Posted on 03/11/2006 7:25:02 AM PST by Willie Green
For education and discussion only. Not for commercial use.
The issue: America's free-trade myth
Our view: Middle-class America has paid a high price for these policies, but where's the payoff?
When President Bush visited India last week to strike a deal expanding that country's nuclear capability, he couldn't avoid questions about the estimated 162,000 U.S. workers who lost their jobs to overseas outsourcing in 2004 alone, with the bulk of those jobs going to India and China.
But you could bet your unemployment check that he wasn't backing down on his policy of allowing U.S. companies to profit off of cheap labor, even as U.S. manufacturing workers in places like Freeport, Rockford and Peoria struggle to make ends meet with one or more low-paying service jobs.
"People do lose jobs as a result of globalization," he said. "And it's painful for those who lose jobs."
Painful, indeed.
But of course he didn't say it was painful for everyone. Wall Street and wealthy investors, the driving force behind the globalization/free-trade push that began in the 1990s, love the cheap labor and lax regulatory policies that exist in China and India. It is, however, a one-way street - how many Chinese companies do you see hiring workers in Freeport? And how many U.S. companies can compete in those Chinese markets when the Chinese manipulate their currency and pay workers pennies on the dollar?
Back in 1991, when NAFTA was negotiated under the first President Bush - and approved under Clinton - the free-trade, snake-oil sales people promised that even if the U.S. economy took a hit in the short term, eventually, the companies making all of the profit from cheap labor would pour it back into plants and equipment that would eventually produce jobs here.
They also told us that the risk to our manufacturing economy was a small price to pay for access to those billions of Asian consumers.
So far, the promised payoff hasn't materialized for anyone but the shareholders of multinational corporations, most of whom seem to have reinvested their profits elsewhere. While the administration says it created nearly 5 million jobs since 2003, the vast majority of those jobs were in the low-paying service sector. At the same time, U.S. manufacturers have shed 2.9 million jobs from 2001 to 2006 - jobs such as the ones that used to exist in abundance here in Freeport, jobs that had benefits and paid enough to actually support a family on.
Companies that aren't shedding jobs are paying less and eliminating pensions. Real wages have declined across the board, even as the costs of healthcare and energy skyrocket. Speaking of health care, isn't it ironic that the free-trade gospel doesn't seem to apply to the purchase of Canadian prescription drugs, which for some reason cost half as much or less than they do here?
Such realities, along with record trade and budget deficits, are a big part of why, despite steady growth in traditional measures like GDP following the last recession, employment has remained stagnant, causing the public to feel insecure about the future. Free trade sounds good on paper, but the results for the American middle class have been catastrophic.
Yet the U.S. is back at it, negotiating a trading pact with Malaysia, another top producer of cheap goods using sweat-shop labor. Defenders of such trade policies like to label critics as "protectionists," as if it were an ethnic slur. But if protecting U.S. jobs and demanding a level playing field is what they mean by that, consider us guilty as charged.
Using a carrot-and-stick approach to trade, tax and regulatory policy, U.S. companies could be encouraged to keep jobs at home with tax breaks and incentives. A policy is needed that would help reverse the competitive metrics that have made outsourcing so attractive.
Instead, the same broken "free-trade" record gets played over and over again.
ping
The larger truth is that the flow of foreign investment into the U.S. is a sign of economic strength, not weakness. For 25 years pro-growth economic policies including monetary stability, steep tax-rate reductions on capital and freer trade have created a giant in-sucking sound of some $4 trillion of global investment into America. Economist David Malpass of Bear Stearns recently calculated that U.S. GDP grew by 100% between 1992 and 2005 while world GDP growth measured in dollars grew by only 70%. Over that same period, the U.S. created four times the number of new jobs as Europe and Japan combined.
To be sure, these capital inflows mean that the U.S. is also running a trade deficit of equal magnitude. But all of that has contributed to a rising standard of living. As the attached chart shows, the increase in America's current account deficit (the flip side of a capital investment surplus) has coincided with an unprecedented increase in U.S. net wealth that was $51 trillion by last September and is now closer to $55 trillion. If a capital deficit were virtuous, meanwhile, Argentina would be the promised land.
Another term for this foreign investment is "insourcing." Foreign capital creates wealth and jobs here, rather than in India, China or Japan. Thanks to net foreign investment, about one-in-twelve American manufacturing workers are now employed by a foreign-owned firm. Toyota recently invested $800 million in a new plant in San Antonio that will employ 2,000 workers.
A study by the Organization for International Investment finds that about 5.3 million Americans are directly employed by foreign-owned firms with wages averaging $63,000 a year, or about 50% more than the average U.S. wage. Foreigners are not buying up America's stock of wealth; they are investing in ways that add to it.
http://www.opinionjournal.com/editorial/feature.html?id=110008069
Rush is riding this bandwagon. Yesterday he was touting job growth numbers, the economy, etc.. He also talked about the number of Arabs driving NY taxi cabs -- this was about the ports deal. Why we shouldn't fear Dubai's control. But like a great many things, it's not as simple as he makes out. All it takes is one suitcase nuke in one container. As for jobs lost to outsourcing and broken borders, what's more important? Sovereignty, control over US borders, who's entitled to citizenship? Or cheap labor. Endless cheap labor, that is until the entire southern hemisphere has arrived. And yes, Virginia, they're on their way.
"....steady growth in traditional measures like GDP...."
I wonder how much of the so-called "GDP" is actually based on profits derived from cheap messican, indian, and chimese slave labor?
If you look at the stats for never divorced married couples, the middle class has never been better. Divorce and "modern" values about marriage have been a bigger reason for the decline of the middle class, than globalization.
Further, there has been 5 million NET JOBS CREATED. That means if we lost 3 million manufacturing jobs, 8 million new jobs have taken their place.
Sadly, there were people so stupid they actually believed that horse feces wrapped in a palatable free-trade coating. Not a lick of common sense accrues to that argument: if a company can make x profit by outsourcing y jobs, then it stands to reason that it can make 10x profit by outsourcing 10y jobs. The suggestion that those profits would then be plowed back into costly facilities back in the country they originally fled is so absurd it's laughable.
Yet that is the vehicle in which NAFTA rode to success. The middle class pays and will continue to pay the price.
You're right. Foreign investment in the US is a definite sign of economic strength, etc. In fact, Rush quoted much of this yesterday, and it's impressive. You can't argue with it. But we have other considerations where the borders are concerned.
Nope, it's a sign of weakness. All this means is that foreigners have accumulated huge piles of USDollars from our humongous trade deficits, that they need to diversify and invest them. So they buy US assets (land and corporations) that will yield them a profit. Alternatively they invest this money in US securities and bonds. Some private, some governmental as in Treasury bills
To be sure, these capital inflows mean that the U.S. is also running a trade deficit of equal magnitude. But all of that has contributed to a rising standard of living.
This juiced up standard of living is achieved by going into deep debt. If you earn $40,000/year and charge $300,000 to your credit cards to spend on life's pleasures, your standard of living will also rise. But it's an unsustainable standard of living. You will eventually default on payments, go bankrupt, and your assets will be seized to pay creditors
How about risk-averse insourcing? People invest in the US since it is safe. As the risk of investing in China and India declines, so too will "insourcing". The oil rich need to park their money somewhere, and they don't want to lose their hubcaps, so to speak.
Well, we're simply supposed to invent, create, think up something else to manufacture, which the rest of the world will jump on...and we'll outsource asap. Eventually, the middle class looks around and decides the only way to survive is to start their own small business in the garage.
...it's not as simple as he makes out.
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No, it isn't. I listened to his whole pitch on the issue, and he totally ignores key factors, such as the actual risks. The other factors you mentioned too, ignored. I was very disappointed in Rush -- he is usually more comprehensive, but he is stuck on blind protection of the Bush administration decisions in this matter, and avoided the other side of the argument.
Agree 100%.
Protectionist BS is easy to feed to the masses. But it doesnt work!
If all the foreign companies that invest in the US pulled out, we'd all be sh*itting a colective brick.
I used to think freepers were supposed to be smarter than du dummies.
A really well made "suitcase nuke" weighs at least 250 lbs. Unless you are a weightlifter on steroids, a normal person can not go lugging around "a suitcase nuke". For starters, even a small nuke requires at least 20 lbs. of plutonium. Further, this stuff will set off every radiation detector within 10 miles.
Emotion and high dudgeon rule WillieG's threads - don't you know we're all doomed because while some people, whether through luck or knowledge, benefit from economic shifts others like Willie, don't?
After all, it's all about him and his ilk. If you happen to have more than the average bear, you're obligated to share and level the field, doncha' know...
Welcome to the sell out of the American people.
Some never learn. Some do not like the truth. And some are just plain stupid and ignorant.
ROLF!
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