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An Expat in Favor of Rattling the Cages of Countries with Large USA Trade Surpluses
Here are some observations from a retired Texan living in Switzerland, a land of free enterprise, and many small … and some large … manufacturers that export over half of what they make. This is a country with really solid primary and secondary schools that graduate literate young citizens; trade schools for the 80% and universities for the 20%; and a land where if you’re here illegally and you are not a true and registered refugee, you will be caught and unceremoniously deported. (Switzerland’s unfortunate decision to be coerced into the Schengen Agreement has led to complications with migrants first passing through EU countries.)
When a country like the United States signs trade deals such that most of its manufacturing is lost on the altar of “Free Trade” (i.e., that which was employing millions of skilled citizens making average incomes, and such that the R&D that heretofore went into improving the products from those now non-existent plants also was replaced), then you have what you have throughout the Midwest and Southeastern United States: many shutdown factories and towns with crumbling infrastructures; and, stagnant numbers of young American technical graduates.
The illegal immigration, especially in those areas, only made life worse for these middle-income people. (In Aiken County, SC, we had 5,000 illegals among a population of about 60,000!) Note also that today’s opioids crisis is deeply embedded in areas that have lost their manufacturing employment bases (see The Numbers Behind the Opioid Crisis of November 2017 prepared by the Senate Joint Economic Committee). What you see in this report is far beyond sad. We saw all of this and more when we lived in Aiken, SC, during the cooler months from 2001 to 2012, traveling extensively throughout the Carolinas, Tennessee, Kentucky, and West Virginia. Income inequality? You bet. And in my judgment, obviously the principal result of poor public policy.
Take a look at line 8 of the Bureau of Labor Statistics Table A-1 Employment Status of the Civilian Population by Sex and Age. There are 95 million people between 18 and 65 years old “not in labor force.” Although up to half of these people are permanently disabled and students, the US nevertheless has a grotesque number of now permanently unemployable people because their federal elected representatives of both parties did not care a damn about them over about five decades. These representatives drank the Kool-aid of “Free Trade” rather than that of “Fair Trade.” So, along comes a New York City real estate guy who says, “You’ve been screwed and I want to make America great again.” And he wins. He wins for very solid reasons.
An opinion: an American needs to live outside of the USA for a while to fully appreciate how badly the American people have been misled by their ever-expanding and ever more corrupt federal government whose executive bureaucracies (i.e., those supposedly under Art. II of the Constitution) began producing wholesale undemocratic “expert” decisions thereby subjecting The People to regulations far beyond the statutes actually passed by their elected representatives.
Let me say this to any observant person in the US: Go to Texas, as I did this past January and February, and witness what is going on in what we call “The Oil Patch.” Drive past the fabrication yards making drilling rigs, offshore platforms, large valves, pressure vessels, and all that goes into getting you transportation fuel so that you can drive. Texas is booming and reaching out to get more people to come. Income inequality? Yes, there is some. But at 2.4% unemployment in West Texas and less than 4% now in Houston, not much.
I say this: There are not many problems in the US that cannot be solved by enough jobs. Local, state, and federal governments can and should coordinate, but they also have to get the hell out of the way. And we all have to demand fair and reciprocal trade deals.
Published in Foreign Policy
Let’s hope you’re right, Arnold, that “rattling cages” has very little downside. But American farmers are still worried.
That is your vote. We have traded standard of living here, so that others may have a higher one. Yes, things have gone up, but they could have gone up even more.
“As much as we can” is quite close to “each according to his ability”.
FDR’s logic perfectly distilled.
Our standard of living is immeasurably higher today than at any time in the recent or distant past.
Are you really calling me a communist for wanting to get government out of the way of the economy?
Wasn’t the Great Gatsby set in the roaring 20’s? But hey I guess both success and failure can leave on feeling empty and depressed.
And that brings this up. How did we deal with the Great Depression? Are people here really arguing for WPA and the NRA, and a whole alphabet soup of government programs and agencies to stop destructive competition and expand federal powers to regulate commercial practices? Or are we hoping for a World War to ruin the production sectors of the civilized world?
Not at all. Your taxes are what they are. They are part of the factors of production in a given market. Giving tax relief to exports is an unfair trade practice, a subsidy. That’s not free trade. I thought you liked free trade?
I asked how much should American’s give to raise the standard of living in the rest of the world. Your answer is “As much as we can”. That is quite close to saying “from each according to his ability”.
Why should Americans have a lower standard of living than the highest possible? I think that should be discussed, not assumed.
I have not called you a communist. I am calling out an unspoken assumption. Americans should be asked, how much do you want your standard of living to grow, so we can help others grow.
This is really good.
I rejected the premise of your question – Americans have not given up anything to lift the world from poverty. Americans are better off today than they have ever been.
It’s possible man requires more than bread to live.
We might actually need to work for it, too.
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I know there is debate on jobs that exist that people aren’t applying for. A rot has settled in and we need to remove the rot in order to see a return to productive behavior.
I can see some things that are needed but no idea how to implement them: welfare deescalation, drug rehab, cheap and short term low skill vocational training, and affordable housing where jobs are. (Or jobs where affordable housing exists)
But people need jobs and need to work for their livelihoods. I think that is psychologically and spiritually necessary.
The government could create jobs tomorrow. There are a lot of ditches that could be dug and a lot of spoons to do it with.
Productivity is what matters, all else is socialist meddling.
Actually, a quip from someone who lived through the results of FDR’s big government nonsense.
Look, everyone wants free trade. The problem is that we don’t have it. We have free-er trade than we used to. But how do we move to free-er trade? What leverage do we employ if our trade counterparts are not swayed by the force of Ricardian logic and continue their unfair trade practices? Do we say ‘to hell with the folks who lost their jobs in a textile mill in SC…and a shoe factory in MA. I just saved 30 bucks on a pair of sneakers made in China!’ Is that who you want to be? Selling your neighbors down the river for some subsidized priced stuff?
The fact Americans are better off today than they have ever been clearly does not refute my premise. My point is that some level of standard of living in America and the West has been traded to lift the rest of the world. You are saying that the only limit we should place on that is “as much as we can” which you have not defined.
How do you know this? Its a counterfactual you can’t prove. The only evidence we have is that Americans today are far better off than they were in the past and that this happened in concert with the rest of the world rising out of poverty.
Trade is made of win – we should unleash as much of it as possible.
I would eliminate all tariffs over a period of 5 years regardless of what our trading partners do. Unleash the engine of American ingenuity and productivity. Let the rest of the world impoverish themselves in a vain attempt to catch us.
I guess I need that explained to me. How, exactly, does that unleash the engine of American ingenuity? Is this a ‘turn the other cheek thing’?
We need trading partners to free up their markets to provide access for those ingenious Americans.
You are entitled to your opinion.
The government and the Fed have to stop driving up the cost of living and creating asset bubbles, too. The only bad CPI features are the stuff government is meddling in, and even then, many think the CPI is understated.
The only problem is we can’t hack this level of increased purchasing power (deflation) because we have so much debt and government now. Deflation reverses tax receipts and our dependency on credit growth requires inflation.
This is one hell of a mess. We should have stopped with all of this idiotic central planning after the USSR fell.
People don’t understand what deficit means in the context of the current account balance. Those with an understanding of economics know that a deficit in the current account is actually a good thing. A “trade deficit” indicates that you received more for your exports than the country you are trading with received for theirs. They are giving you things in return for pieces of paper whose only value is ultimately to be spent or invested in your economy. That spending and investment creates new companies, jobs, opportunities.
People hear the word deficit and they assume its bad – people who have read Adam Smith know better:
The most important concept to understand for current account deficits is that it is investment that drives the deficit not trade policy. America is an engine of creativity, innovation and wealth – people sell us things and we give them back our currency. They reinvest that currency into our economy, boosting business and job creation – that is the benefit of free trade to America. Not merely cheap goods, but good jobs and a growing economy.
I need to read up more on your philosophy here, but all my education in economics (poor that it is) has lead me to believe that deflationary periods are far more destructive than inflationary ones.
Thanks for the numbers Ekosj.
Valiuth, why should collected VAT taxes on a good produced in Switzerland be refunded when sold to the U.S. but not when sold in Switzerland? Things produced in Switzerland benefit from and use the same infrastructure and societal capital no matter where they are sold. In practice this allows Swiss companies to charge their U.S. subsidiaries the retail price of goods so that they pay no taxes on the U.S. side (no profits when the wholesale and retail are the same) and are refunded the VAT taxes on the Swiss side. Imports from the U.S. face the VAT on retail and corporate taxes on either side which ends up favoring loading the profits into the Swiss side too because their corporate tax is lower (see Ekosj’s comment for how much and why).
My understanding from people like David Stockman etc. Is that obviously trade is good, specialization and trade. This increases people’s purchasing power and it spreads wealth around everyone wins. Prior to modern central banking, living standards we’re mostly about increases in purchasing power, not wage growth or your house going up automatically every year. That’s probably an oversimplification but it works for this discussion.
The problem is around 1996 Greenspan really started goosing the economy this accelerated the move of jobs to NAFTA countries and China. If everyone benefited from the increased purchasing power it wouldn’t be a big deal. The problem is so many lose their jobs and our dumb government has to run with inflation and asset bubbles anyway. So now there are social costs and the political system is getting weird.
I’ve subscribed to hedge fund guys that loosely follow the Austrian school for a long time. I’ve read the first 150 pages of David Stockman’s new book. He basically lays out very linearly all of the stuff my guys have been saying forever.
All of this is really easier said than done. There’re a bunch of people on Ricochet that have improved my understanding of this stuff. I know that GOP reps. Steve Scalise, Jason Lewis, and Tom Emmer are all over this but this is a very tricky political problem. This type of stuff erodes the power of the government and Wall Street.
I’d say the simple version is we need to get the productivity of the economy up and they need to get rid of the Fed dual mandate.
Right but deflationary economics also eroded economic growth does it not?
Im with you on the Fed but I can’t make the leap to deflationary economics as preferred policy.
We are trained to think that, now.
If everyone’s purchasing power constantly went up every employee every business, there is more capital for everyone to do what they have to do or want to do. So you can have deflationary growth. That is what this country had between 1870 in the 1907 banking crisis.
There are two kinds of deflation. One is just a gentle natural increasing purchasing power man is experienced write up to 1914. The other kind is where debt collapses and it pancakes like if you dropped a bomb on a big parking ramp. Noticed that in the depression we have a central bank and we had the second type of deflation anyway.
It gets complicated but this is the root of what needs to be discussed. There are no easy solutions.
I like cheap goods best. Free trade is about access to markets. So long as they don’t over tax our goods in their country I dont much care how little they tax their corporations. We can always tax our corporations less too.
How about we force China to treat our imports and businesses fairly? Then, we proceed with truly free trade?
We need mega deflation in health insurance, medical services, education, and I hate to say it, shelter prices. How can you have homes be so expensive and rent so high when the rest of the world is willing to work for nothing because they’re so desperately poor. How is that going to work? The whole government and financial system is predicated on home prices being high and going up all of the time. Swell.
So if we traded with a country that charged no corporate taxes then we should levy tariffs in goods from there? Do US retailers not like selling swis watches and chocolates? Aren’t we hurting them by putting extra taxes on swiss goods? Why is that a good idea?
I’m going to read more of this. Dave Stockman’s book is called?
Why do we care if the Chinese tax their own citizens?