Pat devotes this chapter to America's trade current and historical trade policies. Along with his isolationism, Pat Buchanan is a protectionist, constantly ringing the bell against free trade and NAFTA. I do not dismiss his view outright; free trade is a difficult beast to master because it involves the economies of our country's trade partners. He is in favour of free trade policy ala Teddy Roosevelt and Coolidge (yet strangely doesn't mention Hoover--who's tariffs on imports exacerbated the 1930s depression being felt in other countries, which partly contributed to the climates that put Hitler, Mussolini, and Stalin in power).
My problem with much of Buchanan's view in this chapter is that his railings against alleged American imperialism have long since worn out their use. I do not accept the premise that the United States has become imperialist during President Bush's eight years. I do not accept the premise that free trade equals corporate greed equals lost American jobs. I do not accept the premise that America is exclusively a consumer nation disinterested with production.
While Pat smacks CEOs and Bush and American shopping mentality, he puts very little of the spotlight on government regulation, union bosses and taxation (for government entitlements).
The reason I cannot dismiss Pat's views is because there are some real problems going on, specifically with China and that country's policy to keep their currency immensely devalued against the U.S. Dollar (by as much as 46% just two years ago). This is creating a massive trade surplus for that nation, and much of that is being used to buy up American assets and bolster the Chinese red army. That is a problem.
More locally, NAFTA is being used as an excuse for Mexicans to cross the border illegally, presenting our border states with a massive spending problem when it comes to health care and law enforcement. That is a problem.
I am also of the opinion that the WTO is allowing unfair trade practice due to American prejudice, and that NAFTA is potentionally harming the ability for our country to operate as a sovereign nation.
However, before I am willng to accept that the United States needs to start dialing back its free trade policies, I would like to see several things implemented first.
- According to current information, American corporations face about a 40% income tax rate compared to the European Union, whose average rates are in the mid-20s. That is incredible--Mexico is at 34%, Australia and the U.K. come in at 30%; Ireland weighs in at a paltry 12.5%! Add to that the costs of burdensome environmental regulation e.g. the CAFE standard for auto manufacturing. Is it little wonder that American CEOs are hiking it elsewhere?
- Combined with the high taxes are the demands of the unions, who stir up class warfare and financial envy with their high contracts. How much a CEO makes is the business of that CEO. Is it in that CEOs best interest to parade around their income? Probably not, but why should he be penalised by entitlement demands? Shouldn't his success be an inspiration for the American dream (and also an education on how to present one's earnings)? Instead, these people are demonised by unions, who convince their members that they are owed a part of that corporate leader's money. The result is that unions are their own worst enemy, pricing their workers and their company out of competition and spotting countries like Japan and Germany a major advantage.
- Competition is part of free trade. We cannot compete if we don't make their products available. American companies can be given incentives to take tech and manufacturing products, improve them, and then offer them to the American consumer. Why is it the consumer's fault if the best product comes from China. I am 100% convinced that American ingenuity is unmatched when given a chance. But taxes and union contracts guarentee that American competitors will have a headstart out of the box everytime.
- Tied to this is American patrotism and pride. But when education boards are allowed to talk down our history and illegal immigration is tolerated our culture and nationalism is damaged. Illegal immigrants need to be sent home and the borders closed down--at whatever cost. Frankly, Mexico is hurt as much by the immigration problem as we are since if so many of their workers are here then they can hardly be in Mexico helping to make that country a better economic nation. But for us it is poisonous. Thanks to illegals (from all over the world, not just Mexico), these people are taking American jobs and sucking up American taxpayer money, both statewide and nationally. Now look at the state California is in.
- As for China--that is a difficult issue. We can't impose tariffs because free trade in many ways helps to contain that country from being a military adversary. We are such a large part of their economy that I do believe China would come to our aid in the event we were invaded by someone like Russia (of whom they are NOT allies) or a South American/Iranian alliance. The problem is that their policies with their currency give them a significant economic advantage, to a point where we will no longer be needed OR the ChiComms come to own us...literally. But again, the best way to combat this to deregulate our business code and cut corporate taxes by a large margin. That way corporate funds can go into research and development, hiring and expansion, and production. The American consumer will buy American when America is producing quality goods at competitive prices.
So much of the international community in the internet age is tied to each other. We've seen this with the Great Depression and WWII, we see this now with the current global financial mess. To pull back and cut ties economically is definitely an invitation for the world to scorn us. Pat doesn't advocate pulling our head into our shell, but he certainly wants the shell above our eyes. I just wish that Pat would quit with the Bush-hate and see that this is an issue wholly tied to liberalism and class envy.
Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It's a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.2 trillion. What will happen when those assets are depleted? Today's recession may be just a preview of what's to come.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?
At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world's population.
Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)
Please forgive me for the somewhat spammish nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, "Five Short Blasts"
Posted by: Pete Murphy | 20 January 2009 at 14:18