DEMAND IS KING: What Trump Has Right About Trade

July 2, 2018

Trump understands what establishment policymakers don’t know or don’t want you to know. When it comes to trade; nations rich with consumer demand hold the real leverage.

A broad-based middle-class prosperity is only possible in societies where demand is balanced with the supplied labor. In human history, this balance between demand and the labor supply is only being achieved in a few nations and for short spans of time. Despite our deep-seated belief, that America has always been and always will be a middle-class society. A broad-based middle-class has only existed in the US for the three Decades after World War II.

The notion of a broad-based middle-class prosperity is the exception, not the rule, and many Americans feel it slipping away Their concern is justified because nothing can throw the delicate balance between consumer demand and labor supply out of whack faster than international trade. The world is awash with potential labor yet there is a finite supply of consumer demand.

President Obama has said that income inequality is the biggest issue facing our nation. He is right.  Even as the reason he puts forward for the causes of income inequality are muddled and that he seems to accept the notion that income inequality is caused by global market forces beyond the control of policymakers. Free trade is not inevitable, it is a conscious policy decision that has a real impact on working families.

Obama’s insistence on pursuing the TPP trade deal in the run-up to the 2016 election speaks volumes about his misreading of the electorate and his misunderstanding of the fundamental causes of income inequality. Despite promises from candidate Obama, the Obama administration never intended to renegotiate NAFTA.

There is no light between Obama, Hillary Clinton, the House, and Senate leadership of the Democratic Party and establishment Republicans on trade.  This is one reason Hillary Clinton lost the election. The genius of Donald Trump in the 2016 election was his understanding that the sense of angst in the Midwest great lakes electorate was in large part about how the US, a developed prosperous nation can integrate its economy with a world awash with excess labor.

The answer is that you can not integrate the economies of a rich nation with an impoverished developing nation without massive transfers of wealth. Any free trade agreement between the US and, say, Vietnam will devolve into wage arbitrage. But it’s not only wages; Vietnam businesses have a host of price advantages. The US private sector supports all matter of government and private spending. The US military and health care spending alone put US producers at a huge disadvantage with developing-nation trading partners. Even a service as basic as indoor plumbing has a cost that is passed along in the products we produce, so the question becomes how do you compete with countries that don’t provide even the most basic private and governmental services?

The US and a few other countries have something that is absent in the developing world, it is the very reason why they are impoverished.  We have consumer demand. Successful Nations of the future will find ways to match demand with a population desperate for gainful employment even if that means siphoning off demand by being low-cost producers from consumer nations. The idea that the United States or any developed nation can allow huge chunks of consumer demand to be absorbed by developing nations and maintain a current level of their own prosperity is a con job. As powerful as the American consumer is, we can’t be the employer to the world – the numbers just don’t work. Free trade does not grow the world economy fast enough to maintain the value of labor.

Denying access to imports is not the answer. The real issue is not how much a nation trades, it is the balance of trade that determines the transfer of wealth. A trade policy without reciprocity will continue to drain our economy of its vitality.

“Free Traders” insist that trade deficits are not a problem. So how do you explain the rise of China? China’s double-digit growth rate, budget surplus even as it expands it’s government (military) spending. China’s go-go economy is a direct result of a positive balance of trade. Trade does grow the world economy but not enough to make up the transfer of wealth from the US into China.

Proponents of free trade put forward the figure that in 2015, 5,967 jobs were linked to every billion dollars of exports. But wouldn’t the inverse also be true? For every billion dollars worth of imports, a similar amount of US jobs are lost.  What’s critical in this discussion that “Free Traders” never address is what is the net effect of our trade policies on the maintenance of wages and jobs growth in the US? There’s also no discussion of the devastating effects on workers incomes when companies use the potential to offshore jobs as leverage in labor negotiations.

Is a lot of money to be made by sourcing goods in low-cost, weak currency nations and selling them into developed nations with a higher standard of living and stronger currencies?  But do not blame China, they do not have the power to dictate US trade policy. Despite the fear-mongering about trade wars and China owning our T-bills, we have a donor-class trade policy set up to benefit multinational corporations. All the elitist rhetoric you will hear as President Trump tries to address the imbalance the US/world trading is designed to maintain the status quo.

Countries that understand consumer demand and jobs is a feedback loop that creates prosperity will be successful in the 21st century. If the US allows it’s consumer demand to be drained off for the short term benefit of multinational corporations in unsustainable trading relationships we will struggle to maintain a middle class and fail to have a stronger private economy with the resource to support their own infrastructure and institutions.

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The Immigration Reform American Workers Deserve

February 23, 2016

Democrats have wholeheartedly taken up the issue of income inequality and stagnant real wages of working class families.  Bernie Sanders has criticized our current trade policy; making it a centerpiece of his campaign. He does not support the purposed TPP (Trans-Pacific Partnership) trade agreement.

Here in Ohio, Sen. Sherrod Brown has been a longtime opponent of “free trade”.  Former Gov. Ted Strickland, who has a good chance of unsetting Sen. Rob Portland (r) in the upcoming election, is also campaigning against trade deals that put Ohio workers in direct competition with cheap foreign labor and sends Ohio jobs overseas.

What does it matter if we send American jobs overseas for foreign labor to fill or we bring foreign labor into the U.S.?  This is the disconnect of progressive economic labor policy.

In the relatively recent past, prominent liberals agreed that rapidly expanding the labor pool by bringing in millions of immigrants was not in the best interests of working Americans. Labor union leaders and civil rights luminaries, for a century right through President Bill Clinton, supported reducing the number of work permits for foreign laborers. They understood that such a move would spur wage growth and expand job opportunities for Americans.

A 1995 congressional commission, chaired by the charismatic civil rights leader and Democratic Texas congresswoman Barbara Jordan, recommended limiting immigration to 550,000 individuals a year. President Clinton praised the recommendation as a “balanced immigration policy that . . . protect[s] the American work force.”

There is no good reason to continue giving out one million new lifetime work permits every year, supporting guest worker programs and having a permissive attitude towards illegal immigration when over 15 million native and immigrant Americans already here are currently unable to find full-time jobs.

From 1924 to 1965, America sharply scaled back the number of immigrants it accepted. Without competition from a large pool of foreign-born laborers, American workers were better able to unionize and demand improved wages and benefits.

The share of income going to the wealthiest 1 percent of Americans dropped from 43 percent in 1924 — the year lower immigration quotas were implemented — to less than 32 percent in 1965 — the year the quotas were replaced with the current immigration system.

The post-1965 influx of workers helped freeze wages. In fact, inflation-adjusted wages have actually declined over the last forty years. The average worker in 1973 earned a higher real wage than the average worker does today.

Economists have concluded that high levels of immigration are partially responsible for wage stagnation. Harvard professor George Borjas, an immigrant himself, has shown that expanding the size of any working cohort — as defined by age or education — by 10 percent through immigration reduces the wages of all native-born folks in that group by 2.5 percent. The effect on native-born men is even greater — a decline in wages of 3.7 percent.

For Americans without a high school degree, the wage losses are even more pronounced — about $1,200 for the years between 1990 and 2010.

Immigrants themselves are not at fault. The overwhelming majority of immigrants are industrious people who work hard. It is just that in America, hard work often is not rewarded.  The strongest work ethic in the world cannot defeat the law of supply and demand. The more workers who need a job, the less employers have to pay to attract employees.

Our leaders have the power to stop this economic race to the bottom and boost wage growth. Scaling back the pace at which our nation admits new laborers from abroad would help disadvantaged immigrants who are already here. It would take job-market realities into account and give native and immigrant American workers the leverage to win back the wages and benefits they’ve lost over decades.

America has been and must continue to be a nation that does not discriminate on the basis of race, religion, or national origin, but there’s no need to bring in one million permanent immigrants every year, allow guest worker programs, on top of illegal immigration when current residents cannot find good-paying jobs.

If progressive candidates are serious about standing up for American workers, they must consider greatly reducing the number of foreign laborers who have access to the American labor market through trade policy and immigration policy.


It is the Labor Market Stupid

January 5, 2014

Why Democrats will not address the real cause of income inequality.

I am hopeful that the public and our political class are coming to terms with income inequality in America and the harm it is doing to our economy and society.  At the same time, I am disappointed in the response by my party, the Democratic Party, to the overreaching economic issues of our time.

While raising the minimum wage would do more good than harm, simply raising the minimum wage would help too few people, too little, and could create inequities of its own.  More importantly, the minimum wage is a placebo, a distraction from the real labor market forces at work that is bringing the idea of America as a broad-based middle class national, to a close.

Our government over the last 30 years has pursued policies by way of trade agreements, cheap foreign labor embedded in the goods imported to the US and an immigration policy of non-enforcement to increase the supply of labor in the United States.  Globalization has been an abject failure for the American middle class.  When President Clinton supported NAFTA he sold out to a corporate establishment and took the Democratic Party’s labor market policy 180 degrees in the wrong direction.

Increasing the supply of labor into the US market has had a predictable, and for some, the desired result.  While corporate profits are at record highs the value of labor in the market has been diminished to the point where a full-time job no longer provides a place in the middle class.

For a party that holds the moral high ground on so many important issues, it sickens me to see Democrats pandering to foreign nationals who have intentionally broken our immigration law in order to gain an electoral advantage, and to a corporate establishment that is willing to put short-term profits above the economic interest of their employees and their own customers.

It is my wish that the Democratic Party will set aside the interest of foreign nationals and big campaign contributors and return to their core values of supporting a strong and prosperous middle-class.

Please like the Facebook Page: Democrats Against Amnesty   https://www.facebook.com/pages/Democrats-Against-Amnesty/152334804799707?ref=br_tf


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