James Pethokoukis

Politics and policy from inside Washington

What’s the problem? Spending, not revenue

Jun 22, 2011 15:25 UTC

The CBO report also clearly shows that America has a spending problem, not a revenue problem.

COMMENT

Seriously? Note the drop in revenue starting in 2000. Shouldn’t we get revenues back to those levels?

Posted by shoe23 | Report as abusive

The scariest U.S. budget chart out there

Jun 22, 2011 15:03 UTC

The Congressional Budget Office just came out with its mid-year update to its long-term budget forecast. Lots of terrifying stuff in there. But if I was only going to pull out one bit, it would be this chart showing the likely path of America’s debt-to-GDP ratio between now and 2035 assuming a) likely fiscal policies and b) massive debt would actually impact economic growth. It’s not a pretty picture:

 

COMMENT

Yikes.

I’m no economist but… how screwed up (software term) would the rest of the economies of the world have to be for anyone still to be buying US debt when we’re anywhere near 150% of GDP much less 200% or 250% ??

In other words, wouldn’t something very important necessarily have to “give” (break, collapse, implode, explode, melt) that prevents the chart from playing out that way after around 2025?

Which isn’t to say the chart isn’t scary. It absolutely is. My frustration level over D.C. is breaching new territory. I liken this chart to Cher slapping Nick Cage, “Snap out of it!”

@DanFarfan

Posted by DanFarfan | Report as abusive

There’s supporting free trade, and then there’s being a sucker

Jun 22, 2011 13:04 UTC

When the country engaging in mercantilist-protectionist policies is also your banker, I guess you tend to look the other way. My fellow CNBC contributor Peter Navarro makes the devastating case:

For starters, we must puncture the myth that China’s main manufacturing edge is solely its cheap labor. Indeed, while low labor costs are a factor, when you carefully research the biggest source of China’s manufacturing advantage, it is actually a complex array of unfair trade practices, all of which are illegal under free-trade rules.

The most potent of China’s “weapons of job destruction” are an elaborate web of export subsidies; the blatant piracy of America’s technologies and trade secrets; the counterfeiting of valuable brand names like Nike and Chevy; a cleverly manipulated and grossly undervalued currency; and the forced transfer of the technology of any American company wishing to operate on Chinese soil or sell into the Chinese market.

Each of these unfair trade practices is expressly prohibited both by World Trade Organization rules as well as rules established by the U.S. government, e.g., the Treasury Department has sanctions against currency manipulation (which, alas, the Obama administration refuses to use against China despite campaign promises to do so).

Make no mistake. All of these real economic weapons have led to the shutdown of thousands of American factories and turned millions of American workers into collateral damage, all under the false flag of so-called free trade.

The second myth we must expose if we are to ever reverse the job-killing trade deficits we now run with China is the idea that free trade always benefits both countries. That doesn’t hold true if one country cheats on the other. Instead, when a mercantilist China uses unfair trade practices to wage war on our manufacturing base, the American economy is the big loser.

I am not sure of the solution here, though more vigorous pursuit of these issues in the World Trade Organization would be part of it, certainly. (And reducing our debt would reduce China’s leverage.) Otherwise, I mean, what is the point having a WTO? Though if you wanted to go further, especially on the currency issue, there is this idea from economist Peter Morici:

The United States should impose a tax on dollar-yuan conversions in an amount equal to China’s currency market intervention divided by its exports—about 35%. That would neutralize China’s currency subsidies that steal US factories and jobs. It is not protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it’s self defense.

I am for open trade and subjecting the U.S. economy to maximum competitive intensity. That will spur more innovation, productivity and economic growth.  China should do the same.

COMMENT

The bottom line on trade is that free trade should be the goal, but not the means to the goal.

Free trade deals should be a PATH to free trade. Meaning, an agreement detailing steps that must be taken that will end in free and fair trade. The path must include incentives (moving closer to free trade) for fair trade, and penalties (tariffs) for unfair trade.

So what is unfair trade? Unfair trade is any behavior violating international norms. That could be currency manipulation, subsidies, force labor, human rights violations, lack of labor rights, disregard of environmental norms, and so forth.

It is cheaper to break the rules. Preserving the environment, paying a minimal wage, and allowing workers to organize costs more money. So companies that play by the rules are penalized, while companies (and countries) that ignore the rules are rewarded. Because free traders act like cult followers and no amount of evidence will convince them otherwise, the current policies are destroying this country’s base.

The reason that not a single one of our trade agreements work and result in massive trade deficits on our part is because we refuse to punish unfair trade. Instead, we punish the American companies and workers who play by the rules.

Posted by relawson | Report as abusive

Not winning the future: more on Obama’s strange ATM comments

Jun 22, 2011 12:30 UTC

My pal Russell Roberts of George Mason University speaks Economic Truth to Political Power as he dismantles Obama’s weird comments that ATM machines and automation kill jobs (via the Wall Street Journal):

Replace workers with machines in the name of lower costs. Profits rise. Repeat. It’s a wonder unemployment is only 9.1%. Shouldn’t the economy put people ahead of profits?

Well, it does. The savings from higher productivity don’t just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don’t always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers.

The result is a higher standard of living for consumers. The average worker has to work fewer and fewer hours to earn enough money to buy a dozen eggs or a pair of shoes or a flat-screen TV or a new car that’s safer and gets better mileage than the cars of yesteryear. That higher standard of living comes from technology. It isn’t just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn’t exist before. Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls. So many job descriptions exist today that didn’t even exist 15 or 20 years ago. That’s only possible when technology makes workers more productive.

Indeed, American needs to focus more on increasing productivity through innovation. And then means better tax, regulatory, education and immigration policy. And as this chart from McKinsey shows, we are headed in the wrong direction in many areas:

  •