Posted on 02/18/2005 9:55:18 AM PST by Willie Green
For education and discussion only. Not for commercial use.
It is difficult to decide whether the trade figures for 2004 or the Bush Administration's reaction to them indicate the greater danger to the American economy and nation. Last year's trade deficit hit $617.7 billion -- surpassing the record 2003 deficit by 24 percent. The deficit in goods was even higher, at $666.2 billion. The imbalance increased as a share of the economy to 5.3 percent of gross domestic product, up from 4.5 percent in 2003. This is a situation usually associated with underdeveloped countries on the brink of financial collapse.
The Bush Administration is ideologically opposed to doing anything about the deteriorating international situation. It is content to passively accept whatever transnational corporations and foreign governments do to shape the world economy to their advantage. Attempts at positive spin took their most unbelievable form in Treasury Secretary John Snow's testimony to the Senate Budget Committee on February 10. "What those numbers reflect is the fact that the American economy has been doing well relative to other economies," he claimed. "We are importing more from those other economies because we are creating more disposable income."
Yet, according to Commerce Department figures released in January, disposable income by the third quarter of 2004 had increased at an annual rate of 3.5 percent. How does that translate into a 24 percent hike in the trade deficit? Snow apparently assumes that Americans will spend most of any increase in income on imports rather than on American made products. Why would this be true unless American firms are being beaten out by their foreign competitors?
This pattern is not seen elsewhere. Per capita income in Europe and Japan is on a par with America. The European Union actually has a larger combined economy than does the United States, with Japan in third place. Both the EU and Japan run trade surpluses, and in fact use their large gains in the U.S. market to boost their own economic output and income.
China does the same. It is growing three times as fast as the U.S., and its American trade surplus of $162 billion, up by $38 billion from 2003, is a sign of its strength as the rising manufacturing hub of Asia. Beating out the competition in foreign markets is the real sign of successful commerce and government policy, not losing market share to overseas rivals as has been the American case for over a decade.
Here is the fundamental error that has bedeviled political economy for centuries. Is international trade essentially about cooperation or competition? Classical liberals see free trade as creating a world peacefully arraigned by a division of labor and economic integration (a concept of global unity that goes well beyond trade). The Bush administration is in this camp. Those with a more realist or conservative bent see a world based on a more fundamental economic principle, relative scarcity. The first law of economics is that there is never enough to go around; wants are unlimited while the ability to satisfy those wants is limited at any point in time (though it can be increased over time). Thus, there is always competition to gain "the lion's share" of what is available, be it jobs, raw materials, industrial capacity or the means to advance to the next level of prosperity through the accumulation of capital and technology.
Everyone agrees that capitalism is based on competition. Firms are driven to innovate and expand or be left behind by their commercial rivals. What the free traders overlook is that there are societal consequences if the nation's capitalists consistently lose to foreign competitors, or abandon the nation for operations overseas (again in response to competitive pressures).
Americans understood this national aspect of competition during the decades when the United States attained global leadership. By the dawn of the 20th century, America was the largest, most productive economy in the world. In 1902, Brooks Adams published THE NEW EMPIRE proclaiming how American had surpassed Europe as the center of the world economy. While not as well known now as his brother Henry, Brooks was a prominent member of the 4th generation of the illustrious Adams family, counting from Founding Father President John Adams. Brooks and Henry Adams were in the intellectual circle surrounding President Teddy Roosevelt.
"The world seems agreed that the United States is likely to achieve, if indeed she has not already achieved, an economic supremacy. The vortex of the cyclone is New York. No such activity prevails elsewhere; nowhere are undertakings so gigantic, nowhere is administration so perfect; nowhere are such masses of capital centralized in single hands. And as the United States becomes an imperial market, she stretches out along the trade routes which lead from foreign countries to her heart, as every empire has stretched out from the days of Sargon to our own," wrote Adams.
The former global Superpower, Great Britain, according to Adams "is gradually assuming the position of a dependency, which must rely on us as the base from which she draws her food in peace, and without which she could not stand in war," a view borne out in the two world wars of the 20th century. Because London had adopted free trade while Washington still practiced protectionism in Adams' day, American firms were able to profit greatly from their penetration of the British Empire – much as the rising (reborn) empire of China is doing in the American market today.
Indeed, at the end of Adams's interpretative world economic history, he warns that the center of gravity may continue to shift, to Asia. Japan was a rising power in his time, but he thought in the long run China would prove more formidable. "Prudence, therefore, should dictate the adoption of measures to minimize the likelihood of sudden shocks," he advises. "American supremacy has been made possible only by applied science. The labors of successive generations of scientific men have established a control over nature which has enabled the United States to construct a new industrial mechanism, with processes surpassing perfect," he argues, but "America holds its tenure of prosperity only on condition that she can undersell her rivals."
One of my favorite passages also comes near the end of the work: "Life may be destroyed as effectively by peaceful competition as by war. A nation which is undersold may perish by famine as completely as if slaughtered by a conqueror. Therefore, men thrown into acute competition by rivals must have the ingenuity to secure an equality of equipment, else they will suffer; it may be by hunger, it may be by the sword, but in either case the purpose of nature will be attained. Nature abhors the weak."
While it is fashionable to dismiss works of that period as "social Darwinism," labels do not change how the world works, which is in ways just as intense now as ever. Brooks warned against the classical economists dogma of free trade. "Now men are apt to lecture on political economy as if it were a dogma, much as the nominalists and realists lectured in medieval schools. But a priori theories can avail little in matters which are determined by experiment....No one can say a priori what will succeed; the criterion is success." By this standard, U.S. trade policy is a failure, no matter how many academic economists claim it should be working in theory.
The dangerous situation in America today is no longer just one of particular industries being battered by foreign competition. The declining dollar indicates an impending financial meltdown, which would be a clear indicator of the nation's economic defeat in the global arena, and the coming end of its world leadership. America may no longer be a "new empire" but it would be tragic if its leaders allowed foreign rivals to push the country into a retirement home prematurely.
Hmmmmm... Uganda's Trade Deficit isn't as bad as ours, either.
It only sucks out 2.36% of their GDP.
Ours is hemorrhaging at a staggering 5.19% of our GDP.
Crap. We're worse the stinkin' Uganda for cripes sake.
Have you considered relocation?
(Someone should mention to him that recessions will do that. If you want a really big trade surplus, try a depression --- like in the 1930s.)
When was it, 1984 we signed the Nafta? I've never looked back since, and I don't intend to.
Lowered dollar is good for us, You'll see. Canadians were awfull ticked when their dollar fell too, but look at them whine now that its on the rise.
The decrease dollar gives us a good kick in the export sector.
Again, communism sucks, and thats the slope you are on if you think tariffs to force you to "buy American" are good.
Russia does that. What color Lada do you want, red white, or blue?
I'm not confusing them at all.
Foreign nation's use the money they recieve from our Trade Deficit to purchase the debt issued by our Treasury to finance our government's deficit spending and National Debt. This means that you, as a taxpayer, pay interest to the governments of foreign nations to subsidize "cheap" imports.
There's no need. Dubya's aggressively importing Third World conditions to America. I can just sit tight and let it come to me.
There was alot of money lost in those days. It could happen again too, by the looks of all the graphs and charts etc. The difference is, the consumer drives the economy, not charts and graphs, and we have a strong consumer market going on right now, it's created it's own monster. That was missing in the late 70's and early 80's. I think we are going to consume right past this bubble.
Don't hold your breath!
Willie, our trade 'deficit' is caused by high consumer activity. The DEMAND for goods are high, and the money is spent on these goods as the come in. In otherwords, it's a record of money spent. Our money.
Yes, they have sold us stuff. And now they have some money to spend as well. All that money isn't in the hands of some foriegn nation's government, it's in the hands of various companies who operate in that Nation. Our national Debt is drawn from the world bank, another beast WE created.
That sounds so silly to think that forgign governments, broke as hell themselves borrowing from the world bank, own "treasury bonds" Maybe Bush should borrow more from the world bank and buy up their massive debts and we can stale mate them. LMAO!
To: Nathaniel Fischer
You are conveniently forgetting to mention that when imports (which are subtracted from GDP) are purchased, the value of the purchase is ADDED to consumption in GDP, so in the net there is no loss to GDP.Production creates wealth.
Consumption diminishes wealth.If you produce more than you consume, you get wealthy.
If you consume more than you produce, you go broke.What don't you understand about that?
105 posted on 02/18/2005 11:40:34 AM PST by Willie Green (Go Pat Go!!!)
Dude, I already addressed your obsession with consumer worship.
Please don't keep repeating infinite variations of the same question when you don't bother responding to the questions I ask of YOU.
We send out MONEY for what we consume, which we either print or borrow from the country we trade with [that means we don't have it, which means DEFICIT]
Worry when it hits 12%. We got a long ways to go before we hit hard times.
No, we spend available income to stoke our trade deficit.
Do you print money in your basement? I'd never admit that.
If you go buy a cheap electronic good made in china, you stoke the trade deficit. Same thing for Dutch choclate. It's disposable income YOU spend, not the government.
I as an "importer", buy stuff from the salesman for that company, who happens to be in say, S. Korea.
I don't run to Bush and ask him to print me money. I have it, and that means, NO DEFICIT. Just because business' around the nation import things, doesn't mean we all get the money from GW, and add to some debt fund.
Just the same however, those count as goods we import as a nation. Trade deficit means we import (because we have money to spend) more than we export. We also buy goods made right here in the USA, at 3 times the rate we spend on imported goods.
You are chasing paper dragons.
It's you that can't understand things, and over simplify what a deficit trade is. But you are trying to say, is that our total exports are our total wealth , and our total imports are our total wealth spent, and then some. That, is wrong. Our exports are only PART of the wealth we earn as a nation, you forget to add what our 300 million strong economy spends and generates from within.
I go into Wal Mart and see a lot of people who can only afford cheap items and made in China items. It is not a sign of wealth that so many can only afford cheap Chinese imports. Go into a Harbor Freight Tools store sometime for some real fun. I would not be surprised if the PLA or some other ChiCom entity owns them
"What you are trying to say..."
China will keep accepting our paper as long as they can buy out IBM's PC business. Maybe they could even invest in Wall Street that sure would jack up our corporate values.
..explain economics to liberals. Its like trying to explain sex to virgins...OUCH! That's gonna leave a mark.
How would you know what people can and cannot afford simply by watching them shop at Wal Mart? I often go to Wal-Mart in my t- shirt and scruffy jeans when I need something, but I'm far from being poor. As for buying tools, I buy expensive tools of good quality, (snap-on) but for all I know they could be made in china. You wouldn't know it from the price though. Same as Mac or craftsman tools.
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