More catching up on life

CLIFF’S BOOK NOTES

The Failure of Laissez Faire Capitalism (2013)

Paul Craig Roberts, Reagan’s assistant undersecretary of the Treasury and a Reaganite supply side conservative who is harshly critical of Bush Republicanism, argues that classic global free trade theory is flawed and is destroying the American economy.

According to Roberts, Ricardo’s theory of comparative advantage was flawed at inception and has been misapplied ever since with the result that, it in today’s global economy, it produces destructive results for First World countries and their economies.  

Roberts notes that Ricardo believed that capital should not - and would not - be moved to other countries because of both personal and patriotic considerations.  

Today, patriotic individual investors have been replaced by large multinational corporations which are over-rewarded for boosting their next quarterly earnings report by offshoring American jobs.  China did not steal American jobs – American and multinational companies gave them away to the Chinese in order to make a few more bucks.

When jobs are offshored, they are gone forever, along with the technology that is related to increasing the productivity of those jobs, leaving behind mostly “non-tradeable” lower paying service sector jobs which doom the American economy to buying rather than producing essential goods.  

Although consumer prices may fall, this “comparative advantage” produces greater social safety net costs along with lower GDP, unfavorable trade balances, and high unemployment, which far offset any arguable benefit of lower prices at WalMart.  

Unlike Ricardo’s theory of one country trading its products for the products of another country (i.e. England trading wool for Portugal’s wine), the U.S. is trading its jobs for the consumer goods made by China and others.  

The net result is that the middle class – the key to social mobility – is being significantly reduced, while the poor get poorer, and the rich got richer.

Income inequality in the U.S. got worse after the Great Recession, which was the inevitable product of an irrational market which went unregulated per the free trade dogma that markets are self-regulating (e.g. former Fed chair Alan Greenspan’s “confession”).  Not one of the banksters who created this disaster went to jail, but many of their companies were bailed out while ordinary people suffered the brunt of the financiers’ excesses.  Worse yet, ordinary taxpayers were forced to pay for these bailouts while immigrants, legal and illegal, were taking their jobs.

Roberts believes that libertarians and free marketeers must learn that individual power can do as much damage to other individuals as big government power, and both forms of damage must be prevented from occurring.

According to Roberts, Americans have forgotten – or never learned – that the big boom in the U.S. productivity was caused by tariffs, beginning with Alexander Hamilton, as advanced by Henry Clay and Abraham Lincoln, and extending through WWI.  

After WWII, the U.S. decided that one way to rehabilitate the shattered economies of Germany and Japan was to allow their cheaper goods to be exported to the U.S. tariff-free while allowing American goods to be subject to tariffs imposed by those countries.  

This non-reciprocal trade has continued to this day even though the ravages of WWII are long gone and even though the U.S. economy and its citizens are being very negatively affected.    

Roberts believes that production jobs must be returned to Americans, and this can be accomplished by taxing multinational corporations much more for any value added to their products in countries other than the U.S.

[Reaganite Roberts sounds a bit like Elizabeth Warren’s economic plan announced 6/5, doesn’t he?]