August 25, 2014

Enough with 'Free Trade'!

By Bruce C. Bishop


In the name of “free trade,” we have lost millions of middle-class manufacturing jobs. Our economy is dying, and for many of us, our standard of living is in free-fall.

What people have been calling free trade is not free trade.

David Ricardo, the “father” of free trade, assumed that (free) trade would benefit both trading partners. He further assumed that it would tend to stay more or less in balance.

We have a huge trade deficit with China because China is cheating. China is not practicing free trade. China is practicing mercantilism, which is the opposite of free trade.

While we are practicing free trade in good faith, China is taking advantage of our well-meaning ignorance to bolster its economy at our expense.
Our public economists have given our policymakers bad advice. That bad advice has cost millions of us our jobs, our homes, and our retirement. Whole communities have been devastated as factory after factory has been shuttered, and the jobs moved to China.

Economists pay no price for being wrong. Thus, they tend to remain cocksure in their pronouncements while the policies they promote wreak havoc.

Twenty years ago, the economists were saying, We don’t need manufacturing. We are going to be a “service economy.

Both Republicans and Democrats were pushing “free trade” in the form of NAFTA, the North American Free Trade Agreement.

Only Ross Perot warned us of that “Giant Sucking Sound” that would be our jobs rushing out of the country.

Ross Perot was ridiculed then. Now, we can all see that he was right.

As to our “service economy,” many of the higher-paying service jobs were services to manufacturers. When manufacturing left, those jobs left, too.
Other high-paying service jobs have gone to India. Radiology, software design, programming, architectural design, financial planning, and thousands of technical- support and “call center” jobs are now being done in India at one third to one tenth the cost. Thanks to the internet and cheap worldwide phone service, those jobs can be done in the next room or 10,000 miles away, and no one can tell the difference.

The service jobs that remain here pay less than half of what manufacturing jobs paid. Many of our recent college graduates are working as waiters/waitresses, bartenders, cooks, stockers, or retail clerks because there are no jobs available in their fields. Even those pay scales have remained flat for the past ten years due to the lack of competition from manufacturing.

The other problem with being a service economy is that services do not create wealth. Manufacturing can, for example, turn $2,000 worth of raw material into an automobile worth $20,000, using unskilled labor. This is called “value added.” Service jobs add little value and produce no durable wealth. The food gets cold, the drinks wear off, and the value added is gone.

When it became apparent that the service economy would not maintain us as a superpower, the economists offered glittering promises of jobs in the emerging fields of biotech and nanotechnology. Those jobs are going to China and India, too.

However, if you bring up the subject of outsourcing and lost jobs, you are attacked by the economists as being a “protectionist,” or worse, a xenophobe.

While the debate hasn’t really even started, our jobs continue to flow offshore by the thousands. Our trade deficit continues to grow, and our standard of living continues to decline.

In 2003, Warren Buffett suggested that our government impose “balanced trade” by using “import certificates” to limit the amount of imports to the amount that we export. This would bring back millions of manufacturing jobs.

In 2006, two members of Congress, Senator Byron Dorgan and Senator Russ Feingold, introduced a “Balanced Trade” bill, but it died for lack of interest.

In 2010, Paul Craig Roberts, former Assistant Treasury Secretary and the “Father of Reaganomics,” published a book, How The Economy Was Lost. In this book, he explains how the economists got it wrong and how their so-called “free trade” is destroying our economy.

In 2014, three economists by the name of Richman – Raymond, Howard, and Jesse (grandfather, father, and son) – published a book entitled Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits. In this book, they bring us up to date on the state of the economy, the outlook for the future, and what can be done to turn our economy around and restore the lost jobs.

The Richmans discuss the Buffett plan of using “import certificates” as a viable option. They also offer an alternative, which they call a “scaled tariff.” A scaled tariff would be imposed country by country to offset any cost advantage, currency manipulation, or protectionist measures used by our “trading partner” and would gradually disappear as the balance of trade with that country is restored.

Unfortunately, this issue is barely being discussed, despite the millions of families and whole communities that have been devastated by the off-shoring of jobs.

If the jobs of journalists, academics, politicians, and economists were being outsourced, trade reform would be on the cover of the New York Times and would be the lead story on the CBS evening news. Because these “elites” who control the narrative don’t particularly care about people who “make stuff” for a living, the problem is mostly ignored.

The Obama administration has shown little or no interest in saving or bringing back our manufacturing jobs, despite years of paying lip service to it. In fact, quite the opposite – Obama has been pushing for “fast track” authority so that he can get us into even more “free trade” agreements without the appropriate review by Congress.

This is an issue we must confront if we don’t want our grandchildren to inherit a third-world country.