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Conclusion of mini-debate: Clintons & Free Trade vs Protectionism


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The purpose of this thread is to wrap up an off-topic debate that began on the forum topic "Dan Rather's outrageous comments on coasttocoastam." Here is a copy of the most recent post:

Sandy, I think you're mistaking me for some kind of right-winger--I'm not. And I agree, more of less, with your opening economic philosophy. I'm not pinning all the blame of the financial crisis and economic malaise on Clinton. Bush and the Republican agenda, in my view, was a much larger contributor to it than Clinton, and he does, as you note, deserve credit for the economic gains resulting from the internet. I'm also with you that Obama averted a major economic catastrophe, but the stimulus actually wasn't large enough (not Obama's fault).

Here's where I would disagree with you: The housing bubble's seeds were indeed planted in the 90's and Glass-Steagall's repeal was a major reason for the financial crisis. The reason Glass-Steagall hasn't been reinstated is due to Republican obstructionism and the banking industry lining the pockets of enough Democrats, so it's funny to hear Hillary praise Dodd-Frank, which doesn't even work, while she's taking money from Wall Street and talking about how we don't need Glass-Steagall.

As far as GDP growth, I work as an economist, so I do get it. And I would never say lower GDP growth is a good thing. Can we duplicate the huge growth rates in the early post-war period? Probably not. That growth was on the back of a huge baby boomer population, a new middle class, new infrastructure, etc. etc. Economists are still trying to understand the "new normal" low economic growth and perhaps that's an attribute of a matured economy. I have a few guesses and they involve growing inequality and supply-side economics but that's another subject. I also wouldn't characterize inflation as detrimental as you make it sound. Any liberal like yourself would take high inflation over high unemployment. The stagflation of the 80's was used by Reaganites to justify abandoning Keynesian economics and create neo-classic models that have done serious damage to the economy ever since.

As far as trade, I just disagree with you. Newer data is making many economists rethink their understanding of the implications of free trade and its effect on domestic workers. I'm not against any kind of trade, but I believe it's in a country's workers' best interest to produce most of the goods that economy consumers. Hell, even read Adam Smith and he would agree. Free trade has decimated rural communities and led to lower workers' wages across many industries--not just manufacturing. The reason trade deficits with Mexico have eased is because there is less incentive to move there because American manufacturing wages are so much lower. A manufacturing job used to support a middle class family of four. Those days are gone and a large reason is free trade.

Edited by Sandy Larsen
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My take on Free Trade is that it increases profit if a corporation can produce products where labor and cost of production are the cheapest and then sell them in wealthier markets. The problem as I see it is that the long term consequence of this is a lower standard of living in no longer manufacturing end market. This is where globalism is taking us. At some point producing things cheaply is not enough without somebody with enough money in their pocket to buy what is produced.

I don't see how sending our manufacturing base offshore has helped the country or the people who live in it. There was a time where the leader of a nation was expected to do what was in the best interest of the country and it's citizens.

Protectionism is a dirty word these days because the powers that be see no benefit in protecting one nation or the human beings that live there. They see Nationalism as an obstacle to be dealt with. Kennedy, DuGaulle, and Castro were patriots that tried to do what they thought was in the best interest of their country and their people. Nixon began to introduce protectionist policy's to protect the American economy and its people. Look at the resistence they met.

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Sandy, I think you're mistaking me for some kind of right-winger--I'm not.

No, I didn't think you're a right winger. I just thought you were doing the same thing that I've seen Republicans do over the years. The economy has typically done better under Democratic presidents, and Republicans often dismiss this as mere coincidence, good luck, or a delay in the results from Republican presidencies. (BTW, here is an article on this phenomenon.)

And I agree, more of less, with your opening economic philosophy. I'm not pinning all the blame of the financial crisis and economic malaise on Clinton. Bush and the Republican agenda, in my view, was a much larger contributor to it than Clinton, and he does, as you note, deserve credit for the economic gains resulting from the internet. I'm also with you that Obama averted a major economic catastrophe, but the stimulus actually wasn't large enough (not Obama's fault).

Here's where I would disagree with you: The housing bubble's seeds were indeed planted in the 90's and Glass-Steagall's repeal was a major reason for the financial crisis.

I know that that is what a lot of folks say, but that doesn't make it so. And I'm not smart enough myself to know whether or not it is true.

There are some economic-related issues I feel I do understand well, and I've noticed over the years that those things are in line with Paul Krugman's thinking. So I have a lot of faith in his opinion. (For anybody reading this who doesn't know, Paul Krugman is Nobel-prize winning economist. And he's very much a liberal.) Here is what Krugman says:

"....repealing Glass-Steagall was indeed a mistake. But it’s not what caused the financial crisis, which arose instead from ‘shadow banks’ like Lehman Brothers, which don’t take deposits but can nonetheless wreak havoc when they fail.”

So, given that I can't offer an educated opinion -- let alone expert one -- on the subject, I choose to accept Krugman's... that the repeal did not cause the financial crisis. (I didn't quote Krugman in my prior post. I thought it was enough to show that the matter is still being debated, which I did by linking to the Wikipedia article dedicated to that fact.)

The reason Glass-Steagall hasn't been reinstated is due to Republican obstructionism and the banking industry lining the pockets of enough Democrats, so it's funny to hear Hillary praise Dodd-Frank, which doesn't even work, while she's taking money from Wall Street and talking about how we don't need Glass-Steagall.

As far as GDP growth, I work as an economist, so I do get it. And I would never say lower GDP growth is a good thing. Can we duplicate the huge growth rates in the early post-war period? Probably not. That growth was on the back of a huge baby boomer population, a new middle class, new infrastructure, etc. etc. Economists are still trying to understand the "new normal" low economic growth and perhaps that's an attribute of a matured economy. I have a few guesses and they involve growing inequality and supply-side economics but that's another subject. I also wouldn't characterize inflation as detrimental as you make it sound. Any liberal like yourself would take high inflation over high unemployment. The stagflation of the 80's was used by Reaganites to justify abandoning Keynesian economics and create neo-classic models that have done serious damage to the economy ever since.

As far as trade, I just disagree with you. Newer data is making many economists rethink their understanding of the implications of free trade and its effect on domestic workers. I'm not against any kind of trade, but I believe it's in a country's workers' best interest to produce most of the goods that economy consumers. Hell, even read Adam Smith and he would agree. Free trade has decimated rural communities and led to lower workers' wages across many industries--not just manufacturing. The reason trade deficits with Mexico have eased is because there is less incentive to move there because American manufacturing wages are so much lower. A manufacturing job used to support a middle class family of four. Those days are gone and a large reason is free trade.

I will respond to a couple of remaining points here in a separate post.

Edited by Sandy Larsen
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To try and tie this in with JFK, if one reads GIbson's book Battling Wall Street (which I recommend to everyone) you will see that Kennedy was not at all in the globalization, one world camp. In fact, his policies in 1963 actually penalized American companies for relocating overseas, and rewarded them for modernizing plant and equipment within the USA. When one combines that with JFK's definite anti-colonialism, anti-imperialist foreign policy, one can easily conclude, as I did in Destiny Betrayed, that Kennedy was a nationalist. Both abroad and at home.

This is one of the several points that he and the Rockefellers were at loggerheads on. And I may add, since the Rockefellers created International House to encourage globalization, and since this was the sister organization to the International Trade Mart in New Orleans, one can see how Clay Shaw and Kennedy were opposed to each other. In fact, Shaw first worked for International House when he returned to New Orleans after the war. Since David and William Rockefeller worked as trustees to IH, and David was chairman of the executive committee, then it was pretty much a Rockefeller group. John McCloy, a longtime Rockefeller employee, was the chairman of the Board of Trustees in the fifties and sixties. As Gibson has noted, both IH and ITM were important to this globalization scheme since New Orleans was the gateway to Latin America. As Shaw began to advance up this network overtly, his value increased and therefore his rank increased in the covert apparatus that backed it, namely the CIA until he became a valued and highly compensated contract agent. The two backed and reinforced each other. (See Destiny Betrayed, second edition, pgs. 383-84)

To give another example of this concerning Kennedy, as noted in the book Hidden Terrors, David Rockefeller wanted to meet with Kennedy in the fall of 1963. Since Kennedy understood what the subject of the meeting probably was, he declined the invite. JFK suspected that that Rockefeller wanted his backing for a coup in Brazil. Which Kennedy did not want to do.

After JFK was killed, since the Rockefellers and LBJ were pretty good buds, Johnson accepted the meeting and OK'd the coup attempt. Which was run in its early stages by, guess who?

You got it, John McCloy. While he was sitting on the Warren Commission.

This is why I think, in the message to Nikita K, Bobby Kennedy told the Russians that the attempt at detente would have to be put on hold since Johnson was much too close to certain business interests in America. While with Kennedy, union guys used to boast that they literally lived in the White House.

See, this is why David Rockefeller had to wait until Clinton to get his dream of NAFTA passed.

Edited by James DiEugenio
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Sandy, I think you're mistaking me for some kind of right-winger--I'm not. And I agree, more of less, with your opening economic philosophy. I'm not pinning all the blame of the financial crisis and economic malaise on Clinton. Bush and the Republican agenda, in my view, was a much larger contributor to it than Clinton, and he does, as you note, deserve credit for the economic gains resulting from the internet. I'm also with you that Obama averted a major economic catastrophe, but the stimulus actually wasn't large enough (not Obama's fault).

Here's where I would disagree with you: The housing bubble's seeds were indeed planted in the 90's and Glass-Steagall's repeal was a major reason for the financial crisis. The reason Glass-Steagall hasn't been reinstated is due to Republican obstructionism and the banking industry lining the pockets of enough Democrats, so it's funny to hear Hillary praise Dodd-Frank, which doesn't even work, while she's taking money from Wall Street and talking about how we don't need Glass-Steagall.

As far as GDP growth, I work as an economist, so I do get it. And I would never say lower GDP growth is a good thing. Can we duplicate the huge growth rates in the early post-war period? Probably not. That growth was on the back of a huge baby boomer population, a new middle class, new infrastructure, etc. etc. Economists are still trying to understand the "new normal" low economic growth and perhaps that's an attribute of a matured economy. I have a few guesses and they involve growing inequality and supply-side economics but that's another subject.

I also wouldn't characterize inflation as detrimental as you make it sound.

I was referring to high inflation in my comment.

I don't know how anybody could believe high inflation isn't bad for the economy. It may not be so bad for higher income folks whose salaries are raised to match inflation, and who can invest in high-interest money market accounts. But for low-wage earners living paycheck-to-paycheck, an increase of just a few percent in the cost living can have devastating effects.

I believe that high inflation is also bad for business, for a number of reasons. For one, the uncertainty of what might happen likely keeps businesses from investing in new equipment, and in hiring.

There is a positive, delayed correlation between high inflation and unemployment. At least that was the case in the latter part of 20th century America. Check out this graph:

P140512-4.png

(Source)

From 1961 to 1969 we see the Phillips curve. The high economic growth then became unsustainable -- I believe because inflation was causing havoc -- and a recession resulted. Which resulted in higher unemployment and a drop in inflation. Notice how the cycle repeats and creates the counterclockwise circles.

Now, imagine the lines connecting the dots are gone. You will see that, on average, there is a long-term positive correlation between unemployment and inflation.

Any liberal like yourself would take high inflation over high unemployment.

I don't believe I have to make that choice. I believe that unemployment can be kept manageable by preventing inflation from rising too high. That is what has been done since the 1980s, and here are the results:

P140512-5.png

The stagflation of the 80's was used by Reaganites to justify abandoning Keynesian economics and create neo-classic models that have done serious damage to the economy ever since.

As far as trade, I just disagree with you. Newer data is making many economists rethink their understanding of the implications of free trade and its effect on domestic workers. I'm not against any kind of trade, but I believe it's in a country's workers' best interest to produce most of the goods that economy consumers. Hell, even read Adam Smith and he would agree. Free trade has decimated rural communities and led to lower workers' wages across many industries--not just manufacturing. The reason trade deficits with Mexico have eased is because there is less incentive to move there because American manufacturing wages are so much lower. A manufacturing job used to support a middle class family of four. Those days are gone and a large reason is free trade.

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I wish the government would use fiscal policy to control inflation. Reduce spending and tax those who are well-off more during good economic times. Then during recessions, spend the money to create jobs.

Edited by Sandy Larsen
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As far as trade, I just disagree with you. Newer data is making many economists rethink their understanding of the implications of free trade and its effect on domestic workers. I'm not against any kind of trade, but I believe it's in a country's workers' best interest to produce most of the goods that economy consumers. Hell, even read Adam Smith and he would agree. Free trade has decimated rural communities and led to lower workers' wages across many industries--not just manufacturing. The reason trade deficits with Mexico have eased is because there is less incentive to move there because American manufacturing wages are so much lower. A manufacturing job used to support a middle class family of four. Those days are gone and a large reason is free trade.

Brian,

Just imagine what would happen if we kept all our manufacturing jobs here.

First, the price of those products would increase because labor here is expensive. Because of that, we couldn't export our manufactured goods because they couldn't compete with products made using cheap labor.

And If we import these cheap-labor goods, consumers would buy them instead of the ones produced here. So in order to keep our manufacturing jobs, imports would have to be reduced through the use of tariffs or other protectionist measures.

Other countries would then reciprocate by placing tariffs on our exports. That can't be good.

But the good news is that we kept our manufacturing jobs here.

Guess what would happen then. Manufacturers would replace our high-cost laborers with industrial robots. Most manufacturing jobs can be done with robots.

So in the end our manufacturing jobs would disappear anyway.

Related to this is an interesting phenomenon that people seem not to recognize. And that is that labor-saving devices will eventually eliminate most jobs. When that happens, governments will have to intervene to alleviate the effects of high unemployment.

The only solution to this problem will be income redistribution. In other words, people will have to be paid for doing nothing.

Americans have a philosophical problem with people getting something for nothing. That is why Republicans hate income redistribution. But really, getting something for nothing is the whole point of developing labor saving devices. The problem is, many labor saving devices (machines and robots) are owned by only the wealthy, and so they are the only ones who reap their benefits.

Edited by Sandy Larsen
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I don't see how sending our manufacturing base offshore has helped the country or the people who live in it. There was a time where the leader of a nation was expected to do what was in the best interest of the country and it's citizens.

Moving our jobs offshore has increased America's wealth tremendously. Problem is, the increased wealth has gone only to the business owners.

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Sandy:

I have to say that in post nine, that is really the spiel, almost word for word, that neoliberals like Mike Kinsley used to spout during those days when Reagan was preaching the magic of the marketplace concerning free trade and how this would benefit lower class people in America, by giving them lower prices for goods, and benefit those abroad with better jobs etc etc (Clinton and Gore then adapted this in the nineties)

Well, the lower priced goods ended up being at places like Wal Mart, and the jobs abroad were to workers in places like Panama for five dollars a day.

As most people who study the American economy agree, it just about reached its peak in the late Eisenhower/Kennedy years. Right after that, it began to decline under Johnson, and then it went off the rails under Nixon and Ford, and then even worse under Carter due to the OPEC crisis. As Brian notes, the combination of high inflation, plus declining productivity left Volcker no choice except to squeeze inflation out of the economy with very high interest rates.

For me, and for many others, this spelled the end of the Keynesian concept of FAIR TRADE as outlined by liberal economists like Bob Kuttner.

Under Reagan and then Bush I and Clinton, you had the complete hollowing out of the American economy due to policies that simply gave away the store to big business and their globalist agenda. This was climaxed by NAFTA. (For a couple of good books on this, see Bartlett and Steele, America: What Went Wrong? and The Betrayal of the American Dream.)

See, that nightmare scenario you outline, which was used so effectively to sell FREE TRADE to America was made possible by the disastrous economic policies that presaged it, and most of all by the wild inflation that took place that did things like triple the price of homes, and quintupled the price of gasoline, and quadrupled the price of large appliances.

There is no way that American wages could keep up with that in the short term. If you read up about Nixon's economic policies, you will see just how bad they really were. In my opinion, Reagan's were even worse.

They were in essence the triumph of Milton Friedman. And Friedman's dream, along with the Austrian School, was always the destruction of the liberal state and its Keynesian underpinnings.

They succeeded. Because managed trade never got off the boards.

Edited by James DiEugenio
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Sandy:

I have to say that in post nine, that is really the spiel, almost word for word, that neoliberals like Mike Kinsley used to spout during those days when Reagan was preaching the magic of the marketplace concerning free trade and how this would benefit lower class people in America, by giving them lower prices for goods, and benefit those abroad with better jobs etc etc (Clinton and Gore then adapted this in the nineties)

Jim,

I hope you understand that I am a follower of Paul Krugman, a very liberal Keynesian economist. And I hope you understand that anything I wrote in Post 9 that looks similar to what was being said during the Reagan era, is pure coincidence. What I wrote wouldn't have even been relevant to that era given that robots were still the stuff of science fiction, and my use of industrial robots in the post is crucial to the point I was trying to make.

As a matter fact, I got nothing I wrote in Post 9 from any economist or history book. I just used my common sense in composing the post.

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Sandy,

I think you are missing my point.

Your message was that unless we adapted free trade the USA would build tariff barriers, workers would bust budgets, and the owners would turn to automation, e.g. robots.

I replied that I had heard this before by people like Mike Kinsley when he edited The New Republic back in the eighties. When that once liberal magazine was going first, neoliberal, then neocon. (Thank God it does not exist today.)

What I was trying to say is that this scenario you outline was made possible by the circumstances that preceded that era, that is the decline of the American economy into the terrible stagflation of the late seventies. Carter always gets nailed for that, but it really was due to his predecessors: LBJ, NIXON AND FORD. (I will never forget the WIN buttons of Ford.)

It was their policies that allowed the rampant inflation that took place between approximately the latter sixties and the late seventies which caused the price of homes to triple, the price of gasoline to quintuple and the price of large appliances to quadruple. Wages could not keep up with this. To give you one example, an average home in the LA area in say 1966 cost about 27K . By 1978-79 it was about 90K.

My question, did wages triple in that time? Obviously not. Not even close.

It was those circumstances that completely tore the American economy from its moorings and allowed the upper classes to begin their takeover, and spelled the end of managed trade, or fair trade; for the simple reason that the cost of living in America had gotten completely out of whack. This, in turn, gave birth to the whole idea of living off of credit cards, which largely came in at about that time period, 1978-79. If you pulled Master card and Visa out of the American economy, it would collapse in about a month. But that is what has happened to the middle and working class today. Don Gibson once wrote a paper on this subject, comparing how much a mortgage eats up of a middle class family's income today vs what is was in 1966. The rate of increase is astonishing. Obviously, this allows for less disposable income and less of a savings rate.

It was those circumstances, with the American middle class and working class on the ropes, that set the stage for the magic elixir ( I call it snake oil) of how free trade was the cure all. Because with this decline in process, then yep, Wal Mart looks pretty darn good to a lot of cash strapped Americans. Even when 90 per cent of what is in the store comes from abroad.

If that decline had not taken place, then I think we could have had a debate about managed trade in which America could have controlled its own destiny, one which benefiedt both sides directly. Instead of just benefiting the long held globalist goals of the upper classes.

Edited by James DiEugenio
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Sandy,

I think you are missing my point.

Your message was that unless we adapted free trade the USA would build tariff barriers, workers would bust budgets, and the owners would turn to automation, e.g. robots.

I replied that I had heard this before by people like Mike Kinsley when he edited The New Republic back in the eighties. When that once liberal magazine was going first, neoliberal, then neocon. (Thank God it does not exist today.)

What I was trying to say is that this scenario you outline was made possible by the circumstances that preceded that era, that is the decline of the American economy into the terrible stagflation of the late seventies. Carter always gets nailed for that, but it really was due to his predecessors: LBJ, NIXON AND FORD. (I will never forget the WIN buttons of Ford.)

It was their policies that allowed the rampant inflation that took place between approximately the latter sixties and the late seventies which caused the price of hones to triple, the price of gasoline to quintuple and the price of large appliances to quadruple. Wages could not keep up with this. To give you one example, an average home in the LA area in say 1966 cost about 27K . By 1978-79 it was about 90K.

My question, did wages triple in that time? Obviously not. Not even close.

It was those circumstances that completely tore the American economy from its moorings and allowed the upper classes to begin their takeover, and spelled the end of managed trade, or fair trade; for the simple reason that the cost of living in America had gotten completely out of whack. This, in turn, gave birth to the whole idea of living off of credit cards, which largely came in at about that time period, 1978-79. If you pulled Master card and Visa out of the American economy, it would collapse in about a month. But that is what has happened to the middle and working class today. Don Gibson once wrote a paper on this subject, comparing how much a mortgage eats up of a middle class family's income today vs what is was in 1966. The rate of increase is astonishing. Obviously, this allows for less disposable income and less of a savings rate.

It was those circumstances, with the American middle class and working class on the ropes, that set the stage for the magic elixir ( I call it snake oil) of how free trade was the cure all. Because with this decline in process, then yep, Wal Mart looks pretty darn good to a lot of cash strapped Americans. Even when 90 per cent of what is in the store comes from abroad.

If that decline had not taken place, then I think we could have had a debate about managed trade in which America could have controlled its own destiny, one which benefiedt both sides directly. Instead of just benefiting the long held globalist goals of the upper classes.

Jim,

I have read what you wrote very carefully. This may come as a surprise to you (or maybe not) but I agree with every single word of it.

(BTW, you had previously given Brian credit for pointing out how damaging high inflation is to the economy. I'd like to point out that I was the one who said "inflation is an economy killer." Brian is the one who responded by saying that he didn't think inflation was as bad as I was making it out to be.)

But the Reagan era was then and now is now. There were no industrial robots to speak of back then, but they are plentiful now. So the point I was making in Post 9 is relevant now, but it wasn't in the 1980s.

Were people like Mike Kinsley really warning about the prospect of robots taking over manufacturing jobs back then? If so, his warning was a little premature.

Actually, there were simple industrial robots in use in the 1980s that would do simple things like welding and spray painting. They were used primarily in the automotive industry. But conceptually they were no different than other machines developed during the industrial revolution. Machines do reduce the need for laborers, and so there has been a continuum in the loss of jobs to machines for several decades.

But I believe we have reached a tipping point. Industrial robots now are extremely versatile. They can perform the work of today's laborers unlike the ones in the 1980s. And their prices have come down dramatically. You can bet that manufacturers will purchase and use them if it will increase their bottom line. And if they are competing with manufacturers who use cheap labor.

This is just common sense.

This would not have been common sense in 1980.

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Jim and Brian,

I'm curious... why do you guys lament the fact that big corporations are the only beneficiaries of jobs being moved off-shore, but you don't lament the fact that big corporations are the only beneficiaries of jobs being taken by machines? Aren't those two they the same thing?

I think they are. And I think that, since they benefit the corporations at the expense of the workers, the government should step in and transfer a portion of those benefits to the affected workers. A simple way of doing that would be through the use of wealth redistribution -- taxes on the wealthy and refundable tax credits for the poor and low income folks.

Oh wait... this is already being successfully done* with the EITC. So why not do it even more to account for the jobs being off-shored?

BTW, I'm not against protectionism. But I believe that free trade will ultimately prevail. And that when third world countries have all been transformed into first world countries, robots will ultimately perform all manual labor worldwide. (In 200 years, perhaps.)

*Except that it treats those without kids unfairly, IMO.

Edited by Sandy Larsen
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