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Trade and the Election

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Joseph Calhoun had an excellent commentary on the credit problem in yesterday's American Thinker

Joseph Y. Calhoun, III, had an excellent commentary on the credit problem in yesterday's American Thinker. I especially appreciated his wisdom when he pointed out that the real problem is a capital accumulation problem, not a credit problem. He began:

A long wave of credit stimulation has been allowed to obscure the underlying problem of capital accumulation in the United States. We are paying a price, but not solving the problem.

The political class simply cannot be trusted to provide solutions. They are too interested in retaining power for the sake of power. They do not have the guts to say what needs to be said for fear of alienating some group of supporters. They do not have the integrity to stand on principle and advocate unpopular but necessary policies. They are too beholden to special interest groups to do what is right for the country rather than what is right for their campaign contributors. It is high time that politicians were held responsible for the damage done by policies intended to benefit the few at the expense of the many....

In a recent market commentary, Bill Gross called credit the mother's milk of capitalism. That sentiment, echoed by our politicians and policy makers, is the source of our problems. It is not credit but capital that is the lifeblood of capitalism and the US doesn't accumulate enough capital to support the growth to which we've become accustomed. The savings rate has ticked somewhat higher over the last few months, but for years we've saved too little and spent too much. The difference to date has been provided by foreigners such as the Chinese who now own over $1 trillion of US debt and Middle Easterners who own even more.

The U.S. problem is not a lack of credit. Our extremely low interest rates are testament that there is plenty of money available to be borrowed if Americans were credit worthy. The basic problem is a failure to accumulate capital (i.e., a lack of savings). No amount of borrowing from abroad will solve the underlying problem.

Follow the following link to read his commentary: http://www.americanthinker.com/2008/07/the_credit_problem_1.html.

Howard

Good news! Doha Round of WTO negotiations collapses!

An article by Stephen Castle and Mark Landler in yesterday's The New York Times reported that the Doha Round of the WTO negotiations just collapsed. The story doesn't mention that the Doha Round does not address mercantilist government currency manipulations, a glaring oversight that makes the whole agreement worthless.

According to the New York Times article, the chances of this incompetent agreement passing in the future are minimal given changing political opinion in the countries that are being victimized by mercantilism. Specifically:

Deep skepticism about the advantages of free trade was on vivid display during the Democratic primaries and it is growing in Europe, particularly as France, Italy and other countries have fallen into an American-style economic malaise.

Howard

Growing Trade Deficit with China Cost 2.3 Million Jobs

The Economic Policy Institute just released a report that estimates the jobs lost by each U.S. state due to trade with China.

The top line of the press release emphasizes the main findings.

WASHINGTON – As the nation’s economic woes mount, a new study details the devastating impact that the growing U.S. trade deficit with China is having on American jobs, wages and key industries. Between 2001 and 2007, 2.3 million American jobs were lost due to the China trade gap, including 366,000 last year, according to the report released today by the Economic Policy Institute (EPI).

Those displaced workers lost an average of $8,146 in wages last year, a total of $19.4 billion, as they took lower-paying jobs. China is also the predominant source of downward pressure on wages of other production workers, about 100 million Americans. Competition from low-wage workers in less developed countries and less bargaining power here at home pushed the median wage for full-time workers without a college degree – about 70 percent of the U.S. workforce – down about $1,400 in 2006.

The EPI used an input-output sector specific model of the U.S. economy to estimate these impacts. The full report contains some revealing arguments and text.

The authors note that the trade deficit with China is supported by a range of anticompetitive tactics.

A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. China has tightly pegged its currency to the dollar at a rate that encourages a large bilateral surplus with the United States. Maintaining this peg required the purchase of about $460 billion in U.S. treasury bills and other securities in 2007 alone.² This intervention makes the yuan artificially cheap and provides an effective subsidy on Chinese exports. The best estimates place this effective subsidy at roughly 30%, even after recent appreciation in the yuan(Cline and Williamson 2008).

In addition, the report summarizes China's subsidy of key industries, and its suppression of workers rights.

One of the more intriguing results from this study is the balance between the wages of workers gaining from trade with China and the wages of workers in sectors loosing from trade with China. Typically, workers in exporting industries earn higher wages. In the case of our manipulated and distorted trade with China that isn't the case.

The growth of trade deficits with China shifts jobs from better-paid traded goods industries into jobs in non-traded sectors where wages are significantly lower on average. Moreover, average wages in import-competing industries were higher than those in export industries. Thus, the growth in the overall volume of trade (imports plus exports) with China substituted lower-paying export jobs for higher-paying jobs in import-competing industries. This somewhat surprising finding stands economic logic on its head. Economic theory would suggest that the United States should specialize in producing goods that intensively use high-skilled, highly educated (and highly paid) workers and import labor-intensive goods that use more low-skilled labor. In fact, low-wage commodity sectors were some of the largest exporters of goods from the United States to China.

How to Bring Down Oil Prices Now

How to Bring Down Oil Prices Now

Raymond L. Richman

Economists have ignored in the name of free trade the unfortunate consequences of the trade deficits which are rapidly converting us into a second-rate power and turning our enemies and potential enemies into industrial powers. Imports of oil are responsible for nearly half of the trade deficit so far this year. Market forces will bring down the price of crude oil a little if you count as market forces the subsidized substitution of ethanol for gasoline, subsidized wind power for coal, oil, and natural gas, subsidized hybrid vehicles, etc. Much more likely to bring down the price of crude oil in the short-run is ending the prohibitions on offshore drilling in the Atlantic and Pacific, in the Alaskan Wild Life Refuge, and on public lands. The price of crude oil would fall substantially if the world believed U.S. actions to increase the domestic supply of oil and oil substitutes were to be effective even though such efforts would not reduce the importation of oil for several years.

The key is credibility. Prof. Martin Feldstein in his op-ed, "We can Lower Oil Prices Now," (WSJ, 7-1-08) has rendered an important service by arguing that credible steps by the U.S. to reduce future consumption and increase the future supply of oil will lead to lower prices of oil immediately by changing the expectations of oil-exporting nations with respect to the expected rate of growth of demand and supply of oil. Unfortunately, history since the oil shocks of the 1970s, demonstrates that this country's decision-makers simply have not considered our dependency on imported oil a problem. Any benefit-cost analysis would have to weigh the supposed benefits and costs of fewer carbon emissions against the real impact of the trade deficits on the dollar, on jobs, and on the economy, which have been very serious as we show in our book, Trading Away Our Future.

Sen. Obama and Congressional Democrats support the current prohibitions against drilling off-shore and in the ANWR. Unfortunately, the Democrats, at this moment of time (July, 2008), appear likely to win the 2008 presidential and congressional elections, Sen. McCain, who likewise supported these prohibitions, recently changed his position and is calling for permitting off-shore drilling. President Bush has called for legislation eliminating the prohibitions against drilling off-shore and in the ANWR. Republican legislators have introduced such legislation. Pressure is building on Sen. McCain to endorse such legislation. This would lend credibility that the U.S. will adopt measures to reduce the importation of oil substantially especially if it becomes an important issue in the current election campaign.