Sherrod Brown And The New Socialism
Make no mistake; as I’ve repeatedly stated to my vast, vast audience (the kind of audience that has put me in a solid second place in the 2006 Weblog Awards – oh, that’s shameless!), there’s a crop of new Democratic senators that are very, very hostile to capitalism, and are quite intent on throwing away the prosperity that comes from being the giant of global trade.
Case in point: one Sherrod Brown of Ohio:
Brown ran his campaign on familiar themes — middle class economic issues and criticism of NAFTA-type free trade policies. He was a vocal member of the House anti-free trade coalition…
Well, that’s admirably direct, if nothing else. But perhaps the reporter has misquoted Brown’s positions. If only:
We will not give President Bush the kind of fast track authority he has had in the past. I have no doubt about that. The question is: what do [will] we do instead? The first option is “first, do no harm.” That means don’t pass trade agreements without environmental and labor standards, without food safety standards — trade agreements that continue to squeeze the middle class in this country and don’t help the working poor in [other countries]. Ultimately, I think [that] means renegotiating some of these trade agreement.[sic]
My God, where to begin? Do no harm? The way to do no harm economically is to stay the hell out of the market’s way. EVERY proposal I’ve heard from Sherrod Brown is a prescription for harm…and not only is Brown intent on denying fast track status and torpedoing ongoing trade negotations, he wants to renege on the ones we’ve already passed!
Any honest person who reads that and doesn’t picture economic disaster has a very dim understanding of global capital. Simply put, capital seeks its highest rate of return.
Period. End of story.
Make America more costly to do business in, and watch the foreign capital leave (incidentally, the same foreign capital that is propping up our profligate consumerism and miserable savings rate).
We have to be very, very vocal in our opposition to this sort of nonsense, because it is far too prevalent, and it’s 100% WRONG…
“the same foreign capital that is propping up our profligate consumerism and miserable savings rate”
Not to mention a federal budget deficit of several hundred billion dollars a year.
However, I’m not sure that it’s an accurate statement to say that foreign capital is propping up consumer spending, and I don’t know if it has anything at all to do with the low savings rate.
It would be interesting to know whether or not we run a trade deficit once you ex out payments for foreign oil and other commodities. There are some domestic industries which are huge drivers of global sales and hence repatriate an enormous amount of capital: aircraft, agriculture, entertainment, military equipment, and pharmaceuticals. My question is whether this is roughly equal to the trade imbalance caused by buying things like flat screen televisions from Taiwan. If so, this doesn’t sound like a bad thing: one would expect a developed economy to trade value-added products (e.g., pharmaceuticals, Tom Cruise movies) for commodities.
Foreign capital is propping up America through the bond markets, not through direct investment. You could argue that protectionism will reduce the rate of GDP growth, which will reduce tax revenues, which will in turn make US bonds a riskier investment, but that’d be a different ball of wax.
I agree — if foreign central banks were not enthusiastic buyers of government paper, interest rates would be much higher. That is why I think one of the major risks to the economy is a precipitous fall in the dollar, which would make government debt much less attractive to foreign investors, and could start a snowball effect.
I also agree that protectionism will reduce economic growth, raising the risk premium for US debt.
My question is whether this is responible for the current accounts deficit or the low savings rate. The implication of jpe’s post is that interest rates are artificially depressed due to demand for government debt by foreign investors, which encourages spending through lower consumer interest rates. However, I wonder if there is anything in the world which would stop the American consumer, short of insolvency. I think people will buy the big screen TV regardless of whether they have to pay 14% or 16% (or whatever) in interest every month.
Perhaps I didn’t make myself entirely clear; I agree with the two of you that it is the buying of American debt that is propping us up; however, I was making a perhaps too vague point along the lines of what jpe said in comment number two: if the economy goes into a swoon (a quite real possibility with the housing market woes and the sentiments of economic neanderthals such as Brown and Webb), and if you combine that with the collapsing dollar as highlighted by Peter (and a quite strong alternative currency in the Euro, not to mention outsized GDP growth in China and India), you will quite quickly have a real crisis on your hands, as our criminally low savings rate will simply not finance our seemingly insatiable appetites, both on the micro and macro levels.
The only solution is to embrace the ‘creative destruction’ of the global free market, which causes much momentary pain on the path to ever higher gain…
Does this mean that he supported President Bush’s position on imported prescription drugs from Canada? I mean, Bush wanted the drugs to be under review to ensure that they are up to FDA standards — that’s not too far from “food safety standards.”
The dollar is already low releative to the Euro & Yen and has been since the peak of the dot.com bubble (was EUR 0.80 ~ 0.90 to USD 1.00). Lately it started to rise but is back to the low-lows (EUR 1.30s to $1.00).
The upside to that is it makes us cheap and imports from those countries more expensive than if the rate was where it was supposed to be (in 2000, the sweet spot was supposed to be around EUR 1.10 to USD 1.00).
One way of looking at it we bought Euroland cheap and resold it high. Look at Daimler’s acquisition of Chrysler and compare that to Google’s purchase of YouTube.
Bottomline, gnashing teeth over the deficit in terms of $$$ is meaningless. Look at it in terms of GDP and we’re doing pretty good.
Heck, just a year ago, folks were carrying on about 800 billion deficit and how Bush would make it worse with ‘voodoo economics’ and ‘more tax-cuts for the wealthiest 5%’. And now, the budget deficit is how much????
Likewise with Clinton’s budget surplus, primarily due to the self-same dot.com bubble and irrational exuberance. If it weren’t for the cost of WOT, War on Drugs, and the unintended consequences of Sarbox we’d probably be in surplus right now.
More power to Walmart and down with protectionism, whether it be the milk, corn, sugar or textile et al cartels