Archive for December, 2011

On the Economy and the Role of International Trade

December 23, 2011

Something that’s being missed in the discussion of national status:

I’ve come to believe that larger nations, that do a lot of international trading, have in reality been in a depression for some time. I use ‘depression’ rather than recession because I don’t believe the true amount of shrinkage in economies has been realized. Borrowing props up economies and makes it seem that the situation is less dire than it is. The situation has now reached a point of non-sustainability.

Here’s the way I see it: The key to economic well being is trade. If you only manufacture and sell products domestically, then there’s a finite market and so a finite manufacturing base. Oversupply doesn’t necessarily create more domestic trade due to a saturated market; it only forces prices down. So external trade is the key to a growing economy and more real wealth for all citizens. Adam Smith realized this.

But at the same time, ‘free trade’ can’t be totally free. It must fall within limits. Smith didn’t write in a world with easy, fast, safe communication and shipping. He didn’t write in a world where trade could become worldwide, where economic entities could be multinational and import products cheaper than they could manufacture them.

A part of this has to do with unions and their activities. Trade unions were absolutely necessary in the early days. But employees are safer now at work, and they get more of the economic rewards of their efforts. Unions now demand ever more of those economic rewards for workers; managers want to keep the rewards for themselves. As one union strikes and receives more pay, another union sees this and demands more itself. This situation ratchets up across the economy, and eventually prices go up, inflation happens, a new stasis is reached. What unions gain, they lose in inflated currency. Plus now they’ve also lost some of the value of any savings. Across the world, other nations which didn’t undergo this spiral have deflated currencies (relatively speaking), so they’re at an advantage if production is based solely on price.

But trade must be balanced in order to be sustainable. Large nations that do a lot of importing see money go out, money that isn’t spent domestically, and goods come in, goods that saturate an existing market. This can’t be indefinitely sustained. Funds from trade imbalance can be borrowed and put back into the domestic market, but this creates the double problem of eventual repayment plus interest.

The fact that some of the smaller North European nations didn’t need to do so much borrowing has more to do with the status of their trade than it does with intrinsic wisdom of their leaders. I note that Saab, once an exporter, is now in bankruptcy. No one is exempt. The Chinese may buy Saab’s assets. China will at some point begin manufacturing automobiles; the US General Motors operates one or more manufacturing plants in China, so their work force is being trained and all they need are the machines, such as the ones Saab will be selling off.

Free trade and the WTO are ideals; they aren’t followed by many. China, for example, has never lived up to trade agreements but instead subsidizes industries and uses protectionism. Their currency is also maintained at an artificial low level.

So at some point this idealistic situation must change. I advocate a tax on imports, floating at a level that adjusts prices to parity and removes cost as the sole trade incentive. If you make a better widget, you can still sell it competitively; you just can’t flood the market because it’s cheap.

If you don’t think of this as realistic, consider what I’ve said: the current situation can’t be sustained indefinitely. Postponing the finding of a solution simply makes the inevitable fall worse.

A lot of attention goes to the problem of immigration. This isn’t the problem, it’s only a symptom. In a shrinking job supply, any source of competition is demonized.

There are also local incidences of unrest. People who live where good jobs can be had, even if those jobs require more in commitment and education, understand that with effort they can get good jobs. They can plan for the future. They have some confidence that the future will be better than the past. When those jobs aren’t available, hope is lost, desperation lurks under the surface, people will lose respect for law and understand that really they have little to lose. Crime, possible incarceration, is not the fearsome thing it is to you and me, who have jobs, who have education, who are relatively content with life.

The assumption in the US was that if you had a job in a manufacturing plant, that job would continue. You would work hard for years, but you could buy a home, send your kids to a good school, afford a car, enjoy life. The home would be paid for in slightly-inflated dollars, so the effect of interest payments was slightly mitigated. Bankers would loan money with the expectation that if the borrower couldn’t repay, they could take back the house and sell it to someone else.

And then the bottom fell out.

The good jobs went away. Manufacturers became merchants, buying instead of making, selling at inflated prices because ant people* in China would work for less than unionized Western workers. It was the ultimate escape from unions, the triumph of the managerial elites over production. Now they could keep all the profits without sharing them beyond marketing staffs and management. But they also expected to keep marketing in North America and Europe. With layoffs, with loss of houses because some of the predatory loans (and some were ridiculously predatory, targeted not at the White middle class but at Blacks; a recent fine of some $350 million was assessed for this) couldn’t be repaid, so job loss became loss of the home, the middle-class’ investment of all their previous labor.

Politicians should have seen this situation developing and taken action. But as a class, politicians aren’t ready to lead a citizenry in hard decisions if there’s any possible other course. They can lose elections that way, a fate to them worse than death. Doesn’t happen. We believed they were smarter, better informed, had the nation’s best interests at heart. They weren’t, they didn’t.

So now we’re in the political cycle of elections.  We get demagogues and platitudes, not solutions.  We get a stopgap bill for a disfunctional Congress to argue over.  We find that unemployed people, poor people, old sick people are being held hostage by ideologues to whom a political advantage is much more important than any considerations of people and their misery.  Platitudes; never solutions.  Solutions might lose votes.  Hold people hostage to the occasional sense-of-responsibility of the Democrats.  Add a goodie to the temporary extension bill that favors Big Oil, and plan on using that for political advantage during 2012 to force Obama to make an unpopular decision, to approve a pipeline that citizens don’t want, or refuse it and end up in a political fight with Big Oil’s client politicians.  Lots of distraction, no real solution to trade imbalance and job loss.

But if I can realize where the problem lies, why can’t our elected leaders?  With few exceptions (Sen. Bernie Sanders seems to be one), they are firmly in the grasp of special interests who come bearing money by fistfuls.  Bagfuls.  Unashamed, they hold out their hands for more.  Corporations donate millions to political ads, and no one wonders why stockholders aren’t really consulted about the loss of their money in this way.  Boards of Directors authorize this, CEO’s spend the money, if you’re a small stockholder you lose and never have that corporate ‘voice’ that a silly Supreme Court has decided they have.

*english.peopledaily.com.cn/90001/90776/90882/7041036.html

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The Decline and Possible Fall of America

December 21, 2011

The time is approaching Christmas in this year of 2011. A weak president occupies the White House. Congress is deadlocked. Seven candidates from the opposition party, possibly more, sense this weakness. The election of 2012 is well underway. Much money has been spent, much airtime devoted to numerous debates in which candidates attempt to show that they can fix the nation’s ills and that no one else can.

And if there’s one choice that the electorate would want on the ballot, it’s “None of these.”

Why? Despite the plentitude of platitudes, none of the candidates has a clue about what’s wrong, or what to do to fix things. Politics? They know how to win elections. Platitudes and mudslinging, it’s the new formula. Governing? Not possible. Whatever ‘governing’ does occur seems to be by afterthought, something the president must do that Congress doesn’t, because lawmakers can hide in the pack and then spin their activities later. The judiciary? The judicial system is corrupted by money, where expensive lawyers delay and play to the media, where corrupt business practices often result in a relatively minor fine and no admission that wrongdoing occurred.

If it all were simple, someone would have fixed it. Keep that in mind.

Complex problems won’t be solved by simplistic answers. Too long, we’ve believed our candidates, our leaders, actually knew what they were doing. We believed they had the well-being, the best interests, of the nation at heart. We believed.

We were wrong.

Politics, and politicians, should reflect the will of the people. It, and they, no longer do this. The political system is for sale. Numerous polls are taken showing what the public desires to happen. Lawmakers ignore them. It’s breathtaking arrogance and the conviction that later on, when election time nears, there will be little real choice for voters, and bags of money to buy misleading, even false, advertising. ‘Meetings’ will be held in which selected supporters come to listen to heavily rehearsed speeches which never mention any particulars. Platitudes, posturing, spin; it’s all that the voters get. And we don’t demand anything better.

Despite the pious claims of those at the top, competition is not the methodology of the US; just as soon as a person, a company, an industry reaches a position where they have the money to do so, they buy enough lawmakers to push through legislation to protect themselves and to keep their profits artificially high; to suppress competition, in other words. There are often parallel efforts to gain advantage by suppressing taxes so that one industry, even one company on occasion, is favored at the expense of others. The image of competing businesses working hard to compete is demonstrably wrong, at least among businesses which are large enough to affect political decisions. Some, indeed, have become virtually uncontrollable by any single nation.

They’re multinational in scope. When business in one nation declines or becomes less profitable, the multinationals simply enhance their operations in other nations. They can choose which nation they will favor by locating a headquarters or a manufacturing plant there and such decisions are strictly economic. If a nation provides a favorable tax situation, that’s where the headquarters is. They will continue to do business elsewhere, iand they may not do any business where their headquarters is located. Instead of economic entities competing, now nations must compete for the favor of the multinationals.

This, indeed, may be the way of the future. Economic entities, companies or industries, may be the new nations, performing all the offices that nations once did. But that future is not yet.

Our task in the 21st Century is to define the problem that affects the US specifically and the world generally. The US is failing; let there be no doubt of that. Platitudes and promises can no longer cover up the looming catastrophe; education, voting in blocs, control of political leaders, fundamental change of total systems, it’s all going to be necessary. We can now do this in a way that the founders could never imagine. We have the internet. We have the potential to become organized as never before. It’s been done, so we aren’t leaders in this; witness the Arab Spring. Computers, smart phones, communication can motivate and organize a population and direct a mass movement.

One of the things that will be required is modification of the US Constitution. The reasoning behind the original document no longer holds true. The Constitution, with it’s safeguards designed to prevent all-powerful government from oppressing the citizen, still has a place; but now we have the new tyranny, the all-powerful economic entity, the corporation, and we have few if any safeguards for our protection.

The political process should protect us from this tyranny. But it doesn’t. Instead, the oligarchs who run the corporations (as a shorter term than ‘economic entities’) through holding the positions of management or through interlocked memberships in boards of directors control politicians and through them, the political process. Call them the 1%, although that’s not mathematically correct. It serves better than ‘oligarchs’ or ‘the corporate elites’.

So: the system is broken. Can it be fixed? I think it can.

But it begins with education, not the education of schools but the education of voters. Voters must develop some understanding of politics and of economics. They must understand education and be able to apply that to their children. They must also understand something of the judicial system and regain control of courts and legal matters. Above all, they must develop some understanding of economics, at least enough to know when politics and politicians no longer serve the people but are servants of the 1%.

This is the introduction to a collection of essays that will deal with economics, politics, education, and the judiciary. It’s meant for the ordinary concerned citizen and it will avoid technicalities. The essays are not meant for entertainment, but for education. I hope you gain some understanding of the complex issues that affect our nation in this period of history. If you do that, then the work will have been worthwhile.