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

April 26, 2017
Richard Moser
Empire Abroad, Empire At Home
Stan Cox
For Climate Justice, It’s the 33 Percent Who’ll Have to Pick Up the Tab
Paul Craig Roberts
The Looting Machine Called Capitalism
Lawrence Davidson
The Dilemma for Intelligence Agencies
Christy Rodgers
Remaining Animal
Joseph Natoli
Facts, Opinions, Tweets, Words
Mel Gurtov
No Exit? The NY Times and North Korea
Alexandra Isfahani-Hammond
Women on the Move: Can Three Women and a Truck Quell the Tide of Sexual Violence and Domestic Abuse?
Michael J. Sainato
Trump’s Wikileaks Flip-Flop
Manuel E. Yepe
North Korea’s Antidote to the US
Kim C. Domenico
‘Courting Failure:’ the Key to Resistance is Ending Animacide
Barbara Nimri Aziz
The Legacy of Lynne Stewart, the People’s Lawyer
Andrew Stewart
The People vs. Bernie Sanders
Daniel Warner
“Vive La France, Vive La République” vs. “God Bless America”
April 25, 2017
Russell Mokhiber
It’s Impossible to Support Single-Payer and Defend Obamacare
Nozomi Hayase
Prosecution of Assange is Persecution of Free Speech
Robert Fisk
The Madder Trump Gets, the More Seriously the World Takes Him
Giles Longley-Cook
Trump the Gardener
Bill Quigley
Major Challenges of New Orleans Charter Schools Exposed at NAACP Hearing
Jack Random
Little Fingers and Big Egos
Stanley L. Cohen
Dissent on the Lower East Side: the Post-Political Condition
Stephen Cooper
Conscientious Justice-Loving Alabamians, Speak Up!
Michael J. Sainato
Did the NRA Play a Role in the Forcing the Resignation of Surgeon General?
David Swanson
The F-35 and the Incinerating Ski Slope
Binoy Kampmark
Mike Pence in Oz
Peter Paul Catterall
Green Nationalism? How the Far Right Could Learn to Love the Environment
George Wuerthner
Range Riders: Making Tom Sawyer Proud
Clancy Sigal
It’s the Pits: the Miner’s Blues
Robert K. Tan
Abe is Taking Japan Back to the Bad Old Fascism
April 24, 2017
Mike Whitney
Is Mad Dog Planning to Invade East Syria?    
John Steppling
Puritan Jackals
Robert Hunziker
America’s Tale of Two Cities, Redux
David Jaffe
The Republican Party and the ‘Lunatic Right’
John Davis
No Tomorrow or Fashion-Forward
Patrick Cockburn
Treating Mental Health Patients as Criminals
Jack Dresser
An Accelerating Palestine Rights Movement Faces Uncertain Direction
George Wuerthner
Diet for a Warming Planet
Lawrence Wittner
Why Is There So Little Popular Protest Against Today’s Threats of Nuclear War?
Colin Todhunter
From Earth Day to the Monsanto Tribunal, Capitalism on Trial
Paul Bentley
Teacher’s Out in Front
Franklin Lamb
A Post-Christian Middle East With or Without ISIS?
Kevin Martin
We Just Paid our Taxes — are They Making the U.S. and the World Safer?
Erik Mears
Education Reformers Lowered Teachers’ Salaries, While Promising to Raise Them
Binoy Kampmark
Fleeing the Ratpac: James Packer, Gambling and Hollywood
Weekend Edition
April 21, 2017
Friday - Sunday
Diana Johnstone
The Main Issue in the French Presidential Election: National Sovereignty
FacebookTwitterGoogle+RedditEmail