The Anglo-American aggression addicts haven’t kicked the habit. The team that brought you shock and awe and Operation Infinite Justice is gearing up for yet another crack at winning a senseless war in the Middle East.

This time the target is Iran, the pretence the regime’s imminent possession of nuclear weapons. But some things will remain the same – it will lead to slaughter and end in disaster.

A brief recap of the Anglo-American “war on terror” in the Middle East, 2001 to date: Afghanistan was occupied to “eliminate terrorism” but, many thousands of dead later, terror has spread to Pakistan and beyond, leaving Kabul with the most corrupt government on earth.

Full Story Here: An attack on Iran must be stopped | Andrew Murray | Comment is free | guardian.co.uk.

Has Iran decided to build a nuclear bomb? That would seem to be the central question in the current bellicose debate over whether the world should simply cripple Iran’s economy and inflict severe pain on its civilian population or launch a preemptive war to destroy its nuclear capability while possibly achieving “regime change.

And if you’ve been reading the New York Times or following the rest of the Fawning Corporate Media, you’d likely assume that everyone who matters agrees that the answer to the question is yes, although the FCM adds the caveat that Iran insists its nuclear program is for peaceful purposes only. The line is included with an almost perceptible wink and an “oh, yeah.”

However, a consensus seems to be emerging among the intelligence and military agencies of the United States – and Israel – that Iran has NOT made a decision to build a nuclear weapon. In recent days, that judgment has been expressed by high-profile figures in the defense establishments of the two countries – U.S. Defense Secretary Leon Panetta and Israel’s Defense Minister Ehud Barak.

Full Story Here: US/Israel: Iran NOT Building Nukes | Common Dreams.

Iran: We have proof US behind assassination

Iran is looking at “punishing” those behind the assassination of one of its nuclear scientists, a senior military official said, pointing the finger at the United States, Israel and Britain.

“We consider committing a terrorist act of killing a scientist to be a threat to the nation… We are looking at punishing those who were behind the scenes of the martyrdom (assassination) of Mostafa Ahmadi Roshan,” the deputy chief of Iran’s joint armed forces, Masoud Jazayeri, was quoted as saying by several media.

Iran’s response will be “tormenting” for those responsible, he said, adding: “The enemies of the Iranian nation, such as the United States, Britain and the Zionist regime, should be made accountable for their actions.”

The Wall Street Journal is reporting today:

Full Story Here: Report: US Preparing for an Israeli Strike on Iran | Common Dreams.

Secretary of Defense Leon Panetta appears on CBS’ Face the Nation this morning and declared, despite enormous public rhetoric among pundits and many US government officials – not to mention GOP presidential candidates, that Iran is not currently trying to build a nuclear weapon.

The Associated Press reports today:

[Panetta] says Iran is laying the groundwork for making nuclear weapons someday, but is not yet building a bomb and called for continued diplomatic and economic pressure to persuade Tehran not to take that step.

As he has previously, Panetta cautioned against a unilateral strike by Israel against Iran’s nuclear facilities, saying the action could trigger Iranian retaliation against U.S. forces in the region.

Full Story Here: Panetta: Iran Not Building a Nuclear Weapon | Common Dreams.

In an age when U.S. power can be projected through private mercenary armies and unmanned Predator drones, the U.S. military need no longer rely on massive, conventional ground forces to pursue its imperial agenda, a fact President Barack Obama is now acknowledging. But make no mistake: while the tactics may be changing, the U.S. taxpayer — and poor foreigners abroad — will still be saddled with overblown military budgets and militaristic policies.

Speaking January 5 alongside his Defense Secretary Leon Panetta, the president announced a shift in strategy for the American military, one that emphasizes aerial campaigns and proxy wars as opposed to “long-term nation-building with large military footprints.” This, to some pundits and politicians, is considered a tectonic shift.

Indeed, the way some on the left tell it, the strategy marks a radical departure from the imperial status quo. “Obama just repudiated the past decade of forever war policy,” gushed Rolling Stone reporter Michael Hastings, calling the new strategy a “[s]lap in the face to the generals.”

via Obama’s Pentagon Strategy: A Leaner, More Efficient Empire | Common Dreams.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

When problems confront our nation, our elected leaders are supposed to address them. We created a problem for ourselves when we passed the North American Free Trade Agreement (NAFTA) in the early 90s. It was evident to some at the time that it would be a problem, but many believed our elected officials when they said that it would create jobs. Over time, the opposite has proven to be true. We have lost hundreds of thousands of jobs as a result of NAFTA, but our politicians are doing nothing to fix this problem.

When NAFTA was being sold to the American people, it was touted as a job creator. NAFTA was supposed to usher in a new era of prosperity where menial jobs might be outsourced, but good high-end manufacturing and service sector jobs would replace them. Instead, what we have seen is a mass exodus of middle class manufacturing jobs, some of which have been replaced with low-wage service sector jobs. According to an Economic Policy Institute study, overall, NAFTA has cost us an estimated 682,900 jobs. That number takes into account jobs created as well, but does not take into account Americans who have taken lower-paying jobs as a result of NAFTA, so the actual damage is likely even greater.

Full Story Here: NAFTA’s Problems Need To Be Addressed Now | Economy In Crisis.

Any renaissance of American manufacturing must begin by fundamentally reversing our trade policies—both in general and in particular toward China. Over the past two decades, leading U.S. manufacturers, both the venerable (like General Electric) and the new (like Apple), have offshored millions of jobs—by one recent estimate, 2.9 million—to China to take advantage of the cheap labor, generous state subsidies, and low currency valuation that are linchpins of China’s mercantilist development strategy. Other factors, including increasingly automated production, have also taken a toll on America’s manufacturing workforce, but it’s the mass exodus of American production to China and, more recently, the rise of indigenous, state-subsidized Chinese production that have decimated American industry and reduced the incomes of American workers.

The United States government did not have to stand idly by while the nation’s industrial base was disassembled. It could have preserved and promoted key industries and supply networks by creating favorable credit policies, tax incentives, local content rules, and tariffs to punish currency manipulation from countries like China. For that matter, the U.S. could have created more flexible trade rules when it helped to craft the World Trade Organization.

Full Story Here: The Cost of Free Trade | Economy In Crisis.

Our government must reexamine our involvement in organizations like the WTO, formerly GATT. GATT was established in 1948 in cooperation with the UN to help rebuild a devastated Europe and Asia following World War II. This was a major turning point in the history of America.

Prior to GATT, domestic policies were aimed at fostering growth and protecting our core industries. Tariffs and restrictions prevented foreign subsidized companies and governments from disarming our industries through predatory pricing, dumping, and buyouts. The rest of the world marveled with envy at the assets we had collected through our policies. They sought to establish “free-trade” that would allow them to access our markets and allow access to the wealth we had achieved.

Though this practice was effective in restoring and rehabilitating Europe and Asia, we have allowed these practices to run amuck and to continue unchecked to present day at the expense of our sovereignty regardless even of its potential detriment to national security. Specifically, Congress cannot legally pass laws that violate WTO bylaws even if such laws are necessary to ensure the safety of America.

Full Story Here: Negotiating Away Our Sovereignty | Economy In Crisis.

The Obama administration on Tuesday declined to label China a currency manipulator after seeing recent increases in the value of the yuan compared to the dollar.

The decision angered some manufacturing groups, which have accused Beijing of artificially holding down the value of its currency to gain trade advantages. A cheaper yuan makes Chinese goods less expensive when they are shipped to the United States. It also makes U.S. goods more expensive in China. Both could increase the U.S. trade deficit with China, which is on pace to hit a record high this year.

The Treasury Department said the yuan has appreciated 12 percent against the dollar in the past 18 months, after adjusting for inflation. In addition, the department said in a semi-annual report that China promised at two high-level meetings last month to make the yuan’s exchange rate more flexible.

Full Story Here: China Currency Manipulation: Treasury Declines To Name China In Report.

Given the amount of press that has been given to larger free trade agreements like NAFTA and the newly passed South Korean free trade agreement, the damaging effects of smaller trade pacts are often overlooked. Passed at the same time as the South Korean free trade agreement were agreements with Panama and Colombia. These may not cost as many jobs as their larger counterparts, but they continue the trend of putting Americans in direct competition with cheap foreign labor, and the trend of giving American companies more opportunities to hide money in known tax havens.

Free trade with Colombia will mean that Americans have to compete for manufacturing jobs with workers willing or forced to work for much less. The annual earnings for someone earning minimum wage in Colombia totals just over $3,300. While some argue that those wages will come up due to increased business activity, the more likely scenario is that American wages will be pulled down toward that level as workers desperately try to hang on to their jobs.

Full Story Here: Big Consequences From Small Trade Deals | Economy In Crisis.

The “current account balance” is one key indicator of how a country is doing economically. The following is how the CIA World Factbook defines “current account balance”….

Full Story Here: The Worst In The World – The U.S. Balance Of Trade Is Mind-Blowingly Bad | Economy In Crisis.

The White House and the military bloc are gambling that the lengthy investigation into the attack that killed 25 Pakistani troops will defuse popular Pakistani anger and that final report will allow the Obama administration to return to a more aggressive policy toward Pakistan in 2012.

But the course Obama has chosen is likely to further aggravate the anti-U.S. sentiment in Pakistan that has boiled over in response to the violation of Pakistani sovereignty and unprecedented number of deaths of Pakistani troops. U.S. diplomats in Pakistan and State Department officials are seriously concerned that the rejection of any acknowledgement of U.S. responsibility for nearly three weeks will push Pakistan further toward a potentially irreversible break in relations with the United States.

Full Story Here: Rejecting Apology, US May Hasten End of Pakistan as Client | Truthout.

The Obama Administration had pledged $4 billion during 2011-13 to the Global Fund, or $1.33 billion per year. Now it is reneging on this pledge. For a government that spends $1.9 billion every single day on the military ($700 billion each year), Washington’s unwillingness to follow through on $1.33 billion for a whole year to save millions of lives is a new depth of cynicism and recklessness.

As a result of US budget cutbacks, and me-too cutbacks by other countries, the Global Fund this week closed its doors on providing new funds to impoverished nations. It was supposed to accept proposals next month from the poorest countries for an 11th round of disease-control funds. Instead, it has scrapped any new funding until 2014 at the earliest, and will only fund the continuation of the coverage of existing programs. US officials will prevaricate, noting that the US spends this amount or that amount. History will treat such excuses with the scorn they deserve.

Full Story Here: Jeffrey Sachs: Washington Leaves Millions To Die.

­“I like the US. But at the same time I think my country is an imperial country that is going downhill, and our leadership does not even acknowledge the problem,” confesses Gravel.

“Phony triumphalism has turned into a device to make Americans live in fear of a terrorist attack, yet you are a thousand times more likely to catch cancer than ever be hurt by that,” he points out.

“All I can say about what the US is doing – it‘s immoral,” Gravel says, explaining that “as a result of 9/11, we have altered our moral compass. And people began to get used to brutalizing each other.”

Full Story Here:   ‘World fears US as a war-hungry drunk’ – ex-Senator  :  Information Clearing House.

Seymour M. Hersh :-:

The first question in last Saturday night’s Republican debate on foreign policy dealt with Iran, and a newly published report by the International Atomic Energy Agency. The report, which raised renewed concern about the “possible existence of undeclared nuclear facilities and material in Iran,” struck a darker tone than previous assessments. But it was carefully hedged. On the debate platform, however, any ambiguity was lost. One of the moderators said that the I.A.E.A. report had provided “additional credible evidence that Iran is pursuing a nuclear weapon” and asked what various candidates, upon winning the Presidency, would do to stop Iran. Herman Cain said he would assist those who are trying to overthrow the government. Newt Gingrich said he would coördinate with the Israeli government and maximize covert operations to block the Iranian weapons program. Mitt Romney called the state of Iran’s nuclear program Obama’s “greatest failing, from a foreign-policy standpoint” and added, “Look, one thing you can know … and that is if we reëlect Barack Obama Iran will have a nuclear weapon.” The Iranian bomb was a sure thing Saturday night.

I’ve been reporting on Iran and the bomb for The New Yorker for the past decade, with a focus on the repeated inability of the best and the brightest of the Joint Special Operations Command to find definitive evidence of a nuclear-weapons production program in Iran. The goal of the high-risk American covert operations was to find something physical—a “smoking calutron,” as a knowledgeable official once told me—to show the world that Iran was working on warheads at an undisclosed site, to make the evidence public, and then to attack and destroy the site.

Full Story Here: Comment: Iran and the I.A.E.A. : The New Yorker.

With the U.S. economy stuck in a constant rut and Europe going into a tailspin, President Obama is looking to escape to the East. While the nations of the Asian Pacific rim face strains of their own, from massive inequality to climate change, their growth rates look positively zen compared to the stagnant economies that used to run the world.

So for the past several days President Obama has been charming Asia-Pacific officialdom, hoping these “emerging” economies can prop up the West’s sagging empires. At home, the White House has sold its vision for the “Pacific Century” as a boon for U.S. jobs, and abroad, he’s looking to consolidate influence over Asian leaders with subtle overtures toward checking China’s regional power.

The centerpiece of this program is the Trans-Pacific Partnership, a trade agreement that would involve Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, in addition to the U.S. While it would build on existing trade ties in the region, critics see it as an unprecedented supersized neoliberal agenda repackaged with the bow of modernization and “development.”

Full Story Here: Trans-Pacific Trade Deal Opens Eastern Front for Neoliberalism – Working In These Times.

The U.S. continues to lurch down the rubble-strewn path of free-trade fantasy economics, signing yet more trade agreements (Panama, Colombia, Korea) when the ones we already have haven’t delivered as promised.

Why?

One big part of the reason, I think, is that the public has been brainwashed by decades of television and other reportage into thinking that trade and free trade are the same thing. And since everyone who’s ever eaten a banana instinctively grasps the value of trade, free trade just follows as a matter of course.

You wouldn’t want us to end up like North Korea, would you? Of course not.

That’s why I’ve made this little video pointing out the difference between trade and free trade:

Now, if the public would only begin to grasp the difference between free trade (the chalkboard fantasy) and “free” trade (which we actually have). The game is rigged, folks.

After that, we can move on to the difference between free trade and free trade agreements. These are not the same thing at all, as most of NAFTA and the other treaties concern investments and the right to override laws that interfere with their profitability.

 

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

The “postwar world” brought into existence as a consequence of World War II is coming to an end. A major redistribution of global power is underway.

In every aspect of human existence, change is a constant.  Yet change that actually matters occurs only rarely.  Even then, except in retrospect, genuinely transformative change is difficult to identify.  By attributing cosmic significance to every novelty and declaring every unexpected event a revolution, self-assigned interpreters of the contemporary scene — politicians and pundits above all — exacerbate the problem of distinguishing between the trivial and the non-trivial.

Did 9/11 “change everything”?  For a brief period after September 2001, the answer to that question seemed self-evident: of course it did, with massive and irrevocable implications.  A mere decade later, the verdict appears less clear.  Today, the vast majority of Americans live their lives as if the events of 9/11 had never occurred.  When it comes to leaving a mark on the American way of life, the likes of Steve Jobs and Mark Zuckerberg have long since eclipsed Osama bin Laden.  (Whether the legacies of Jobs and Zuckerberg will prove other than transitory also remains to be seen.)

Anyone claiming to divine the existence of genuinely Big Change Happening Now should, therefore, do so with a sense of modesty and circumspection, recognizing the possibility that unfolding events may reveal a different story.

Full Story Here: The Era of American Dominance is Coming to a Close | | AlterNet.

There are plenty of reasons for the mood of celebration. After less than three months in office, Yoshihiko Noda, Japan’s prime minister, has made one of his country’s boldest policy decisions in years, which could unleash a chain reaction of reforms in the moribund national economy. His decision may spur other big economies, such as Canada, to make renewed efforts to join the negotiations, which currently include America, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. If America and Japan can pull off such a deal, the TPP could challenge China’s own free-trade push in the region, which revolves around the Association of South-East Asian Nations (ASEAN), South Korea and Japan, rather than the Pacific Rim. By joining with America, Japan also hopes to influence global technological standards in industries like electric cars and clean energy, rather than having those heavily swayed by China.

Full Story Here: Free-trade agreements: Opening up the Pacific | The Economist.

Obama, who was born in Hawaii and spent part of his childhood in Indonesia, will host leaders of the Asia-Pacific Economic Cooperation forum, including Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda, in Honolulu this weekend to seek to improve trade ties across the region.

He will then travel to Australia to announce plans to boost the U.S. military presence in the region and will be the first American president to attend the East Asia Summit in Bali, where he will heap attention on the Philippines, Thailand, Malaysia and Indonesia as well as India.

Full Story Here: Obama seeks to hitch U.S. economy to Asian growth | Reuters.

OPS: This is why we are going broke.
The US Taxpayer is footing the bill for a GLOBAL EMPIRE.

The US tale of the Iranian plot was greeted with unusual skepticism on the part of Iran specialists and independent policy analysts, and even elements of the mainstream media. The critics observed that the alleged assassination scheme was not in Iran’s interest, and that it bore scant resemblance to past operations attributed to the foreign special operations branch of Iranian intelligence. The Qods Force, it was widely believed, would not send a person like Iranian-American used car dealer Manssor Arbabsiar, known to friends in Corpus Christi, Texas as forgetful and disorganized, to hire the hit squad for such a sensitive covert action.

But administration officials claimed they had hard evidence to back up the charge. They cited a 21-page deposition by a supervising FBI agent in the “amended criminal complaint” filed against Arbabsiar and an accomplice who remains at large, Gholam Shakuri. [1] It was all there, the officials insisted: several meetings between Arbabsiar and a man he thought was a member of a leading Mexican drug cartel, Los Zetas, with a reputation for cold-blooded killing; incriminating statements, all secretly recorded, by Arbabsiar and Shakuri, his alleged handler in Tehran; and finally, Arbabsiar’s confession after his arrest, which clearly implicates Qods Force agents in a plan to murder a foreign diplomat on US soil.

Full Story Here: Debunking the Iran “Terror Plot” | Middle East Research and Information Project.

The State Department is using taxpayer money to help force genetically modified crops on other countries.

People in India are up in arms about eggplant. Not just any eggplant — the fight, which is also raging in the Philippines, is over Monsanto’s Bt eggplant. Even as increasing scientific evidence concludes that biotechnology and its arsenal of genetically modified crops may be doing more harm than good, companies like Monsanto are still pushing them hard and they are getting help from the U.S.

The State Department is using taxpayer money to help push the agenda of Monsanto and its friends all across the world. Here’s a recent example: Assistant Secretary of State Jose W. Fernandez, addressing an event of high-level government officials from around the world, agribusiness CEOs, leaders from international organizations, and anti-hunger groups said, “Without agricultural biotechnology, our world would look vastly different. One of our challenges is how to grow more crops on the same land. This is where biotechnology plays a role.”

Full Story Here: Why Is the State Department Using Our Money to Pimp for Monsanto? | Food | AlterNet.

The Obama Administration announced two weeks ago that a bumbling Iranian-American used car salesman had conspired with a U.S. government agent posing as a representative of Mexican drug cartels to assassinate the Saudi ambassador in Washington. This brought highly skeptical reactions from experts here across the political spectrum.

But even if some of this tale turns out to be true, the handling of such accusations is inherently political. For example, the U.S. government’s 9/11 commission investigated the links between the attackers and the Saudi ruling family, but refused to make public the results of that investigation. The reason is obvious: There is dirt there and Washington doesn’t want to create friction with a key ally. And keep in mind that this is about complicity with an attack on American soil that killed 3,000 people.

By contrast, the Obama Administration seized upon the rather dubious speculation that “the highest levels of the Iranian government” were involved in this alleged plot. President Obama announced that “all options are on the table,” which is well-known code for possible military action. This is extremist and dangerous rhetoric.

Full Story Here: Obama Administration Escalates Confrontation With Iran: Why? | Op-Eds & Columns.

Video

Full Story Here: Rachel Maddow Quite enough from Mr. Wolfowitz – YouTube.

When problems confront our nation, our elected leaders are supposed to address them. We created a problem for ourselves when we passed the North American Free Trade Agreement (NAFTA) in the early 90s. It was evident to some at the time that it would be a problem, but many believed our elected officials when they said that it would create jobs. Over time, the opposite has proven to be true. We have lost hundreds of thousands of jobs as a result of NAFTA, but our politicians are doing nothing to fix this problem.

When NAFTA was being sold to the American people, it was touted as a job creator. NAFTA was supposed to usher in a new era of prosperity where menial jobs might be outsourced, but good high-end manufacturing and service sector jobs would replace them. Instead, what we have seen is a mass exodus of middle class manufacturing jobs, some of which have been replaced with low-wage service sector jobs. According to an Economic Policy Institute study, overall, NAFTA has cost us an estimated 682,900 jobs. That number takes into account jobs created as well, but does not take into account Americans who have taken lower-paying jobs as a result of NAFTA, so the actual damage is likely even greater.

Full Story Here: NAFTA’s Problems Need To Be Addressed | Economy In Crisis.

Economy in Crisis has prepared a new report that documents all of the cases that the United States has lost in the World Trade Organization. Entitled “Summary and Analysis of World Trade Organization Cases Lost By The United States”, the report reads as a history of economic setbacks. It appears that nearly every action the United States takes to protect its domestic industries is ruled to be illegal by the World Trade Organization.

One of the cases outlined in the report is a case brought by Vietnam this year against the U.S. for its use of zeroing to determine anti-dumping duties on shrimp. The practice has been highly criticized because it does not take into account the products that are sold in the U.S. at or above fair market value, resulting in higher tariffs than if zeroing were not used.

Full Story Here: WTO Ruling On Vietnamese Shrimp Is One of Many Rulings Against U.S. | Economy In Crisis.

We will very soon see that the KORUS FTA will NOT export more American products as promised, it will export more American jobs!

This agreement is over 500 pages long. Many members of Congress we spoke to indicated that they either had not read the agreement or did not understand it.

Free trade is nice sounding, but it is an extremely misleading policy. In actuality the practice has wreaked havoc on the American economy. It appears as though our leaders are either apathetic or clueless when it comes to the United States’ involvement with free trade agreements (FTAs).

Full Story Here: Congress’ Disastrous Mistake – Passing the Korean-U.S. Free Trade Agreement | Economy In Crisis.

Iraqi Prime Minister Nouri al-Maliki told President Barack Obama that U.S. troops wouldn’t have immunity from Iraqi laws after December, forcing the last thousands of American soldiers to leave. That signals the end of the Iraq War – and the start of the U.S. battle over what the war’s lessons were, writes Robert Parry.

By Robert Parry

President Barack Obama will talk about “a promise kept” as he brings the last U.S. troops in Iraq “home for the holidays”; the neocons will try to spin the war’s outcome as “victory” — albeit one endangered by Obama’s complete withdrawal — but the hard truth is that the Iraq War has been a largely self-inflicted strategic defeat for the United States.

When the last U.S. convoys race for the Kuwaiti border in December, they will be as much in retreat as the Soviet army was when it withdrew from Afghanistan in 1989. And, like the staggering Soviet Union then, the United States is reeling now from economic dislocations exacerbated by the overreach of empire.

Of course, the United States is not likely to undergo the political collapse that interred the Soviet system two years after its Afghan debacle ended, but Washington’s vast overspending on imperial ambitions since World War II – of which Iraq was one of the more egregious examples – has buried the American Dream for many millions of Americans.

Full Story Here: Ending the Iraq Catastrophe | Consortiumnews.

Over the last two decades – we’ve seen the effects of these so-called Free Trade deals on our economy. We’ve seen trade surpluses turn into massive trade deficits. We’ve seen millions of factories and manufacturing jobs shipped overseas. And we’ve seen the wealth and power of transnational corporations explode while small businesses collapse.

Yet – our lawmakers – continue to buy into this gimmick year after year. It’s time to put down the Free Trade Kool-Aid.

Full Story Here: It’s time to put down the Free Trade Kool-Aid… | Thom Hartmann – News & info from the #1 progressive radio show.

Democrats have traditionally been the party that has looked out for the American worker. This is why unions have traditionally supported Democratic candidates. But in recent years Democrats have begun to act more like Republicans on trade issues. NAFTA was the first major example of this, with Democratic President Bill Clinton taking up the Republican negotiated bill as his own and shepherding it through Congress for approval. Now President Obama has followed suit by taking up KORUS along with the Panama and Colombia deals.

Full Story Here: Trade Votes Blur Line Between Democrats and Republicans | Economy In Crisis.

Imagine if Congress decided that a single state, such as California or Michigan, was in desperate need of jobs and investment and made dramatic changes to boost that state’s economy.

Imagine Congress did the following for only one American state:

- Dropped the minimum wage to $3 per hour

- Exempted them from child labor laws

- Expanded the work week

- Reduced health and work place safety laws

- Banned unions

- Reduced protection for the environment

Full Story Here: Current and Pending FTA’s Will Destroy the American Economy | Economy In Crisis.

The Senate yesterday passed S.1619, the Currency Exchange Rate Oversight Reform Act. (Click here for the bill’s text.)

Although this bill isn’t a slam-bang solution to the problem of foreign currency manipulation (especially by China), it’s a big step in the right direction.

This bill hasn’t been passed by the House of Representatives, and the House leadership says it won’t even be allowed a vote, so it’s not going to become law any time soon, but a similar bill did pass the House last year.

As I’ve noted before, currency manipulation is a problem that can only really happen if the victim refuses to stop it.  Eventually, my bet is, a bill like this one, or even stronger, will become law, and America will stop currency manipulation.

Because the legal mechanisms the U.S. government employs to deal with this problem is complex, this legislation is technically involved and leaves considerable wiggle room for our government to do either nothing or not enough. The bill enables a lot of discretionary policy, but it doesn’t mandate a whole lot. The good news is that it does mandate more than current law, and it shifts the balance of our laws from a bias in favor of doing nothing to a bias in favor of doing something.

Specifically, the bill does the following, all in ways carefully worded to be compliant with America’s WTO obligations:

It improves oversight of exchange rates by the Treasury Department.

Currently, the Treasury Department is required by law to identify nations that manipulate their currencies to gain an export advantage.  Unfortunately, although Treasury has accurately identified these nations, it has refused to officially cite them, due to a narrow and perverse interpretation of the concept of “manipulation.” The new law eliminates this wiggle room and replaces it with objective criteria for when a currency is manipulated.

As a result, Wall Street’s pet agency will no longer be able to protect currency manipulation, which Wall Street likes.

It makes clear that currency manipulation is sufficient grounds for the Commerce Department to impose a countervailing tariff.

The Commerce Department has long has the authority, together with the U.S. International Trade Commission, to impose countervailing duties when it finds that foreign subsidies of products are causing harm to American companies and workers. (WTO rules allow us to do this.) Unfortunately, the law has long been unclear whether currency manipulation counts as a subsidy. The new law says specifically that it es.

The bill also requires the Commerce Department to launch an investigation if an American industry files a properly-documented complaint, to forestall government foot-dragging in such cases.

The bill also eliminates the excuse that a subsidy applies to things other than exports. This has previously been used as an excuse to do nothing; the new law prohibits the Commerce Department from applying this standard.

It mandates consequences when nations are caught manipulating their currencies.

This is where the rubber really hits the road.

First, the Treasury Department will be required to ask foreign nations nicely to stop manipulating.  It must seek immediate consultation (Oooooh, I’m scared!) with them. For “priority” manipulators, it must also consult with the International Monetary Fund (IMF) and America’s other big trading partners. (I’m slightly more scared.)

Treasury also oppose any changes in IMF rules that would benefit the manipulating country. (This has a bit more teeth.)

Being a currency manipulator will now count against a country for purposes of determining whether it counts as a market or non-market economy for purposes of anti-dumping law, that is, when goods are sold here for less than production cost or their price at home. (Translation: a bigger retaliatory tariff.)

Then, after 90 days, America’s responses will harden. Namely:

1. The manipulating country gets cut out of federal procurement. (Unless, that is, it is a member of the WTO Governmental Procurement Agreement, a provision added to keep the bill WTO-compliant.)

1. The U.S. Government’s Overseas Private Investment Corporation is forbidden to finance or insure projects in that country.

1. The U.S. government will oppose multilateral bank financing for projects in the country.

The president can waive the 90-day set of consequences on grounds of national security or economic interests.  But he must explain to Congress, in writing, why the costs exceed the benefits. Any member of Congress is permitted to introduce a joint resolution of disapproval.  The president can veto that resolution, but Congress can override the veto.

This should set up some much-needed Congressional firefights on this issue.

Then after 360 days, America’s responses will harden some more…

The U.S. Trade Representative must request that the WTO initiate dispute settlement consultations with the country. This will at least stop the WTO being used as a fig leaf to excuse currency manipulation.

The Treasury Department will be required to consult with the Federal Reserve Board and other central banks about possible remedial intervention in international currency markets.

Obviously, these provisions are “devil is in the details” actions and contain significant amounts of discretion, but there’s a new bias injected in favor of doing something rather than nothing.

Finally, the bill establishes a new consultative body on currency manipulation. My hope is that this body will become a center of resistance to currency manipulation.

Small steps like this bill are the hard, boring stuff out of which significant political progress is made.  It won’t be easy, but clearly the political momentum is in favor of doing something about this problem.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

The bill would require the U.S. to impose tariffs on imports from China to counteract the country undervaluing its currency. China allegedly keeps the value of its currency low through artificial means to make its exports cheap and imports more expensive.

“Today’s strong bipartisan vote in the Senate to pass China currency legislation is a step forward for American workers, American manufacturers, and American competitiveness,” Democratic Leader Nancy Pelosi said after the bill passed. “This legislation has the potential to create more than one million jobs here at home.”

Full Story Here: Senate passes China currency manipulation bill | The Raw Story.

This Monday, Obama submitted the long-pending Colombia, Panama, and South Korea free trade agreements to Congress.  White House chief of staff William Daley has promised to pass them by the end of the month.

Guess the need for campaign cash finally caught up with the administration.

Honestly, I didn’t have my hopes up, but I did harbor the vague hope that somehow Obama was going to stall on these.  The Republicans have actually been accusing him of not really wanting to pass them, and one could certainly see why he wouldn’t want them hanging around his neck for the 2012 election.

Frankly, I hope one of the Republicans who has wised up about free trade, like Buddy Roemer, long-shot former governor of Louisiana, takes a stick to him about it. Even Mitt Romney, who supports these agreements but also says (repeat, says) he wants to get tough on China’s trade practices, might be better—if he means it.

You know a Democratic president is in trouble when he’s getting outflanked by Republicans on an issue where Democrats are the natural owners of the popular (and correct) position.

Granted, Obama now seems to have the thin fig leaf of the so-called Trade Adjustment Assistance program, a “painkiller” program designed to blunt the harm to laid-off workers, in the bag. (The Republicans don’t like TAA one bit, but accepted it as the price of the ticket.)

But these agreements are still bad news.  You’d think America would have learned its lesson from NAFTA, which the Labor Department has estimated cost us 525,000 jobs? Think again.

The Panama treaty, for example, might as well be known as the Money Laundering Protection Act. Panama is one of the worst countries in the Western Hemisphere for both money laundering and tax evasion, and it’s getting even worse now that Switzerland has gotten just a little more scrupulous about enabling foreign criminals.

These illicit transactions range from otherwise-honest business people ducking the IRS to outright drug-trafficking gangsters.  Colombia and its billions in drug money are right next door.

If there’s one thing we learned in the 2008 financial crisis, it’s that if you really want a debacle, you take bad policy plus ordinary greed and add a dollop of outright criminality. Make no mistake, this is a pro-financial-crisis bill.  And it makes matters even worse by committing us to foreswear basic measures of prudent finance like limiting the size of financial institutions. It prevents us from limiting what financial services they may offer. It bans regulation of derivatives. And it ban limits on capital flows designed to tame volatile “hot money.”

Question: can a drug cartel be “too big to fail?”

As for the Colombia agreement: quite apart from all its other problems, this is a country whose government is accused of being  in cahoots with right-wing death squads that hunt down and kill labor leaders. Something like 3,000 over the last 25 years. (Whatever one may think about labor unions, I think civilized people can agree this isn’t acceptable.)

To what degree the Colombian government actually approves of this, and to what degree it is simply running a chaotic country with a long heritage of political violence, is unclear. But either way, America should not be entering into the intimate economic embrace entailed by a free-trade agreement with a nation at such a troubled stage of its history.

The Korea agreement is in a class by itself.  Basically a NAFTA clone, it is the biggest trade agreement since NAFTA, measured by the size of the economy involved, and the first since NAFTA that includes an industrialized country.  Korea has serious automobile and electronics industries, among others, and aggressive industrial policies to target American industries for displacement.

The Economic Policy Institute has estimated it will cost America 159,000 jobs over the next five years. At a time when the president says that his number one economic priority is job creation, this is nothing short of perverse.

Even the official U.S. International Trade Commission has admitted that KORUS-FTA will cause significant job losses. And not just in the low-end industries we are told are the sole casualties of freer trade: the ITC foresees the electronic equipment manufacturing industry, with average wages of $30.38 in 2008, as a major victim.

Paradoxically, Obama provably knows all this. He campaigned against KORUS-FTA during the 2008 campaign. (It was originally negotiated, but not ratified, by Bush in 2007.) Among other things, Obama said:

I strongly support the inclusion of meaningful, enforceable labor and environmental standards in all trade agreements. As president, I will work to ensure that the U.S. again leads the world in ensuring that consumer products produced across the world are done in a manner that supports workers, not undermines them.

Nice words. Unfortunately, none of them are reflected in KORUS-FTA, which contains no serious new provisions on these issues.

This agreement, like NAFTA, is fundamentally an offshoring agreement. That is, it is about making it easier for U.S.-based multinationals to move production overseas with confidence in the security of their investments in overseas plants.  The provisions to protect workers and consumers are unenforceable window dressing. (That’s why they’re allowed to be in there.)

As an example of how one-sided the treaty is, consider that it will allow America to export 75,000 cars a year to Korea. This translates to about 800 jobs. Korea’s exports of cars to the U.S. in 2009, on the other hand?  Over 475,000.

Furthermore, even if the U.S. does get to sell more cars in Korea, American companies will mostly not be making the steel, tires, and other components that go into them, because the agreement allows cars with 65 percent foreign content to be considered American. Worse, it allows goods with as much as 65 percent non-South-Korean content to count as Korean, opening the door not only to North Korean slave labor but to the whole of China.

Even leaving aside trade-balance issues, this agreement is a legal disaster thanks to so-called “investor-state arbitration.” This subjects American democracy to having its laws overruled by foreign judges as interfering with trade. To date under NAFTA, over $326 million in damages has been paid out by governments as a result of challenges to natural resource policies, environmental protection, and health and safety measures.

There about 80 Korean corporations, with about 270 facilities around the U.S., that would thereby acquire the right to challenge our laws.

“Free trade agreement,” in American English, means “free trade agreement.” In other languages, it means “gentleman’s agreement for managed trade at a low tariff.” Europe invented this game—known as mercantilism—back when trade was conducted with sailing ships. South Korea learned it from Japan, which learned it from Germany.

Uncle Sam (and maybe John Bull and a few others) are the only naïfs who still don’t get it.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

First is the bait-and-switch, with jobs as the lure. Just like Bush, Clinton, and the Bush before him, Obama cited trumped-up data from corporate lobbyists claiming these deals create jobs. This despite decades of evidence that NAFTA and other such deals have cost hundreds of thousands, if not millions of them. But hey, if these FTAs are in the “jobs plan,” they must be about creating jobs, right?

Nope. Here comes the switch. Beyond the talking points of these FTAs are a broad swath of new rights to multinational corporations that make the idea of corporate personhood seem quaint. The deals allow corporations to challenge public interest laws in international tribunals,with domestic courts powerless to stop them. Anything from minimum wages and clean water regulations to anti-teen smoking initiatives and recycling rules are vulnerable.

Full Story Here: Tim Robertson: Obama’s Free Trade Sleight of Hand.

Despite the need to protect our own interests, the head of the World Trade Organization is urging countries like the U.S. to forgo protectionist measures in order to preserve the very system that is failing us.

The American economy is struggling, as are many economies around the world. The effects are rippling through our job market and our stock markets, but our economy is vulnerable to outside forces. Despite the need to protect our own interests, the head of the World Trade Organization is urging countries like the U.S. to forgo protectionist measures in order to preserve the very system that is failing us.

“This is not the time for go-it-alone measures,” WTO Chief Pascal Lamy said. “This is the time to strengthen and preserve the global trading system so that it keeps performing this vital function in the future.”

The problem is that Mr. Lamy is speaking for the interest of the WTO, not for the interest of individual countries, and certainly he is not speaking in the best interest of the United States.

Full Story Here: WTO Serves Its Own Interests, Not U.S. Interests | Economy In Crisis.

While publicly pressuring Israel to make deeper concessions to the Palestinians, President Obama has secretly authorized significant new aid to the Israeli military that includes the sale of 55 deep-penetrating bombs known as bunker busters, Newsweek has learned.

In an exclusive story to be published Monday on growing military cooperation between the two allies, U.S. and Israeli officials tell Newsweek that the GBU-28 Hard Target Penetrators—potentially useful in any future military strike against Iranian nuclear sites—were delivered to Israel in 2009, just several months after Obama took office.

Full Story Here: President Obama Secretly Approved Transfer of Bunker-Buster Bombs to Israel – The Daily Beast.

U.S. trade officials will announce a major trade enforcement action against China on Tuesday, according to a U.S. Trade Representative’s office advisory obtained from a business group.

The advisory, which was distributed to media on a not-for-publication basis, said U.S. Trade Representative Ron Kirk “will hold a press conference to announce a major trade enforcement action against China.”

The release did not provide any additional details.

Full Story Here: US to announce new China trade enforcement action | Reuters.

September 11 commemorations were everywhere this past weekend. My own view is that the devastating attacks of September 11 were, along with an enormous human tragedy, a huge crime, a crime against humanity. But they did not threaten our country’s existence, they did not threaten our democracy. It was the acts of September 12, when the Bush administration decided to take the world to war in response, that threatened and continue to threaten our country, our democracy, our security, and the security of much of the rest of the world.

Many of you probably saw the piece in Sunday’s New York Times Magazine, by one of their top editors, Bill Keller, one of the “liberal hawks,” sort of apologizing for having supported the Iraq War. I sent a letter to the Times (we’ll see if it gets in!) to say that his “hard look” back is appropriate, but not nearly hard enough. He spoke of the “monster argument” being so potent in convincing him to call for war against Iraq, but where was he in the 1970s and 1980s when Saddam Hussein’s dictatorship was armed and financed by the United States? He ignored the 1990s when the people of Iraq faced not only the continuing brutality of that dictatorship but the monster of U.S.-backed economic sanctions that killed over 500,000 children.

Full Story Here: All the Countries the US is at War with after 9/11 | Common Dreams.

I

According to Fox News, a report set to be released soon claims that the outsourcing of the design and maintenance of computer technology could endanger national security.

The report says that the outsourcing of those services could make it easier for countries or companies to insert themselves in the supply chain and hack into crucial systems.

Full Story Here: Outsourcing Could Endanger National Security | Economy In Crisis.

Just like NAFTA, KORUS promises to outsource even more American manufacturing to a country with inferior labor, safety and environmental laws. The minimum wage in South Korea is still under $4 per hour.

The pending South Korean-U.S. Free Trade Agreement (KORUS) could very well be the most catastrophic treaty to date. This pact must not be allowed to pass.

Just like NAFTA, KORUS promises to outsource even more American manufacturing to a country with inferior labor, safety and environmental laws. The minimum wage in South Korea is still under $4 per hour (€2.80) – our companies will have no choice but to sell out overseas or go out of business when their competitors do the same.

The population in the United States is over 300 million people, while in South Korea, it is just under 50 million. How can we possibly hope to gain a trade surplus with such a lopsided difference in size? While President Obama has promised the deal would create 70,000 low-paying, insourced jobs, the Economic Policy Institute estimates that in the first seven years, KORUS could destroy nearly 160,000 American jobs. This is not a favorable exchange for the United States.

Full Story Here: The Lesson Not Learned From NAFTA Part 2 | Economy In Crisis.

Starting this week in Chicago, the US will be hosting the first major trade negotiations since the “Battle in Seattle” World Trade Organisation talks came here in 1999.

 It is bad enough that President Obama is reversing his campaign pledge and supporting Bush-era trade deals with Korea, Colombia and Panama. Starting this week in Chicago, the US will be hosting the first major trade negotiations since the “Battle in Seattle” World Trade Organisation talks came here in 1999. This occasion is for the Trans-Pacific Partnership (TPP) with a wide range of industrialised and developing Pacific Rim countries.

As part of his plan to revive the US economy and create jobs, Obama claims he will be unveiling “a trade agreement for the 21st century”. Ironically, though, he will be pushing the same “Nafta-style” trade pacts he campaigned against, and to howls of protest from his own electoral base. Let us not forget what he said:

“I voted against Cafta, never supported Nafta, and will not support Nafta-style trade agreements in the future,” Obama told Ohio voters (pdf) in 2008. “While Nafta gave broad rights to investors, it paid only lip service to the rights of labor and the importance of environmental protection.”

Full Story Here: Obama’s “21st Century Trade Deals” Look a Lot Like the Same Bad Policies He Campaigned Against | | AlterNet.

Opponents of the Keystone XL pipeline have been protesting outside the White House, with many aiming to be arrested. Some proponents of the pipeline say it would be beneficial to an ailing economy, but in reality the approval of the Keystone XL pipeline would only mean the perpetuation of the idea that the solution to our oil problem is more oil.

The pipeline, if approved, would carry oil from tar sands in Canada to the Gulf of Mexico. Proponents of the pipeline say that it will create jobs and reduce our dependence on Middle Eastern oil. Opponents of the pipeline say that it creates a hazard to the U.S. given the possibility of spills and encourages the use of an extremely dirty fuel source.

The best estimates for the number of jobs created by the pipeline are in the 100,000 jobs range. This is certainly no small number of jobs, but it is far from a solution to our economic problems. The pipeline would also bring in 510,000 new barrels of oil per day, but this increase would represent only about 2.5 percent of average daily oil usage in the U.S., making it too small of an amount to make a noticeable difference in gas prices

Full Story Here: NAFTA Pipeline Would Hurt U.S. Long-Term | Economy In Crisis.

Full Story Here: WikiLeaks Revelation Damages U.S.-Iraq Talks On Keeping American Troops Past 2011 | ThinkProgress.

The Times reported that the files cover the time from 2002 to 2007, when Moussa Koussa headed Libya’s External Security Organization. Koussa most recently had been Libya’s foreign minister but defected from now-fugitive leader Muammar Gaddafi’s government and flew to Britain on March 30 amid this year’s rebel uprising.

The newspaper reported that the documents — including some English-language files concerning the CIA and Britain’s MI-6 intelligence agency — were found on Friday at the abandoned office of Libya’s former spy chief by journalists and the group Human Rights Watch.

Full Story Here: Documents show links between CIA, Libya spy unit | Top News | Reuters.

A columnist at the business magazine Forbes has agreed to that rarity of rarities: an actual debate on the merits of free trade! As the reader may have noticed, most free traders are so religiously committed to the doctrine that they can’t even imagine the possibility that they might be wrong. (Believe me, as a former free trader, I’m familiar with this mentality.) And the rest? They seem to be well aware that their faith doesn’t stand up very well to cross-examination, so they avoid debate.

My comments here are a response to this article by Tim Worstall.

Worstall is a Briton currently residing in Portugal.  I find this a sublime irony, as economic history records that Britain and Portugal were, in fact, among the earliest and profoundest victims of free trade.

Let’s consult the history.

Britain, prior to her adoption of free trade starting in the 1840s, was the world’s leading economic power, birthplace of the industrial revolution and center of a worldwide empire. But she had attained this position not by practicing free trade, rather under a now-largely-forgotten protectionist policy that has come down to us under the name “mercantilism.”

But after Britain embraced free trade beginning in 1846, this all began to fall apart, and Britain entered her long economic decline that has since reduced her to a minor economy heavily indebted to former colonies. In the words of one commentator,

The industries that formed the core of the British economy in the 19th century, textiles and steel, were developed during the period 1750-1840—before England abandoned mercantilism. Britain’s lead in these fields held for roughly two decades after adopting free trade but eroded as other nations caught up. Britain then fell behind as new industries, using more advanced technology, emerged after 1870. These new industries were fostered by states that still practiced mercantilism, including protectionism.

The rising powers of this era?  Protectionist nations like Germany, the United States, and later, Japan.

Economic history is an amazing solvent of the pretentions of theory. (Later, we can talk about fixing the theory so that it’s actually true.)

Now for Portugal. Portugal’s trade of wine for English textiles is, interestingly, the classic example of free trade given in economics textbooks. And therein lies a very revealing tale.

For in the era of England’s rise to greatness, textiles were produced there with then-state-of-the-art technology, like steam engines. The textile industry thus nurtured a sophisticated machine tool industry to make the parts for these engines, which drove forward the general technological capabilities of the British economy and helped it break into related industries like locomotives and steamships. It was an industry fruitful for growth, a key industry to be in.

Wine, on the other hand, was made by methods that had not changed in centuries. So for hundreds of years, wine production contributed no technological advances to the Portuguese economy, no drivers of growth, no opportunities to raise economy-wide productivity. And its own productivity remained static: it did the same thing over and over again, year after year, decade after decade, century after century, because this was where Portugal’s immediate comparative advantage lay.

Free trade may have been the cheapest move for Portuguese consumers in the short run, but it was a dead end in the long run.  This is why every single ex-Third World nation—a category ranging from England 200 years ago to South Korea today—has been protectionist.

What happened to Portugal?

In 1703, in the Treaty of Methuen, Portugal exempted England from its prohibition on the importation of woolen cloth, while England agreed to admit Portuguese wines at a tariff one-third less than that applied to competitors. This treaty merely switched suppliers for the English, who did not produce wine, but it admitted a deluge of cheap English cloth into Portugal, which wiped out its previously promising textile industry.

English capital eventually took control of Portugal’s vineyards as their owners went into debt to London banks, and English influence sabotaged attempts at state policy that might have pushed Portugal back into textiles or other manufacturing industry.  As textiles were (as they remain today) the first stepping stone to more-sophisticated industries, this all but prevented Portugal’s further industrialization.

Not until the 1960s, under the Salazar dictatorship, did any Portuguese government make a serious attempt to dig itself out of this trap. Even today, Portugal has not yet recovered its 17th-century position relative to other European economies, and it remains the poorest country in Western Europe

Today, free trade is similarly dangerous to poor and undeveloped nations because they tend, like Portugal, to have comparative advantage in industries that are economic dead ends. So despite being nominally free, free trade tends to lock them in place.

Is this just a problem for poor nations?  No, because there’s a flip side to the problem, one which affects the already developed. What if a developed country like the U.S. confronts a developing nation, like China, which has embraced the protectionist policies that made America rich in the first place?  Well, that country had better not practice free trade in the face of this foreign mercantilism, or it will end up getting shoved aside—just as the U.S. itself once did to Britain.

Trade isn’t a zero-sum game, but it certainly has winners and losers.

America right now is being inexorably stripped of its most valuable industries by its naïve embrace of one-sided free trade.  Here’s the Harvard Business Review’s list of industries we have already lost:

Fabless chips; compact fluorescent lighting; LCDs for monitors, TVs and handheld devices like mobile phones; electrophoretic displays; lithium ion, lithium polymer and NiMH batteries; advanced rechargeable batteries for hybrid vehicles; crystalline and polycrystalline silicon solar cells, inverters and power semiconductors for solar panels; desktop, notebook and netbook PCs; low-end servers; hard-disk drives; consumer networking gear such as routers, access points, and home set-top boxes; advanced composite used in sporting goods and other consumer gear; advanced ceramics and integrated circuit packaging.

Note that these are not the “junk” industries, like plastic toys, that free traders fantasize we are shedding to foreign nations that graciously acknowledge our divine right to skim the cream of the world economy while others do the donkey work. These are serious high-tech and thus high-wage industries, industries with a future. Without them, America is going to be increasingly shut out of the most lucrative and job-creating industries in the global economy. We are going to be the new Portugal.

Can a developed nation hang onto key industries in the face of cheap-labor foreign competition? Sure. Neither Japan nor Germany, nor their imitators from Taiwan to Switzerland, have suffered our chronic deindustrialization. Our unemployment rate right now is 9.2 percent; Germany’s is 6.1 and Japan’s is 4.7.  General Motors went bankrupt, not Toyota or Mercedes.

The causes of these nations’ industrial success are complex, but one thing they all have in common is that they do not actually practice free trade (whatever they may say in public to gull Uncle Sam).  They practice managed trade by a dozen different means, starting with currency manipulation and deeply embedded in the behind-the-scenes understandings their corporations have with their banks, governments, and unions. Many of their trade barriers are not actual laws, and thus lurk below the surface to casual examination. For example, in the words of commentator William Greider:

In the European Union, supposedly liberalized by unifying fifteen national markets, the countries had more than seven hundred national restrictions on import quantities, many of which were converted to so-called voluntary restraints. The UK’s Society of Motor Manufacturers and Traders maintained a long-standing ‘gentlemen’s agreement’ with the Japanese Automobile Manufacturers Association that effectively limited Japanese cars to 11 percent of the British market. France and Italy had tougher restrictions. The EU periodically proclaimed its intention to eliminate such informal barriers but, meanwhile, it was tightening them. During the recessionary conditions in late 1993, Japanese auto imports to Europe were arbitrarily reduced by 18 percent.

This is the way the world of international trade really works.

America doesn’t need to cut itself off from the world entirely, but it does need to get wise to the fact that the rest of the world views trade (correctly) as an arena of national rivalry, and start playing the game. We don’t have to play it quite the same way they do—there are plenty of ways to skin this cat—but our own protectionist history from Independence to the start of the Cold War gives plenty of precedents for rational protectionism.

It’s either that, or continuation of the inexorable national economic decline that anyone with eyes can see has already begun.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

We hear a lot today about free trade and free enterprise. Those are today’s code words for unregulated capitalism — the idea that capitalism can work for the benefit of everyone in a society as long as it is not hindered by government regulations. The proponents of this idea say that the more money the capitalists make, the more jobs they will create and the better off everyone in the society will be.

You may recognize this as the Republican “trickle-down” theory.

These modern Republicans may be surprised to learn that their boogeyman, Karl Marx was in favor of “free trade.” Look at this quote from Marx:

Full Story Here: The Rag Blog: Ted McLaughlin : The ‘Free Market’ Myth and the Suicide of Capitalism.

Whenever protectionists like myself demand that the U.S. government do something to stand up for America in global trade, we are shouted down with the stern admonition, “You’ll start a trade war.”

I wish.

The reality is that nobody in America is going to start a trade war, for the simple reason that we are already in one.  Foreign governments understand, as ours does not, that international trade is an arena of national rivalry, and they play the game in their own national interests.  Our government is hostage to an outdated 19^th-century economic theory of global harmony, and on this basis conducts our trade relations with blissful naiveté.

Am I saying that our policy is determined by a theory?  No.  It’s quite obviously determined by the campaign contributions of the multinational (aka “who cares about America?”) corporations who profit from it.  But it is this theory that makes their demands respectable.  All the money in the world couldn’t bribe Congress to pass a law requiring everyone to roller-skate to work; policy always requires some non-laughable justification.

Thanks for nothing, David Ricardo.  You’ve made a fine mess.

The curious thing about the concept of trade war is that, unlike actual shooting war, it has no historical precedent. In fact, there has never been a significant trade war, “significant” in the sense of having done serious economic damage. All history records are minor skirmishes at best.

Go ahead.  Try and name a trade war.  The Great Trade War of 1834?  Nope.  The Great Trade War of 1921?  Nope Again.  There isn’t one.

The standard example free traders give is that America’s Smoot-Hawley tariff of 1930 either caused the Great Depression or made it spread around the world. But this canard does not survive serious examination, and has actually been denied by almost every economist who has actually researched the question in depth–a group ranging from Paul Krugman on the left to Milton Friedman on the right.

The Depression’s cause was monetary. The Fed allowed the money supply to balloon during the late 1920s, piling up in the stock market as a bubble. It then panicked, miscalculated, and let it collapse by a third by 1933, depriving the economy of the liquidity it needed to breathe. Trade had nothing to do with it.

As for the charge that Smoot caused the Depression to spread worldwide: it was too small a change to have plausibly so large an effect. For a start, it only applied to about one-third of America’s trade: about 1.3 percent of our GDP. Our average tariff on dutiable goods went from 44.6 to 53.2 percent–not a terribly big jump. Tariffs were higher in almost every year from 1821 to 1914. Our tariff went up in 1861, 1864, 1890, and 1922 without producing global depressions, and the recessions of 1873 and 1893 managed to spread worldwide without tariff increases.

As the economic historian (and free trader!) William Bernstein puts it in his book A Splendid Exchange: How Trade Shaped the World,

Between 1929 and 1932, real GDP fell 17 percent worldwide, and by 26 percent in the United States, but most economic historians now believe that only a miniscule part of that huge loss of both world GDP and the United States’ GDP can be ascribed to the tariff wars. .. At the time of Smoot-Hawley’s passage, trade volume accounted for only about 9 percent of world economic output. Had all international trade been eliminated, and had no domestic use for the previously exported goods been found, world GDP would have fallen by the same amount — 9 percent. Between 1930 and 1933, worldwide trade volume fell off by one-third to one-half. Depending on how the falloff is measured, this computes to 3 to 5 percent of world GDP, and these losses were partially made up by more expensive domestic goods. Thus, the damage done could not possibly have exceeded 1 or 2 percent of world GDP — nowhere near the 17 percent falloff seen during the Great Depression… The inescapable conclusion: contrary to public perception, Smoot-Hawley did not cause, or even significantly deepen, the Great Depression.

The oft-bandied idea that Smoot-Hawley started a global trade war of endless cycles of tit-for-tat retaliation is also mythical. According to the official State Department report on this very question in 1931:

With the exception of discriminations in France, the extent of discrimination against American commerce is very slight…By far the largest number of countries do not discriminate against the commerce of the United States in any way.

That is to say, foreign nations did indeed raise their tariffs after the passage of Smoot, but this was a broad-brush response to the Depression itself, aimed at all other foreign nations without distinction, not a retaliation against the U.S. for its own tariff. The doom-loop of spiraling tit-for-tat retaliation between trading partners that paralyses free traders with fear today simply did not happen.

“Notorious” Smoot-Hawley is a deliberately fabricated myth, plain and simple.  We should not allow this myth to paralyze our policy-making in the present day.

There is a basic unresolved paradox at the bottom of the very concept of trade war. If, as free traders insist, free trade is beneficial whether or not one’s trading partners reciprocate, then why would any rational nation start one, no matter how provoked? The only way to explain this is to assume that major national governments like the Chinese and the U.S.—governments which, whatever bad things they may have done, have managed to hold nuclear weapons for decades without nuking each other over trivial spats—are not players of realpolitik, but schoolchildren.

When the moneymen in Beijing, Tokyo, Berlin, and the other nations currently running trade surpluses against the U.S. start to ponder the financial realpolitik of exaggerated retaliation against the U.S. for any measures we may employ to bring our trade back into balance, they will discover the advantage is with us, not them. Because they are the ones with trade surpluses to lose, not us.

So our present position of weakness is, paradoxically, actually a position of strength.

Similarly, China can supposedly suddenly stop buying our Treasury Debt if we rock the boat. But this would immediately reduce the value of the trillion or so they already hold—not to mention destroying, by making their hostility overt, the fragile (and desperately-tended) delusion in the U.S. that America and China are still benign economic “partners” in a win-win economic relationship.

At the end of the day, China cannot force us to do anything economically that we don’t choose to. America is still a nuclear power. We can—an irresponsible but not impossible scenario—

repudiate our debt to them (or stop paying the interest) as the ultimate countermove to anything they might contemplate. More plausibly, we might simply restore the tax on the interest on foreign-held bonds that was repealed in 1984 thanks to Treasury Secretary Donald Regan.

Thus a certain amount of back-and-forth token retaliation (and loud squealing) is indeed likely if America starts defending its interests in trade as diligently as our trading partners have been defending theirs, but that’s it. The rest of the world engages in these struggles all the time without doing much harm; it will be no different if we join the party.

Until we do, America’s trade pacifism will simply continue to invite foreign economic aggression.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

In 1994 there was NAFTA; an agreement that set out to reduce trade barriers and promote “free trade” between Mexico, Canada, and the United States (which turned out to be a disaster for Canada and the U.S.) Ross Perot’s comments “a giant sucking sound” turned out to be true.

In 2005 the US ratified CAFTA. Similar to NAFTA, this agreement attempted to eliminate trade barriers and widen the trade community. CAFTA included the Central American countries of Costa Rica, El Salvador Guatemala, Honduras, Nicaragua and later the Dominican Republic.

Full Story Here: Free Trade – the Kiss of Death for Our Economy | Economy In Crisis.

Do you ever wonder who imports the most containers? Or what we ship the most in exporting containers? This report by the Association of American Railroads has revealing data.

The big box retailers do the most importing. (pg 5 of report). Walmart, Target, Home Depot, Lowe’s, Sears.

The top 10 container exporters account for less than half the number of the top 10 container importers. And who is the top exporter? American Chung Nam… the top exporter of recovered paper. Who is second? International Paper, which I’m willing to bet exports recovered paper for recycling offshore.

Full Story Here: Container imports vs. exports – Is the U.S. a colony? – Trade Reform.

Yes, each country in the WTO gets one vote; but how well is the will of the American people reflected in the decisions of the organization? Recent deliberations about U.S. country of origin labeling are just another example of how the WTO overreaches into the affairs of the American people.

U.S. consumers have been benefiting from the hard-won, 2009 instigation of mandatory country of origin labeling requirements (COOL) for food products, including meat and produce. These requirements state that all food products covered under COOL must state the country of origin for all of their contents.

Full Story Here: WTO Continues To Damage U.S. | Economy In Crisis.

One point that seems largely to have been missed in recent weeks, amid all the excitement over the Federal budget and the sovereign-debt crises in Europe, is how free trade is largely the root cause of all these problems. Let’s trace the causation for a minute.

Start with the Federal budget. Federal revenues are derived from the underlying economy, and therefore, if the underlying economy were larger, revenues would be, too—even without any tax increases. As a result, anything that causes the U.S. economy to be smaller, tends to widen any gap between taxes and revenues.

Enter free trade.

For it is thanks to America’s embrace of free trade (whether genuinely free or not; that’s another issue) that we have been running giant trade deficits for years. And these have been costing us economic growth.

The Economic Strategy Institute, a Washington think tank, estimated in 2001 that the trade deficit was shaving at least one percent per year off our economic growth. (See the report “China’s Financial System and Monetary Policies: The Impact on U.S. Exchange Rates, Capital Markets, and Interest Rates,” U.S.-China Economic and Security Review Commission, August 22, 2006, for the gory details.) This may not sound like much, but because GDP growth is cumulative, it compounds over time.  Economist William Bahr has thus estimated that America’s trade deficits since 1991 alone—they stretch back unbroken to 1976—have caused our economy to be 13 percent smaller than it otherwise would be.

That’s an economic hole larger than the entire Canadian economy.

Other economists have reached similar conclusions. William A. Lovett estimated in 2004 that, “With stronger, reciprocity-based trade policy, U.S. GDP could have been 10 to 20 percent higher.” Another estimate, by Charles McMillion, notes that in the 25 years up to 1980, our real GDP grew at an average of 3.8 per year. But in the 25 years afterwards, as our trade deficit ballooned, it averaged only 3.1 percent.

This is why we’re being forced into budget cuts and/or tax increases. We just don’t have a big enough economy to pay for the spending we’ve voted for at the tax rates we’ve voted for.

The above is usually treated as a conservative insight, because the implication is that economic growth is the real answer to our problem, not higher taxes. The Wall Street Journal crowd loves this stuff.  Unfortunately, that school of opinion also loves free trade, which is driving our growth down, not up.  So the free-marketeers have painted themselves into a corner here, and it’s no accident they don’t have a solution.

Now for the debt part of the equation.  As I have noted before, a nation’s accumulation of debt is closely linked to its running of trade deficits, because when we import more than we export, we must pay for it by either selling off existing assets or accumulating debt. (This is a simple matter of accounting, not even economics, so it shouldn’t be that controversial, no matter how controversial other aspect of the issue are.)

Over the past 35 years or so that we have been running trade deficits, we have mostly paid for this by assuming debt, and especially in recent years, a huge part of that debt has been public debt. One consequence has been that in order to manipulate the dollar price of its currency downward and boost exports, China has been buying huge amounts of U.S. Treasury securities. Thus the same mechanism that caused our trade deficits also increased our governmental debt.

If the United States had enforced balanced trade (i.e. no trade deficit) during this period, China would not have bothered manipulating its currency, as it would not thereby have been able to obtain a trade surplus with the U.S.  Therefore, it would not have accumulated its present huge holdings of U.S. debt and we would not be so indebted today.

It was, indeed, this artificially-induced flood of cheap foreign cash that enabled us to borrow so much money in the first place.  So much money, at such low interest rates, would not have been available if we had confined ourselves to domestic sources of funds, and the upwards pressure on domestic interest rates would have choked off government borrowing at some point.

The decision to raise  so large a part of the government’s budget from foreign borrowing dates back to Ronald Reagan’s presidency, most explicitly to the 1984 decision by Treasury Secretary Donald Regan to effectively exempt foreign holders of our bonds from taxation. All subsequent administrations (with the limited exception of the latter part of Bill Clinton’s presidency, when the U.S. was running budget surpluses) have welcomed the resulting availability of cheap foreign capital.

In the short run, it was a great deal, holding down interest rates and taxes alike. In the long run…

The above analysis holds, in slightly different form, in Europe.  Nations like Greece, Portugal, Italy, and Spain have also run chronic trade deficits for years. As in our own case, their deficits were bridged by foreign credit—largely from Greater Germany (Germany, Austria, Switzerland, Denmark, Finland, Sweden, and Holland.)

As in our own case, the willingness of foreigners to lend them money was politically inflated—in their case by the replacement of national currencies by the euro, which enabled un-creditworthy governments like Greece to borrow on terms similar to those of creditworthy governments like Germany.

Because these European nations have smaller and weaker economies than the U.S., and because they borrowed in a currency which (unlike our own situation with the dollar) they cannot print, the inevitable long-term consequences hit them first. But we’re not going to be exempt forever.

The underlying lesson is the same in our case and theirs: free trade causes trade deficits and therefore debt.  The free market, on its own, will neither limit the accumulation of excessive debt nor redress the excess once it has been created. Government is eventually forced to step in, to solve a crisis it could have largely avoided if it had not embraced free trade in the first place.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

The United States has a long way to go before it can balance its trade deficit and stop the outflow of American wealth and prosperity. Reintroducing, and eventually passing, the TRADE Act is the first and most crucial step.

The United States is facing ever-worsening economic conditions at home as a direct result of our listless pursuit of “free trade at all costs.” If something is not done soon to offset the negative effects of free trade in our domestic economy the market system that once created the greatest economy in the world will be lost forever.

The first solution is to enact legislation immediately that investigates all existing and proposed trade agreements. This legislation should force the Department of Commerce and Office of the United States Trade Representative to evaluate the merit of each individual trade deal based on the creation of at least mutual benefits for the United States and its partner nation. The reviews produced by the Commerce Department and the USTR should then be assigned to a special committee in Congress tasked with evaluating international commercial relations and simultaneously released for full disclosure to the public.

Legislation like this already exists in the United States. It was introduced into the 111th Congress as the TRADE Act of 2009. The Trade Reform, Accountability, Development and Employment Act would fulfill all of the above prescriptions and create a robust infrastructure upon which all commercial relations can be judged in the future. It would also provide the necessary legislative muscle for the United States to renegotiate terms with the World Trade Organization, NAFTA, and all other free trade agreements already in effect.

Full Story Here: Solutions to Job-Killing Free Trade | Economy In Crisis.

OPS: The problem is that Obama has placed, and/or not removed, the hoards of  industry shills currently in the very positions that would have to perform these tasks. We may already be too far sown the rabbit hole for this to work

Our Lack of planning and unregulated market free-for-all is facilitating our downfall and is placing us in China’s hands.

China now has $3 trillion (three thousand billion) of our currency reserves. They can use theses resources anytime they want to come here and buy us out. They can buy any of our companies available for sale on our open stock market.

China earned their $3 trillion through their balance of trade surplus – on the back of our balance of trade deficit. They sell us products made in factories where employees are lucky if they earn $2-$3 U.S. per hour. American workers could never afford to work for such low wages.

Free Market Capitalism cannot survive in open competition against state-run capitalism. The free market is unregulated and unprotected. State-run corporate enterprises are given virtually limitless subsidization from their home governments, as well as from American state and federal incentives, to enter the open American market and break established U.S. industrial titans.

Full Story Here: Our “Free Market” System Cannot Compete with Chinese State-Run Capitalism | Economy In Crisis.

Put what follows in the category of paragraphs no one noticed that should have made the nation’s hair stand on end. This particular paragraph should also have sent chills through the body politic, launched warning flares, and left the people’s representatives in Congress shouting about something other than the debt crisis.

Last weekend, two reliable New York Times reporters, Eric Schmitt and Thom Shanker, had a piece in that paper’s Sunday Review entitled “After 9/11, an Era of Tinker, Tailor, Jihadist, Spy.” Its focus was the latest counterterrorism thinking at the Pentagon: deterrence theory. (Evidently an amalgam of the old Cold War ideas of “containment” and nuclear deterrence wackily reimagined by the boys in the five-sided building for the age of the jihadi.) Schmitt and Shanker’s article was, a note informed the reader, based on research for their forthcoming book, Counterstrike: The Untold Story of America’s Secret Campaign Against Al Qaeda.

And here’s the paragraph, buried in the middle of their piece, that should have stopped readers in their tracks:

“Or consider what American computer specialists are doing on the Internet, perhaps terrorist leaders’ greatest safe haven, where they recruit, raise money, and plot future attacks on a global scale. American specialists have become especially proficient at forging the onscreen cyber-trademarks used by Al Qaeda to certify its Web statements, and are posting confusing and contradictory orders, some so virulent that young Muslims dabbling in jihadist philosophy, but on the fence about it, might be driven away.”

Full Story Here: Tom Engelhardt: The Pentagon’s Fake Jihadists.

The chief lesson of 9/11 should have been that small bands of terrorists, using simple methods, can exploit loopholes in existing security systems. But instead, many preferred to engage in massive extrapolation: If 19 men could hijack four airplanes simultaneously, the thinking went, then surely al Qaeda would soon make an atomic bomb.

As a misguided Turkish proverb holds, “If your enemy be an ant, imagine him to be an elephant.” The new information unearthed in Osama bin Laden’s hideout in Abbottabad, Pakistan, suggests that the United States has been doing so for a full decade. Whatever al Qaeda’s threatening rhetoric and occasional nuclear fantasies, its potential as a menace, particularly as an atomic one, has been much inflated.

The public has now endured a decade of dire warnings about the imminence of a terrorist atomic attack. In 2004, the former CIA spook Michael Scheuer proclaimed on television’s 60 Minutes that it was “probably a near thing,” and in 2007, the physicist Richard Garwin assessed the likelihood of a nuclear explosion in an American or a European city by terrorism or other means in the next ten years to be 87 percent. By 2008, Defense Secretary Robert Gates mused that what keeps every senior government leader awake at night is “the thought of a terrorist ending up with a weapon of mass destruction, especially nuclear.” Few, it seems, found much solace in the fact that an al Qaeda computer seized in Afghanistan in 2001 indicated that the group’s budget for research on weapons of mass destruction (almost all of it focused on primitive chemical weapons work) was some $2,000 to $4,000.

Full Story Here: The Truth About al Qaeda | Foreign Affairs.

Earlier today, Brad Friedman reported that, despite high unemployment and food stamp usage at an all-time record high, U.S. corporations were experiencing record profits.

Simultaneously, Los Angeles Times reported that Senate leaders have reached an accord to pass three more NAFTA-like “free trade” agreements (Panama, Colombia, and South Korea) when Congress returns from its August recess. The Times stated: “Proponents [e.g., the U.S. Chamber of Commerce] say the trade agreements…will pump as much as $14 billion into the U.S. economy and add more than 250,000 jobs.”

The reality was better captured by Ross Perot during a 1992 Presidential Debate when he warned (video reminder below) that NAFTA would produce “a giant sucking sound of jobs headed South”…

Full Story Here: The BRAD BLOG : Next ‘Giant Sucking Sound’: U.S. Senate Leaders Reach Accord on Three New ‘Free Trade’ Agreements.

Prior to the enactment of NAFTA, the United States had a trade surplus with Mexico. After NAFTA was put into effect, that surplus became a trade deficit, destroying scores of American jobs. According to the Economic Policy Institute, the U.S. trade deficit with Mexico alone had displaced 682,900 U.S. jobs as of 2010. This figure will most likely continue to increase with the enactment of an additional provision of the trade agreement.

Full Story Here: Disastrous Developments Still Coming from NAFTA | Economy In Crisis.

Our trade treaties should protect our country from predatory foreign countries seeking to weaken or destroy American industry. To that end, tariffs should be erected where needed and where practical, as was our policy and procedures in the past. Experience has shown that it is futile to expect other countries to adopt our policies on, for instance, fair and free competition.

What we can do is control the impact of their policies on our economy. The most obvious tool we have is placing tariffs on their exports to us, as they do with our exports to them. No doubt our tariffs would unjustifiably upset them. We would also have to accept the possibility that our loans from them might suffer. However, in the long run, these negatives would be offset by positives and allow us to manufacture competitively and profitably for the first time in the last ten years.

Full Story Here: American Manufacturing Just Can’t Compete | Economy In Crisis.

The idea of globalism has been pervasive in our national discourse in recent decades. Corporations now have global strategies and have little or no loyalty to the country where they got their start.

The culture of globalism dictates that companies will seek profits wherever they can be found in the world. This often means pulling up manufacturing operations in the U.S. that have been in place for decades and putting thousands out of work. But corporations benefit from globalization in a way that workers do not. Workers cannot often pull up roots and go looking for better jobs anywhere in the world. Workers have a connection to their country, but our country’s policies seem to continuously reward corporations with no ties to their country instead.

By opening our borders through free trade, our labor force has merged with that of Mexico, China, and many other countries where the pay rate is much lower than what constitutes a living wage in the United States. This has both driven down wages in our country for the jobs that remain here, and encouraged companies to ship many jobs to these countries where they can exploit the cheap labor. Does it really constitute a level playing field when the wage that can support a family in one country cannot support a single person in the United States? Because of globalism, and more specifically our free trade policies, these are the terms Americans are being asked to compete under.

Full Story Here: Globalism Fails to Benefit Average Americans | Economy In Crisis.

According to a report by Reuters, the U.S. International Trade Commission is set to do the research and present a report to the U.S. Trade Representative’s Office early next year.

The study would focus on the effects such a move would have on “U.S. industries, consumers and free trade partners as well as poor countries that already have preferential access to the United States.”

Full Story Here: U.S. to Study Effects of Dropping all Tariffs, Quotas for Poorest Nations | Economy In Crisis.

Ian Fletcher

Obama is still pushing for free trade agreements with Panama, Colombia, and Korea, albeit with the thin fig leaf of demanding they be accompanied by money for so-called Trade Adjustment Assistance, a “painkiller” program designed to blunt the harm to laid-off workers.

The Republicans don’t like TAA, which has held up passage of these agreements momentarily, but both sides are still gunning to pass these agreements some time soon.

You think America has learned its lesson from NAFTA, which the Labor Department has estimated cost us 525,000 jobs? Think again.

Take the Korea agreement, for example. President Obama and the Republican leadership want it despite the fact that the Economic Policy Institute has estimated it will cost us 159,000 more jobs over the next five years.

Yes, you read that correctly. At a time when the president says that his number one economic priority is job creation, and has created an entire commission for that purpose, they’re going ahead with it anyway.

Even the official U.S. International Trade Commission has admitted that KORUS-FTA will cause significant job losses. And not just in low-end industries: the ITC foresees the electronic equipment manufacturing industry, with average wages of $30.38 in 2008, as a major victim.

The supposed logic of America swapping junk jobs for high-end jobs simply isn’t the way the economics really works out. Pace free-market mythology, there are actually well-understood reasons for this, if you dig a little into what economists already know.

Was this the Obama America voted for in 2008?

No. That Obama is at an undisclosed location somewhere. He campaigned against KORUS-FTA during the 2008 campaign. (It was originally negotiated, but not ratified by Congress, by Bush in 2007.) Among other things, that Obama said:

I strongly support the inclusion of meaningful, enforceable labor and environmental standards in all trade agreements. As president, I will work to ensure that the U.S. again leads the world in ensuring that consumer products produced across the world are done in a manner that supports workers, not undermines them.

Nice words. Unfortunately, none of them are reflected in KORUS-FTA, which contains no serious new provisions on these issues.

This agreement is essentially a NAFTA clone. It is, in fact, the biggest trade agreement since NAFTA, and the first since Canada with a developed country.

This agreement, like NAFTA and the dozen or so other free trade agreements America has signed since NAFTA, is fundamentally an offshoring agreement. That is, it is about making it easier for U.S.-based multinationals to move production overseas with confidence in the security of their investments in overseas plants.

The provisions to protect workers and consumers are unenforceable window dressing. (That’s why they’re allowed to be in there in the first place.)

Don’t be fooled by the fact that some unions, like the United Auto Workers (UAW), have endorsed the agreement. This is just a cynical ploy by the White House to split the trade union movement in order to keep the AFL-CIO neutral.

The UAW’s out-of-touch leadership is so punch-drunk from the 2008 collapse of the U.S. auto industry that it has lost touch not only with what is good for the American economy as a whole, but with what is good for rank-and-file auto workers. (There’s a rumor in circulation they did a deal with the White House in exchange for protecting pension and other obligations in the auto industry bailout. I can’t prove this, but it would certainly explain a few things.)

Don’t take my word for it, either: in the words of Al Benchich, retired president of UAW Local 909:

The UAW Administration Caucus is the one-party state that controls the UAW at the International level. Every International officer is a member of the Caucus, and they surround themselves with appointed international reps that unquestioningly do their bidding.

No wonder other, more democratic and more intelligent, unions, like Leo Gerard’s United Steelworkers, are criticizing the UAW for its decision to support KORUS-FTA.

Interestingly, the UAW’s past record of criticizing KORUS-FTA is more honest than anything they’re saying right now. For example, here’s what they originally said about this agreement:

KORUS-FTA has inadequate protections and enforcement mechanisms to enforce either the spirit or the letter of the law.

Precisely. And changes made since then are, as noted, minimal.

As an example of how one-sided the treaty is, consider that it now allows — to great rejoicing — America to export 75,000 cars a year to Korea. This translates to a measly 800 jobs. Korea’s exports of cars to the U.S. in 2009, on the other hand?

Try 476,833.

Furthermore, even if the U.S. does get to sell more cars in Korea, American companies will mostly not be making the steel, tires, and other components that go into them, because the agreement allows cars with 65 percent foreign content to count as “American.”

Worse, it allows goods with as much as 65 percent non-South-Korean content to count as “Korean,” opening the door not only to North Korean slave labor but to the whole of China. Talk about the camel’s nose in the tent!

This is just one example of how KORUS-FTA isn’t even as good as the deal the EU just signed with Korea. (The EU got a 55 percent standard on this item.) And remember that the EU and most of its member states, of course, don’t really practice free trade anyway: they practice a covertly managed trade that has kept the EU’s trade balance within pocket change of zero over the last two decades, while America has been running deficits around the $500 billion mark.

“Free trade agreement,” in American English, means “free trade agreement.” In other languages, it means “gentleman’s agreement for managed trade at a low tariff.” The Europeans invented this game — called mercantilism — back when trade was conducted with sailing ships. South Korea learned it from Japan, which learned it from Germany. Uncle Sam (and maybe John Bull and a few others) are the only naïfs who still don’t get it.

Despite what the White House and the U.S. Chamber of Commerce are saying, this agreement makes no sense as a strategy to reduce our horrendous trade deficit. America’s trade deficits have a long record of going up, not down, when we sign trade agreements with other nations.

Paradoxically, trade agreements even seem to sabotage our own trade with foreign nations: according to an analysis by the group Public Citizen, in recent years our exports to nations we have free-trade agreements with have actually grown at less than half the pace of our exports to nations we don’t have these agreements with. So these agreements don’t hold water as trade-expanding measures.

Even leaving aside trade-balance issues, this agreement is a disaster, thanks to something called “investor-state arbitration.” Like NAFTA, it compromises American sovereignty and subjects American democracy to having its own laws overruled by foreign judges as interfering with trade. Under NAFTA to date, over $326 million in damages has been paid out by governments as a result of challenges to natural resource policies, environmental protection, and health and safety measures. There about 80 Korean corporations, with about 270 facilities around the U.S., that would acquire the right to challenge our laws under KORUS-FTA.

What kind of problems could this cause? The U.S. was forced in 1996 to weaken Clean Air Act rules on gasoline contaminants in response to a challenge by Venezuela and Brazil. In 1998, we were forced to weaken Endangered Species Act protections for sea turtles thanks to a challenge by India, Malaysia, Pakistan and Thailand concerning the shrimp industry. The EU today endures trade sanctions by the U.S. for not relaxing its ban on hormone-treated beef. In 1996, the WTO ruled against the EU’s Lome Convention, a preferential trading scheme for 71 former European colonies in the Third World. In 2003, the Bush administration sued the EU over its moratorium on genetically modified foods.

It gets worse. KORUS-FTA also signs away our right (and Korea’s, too, not that this makes it any better) to a wide range of financial regulations of the kind that might have helped avoid the crisis of 2008. For example, it forfeits our right to limit the size of financial institutions. It forfeits our right to place firewalls between different kinds of financial activities in order to prevent volatility in one market from collapsing another. It prevents us from limiting what financial services financial institutions may offer—Enron Savings & Mortgage, here we come… It bans regulation of derivatives. It ban limits on capital flows designed to tame volatile “hot money.”

Why is the U.S. flirting with making such an appalling mistake yet again? Because a) multinational corporations have bought our political system and b) because our government would rather play power politics than keep its own (declining) economic house in order.

It is remarkable how stuck we are in the 1950s, with an invincible economy at home and a Cold War abroad. As a report by the Senate Finance Committee once put it:

Throughout most of the postwar era, U.S. trade policy has been the orphan of U.S. foreign policy. Too often the Executive has granted trade concessions to accomplish political objectives. Rather than conducting U.S. international economic relations on sound economic and commercial principles, the executive has set trade and monetary policy in a foreign aid context. An example has been the Executive’s unwillingness to enforce U.S. trade statutes in response to foreign unfair trade practices.

Ironically, it may eventually be our own decline that solves our trade problems, by rescuing us from our own arrogance and stupidity. When we finally realize we can’t take our economy for granted, we may finally stop giving away the store in international trade.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

I recently gave a podcast interview to Vox Day, a prominent Christian libertarian, explaining why free trade is bad for America.  He followed it up with an article making many of the same points.

Finally, a libertarian gets it.

This did not go over well with some of his followers.

I’m not qualified to speak to the “Christian” aspects of free trade—whatever those are—beyond observing that globalism, of which free trade is a part, certainly looks like the Tower of Babel.  But as one prominent libertarian has now seen through the free trade delusion that generally grips his fellow libertarians, this is probably a good time to explain what he got and they didn’t.

The libertarian defense of free trade can get as complicated as anything in technical economics, but at bottom it comes down to ideas like this, which one can read all over the place in the comments posted after my articles—and now Vox Day’s:

“What right do you have to tell me who I may and may not buy things from?”

At first blush, that’s quite a challenge.  Many libertarians certainly seem to think it’s decisive. It’s certainly a snappy quote.

But it’s wrong.

Let’s start by noting that I am not claiming any right at all.  Protectionism, if implemented, wouldn’t be implemented by me. It would be implemented by the U.S. Government, and would be legitimate—if it is legitimate—for the same reasons all our other legitimate laws are legitimate:

We have Constitution and a democratic process, and that’s where laws come from.

Some libertarians prefer to call themselves constitutionalists, so it is worth pointing out that Article I, Section 8 of the Constitution explicitly gives Congress the right “to regulate commerce with foreign nations.”

The second point in answer to the libertarian challenge stated above is this:

This isn’t just about you.

Like it or not, even a capitalist economy is a system, in which your actions affect other people. Your freedom to swing your fist ends, famously, at the tip of my nose, and what you buy and don’t buy affects other people.

Even more importantly, your own economic actions don’t mean anything except in the context of a system that you didn’t create.  You don’t enjoy the income you enjoy—which is what gives you the very ability to buy things disputed above—solely because of your own efforts. You enjoy that income because, among other things, you were born into a society which had a per-capita GDP of $47,000 during your working lifetime.

If you’d been born in medieval Afghanistan, it would be a very different matter.  And not because of anything you personally can claim credit (or deserve blame) for.

So you can’t claim that what you’ve got derives solely from your own efforts and that you are therefore entitled to do what you like with it. Robinson Crusoe can claim absolute economic freedom; you can’t.

None of this is to deny that a reasonable amount of economic freedom is a good thing. But you get into trouble when you elevate it, like any other good, into an absolute. Try absolutizing national security, traditional values, law enforcement, self expression, religious piety, intellectual sophistication, social order, … Get my point?

Here the plot thickens, because the nature of this economic system we are all a part of is the real key to why free trade doesn’t work even within libertarian assumptions.

The libertarian economic model is a model based on free markets.  That is, it is based on the idea that free market economics describes both the way the economy is (insofar as it works well) and the way it should be.

The key idea of this free market economics is equilibrium. That is to say, free market economics holds that if market forces are allowed free play, then the prices and production of things will reach natural equilibria that are the most efficient outcome that could exist.

To a huge (but not total) extent, this is true.  (I studied economics at the University of Chicago; trust me, I know this story.)

But there’s a catch.  Equilibria only balance properly if nobody puts a “thumb on the scale” anywhere in the economic system and distorts it.  If that happens, then all bets are off about the outcome being efficient at the level of the system as a whole.

All bets are also off—this is the key—about any individual “free” market decision being valid. Why? Because the market isn’t free anymore.  You can’t play by free market rules when you’re not in a free market.

Try playing fair when the game is rigged.  That’s not fairness, it’s suicide.

Unfortunately, there are a million “thumbs on the scale” in international trade right now.  All of these distort market forces, so even if pure-free-market economics is right (it isn’t, but that’s another story), libertarian economic conclusions don’t follow.

How are markets distorted in trade?  Don’t get me started.  To name just a few ways:

• China manipulates its currency.  So does Japan, Germany, and a few others.
• China keeps American goods out of its markets.  So does Japan, yadda yadda yadda, albeit more politely.
• China subsidizes (contravening its own WTO treaties) its industries in ways ranging from cheap credit to free land.
• China steals American intellectual property.  (Germany and Japan mostly quit doing this long ago, largely because they now have a lot of intellectual property of their own to protect.)
• China uses slave labor.  Even its non-slave labor is regimented in ways unimaginable in the U.S.

As a result, someone who buys cheap foreign goods isn’t exercising a free choice, they’re just taking advantage of someone else’s utterly coercive subsidy. The price system can’t tell the difference—cheap is cheap—and that’s why people make this choice thinking they’re practicing freedom.  But the slaves keep on sweating.  And the money changers keep cheating.  And all the rest of it.

Whenever libertarians buy foreign goods that are cheaper because of all these practices, they encourage them.

And that actually diminishes, rather than increases, freedom.

So even from a libertarian point of view, free trade is a losing move.

 

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

Russia, China and India concerned about ‘strategic partnership’ in which Americans would remain after 2014

American and Afghan officials are locked in increasingly acrimonious secret talks about a long-term security agreement which is likely to see US troops, spies and air power based in the troubled country for decades.

Though not publicised, negotiations have been under way for more than a month to secure a strategic partnership agreement which would include an American presence beyond the end of 2014 – the agreed date for all 130,000 combat troops to leave — despite continuing public debate in Washington and among other members of the 49-nation coalition fighting in Afghanistan about the speed of the withdrawal.

American officials admit that although Hillary Clinton, the US secretary of state, recently said Washington did not want any “permanent” bases in Afghanistan, her phrasing allows a variety of possible arrangements.

Full Story Here: Secret US and Afghanistan talks could see troops stay for decades | World news | The Guardian.

What I suppose is debatable, in the most generous sense of that term, is our motive in doing this. Why — at a time when American political leaders feel compelled to advocate politically radioactive budget cuts to reduce the deficit and when polls show Americans solidly and increasingly opposed to the war — would the U.S. Government continue to spend huge sums of money to fight this war? Why is President Obama willing to endure self-evidently valid accusations — even from his own Party — that he’s fighting an illegal war by brazenly flouting the requirements for Congressional approval? Why would Defense Secretary Gates risk fissures by so angrily and publicly chiding NATO allies for failing to build more Freedom Bombs to devote to the war? And why would we, to use the President’s phrase, “stand idly by” while numerous other regimes — including our close allies in Bahrain and Yemen and the one in Syria — engage in attacks on their own people at least as heinous as those threatened by Gaddafi, yet be so devoted to targeting the Libyan leader?

Whatever the answers to those mysteries, no responsible or Serious person, by definition, would suggest that any of this — from today’s Washington Post — has anything to do with it:

Full Story Here: In a pure coincidence, Gaddafi impeded U.S. oil interests before the war – Glenn Greenwald – Salon.com.

Earlier this week, The Nation magazine and the Haitian weekly newspaper Haïti Liberté announced a partnership whereby they would work together to publish findings from 1,918 U.S. embassy cables — dated between 2003 and 2010 — from Haiti.

Now, the two papers have released their first article about the cables. In “The PetroCaribe Files,” Dan Coughlin and Kim Ives review an ordeal discovered within the cables involving an oil and development deal Haiti was negotiating with Venezuela and Cuba between 2006-2007.

As a part of the deal struck that year, Haiti would join the Venezuelan-led oil alliance known as PetroCaribe and it would purchase oil “only 60 percent up front with the remainder payable over twenty-five years at 1 percent interest” — a remarkably good deal for the Western hemisphere’s poorest country.

Full Story Here: Wikileaks Cables: U.S. Worked To Scuttle Haiti Gas Development Deal On Behalf Of Big Oil | ThinkProgress.

The co-author of “the Israel Lobby” responds to the storm over Obama’s Mideast speech

President Obama’s big Middle East speech on Thursday set off a flurry of developments in the world of Israel-Palestine politics.

First there was the bitter response by some pro-Israel members of Congress to Obama’s call for the 1967 borders of Israel, with adjustments, to form the basis for negotiations. Then there was Israeli Prime Minister Netanyahu’s chilly visit to the White House on Friday, followed by another Obama speech over the weekend at the annual conference of the biggest pro-Israel group, AIPAC.

To get perspective on all that’s happened, I sent some questions to University of Chicago professor John Mearsheimer, whose 2007 book is a close study of “the Israel Lobby.”

Full Story Here: Is Obama really getting tough on Israel? – War Room – Salon.com.

Nomi Prins :-:

As newly resigned International Monetary Fund head Dominique Strauss-Kahn (aka DSK) hunkers down in his jail cell, IMF news has fallen into two categories. The first involves salacious details of his alleged attempted rape, and the second, questions about whether his absence will keep the IMF from its main focus of constructing pro-bank bailout packages for Greece, Portugal and other struggling European countries. Both categories miss the devastation the IMF causes, regardless of who heads it.

Meanwhile, the global economic assault caused by the misguided IMF and EU notion that public spending cuts and national infrastructure fire sales should be enacted to make up for bank rampages marches on. Rather than clamping down on banks and working on debt reduction strategies, bailout loans remain designed to keep banks solvent, investors shielded from loss, and outside buyers interested.

Though he had designs on leading France—from the socialist side, no less—DSK is nothing more than a proponent of very nonsocialist measures when it comes to other countries. His actions at the IMF speak louder than any words to the contrary.

Full Story Here: Nomi Prins: The Real IMF Assault – Truthdig.

The President strongly endorsed “two states for two peoples” and explained to a skeptical crowd that the status quo is Israel’s worst enemy.

Politely and nicely, he stuck it to Prime Minister Binyamin Netanyahu by explaining that Bibi’s faux-outrage over the ’67 lines is utterly bogus. This was critical. He showed, citing history, that there is absolutely nothing new about saying that peace must be built on the ’67 lines with modifications (made up by land swaps).

And AIPAC accepted it, even applauded it. The right-wing meme was destroyed, as much by AIPAC’s reaction as by Obama’s explanation.

Full Story Here: The President Scores Big At AIPAC By Sticking To His Guns | Political Correction.

President Barack Obama is trying to assuage some of America’s fiercest supporters of Israel after he endorsed the Jewish nation’s 1967 boundaries as the basis for a Palestinian state and clashed with Israeli Prime Minister Benjamin Netanyahu.

In a speech Sunday to the American Israel Public Affairs Committee, Obama wasn’t expected to outline another significant U.S. policy shift but probably would focus on the deep U.S.-Israeli alliance.

But almost everyone in the room wanted to see how the president addresses his remarks from Thursday, when he said that a future Palestine should be shaped around the border lines that existed before Israel captured the West Bank, Gaza Strip and East Jerusalem, with land swaps to account for Israeli settlements and other changed conditions.

Full Story Here: Obama AIPAC Speech 2011: President Seeks To Smooth Out U.S.-Israel Tensions.

I shall leave aside for now the strategic question of whether America should stiff China, i.e. repudiate our $3 trillion in obligations to them.  Strategically, repudiation of debt and other instruments on this scale is obviously something analogous to the atomic bomb in warfare: a very extreme option, with serious negative side effects, and not something to be taken lightly.

My question in this article is, rather, the ethical question: does America have the right to stiff China?  Frankly, we quite arguably do.

Any serious ethical argument on this question turns upon the fact that China has not honored obligations it has assumed towards us, so therefore we are not obliged to honor our obligations towards it.  This sounds like a technicality, but in fact, China’s failures to honor its obligations run into the trillions of dollars.

Let’s start with currency manipulation.  China engages in this practice to a massive degree, spending roughly a billion dollars a day to drive down the renminbi-dollar exchange rate.  And yet China has agreed, by becoming a signatory to the Articles of Agreement of the IMF, not to do so.  Article IV, section 1 of this document—which China voluntarily signed—reads:

Each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:… (iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.

(See http://www.imf.org/external/pubs/ft/aa/aa.pdf)

The next big area of unethical Chinese behavior is the theft of American intellectual property. The most obvious and superficial case of this is rampant Chinese copying of American DVDs and other entertainment materiel, together with fake designer handbags, watches and the like. But the more serious kind of intellectual property theft concerns industrial know-how.

Although China committed, when it joined the World Trade Organization in 2001, to crack down on such theft and start to uphold the standards on the issue that developed nations uphold, it has not done so. Instead, with government acquiescence and best and proactive help (sometimes with the aid of Chinese intelligence agencies) at worst, it has continued to steal.   As reported by the Irish journalist Eamonn Fingleton in his book Jaws of the Dragon,

The story began as long ago as 1980 when Beijing agreed to join the World Intellectual Property Organization. Various laws were duly promulgated that ostensibly provided Western owners of trademarks, patents, and copyrights with extensive protection against theft.

After American corporations complained that these laws were mere window dressing, Beijing assured first Washington and then the World Trade Organization that it would tighten enforcement. Yet all the evidence is that the problem has just kept getting worse–so much so that China was recently reckoned to account for fully two-thirds of all the world’s output of pirated and counterfeit products.

Moreover, China’s counterfeiting style has in recent years developed in a way that poses a qualitatively different, much more devastating, threat than previously. Whereas in the 1990s China confined itself largely to producing rather obvious knockoffs of luxury items such as Rolex watches and Louis Vuitton handbags, these days it is heavily involved in producing fake versions of everything from General Motors spare parts to Otis elevators.

China also exports vast quantities of counterfeit pharmaceuticals, most notably drugs like Prozac Viagra, which sell particularly well on the Internet.  Not only does such counterfeiting damage American corporate interests but it raises major questions of consumer safety.  In recent years there have been many reports of deaths caused by Chinese counterfeiting activities. In Panama in 2006, more than 100 people died after taking cough medicine laced with a toxic Chinese-made ingredient.

As documented by the author Tim Phillips in 2005, whole cities in China are devoted to various counterfeiting specialties.  The city of Yiwu in eastern China even functions as a sort of “Wall Street” for the industry, providing a vast marketplace where, Phillips states, 100,000 counterfeit products are openly trade and 2,000 metric tons of fakes change hands daily.  Meanwhile, as Edmund Andrews of the New York Times has reported, in big cities like Shanghai, vendors still openly sell pirated goods even along major thoroughfares.

Not only has the Chinese government turned a blind eye to all of this, but large sections of the Chinese establishment, not least many sons and daughters of top leaders (know to China watchers as “princelings”), are heavily implicated in the racket.

The value of this stolen property must be accounted for in any calculation of what America owes China on net.  This is not a minor issue in a modern technology-based economy—which must, by definition, be a know-how based economy.  (According to a 2006 study by the Federal Reserve Board, America’s investment in this and related intangible assets like research and development , computer software, workforce training, and spending to build brands exceeds its investment in tangible assets.)

The cost to American industry is not only the licensing and other fees that should have been paid and were not.  The cost includes also the long-term contracting of America’s industrial base due to counterfeit competition and the destruction of our capacity to innovate and invent due to depriving inventors of their just reward.

Finally we come to the most fundamental Chinese violation of its obligations to the U.S. Despite having committed on paper to engage in free trade with us—a commitment that we have honored to a fault—China in reality closes its own markets to its trading partners.

China’s protectionism doesn’t only mean obvious policies like tariffs and quotas; it also includes local content laws, import licensing requirements, and subtler measures (some of them covert, hard to detect, or infinitely disputable) such as deliberately quirky national technical standards and discriminatory tax practices. And it includes outright skullduggery such as deliberate port delays, inflated customs valuations, selective enforcement of safety standards, and systematic demands for bribes.

The quantitative size of these Chinese repudiations of assumed obligations?  Well, if we take seriously the claim by neoclassical free-trade economists that trade naturally tends towards balance, then we must conclude that their size is equal to China’s gigantic accumulated trade surpluses with the United States.

Interestingly enough, the size of China’s accumulated American assets, because these derive from these accumulated trade surpluses, corresponds fairly closely to the size of China’s accumulated cheating.  Which suggests—not proves, suggests—a certain poetic justice if America were to repudiate these obligations.  Perhaps it’s not the prudent thing to do (at least at the present time), but we shouldn’t feel guilty about considering it, especially as it’s one of our strongest forms of leverage for negotiating a better solution.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

Rep. Keven Brady (R-TX) has introduced a piece of legislation that would allow American multinational corporations to bring cash back to the U.S. they are hoarding offshore at a discounted tax rate.

Currently, American multinationals have up to $1 trillion sitting offshore. Normally, that cash would be taxed at a 35 percent rate when it is returned to America. Under the Brady bill, they could return their cash to America at a rate of just 5.25 percent.

“This is about creating jobs, expanding U.S. businesses and strengthening American companies,” Brady said in a statement today.

To ensure that the companies did use the money to create jobs, the legislation would add $25,000 to their taxable income each time they cut their workforce below the average number of employees prior to the institution of a tax holiday.

Full Story Here: Republican Introduces Bill to Institute Tax Holiday for Multinational Corporations | Economy In Crisis.

By MIKE WHITNEY

Is there anything more irritating than listening to US officials blabber about “human rights”?

Here’s Hillary Clinton bashing China for their “deplorable” human rights record, and meanwhile Bradley Manning sits naked and freezing in a 6′ by 8′ cinderblock cell in some far-flung American gulag waiting to get fingernails yanked out.

And that’s just for starters. What about Gitmo, Abu Ghraib, Bagram and the myriad other dungeons, concentration camps and black sites the US has scattered across the planet. The United States is the biggest human rights abuser in the world today. Clinton’s in no position to be giving other people lectures.

Just look at Falluja; a city of 300,000 that had about 40,000 of its people wiped out by US bombs, 80 per cent of its buildings and infrastructure reduced to rubble, and a legacy of cancers and birth defects until the end of time. Now that’s how you kill people!

Full Story Here: Mike Whitney: Hillary Blasts China on “Human Rights”.

Ian Fletcher

My last article, a review of Eamonn Fingleton’s provocative (but hard to dismiss) book In the Jaws of the Dragon: America’s Fate Under Chinese Hegemony, has drawn enough comment that I feel I should respond.

There have been basically two schools of response:

1)      Yes, China is eating our lunch, but it’s our own fault and when will we stop being such fools that we let them do it?  By the way, can at least a few token traitors from corporate America go in front of a firing squad at Ft. Leavenworth?  It’s 1930s-style appeasement all over again.

2)      Lay off the warmongering. China isn’t a threat now, won’t be in future, and you’re either a yellow-peril racist or a neocon pining for a new Cold War. And did I mention Bush lied last time, and right-wingers are trying to lie us into another war? Oh and yes, the economic interests of all nations are in harmony.

To be sure, I can’t be certain of the sincerity of all of the latter responses, as Beijing is known to employ an army of amateur Internet propagandists, known as the “50 cent party” after the per-post fee they receive, whose job it is to spread commentary favorable to the regime’s interests on the web.  But at least some of the above responses appear to be genuine, and even if they are not, they still represent a possible interpretation of the facts and some corresponding policy choices for the U.S.  So we’d better take them seriously.

Let’s begin by remembering that America’s past political mistakes don’t, on their own, prove anything about the present. For example, there is no doubt that the U.S. was at one time seriously prejudiced against Asian peoples.  But dismissing American fears of China today as mere racial prejudice is silly: we’re not imagining China’s nuclear warheads, its dictatorial government, or its predatory mercantilism. Even if racism is a part of the motivation of some of China’s critics—it may be; I can’t read people’s minds—this doesn’t make their criticisms false, just dishonorably motivated.

Similarly, have a care with the Cold War analogy and the ghost of McCarthy.  Granted, there are people in the U.S. who are spoiling for an enemy. I recall attending a conference in Washington—it was in 1997 or  1998—in which there was literally a panel discussion entitled “Should We Make China the New Soviet Union?”  Hmm… I recall thinking at the time that China either is or isn’t whatever it is, and Americans don’t have much option to “make” it anything otherwise.  I still think so.  Even if vested interests in the U.S. want to ramp up defense spending and some people just can’t face the day without an enemy to crusade against, again this doesn’t make them wrong, just dishonorably motivated.

I also can’t resist noting at this juncture that, perverse though it sounds, having an enemy is not always entirely a bad thing. It’s painfully obvious, in retrospect, that the vast surge of broadly-shared middle class prosperity, not just here in the U.S. but in Western Europe, at mid-century was in large part a riposte to Communism engineered by America’s ruling elite. Minus the competition with Stalin, I’m not entirely sure they would have built Levittown. You think it’s an accident that inequality surged as the credibility of the Soviet threat receded?  And that’s not to mention the fact that the Pentagon created most of the effective industrial policy the U.S. had during this era.

Might a drawn-out competition with China similarly force America to get its act together and deliver decent economic performance for its own citizens and the foreign peoples in its sphere of influence?  It just possibly might, especially as the success of the East Asian model of planned-economy capitalism is intellectually killing the mythology of laissez faire that is strangling this country right now.  Sometimes it takes rivalry to bring out the best in people—even the USA.

Another theme that often came up about China was that “authoritarianism, no matter how strong it looks at the moment, can’t last.  Freedom is on the march, and there is a mile-long list of dead tyrants to testify to that.”  Sounds inspiring, and it’s an easy idea to drape in red, white, and blue. But this analysis is misleading in the case of China, barring some extremely unexpected events. The authoritarian societies of the past have tended to fail for specific reasons—problems which the regime in Beijing is very carefully avoiding:

1)   They were personalist dictatorships that depended upon the vigor of a single despot whose luck eventually ran out.

2)   They were stuck in the past, and did not adapt to modern technology.  In this category go traditional societies from Spain to Zululand.

3)   They went broke because they didn’t understand economics and thought they could create wealth by political fiat.  In this category goes the USSR and all its imitators.

4)   They got arrogant and blundered into wars they couldn’t win.  In this category go Hitler, Mussolini, and Saddam Hussein.

In China’s case, we can rule out #1 and #2 above with ease.  Problem #4, of course, refers, from our present vantage point, to the future, as we cannot be absolutely sure they won’t do something stupid militarily.  But the evidence appears to weigh against it.  Beijing for now appears to be a disciplined player of the game which, while certainly willing to use force (ask Tibet!), isn’t going to romp into strategic catastrophe from sheer excess testosterone.

War? Personally, my suspicion is that a corrupt deal will be struck by the rulers (I mean the real rulers, not necessarily the elected government in our case) of China and the U.S., and there will no violent clash between the two nations.  Too unprofitable.  I can certainly gin up scenarios for the opposite, but these get tendentious. Much easier for two elites to unite on their true common ground: aggrandize their own money and power, and the populations they rule take the hindmost.  Behind closed doors, I think they already realize how much they have in common.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

One of the nation’s largest labor organizations is calling for the suspension of one of America’s smallest trade pacts after reports of illegally detained union leaders in Bahrain have appeared in the media.

Democratic uprising in the Middle Eastern country have led to government suppression across the country, and labor leaders in the country have been one of the main targets.

“Bahrain’s actions have gone so far beyond the pale,” said Jeff Vogt, deputy director of the AFL-CIO’s international department. “We shouldn’t be in this agreement.”

Under the agreement, Bahrain is required to protect human rights and respect the rights of workers to organize collectively.

Full Story Here: U.S. Labor Groups Call for Suspension of Bahrain Trade Pact | Economy In Crisis.

As China continues its rise to becoming the world’s most prosperous economy, the U.S. government’s refusal to participate in the trade war between the two nations has cost the economy dearly and will only do further harm in the future.

“I don’t blame the Chinese, they’re just pursuing their national interest,” Patrick Mulloy said, a member of the Congressional U.S.-China Economic and Security Review Commission. “I blame us for not realizing what’s happening to us and for doing nothing about it.”

The government’s failure to craft any form of trade policy to counter China’s predatory trade practices has cost the nation more than 5.5 million manufacturing jobs since allowing China to join the WTO. Last year alone, America’s trade deficit with China hit a record $273 billion.

Full Story Here: Consequences and Casualties of Trade War | Economy In Crisis.

Why don’t individuals give up on outdated ideas about “free” trade, which multiple decades of evidence has proven is a disastrous failure? Why don’t more people oppose this horrendous idea and realize its impact on their life?

It is a proven scientific fact that when confronted with new ideas or challenges to one’s beliefs and values, individuals will do their best to resist and refute anything that threatens their preconceived notions and core identity. Despite the most logical argument in the world, and all the statistics found on this website about how our trade policy (or lack thereof) is destroying the nation, without framing the argument appropriately, the human mind will reject it.

However, the problems with the way we conduct international trade in this nation are so vast and expansive, there are multiple avenues of attack for anyone professing to be a “free” trader. First of all, the reason why the word “free” is always in quotation marks is because it really isn’t “free”. Our current system is actually leaving ourselves defenseless while our rivals use currency manipulation, subsidies and other dirty tricks to take advantage of us.

Full Story Here: Trade Affects All Aspects of Our Lives | Economy In Crisis.

If an enemy infiltrated our government and wanted to destroy us, this is the type of agreement they would want approved – the new Korean Free Trade Agreement (KORUS FTA).

We know that NAFTA – the North American Free Trade Agreement – was instrumental in completely destroying our ability to manufacture competitively in the U.S. by outsourcing our manufacturing to Mexico, China and other countries with labor rates as low as $2 an hour. They then ship the products back here duty and tariff free – totally destroying our ability to manufacture competitively, unless we want to change our wage rates to $2 per hour.

The KORUS FTA will not only further deplete our manufacturing base, it will also take international trade, banking and finance out of our control.

Full Story Here: Could Our Elected Legislators be Our Enemies In Disguise? | Economy In Crisis.

OPS: “Free Trade” has been destroying this country since Reagan

Ian Fletcher:

It’s only fair to answer some of the objections to the idea of an import tariff that I and others, like possible presidential candidate Donald Trump, have recently proposed.

One common objection is simply that our trading partners would just shrug it off by increasing subsidies to their exporters.

They are constantly alert to threats against their trading position: China, for example, was recently reported in China Daily as increasing export rebates on 3,800 items “to maintain growth.”

This would, obviously, force us into an endless game of matching these moves on a country-by-country, industry-by-industry, and even product-by-product basis.

However, such subsidies by our trading partners would be restrained by the fact that they would be very expensive in the face of an American tariff. Right now, these subsidies are relatively affordable only because they don’t have to climb an American tariff wall. But if they did, their cost would increase dramatically.

They can’t afford to play that game forever, as it’s cheaper for us to raise a tariff (which brings in money) than for them to raise a subsidy (which costs money).

Currency manipulation is probably the only subsidy that is affordable over prolonged periods of time (and even then problematic in the end), as it involves buying foreign assets and debt, thus accumulating wealth rather than just expenditures.

While this doesn’t prevent foreign subsidies absolutely, it does tend to set a limit. This is all we need, especially as we have no hope of eliminating or countervailing all foreign subsidies no matter what we do, tariff or no tariff.

The same goes for the objection that our trading partners would just devalue their currencies. As I have previously written, we can end foreign currency manipulation at any time simply by restricting or taxing foreigners’ ability to lend us debt and buy our assets.  We would need to raise our own savings rate if we did this (or face rising interest rates), but we need to do this anyway.

Another objection is that any tariff large enough to mean anything would impose a sudden shock on the U.S. and world economies, which would tip them into recession as other shocks, like the 1973-4 oil shock, have done.

This is a legitimate concern, as economies do not adapt well when the rules governing them change faster than the economy itself can keep up with.

Example: if a 25 percent tariff suddenly makes it economically rational to manufacture disk drives in Colorado rather than Kyushu, this doesn’t make plants sprout in Colorado overnight. So until the U.S. and Japanese economies adapt to the newly implied distribution of industries between them, they will be out of balance and thus underperform.

But phasing in a tariff over five years or so would mitigate this.  Think gradual.

Another objection is that a tariff would trigger a downward spiral of retaliation and counter-retaliation with our trading partners, resulting in an uncontrolled collapse of global trade

But this oft-bandied doomsday scenario is unlikely. Above all, our trading partners know that they are the ones with the huge trade surpluses to lose, not us. Foreign nations would probably raise their tariffs somewhat, but there is no reason to expect the process to get out of control.

Indeed, there is an opposite possibility. Suppose we tell foreign nations that our tariff increase is in retaliation for their own various trade barriers. (This is, of course, largely true.) And suppose we then threaten to raise our tariff even higher if they don’t open up, but offer to drop it back down somewhat if they do.

Then our trading partners may even reduce their barriers in response to our imposing a tariff! Our imposing a tariff could, paradoxically, further the cause of global trade openness, not retard it.  But it would be a much healthier openness than what we have now.

We can call this alternative “managed open trade.” It is not the same thing as free trade. Fully elaborated, it would be based on the internationally shared twin goals of zero tariffs and zero deficits.

These goals would be shared, despite the reality of international rivalry and the absence of a sovereign to enforce them, because every nation would know that a) other nations would retaliate in response to excessive surpluses inflicted upon them, and b) the alternative is the system breaking down for everyone, including themselves.

This substitute for free trade would spare a lot of ideological sacred cows, as it would come fairly close to free trade if it worked. Many people who think they are defending free trade are actually defending covertly managed trade with zero tariffs, anyway.

But it would depend upon our ability to credibly threaten a tariff if our bluff were called. It would therefore depend upon our having viable contingency plans to function with a tariff.

Therefore even free traders thinking through how to save as much of free trade as they can should take the option of a tariff seriously.

By the way: they’re running out of time.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

I and my employer, the Coalition for a Prosperous America, are unabashed protectionists. I have written previously about how, for example, a flat tariff on all U.S. imports may well be the key to solving the ongoing trade crisis that is depleting our national wealth and gutting our industries.

We at CPA believe that a genuine national debate on trade issues will eventually draw public opinion our way. So it is only fair to answer some of the reasonable-but-mistaken objections raised to our position.

One obvious objection is simply that a tariff is a tax increase. So it is. But it does not have to be a net tax increase if the revenue it generates is used to fund cuts in other taxes. So in order to obtain a “clean” policy debate, in which the tariff is debated purely on its merits as a trade policy, unmuddied by partisan opinions about the total level of taxation, any tariff proposal should be packaged with precisely compensating cuts in other taxes.

A related concern is that a tariff is a tax on consumption. This is generally better than a tax on income because it rewards saving and avoids penalizing work. Unfortunately, consumption taxes also reduce the progressivity of the tax system because the poor consume, rather than save, a higher percentage of their incomes. So any tax rebate financed by the tariff should also be designed to leave the overall progressivity of the tax system unchanged.

Another objection to a tariff is that if American industry is granted tariff protection, industry will just slumber behind it. Some industries indeed long to shut out foreign competition, reach a lazy detente with domestic rivals, then coast along with high profitability and low innovation.

But a flat tariff—say, 30% on all imported goods and services—would resist this danger because it would not hand out a blank check of protection: it would give a certain percentage and no more. Any industry that could not get its costs within striking distance of its foreign competitors will not be saved by it.

This discipline, although unpleasant for the losers, is the price we would have to pay for a tariff that actually worked, rather than one which eliminated the discipline of foreign competition entirely and protected all industries, whether or not their protection was useful to the economy as a whole.

What kind of industries are worth protecting? The kind of high value, high wage, high technology industries that have a future. The whole point of protectionism is to capture better jobs; there’s no point capturing junk jobs or jobs whose capture will cost consumers more than they are worth.

A flat tariff would avoid the danger of getting stuck with a tariff policy that made sense when it was adopted but gradually became an outdated captive of special interests over time. Although it would be a fixed policy, it would not be fixed in its effects, but would automatically adapt to the evolution of industries over time.

In 1900, for example, such a tariff would have protected the American garment industry from foreign (then mostly European) competition. It wouldn’t do that today, as a 30% cost advantage isn’t enough to protect an industry whose production cost consists mostly in cheap unskilled labor. But it is enough to protect high-value, high-skill industries whose production cost is mainly capital, know-how, and skilled labor. These industries are what we need.

Next issue: it is sometimes objected that protectionism stifles competition. As a result, if a tariff is imposed, antitrust policy will become even more important than it already is. But luckily, there is a compensating benefit: rivalry between domestic firms actually appears to be a more potent competitive force than rivalry with foreign ones. As Michael Porter of Harvard Business School observes in The Competitive Advantage of Nations:

Domestic rivals fight not only for market share but for people, technical breakthroughs, and, more generally, ‘bragging rights.’ Foreign rivals, in contrast, tend to be viewed more analytically. Their role in signaling or prodding domestic firms is less effective, because their success is more distant and is often attributed to ‘unfair’ advantages. With domestic rivals, there are no excuses.

Domestic rivalry not only creates pressures to innovate but to innovate in ways that upgrade the competitive advantages of a nation’s firms. The presence of domestic rivals nullifies the types of advantage that come simply from being in the nation, such as factor costs, access to or preference in the home market, a local supplier base, and costs of importing that must be borne by foreign firms…This forces a nation’s firms to seek higher-order and ultimately more sustainable sources of competitive advantage. (Emphasis in the original.)

So replacing foreign rivalry with strong domestic rivalry is probably a net plus. Japan’s ferociously competitive (and protected) automobile and consumer electronics industries illustrate this well.

Another issue is that if a tariff gives companies back market share and lets them raise prices, they may just harvest profits, rather than reinvesting them in long-term growth. (This was, in fact, a problem with one of America’s largest recent protectionist undertakings: the Voluntary Restraint Agreement with Japan on automobiles.) Good trade policy requires not only the “carrot” of tariffs and subsidies, but also the “stick” of measures to prevent companies from merely taking out added revenues as profit, rather than investing them in long-term upgrading of their capabilities.

Does this mean that a tariff should be accompanied by agreements on investment levels? No; the needed investment may be in another industry anyway. The solution here probably lies in creating generalized incentives for investment. Since increased investment is a good thing even if we leave trade out of the picture, and already the object of tax incentives supported across the ideological spectrum, this should not be too hard to swallow politically.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

Below is a long letter I and Marc Fasteau, a progressive banker in New York, wrote last year to one of the major organizations in this country which funds innovative economic research, suggesting ways to move the ball forward in terms of America’s thinking on trade. They haven’t yet responded vigorously in this area of economics, so I’m publishing the letter to help clue the public in on what it will take for this country to think its way out of its current trade mess.

Dear XXXX:

The essential task in reforming trade economics is twofold: first, the breaking of new intellectual ground, and second, the forcing into broader academic and policy consciousness of ideas that already exist. Without the latter, the former will mean little. Conversely, novel academic research into trade provides an opportunity to shake up the field and draw the attention of both academics and the public.

With respect to existing critiques of free trade, there are, in fact, four levels of understanding in economics that must be addressed:

1. The theories of academic specialists in trade economics.
2. The consensus of academic economics as a whole, including the trade views of economists who do not specialize in trade. This determines what most undergraduates get taught about economics—the highest economics education 99.9% of the population ever receives. It also determines the trade-related policy decisions of high-level policymakers in other areas of economics, like finance.
3. The implied theoretical model of policy. This concept refers to the fact that, whatever the purely theoretical views of top policymakers, there exists an (often quite different) theoretical model of the economy that is implied by their policy choices.
4. The views of the mainstream news media, which closely track the views of the educated general public and Congress.

Failure to address all four levels will result in failure to fix America’s broken trade policy. The first two levels will have little practical effect if they do not have an effect on the last two; the last two risk veering into populist nonsense if not informed by the first two.

Because mammoth U.S. trade deficits are not sustainable forever, a profound change in U.S. trade relations is inevitable during the next 3-8 years regardless of any coming policy decisions and independent of any particular economic theories. A transformative crisis, be it an acute shock like the 2008 financial crisis or a period of chronic turbulence like the stagflationary 1970s, is now basically inevitable on the trade front.

The better recognized are critiques of free trade when the probable crisis hits, the less likely is an uninformed policy response to crisis driven by a political firestorm. Addressing the issues completely and thoughtfully in advance will allow time for alternative analyses and policies to be developed and vetted.

It follows that whoever can “hear the distant hoof beats of approaching history” will be in a strong position to shape theoretical and practical responses to this coming breakdown of the existing order. The intellectual high ground that confers dominance over this debate is currently wide open to any taker who understands the issues and has the resources to address them. There thus exists an opportunity to shape U.S. trade policy and its intellectual underpinnings for a generation or more.

What kind of already-existing ideas on trade are languishing in undeserved obscurity with the public and the economics profession?
Let us consider only some obvious examples. Ricardo is known to be wrong, yet often treated as gospel. The Stolper-Samuelson theorem concerning income inequality and trade is familiar to mainstream economics—but its implications have not yet been taken seriously. Paul Krugman and others developed a theory of “strategic trade” starting in the late 1970s, but it has languished with respect to both theoretical fruition (above all, to incorporate dynamic as well as static effects) and policy application. Bill Clinton’s economic advisor, Laura D’Andrea Tyson, and Barack Obama’s, Lawrence Summers, both did important academic work on the value of capturing global oligopoly industries, but no policy initiatives came of it. Ralph Gomory and William Baumol of NYU have created a revolutionary new theory of trade based upon multiple equilibria, but it remains little known.

What kinds of ideas on trade could benefit from deepening by further purely academic research?

Ralph Gomory and William Baumol’s work in multiple-equilibrium trade theory is obviously pregnant with vast implications not yet drawn. Economists are increasingly aware that the all-important theory of comparative advantage is a static model which does not comprehend the dynamic relationships between trade and economic growth. In economic history, insights both new and rediscovered are illuminating relationship between trade policy and economic development. And the profundity of the neomercantilist challenge to free trade emanating principally from East Asia, and its radical incompatibility with American laissez faire, remains poorly theorized in mainstream economics.

The rest of this letter presents an analysis of what kinds of economic ideas your organization could fruitfully attempt to press into greater academic and policy recognition. There are at least eight major potential projects that could fall into this category:

Research Area #1: Develop and disseminate the policy implications of the hidden assumptions of David Ricardo’s Theory of Comparative Advantage.

Misuse of David Ricardo’s theory of comparative advantage is one of the most destructive patterns of reasoning in all of trade economics. His reasoning is abused time and again in both the major media and in the pronouncements of high-level policymakers. And yet the key problem here is well known: the theory depends upon hidden assumptions that are frequently false. To wit:

1. Trade is sustainable. This refers to both trade deficits (unsustainable imports) and resource depletion (unsustainable exports.)
2. There are no externalities. This refers to both environmental damage (negative externalities) and spin-offs from technical innovation (positive externalities.)
3. Factors of production move easily between industries. This refers primarily to underemployment, which occurs when human capital cannot easily shift from declining to rising industries.
4. Trade does not raise income inequality. But in the U.S., free trade raises returns to the abundant factor of production (capital) and lowers returns to the scarce factor (labor).
5. Capital is not internationally mobile. It is; the larger question is mobility of all factors of production, but capital is the flashpoint.
6. Short-term efficiency causes long-term growth. It doesn’t, an issue addressed in greater detail in Research Area #2 below.
7. Trade does not induce adverse productivity growth abroad. It does, and while Ricardo shows (if his other assumptions hold) that free trade is advantageous in the short run, it doesn’t show that changes induced by free trade will make gains from trade go up, rather than down.

Although academic trade specialists are well aware of these problems, they remain de facto barely known to many non-trade economists, are omitted from many undergraduate treatments of economics, and are essentially unknown to journalists covering economic policy issues. Their implications for trade policy should be examined, modeled quantitatively and widely disseminated.

Research Area #2: Develop and disseminate the policy implications of Erik Reinert’s work on the sources of economic growth.

Erik Reinert is a Norwegian scholar trained at Harvard Business School and Cornell and currently teaching at the University of Tallinn, Estonia. His key work is the 2007 book How Rich Countries Got Rich and Why Poor Countries Stay Poor. The root of his theoretical innovations is his rediscovery of the relevance and sophistication of the mercantilist tradition that originated in the Renaissance, but his work extends far into modern economic conditions and theoretical constructs.

Much of Reinert’s work is neither absolutely original nor unique, as many of his ideas are already a part of the more sophisticated varieties of academic trade economics. Nevertheless, his attack on the crude economic ideas which inform much of policymaking is still uniquely valuable. Above all, his analyses are qualitative and thus within the intellectual reach of people without any background in mathematical economics. The three-step dissemination of ideas referred to earlier in this letter is far more likely to happen by way of compelling narrative “stories” which engage people’s existing intuitions and ideological commitments than by way of mathematics, even if the mathematical version of the same ideas is the one considered canonical by academic economics. Furthermore, his work provides valuable corroboration of these ideas.

Reinert identifies the following as the key flaws in the version of economics implied by the policymaking of recent years:

1. Its inability to register qualitative differences between different industries, especially their different potentials to generate economic growth.
2. Its inability to grasp the importance of synergies, linkages, and externalities.
3. Its inability to comprehend innovation as intrinsic to economic activity itself, as opposed to an external event, unexplainable by economics.

Prof. Reinert argues that these ideas were well understood in the now almost forgotten German Historical School of economics, whose methods he would like to see revived. The salient differences between bad varieties of contemporary economics and this older school and related schools of thought, which he refers to as the “other canon,” are these:

• · Bad Contemporary Economics assumes and valorizes equilibrium / The other canon assumes and valorizes disequilibrium
• · Assumes perfect information and perfect foresight / Assumes learning and decision-making under uncertainty
• · Assumes a high level of abstraction desirable for its own sake / Chooses the level of abstraction according to the problem under consideration
• · Innovation impinges upon economics from outside, therefore unexplainable / Innovation is at the core of its economic model
• · Capital per se drives the economy / New knowledge creating a demand for capital drives the economy
• · Derives its metaphors from physics / Derives its metaphors from biology
• · Consumption is fundamental / Production is fundamental
• · Analysis is by comparative statics / Analysis focused on change
• · No cumulative causation, so history is unimportant / Cumulative causation key, so history is very important
• · Increasing returns (or their absence) is seen as a minor issue / Increasing returns (or their absence) is seen as a major issue
• · Precision (especially mathematical) regarded as the key virtue in analysis / Accepts a tradeoff between precision and relevance; math is just a tool.
• · Perfect competition is the ideal / Imperfect competition is the ideal
• · Economic activities assumed identical as generators of economic growth / Economic growth is a product of some activities more than others.
• · Economic diversity is assumed unimportant / Economic diversity is seen as a key to growth
• · One-size-fits all policy recommendations / Theories and policies vary by time and place
• · Economy (tacitly) largely viewed as separate from society / Economy viewed as embedded in social context
• · Economy seen as self-regulating / Economies seen as inherently unstable and needing stabilization.
• · No important difference between the real and the financial economy / Conflicts between real and financial economy are normal and require regulation

Research Area #3: Deepen and develop the policy implications of Ralph Gomory and William Baumol’s multiple-equilibrium trade theory

Ralph Gomory and William Baumol are both professors at NYU’s Stern School of Business with distinguished careers behind them outside trade economics.

Their trade work centers on the fact that, in the presence of scale economies, the free market will not necessarily assign every industry to the nation most efficient at it. Instead, first-mover advantages will enable nations to entrench themselves in industries even if other nations might hypothetically have been better.

As a result, the international market does not give one (optimal) answer to the question of what goods should be produced in what nations; it gives many different answers (some suboptimal) depending upon historical accidents. So the Ricardian claim that free trade necessarily produces the most efficient outcome for the world economy and every individual nation is untenable.
Because all internationally traded oligopoly industries do involve scale economies, the Gomory-Baumol model explains the observed fact that strong positions in these industries are a key characteristic of economically successful nations. In their model, comparative advantage remains a valid principle, but a nation’s best move is no longer, as in Ricardo, simply to trade according to the comparative advantage it already has. It is to seek comparative advantage in the best industries. Ricardianism is about finding the best use for the comparative advantage one already has (mistaking this for the entire question); Gomory and Baumol are about what kind of comparative advantage it is best to have.

What kind of comparative advantage is it best to have? Ideally, advantage in industries that are large, strongly retainable, and with a long future potential for innovation, and many spin-off industries, ahead of it. As Michael Porter of Harvard Business School explains it, referring to such industries as “structurally attractive”:

Structurally attractive industries, with sustainable entry barriers in such areas as technology, specialized skills, channel access, and brand reputation, often involve high labor productivity and will earn more attractive returns to capital. Standard of living will depend importantly on the capacity of a nation’s firms to successfully penetrate structurally attractive industries. The attractiveness of an industry is not reliably indicated by size, rapid growth, or newness of technology, attributes often stressed by executives and by government planners. (Michael Porter, The Competitive Advantage of Nations, p. 36.)

Gomory and Baumol’s work successfully bridges the theoretical gap between the naive “international trade is always win-win” Ricardian view and the overly pessimistic “inter-national trade is war” view. It is thus a theoretical framework that can accommodate economic reality as real-world economic actors actually experience it. This makes it uniquely potent as a tool for changing the minds of the educated public on trade, and an excellent “bridge” between the educated non-academic understanding and more academic knowledge of the subject.

Their work, which has not received the scholarly attention it deserves, is also obviously pregnant with vast implications not yet drawn, which should be drawn out by further research. For more details, see their book Global Trade and Conflicting National Interests.

Research Area #4: Develop a national economic plan based on Michael Sekora’s research about how technological, rather than economic, logic is the key to economic growth.

Because many of the research agendas proposed in this document imply that active industrial policy is desirable, it is logical to include an example of what well-reasoned active industrial policy might look like.

Michael Sekora was the head of Project Socrates, a joint CIA-DIA effort at the end of the Reagan administration aimed at developing technology, industrial, and trade policies to win the Cold War. He now runs a consulting company out of Austin, Texas that helps foreign nations develop economic policies.

Sekora’s theoretical work centers on how economic growth derives from a technological logic that differs markedly from economic logic. He maintains that although mainstream economists and business schools claim to understand and teach technology-based planning, they do not. His work in trade economics is especially valuable because it directly addresses the concerns of executives running real businesses—a crucial constituency that must be persuaded to achieve lasting change in American trade policy.
In Sekora’s view, profit-driven economic logic is merely a way of harvesting growth, not, as current economic theory mistakenly contends, its source. He believes that the focus since WWII on financial analysis and the elevation of people trained to focus on these metrics in US business, government and academia has obscured technology-driven business strategy and caused it to languish.
Sekora’s view is that competitive advantage, at the company or national level, ultimately comes from control and exploitation of key technologies. He believes that strategic planning should start with a “techspace map” of all important technologies showing how the relate to each other and to present and anticipated market needs. The business, academic and government entities where these technological capabilities reside form elements of this map. (The map is small for a given company, large for an industry, larger for the United States, and all-inclusive for the world.) Strategy is then based upon this map in order to assure the availability, development, and symbiotic interaction of critical technologies—and to deny them to competitors.

Finance is a resource and a constraint on such strategy, but not its driver. Maximizing financial returns is necessary, but must take place within a broad long term approach of achieving and maintaining technological dominance.

At the governmental level, this approach to economic strategy would inform such areas as:

1. Trade policy, i.e. which markets are worth protecting and which are not.
2. Education policy, i.e. which technologies should students be taught.
3. Research funding policy.
4. Which interdisciplinary business consortia to authorize and encourage.

This integrated technology based strategy, in Sekora’s view, has been successfully employed by Japan, China and Germany, among others. In his words,

The foundation of every decision in technology-based planning is how to acquire and utilize technology more effectively than the competition—to produce products or provide services that excel at satisfying the customer needs for a competitive advantage.
Once a competitive advantage is obtained, then the economics can be optimized to generate maximum profit.

Today, the United States must make the shift from economic-based planning back to technology-based planning to survive.
The Socrates Project developed the ability to generate a computer-based ‘techspace map.’ This tool provided a precise and detailed, real-time representation of current and emerging technologies in terms of their abilities to generate a competitive advantage. It was used to develop technology strategies for high-priority government programs in the 1980s, and it led to investments that resulted in the digital revolution of the 1990s.

Sekora’s key theoretical research into what the U.S. should do has already been done, and what is most needed at this point is the funding to write a comprehensive plan for American action. He is already in exploratory discussions about this project with an agency of the U.S. government.

Research Area #5: Develop the policy implications of and disseminate Eamonn Fingleton’s work on the East Asian economic model

Eamonn Fingleton is a Tokyo-based Irish financial journalist whose principal contributions to trade economics are in his books In the Jaws of the Dragon (on China), Blindside (on Japan) and In Praise of Hard Industries (on manufacturing). His oeuvre constitutes perhaps the single most acute and far-ranging analysis of the contemporary East Asian economic model, both in terms of trade and its domestic industrial policies.

Fingleton’s ultimate conclusion is that free-market capitalism is only one variety of capitalism, far from the best-performing, and currently losing to a profoundly different version. Insofar as an “East Asian Challenge” is widely perceived by the public and the political class as a serious problem America must confront, his work is among the most analytically profound ways of distilling serious economic understanding from this challenge, rather than the analytically empty responses mostly produced to date.
In Fingleton’s view, for example, Japan has done almost everything wrong by the lights of mainstream contemporary economics, yet remains the second-richest nation in the world. Its economy is highly regulated, centrally planned by the state, and often openly contemptuous of free markets. But it has thrived. (He contends that Japan has been doing very well lately, pace the vested interests that wish to depict it as an economic mess.)

In his view, Japan’s economy is something virtually impossible within the frame of reference of contemporary economics: a non-socialist state-directed system. This is important not so much because America ought to imitate Japan per se, but because the Japanese system reveals that economic laws imagined to be fundamental by mainstream economics are nothing of the kind. To give some key examples:

1. It is assumed that capital is most productively employed when allowed to flow to its highest private return.
2. It is assumed that cartels are eo ipso inefficient.
3. It is assumed that economic rewards are the most efficient drivers of economic behavior.
4. It is assumed that “flexible” hire-and-fire labor markets lead to the most efficient accumulation and deployment of human capital.

Fingleton’s work has yet to be theorized within the conventionally accepted frameworks of economics. Therefore, what would be called for in his case would be the translation of his qualitative insights into the formal models of contemporary economics, which would facilitate the promotion of his ideas so as to win them the academic and policy consideration they deserve. This should be followed by analysis of what policies on America’s part constitute an appropriate response to his analysis, something that is presently clear only in a general, and largely negative, sense.

Research Area #6: Explore Ian Fletcher’s Hypothesis That a Natural Strategic Tariff Exists

Ian Fletcher is an adjunct fellow at the U.S. Business and Industry Council, a Washington-based think tank, and author of the 2010 book Free Trade Doesn’t Work: What Should Replace It and Why. In Chapter 11 of this book, he analyzes why there may exist, in the case of the U.S., a relatively simple tariff policy that would, because of the complex interaction of the policy with the existing economy, have the sophisticated strategic effects America needs. This idea should be rigorously explored because, if correct, it would provide a simple but strategically sophisticated solution to many of America’s trade problems. It would thus represent an extraordinarily attractive policy option for the U.S., removing at a stroke most of the vexing political-economy problems of administering a sophisticated trade policy with competence and honesty.

How might a natural strategic tariff work?

Take, for example, the likely fact that a flat 30 percent tariff on all imports would not be enough to relocate to the U.S. industries with a low value-added added per man-hour, like t-shirts or circuit board assembly, as the difference between foreign and domestic labor costs is too large for an industries whose production cost mainly consists of semiskilled labor. But such a tariff would be enough to relocate industries like semiconductors, most of whose production cost is physical and intellectual capital and highly skilled labor.

Furthermore, a natural strategic tariff would have different effects on industries that were at different points on their cost curves, so it would have a bias towards stimulating nascent scale-economy industries.

In other words, the tariff would be self-targeting on precisely those industries America should want to target.

Although the economic literature contains any number of studies on the differential effects of simple tariffs applied to complex economies, a proposal similar to Fletcher’s has never, to the authors’ knowledge, been rigorously evaluated.

Research Area #7: Revisit and reconsider the economics underlying Bretton Woods

Since the collapse of the Bretton Woods system in 1971, the world has operated on the basis, supposedly, of more-or-less floating exchange rates. But as evidence accumulating from Beijing to Berlin suggests, abolishing fixed exchange rates does not lead to floating rates, with the free-market efficiencies this implies, but to rates manipulated by neomercantilist governments. This leads to unsustainable trade deficits in their trading partners, producing rising indebtedness and bubble-inducing overly cheap capital. Research in this area would aim to rediscover the largely forgotten economics underlying the Bretton Woods system.
The key virtue of Bretton Woods was that while floating exchange rates may be efficient, they are efficient at the wrong thing. They are driven by the total demand for a currency, that is, demand to buy not only a nation’s exports but also its debt and assets. As a result, demand for a nation’s currency is determined not only by its export prowess, but also by its willingness to sell off assets and assume debt. But this entails treating unsustainable demand (for assets and debt) the same as sustainable demand (for exports). So floating exchange rates will not necessarily find the level optimal for that part of the economy devoted to present production. But this is the only part of the economy that actually creates wealth, as opposed to shifting it forwards and backwards in time; it is no accident that we live in an age when the financial tail often seems to be wagging the dog of the real economy.

Of all the policies available to rebalance the world’s trade imbalances, fixed exchange rates are among the least intrusive. Changing a society’s time discount on consumption , the ultimate cause of trade deficits, is extremely hard: there is no lever directly attached to this variable, and most peacetime attempts to change it in the Western world have failed. (Only the authoritarian technocrats of East Asia have pulled it off, with policies no Western electorate would tolerate and that most Third World governments simply don’t have the administrative competence to pull off.)

A fixed exchange rate system, on the other hand, operates at the perimeter of an economy, leaving most of its internal mechanisms untouched. It violates few economic liberties. But even though it leaves flows of goods untouched, regulating the countervailing financial flows that must take place when goods are paid for imposes a balance just as effectively. If the pure free market won’t produce the best results on its own in trade and therefore must be regulated somewhere, it might as well be here. Fixed exchange rates, plus the attendant capital controls, could, in fact, prevent many of the deleterious effects of free trade without requiring actual constraints on the flow of goods.

Research Area #8: Restore the centrality of economic history to the study of economics

The better an economist’s work is informed by economic history, the less likely that economist is to embrace free trade. Most of the deceptive abstractions underlying free trade, while easy to accept in the context of mathematical modeling, are very hard to maintain in the face of serious historical study. Most American BA, MA, and PhD programs in economics no longer require economic history; this should be changed. (Simply exposing the paucity of economic history requirements would itself be a valuable step.)
A number of key lessons emerge from economic history that are very hard to learn from mathematical and statistical modeling of purely contemporary economic data. The most obvious one, in the case of trade economics, is simply that neither the U.S., nor any other developed nation, became a developed nation by way of free trade abroad and laissez-faire at home. All did so by way of protectionism and industrial policy. Just correcting the mistaken belief among opinion leaders and policy makers that US economic growth coincided with and was driven by free trade would be a major step toward a more constructive trade policy.

The deeper lesson is the inescapability of economic diversity: different economies are non-trivially and usefully different. Within a broadly capitalistic framework, successful economies differ widely, so there is no rational basis for the “one size fits all” policy solutions that have been favored by market fundamentalists. The inevitability of national economic diversity is implied by the multiple-equilibrium thinking discussed in Research Area #3 above, as well as deeply rooted outside economics in national cultural, social, and political circumstances. Therefore, national economies will not converge toward the Washington Consensus (or the Beijing consensus, for that matter).

The key policy implications of this are a) that any effective U.S. trade policy must recognize that other nations are unlikely play by the rules we are pressing on them, and b) that a borderless world economy, which presupposes homogeneity in all essentials, is all but impossible.

END OF LETTER

If American economists would start thinking along the lines suggested above, this country will have a fighting chance of reasoning its way out of its current trade mess before it is too late to do so at a reasonable cost.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

The U.S. Constitution states that all treaties made under the authority of the United States become supreme law of the land. Yet our government inexplicably invited the WTO to rule over us when we signed the treaty. Now we have no choice amend our laws, regulation and administrative procedures to conform to the agreement, instead of to our own Constitution.

NAFTA has also taken a massive economic toll on the U.S. In addition to rendering us uncompetitive in the world economy, it has destroyed our industrial base and caused us to outsource most of our manufacturing jobs. American workers are now forced to compete directly with Mexican workers who, on average, make just $3 per hour. Meanwhile, their American counterparts make $18 per hour.

Full Story Here: Seminar on Major Issues that Affect Our Economy and Country, Todays Issue: Clueless, Leaderless and Out of Control Part 2 | Economy In Crisis.

In October 2008, Chinese officials threatened to liquidate their vast holdings of foreign reserves- $1.33 trillion- to counteract congressional pressure to revalue their currency.

Foreign governments with interests adverse to the U.S. are stockpiling vast sums of money and buying out our country for strategic purposes that threaten national security.

This alarming reality has prompted a congressional hearing today about the threats posed by China’s $200 billion government controlled sovereign wealth fund.

From Businessweek:

Several congressional Democrats and academics on Thursday will warn that investment by China’s government-run funds carries national security risks.

Full Story Here: China’s Threat to National Security; What Will Congress Do? | Economy In Crisis.

One of the biggest causes of our trade deficit is our trade with China. Trade with China alone resulted in more than half of our entire trade deficit last year (which totaled $498 billion). This has cost the nation millions of jobs over the past decade.

The U.S. needs to take action to combat its trade deficit with China, which grew to more than $275 billion in 2010.

Economic analysts have recently touted an ‘export led recovery,’ pointing to increasing U.S. exports as a sign that we have turned the corner. While greater exports are good, they cannot be viewed in a vacuum, especially when imports have increased at a far greater rate. Even the president has bought into this mania, demanding a destructive trade pact with South Korea to boost exports.

One of the biggest causes of our trade deficit is our trade with China. Trade with China alone resulted in more than half of our entire trade deficit last year (which totaled $498 billion). This has cost the nation millions of jobs over the past decade. Economists estimate that a nation loses 9,000 jobs for each $1 billion it runs in trade deficits.

Full Story Here: Chinese Import Surge Overwhelming U.S. Economy | Economy In Crisis.

There are a multitude of issues with this disastrous agreement that will only increase unemployment and make America even more dependent on foreign nations. This is according to a study done by a government agency, the U.S. International Trade Commission, as well as non-partisan think tanks such as the Economic Policy Institute.

In the first seven years of the agreement, KORUS could cost as many as 159,000 American jobs and increase our trade deficit by $16.7 billion. Obama has promised that this deal would create 70,000 low-paying insourced jobs (Americans working for foreign employers). That would not even be half of the high paying jobs we would lose. As more foreign products enter our country, our trade deficit will continue to rise out of control.

Full Story Here: Help Stop the Disastrous Korean-U.S. Free Trade Agreement (KORUS) From Ruining America | Economy In Crisis.

Maybe it will turn out that way, with reporters eying each other from a gastronomic perspective and wiring Ferran Adria, seeking recipes for preparing Haunch of Hack sous vide. “So long as Gaddafi is in power, Nato and its coalition partners must maintain their operations so that civilians remain protected and the pressure on the regime builds,” write the three leaders. This is not Mission Creep but, once again, Mission Leap, way beyond the UN mandate.

On closer inspection, the reports suggest something less than a medieval siege or Leningrad. Reuter’s man in Misrata could only come up with this: “A local doctor told Al Jazeera at least eight people died and seven others were wounded in the second day of intense bombardment of Misrata, a lone rebel bastion in western Libya.” The UK Independent’s Kim Sengupta did better: “The attacks started early in the morning as the residents of this besieged and battered city were starting their hours of queuing for bread…. Even by the grim standards of Misrata, the most violent battleground of this savage civil war, what happened yesterday was a cause of deep shock….At least 16 people died, and 29 were injured, almost all of them civilians – including a mother and her two young daughters.”

Full Story Here: Alexander Cockburn: What’s Really Going On in Libya?.

Ian Fletcher

You can read about the free trade controversy for months and never hear about it.  But in the minds of real economists, it’s there all the time, and it’s big. I’m talking about the so-called theory of comparative advantage, the theoretical lynchpin—in the view of free traders and protectionists alike—of the case for free trade.   It has an unfortunate reputation for being too technically tricky for non-economists to understand, but I think this is a shame, because this myth tends to shut ordinary concerned citizens out of the debate. Therefore, I’d like to take a shot at explaining this theory.

The theory is ultimately wrong, for reasons I spent half a book discussing.  And in a future article, I’ll explain why. But for now, let’s just get clear on what it says.  That’s the price of admission for engaging in serious debate on the issue.

To understand comparative advantage, it is best to start with its simpler cousin: absolute advantage. The concept of absolute advantage simply says that if some foreign nation is a more efficient producer of some product than we are, then free trade will cause us to import that product from them, to the benefit of both nations. It benefits us because we get the product for less than it would have cost us to make it ourselves. It benefits the foreign nation because it gets a market for its goods. And it benefits the world economy as a whole because it causes production to come from the most efficient producer, maximizing world output.

Sounds good.  Indeed, absolute advantage is a set of fairly obvious ideas. It is, in fact, the theory of international trade most people instinctively hold, without recourse to formal economics, and thus it explains a large part of public opinion on the subject. It sounds like a reassuringly direct application of basic capitalist principles. It is the theory of trade the great Adam Smith himself, founder of modern economics, believed in.

It is also false. Under free trade, America observably imports products of which we are the most efficient producer—which makes no sense by the standard of absolute advantage. This causes complaints like conservative commentator Patrick Buchanan’s below:

Ricardo’s theory…demands that more efficient producers in advanced countries give up industries to less efficient producers in less advanced nations…Are Chinese factories more efficient than U.S. factories? Of course not. (The Great Betrayal, p. 67.)

Buchanan is correct: this is precisely what Ricardo’s theory demands. It not only predicts that less efficient producers will sometimes win (observably true) but argues that this is good for us (the controversy). This is why we must analyze trade in terms of not absolute but comparative advantage. If we don’t, we will never obtain a theory that accurately describes what does happen in international trade, which is a prerequisite for our arguing about what should happen—or how to make it happen.

At bottom, the theory of comparative advantage simply says this:

Nations trade for the same reasons people do.

And the whole theory can be cracked open with one simple question:

Why don’t pro football players mow their own lawns?

Why should this even be a question? Because the average footballer can almost certainly mow his lawn more efficiently than the average professional lawn mower. The average footballer is, after all, presumably stronger and more agile than the presumably mediocre workforce attracted to a badly paid job like mowing lawns. (If we wanted to quantify his efficiency, we could measure it in acres per hour.)

Efficiency (also known as productivity) is always a matter of how much output we get from a given quantity of inputs, be these inputs hours of labor, pounds of flour, kilowatts of electricity, or whatever.  Because our footballer is more efficient, in economic language he has absolute advantage at mowing lawns. Yet nobody finds it strange that he would “import” lawn-mowing services from a less efficient “producer.” Why? Obviously, because he has better things to do with his time.

This is the key to the whole thing. The theory of comparative advantage says that it is advantageous for America to import some goods simply in order to free up our workforce to produce more-valuable goods instead. We, as a nation, have “better things to do with our time” than produce these less valuable goods. And, just as with the football player and the lawn mower, it doesn’t matter whether we are more efficient at producing them, or the country we import them from is.  As a result, it is sometimes advantageous for us to import goods from less efficient nations.

This logic doesn’t only apply to our time, that is our man-hours of labor, either. It also applies to our land, capital, technology, and every other resource used to produce goods. So the theory of comparative advantage says that if we could produce something more valuable with the resources we currently use to produce some product, then we should import that product, free up those resources, and produce that more valuable thing instead.

Economists call the resources we use to produce products “factors of production.”  They call whatever we give up producing, in order to produce something else, our “opportunity cost.” The opposite of opportunity cost is “direct” cost, so while the direct cost of mowing a lawn is the hours of labor it takes, plus the gasoline, wear-and-tear on the machine, et cetera, the opportunity cost is the value of whatever else these things could have been producing instead.

Direct cost is a simple matter of efficiency, and is the same regardless of whatever else is going on in the world. Opportunity cost is a lot more complicated, because it depends on what other opportunities exist for using factors of production.

Other things being equal, direct cost and opportunity cost go up and down together, because if the time required to mow a lawn doubles, then twice as much time cannot then be spent doing something else. As a result, high efficiency tends to generate both low direct cost and low opportunity cost. If someone is such a skilled mower that they can mow the whole lawn in 15 minutes, then their opportunity cost of doing so will be low because there’s not much else they can do in 15 minutes.

The opportunity cost of producing something is always the next most valuable thing we could have produced instead. If either bread or rolls can be made from dough, and we choose to make bread, then rolls are our opportunity cost. If we choose to make rolls, then bread is. And if rolls are worth more than bread, then we incur a larger opportunity cost by making bread. It follows that the smaller the opportunity cost we incur, the less opportunity we are wasting, so the better we are exploiting the opportunities we have.

Therefore our best move is always to minimize our opportunity cost. This is where trade comes in.

Trade enables us to “import” bread (buy it in a store) so we can stop baking our own and bake rolls instead. In fact, trade enables us to do this for all the things we would otherwise have to make for ourselves. So if we have complete freedom to trade, we can systematically shrug off all our least valuable tasks and reallocate our time to our most valuable ones

Similarly, nations can systematically shrink their least valuable industries and expand their most valuable ones. This benefits these nations and under global free trade, with every nation doing this, it benefits the entire world. The world economy, and every nation in it, become as productive as they can possibly be.

Or so goes the theory…

Here’s a real-world example: if America devoted hundreds of thousands of workers to making cheap plastic toys (we don’t; China does) then these workers could not produce anything else. In America, we (hopefully) have more-productive jobs for them to do, even if American industry could hypothetically grind out more plastic toys per man-hour of labor and ton of plastic than the Chinese. So we’re better off leaving this work to China and having our own workers do that more-productive work instead.

This all implies that under free trade, production of every product will automatically migrate to the nation that can produce it at the lowest opportunity cost—the nation that wastes the least opportunity by being in that line of business.

The theory of comparative advantage thus sees international trade as a vast interlocking system of tradeoffs, in which nations use the ability to import and export to shed opportunity costs and reshuffle their factors of production to their most valuable uses.

This all (supposedly!) happens automatically, because if the owners of some factor of production find a more valuable use for it, they will find it profitable to move it to that use. The natural drive for profit will steer all factors of production to their most valuable uses, and opportunities will never be wasted.

It follows that any policy other than free trade (supposedly!) just traps economies producing less-valuable output than they could have produced. It saddles them with higher opportunity costs—more opportunities thrown away—than they would otherwise incur.

In fact, when imports drive a nation out of an industry, this must (supposedly!) be good for that nation, as it means the nation must be allocating its factors of production to producing something more valuable instead. If it weren’t doing this, the logic of profit would never have driven its factors out of their former uses. In the language of the theory, the nation’s “revealed comparative advantage” must lie elsewhere, and it will now be better off producing according to its newly revealed comparative advantage.

Or so goes the theory, and it’s easy to see where it leads.  Next time, I’ll tell you why it isn’t true.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

For once, some good news: public support for free trade will almost certainly collapse over the next few years.  On this issue, the public is way ahead of the political class in the quality of its thinking., and the average hardware store owner in Nebraska understands the real economics involved better than the average U.S. Senator.

Public opinion certainly continues to turn against free trade: an NBC-Wall Street Journal poll in September 2010 found 53% of Americans believing free trade agreements hurt the U.S., with only 17% believing them beneficial.  (The split had been 30%  vs. 39% in the dot-com boom year of 1999.)  86%  named outsourcing to low-wage nations the key cause of America’s failure to emerge fully from recession and create jobs, significantly outranking choices like the federal deficit. The turn against free trade was sharpest among the affluent and cut across boundaries of class, region, and political affiliation.

As of early 2011, there are four missing prerequisites for free trade to explode as an issue and collapse as a policy:

1.    Everyone is still preoccupied with the financial crisis, its aftermath, and recovery from recession, especially job recovery.

2.    There remains a residual sense in the minds of the public and the lawmakers that somehow free trade, despite all its problems, is still sound economics, and that perhaps we should just keep on eating our spinach because it will be good for us in the end.

3.    There is no obvious alternative policy on the table. There is instead a grab bag of issues, ranging from Chinese currency manipulation to the proposed Korea, Colombia, and Panama free trade agreements. This paucity of credible alternatives feeds the defeatist attitude that nothing fundamental can be done, which feeds apathy.

4.    A specific crisis has not happened to force the system out of its old way of doing things as the debacle in subprime mortgages upended our financial system in 2008 and made continuation of prior policy impossible whether anyone wanted it or not.

For the first prerequisite above to be supplied, all it will take is time, as recessions, even double-dip recessions (?), always eventually end, and the financial crisis of 2008 was successfully patched (albeit at astronomical cost and without fixing its underlying causes, risking a repeat)

For the second prerequisite to be supplied, all it will take is sufficient public debate, between persons perceived as credible, for free trade to become established in the public mind as an issue with two legitimate sides to it. As the reader has hopefully gathered from my column by now, once one seriously scrutinizes the underlying economics of free trade, even if one is not disabused of the policy outright it becomes hard to deny that it is a legitimately controversial issue. The pure “100 percent free trade with 100 percent of the world 100 percent of the time” position is simply not intellectually serious. (Free traders will, of course, respond that none of them actually believe in literal 100% free trade. The reader may judge whether the various kinds of 99% free trade they believe in are significantly different.)

So when public debate finally cracks open, free trade will lose its innocence very fast.

Once protectionism is perceived as a legitimate choice, it will become the actual choice of large numbers of people whose protectionist instincts have been held back by the belief that it is somehow an ignorant position to take. They will not need to master the details of why it is legitimate; they will only need to know that it is legitimate.

Sen. Sherrod Brown (D-OH), one of the leading opponents of free trade in the Senate, reports that ever since he came to Congress in 1993, every free trade vote has been accompanied by predictions by the White House of economic disaster if it was not passed. Trade wars, stock market decline, and recession were predicted every time. The power of this rhetoric to intimidate is going to end. “Protectionist” will cease to be a canard and become just another policy option.

The third prerequisite above (no obvious alternative) can emerge overnight if some major political figure launches a tariff proposal that captures the public’s imagination. Or the myriad individual issues that currently comprise the opposition to free trade could force the soldering together of an omnibus proposal on the floor of Congress.

The fourth prerequisite (a sudden crisis) is difficult to predict as to time, but we can rely securely upon the fact that unsustainable trends are always, in the end, not sustained. At some point, America’s giant overdraft against the rest of the world must come to an end. Although our government is trying to postpone the day of reckoning as long as possible, this day will come. Secretary of State Hillary Clinton flying to China to beg its government to keep buying our bonds (as she did in February 2009) won’t make much difference in the end.

Once protectionism is conceded to be a valid political position, it will eventually win the public debate, if free trade’s unpopularity continues to mount at the pace it has been mounting over the last 10 years. And this pace is, if anything, likely to accelerate.

When this happens, the status quo will be sustained only by the tacit bargain of the American political duopoly, in which the two parties agree not to make trade a serious issue, whatever tactical feints they may deploy. This corrupt bargain will hold as long as the benefits of keeping it, which mainly consist in keeping the corporate backers of both parties happy, exceed the benefits of defecting from it, which consist in winning votes.

Once one party defects, protectionism will, if rationally designed and competently implemented, almost certainly be sufficiently successful in practice (and therefore popular) that the other party will have no choice but to follow. The alternative, if one party insists on handicapping itself by clinging to an unpopular position on such a major issue, is an era of one-party political dominance like 1860-1932 or 1932-80.

Make no mistake: we are heading for a big economic paradigm shift here.

[Minor note: the 2011 edition of my book just came out.]

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

The US Embassy in Baghdad, already the largest in the world, is expected to double its staff after American forces pull out of the country later this year.

Full Story Here: US Embassy in Baghdad to double staff – Telegraph.

OPS:  So…we’re leaving, when?

“I have every reason to believe they will do it before they recess,” Deputy U.S. Trade Representative Miriam Sapiro told the House Ways and Means Committee, according to Bloomberg News. “We are working very hard, and so is Panama. The ball is really in their court right now.”

The tax information sharing agreement will supposedly aid the U.S. in combating tax evasion, which Panama is notorious for. The tax agreement is necessary to corral enough votes in Congress to pass the bilateral trade pact that has been stalled since 2006.

Full Story Here: Disastrous Panama Free Trade Agreement is Likely | Economy In Crisis.

Democrats on the House Ways and Means Committee are urging administration officials to take a tougher stand when it come to trade enforcement, according to The Hill.

In a letter to the White House, Democratic members of the committee praised the president’s handling of trade issues thus far into his first term, but made no bones about the fact that more could be done to protect American jobs and industries from unfair trade practices.

“It is now clear that trade barriers do not simply work themselves out over time, as proponents of that outdated approach have suggested,” they wrote. “Rather, it is imperative that the U.S. government act vigorously and aggressively to address the trade barriers and defend U.S. trade rights and interests.”

Full Story Here: Democrats Call for More Trade Enforcement | Economy In Crisis.

Chris Hedges

The uprisings in the Middle East, the unrest that is tearing apart nations such as the Ivory Coast, the bubbling discontent in Greece, Ireland and Britain and the labor disputes in states such as Wisconsin and Ohio presage the collapse of globalization. They presage a world where vital resources, including food and water, jobs and security, are becoming scarcer and harder to obtain. They presage growing misery for hundreds of millions of people who find themselves trapped in failed states, suffering escalating violence and crippling poverty. They presage increasingly draconian controls and force—take a look at what is being done to Pfc. Bradley Manning—used to protect the corporate elite who are orchestrating our demise.

We must embrace, and embrace rapidly, a radical new ethic of simplicity and rigorous protection of our ecosystem—especially the climate—or we will all be holding on to life by our fingertips. We must rebuild radical socialist movements that demand that the resources of the state and the nation provide for the welfare of all citizens and the heavy hand of state power be employed to prohibit the plunder by the corporate power elite. We must view the corporate capitalists who have seized control of our money, our food, our energy, our education, our press, our health care system and our governance as mortal enemies to be vanquished.

Full Story Here: Chris Hedges: The Collapse of Globalization – Chris Hedges’ Columns – Truthdig.

Gene Sperling, will take over as director of the National Economic Council, a position he held over the course of the last four years of the Clinton administration.

Sperling, like incoming Chief of Staff William Daley, has a long and not so storied history when it comes to America’s failed trade policies.

Full Story Here: One Free Trader Replaces Another | Economy In Crisis.

Friday on The Big Picture it was “Conversations with Great Minds.” Thom Hartmann welcomed Ian Fletcher, Senior Economist at the Coalition for a Prosperous America. They discussed the major problems with free trade in America. And are you ready to rumble about the biggest stories of the week? Wisconsin Governor Scott Walker signed his union busting bill without any Democrats present. Will legal action follow? Also will mainstream corporate media ever talk about the problems of corporate control in America? Plus, did Peter King’s witch hunt hearings accomplish anything? Thom hosted a panel discussion with Jamie Weinstein, Deputy Editor at the The Daily Caller, Jimmy LaSalvia, Executive Director of GOProud and Bill Press, Host of The “Bill Press Show”.

One of the most common plaints from those who are upset about America’s current trade mess is “just give us a level playing field.”  In particular, this is what one tends to hear from American businesses (at least those which have resisted the siren song of offshoring) that are hard pressed by “unfair” foreign competition.  It’s hard not to be sympathetic, and on an individual basis, my heart goes out to them.

Unfortunately, the whole idea of a level playing field in international trade is basically a mirage as an aspiration, and we’ll all be better off if we stop pining for one right now.

As I pointed out in a previous article, the concept of “fair” trade, while of some finite usefulness in the context of things like fair trade coffee, is basically a non-starter as a serious solution for economic problems, either here or abroad.  And unfortunately, the cry of  “all we want is a level playing field” is just another way of asking for fair trade.

The fundamental problem is this: a true level playing field would require not just equal rules for international trade, but also that nations have the same domestic economic policies, as these can also confer an export advantage.

First, consider international trade rules. Foreign protectionism doesn’t only mean obvious policies like tariffs and quotas; it also includes local content laws, import licensing requirements, and subtler measures (some of them covert, hard to detect, or infinitely disputable) such as deliberately quirky national technical standards and discriminatory tax practices.

That’s not even mentioning outright skullduggery such as deliberate port delays, inflated customs valuations, selective enforcement of safety standards, and systematic demands for bribes. One study by the Congressional Research Service identified 751 different types of barriers to American exports worldwide.

Now consider purely domestic ways in which foreign governments put their thumbs on the scale in trade.  There are literally thousands of places in an economy where export subsidies can be hidden, from the depreciation schedules of the tax code to state ownership of supplier industries, land use planning, credit card laws, non-performing loans, cheap infrastructure, and tax rebates.

Thanks to all these practices, a true level playing field would require America to supervise the domestic policies of foreign nations, which is obviously not feasible. Even if we reached agreements on paper to end these subsidies, we would still have to enforce these agreements on the ground, as the other side would have a multi-billion dollar incentive to cheat.

Foreign governments often face strong domestic political pressures to keep these subsidies in place even when they want to strike a deal with the U.S. to eliminate them. China, for example, is full of effectively bankrupt state-owned companies that can’t be allowed to collapse for fear of unleashing a tidal wave of unemployment.

In other nations, subsidies are products of the day-to-day political bargaining that goes on in every country as governments buy political support and buy off opposition, so eliminating subsidies just to keep America happy would risk unraveling the balance of power.  Our own difficulties abolishing unjustified agricultural subsidies illustrate just how hard it is to repeal entrenched subsidies.

Level playing fields tilt the other way, too: Americans tend not to realize how many subsidies our own economy contains. But judging by the same standards the Commerce Department applies to foreign nations, they are legion.

Agricultural subsidies are just the beginning, and already a flashpoint of international trade disputes. (They basically scuttled the Doha round of WTO talks in 2008.) But there are thousands of others, ranging from the Import-Export Bank (cheap loans for exporters) to the Hoover dam (cheap electricity).

This is just on the federal level; states and localities constantly bid subsidies against each other to attract businesses. Every tax credit, from R&D and worker training on down, subsidizes something, and if that something is exported, then it constitutes an export subsidy.

So unless we are prepared to have foreign bureaucrats pass judgment on all these policies, subsidies both here and abroad are unavoidable and a true level playing field is impossible. And if a level playing field is impossible, then no free-market (or to be realistic, “free” market) solution will ever balance trade, and balanced trade will have to be some kind of managed trade.

Managed trade doesn’t have to be a scary word.  It doesn’t imply a bunch of Soviet commissars determining who buys what.  We basically had a system of managed trade under the 1945-71 Bretton Woods system of fixed exchange rates and capital controls. During that period, we had more economic growth, and much lower trade deficits, than we have today.  There’s a lesson in that.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

Joint Chiefs of Staff Chairman Adm. Michael Mullen made the rounds of the morning talk shows on Sunday, and one of the main messages that emerged on Libya is that, right now, there just aren’t many answers: how long the U.S. will stay involved, how long a no-fly zone will stay in place, and how much capacity the U.S. military has to sustain another conflict.

On “Fox News Sunday,” host Chris Wallace pointed out to Mullen that with the U.S. at war in Iraq and Afghanistan, there were already concerns that America’s armed forces were stretched too thin. “How can you take on a third operation?” asked Wallace. “Is something going to have to give?”

Mullen stressed that, at this point, the mission in Libya remains very “limited,” and therefore, the U.S. military has been able to carry it out effectively.

Full Story Here: Mike Mullen: U.S. Mission In Libya ‘Limited’, But No End In Sight.

OPS: Another bottomless pit of blood and treasure.  “We’re broke’ but we always have enough money for war over oil.

The U.S. ambassador to Mexico resigned Saturday amid furor over a leaked diplomatic cable in which he complained about inefficiency and infighting among Mexican security forces in the campaign against drug cartels.

U.S. Secretary of State Hillary Rodham Clinton, in Paris to meet with U.S. allies on Libya, said Carlos Pascual’s decision to step down was “based upon his personal desire to ensure the strong relationship between our two countries and to avert issues” raised by President Felipe Calderon.

Clinton didn’t say specifically what she was referring to, but a furious Calderon has publicly criticized Pascual’s cable, which was divulged by the WikiLeaks website.

Full Story Here: Carlos Pascual Resigns: U.S. Ambassador To Mexico Out, Says Clinton.

Who wants the South Korean FTA and Why?

Senate Republicans are willing to pass three leftover trade agreements from the Bush era by any means necessary, even if that means figuratively holding the president’s nominee to head the U.S. Commerce Department hostage to extract what they want.

With former Commerce Secretary Gary Locke headed to China to become U.S. Ambassador to the Asian powerhouse, the position is currently empty, and any replacement must be confirmed by two-thirds of the Senate.

“So important are these deals to our economy and our relations with these key allies in Latin America that, until the president submits both agreements to Congress for approval and commits to signing implementing legislation into law, we will use all the tools at our disposal to force action, including withholding support for any nominee for commerce secretary and any trade-related nominees,” the letter, signed by McConnell and 43 other GOP senators, states.

Full Story Here: The South Korean FTA – The Final Nail in Our Economy’s Coffin | Economy In Crisis.