FacebookTwitterGoogle+RedditEmail

Knocking Down False Economic Gods

by PETER MORICI

The recession is a wake up call. Americans need to confront some false gods–free trade, gas guzzlers and Wall Street.

In the 1990s, the U.S. launched the World Trade Organization and opened trade with China. Americans were to import more tee-shirts and TVs and sell more software and sophisticated services to a world hungry for U.S. knowhow. That would move Americans into better paying jobs.

Unfortunately, the U.S. welcomed imports with more enthusiasm than China and other developing countries, who kept high tariffs and notorious regulatory barriers to purchases of western products. America’s CEOs and bankers learned how to outsource just about everyone’s job but their own-radiologists and computer engineers joined textile workers among trade-displaced workers.

Since the last recession, imports have jumped nearly $1 trillion, while exports are up only about $650 billion, and the trade deficit now exceeds $700 billion. For most Americans inflation-adjusted wages have stagnated or fallen, while corporate CEOs and bankers get fat on bonuses and can’t lose stock options.

China is the biggest problem. It subsidizes foreign purchases of its currency, the yuan, more than $460 billion a year, making Chinese products artificially cheap at Wal-Mart. The U.S. trade gap with the Middle Kingdom has swelled to $250 billion.

Mercantilist growth in China and elsewhere in Asia has pushed up global oil prices nearly five fold in six years, and the U.S. oil deficit is now $350 billion and rising.

To raise our kids, finance a huge trade deficit and generally live beyond our means, Americans borrowed from foreigners.

Essentially, the banks wrote ever-more creative mortgages and extended excessive credit card and auto loans. The banks bundled those markers into highly complex bonds, designed to generate fat paydays for loan brokers and bank executives, and sold risk-laden securities to foreign governments, insurance companies, pension funds, and wealthy investors.

When the worst of the bogus bonds collapsed, those backed by risking adjustable rate mortgages, the banks got stuck with billions of yet unsold bonds. Bear Stearns collapsed, and the Federal Reserve loaned the banks and Wall Street securities dealers $600 billion against shaky bonds on a 90-day revolving basis. That essentially socializes the banks’ losses on bad bonds.

You have to love Ben Bernanke’s ideas about free trade and capitalism. If you are an autoworker and lose your job to Korean imports, as a good economist, he tells you to go to school and find another job. If you are a New York banker caught paying yourself too much and run short of foreign investors to fleece, he makes you a big loan lets you hunt for other unwitting clients.

Now foreign investors are nervous about all the money they have lent Americans and the integrity of U.S. banks. They are fleeing dollar investments for euro-denominated securities, gold, oil, and just about anything sounder than the greenback.

Americans are forced to cut back, not just on purchases of cheap Chinese coffee makers, but also products made in America. That pushes the economy into recession.

Digging out requires us to cut the trade deficit and clean up Wall Street. Simply, we need to burn less gas, balance commerce with China and live within our means.

We can either let the price of gas double to force conservation or accept tougher mileage standards. Fifty miles a gallon by 2020, instead of the 35 currently planned, is achievable, but means more hybrids and lighter vehicles.

As long as China subsidizes the sale of yuan to Wal-Mart and other U.S. importers, the U.S. Treasury should tax dollar-yuan conversions. When China stops manipulating currency markets, the tax would stop. That would reduce imports from and exports to China, create new jobs in the U.S., raise U.S. productivity and workers incomes, and reduce the federal deficit.

Ben Bernanke has given the banks a lot and received little in return, except a lot of bad loans. He should condition the Fed’s largesse on reforms at the big banks, even if that means lower pay for Wall Street big wigs.

Let the bankers try earning their money. Just like the rest of us.

PETER MORICI is a professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission.

 

 

 

 

PETER MORICI is a professor at the Smith School of Business, University of Maryland School, and the former Chief Economist at the U.S. International Trade Commission.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
January 20, 2017
Friday - Sunday
Paul Street
Divide and Rule: Class, Hate, and the 2016 Election
Andrew Levine
When Was America Great?
Jeffrey St. Clair
Roaming Charges: This Ain’t a Dream No More, It’s the Real Thing
Yoav Litvin
Making Israel Greater Again: Justice for Palestinians in the Age of Trump
Linda Pentz Gunter
Nuclear Fiddling While the Planet Burns
Ruth Fowler
Standing With Standing Rock: Of Pipelines and Protests
David Green
Why Trump Won: the 50 Percenters Have Spoken
Dave Lindorff
Imagining a Sanders Presidency Beginning on Jan. 20
Pete Dolack
Eight People Own as Much as Half the World
Roger Harris
Too Many People in the World: Names Named
Steve Horn
Under Tillerson, Exxon Maintained Ties with Saudi Arabia, Despite Dismal Human Rights Record
John Berger
The Nature of Mass Demonstrations
Stephen Zielinski
It’s the End of the World as We Know It
David Swanson
Six Things We Should Do Better As Everything Gets Worse
Alci Rengifo
Trump Rex: Ancient Rome’s Shadow Over the Oval Office
Brian Cloughley
What Money Can Buy: the Quiet British-Israeli Scandal
Mel Gurtov
Donald Trump’s Lies And Team Trump’s Headaches
Kent Paterson
Mexico’s Great Winter of Discontent
Norman Solomon
Trump, the Democrats and the Logan Act
David Macaray
Attention, Feminists
Yves Engler
Demanding More From Our Media
James A Haught
Religious Madness in Ulster
Dean Baker
The Economics of the Affordable Care Act
Patrick Bond
Tripping Up Trumpism Through Global Boycott Divestment Sanctions
Robert Fisk
How a Trump Presidency Could Have Been Avoided
Robert Fantina
Trump: What Changes and What Remains the Same
David Rosen
Globalization vs. Empire: Can Trump Contain the Growing Split?
Elliot Sperber
Dystopia
Dan Bacher
New CA Carbon Trading Legislation Answers Big Oil’s Call to Continue Business As Usual
Wayne Clark
A Reset Button for Political America
Chris Welzenbach
“The Death Ship:” An Allegory for Today’s World
Uri Avnery
Being There
Peter Lee
The Deep State and the Sex Tape: Martin Luther King, J. Edgar Hoover, and Thurgood Marshall
Patrick Hiller
Guns Against Grizzlies at Schools or Peace Education as Resistance?
Randy Shields
The Devil’s Real Estate Dictionary
Ron Jacobs
Singing the Body Electric Across Time
Ann Garrison
Fifty-five Years After Lumumba’s Assassination, Congolese See No Relief
Christopher Brauchli
Swing Low Alabama
Dr. Juan Gómez-Quiñones
La Realidad: the Realities of Anti-Mexicanism
Jon Hochschartner
The Five Least Animal-Friendly Senate Democrats
Pauline Murphy
Fighting Fascism: the Irish at the Battle of Cordoba
Susan Block
#GoBonobos in 2017: Happy Year of the Cock!
Louis Proyect
Is Our Future That of “Sense8” or “Mr. Robot”?
Charles R. Larson
Review: Robert Coover’s “Huck out West”
David Yearsley
Manchester-by-the-Sea and the Present Catastrophe
FacebookTwitterGoogle+RedditEmail