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December 24, 2012


Part I of this series was an overview. I propose to be more specific in discussing the topics of trade and unemployment in this Part II, and trade and sovereignty in later parts.

Many in policy-making positions in this country are obsessed (or pretend to be for their own purposes) with the supposed immediate need to correct our long term and budgetary deficits. Contrary to common belief, these are not emergencies. The real emergency is an unemployment emergency, and our policy focus should be on first attending to this emergency before tinkering with reduction of deficits. Why? Because if we fix the employment emergency, the deficits will tend to go away on their own. Instead of the economics of austerity (which according to Stiglitz and Krugman never work), we will have attacked the problem of chronic deficits from the income rather than savings side. This is Keynesian and FDR-approved economics at its best, and there are numerous examples where the application of such policies has worked, but that is not the end of the story. It comes with a caveat.

No economic theory will work for the benefit of this country and its people today if we don’t get a handle on trade. There is a big difference between the economy FDR had for his application of Lord Keynes’s theories and the economy we have today. Trade in FDR’s day was not subject to the myriad trade treaties we have involved ourselves in today, nor was it a significant factor as a percentage of GDP. While the Great Depression was world-wide, its fixes were left up to country-by-country solutions. FDR chose to borrow money to create demand in a marketplace private enterprise had abandoned. The idea was to borrow money to make money, put people to work, and pay down the debt incurred as we left the moribund economy behind down the road. It worked. We owed 140% of GDP after WW II and paid it all down and were substantially a debt-free country until Reagan gave away the store in the 80s.

We have a new problem beyond the reach of simple Keynesian economics. We have a massive trade deficit as well. Republicans (who protect their Wall Street stockholders and bondholders and their multinational corporate exporters and importers at the expense of America and its unemployed labor force) argue for the politics of austerity. Nobel Prize winning economists Stiglitz and Krugman point out that austerity economics have never worked in large economies, and yet the Republicans persist in insisting that it is the deficit that is causing unemployment. It is precisely the opposite – it is unemployment that, among other things, is causing the deficit.

One need only take a cursory look at how austerity economics is working in Europe these days to find ample proof of economic reality. It is not only Greece, Spain, Portugal et al. who are in recession; even Britain (not a member of the euro common currency group) is in a double dip recession as their trading partners in Europe head for deeper recession with their austerity cure – a cure that will not work. With massive unemployment and little money in the euro group to buy British imports, for instance, it can be readily seen that Britain will suffer as well. Republican arguments that deficits cause recession are clearly misleading; Britain has no deficits and is in a double dip. So what is the culprit? Reduced exports, for one; but perhaps worse, Britain’s Tory government has decided to go the austerity route as well. I think that political decision will doom Britain to a prolonged recession. When are Merkel and Britain and Wall Street ever going to look beyond their bondholders’ coupons and adopt policies that put their people to work so that they can prosper and their deficits (if any) can be reduced?

We have been told that both bilateral and multilateral trade treaties made with our trading partners are good for both American labor and investment since these partners’ markets will be open to our exports and investments to facilitate such trade by our banking and other investment houses. In return, we are told that we must have “free trade” policies and tariff-free trading environments. We enter into such agreements, establish rules of trade and hearing trade councils to enforce anti-dumping, anti-subsidy, anti-currency manipulation wrongdoings. We are told further that such trade agreements can be used to pressure our trading partners to improve labor standards in their own countries in exchange for access to and new investment from the United States market. This idea is a good one since rising wages and better conditions overseas would help level the playing field for American companies.

So how has this noble endeavor worked out? It hasn’t. It is a disaster for American labor and American businesses who depend upon the demand that good jobs and wages for labor bring to the domestic  table. Though there has been some improvement in labor standards (wages and working conditions) among some of our trading partners, American multinational importers have used the slave wages of the Orient and other low-wage venues to reduce American wages and/or take their jobs away in a race to the bottom. Jobs are exported to China and poverty is imported to this country as a result. There are other catastrophic results: we have to pay out more in social costs for our unemployed (food stamps, unemployment compensation etc.), our government gets less revenues to reduce deficits and/or fund important and needed initiatives, our aggregate demand in our domestic market tanks (thus adding a secondary layer of new unemployment to the ranks of those unemployed by reason of having their jobs sent overseas).

So if such policies and known results are bad for American labor and the businesses dependent upon labor, bad for collection of revenues with which to fund important government initiatives, bad for deficit reduction, bad for infrastructure repair, bad for funding research and development, education, the future for our children, who could possibly want to continue such a losing pattern? Answer: Wall Street financiers such as megabanks, hedge and equity funds and their handmaidens, American multinational corporations involved in importing and exporting goods and services to and from this country and buying and selling overseas. Huge profits can be made for those who prey on both American labor (no jobs) and Chinese labor (slave wages). The rest of us pay a heavy price so that the few can prosper.

We are told that we as consumers are ahead of the game because we have cheaper prices on goods we buy which are made overseas. Are we? When you factor in the costs of unemployment, the lost wealth that could otherwise have been added to our economy, under investments in infrastructure repairs, education, the tanking of aggregate demand in the domestic economy, increases in the deficit we are going to be leaving our children under present policies etc., it is entirely conceivable that Chinese Tupperware, for instance, is more expensive than American-made Tupperware. The price tag you see at Wal-Mart and Target is not the real price. So what is the real price? I don’t know, but it is considerably more than the price tag you see, and for all I know, the real price we are paying for that piece of Tupperware made in China could be more than if it were manufactured in Cleveland. Part III next. GERALD  E

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