RESCUING AMERICA
Many pundits advocate the return of more manufacturing jobs to the US by whatever means necessary, even if that includes our renouncing commitment to free trade and returning to targeted import restrictions.
There are several drawbacks to this prescription:
Now, as in the 1930s, the imposition of import restrictions would trigger retaliatory trade sanctions elsewhere, resulting in the diminution of global trade. Such measures would be highly counterproductive, denying the U.S. access to a vigorous export market, the ultimate source of a sustainable U.S. economic recovery.
Those who say it will take another decade for the U.S. to return to economic health overlook the obvious solution to our predicament: exports. We need only look at what Asia did in response to the “Asian ‘flu” in the late 1990s to see what must be done: depress the relative value of the dollar (by continuing to “print” more of them and keep U.S. interest rates low until foreigners are overloaded with low-yielding dollars and dump or spend them) so as to make U.S. exports irresistible bargains for Asians and OPEC members, who have accumulated large spendable trade surpluses. In the process, we would reduce the propensity of Americans to buy foreign goods and services, the net result being a U.S. trade surplus that would generate export-related jobs and supply the funds with which we repay our foreign debt — two essential components to a long-term sustainable recovery. To understand the merit of this remedy, one needs to understand two fundamental realities of modern economic life:
The U.S. is a formidable exporter. We rank just behind China and Germany in the global ranking of exporters. The assertion that “the U.S. is a ‘hollow economy’ that doesn’t make anything” is a misperception, garnered from trips to Walmart where the vast majority of trinkets are made in China. Most American exports — things like aircraft, heavy machinery, chemicals, timber, raw materials, and high-end services (medical, higher education, finance, insurance, management consulting, high-tech) are not purchased at Walmart. In addition, most folks are unaware of the exportable component of our formidable tourist, service and entertainment industries where we enjoy a consistent, comfortable surplus in our balance of trade.
The fact that exports account for only about 10% of U.S. GDP does not mean exports are incapable of being the engine of American economic growth. A vigorous 20% rate of growth within the 10% export sector translates into a respectable 2% addition to U.S. GDP growth. With only a modest 2% contribution to GDP growth from the domestic side we’d have a robust 4% overall growth rate, enough to reduce U.S. unemployment. These kinds of numbers are eminently achievable if the dollar becomes cheap enough. The good news is that the dollar has is getting cheaper, a longstanding favorable economic trend interrupted from time to time when global financial instability causes capital to flock to the “safe haven” of the dollar.
The notion that manufacturing is the source of “the good-paying jobs” is obsolete and misleading. Most widget manufacturing jobs are no longer “good-paying” inasmuch as they can be performed by Asian peasants with a modicum of re-training, willing to work for very low wages. We should not be endeavoring to compete with Asians for wages. Good-paying manufacturing jobs exist only in highly automated, capital intensive industries, where the U.S. is already well-positioned, and which would benefit from further devaluation of the dollar. Labor-intensive, widget-making industries are the equivalent of farm jobs in the days of “forty acres and a mule.” When the industrial revolution mechanized agriculture, societies employing 80%-90% of the workforce in rural, agricultural-related jobs found they could produce all the food they needed with 2% of the labor force. Automation has produced the same effect in industry: we produce nearly the same proportion of manufactured goods with only a fraction of the labor force previously required. So advocating the expansion or even preservation of widget-making manufacturing jobs in the U.S. is a retrograde solution analogous to trying to salvage 40-acres-and-a-mule jobs. What we should be doing instead is fomenting those industries — highly automated/capital intensive/high-tech and high-end services (where we consistently generate trade surpluses), requiring a well-trained, highly educated labor force. That is not to say there won’t be jobs for unskilled, poorly educated workers. They will still find jobs, albeit low paying, serving the needs of the skilled, educated labor force.
The formula for long-term sustainable growth, as any basic economic text states, is the growth of the labor force times the growth in productivity. The growth in the labor force will be what it is (low among highly educated, high-achievers in the advanced economy; high among immigrants and others more closely tied to the agricultural birth ethic when children were an asset rather than a liability). Where policy can make a difference is in the productivity of the labor force, which comes back to education and capital investment. Republican policies undermining both basic and higher education (including children of undocumented workers) in the name of fiscal austerity, are highly detrimental to productivity, and therefore, to the long-term prospects of the United States. So are policies inhibiting the immigration and retention of highly educated foreigners. Capital investment will follow aggregate demand, which, as I have stated, exists in Asia and OPEC, and is accessible through aggressive exports fomented by a low-valued dollar.
A corollary to the basic principle of GDP growth= growth in population X productivity is the need for a stable, sustainable credit structure within which the growth in population and productivity can thrive. Given three decades of policies undermining financial stability (with low taxes, indiscriminate deregulation and the prosecution of pointless wars we are unwilling to pay for), such a credit structure requires two things:
Fiscal stability at the government level, requiring a willingness to tax ourselves sufficiently to pay for the government services we demand — in short, abandoning the supply-siders self-serving “Voodoo Economics,” which, despite clear evidence to the contrary, maintains that more revenues will be collected in the long run if we chop tax rates. Raising taxes on those able to afford it is a far surer way of achieving government fiscal stability than attempting to slash government expenditures (which have highly recalcitrant, entrenched constituencies). Much could be achieved simply by withdrawing from the Middle East and reducing military expenditures commensurately; but that would mean overcoming the recalcitrance of the entrenched war lobby. Nevertheless, that alternative has a better chance of success within the electorate than trying to cut Social Security and Medicare. Taxing ourselves adequately would mean reducing our dependence on foreign capital to pay our government bills.
Financial equilibrium within the household sector, achievable by providing export-related jobs and reducing household spending on imported goods by continuing to devalue the dollar. By fomenting income and dampening expenses, households will have the wherewithal to pay down their debt to sustainable levels, with the collateral benefit of reducing our foreign debt.
Restoring strong, sustainable American prosperity basically will require a radical reversal of the demagogic, highly counterproductive Reagan-inspired policies and priorities:
Low taxes, especially on the rich
Freewheeling military expenditures, morphing into “long wars”
Militant anti-drug enforcement
Indiscriminate deregulation and lax enforcement of existing regulation, especially within the financial sector
Slashes in vital government services (education, law enforcement, firefighting, regulation)
Private health-insurance
Petroleum-centered energy policy and
Jingoistic “strong dollar” policy.
The evidence of 30 years of hindsight demonstrates that such policies produce calamitous results:
Consistent, huge deficits (leading to dependence on foreign capital, loss of financial sovereignty and inability to respond in a fiscally responsible manner to emergency spending needs in a severe recession or natural catastrophe)
Diminished international esteem (based on our violence-prone foreign and globally destabilizing credit policies)
Unsound financial practices (leading to financial panics and economic meltdowns)
Growing inequality of wealth and income (leading to social and fiscal/economic destabilization)
Inadequate labor force training and crime prevention (leading to reduced growth in productivity and loss of security)
Poor health and expensive health care (with corresponding loss of productivity, financial instability and increase in human suffering)
Dependence on foreign sources of highly polluting energy (to the detriment of the environment, our balance of payments and our foreign policy (prompting us to send troops in the Middle East to protect our energy lifeline))
Overvalued dollar (resulting in continuing deficits in our balance of payments and loss of financial sovereignty)
Sadly, longstanding, demonstrably counterproductive policies are unlikely to be changed as long as Washington serves the needs of their wealthy individual and corporate paymasters, to the detriment of the common weal, disguising their ultimate purpose behind misappropriated, demagogic slogans like “freedom,” “get the government off our backs” (or “government is not the solution, it's the problem”), “free enterprise,” “free markets,” “fiscal responsibility,” “drill, baby, drill,” and “king dollar.” These slogans all sound good in theory, and consequently, have great popular appeal; but when put into practice in the service of the rich and powerful elite, produce the calamitous results previously enumerated. Only when these calamities come crashing down on our heads are we likely to embrace the policy changes necessary to right the seriously listing ship of state, first among these is public funding of political campaigns to sever the umbilical cord between wealth and politics. Hopefully this reformation will occur before it capsizes, or maybe not.
In short, the way out of our present predicament includes the following policy reforms:
Prohibit all private campaign funding of Federal elections, replacing the present system with public funding. None of the reforms that follow can be instituted without this essential precondition.
Raise taxes, especially on the rich, by rescinding the Bush II tax cuts. Recognize that "individual responsibility" includes paying taxes sufficient to cover government expenses and generate surpluses for emergency spending.
Ultimately, replace the Federal Income Tax with a Graduated National Sales Tax exempting essentials, surtaxing luxuries (to make up for revenue lost to the exemption of essentials), and tax everything else at a standard 27%, enough to close the deficit gap and generate a modest surplus as a source of future emergency spending when unemployment exceeds 6% or 7%.
Enact a stiff, no-nonsense-no-deductions inheritance gift tax on estates over $3 million, totally dedicated to paying off the national debt, remaining in effect until it is fully paid off, then rededicate the proceeds to paying off student loans, thereby restoring generational equity.
Trim the fat but not the muscle in government spending, line by line using zero-based budgeting. Maintain spending on education, law enforcement, fire fighting. Reinstitute PayGo budget discipline.
Decriminalize street drugs so as to rededicate funds presently spent on enforcement and incarceration to education and rehabilitation, and end the Drug War on both sides of the border and defund organized drug-related crime.
Withdraw all U.S. troops from the Middle East, Korea and Europe and cut DoD expenditures commensurately, so as to help balance the budget, restore America’s tarnished standing in world opinion, short-circuit the mechanism driving recruitment for extremist Islam and de-escalate the present “Clash of Civilizations” in order to arrive at a modus vivendi between Islam and the West.
Institute and enforce simple yet effective regulations curbing the excesses of the free market mechanism, especially within the financial sector. For example, require all homeowners to put down 25% equity to obtain a mortgage, obviating the need for regulatory second-guessing of the underwriters on detailed lending standards and procedures.
Institute Medicare for all, thereby assuring universal coverage without the odious mandate and eliminating the unproductive overhead of private health insurers.
Aggressively develop clean, renewable sources of energy to replace carbon, reduce dependence on unreliable foreign sources, and provide needed jobs
Encourage a “level playing field” in international trade and support continued devaluation of the dollar to foment exports (and related jobs) and reduce imports, so as to provide the wherewithal to repay foreign debt