PROJECTING THE STATUS QUO

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So, President Obama thinks that anyone who questions the opaque Trans-Pacific Partnership is in effect arguing for perpetuating the “status quo.”   (See today’s Washington Post:  http://www.washingtonpost.com/politics/obama-says-he-willing-to-defy-democrats-on-his-support-of-trans-pacific-partnership/2014/12/03/25edcaf4-7b30-11e4-84d4-7c896b90abdc_story.html?wpisrc=nl-headlines&wpmm=1.)   A while back, he charged critics of the TPP and its baby sister the Trans-Atlantic Trade and Investment Partnership with complaining about issues that in his judgment had been settled twenty-five years ago.  Huh?

Projection is a common psychological defense mechanism:  attribute to others what you want to deny about yourself.  In this case, the administration and its big business allies are the ones who are perpetuating the status quo.  The special interests for which trade agreements are designed to work often benefit from their intricately crafted provisions.   However,  those provisions have little to do with either “free trade” or the national interest. 

Whereas Adam Smith argued that a nation as a whole (hence The Wealth of Nations) would be better off by ending perpetually unbalanced trade – the essence of mercantilism.  He surely would see through the unexamined assumption of modern day “free traders” who argue in effect that anything that leaves them better off serves the national interest.

Yet this blind spot is not peculiar to the current administration.  For decades the United States has failed to:

• Counteract the spread of mercantilist practices that now distort 40 percent of the world economy, creating immense imbalances that threaten the continuation of the post-World War II economic system;
• Address the growing discrepancy between the US and foreign tax regimes, handing to more than 150 countries a built-in two-way advantage in trade with this country;
• Neutralize the rise of state-owned enterprises in international trade and finance, allowing those who have virtual immunity from market forces to gain a huge competitive advantage over our companies and our workers;
• Offset the massive subsidies paid to induce American firms to offshore their headquarters, research facilities, production facilities, and components suppliers; and
• Develop a coherent energy policy that capitalizes on home-grown supply and technology, leaving us dependent on foreign supply, complicating our national security calculations, and inexorably adding to our foreign debt.

For a generation, those issues have been ignored by our trade negotiators and our economic policymakers.  While successive administrations have hyped the benefits from China’s accession to the World Trade Organization and our “free trade” agreements with 26 other countries, here’s what’s been happening to the US economy:

• Trade deficits continue at historically high levels.  Since our last annual surplus in 1975, we have incurred an unbroken string of 39 consecutive deficits totaling about $10 trillion dollars.  Seventy percent of that has occurred in just the past 13 years, just when expanded trade was supposed to be improving our trade performance and living standards!
• Median household incomes have been falling as American workers have lost well paying jobs and benefits to foreign competitors.   Despite impressive productivity gains, the typical American worker is worse off today both in wage earnings and benefits.
• Median household net worth has also suffered as falling incomes and rising cost of housing, medical care and education have curtailed the average family’s ability to save and invest.  Today half of American households have accumulated over their lifetimes a net worth of $81,000 or less – smaller than the annual bonus of some law associates or rookies at Wall Street financial companies.
• Foreign debt, largely driven by the cumulation of annual trade deficits, has risen year by year to almost $17 trillion – about one year’s output for the entire American economy.

Each dollar of foreign debt is a claim on what Americans own or can squeeze out of our shrunken production base.  When the inevitable day of reckoning arrives, inflation will make up for any shortfall in available assets, goods and services.  Literally, our perennial trade deficits are not only a drain on our economy at present but also a threat to our prosperity, sovereignty and way of life in the future.

So, the status quo is the problem, but more of the same sort of trade agreements cannot be the solution.  We need a government able and willing to confront the problems that have burdened us for a long time.  The good news is that most of them can be addressed effectively and legally by actions within our control.  Then – and only then – broad regional trade agreements might make a lot more sense and might enjoy a lot more political support than they do now.  Instead of complaining about critics, those in power would be better advised to act in a determined, comprehensive way on the perennial problems that have gutted the prospects for prosperity for half the nation. 

12/4/14

GOODNESS, GREATNESS

It pained me to read in today’s New York Times Sunday Business section a stinging critique of America’s retirement system.  A Dutch pension specialist is quoted:  “The rest of the world sort of laughs at the United States – how can a great country get so many things wrong?”

Retirement security is of course a big issue for boomers and their children.  The fortunate upper echelon has plenty of income and assets.  As a country, however, our household savings rate is stuck below two percent, one-fifth of the rate in Germany and one-fourth that in Poland.  These days half the country struggles with low and stagnant earnings: when corrected for inflation, the median household income still has not recovered to the 2007 level.  Half the country’s households have a net worth of $81,000 or less, an amazingly modest level down 40 percent from the 2007 peak.    No savings, falling incomes and declining net worth are a recipe for social and economic disaster, yet no coherent national response has been forthcoming from elected officials.

My distress is all the greater because the same scornful question can be raised with regard to many other areas of American life.  Once the world’s greatest creditor, we are now the biggest debtor in history.  We have a unbroken string of trade deficits since 1976, adding up to almost $10 trillion dollars.  Our industries have not expanded plant and equipment for a decade or more.  Standards of performance, accountability and ethics are slipping in every sector, it seems.   Our politics are gridlocked.  Generation-old problems go unaddressed while elected officials posture and squabble.  Our infrastructure is increasingly antiquated and second-class.  Our tax system is out of step with the rest of the world, providing scant reward for the added saving, investing, producing and exporting that we need on a sustained basis. 

We govern ourselves as if neither foreign competition nor shared prosperity matter.  We think of ourselves as exceptional.  In practice, we lack purpose and vitality and are weak and irresolute.  The world has ample reason to laugh at us.  But America’s fecklessness is no laughing matter.

During an all-night negotiating session in Geneva years ago, a veteran Asian ambassador said to me:  “America is great because America is good.”  For years, I recalled those words as a reflection of the respect and gratitude that America deserved for its principled, far-sighted and dedicated leadership and the dynamism and high standards of its people.

With the benefit of 30 years’ additional experience, I would amend the ambassador’s statement:  America is great when America is good.  These days, it falls way short of what it could be, what average Americans want it to be, and what the rest of the world needs it to be.