Restoring the US Middle Class - 4

Restoring the US Middle Class - 4

In the interest of restoring a viable middle class to the United States of America, I will reproduce sequentially chapters of my book in this space. The title is 'Occupy Wall Street Plan 12: A Proposal for Twelve Specific Governmental Actions to Correct Some Economic Imbalances in the United States of America Kindle Edition'

The book is available as a Kindle book here : https://www.amazon.com/Occupy-Wall-Street-Plan-Governmental-ebook/dp/B00UK97C84/ref=asap_bc?ie=UTF8

My hope is that a more viable middle class will reduce class tensions.

Occupy Wall Street Plan 12

4. End Free Trade

Free Trade Doesn’t Work

United States trade policy does not work. We adhere to a low tariff concept that undermines our National Security. It does so by transferring jobs to foreign countries and by facilitating huge trade imbalances which serve to transfer wealth created in the United States to our trade partners.

It is time to change trade policies so that we import only as much as we export.

Our trade partners do not reciprocate our trade encouraging practices and in fact use their trade laws and national customs to protect their domestic industries. It is time to recognize reality in trade.

Free Trade Doesn't Work; it's a fact and it's also the title of a book by Ian Fletcher [http://www.freetradedoesntwork.com/].

US Trade Policy Enforces Free Trade

Trade policy in the United States of America has been wedded to the idea of Free Trade since the 1950's.

One of the justifications for Free Trade and low tariffs for the USA was that we could promote industry in other countries by opening our consumer and industrial markets to the world.

Since the USA emerged from World War 2 as the world's major industrial power, we could afford to, we had an obligation to and our security was made stronger by raising living standards in other countries.

Since then many countries have developed strong economies by protecting their domestic companies and exporting products to the USA: China, Korea, Japan, etc., etc.

Due to their success, our relative economic strength has declined significantly to the point where our economy is now the first among equals instead of the acknowledged leader ; further, we are tied together with the other industrialized countries in an electronic embrace that we cannot break.

The time has come to abandon that policy and conduct our trade policy with attention to the real world and not to the theoretical world constructed in the 1700's.

Make no mistake, trade with other countries can promote our Economic National Security if it is managed carefully. Equally it can damage our security if it is left to market forces.

Harm to the US Economy

It is sufficient here to offer an estimate of the harm done to our economy by our recent and overwhelmingly negative trade balances.

By the term 'negative trade balances' I refer to the monthly and annual difference in current dollars between the exports of goods and services from the USA to other countries and the imports of goods and services to the USA from other countries as published by the US Census Bureau, Foreign Trade Division. This number is known as the Balance of Payments or BOP.

The BOP for the United States was either a small positive number - meaning the total dollar value of our exports exceeded the dollar value of our imports - or a small negative number until the mid 1980's.

In 1984, the BOP of the United States exceeded a NEGATIVE $100 BILLION for the first time. That means that in 1984 we bought $109.1 BILLION more of stuff from other countries than we sold to them.

In monetary policy analysis that means that our money supply was REDUCED by $109.1 BILLION in that year.

BUT, with the deposit money multiplier, it means that our GDP was reduced by about ONE TRILLION DOLLARS in 1984 alone. In that year, the GDP in current dollars was about Four Trillion Dollars.

SO, our GDP could have been reduced by about 20% in 1984 alone.

While there is some debate as to whether all that money was taken permanently from our domestic money supply and GDP or whether some of it was returned to the USA and used to buy T-bills, there is no doubt that the GDP reduction is significant.

That is just 1984.

We have consistently run a negative BOP ever since then.

Between 1984 and 2009, our cumulative NEGATIVE BOP was 7.3 TRILLION DOLLARS.

Using a conservative money multiplier of 10,that means our GDP was REDUCED by about SEVENTY TRILLION DOLLARS during the period.

In simple terms, we are not so rich we can afford to lose such substantial GDP every year to foreign trade. Unless this problem is corrected, it will bankrupt the United States of America.