Thursday, January 28, 2010

How to fix the economy. No, really. I'm serious.

Obama says that we are going to export our way back to economic health. Export what? We don't make anything.

My fear is that talk of an "export economy" is simply a way of justifying free trade policies. And those policies will keep us stuck as an import economy.

Our only real product is now the financial services industry, which creates nothing and sucks the life out of genuine industry:
It’s just one big game of passing the trash to a higher bidder in a fixed game of who can leverage themselves into the highest arbitrage profits by creating false momentum now.
You can also see the 2008 crash and the current return to business-as-usual for extraordinary profits of Financial Institutions vs. the rest of the industries in the U.S. economy. Lenin would love this. It shows a complete siphoning of money from everything else to banks.
What to do?

The best book I've read (okay, heard) recently is Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Korean economist Ha-Joon Chang. This work has not received the attention it deserves because it focuses on the developing world. American readers don't want to hear about third world issues right now, because we have problems of our own.

Yet to a great extent, we have returned to "developing country" status -- and that's why we must heed the lessons of this book. To be specific: We need to return to the policies that once made us great, policies now never discussed, policies which we've erased from the historical record. We need to protect our "infant industries" with tarrifs and large-scale investment.
Using irreverent wit, an engagingly personal style, and a battery of examples, Chang blasts holes in the “World Is Flat” orthodoxy of Thomas Friedman and other liberal economists who argue that only unfettered capitalism and wide-open international trade can lift struggling nations out of poverty. On the contrary, Chang shows, today’s economic superpowers—from the U.S. to Britain to his native Korea—all attained prosperity by shameless protectionism and government intervention in industry. We have conveniently forgotten this fact, telling ourselves a fairy tale about the magic of free trade...
Between 1812 and the Second World War, the United States was the most protectionist country in the world. By contrast, Adam Smith advised America not to use protectionism to develop artificially a manufacturing base. This country would never have prospered if our leaders had followed Smith's advice.

You never see any examples of Lincoln, Hamilton, Jackson or Jefferson quoting Adam Smith with admiration. Ever notice that? Ever wonder why?

(I've read Smith, as most conservatives have not. He seemed to think that America was and would forever remain an agricultural backwater. Well, that's what we're turning into again, thanks to modern-day Smith followers: A nation of farms and banks.)

Neoliberals (i.e., conservatives) often cite Smith without telling you that the Brits achieved dominance by not practicing what Smith preached. Only after they were perched at the top did they insist that others follow a strict neoliberal ideology. In essence, they pulled the ladder up after themselves.

So who pulled the ladder on us? That's the question which every parapolitical thinker ought to be asking.

And while you're chewing on that poser, read this piece by Chang:
Britain and the US may have been the most ardent - and most successful - users of tariffs, but most of today's rich countries deployed tariff protection for extended periods in order to promote their infant industries. Many of them also actively used government subsidies and public enterprises to promote new industries. Japan and many European countries have given numerous subsidies to strategic industries.
As chapter 9 of Chang's book demonstrates -- with much citation of example -- Japanese workers were once stereotyped as lazy, undisciplined and ineducable. (Which is pretty much the same stereotype now applied to Americans.) But the work ethic is not genetic. Our attitude toward work may have something to do with culture, but only to the extent that a culture changes when a nation advances.

The company which perhaps best exemplifies Chang's analysis is Toyota. This summary of Chang could change the way you look at the world:
Toyota has been touted by free traders as a clear example of why free trade works, mostly because of the widely cited example outlined in Thomas Freidman's book The Lexus and the Olive Tree.

But again, at a closer look, the reality is the opposite of what Friedman naively portrays in his book. In fact, Japan subsidized Toyota not only in its development but even after if failed terribly in the American markets in the late 1950's. In addition, early in Toyota's development, Japan kicked out foreign competitors like GM.

Thus, because the Japanese government financed Toyota at a loss (for roughly 20 years), built high tariff and other barriers to competitive imports, and initially subsidized exports, auto manufacturing was able to get a strong foothold and we now think of Japanese exports being synonymous with automobiles.
We have cynically abandoned Detroit. We grumbled that Americans just can't make cars any more. We decided that we would rather sneer and bitch than invest in ourselves. Screw it. Let the other countries take over the car market.

Because we are so quick to take that attitude, other countries are taking over every market.

Is that sort of cynicism actually accomplishing anything? Should America just give up on itself?

If you think otherwise, then the answer is both simple and hard. Simple, because we need merely recapitulate what worked for us before. Hard, because this course of action requires long-term thinking.

Instead of investing in the Wall Street vampires, we need to invest in our industries. We need to do so in the understanding that those investments may not pay off for decades. We may have to weather serious setbacks. (Remember how people used to laugh at Datsuns and Toyotas in the late 1960s?) Capitalism alone won't do the trick; our industries need help from a non-invisible hand. Most of all, we need to return to the non-free trade practices that made this country great.

If Obama cannot take those steps, then his talk of an export-driven recovery is pure hooey.
This is an absolutely fantastically correct column. You should print it out, bronze it, and then wield it as both a shield and weapon at any body who espouses international trade as being the answer to our problems.

I was absolutely thinking the same thing when I heard Barack Obama try and pass the buck back to international trade during his first state of the union address.


To this end, we need to create more sustainable forms of energy within our own borders that can actually be situated all over our country to help create more solid LOCAL economic infrastructures.

Investing in industry means investing in infrastructure, production of raw materials and the labor force.

We are the only industrialized nation that treats its workers like feudal surfs.
I recommended this essay over at NQ. I thought it was really thought provoking in light of the President's State of the Union Address, which seemed very thin on specifics or lame recommendations like this one--exports.

What exports? Indeed!

We're still jiving inside the Big Lie. And I don't think enough people are paying attention. Or if they are, they're spinning the words for themselves.

College credits for the middle class? Sounds good. But without a job, you're lucky to put food on the table. Everyone wants their kids in college, but a tax credit is beside the point when you're unemployed or squatting inside your foreclosed home.

I don't get it. But maybe that's the plan. We're expected to go with the flow.
Pat Buchanan has been preaching on tariffs for a long time. The association with him doesn't bother me, as I think he and Joe are correct.

Basically, they prevent the arbitrage of labor costs, among other bad policies. Goes like this: want to use cheap labor overseas to make your shoes? Fine, but a tariff will be imposed that takes away the cheap labor cost advantage, assuming you want to import them and sell them to the American market. (Er, assuming we make shoes here, I suppose.) If the economic advantage is taken away, there will be no reason to outsource to get cheaper labor.

Now, the environmental protections companies can avoid, thereby saving monies on that score, by outsourcing, may not be so readily tariffed away, not sure. There is no history of that to look back on to tell.

Will this make goods more costly? Probably so, but cheap goods are no adequate substitute for a job.

It will be interesting to see what happens to Japan as China ramps up production and quality.
As to the rest of your article, it right on but nobody in congress will do anything because the payoff from Wall Street they get will keep them comfortable while the rest of us starve.
Over 240 years ago we threw out the British monarchy only to have them replaced by a Federal Monarchy. That and a corporate oligarchy.
XI: In point of fact, there are no shoemakers left in America, except for a few scattered by-hand craftspeople.

Or so I've heard.
Bought a US made pair at Marshals 2 mos ago, 40 bucks. I run 4.5 miles every other day. Wish I had more choice.

As somebody who produces a manufactured product in Canada/USA, I can tell you you are missing a large part of the story if you don't talk about US retailers and their traitorous ways.
Worth a read, H1-B's
Exports? Obie was talking about exporting what's left of our jobs. Whether it is through outsourcing and or importing cheap labor, this will boost up the bottom line for the Oligarch class which will *stimulate* the economy (Wall Street) while the rest of us on Main Street get to eat cake.
Also worth a read:

Ravi Nilakantan :

I am not an H1B worker but a full fledged Naturalized American of Indian Origin. Much as I love my birth country, I sincerely want my adopted country USA to prosper and help my birth country to develop and improve. My father late Dr P. Nilakantan was a scientist trained by USA (CAL-TECH) and went to India when it got independence in 1947 to impart training to hundreds of Aeronautical Engineers and Scientists. He was essentially US export to India to develop India! So training Indians and other nationals is not a bad idea in the long run.
Please let this issue not cause hatred of my fellow Indians here in the USA. I heard that a lot of Indian students are being bashed and abused by the local people in Australia. It is deplorable.
Let us work this issue out together and make sure that companies here and in India that want to source its skilled people obey US laws or else face the music if they break them.
It starts with setting a goal for employing all affected US citizens. then finding out what the real problem is . Next step is stating a criteria or set of criteria for evaluating this problem. We then Analise the problem
and come out with good alternatives. We finally chose the best alternative to evolve a plan of action.
At the very end, we set about placing the plan to action in a timely manner and review the results vis-a-vis our objectives.

Yes I would also agree to open all professions like lawyers, doctors, scientists etc to outsourcing if really it is going to benefit all of us US cit zens in the long run.
We are paying too much for legal services and health care.
I personally am seriously under employed still stuck in manufacturing and in logistics have struggled to get a job as a programmer since 1994. I of course did not fudge my resume with training and skill I do not have since I do not want to break the values instilled in be by my beloved parents. I have two valid degrees both from top schools in India all targeted to mechanical engineering to work in management in the manufacturing sector and and a bunch of recognized certificates from US Schools for the special training I spent time and money to obtain in transitioning into understanding computers, networking and computer programming.I am now with great distress and effort due to my health situation learning another computer language to try and get a decent job at the ripe age of 61.
My fellow senior citizens do not give up. If you trust God, I assure you that you will see the light at the end of the tunnel.

Nothing is easy and by outsourcing decent jobs without valid reason the way it is described by my fellow driving people to mental illness and even in some cases suicide.

Families are splitting . People are losing homes. Hopelessness can even drive people to alcoholism and drugs. Corporate America please wake up. Its like as if Nero ( US Corporations and employers) fiddling while Rome ( we the unemployed and under employed) is burning.
On this serious note , let me appeal to you all to treat this subject as important.

Posted by Ravi Nilakantan | June 2, 2009 5:01 PM
Be careful about the "made in america" claims by shoe manufacturers. Some of that is simply the shoes are assembled in the United States with materials from China.

However, it is better than not caring at all.
I thought New Balance decided after a period of out sourcing to bring their
production of at least most
shoe lines back to this country. I have to wear them because with M.S. the
'balance' part is important to me, and while I also try to buy non leather because of other issues, the models that my
husband and I have chosen have not been made in China,
but here at home. You reallly don't have to publish this Mr. Cannon, I just thought I'd tell you what I knew (or thought I knew) about New Balance.

This is as good post, in part. But have you ever thought about the "raw materials" part of it ?

Surely you know, Joseph, that you cannot create industry out of thin air. You need raw materials. Coal, steel, ore, oil, whatnot.

Do you think the USA are in the same situation, raw materials-wise, than in the 1800s ? Haven't you noticed that raw materials are getting harder and harder to get ?
Thunderous applause! Mr. Cannon, you get it.
I totally agree with the need to protect US industry. It's like so obvious and never acknowledged.

By the way, anyone know if the Defense Department buys American?
If we are never going to cut the military budget anyway, are we at least making the damn bullets, guns, and warheads in America?
Just a couple of minor nits:

1) we're becoming a nation of corporate agribusiness (as opposed to independently-owned farms) and banks.

2) the Chinese have pretty conclusively proven that currency manipulation is a very effective substitute for high tariffs. There's more than one way to establish an import barrier. The fundamental question is, are American consumers really willing to give up their addiction to low-cost imported goods?
"feudal surfs"

Spoken like a true Californian, myiq ;-)
Look at our textile industry. First it was moved from the New England and Mid-Atlantic states to the south for cheaper labor. Now we have poor quality linens and bedding from China, Pakistan, etc. and Fruit of the Loom/BVDs made in Ecuador for cheaper labor and few or no environmental restrictions.
Finance has been the biggest beneficiary of the bubble. Its growth replaced a stagnant real economy and wages, taking an estimated 40% of the growth since Reagan. That's why I hate hearing talk about "the" economy, and that's why the geniuses at the Fed can't figure out why "our" economy hasn't been jump started by all the money poured into finance's economy. If they do succeed in getting the financial ball rolling again, it can roll overseas quite well without us.

Us, which is the second point I want to make. Have you noticed how The media never refers to any sense of nation? Watch, and you'll see. Those benefiting from running government don't want us to remember that finance and government are supposed to serve us.
USAID Switching To Less-Expensive Condoms Produced Overseas

Loss of 300 jobs
HI Carol, I was not disagreeing with you. The fact that NOBODY advertises that some of their shoes are made in america probably means they are afraid they will piss off the Chinese.

Assembled in america is better than not assembled in america, and it is also possible that some of the shoes are made locally, and if so, a BIGGER DEAL should be made about it than is.

I think something is up. First Hillary condemns China over their break in of Googles accounts. Now Obama is selling arms to Tawaiin ( I know he had to but he's a weasel-if he didn't want to do it he wouldn't). I wonder is some decision has been made that now that the financial crises is "over" we are going to deal with China.

Note the new emphasis that Obama is putting on freezing spending or in other words borrowing less from China.

And when I think about it the Clintons main strength is they seem to be able to see farther ahead into the future than most people. Hillary really trashed China.

This could be good. China is a vampire sucking the life out of the USA. If we can separate ourselves from them many good things may happen. Yay.
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