Free trade economists keep repeating the same old lines. Last
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
quarter of 2003, and Business Week says they are absolutely right this
Even a broken clock is right twice a day. Free traders could only wish to
Let me tell you why the predictions are wrong. First of all,
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
hope things get better."
We'll start with a few facts and statistics. The U.S. economy
experiencing the biggest downturn in the job-market since the Great
Depression. Even those who are so na?ve to think we are in a recovery
it a jobless recovery. Virtually every sector of the job market is
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
everywhere in between are being left behind.
According to the Bureau of Labor Statistics, 4.8 million
are working part time simply because they can't find full-time
That's an increase of 46% since 2001. This explains why, as I mentioned
How Americans Can Buy American: The Power of Consumer Patriotism, that
should be far more concerned with the wages American workers are
and less concerned with the rate of unemployment. Workers that gravitate
from full-time employment to part-time employment don't make any changes
unemployment statistics, but yet wage rates and take home pay are
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
every state in the union. 20 states have already hiked tax rates, with
more likely to follow soon. The most conservative estimate I've seen is
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
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,
an entirely different subject I will write about soon.
Food prices are up from fruits and vegetables to beef and
Only chicken prices are actually falling. Even women's apparel was up a
percentage point in the month of April alone. Movie ticket prices are
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
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
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
GDP. A Georgetown University labor economist says that for the job market
get back on the upswing, the economy would have to grow at a 3.5% GDP,
without growth in manufacturing, the entire economy is not likely to
more than 1.5%. Manufacturing growth is the real key to America's
prosperity, as each dollar spent on manufactured goods supports an extra
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
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
the "New Economy," is the key to America's prosperity. But I would
to guess that before we can even consider raising tariffs on imports to
the many tax shortfalls facing local, state and federal treasuries, we
to stop the various free-market policies that have gotten us into this
There is no such thing, of course, as a free market. It
exist, and it never has. Even free-market advocates like Rep. Tom Delay,
says he "came into [politics]...to bring free-market principles to
government," would likely admit that the only component of our system
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.
you own a home and take advantage of the homestead exemption, you'll
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
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
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
lure foreign-owned factories to our country while American-owned
are being shuttered in the face of intense and unjustified competition.
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
shed those unwanted old economy jobs. Kansas and Missouri just got
$4.5 million to retrain workers for jobs they don't want and didn't seek
the first place because of trade-related reasons. This brings the total
federal grant money awarded so far this year for the purpose and
of intentionally laying of Americans to over $250 million. Amazing.
The American economy will likely not bounce back until we
emphasizing the importance of manufacturing in this country, protect it
predatory foreign competition, and raise tariffs so American factories
run efficiently and produce goods at lower costs to sell in other markets
well as our own. Anything short of that is a financial shell game.