This is part 1 in a series of America's economic decline and useful policy alternatives for the future.
Hijacking America
In light of the growing
concerns that plague the future stability as a nation, Alexander Hamilton’s
“Report on Manufactures” is a fitting for an introduction. The wisdom in these
words should strike a tone to our ears even more so then they did when they
were read for the first time to the House of Representatives in 1791.
“If one nation were in a
condition to supply manufactured articles on better terms than another, that
other might find an abundant indemnification in a superior capacity…And a free
exchange, mutually beneficial, of the commodities which each was able to
supply, on the best terms, might be carried on between them, supporting, in
full vigor, the industry of each... But the system which has been
mentioned is far from characterizing the general policy of nations. The
prevalent one has been regulated by an opposite spirit. The consequence of it
is, that the United States are, to a certain extent, in the situation of a
country precluded from foreign commerce.”
According Leslie Gelb,
president emeritus of the Council on Foreign Relations wrote, “No nation with a
massive debt has ever remained a great power.”
What nation was she referring
to? The United States of America. US heavy industry has largely disappeared, having
moved to foreign competitors, which has cut deeply into its ability to be independent
in times of peril. Its public school students trail their peers in other
industrialized countries in math and science. Not because American kids are
born more ignorant, it is because of our education system, our fractured
politics, bilingual and multiethnic classrooms, which slow progress and
advancement. Nonetheless, we are losing our ability to compete in the global
economy. Entire generations of Americans read barely at a grade school level,
know almost no history, basic science, and next to nothing in geography.
Political Science professor,
Robert Cape, of the University of Chicago, ads an equally bleak diagnosis,
“America’s relative decline since 2000 of some 30 percent represents a far
greater loss of relative power in a shorter time than any power shift among
European great powers from roughly the end of the Napoleonic Wars to World War
II. Indeed in the first decade of the Second American Century, a net zero new
jobs were created. The average American household earned less at the end of
this decade than at the beginning. American savings and investment accounts are
lower and the dollar is worth less, unemployment is higher, and 50,000 plants
and factories shut down (Meyerson, Washington Post, 2010).
We now buy abroad, what we
used to produce here at home, for nearly all of our daily items, this includes
critical technology for infrastructure and defense (termed Advanced Technology
Products). Reason we routinely run a half trillion-dollar trade deficit,
causing James Buchanan to quip, “China today has the trade profile of an
industrial and technological power while the manifest of U.S. exports to China,
aircraft excepted, reads like the exports of the Jamestown Colony to the Mother
country” (Suicide of a Super Power).
The
entire free trade theory willingly recognizes that there will be winners and
losers. But the net benefits we are told, will clearly outweigh any costs. But
the costs are there, and often times will not be counted as easily as units of
coal exported and units of cheap chinese junk imported. Unemployment leads to
depression, destruction of the nuclear family unit, mass relocation, ghost
cities, and disproportionate strain on different sectors of our society. And
only the elites and (the token scholarship minority) who get the top tier
education can get their foot in the door of the lucrative booming “services”
sector of the economy (read: consulting, finance.) It is precisely these folks
who are told all throughout school that international trade is GREAT,
outsourcing is SUPER, and that a rising tide lifts all boats.
Mark Drajem for Bloomberg
ticks off a depressing list of lost jobs in semiconductor and electronic
components (42%), communications equipment (48%), and textile lost an
astonishing 62%. These depressing figures caused Auggie Tantillo, executive
director of the American Manufacturing Trade Action Committee to say, “Running
a trade deficit for natural resources that the United States lacks is something
that cannot be helped, but running a massive trade deficit in man-made products
that America can easily produce itself is a choice—a poor choice that is
bankrupting the country and responsible for the loss of millions of jobs.”
Who did this to us? We did
this—The American voter through ignorance, the American politician from the
influence of lobbyists. We believed in the new creed: “plenty for today, wait
and see about tomorrow.” And we have invited the whole world to the party,
promising welfare and entitlements for life, mortgaging it all for a future
generation to pay, arrogantly thinking the paradigm of consuming more than we
can produce will forever be sustainable.
Unless you are a part of the
tiny fraction of Americans at the top of the food chain, you have no economic
freedom in which to speak. Do not confuse the recent American capitalist creed
that because you have freedom to spend along with consumer choice, you have
economic ability. You do not. You are a surplus commodity.
Since1970, the American
economic way of life changed forever. Our economy altered at light speed from
industry and production to services and the financilization of everything. The
short analyses reveal during this time that the greater majority of Americans
have become serfs. The dollar does not spend the same as it once did, we don’t
make as much relative to our parents and grandparents, yet tax revenues set
newer and newer records each year. It now takes two working parents to afford a
household where once it took just one. Homes were paid off sooner and people
once could work their way through college.
Now Americans are deeper in
debt and so is the country. Our so-called freedoms to spend and economic choices
to make are illusions, a product of psychology and consumer-driven marketing
ploys. The truth of the matter is these so-called economic freedoms and choices
have been made compulsory in order to live. The “financializaiton” and
government involvement in the economy has produced regulatory capture for the consumer.
In a short synopsis what does
this all mean? Well, let first me first mention this point: Our national debt
roughly stands at $14 trillion. However, that is not our structural debt, which
is what our legislators have promised to fund. Programs like Social Security,
Medicare, government pensions, etc. If
we go by the General Accounting Office, that number is anywhere between 60 and
80 trillion.
Government’s involvement in
the economy has widened and caused a series of bubbles in its wake. Total
government spending amounts to more than 40 percent of gross domestic product,
equal to what the economy actually produces in a year [1].
How does this affect the US
globally? Other economic giants such as China, Japan, Persian Gulf governments
and sovereign wealth funds are suspecting, and rightfully so, that they are
holding worthless papers. The fear being, of course, the US will default on the
massive debt or cheapen the hold by inflation. As these fears grow a few things
will happen. These countries, which are essentially our creditors, will stop
buying US debt or start selling it or force a higher interest rate to offset
the risks associated in holding it.
The Fed will have no choice
but to raise rates to attract borrows, which will greatly increase the chances
for recession. Once this comes to pass, as many have stated, the US debt will
be largest single item in the federal budget. Eerily Lenin supposedly once said
that the surest way to bring down capitalism and ruin its institutions was to
debauch the currency, whereby through process of inflation, governments can
confiscate secretly. In essence, government will swallow the economy and the
interest of one is no longer separate from the other. So, what once cost 25
cents now cost $5 or 10. For example, gas today cost 14 to 16 times as much as
it did in the 1950s. The point is that dollar has lost anywhere between 75 to
90% of its purchasing power.
Different Course and Social Implications.
There is, of course, an
alternative: A nationalistic economy secures the domestic interests, first. When
farmers need more workers they should raise wages to attract workers, not
import cheap, low-skilled laborers who will require welfare assistance for the
duration of their lives. If manufactures, such as car manufactures for example,
wish to produce quality goods, suited toward their main consumer, the American
people, then perhaps the best way is to allow American workers to manufacture
those products.
If American car manufactures
are falling behind Europe and Asia, then time is of the essence to turn ship
and take a correct course. Corporations should hire more engineers, invest in
human capital by sponsoring advanced degrees for aspiring design engineers, and
reform corporate management by putting senior engineers in chief managerial
roles as the Germans and Italians do.
America, during the 1950s and
’60s, owned the world market in car manufacturing. Now American auto
manufacturing capability is merely a drop in the pacific. Since 1970, Japan has
purchased less than a million U.S. cars, while selling us over 50 million [2].
Free traders suggest this is
a good thing: Japan makes a superior product, and Japanese consumers, just like
American consumers, choose to buy Japanese made cars. However, the deluge of
imports and the flood of outsourcing have created, in spite of increased wealth
and access to every widget and gadget under the sun, an economic system of
diminished returns. College graduates can’t find work and are forced to move
back in with their parents. Children are raised in daycare because mothers are
forced to find a job and help support the family.
Ernest Hemmingway wrote, “the
first principle of a mismanaged nation is inflation of the currency, the second
is war. Both bring a temporary prosperity; both bring a permanent ruin. But
both are the refuge of political and economic opportunists.”
It is impossible to deny that
free trade works, when it works. In the same breath, it is important to
identify and then realize the areas it has failed. For starters take a stroll through the Mon Valley of Pennsylvania; book a tour through a travel guide
and take in the sights of the shrinking, gutted city of Detroit—once America’s
Great Arsenal of Democracy, its forges now rusts in obscurity, cold and
forgotten inside an empty factory.
There is reason why the
majority of Americans feel the country is headed in the wrong direction. We
should listen to them even if most cannot give in detail the source of their
anxiety. However, instinctively most Americans, on some level, are economic
nationalist. The differences come out when they bump up against a hard advocate
for absolute free trade. One issue in particular is the understanding of one
word, “need.” For example, free traders will say, “we need immigrants to do the
jobs American won’t do.” Or “we need to outsource some jobs that can be done
cheaper and more efficient so that Americans can have more for less.”
These are understandable
motivations on a superficial level, but the logic isn’t quite as sound as
assumed.
While there are “needs” in
one’s life, from an economic standpoint, rarely can a need be objectively and
quantifiably determined. In fact, the former is really a wish. Comparing needs
and wishes are not semantics but a real idea. Farmers may wish for more farm
workers, American manufactures may wish for better profits by reducing
production costs. Anyone is entitled to wish for anything they happen to imagine,
but the object desired is rarely a need. Even worse is allowing powers at the
top to determine for the rest of us what our needs are.
Bringing in more foreign
workers is not without costs to society. Outsourcing jobs to foreign countries
is not without costs to the American economy. Our elites inform us we have access to
plenty of goods. We have more than we can otherwise produce on our own.
However, we also have a long-running trade deficit and a permanent
unemployed/underemployed class.
Our nation enjoys its place
as the world’s oldest constitutional republic, and is still the model to which
other nations aspire. However, if the American people and the politicians they
elect cannot standup and prevent the coming calamity, the devaluation or
default of our currency, can we continue to say democracy is the pinnacle of
human society?
Will we have to concede that John
Adams was correct when he dimly reflected, “Remember, that democracy never
lasts long. It soon wastes, exhausts, and murders itself. There never was a
democracy yet that did not commit suicide.”
Notes
2. Gary Hoffman, (2009). AOL
Autos.com
3. Read Patrick J. Buchanan’s
Suicide of a Super Power
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