Peter Morici, stellar economist from the University of Maryland, concludes that the stock market has voted: The bailout will not work. Morici has been one of the few voices that have consistently complained about the U.S. trade deficit. As usual, few economists, except Morici, see the connection between our massive trade deficit and the financial mess. Without fixing the former, there is little hope that addressing the latter will do much of anything for America’s future.
If Obama wants to make Americans better off, he would serve them better by straightening out the banks and taking substantive action on the trade deficit with China. Also, he would be less politically correct on energy and the environment. His platform is full of platitudes and generalizations but not enough substance.
But we have handed the trade gun to China, and now it is pointed squarely at our head. Is it any wonder that China now is rolling in the dough? If you don’t think that was the result of our trade policy, think again.
But we loved our financial institutions; revered the golden boys that hauled in the big bonuses. Manufacturing and production of real goods had no glamour, no pizzazz.
If anyone talked of seriously addressing the issue of trade, they were immediately dismissed as dangerous tariff-mongers–as if tariffs were the only way to redress the trade problem. Any talk of penalizing our own companies for off-shoring was considered quite unfashionable. Instead, free traders talked about Americans becoming more competitive, as if the U.S. worker could compete with dirt cheap, unprotected labor in third world countries. And, yes, China is a third world country.
Finally, even well-lobbied Congress started to balk at fast-track trade agreements. Lobbyists knew that faster was better. Fleece the sucker before he knows what happened.
Or free traders talked about how better education would solve everything, as if anyone could become a financier, a physicist, or a well-paid economist.
As I have said repeatedly, globalization as it has been structured has been a disaster. The two most poisonous events were NAFTA and China’s entry into the WTO. Neither included any of the labor or environmental standards its opponents rightly wanted.
That our trade deficit ballooned after these two events is not accidental. With the inflation of that balloon went any hope of America finding a way out of the present dilemma. With the inflation of that balloon, to keep the party going, financial institutions offered credit where credit was not warranted.
Manufacturing and real investment went to China and other emerging countries. America was left with an empty shell in manufacturing and a shameful, deceptive investment strategy we now call the housing bubble.
No one cared. The rich were getting richer and they called the shots. They greased the revolving lobbying door. CEO of Goldman Sachs? Why, you must be a genius–gads, a billionaire, at least. The Treasury is yours. Interested in keeping inflation down? Why the Fed is yours.
Has anyone in this government or the last spoken honestly about trade? No country can indefinitely continue to buy goods from abroad. America has maxed out its credit card. It has no way to repay the debt. It has nothing to trade. Its great industries went elsewhere. Its captains of industry knew where the bread would be buttered. They fashioned the WTO. Ask IBM’s Palisano, ask Walmart, ask Dell, ask Intell, ask Delphi, ask any of them: the furniture industry, the pharmaceuticals where they want their labor force.
I have addressed this issue repeatedly: here, What about U.S. Investment Abroad; here, Globalization, Multinationals, U.S. Wages: A Case Study–to name but a few. Doesn’t anyone remember when many multinationals were so flush with cash that they were buying back their stock?
Some economists complained that they were not “sharing” with the American worker. The truth of the matter was: The American worker had few hands in the production of those goods. Those goods were made abroad; sold here.
Now, all we can worry about is the basket into which we have put all our eggs: The financials.
The American eagle has become a dodo: It can’t fly. Big, formerly happy, it is now about to become extinct. What idiot put this package together?
Didn’t anyone suspect that no country can continue to borrow–and, as real cash becomes problematical–to rely on credit cards and subprime mortgages– as if money and wealth grew inside banks and on trees?
Didn’t any suspect that trade and production are essential to a nation’s wealth?
Globalization was precariously disjointed–one massively populated poor third world country more than eager to become the world’s manufacturer and export platform and another country, rich and resting on its laurels, all too eager to tell its population that houses were great ATM cards. The former gathered in the wealth, sharing it with foreign investers and foreign firms; the latter was gulled into thinking that spending was their perogative, along with saving the world in the name of freedom and democracy.
When manufactured moved elsewhere, Americans were told to get better, higher paying jobs. Banks flooded the populace with credit cards. Bankruptcy laws were fashioned to protect the credit card companies and banks.
And were banks afraid of being over-leveraged? Hell, no. And you thought bankers were smart.
When 911 occurred, our beloved President told Americans to shop at the mall…as if spending was the answered. As average wages failed to keep up with inflation and as jobs fled to emerging nations, we looked only at those doing well at the top of the heap. The stock market was doing well. What more could one ask for?
Needless to say, I am one unhappy dodo.