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Don’t Expect the Economy to
“Bounce Back” in 2003

Our Buy American Mention of the Week!
by Roger Simmermaker
June 23, 2003

Free trade economists keep repeating the same old lines. Last year about this time, they said the economy would bounce back in the second quarter. It didn’t happen. Now their saying the same thing for the second quarter of 2003, and Business Week says they are absolutely right this time. Even a broken clock is right twice a day. Free traders could only wish to be so lucky.

Let me tell you why the predictions are wrong. First of all, I’m not a pessimist. I’m a realist, and I don’t believe in such baloney buzzwords as “cautious optimism,” which really means “I have no idea, but I hope things get better.”

We’ll start with a few facts and statistics. The U.S. economy is experiencing the biggest downturn in the job-market since the Great Depression. Even those who are so naïve to think we are in a recovery call it a jobless recovery. Virtually every sector of the job market is feeling the pain. It doesn’t matter if you’ve just dropped out of high school or just graduated with an MBA. Workers with job skills from both extremes and everywhere in between are being left behind. According to the Bureau of Labor Statistics, 4.8 million Americans are working part time simply because they can’t find full-time employment. That’s an increase of 46% since 2001. This explains why, as I mentioned in How Americans Can Buy American: The Power of Consumer Patriotism, that we should be far more concerned with the wages American workers are earning, and less concerned with the rate of unemployment. Workers that gravitate from full-time employment to part-time employment don’t make any changes to unemployment statistics, but yet wage rates and take home pay are drastically reduced.

Even with George W. Bush’s tax cuts (I’m anxiously waiting to receive my $800 in the mail), for many, these federal tax cuts will be offset by local and state tax increases. There are budget deficits in nearly every state in the union. 20 states have already hiked tax rates, with 11 more likely to follow soon. The most conservative estimate I’ve seen is that half of the federal economic stimulus will be offset by state and local government tax increases.

This doesn’t include various price increases even though the FED seems to be preoccupied with deflation (falling prices). I thought lower prices for consumers were the main selling point for NAFTA and MFN for China, etc., but now lower prices are apparently a problem. However, that’s an entirely different subject I will write about soon.

Food prices are up from fruits and vegetables to beef and eggs. Only chicken prices are actually falling. Even women’s apparel was up a full percentage point in the month of April alone. Movie ticket prices are up. Housing prices shot up 16.7% in April. And should you decide you need a better education to accommodate all these rising prices, tuition fees at many public colleges have seen double-digit increases. Not ready for college, you say? 50% of state legislatures say funds for other public education will be cut in the next two years. 85% say social services will be cut. 71% say health care will be cut. Over 50% say funds for prisons, transportation and traffic as well as the economy and jobs will be cut. Out-of-pocket expenses for health care premiums for the average American worker have more than tripled in the last 15 years. Copays for brand-name drugs shot up 62% in the last year alone.

The economy has lost 2.3 million manufacturing jobs since July 2000. The National Association of Manufacturers has cited that the ever-expanding trade deficit represents a full one percent-point drag on the GDP. A Georgetown University labor economist says that for the job market to get back on the upswing, the economy would have to grow at a 3.5% GDP, but without growth in manufacturing, the entire economy is not likely to grow more than 1.5%. Manufacturing growth is the real key to America’s prosperity, as each dollar spent on manufactured goods supports an extra 67 cents in other manufactured goods. That original dollar also supports 76 cents in non-manufactured goods or services as well.

One of my favorite quotes is by Teddy Roosevelt. “The question of what tariff is best for our people is primarily one of expediency, to be determined not on abstract academic grounds, but in the light of experience.” Experience tells us that manufacturing, and not any element of the “New Economy,” is the key to America’s prosperity. But I would venture to guess that before we can even consider raising tariffs on imports to fund the many tax shortfalls facing local, state and federal treasuries, we need to stop the various free-market policies that have gotten us into this mess.

There is no such thing, of course, as a free market. It doesn’t exist, and it never has. Even free-market advocates like Rep. Tom Delay, who says he “came into [politics]…to bring free-market principles to government,” would likely admit that the only component of our system that has been keeping our economy afloat is the housing sector, which is subsidized to the tune of $55 billion a year by the federal government. If you own a home and take advantage of the homestead exemption, you’ll know what I am talking about. Someone should tell Tom Delay that the housing sector is certainly no component of the so-called “free market.”

As retired General Motors senior executive Gus Stelzer has noted, who is also the author of the fine book “The Nightmare of Camelot,” free markets and free trade were never intended by our founders. That’s why you can’t find any variation of either term in the U.S. Constitution or Declaration of Independence.

Right now we give away millions of dollars in tax incentives to lure foreign-owned factories to our country while American-owned factories are being shuttered in the face of intense and unjustified competition. It’s not likely a simple transfer of ownership of our domestic factories will result in any gains. At the same time, we spend hundreds of millions of dollars a year to lay off Americans so we can “diversify” our economy and shed those unwanted old economy jobs. Kansas and Missouri just got awarded $4.5 million to retrain workers for jobs they don’t want and didn’t seek in the first place because of trade-related reasons. This brings the total federal grant money awarded so far this year for the purpose and privilege of intentionally laying of Americans to over $250 million. Amazing.

The American economy will likely not bounce back until we start emphasizing the importance of manufacturing in this country, protect it from predatory foreign competition, and raise tariffs so American factories can run efficiently and produce goods at lower costs to sell in other markets as well as our own. Anything short of that is a financial shell game.


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