Saturday, April 05, 2008

An Unhappy Nation

George II's approval is still stuck at 28%, some rock headed bunch that can't count past ten with their shoes on still think he's the best thing since *something*. This number continues to astonish in the face of the NYT/CBS Poll just released showing 81% believe the country is on the wrong track. George Bush's magical ability to turn gold into lead has been in evidence since very shortly after the 2000 election but defied rational thought as late as 2002 when 35% doubted the nation's direction. (does that 1/3 now look prescient?) The Iraq debacle has played its role, but now the economy is trumping in with the dissatisfaction spread across all political parties, races, essentially all demographic groups. I suppose 81% makes that pretty inevitable.

People's perception of the country's welfare is nasty, 78% say the nation is worse off than 5 years ago and only 4% (who are they?) think it has improved. Surely 4% of the country are not big oil executives and shareholders or military contractors. A five year spread lands the impact squarely in the BushCo era, and people tend to lay blame on the government. There is a question of how Congress will be held to account, the slim Democratic majority of the last year certainly has not resulted in much more than gridlock.

This poll shows some of the oddly mixed results you really should expect from polls questioning conditions in general, regarding the mortgage crisis 40% blame regulators, 28% lenders, 14% borrowers and yet 53% advocate helping those with interest problems and 41% oppose it. Matching percentages of 43% advocate larger government with more services and smaller government, the advocates of larger government a high since 1991. 58% approve of raising taxes on households with income in excess of $250,000 and only 46% believe their children will do better than themselves.

The huge numbers of dissatisfaction are oddly juxtaposed with desired solutions and economic conditions in existence during BushCo. Wages have been flat or falling during the entire regime, deficit spending has skyrocketed during that period and the advantage of wealth has exploded. These are very nearly historical levels of inequality of advantage and governmental irresponsibility. These facts seem slow to sink in with the American public. The costs of Republican ideology are not born equally and the advantages are also one sided and this seems to be beyond the ken of average America. John McSame, the epitome of "four more years," polls about 5% behind either Hillary or Barack. There is a very nearly straight economic line from Saint Ronnie through George II, with slight hiccups in application. You note this at serious risk of being labeled apostate regarding either RR or WJC and yet it is nonsense.

There is a convincing case to be made that much of the current difficulty is due to government policies and action or inaction. Trade in itself is a good thing, but when the application is simply the relocation of industrial facilities that is not trade, when the trade involves near slave labor conditions it is not trade, it is profiteering. When the government's response to illegal hiring is either a wink or outright encouragement servitude is the outcome, with the attendant losses in wages moving upscale as the bottom is cut out. When the government incurs debt, the money supply is tightened or the value of the money is undercut, one or both must necessarily occur. A certain amount of debt is tolerable or sometimes even beneficial, but there are serious upper limits to that and BushCo blew the doors off the limits long ago. Out and out greed has serious consequences, the fact that you can gouge to a certain extent doesn't mean it is desirable, social stability is affected and that stability and confidence is necessary to the accumulation of wealth over the long term. In many ways loss of confidence is a worse outcome for wealth than outright chaos, in chaos the system is broken along with the rules in which case the advantages of wealth are extreme - if personal survival happens - in the case of broken confidence the system remains intact but the economic engine dries up.

Somehow, eight years of Saint Ronnie managed to create a suspension of disbelief unlike any other period in this country. Economic and social fantasy took root and ruled. Bill Clinton followed pieces of that fantasy although to his credit he allowed some crumbs to fall off the table of wealth. The idea that regulation was evil had some merit in pointless bureaucratic rules but that extension to the elimination of basic regulation ignored the consequences of unlimited greed. The idea of the unseen hand of the market assumes the existence of a market, a historic inaccuracy in this country. Theory meets reality and loses, the system is rigged and has been since George Washington. If you are in doubt, see the battle between Alexander Hamilton and Thomas Jefferson, even then the question was in whose favor the rigging would be. Jefferson lost, because the rigging worked fairly well for most and particularly well for the elites history course books celebrate Hamilton.

There are, of course, no Presidential candidates who make more than a pretence of addressing the root problems, the somnolent public would object to being awoken to reality. In the end run, those responsible for this unhappy nation will not be held to account nor will the conditions be addressed short of a major cataclysm.

2 comments:

Pete Murphy said...

Excellent post, Chuck! I especially appreciate your observations about trade. I'd like to offer another perspective on that issue.

Our enormous trade deficit is rightly of growing concern to Americans. Since leading the global drive toward trade liberalization by signing the Global Agreement on Tariffs and Trade in 1947, America has been transformed from the weathiest nation on earth - its preeminent industrial power - into a skid row bum, literally begging the rest of the world for cash to keep us afloat. It's a disgusting spectacle. Our cumulative trade deficit since 1976, financed by a sell-off of American assets, is now approaching $9 trillion. What will happen when those assets are depleted? Today's recession may be just a preview of what's to come.

Why? The American work force is the most productive on earth. Our product quality, though it may have fallen short at one time, is now on a par with the Japanese. Our workers have labored tirelessly to improve our competitiveness. Yet our deficit continues to grow. Our median wages and net worth have declined for decades. Our debt has soared.

Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?

At this point, I should introduce myself. I am a self-published author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, this theory asserts that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when a nation like the U.S. attempts to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China's. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world's population.

Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it is a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

If you're interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

Please forgive the somewhat "spammish" nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

Keep up the good work of raising concern about our trade deficit!

Pete Murphy
Author, Five Short Blasts

Chuck Butcher said...

Thanks Pete,

I realize that trying to cover a body of work in a couple paragraphs can't do it justice. I'll stop by when I have a little more time.