Back when we were first inflicted with Bush Co., we got bombed and dove straight into a recession. Fear was in the air, yet there were signs in shop windows, "America, Open for Business". There was our Fearless & Feckless W telling us to buck-up and go shopping.
5 years later, our shopping bills seem to be coming to roost. We bought, we re-financed, we exploded the National Debt as well as the Trade Deficit. We spent on war, we spent on new surveillance products to help our government spy on us, oh, I mean the terrorists. And now Bush is about to bumble his way to a career in speaking engagements, or maybe he'll just have books ghost-written for him, as his English ain't so hot.
Either way, Recession 2.0 feels much scarier than 2002. Maybe I just didn't know what damage we could do to our economy & environment and now I do. I've lived through 3 downturns since graduating high school (I set that as when I became coherent that I wasn't the center of the universe), so why does this feel so much more frightening?
I've been trying to separate out the factors. The Media seems to hype things up. That could be a factor in there not being much other news - so all the details of the economic downturn are magnified. It could be that Greg and I started that business and hits to the market can directly be felt in our business. There just seem to be so many dark danger signs: China, with America, are plowing through our oil reserves and bringing gas to an astronomical price. There have been food riots in places where the price of bread or rice has tripled.
I keep looking at what could be good about it all. Higher gas prices means we all start to buy local and the trade deficit drops. We build more sustainable local economies that don't poison the environment and lessen the impact on our world. That in turn both improves the environment and could help chill out the middle east problems. (on a digression - I'm reading a fascinating book about Saudi Arabia that Andre gave me a couple years ago. The insights into the cultural thought process, dress, and religion are fascinating.) Oil prices hit the tipping point on fossil fuels and we find new renewable energy resources.
We should learn from Recession 1.0 and build a sound recovery instead of the house of cards that Bush built.
2 comments:
Jen, don't buy into the hype that we have a trade deficit because we buy too much. That presupposes that all of the imports we buy are discretionary items. It's not true.
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 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, my theory is 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 we attempt 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 rather unremarkable - 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’s 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 me for 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.
Pete Murphy
Author, Five Short Blasts
I'm impressed with the response. Can't say it helps my feeling of doom & gloom, yet I think there is hope in that we can use this sort of information to make better choices - both on the local & governmental level.
What I'm understanding is that we need to change our trade policy and base it more on the population density of those with whom we are trading.
That the population density impacts our ability to access other markets. We aren't competing equally with more dense nations, in fact when we give more dense nations access to our markets they have an advantage.
Interesting.
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