What’s Missing from this Picture?
Posted by SCapozzola on March 19th, 2008
Congressman Rahm Emanuel (D-IL) published an op-ed in today’s Wall Street Journal that offered “a plan that helps address Americans’ economic anxieties and prepares workers for the future.” High among the suggested items were “training and education” for “the next generation of workers.”
Interestingly, Emanuel, who was one of the chief Clinton administration advisers on NAFTA, admitted that the trade deal “hasn’t lived up to its hopes.” Unfortunately, the Congressman didn’t bring the same insight to his assessment of the overall job picture.
It’s ironic that Emanuel would call for more worker training and education when the major problem of the day is job flight– U.S. factories moving overseas. Simply put, it’s hard to motivate young Americans to train for jobs that they believe will be outsourced.
But logic aside, Emanuel seems to make the same great, glaring error as the rest of the U.S. Congress– namely, he completely overlooks China. In fact, a search of his bright new ”New Deal” reveals that the word “China” is never once mentioned.
One could term this a gross misjudgement. China is the country responsible, year after year, for a record, bilateral U.S. trade deficit that reached $256 billion in 2007. It’s also the country that, in violation of world trade law, continues to dump products, subsidize its industries, and illegally manipulate its currency. An EPI report found that the U.S. trade deficit with China cost the U.S. 1.8 million jobs from 2001-2006.
If Rep. Emanuel wants to rebuild U.S. jobs, his talk about expanding U.S. healthcare, and increasing the national savings rate, would suggest that he’s digging in the wrong place. First and foremost, Americans want to be able to hold onto their jobs before they ponder such seeming luxuries as comprehensive medical insurance and a bigger savings account.
A prudent starting point would be for Congress and the Administration to begin enforcing existing U.S. trade law to ensure that U.S. workers and businesses can compete fairly in the global marketplace. Anything else is wishful thinking.
##
March 21st, 2008 at 3:59 pm
Our trade policy is an abysmal failure because it is based on an economic theory that is fatally flawed. The “principle of comparative advantage,” developed by economist Ricardo in 1815, asserts that each nation benefits when it trades what it makes best for products made best by other countries. It sounds reasonable but, at that point in history, it was nearly impossible for Ricardo to take into consideration what would happen if one country was much more densely populated than the other.
At this point, I should introduce myself. I have recently published a book titled “Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America.” To make a long story short, the heart of this theory is that, as population density rises beyond some optimum level, per capita consumption of products begins to decline out of the need to conserve space. People who live in crowded conditions simply don’t have enough space to use and store many products. This declining per capita consumption, in the face of rising productivity, inevitably yields rising unemployment and poverty.
This theory has huge implications for U.S. policy regarding population and trade. The population implication is obvious, buy why trade? It’s because when we engage in free trade in manufactured goods with nations that are much more densely populated than our own, we actually import this population density-driven effect on unemployment and poverty. We become one nation economically. The manufacturing work is spread evenly across the new, combined work force. The other nation gets free access to our healthy market but, in return, all we get is access to a market emaciated by crowding and low per capita consumption (if we get access to their market at all). The result is an automatic, irreversible trade deficit and loss of manufacturing jobs. No amount of productivity improvement, dollar devaluation, etc. can have any impact because none of these alter the fundamental problem - the disparity in population density and the disparity in our markets.
As a result, our enormous trade deficit persists. We have established a host-parasite relationship between the U.S. and these over-populated nations. It’s a virtual global trade welfare state. We finance it through a sell-off of American assets. What will happen when those assets are depleted? The prospects are scary. I believe that the current recession is just a precursor for what’s to come.
If you’re interested in learning more you can visit my web site at OpenWindowPublishingCo.com. There you can read the preface for free and engage in my “discussion forum” (blog). The book is also available at Amazon.com.
Thanks for attention and forgive me for the “spammish” nature of this reply to your post. You have an outstanding blog going here. Keep up your efforts to raise concern about our nation’s misguided economic policies!
Pete Murphy
Author, Five Short Blasts
March 21st, 2008 at 4:05 pm
By the way, one more thing. Our trade deficit with China gets all of the attention today, just because of its sheer magnitude. But few people realize that, using our trade data from 2006, in terms of per capita trade deficit in manufactured goods, China was only number 19 on the list. Our per capita trade deficits with Japan and Germany, among others, was much higher. In fact, at the top of the list is Ireland, a nation twice as densely populated as the U.S., with whom the U.S. had a per capita trade deficit in manufactured goods 25 times worse than that of China.
The point of this is: what did the U.S. expect when it took a trade policy that was already a proven failure around the world and then applied it to a country with one sixth of the world’s population? Of course it’s a failure that dwarfs all the others!
Just thought you’d be interested.
Pete Murphy
Author, Five Short Blasts