The Reagan Record On Trade: Rhetoric Vs. Reality

Amen. Here is a re-post from #13 further on these points...

The root cause of losing our businesses is the FEDERAL GOVERNMENT. The federal government has created an unfriendly business environment in the U.S. with boneheaded policies like

- minimum wage - artificially high labor costs are killers of jobs and send companies elsewhere

- taxes

- regulations

- federal protection of unions

Again, the issue is the unfriendly American business environment and weak American competitiveness caused by the skyrocketing costs of doing business due to GOVERNMENT INTERFERENCE like taxes, minimum wage, regulation, and unions. When those things are addressed, business will WANT to return/stay because of cost benefits.

Let the voluntary cooperation of the market economy free of government interference work. Don’t layer more government interference upon that which is the root cause to begin with.

“The Fordney-McCumber Tariff of 1922 wasn’t much different than Smoot-Hawley, 1930.

Those who wish to attribute the Great Depression to Smoot-Hawley need to explain why Fordney-McCumber was followed by the Roaring 20s rather than a depression.”

That is a argument worth considering. I’m not familiar with the 1922 Tariff. I’m confident that there were differences between the two tariffs, for example in terms of items covered and magnitude of the tariffs. Of course there are similarities, tariffs are tariffs.

Milton Friedman is a Mr. Monetarist. The money supply may be the main, but certainly not the only, thing. A modern day “Austrian” economist points to monetary policy as the cause of the 2008 crash. I can’t say it did not contribute. However the contribution of Fannie Mae to the housing/mortgage market seems more direct. I would never insist that there be one cause only in a complex economy.

I think it’s pretty safe to say that Smoot-Hawley (and retaliations to Smoot-Hawley) greatly impacted foreign trade. I don’t think that could be good. The Fed did allow the money supply to collapse. One defense/excuse was that increasing reserves when there was little demand “was like pushing on a string.”

You can find a description of the two tariffs at eh.net.

https://eh.net/encyclopedia/the-fordney-mccumber-tariff-of-1922/

“The money supply may be the main, but certainly not the only, thing. “

Current financial markets react to money supply changes of even one or two percent. The mere threat of a small increase in the interest rate moves the market. The Great Depression was a 30% collapse of the money supply. And due to the fact that there was no FDIC, depositors were completely wiped out.

” However the contribution of Fannie Mae to the housing/mortgage market seems more direct.”

A different subject, but it didn’t play a major role. It was big and went along for the ride, as did every player in the mortgage market. The mortgage crisis developed in the shadow banking rivals to F&F, where more than half of all loans were made and where all of the exotic non-conforming paper was written. Fannie and Freddie made conforming loans right through the bubble and lost market share as a result.

“I think it’s pretty safe to say that Smoot-Hawley (and retaliations to Smoot-Hawley) greatly impacted foreign trade.”

No more so than its close cousin Fordney-McCumber. Imports and exports were less than 5% of the US GNP at that time. A total loss of trade wouldn’t have caused the Great Depression. Primary imports were ag products we don’t grow like coffee and bananas.

“The Fed did allow the money supply to collapse. One defense/excuse was that increasing reserves when there was little demand “was like pushing on a string.””

It wasn’t really a pushing on a string issue. The banks under pressure could have been saved if the Fed had purchased their paper providing them with the liquidity needed to survive bank runs from their panicking depositors. The Fed was somewhat rudderless, their dominant personality Benjamin Strong had died in 1928 and there was no one that gave the Fed direction.

“The reason US prices were so high, though, was because of UNIONS”

Unions do not explain the loss of US manufacturing jobs in the 1990’s and 2000’s. Take a drive through the southeastern United States and look at the thousands of shuttered factories once employing hundreds of thousands of NONUNION workers. The industrial South is just as decimated as the industrial North and Midwest. Consider also, when production and jobs went offshore companies did not lower prices. The experience of the 1990’s shows CEO’s used the higher profit margins to buy back stock or make acquisitions in an effort to drive stock prices higher. I might add Goldman Sachs, JP Morgan, and the other “too big to fail” Wall Street banks were willing collaborators in the offshoring of US manufacturing and the stock market speculation made possible by the cash flows derived from offshoring.

Labor cost was a low percentage of the cost of most products offshored over the past 25 years. Due to the higher productivity of the American worker, and the cost of transporting goods from Asia to the US, the real cost advantage in moving offshore was only 10-15% for most manufactured items.

Consider that by the 1990’s the US factories built after WWII in the 1950’s, 1960’s, and 1970’s needed modernization. US multinational companies were going to have to spend millions of dollars replacing aging equipment and modern production control systems. The lower of tariffs, lobbied for by Wall Street and the multinationals, occurred at the same time this reinvestment in modernizing America’s manufacturing infrastructure was needed. Coincidental? Once the tariffs were lowered (NAFTA, WTO, CAFTA), US investment dollars poured into setting up supply chains in China and other countries. American workers were left with obsolete factories that couldn’t compete with highly productive new equipment and slave wages. It was a double whammy.

Why did US corporations in mass lobby for zero tariffs and once they were rammed through Congress shift investment dollars needed to modernize US factories offshore? Ask Wall Street and the politicians serving Wall Street. Follow the money, the decision makers became incredibly wealthy while the middle class American worker took in on the chin.

Having lived through the period I recall the arguments that free trade would provide great benefits to the US economy and the US worker. Millions of high paying “new economy” jobs would be created in the USA as a result of free trade. Twenty-five years later we haven’t seen those “millions” of new jobs. Despite the miserable results from previous free trade agreements we are now being told by both parties the TPP will bring incredible benefits to US companies and US workers.

A few questions:
1) Where are the studies demonstrating quantitatively the lowering of tariffs and offshoring of manufacturing benefited the US economy and the US worker? We have 25 years of experience with NAFTA and the other agreements. What was the net benefit?
2) Why does any free trade agreement require 1500 pages (NAFTA) or 5400 pages (TPP) to explain and document? Since when does “freedom” require hundreds of thousands of words to explain? Could it be these thousands of pages merely describe the exclusions, special benefits, payoffs, and privileges being extended to the companies, countries, and other players who have been designated to benefit from the agreements?

you are describing the situation that forced the NEED for unions

I am referring to what happened later when the unions went too far.

I knew a man paid $65k a year for sweeping and cleaning toilets- the equivalent in todays salary of at least $120K

You could have hired 4 people at that cost and had a cleaner factory - but, union regs...

And how about the ‘brakeman’ at the last railroad car- when they were no longer needed the union regs said they could not be fired.

There are many, many more examples. This clearly inflated to cost of goods (it would have to)

That’s just plain stupidity on the part of the unions

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