.0 billion. 

Good news?  Not so fast.  Nearly all of the decline was due to a drop in oil prices.  That in itself is good news, but what would make oil more affordable for all of us is if jobs were plentiful and incomes were rising.  So what happened in May regarding the more important category of manufactured goods, where the jobs are to be found?  There, the news is grim.  The deficit in manufactured goods rose to the 2nd worst level of the Obama administration – $41.3 billion.  (That’s an annual rate of nearly $500 billion and represents a loss of about 7 million manufacturing jobs.)  And, for the 8th consecutive month, manufactured exports lagged the president’s goal (set in January of 2010) of doubling  in five years.  Here are  charts of the balance of trade in manufactured goods and a chart of manufactured imports and exports vs. President Obama’s goal:  Manf’d Goods Balance of Trade     Manf’d exports vs. goal

Overall exports, including all goods and services, failed to meet the president’s goal for the 10th consecutive month.  Here’s the chart:  Obamas Goal to Double Exports.  And here’s a chart of the total trade deficit since President Obama set that goal, the cornerstone of his economic policy, in January, 2010:  Balance of Trade.  As you can see, judging by total trade, May was merely a “one-step-forward” month in the “one-step-forward, two-steps-back” decline in manufacturing that has persisted not just for two years, but for decades. 

As I predicted, this “plan” to double exports in five years, the cornerstone of President Obama’s economic plan, is already proving to be an abysmal failure.  Merely saying that we will double exports in five years was no plan at all.  It was wishful thinking.  Assembling a team of CEO’s of “American” manufacturing companies to address the issue of exports wasn’t a strategy, it was a show.  There is nothing that anyone can do to boost exports, since exports are driven by foreign demand and no one in America has any control over that. 

“Nonsense,” you might counter.  “There’s a lot we can do to make ourselves more competitive.”  True, but there’s nothing you can do to stop foreign competition from working just as hard to remain competitive, as they surely do and will.  The end result is no change in our competitive position and no change in foreign demand for American-made products.  Imports, on the other hand, are totally within our control, which means that the ability to force a return to domestically manufacturing the products we consume is also totally within our control, if only we choose to exercise that power, through the use of tariffs, quotas and other import controls.

“We can’t do that; international law prohibits it” you might say.  Baloney.  There is no such thing as “international law.”  There are only obligations that go along with the terms of agreements, treaties and international organizations.  It is completely within our power to terminate agreements and withdraw from treaties and international organizations (like the World Trade Organization) any time we want.  Sure, it would result in some turmoil.  But when did Americans vote to cede their rights to international organizations in order to avoid a little turmoil?  The point is that there are plenty of actions the president can take to immediately have a major impact on jobs and the economy, even without the consent of Congress,  if only he had the intestinal fortitude.  He doesn’t.  He’s content to paper over our problems with more deficit spending designed to obscure the fact that, thanks to decades of idiotic trade policy, America is in decline and Americans are growing poorer. 

* * * * *

My charts on trade in manufactured goods contain a major revision this month.  I discovered that my data was understating the size of the deficit in manufactured goods by the amount of the surplus in services.  I had been subtracting from the total trade deficit the balance of trade in food, feeds and beverages and in petroleum products to arrive at a figure for manufactured goods, forgetting that services were included in the total balance of trade.  I should have been using the balance of trade for goods alone, a larger deficit than the total deficit because of the surplus in services. 

* * * * *

This post is my first since returning from a 3-week hiatus at my north woods retreat, where internet access is available only by taking a 13-mile drive to town, time that is better spent in my little fishing boat, jigging for walleye and bass.  I have a lot of catching up to do, so stay tuned.  Here it comes. 

 


Where Does the TEA Party Stand on Trade?

September 3, 2011

As I was commenting on some editorial the other day, I began to wonder where the TEA Party stands on the issue of foreign trade.  The TEA Party has been extremely effective in driving the debate on debt and government spending.  If the TEA Party ever aspires to become a real force in American politics in general, it has to have a position on every issue, especially one as important to the American economy as trade.

So I visited their web site to learn more.  For starters, here’s how their banner reads:

FISCAL RESPONSIBILITY * LIMITED GOVERNMENT * FREE MARKET

Hmmm.  “Free Market.”  What does that mean?  Searching further on the site, here’s their explanation:

… we support a return to the free market principles on which this nation was founded and oppose government intervention into the operations of private business.

What exactly does this mean?  It sounds like it’s focused more on intervention in the market by the federal government.  But what about intervention by world government, which is exactly what the World Trade Organization does, stripping the U.S. of its right to set trade policy and manipulating international trade in favor of developing nations.  When the TEA Party says “… free market principles on which this nation was founded …,” does it understand that our founding fathers relied heavily on tariffs to protect our fledgling economy and build it into an industrial powerhouse?  Does it realize that “free market principles,” at least as they relate to “free trade,” didn’t even exist in the late 1700s when our nation was founded?  It wasn’t until 1812 that economist Ricardo came up with his “principle of comparative advantage,” laying the foundation for free trade theory.  And it wasn’t until 1947 that we were bamboozled by economists into giving it a try.

So I used their web site’s contact form to submit to them the following question:

I run a blog that’s dedicated to a new economic theory and its ramifications for trade policy.  I’m interested in learning the TEA Party’s stance on U.S. trade policy.  In its banner, the TEA Party champions “Free Markets.”  Does that apply only to government interference in markets or more broadly to international trade in general?  Does the TEA Party support America’s membership in and deference to the World Trade Organization, or does it support America’s right to set trade policy in its own best self-interest?

If the TEA Party supports U.S. membership in the WTO, then I’d like to understand how the TEA Party reconciles that stance with the fact that deficit spending is necessary to offset the negative consequences of a trade deficit?  Also, does the TEA Party believe that it’s possible to balance the federal budget while enduring a continuing trade deficit?

Thanks.  I look forward to your reply.

I hope I get a response.  I suspect that the TEA Party hasn’t really given foreign trade much thought.  If they did and if they came to realize that membership in the WTO is “government intervention” in the extreme, and that trade deficits only exacerbate deficit spending, I believe they could become a formidable force in the move to take back our right to manage trade in our own best self-interest.


Morici Blames Economic Woes on Trade Deficit!

September 2, 2011

http://www.cnbc.com/id/44371467/comid/5#comments_top

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.