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TRADE, WAGE STAGNATION AND AGGREGATE DEMAND (PART II)

July 29, 2015

TRADE, WAGE STAGNATION AND AGGREGATE DEMAND (PART II)

There is some hope for the future, at least until we can rid ourselves of congressional toadies for Wall Street and elect sane politicians who vote for America rather than Wall Street’s bottom line. Just recently the Obama administration announced that it plans to make millions more eligible for overtime pay. The rule change will replace current regulations requiring overtime pay for salaried workers only if they make less than $23,660 a year (which is below the poverty line for a family of four). The new number is $54,440, the number below which employers must pay overtime to salaried employees who put in more than 40 hours a week.

This was done since there has been a failure to update the number for years, having been adjusted upward only once since 1975. Another good feature of this rule change is that it will increase employment as overworked salary workers have been laboring for ten to twenty uncompensated hours per week, thus denying the unemployed opportunities for jobs. This proposed rule change was done under the authority of the Fair Labor Standards Act of 1938, a wonderful New Deal creation which also provided for a national minimum wage and time and a half pay for hourly and certain salaried workers after forty hours of weekly work. Salaried workers were included in order to prevent employer labeling of an employee as a salaried worker in order to avoid paying time and a half. Thankfully this rule change does not have to go through Congress, where Republicans would likely kill it in the service of their corporate contributors.

There is also some additional hope in enforcement of provisions of existing trade pacts. I have always complained that we were saddled with such agreements and that even the provisions of such pacts were laxly enforced. The Obama administration is beginning to show some life in enforcement, even if with the blessing of our domestic corporate producers who welcome going after foreign competitors. International trade law forbids subsidies when goods are exported because such government aid suppresses prices in what is supposed to be a free market.

Some countries, like China, routinely flout such rules. Take tires, for instance. The Chinese dumped subsidized tires on the American market to such an extent that we experienced job losses, factory closures and a struggling domestic industry. After investigation, the Obama administration imposed high tariffs on Chinese tire imports for three years starting in September 2009? Result? American tire factories reopened plants, hired more employees and some factories were running three shifts to meet demand, but guess what? With the expiration of tariffs, the Chinese are back to their old tricks again. Tire imports from China during the past two years are up 84%, so now what? Here’s what – the Obama administration has imposed preliminary duties last November and this January on such unfairly traded tires and the result is that Goodyear, Goodrich and Michelin are booming, adding employees, and see a great future for their businesses. Enforcement via tariffs paid off for America.

So there is thus hope in doing something about our trade deficits by enforcement of rules under current trade agreements. In view of the foregoing, who says tariffs are per se bad? Selectively employed, they are good for America and its industries, tariffs advocated by Lincoln in his day “to protect nascent labor and industry.”

He was right then and the Obama administration is right now “to protect labor and industry” (though not nascent). It is not enough to have trade agreements; their provisions must be enforced.

One could write reams on trade agreements and wage inequality and I have only scratched the surface in this essay, but it’s a start. We need to keep our powder dry and our eyes wide open in this globalized economy because there are many actors out there whose interests are not ours and where dumping, subsidizing exports, currency manipulation etc. to gain advantage are the order of the day – every day. Let’s stay awake.   GERALD    E

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