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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Immigration Reform: A Democratic Response

September 21, 2017

In a discussion, I was asked my thoughts on how Sen. Brown D-OH should response to immigration reform.  I have shared my thoughts here.

The Oversupply of the Labor Market

Over the past few decades, the US labor market has been grossly over-supplied.  This market glut of workers is a major cause of income inequity and the decline of the middle class and the rise of working-class poverty.

We must recognize that government has a major impact on the supply of labor in the US market.  This is done chiefly through trade and immigration policy.  Sen. Brown’s criticism of the US’s  “free-trade” agenda, as outlined in his book “The Myths of Free Trade”, suggests that the Senator is fully aware of the impact that the open trade with China (the others) has had on the US labor market.

One way to conceptualize this trading relationship is to understand that trade policy has given Chinese workers access to the American labor market.  Thereby expanding the US labor market by tens if not hundreds of millions of workers.  What I find confessing and troubling is that Sen. Brown does not seem to acknowledge that our current historically high level of immigration both illegal and legal is doing the same, namely expanding the size of the US labor market.

Expanding the number of workers in a market only becomes a problem (high levels of population bring many problems unrelated to the labor markets) when the numbers and quality of jobs cannot keep pace with the growing number of workers.   It is also true that when this balance shifts in favor of employers that the quality of jobs is quickly eroded.

The balance of leverage in the labor market has been shifted too far in the favor of employers.  The evidence of this imbalance is clear in the economic data: income equality, the labor participation rates, the number of workers accessing government subsidies, temp and part-time work, lack of employer-provided healthcare benefits etc..

The labor market is beginning to tighten. This is good for US workers and for the economy overall.  But this rebalancing will put pressure on business.  We must be on guard for business carping about the shortage of workers.  Whenever a business makes a statement about the lack and quality of the available workforce I always add the phrase “at the wage and benefits that I am willing to provide”.  If a business truly cannot survive because that business cannot compete for a workforce, that is the market saying that that business plan is not viable and that its human and financial capital is better directed to another business.  Why, as a community or nation, would we want to prop up businesses that provide sub-standard wages and benefits?

Labor Market Floor

I believe that the concept of a “labor market floor” is not fully accounted for in the economic models regarding the effect of immigration, in particular, illegal immigration (black market labor) and guest worker programs on the labor market.   A criticism of raising the minimum wage is that it would necessitate increases in wages for employees up the employment ladder.  If this is true, which I believe it is, (and not necessarily a bad thing) the inverse is also true.  Access to labor willing to accept extremely low wages and benefits puts downward pressure on all wage earners.  In effect, lowering the floor in which employers can lower their wages and still attract a labor force.  This is also an issue with guest worker programs.

I have not even addressed the possible effect of automation on the labor market.  But illegal immigrants could see a major displacement in the industries and occupations that they occupy.  Bringing large numbers of foreign low-skilled workers (particularly those without basic English skills) into the legal workforce would likely put a burden on the US economy and the US taxpayer for years to come.

I could say a lot more about the myth of a labor shortage, and the role of trade and immigration on the labor markets.  And would be glad to do so if there is an interest, but let’s move onto the political and policy response to immigration and the labor market.   First, trade and immigration policy are linked.   Addressing one without the other leaves the door open to increasing the labor supply on behalf of business.  But for this discussion, we are focused on immigration.

Politics

First, let’s look at the political implications of immigration reform.  It is my strong feeling that Americans (and Ohioans) do not trust the Democratic Party to enforce our immigration laws.  I feel this is one major reason why Clinton lost the election. Hillary Clinton and Sen. Brown refuse to use the phrase “illegal immigration”.   Hillary failed to address enforcement of US immigration laws at all during her campaign.  The constant effort to conflate immigrants with illegal immigrants is particularly galling.  This and the effort to paint anyone concerned about immigration as a racist was counterproductive, pushing middle-class voters away from the Democratic Party.

American workers believe that wage competition from illegal and legal immigration is as real as the negative effects on the tax base.  Voters feel that the Democratic Party is in effect supporting open immigration and has turned its backs on working families’ financial concerns to pander to a growing voting bloc, which is, in fact, growing because of the Democrats complicit support of illegal immigration.

The question the voters are asking is; how can the Democrats hope to enforce immigration law if the Party is not willing to deport an illegal immigrant who has done nothing more than violate our immigration law?!  The voters see a party looking for every excuse possible not to deport anyone.

Saying that you will deport violent criminals is not enough.  To enforce immigration law you need to be willing to deport the most sympathetic illegal immigrants.  All the dilemmas surrounding illegal immigration, sanctuary cities, divided families, dreamers, are all a result of the ineffective ability of the federal government to enforce immigration law through deportation.

An immigration reform that cannot stop the flow of illegal immigration into the US will be a failure.  We simply cannot have a repeat of the 1986 reform.  The reality that we have today; that the best and quickest path to permanent residence and a better life for oneself and one’s family is through illegal immigration has to be put to an end once and for all.   Any reform that permits the reconstitution of the illegal immigration population in the US will be an abject failure.

Make no mistake that the goal of many who are trying to influence immigration reform is to increase the flow of immigration into the US.  This could be done with explicit provisions in the reform to increase legal immigration into the US or liberalizing the refugee flow into the US.  Or this can be done by subterfuge; hamstringing efforts of enforcement, leaving in place policies that incentivize and accommodate illegal immigrants living in the US.  There is a general attitude among pro-illegal immigration advocates that foreign nationals have a moral right to violate our immigration law.

Policy

On the whole, I would say that the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 is too generous in terms of amnesty for illegal immigrants and too generous for business in terms of access to foreign workers.  Other than the addition of E-Verify it seems to be a rehashing of the Immigration Reform and Control Act of 1986 which was a farce and a complete failure.

One very important issue NOT addressed in the 2013 Senate bill is the dependents still living in the countries of origin of illegal immigrants who will be provided a path to citizenship.  A basic tenet of pro-amnesty groups is family unification.  It seems clear that their position would be that unification should always be on the US side of the border.  If the default policy was to be unification in the US, then millions if not tens of millions of foreign nationals would be eligible for legal immigration to join their family member(s) in the US, referred to as “chain migration”.  This policy of unification would have a massive effect on the CBO scoring of the law.  This is one reason that I feel a finite number of illegal immigrants and their dependents should be the policy.  Even any discussing of how to deal with dependents that remain in the countries of origin would likely set off a wave of illegal entries into the US.

At this time I would point out that CBO scoring does NOT address the effects on the state and local tax base.  The education cost of a unification provision could be a major problem for already underfunded big city school districts.  The other issue with CBO scoring in regards to immigration policy is that the CBO only looks out for ten years.  Immigration policy budget implications have a far longer timeline than 10 years.  In my estimation, many of the negative budget implications are outside of the 10-year estimates provided by the CBO.

Below I will provide a policy agenda that could have a real impact on reducing the oversupply of labor in the US through immigration and restore the voter’s faith that the Democrats party and the US government is serious about immigration reform and enforcement.

I do not believe for a second that Sen. Brown (or any other Democrat or business minded Republican) will adopt this platform.  It would require a paradigm shift in his thinking on immigration policy.  The Senator would be ostracized by his base, his donors, his colleagues, the party leadership and his family members.

  • A limit amnesty at a fitted a specific number of individuals.  Say 5 million (including Dreamers). There is the possibility that there are far more than 11 million illegal immigrations current in the US.  Also, a large number of deportations would be necessary to convince all sides that the US government is serious about immigration enforcement.  And it would prevent new arrivals from trying to qualify for amnesty current or future.
  • The numbers of immigrates receiving amnesty would be back out of all future legal immigration.
  • The year total of legal immigration would be limited to 500k/per. This means that total new immigration other than the amnesty program would be zero for 10years.
  • The adoption of E-Verity employment verification
  • Ending all guest worker programs.
  • The end of birthright citizenship. The 14th amendment was never intended to allow foreign nationals to control our immigration policy
  • Apportionment and distribution of federal funds will be based on the total of legal residents (NOT on the total number of people present in the US.)
  • Electronic tracking of visas.
  • Increased internal and workplace enforcement. (This is key illegal immigrates most by quickly be identified and processed for removal (or otherwise adjudicated) before the moral dilemmas relating to legal immigration can arise.)
  • More funding of border checkpoints to prevent illegal activities at the border illegal immigration, illegal working in the US by people crossing the border daily, drug smuggling etc.. (Build a border wall across the whole US/Mexican border would be a colossal waste of money and better diverted to other initiative on the list above.)
  • Enforcement Enforcement Enforcement- All federal agencies (including the IRS and Social Security Administration) must provide any information that could identify or locate illegal immigrants to ICE.  All Federal, state or local laws and programs that make it easier for illegal immigrants to remain in the US should be eliminated; sanctuary cities, drivers licenses, etc..  No space or location in the US should be off-limits to immigration enforcement.
  • Recipients of amnesty must renounce foreign citizenship.  This initiative is directed specifically at Mexico who collects taxes on Mexican citizens living legally and illegally in the US (for which they provide no services).  This would disincentivize Mexico from encouraging its people to immigrate illegally (or legally) to the US

Of course, I am not able to address all of the issues and counterpoints surrounding issues of immigration in this short format.  Please contact me at any time so that I can address any questions, concerns and clarify any faults in my reasoning that may have been found.

 


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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