Posted on 9/19/2006, 2:43:43 PM by 1rudeboy
Trade: Some ideas make so little sense they're funny. The Flat-Earth Society, for instance, hasn't backed off its premise. Now Democrats have one of their own -- that the trade deficit has to be shrunk, no matter what.
The key difference, of course, is that Flat-Earthers are harmless cranks who continue with their delusions with no discernible effect on public policy. Sadly, the same can't be said for some Democrats.
We refer to a proposal by Sens. Byron Dorgan of North Dakota and Russ Feingold of Wisconsin to "balance" the trade deficit not by market forces, but by government fiat.
Their plan would require any company wanting to import goods into America to first get a government certificate. The certificate would, in essence, have an "exchange rate" that would change each year to make it more and more expensive for importers to bring goods in. Over time, by reducing import demand, it would "balance" our trade, according to the two senators.
This idea, if presented as an Economics 101 paper in any reputable U.S. university, would be given an "F" and the dullards who wrote it placed on academic probation.
"On the face of it," economist Sherman Katz of the liberal Carnegie Endowment for International Peace told the New York Times, it appears to be "an enormous intrusion of government activity into business totaling trillions of dollars each year."
Precisely. This is nothing more than bad populism masquerading as public policy. Yet Dorgan and Feingold obviously figured the timing for their proposal was ripe.
On Monday, the federal government issued the most recent data on the current account deficit -- the broadest measure of U.S. trade. In the second quarter, the deficit rose to $218 billion, or more than $800 billion at an annual rate, a record.
Before you start thinking, "Gee, maybe Dorgan and Feingold are right," you should know that the trade deficit isn't bad for the U.S. economy; it's actually good for it -- and for the rest of the world too.
What most people don't understand is trade in goods and services is driven by investment flows. When foreigners invest massive amounts in the U.S., we have to run a trade deficit because of the way our global accounts are kept.
This is what's happening now. Investors survey the world and find it full of stagnant economies, ever-menacing terror and growing threats to free markets and trade. The U.S., by contrast, is a safe, transparent, low-inflation haven that provides a slam-dunk return on their money. What's not to like?
But here's what's really silly. If China sells $1 billion in, say, tennis shoes to Wal-Mart and uses the money to buy an off-the-shelf microchip factory for Shanghai, that counts as an "export" and we all applaud.
But if it takes that $1 billion and invests in a chip plant here -- providing jobs for dozens or hundreds of software engineers, managers and salespeople, it's counted as an "import." And on cue from Democrats, we all go "boo."
Yet, those are "imports" we need more of -- the kind that make us richer and more productive and which boost the value of our nation's productive assets. We should seek more, not less.
If you still think building a trade surplus is necessarily a good thing, look at the accompanying chart [I couldn't find it--1rudeboy]. The U.S. has run current account surpluses only twice in the last 26 years. In both instances, the economy was in recession. Why? We just stopped buying things from other people, and our economies tanked. Funny, based on their "plan," this seems to be what Dorgan and Feingold want.
Free trade is one of the few things economists of all stripes agree on. We do ourselves and the world a favor by running our current account deficit. Yes, we buy lots of stuff overseas, but we're also investing huge amounts in our own economy -- which will make us all richer in the future.
With the Dorgan-Feingold plan, we're getting a whiff of what the Democrats might do if they take back Congress in November. When it comes to the economy, they style themselves as Phi Beta Kappas. On trade, they deserve dunce caps.
What most people don't understand is trade in goods and services is driven by investment flows. When foreigners invest massive amounts in the U.S., we have to run a trade deficit because of the way our global accounts are kept.The U.S. has run current account surpluses only twice in the last 26 years. In both instances, the economy was in recession.
--might be something to do with an election and farm votes, methinks--
Also could be trying to peel off the moron faction of the Republican Party - based on a lot of the protectionist posts here, it's a sizeable number of people and I think they're gullible enough.
/sarc
Most Americans know imported goods and imported labor NEVER help the vast majority of the citizens. It helps the corporate owners. Any promise of cheaper prices is only realized through inferior quality.
Didn't we fight a war against slavery and the use of slavery as a workforce? Are we against it or not?
I'll wager that a decent number of those "malcontents" have it in for the Republican Party in general, whether as Dems or third-party True Believers.
Good Point 1rudeboy!
It's all about investment flows.
Recessions are great for balancing trade deficits...but not for the American economy.
Perhaps, but there are nutjobs everywhere. A basic tenet of convervatism is a general abhorrence of price controls and trade inhibitors via tariffs and such.
There are certain tariffs that are a fact of life because the competition refuses to play on a flat field. We have instituted some of our own, to our detriment, but that is the downside of applied economics which the application of economic theories in a political environment.
I prefer to think that any "conservative" examining a proposal by that POS Feingold would have enough sense to realize it isn't in our best interests to entertain it.
Too funny. Name calling, the mark of a truly weak postion.
Exports are good. But a country where the average yearly salary is $1000 isn't going to bring you much in the way of sales.
It's safe to say that we are all against slavery. Some of us simply wonder if making foreign products more expensive is an effective method of dealing with it.
yea, those nasty tariffs of the 80s that congress put on the import car industry only saved Michigan. Without them, the American auto maker would have gone under. With them, they forced foreign automakers to move their production into the US, employing Americans. It's not everything, but it's better then free trade by a long short. If they pushed tariffs on imported parts, then there would be a level field for auto makers.
Middle class? We don't need no steenkin' middle class!
Are we? Did you know that the average salary in the Philippines is under $300/month? And that is a 60/hr week. Same in India, Indonesia, China, and the vast majority of the asian countries. Hell, only Mexico is above $2,000/yr... currently at $8,000 (that why we needed to expand NAFTA into CAFTA, in order to take advantage of the other central American countries where the average salary is under $2,000/yr).
If we were against slavery and were really about helping those local foriegn economies grow, then we would NOT be placing American businesses in those countries, but would be partnering with foriegn local businesses, 'embedding' management and QA, and making deals for their products. But the profits would remain with the foreign companies, and not in the hands of the American investors.
We might as well call it slavery when the people working in those factories have no other employment choice and the wages they receive are barely enough to buy food. Hell, in China, there are 'dorms' set up so that the local people, so poor they barely have a place to live, are paid with food and lodging.
But shhh.. don't tell anyone. Don't let those pesky facts get out. Besides, Americans and especially American republicans are too stupid to understand the real issues. /sarc
You did see my qualifying statement about those "nasty tariffs", right? There are times when tariffs are appropriate. I am not an ABSOLUTE free trade advocate. That doesn't work in the real world.
Besides...and I hate to say this, the American auto maker is probably going to go under anyway. The unions are killing them.
What is it protectionists and self-limiting behavior?
In the face of competition from auto factories just 10 miles over the border in Mexico, with no union concerns or environmental concerns, those American factories are facing tougher times. They also have a problem with their retirement package, which most American fields got rid of years ago. (How dare those dirty little employees get something for 20 years of labor and no equity stake)
U.S. companies are being out-competed by their own plants in Mexico? LOL
When it come to the Economy and free markets, Democrats are
Dumber
than
Dirt
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