An End to False Globalization
It's time to put fair trade on the front burner again—or we'll never rescue our economy.
"The Obama team is hardly likely to make trade a priority," reports a recent article in the National Journal. "Their inclination is to let sleeping dogs lie," Ed Gresser, director of the trade project at the Progressive Policy Institute, told the magazine. Well, those sleeping dogs need to be awakened, because the results of globalization for the United States, and for many other developed nations, have simply not turned out as advertised.
It is not globalization's underlying premise that is flawed. Rather, the problem is that the US and many countries in Europe are on the receiving end of unfair (and sometimes illegal) subsidies, inhumane labor standards, poor environmental practices, and currency manipulation that are skewing outcomes and overwhelming our open competition approaches to trade. And our nation and our workers have been greatly harmed.
The world's developed economies aren't saying "no" to globalization or to free trade. Quite the opposite. All we are saying is that we can't accept predatory practices that distort outcomes to the detriment of our citizens.
When modern-day globalization was born in the early 1980s, we were told that new high-quality service jobs would generally offset any lost manufacturing jobs, and that, measured economically, our trade accounts would always be in or close to balance, which of course are the same two premises that Adam Smith put forth way back in 1776 in The Wealth of Nations.
Instead, the United States has had a persistent trade deficit, now in the hundreds of billions per year. America's cumulative goods and services trade deficit since 1980 is a stunning $7.2 trillion, according to the Bureau of Economic Analysis; 65 percent of this amount was accumulated during the Bush administration. Just these latter deficits alone have made the American economy about $1.5 trillion smaller than it would have been otherwise—money we could really use right now.
Our once vital manufacturing sector has diminished and now accounts for less than 7 percent of GDP. And just while Bush was president, we lost 4.5 million manufacturing and more than 2 million service jobs to countries overseas—contradicting the theory that a nation would never lose large numbers of both types of jobs at the same time.
Most Americans believe that our large ongoing deficits in trade are also eroding our national security and threatening our economic sovereignty, reports the National Journal. And they are right. Nations with increased financial leverage because of our trade-related overseas borrowings—particularly the oil-producing countries, and especially China with its nearly $2 trillion of foreign exchange reserves—are already demanding stronger assurances about our creditworthiness as the world's largest debtor nation, and more.
On March 13, for example, Chinese prime minister Wen Jiabao spoke at length of his worry about the "safety" of China's holdings of US Treasury bonds. On March 23, China's central bank governor warned that the world now actually needs a new currency to replace the dollar as the world's standard, because the developing world is unhappy with the role of the US in the world economy.
By way of counterargument to such ominous trends, we often hear that American consumers are benefiting from access to cheaper imported goods. Yet when the analysis is fairly done, the nation's overall trade-related losses in wages—from stagnant domestic wages and from millions of American jobs being offshored—clearly swamp the gains from these imports, notes the Center for Economic and Policy Research.
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Globalization
Globalization should have been gradual and better regulated. In 2007 China was growing at close to 10% and worrying about inflation while the U.S. was falling into recession. Trade balances should not be disproportionate.
Globalization is far more than just the integration of economic and financial factors. Globalization is about the shrinkage of the world and the effects thereof. Everything is becoming more intermeshed – economics, politics, culture, traditions and religion.
Trade Deficit
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Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the wealthiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It's a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, exceeds $9.1 trillion. What will happen when those assets are depleted? Today's recession is the answer.
Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.
Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?
At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." My theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.
This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.
One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!
Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one fifth of the world's population.
Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.
If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at OpenWindowPublishingCo.com or PeteMurphy.wordpress.com where you can read the preface, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)
Please forgive me for the somewhat spammish nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.
Pete Murphy
Author, "Five Short Blasts"
If you're not a spam-bot,
If you're not a spam-bot, Pete Murphy, then you sure have a bad habit of copypasta.
The exact same message in your post appears in 100's, if not 1,000's, other Web sites. Amazing!
See Google results: http://www.google.com/search?rlz=1C1GGLS_enUS317US317&sourceid=chrome&ie=UTF-8&q=Why%3F+The+American+work+force+is+the+most+productive+on+earth.+Our+product+quality,+though+it+may+have+fallen+short+at+one+time,+is+now+on+a+par+with+the+Japanese.
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