Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

Knocking Down False Economic Gods


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:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 26, 2016
John W. Whitehead
A Deep State of Mind: America’s Shadow Government and Its Silent Coup
Eric Draitser
Dear Liberals: Trump is Right
Anthony Tarrant
On the Unbearable Lightness of Whiteness
Mark Weisbrot
The Most Dangerous Place in the World: US Pours in Money, as Blood Flows in Honduras
Chris Welzenbach
The Establishment and the Chattering Hack: a Response to Nicholas Lemann
Luke O'Brien
The Churchill Thing: Some Big Words About Trump and Some Other Chap
Sabia Rigby
In the “Jungle:” Report from the Refugee Camp in Calais, France
Linn Washington Jr.
Pot Decriminalization Yields $9-million in Savings for Philadelphia
Pepe Escobar
“America has lost” in the Philippines
Pauline Murphy
Political Feminism: the Legacy of Victoria Woodhull
Lizzie Maldonado
The Burdens of World War III
David Swanson
Slavery Was Abolished
Thomas Mountain
Preventing Cultural Genocide with the Mother Tongue Policy in Eritrea
Colin Todhunter
Agrochemicals And The Cesspool Of Corruption: Dr. Mason Writes To The US EPA
October 25, 2016
David Swanson
Halloween Is Coming, Vladimir Putin Isn’t
Hiroyuki Hamada
Fear Laundering: an Elaborate Psychological Diversion and Bid for Power
Priti Gulati Cox
President Obama: Before the Empire Falls, Free Leonard Peltier and Mumia Abu-Jamal
Kathy Deacon
Plus ça Change: Regime Change 1917-1920
Robin Goodman
Appetite for Destruction: America’s War Against Itself
Richard Moser
On Power, Privilege, and Passage: a Letter to My Nephew
Rev. William Alberts
The Epicenter of the Moral Universe is Our Common Humanity, Not Religion
Dan Bacher
Inspector General says Reclamation Wasted $32.2 Million on Klamath irrigators
David Mattson
A Recipe for Killing: the “Trust Us” Argument of State Grizzly Bear Managers
Derek Royden
The Tragedy in Yemen
Ralph Nader
Breaking Through Power: It’s Easier Than We Think
Norman Pollack
Centrist Fascism: Lurching Forward
Guillermo R. Gil
Cell to Cell Communication: On How to Become Governor of Puerto Rico
Mateo Pimentel
You, Me, and the Trolley Make Three
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future