U.S. Jobs and a Stable U.S. Economy Depend on Creating Balanced Trade
by Bob PowellLink to article
The U.S. economy is collapsing. The evidence?
Nationally, job growth is negative. In Nov 08 there were 2.4 million fewer jobs than in Nov 07. The U.S. lost 673,000 jobs in Nov alone. The U.S. needs 7.8 million more jobs to have kept up with population growth since April 2000. Think about these numbers when hearing of plans to create 3 million jobs over the next two years.
We’ve lost high-tech, as well as low-tech, jobs. Evidence? The Advanced Technology Products “trade” balance had a $38.4B surplus in 1991 but will have a $57.9B deficit in 2008 (projected based on the first 10 months). The U.S. has lost over 25% of manufacturing jobs (almost 4.5 million) since March 1998 and over 20% of IT jobs (764,000) since March 2001. Many who lost manufacturing jobs retrained in IT. Retrain for what now?
See the charts showing these and other trends at Jobs & ‘Trade’ Data Update Nov08.
How can it not be expected that many would be, and are being, evicted from their homes? Credit Suisse estimates 1.8 million mortgages will have entered foreclosure in 2008. And 8 million will go through foreclosure by 2012; that’s about 16% of U.S. households with mortgages.
A main cause of the current economic crisis is that what’s called “free trade” has led to the loss of good-paying jobs and it’s undermined the wages of those whose jobs remain.
None of the current and proposed “fixes” will succeed without also restoring balanced trade. That is, what we buy from the world must be balanced by what we sell to the world.
What a concept. It isn’t, or shouldn’t be, rocket science. For an individual to maintain a standard of living, income must equal outgo (expenses). This is as true for economic regions, including the U.S. as a whole, as for individuals.
At a minimum, balanced trade is necessary for a stable economy over the long run. A trade surplus is necessary for a growing economy.
While this should be obvious, these basic facts of life are being largely ignored. Many politicians and the supposedly liberal media (e.g., The New York Times, Denver Post) extol the benefits of “free trade”. But the $700B/yr “trade” deficit in 2007 tells us that the U.S. has unilaterally surrendered in a decades old “trade war.”
To make it perfectly clear why balanced trade, or better yet a trade surplus, is necessary, consider the diagram below that was often presented by the then head of the Colorado Springs Economic Development Corporation. It illustrates basic and important economic development principles.
Dollars come into the economy as “primary employers” sell goods to those outside the region. Those dollars are circulated to other businesses and eventually flow to businesses outside the community. Here’s the diagram again, modified to explicitly show the process that brings dollars into the regional economy.
There are two main economic development lessons to learn from this diagram. First, attract and promote primary employers to bring more dollars into a region than are going out. Second, to the greatest extent possible, attract and promote employers that spend their dollars locally to increase what’s known as the “multiplier effect.”
These principles are as true for an entire nation as for any region. But our nation’s leaders have ignored them to cater to corporate interests.
Short of balance or a surplus, the only way to keep a region’s economy from declining over the short run is to borrow money as shown in the diagram below. Because the U.S. “trade” deficit is enormously negative — we buy much more from the world than we sell — we’ve borrowed to keep funds flowing in to delay economic collapse, a collapse that is now upon us.
It’s a mystery why so many, including economists, think running a continuing “trade” deficit is not just OK, but desirable.
Well, maybe it’s not so much of a mystery. Politicians’ campaigns are largely funded by corporations that have increased profits by offshoring. And media customers are primarily “import companies” that benefit from selling lower-cost, imported goods to increase profits. At least they’ll benefit until consumers stop spending because they don’t have adequate income. That “stopping spending” is happening now.
It’s important to note that it’s not really “trade” that’s the issue. Trade is an exchange. What’s happening is actually “transfer of the factors of production” — labor and capital — to increase corporate profits by using very low-wage labor over there so they won’t have to pay wages that will support an American’s mortgage over here.
So U.S. trade policy is a major reason our economy is collapsing (see other reasons at The 9/22/08 Economic Crisis). “Fair Trade” is a good thing, but insufficient. That’s because even with fair trade the nation could continue to run an unsustainable “trade deficit.”
The U.S. must achieve balanced trade, not only to protect the U.S. economy and good-paying jobs, but also for military security and to mitigate the damage from the inevitable collapse of the value of the U.S. dollar.
“Free traders” rail against “protectionism,” but if we won’t protect the U.S. economy, what will we protect?
Bob Powell, Ph.D., MBA
http://www.exponentialimprovement.com/
Tags: balanced trade, Bob Powell, Coalition for a Prosperous America, collapse of the dollar, offshoring, trade deficit
January 11th, 2009 at 4:35 pm
Thank you so much for explaining one of the reasons why our economy is doing so badly. I grew up in the Rust Belt, where my mother was laid off twice, and my father’s factory put the entire workforce on a four-day work week for a while to prevent layoffs. However, when I tried to explain to people how this was undermining the economy, they would treat me as if I were ignorant, and lecture me on the global economy.
Dr. Powell, you have explained the reasons for “buying American” very well. It’s not a question of nationalism, but of national survival.
January 30th, 2009 at 11:14 am
I have never understood why anyone would have ever thought that free trade could be a good thing.
Here in Massachusetts I was running for U.S. Senate. Of 3 candidates, I was the only one against free trade.
Every candidate for president on the ballot in Massachusetts was a proponent of Free Trade. People voted to put themselves out of a job.
Thousands voted for president who did not vote for US Senator, nor members of the Legislator.
So, the free-traders are back in office.
February 16th, 2009 at 2:44 pm
[...] balance that’s important. Read about fundamental principles of economic development at U.S. Jobs and a Stable U.S. Economy Depend on Creating Balanced Trade (find a longer treatment at Principles of Economic and Workforce Development). They [...]