The same situation exists today that existed in 1929. There has been no cause for our GDP to expand since 2000. We grew based on increased debt-financed spending, overvalued homes, and derivatives thereof. But there was little additional real wealth produced, other than homes. And the artificially created over-demand for homes caused more to be produced than there was any wage/income-financed demand for.Thus, the writer (unlawflcombatnt) predicts that the Depression (may we use the D-word?) will be long, very long.
So once again, what do these "experts" think is going to bring us out of this recession? What new source of demand will come along? What new product or industry...Okay, here comes the part that no-one has dared to mention:
The truth is that the we ALREADY have a source of demand to start the recovery. That source is our trade deficit. It is the demand we lose by purchasing imports, instead of domestic production. But we can only tap this source if we re-channel import purchases into domestic purchases.The concept is simple. America does not make anything any longer because imports are cheap. Make imports more expensive and we go back to work.
Though we can do little in the short-term about our ~$300 billion in oil & energy imports, there is plenty we can do about our ~$400 billion in non-energy imports. We can immediately raise TARIFFS, adding the expense of tariffs to the price of foreign imports. This would reduce the quantity demand for imports, and increase the demand for American products to replace them...
And, in case it isn't already obvious, TARIFFS bring in additional Federal revenue, instead of spending Federal revenue. Our budget deficit and national debt would fall (or rise less), and there would be more funds available for either tax cuts, increased government spending, or both.
Can anyone see the big problem with this suggestion? China. The Chinese fund our debt. (Not alone, of course, but to no small degree.) They do so not for altruistic reasons but because their economy depends on us buying their crap. If we stop buying their crap they have little motive to buy our crappy debt.
The other problem, of course, is Obama. He told the great NAFTA fib, as documented in a previous post (of which I remain proud). NAFTA is not the real issue, since the cheap imports come from outside North America. But Obama's deception on that score indicates his true economic thinking -- and his reliance on economic advisers who remain wedded to the theory of free trade.
I mean, so what if an American engineer produces a car that runs on seawater? So what if an American invents anti-gravity shoes? So what if an American invents a TV screen that can be painted on walls? Within a year, we'll be importing those products, and our situation will have improved not one whit.
How to disguise a rise in tarrifs: Play the terrorism card. We need to protect our ports. We need to hire a whole bunch more people to inspect with care each and every container that comes in. This approach translates import fees directly into jobs.
15 comments:
One small problem with that argument: American engineers do not design cars that run on seawater. Hell, the only hybrid on the market right now is a Toyota. So far the US auto industry has shown it can only make cars that run on gas--and the more of it, the better...
You raise tariffs, and you remove the one incentive the GMs of the world have to innovate. If you tariff the Japanese out of the competition, we'll all be driving gas-guzzling expensive clunkers for the rest of our lives.
And, of course, the rest of the world will slap us with tariffs so hard we'll be back in the Great Depression territory.
"You raise tariffs, and you remove the one incentive the GMs of the world have to innovate...."
The incentive to innovate is survival. I see no incentive to innovate if those innovations will, within a few years, help a competitor in another country.
As for retaliatory tarrifs -- do all the other nations in the world practice free trade fundamentalism at the present moment?
This has been talked about a lot. Other countries will raise tariffs too and then the US will have to pay higher prices for both imports and the local supply when they may not be currently equipped to build those assets locally. This means higher prices for consumers. And even if jobs are saved in certain industries, the high prices will offset this causing a more global reduction in trade.
A possible solution would be to work with other countries to lower their tariffs and to remove trading barriers so that US exports can increase.
Back a few years ago, I discussed the downsides of the trade agreements with my sister-in-law. As an educated woman who ran her own business, she had little empathy for the factory workers whose jobs were being shipped wholesale out of the country and insisted that globalization was the only way to go. She pretty much bought all the nonsense about the coming world prosperity and dismissed Americans who had been badly hurt by the changing economy as unfortunate, but necessary, losers.
I tried to tell her that when factory jobs get shipped out of the country, the supporting white collar jobs in accounting, IT, and R & D will follow. Once those jobs are gone, the U.S. will no longer have a large pool of experienced workers in many important areas, our middle class will be decimated, and much of our ability (forget about incentive) to discover and produce new products will be gone. She couldn't see my point and since she finished her college education and I didn't, I obviously couldn't be right.
Well, her situation has changed but I don't know if her thinking about globalization has changed.. Her company produces materials for use by client company employees. Since many of those workers are no longer located in the U.S., her client list has dropped dramatically and so has her income. I'd feel sorry for her, but I just can't quite get up the necessary sympathy.
If the U.S. does enter a sustained depression, it's possible that China will see the need to develop their own consumers in order to avoid massive unrest. Then, if they see that they don't need the American market to sustain their growth, they'll call in our debt.
In one of his late-January blog entries, Krugman pointed out that - while not normally desirable in today's world economy - the temporary use of protectionism can be beneficial in pulling a country out of a recession.
Sergei Rostov
A while back, a guy *did* invent a car that runs on seawater; he had a funny name for it, too: he called it a "boat." :D
(Sorry, had to say it. :D)
Sergei Rostov
Inroads into solar and wind energy can be a foundation for a new industry that we can export in the form of licenses and patents.
The problem is that the large solar panel to be built in California to supply energy, for example, is Israeli invented, designed and produced.
We did lose our high tech edge as well.
The overvaluation of american homes ironically occurred from the wealth that was generated first in Japan, then China over the past 15 years.
"So what if an American engineer produces a car that runs on seawater?"
We urge him/her to patent it in many countries. Then, no matter where it is manufactured, at least the royalties come rolling in here. They do, that is, until the engineer moves to Guernsey, for tax reasons.
djmm
The Japanese are happily innovating with no fear the Chinese will suddenly flood the global market with cheap knockoffs of their hybrids. Let's face it: the Big Three have been criminally complacent for the last several decades, tariffs or no tariffs.
Granted, US labor is expensive. However, to large extent that's due to the absence of a universal, state-run health insurance plan. Japanese firms don't need to worry about picking up the tab for health care, the Japanese government does that for them. But American cars get a "slice" of that cost to the tune of several hundred bucks per unit. Still, if US cars were the paragons of reliability and durability, even that would not be a problem. But, alas, they are not...
I think Krugman is wrong on the tariff front because he underestimates the political dimension of the problem. Once you start down that road, it will be a slippery slope--once you acknowledge that tariffs are good, more tariffs must be better, no? I'm sure Messrs. Smoot and Hawley had no intention of producing a global economic catastrophe, but that's what happened anyway.
"So what if an American engineer produces a car that runs on seawater?"
What a coincidence! I happen to have the engineering blueprints for a car engine that is powered by seawater. It was designed by my cousin who was recently killed in an accident.
I unfortunately lack the resources to build and develop the engine but I will gladly sell the plans to someone who can for the low price of $10,000
(cash only - in small unmarked bills.)
It is absolutely amazing how many people believe either the supply-side-economic or globalization-and-unfettered-trade-are-good myths, in spite of all the currently compounding evidence before us. Protecting our own economy is our right, and there is no economy on this planet that can compete with us if we remain loyal to each other.
If we halted all trade with China today, their society would eject back into the middle ages by next month, and there would be a revolution sweeping away their government the week after that.
I'm no economist, but I don't see a big problem in other countries responding to the US raising tariffs with their own tariff increases as a huge problem. After all, Joe's point was WE DON'T PRODUCE ANYTHING ANYMORE. So what is it we're exporting that would be less competitively priced abroad?
It seems to me that the bigger worry would be China's large holdings of US debt and their reliance on export markets. We wouldn't want them conducting a sell-off of US debt, because I would think it would tank the dollar. Then again, US financial health is (at present) a pre-requisite for China's economic rebound, and so you would think they're as hopeful for a US economic turn-around as anyone. In the meantime, them having to focus on internal consumption of their goods might help spread some of their wealth and buying power around and develop a better domestic marketplace.
But again - I'm no economist. What the hell do I know?
You are right Joe. But the solution is not tariffs. It is simply printing dollar bills. Which IS the plan. The dollar depreciates to the point that imports are too expensive. The rest of the world can't devalue faster than us...why?....because we ARE the largest debtor. Our currency SHOULD be the least valuable. And by hook or by crook we will make it so. After all we HAVE too. (To prop up our economy and pay off what 50 trillion in debts and future obligations). Bernanke said he would do it, and so he shall. It solves ALL our problems. No more unpayable debts! No more cheap imports stifling job development here at home. It's going to happen. Buy gold.
SN in NM:
Total protectionism won't work anymore than free trade. In we close our ecomony to China, they call in their debts. Then all the other countries which hold our debts follow. Our ecomony collapses, then the rest of the world swoops in and buys up everything of value for pennies on the dollar.
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Anon: China, et al are buying up our debts using their currency, not ours. Using China as an example, given an exchange rate of x yuan to y dollars - and leaving interest aside for this example - they use 2x yuan to buy 2y dollars, with the debt to be called in in yuan. They would be calling them in at the rates of exchange for that (future) time, so deflating the dollar would do no good.
On gold: Since 1930 - relative to inflation - gold has gone up ~140%, whereas wages have gone up ~ 700%; i.e. it has fallen behind them by a factor of 5. So over that period, getting a yearly wage gives you a much better "return" (in terms of lifestyle) than getting a set amount of gold each year. Since 1800, gold has fallen behind wages by a factor of ~3.6, which means the "long-term" argument doesn't work either.
So could we have enough of the "buy gold" nonsense?
Sergei Rostov
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