America Can Be Prosperous Again!
A 3-Part Series, posted here in entirety
America Can Be Prosperous Again!
Part One: Economic Problems
This article is the first in a 3-part series. Part One describes our economic problems, Part Two describes our political problems, and Part Three proposes a 2-phase solution to unite our country and restore prosperity.
By Will Wilkin
Any American with even a little historical memory knows our country has suffered a deep and pervasive loss of prosperity. What tens of millions of Americans experience as bills harder to pay, and jobs harder to keep, is described in antiseptic government statistics as "stagnant and declining real wages" and "declining labor force participation rates." How many times in the last few years have you heard about the "disappearing middle class?"
What is Wrong With Our Economy?
Although corporate profits are at historic highs, thoughtful economists and observers tell us what the government statistics really mean. For example, regarding wages, in August 2013 the Economic Policy Institute published the report A Decade of Flat Wages, documenting in minute statistical detail how "wage and benefit growth of the vast majority, including white-collar and blue-collar workers and those with and without a college degree, has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."
Worse, regarding employment levels, we are in deep trouble. Graph 1, "All Employees: Total Nonfarm," shows 132.76 million US employees in February 2001 and 132.63 million in November 2011. There were less jobs at the end of 2011 than there were ten years earlier. According to the US Census, the US population during that time grew over 28.5 million.
This lost decade is not just a cyclical "recession" such as explains our previous ups and downs, but rather a seismic quake that warns us something is deeply, historically wrong. Of course eventually (after over 10 years) the lost jobs are "replaced," but that is only in number. The new jobs are very different from --and worse than-- the ones we lost.
Nothing Can Replace Manufacturing
Why are wages declining and jobs disappearing? And how are the new jobs not as good as the ones we lost?
The crux of the problem is the collapse of American manufacturing, due to the Free Trade policies of recent decades. No other sector adds so much value to the economy, supporting employment and wages far beyond manufacturing itself. Manufacturing is the anchor of so many other sectors, from design and engineering, to accounting and finance, to input suppliers and raw materials. Manufacturing supports a vast supply chain, not just its own operations. According to the Bureau of Economic Analysis of the US Commerce Department, every $1 spent in manufacturing generates $1.35 in additional economic activity. This is called the "multiplier-effect," and no other sector brings with it so many other multiplier-effect jobs as manufacturing.
Let's take a sober look at how much we've lost. Graph 2, "All Employees: Manufacturing," shows that total US employment in manufacturing has fallen from a peak of 19,553,000 in June 1979 to 12,080,000 in February 2014 (latest data available). That is a drop of over 38%!
To appreciate how terrible this loss of 7,473,000 manufacturing jobs has been for our country, consider that the US population increased about 91 million people over that period, and consider also the loss of the multiplier-effect jobs and wages also lost in other sectors. The stores are flooded with imports while our factories and workers are idle. This is what I mean by a historic decline of our country under Free Trade.
So Free Trade policies have not brought the new jobs promised by Free Trade advocates, but rather have killed jobs. Paul Craig Roberts sums it up in his alarming and essential 2013 book The Failure of Laissez Faire Capitalism and Economic Dissolution of the West. Dr. Roberts analyzes the stats to show that, despite population growth and huge growth in international trade, "official US statistics prove that the US has been unable for years to produce any [net increase of] jobs in the tradable category, whether manufacturing or professional services....The US economy has only been able to create jobs in non-tradable domestic services such as waitresses and bartenders, ambulatory health care, and retail trade."
Another way of looking at that is in Graph 3, "Percent of Employment in Manufacturing in the United States," which shows a virtually uninterrupted decline in the percent of the American workforce employed in manufacturing, from 26.4% at the beginning of the graph in 1970 to 10.3% at the end of the graph in 2012.
No wonder that Manufacturing and Technology News reported, on September 20, 2011, that during the previous ten years, the US lost 54,621 factories! How many new ones do you see being built?
These aren't just jobs lost, they represent the atrophy and loss of skills and knowledge that were required not just for manufacturing, but also design and engineering, which eventually follow manufacturing offshore. This loss of manufacturing and careers, of tax base and GDP, is the loss of huge amounts of value that would have been added to the American economy to create prosperity for the American people. In other words, this is why the American middle class has become an endangered species.
America Can Be Prosperous Again!
Part Two: Political Problems
This article is the second in a 3-part series. Part One describes our economic problems, Part Two describes our political problems, and Part Three proposes a 2-phase solution to unite our country and restore prosperity.
By Will Wilkin
In my previous article, "America Can Be Prosperous Again! Part One: Economic Problems," we saw how Free Trade policies are dismantling our productive economy, primarily through off-shoring and outsourcing of manufacturing and other high value-added industries. Basically, our middle class is being destroyed by a flood of cheap imports, because the loss of manufacturing removes so much of the engine of wealth creation from America's economy, with devastating ripple-effects in many sectors beyond manufacturing.
Can we fix it? Yes, and the solution provides a happy ending to this series...in the next and final article. But before we can do that, we need to look at the policy and politics of our problems.
Trade Deficits and Globalization
Graph 4 shows how, beginning with the Nixon administration in 1970, replacing protectionist trade policy with Free Trade policy ended 75 years of trade surpluses, now replaced with chronic, deepening and unsustainable trade deficits. The red ink in our goods trade totals over $10 Trillion just since NAFTA in 1994. We didn't just lose that $10 Trillion in goods trade, we also lost all the additional multiplier-effect jobs and industries that $10 Trillion would have supported. Think of the industries and jobs we would have in America today if all that trade deficit consumption had been supplied by our own workers and factories!
Not coincidentally, this historic change in our trade policy also brought the decline since 1970 in manufacturing employment as a percent of all US jobs, described in the first article in this series. But why did that change in policy come about?
After WW2, we were the only economic and political power left standing, and for 2 decades we dominated the world economically, politically and militarily. The only challenge to our power and wealth came from the Soviet Union, a rivalry known to historians as the Cold War. In the competition to win the strategic alliances of many smaller countries whose economies were finally developing some industry, America began opening its markets to imports from those countries. We were so rich we didn't see the economic danger in it, only the geo-strategic gain.
That was the political thinking in Washington DC in the 1960s and 1970s. It was reinforced at the same time by the economic thinking of Wall Street, big banks, and US-based corporations that wanted to become more multinational to expand their markets abroad. All these interests had an economic globalization agenda that meshed perfectly with Washington's Cold War alliance strategy.
And so that is how America came to abandon its 180 years of protectionist trade policy, replacing it with a growing liberalization (lowering) of trade barriers, eventually moving with NAFTA into the full-blown Free Trade policies we have today. The results have been devastating for our country, as we see, for example, in the vanishing of America's garment and electronics industries. If you've gone shopping in the last 20 years you have noticed that even "American" brand manufactured goods are mostly all imported now. Domestic manufacturing has been drowned in a flood of imports, as measured in our annual trade deficits averaging over $700 Billion every year.
This abandoning of the national economic interest in favor of free trade is described in detail in my article Origins of America's Economic Decline, an interview of Ken Davis:
Mr. Davis resigned his position as Assistant Secretary of Commerce in 1970 in protest against this liberalization of our trade policy just as it was beginning. Today he is the Director of Balanced Trade Associates, trying to reverse these disastrous Free Trade policies and replace it with a Balanced Trade policy that limits our imports to the same value as our exports.
It is a fight worth winning, but the solution is not even on the radar screen of the White House or Congress.
Instead, the Free Trade liquidation of American manufacturing and prosperity continues, as the Obama administration attempts to expand and accelerate it by asking Congress to pass "fast track" rules to ease passage of 2 new Free Trade treaties: The Trans-Pacific Partnership (TPP, with Asia & Latin America), and the Transatlantic Trade and Investment Partnership (TTIP, with Europe). I say "passage" rather than ratification because "fast track" would adopt these treaties (like many of our other recent Free Trade treaties) without Constitutional ratification, which would require approval by "two-thirds of the Senators present," according to the US Constitution Article 2 Section 2. In a further affront to American democracy, these latest 2 treaties have been written in secret negotiations, staffed by over 600 lobbyists and executives of globalized corporations, mostly international enterprises that have zero loyalty to the United States or any other country.
What is Wrong With Our Politics?
Now for the last part of the problem. Citizens have grown more cynical about our political system as politics have grown more divisive and dysfunctional, with much finger-pointing over who is responsible for the decline we all feel. There have been heated culture wars while globalized corporations and their executives poured billions of dollars into both political parties. The leadership and majorities of both parties deliver Free Trade policies to their corporate sponsors, while attracting votes from the citizenry this impoverishes. How do they keep us voting for them? They give us divisive culture wars about hot-button emotional issues like guns, gay marriage and contraception. Nowhere in our politics is there any plan to rebuild our prosperity or find any common ground as a nation.
The result? Those citizens who think of themselves as conservative or liberal tend to see only bad in the other, and debate rages over whether government spending must be cut to fix the fiscal crises or must be expanded to fix the social crises. Almost nobody talks about the elephant in the room: our ballooning trade deficits now averaging over $700 Billion every year for the past decade. As if blind, the fiscal conservatives hold the tusk of public debt while the populists hold the tail of public misery. Both sides are right about the problems but neither sees the whole picture and neither has the solution.
Is there a way we can all come to see the big picture that promotes common ground as citizens and reverses our economic decline? YES! The next article in this series will outline a solution to be proposed by Balanced Trade Associates that can revive our country's prosperity AND transform our politics into a more cooperative and optimistic project.
America Can Be Prosperous Again!
Part Three: Balanced Trade --Would 7 Million New Jobs Help?
This article is the last in a 3-part series.
By Will Wilkin
The first 2 parts in this series were dark: Part One ("Economic Problems") described how Free Trade policies led to the loss of American manufacturing, resulting in stagnation of wages and high levels of long-term unemployment; Part Two ("Political Causes of American Decline") described the political and economic interests that brought about Free Trade, ending the protectionist trade policies we had for 180 years previously. Part Two also described how our political system has become dysfunctional and divisive, offering only culture war as our historic decline continues without serious economic strategies to reverse it.
This third and final article in the series is much brighter. That's because underneath all these problems and finger-pointing, we have a common national identity and a common national interest around which we can unite and use as the guiding force to fix our country.
Getting to the Root
The reason the public debt and government budget deficits have grown out of hand is that over the past few decades America's manufacturing has been off-shored or outsourced. The loss in jobs, GDP, tax base and wages have taken their toll not just on tens of millions of households but also the public purse.
The ideological commitment to Free Trade, pursued by the Presidents and Congressional majorities of both parties, and lobbied for by the executives of globalized corporations benefitting from this offshoring, is the underlying cause of this exporting of our jobs and manufacturing capabilities.
That export of our jobs and GDP and tax base is the root of America's economic problems. That is the source of our fiscal crises at the local, state and federal levels. That is the cause of the mass unemployment, stagnation of wages, and spreading poverty.
Setting the Right Goals
How to unify America around real solutions? How do we get the liberals and conservatives to unlock their horns and find a way to work together as Americans? We need to step back as a nation and set the right goals.
Our goals should not include any ideological prejudice for big or small government per se, but rather smart government that pragmatically makes policies to promote the development of private sector employment and prosperity.
Ending our trade deficits is the place to start. That would replace over $700 Billion of imports with US-made goods, with virtual zero increase in spending. That is because the American market is already demanding that much consumption, but it is not being supplied by our own workers. Imagine if it were!
We can end our trade deficits by replacing the Free Trade policy with a Balanced Trade policy that limits our imports to the amount of our exports. This would effectively require the globalized corporations to invest, produce and employ in the USA if they want to sell their products in the USA.
How To Do It
Congress can legislate we reduce our imports by 10% each year for 3 years, which would bring our trade into balance, ie, our imports would be virtually equal to our exports. From then on, our imports would be limited to the same value as our exports. This could be accomplished through an Import Certificate (IC) system, whereby ICs are required licenses for imports, and issued in quantities that bring our trade into balance.
Balanced Trade Associates, led by former Assistant Secretary of Commerce Ken Davis, has drafted model legislation to do just that: the Balanced Trade Restoration Act of 2014. Our bill, if passed by Congress, would divert America's trade deficits into $700+ Billion increased annual demand for US-made goods. At one new job per $100,000 rise in GDP, a Balanced Trade policy would create 7 million new US jobs! It would directly create millions of new US manufacturing jobs and indirectly create millions more new US jobs in other sectors through the multiplier-effect that manufacturing has.
These many millions of new US jobs would drastically reduce unemployment, bid up the price of labor (raising the minimum wage and reducing inequality), and reduce the need for social safety net. All this would be done while re-shoring the tax base by bringing manufacturing and the other sectors it supports, back to America. This combination would make the fiscal crises at federal, state and local levels easy to solve. Ending the trade deficits would also cut off the accumulation of literally trillions of dollars overseas that are coming back not for our exports but rather to buy out our assets like companies and even mineral rights.
Unity and Optimism Instead of Culture War
This is not a Democratic or Republican issue, not a conservative or liberal issue. It concerns all Americans as our common national interest. Imagine a new politics where citizens shared mutual respect and mutual goals!
A Balanced Trade policy would appeal to populists because it will benefit the working people the most by creating many millions of new jobs and thus bidding up the price of labor. But the fiscal conservatives should also like it because it will decrease the need for unemployment insurance while increasing the tax base, making government budgets easy to balance. The market ideologues should like that our growth comes from a bigger private sector and production, not redistribution through social programs.
Thus a Balanced Trade policy would be based on patriotism, uniting our people around a common national interest and making our economic and fiscal problems easier to solve. It can bridge the corrosive ideological and partisan divide and bring the necessary common ground and the common purpose and optimism all missing in our politics today.
First Things First
Of course balancing our trade is not the only thing that should be done to increase prosperity and employment in the USA. But it would be the biggest single step, and it would have to come first. So think of Balanced Trade as Phase One of a Growth Plan for America.
There is a long list of other initiatives that, taken together, would comprise a Phase Two of a Growth Plan for America. That would be an Industrial Policy that defines a national economic strategy for long-term growth. It would require some consideration of what other countries have done successfully to build economic growth, rising employment and rising living standards. But most of all it would require a sober look at our problems in infrastructure, education, taxes and regulation, all of which form our country's industrial ecosystem. Done right, America has vast human and institutional strengths that would be fully employed.
Describing all that requires another article series. And actually shaping a national Industrial Policy would require a collaboration of leadership from many sectors of society, united around the patriotic goal of rebuilding American prosperity.
But for now, think of reviving American prosperity as a two-stage process. Phase One was described in this series: ending our trade deficits by replacing the Free Trade policy with a Balanced Trade policy. Phase Two will be forging a larger national economic strategy, something that first requires we rejuvenate our manufacturing and employment by diverting our trade deficits into new demand for US-made goods.
Taken together, a Balanced Trade policy and a larger national economic strategy would put our people back to work and rebuild American manufacturing capacity. It would also reverse the deepening inequality that is a social and political problem, it would solve our fiscal crises and strengthen Social Security for our aging population --but it would do all this by restoring private sector manufacturing as the base of our new prosperity. In that brave new country we can build, where we manufacture what we consume, business would not be seen as villains but as wealth-builders, spending power would no longer be divorced from productive labor, and wealth no longer divorced from productive investment.
In other words, a Balanced Trade policy is the first and necessary step towards healing and unifying our country. It will change history by reversing our decline and defusing the social and ideological and partisan divides that are now deepening as our economy is hollowed out through Free Trade offshoring and outsourcing.