President Protectionism

President Protectionism

Reagan “ has granted more import relief to U.S. industry than any of his predecessors in more than half a century.” -  Reagan Treasury Secretary, James A. Baker III

By J.M. Hamilton  4-12-14

“You’re a hypocrite.”  Ah, fighting words.

“I guess that’s fair,” I said to my sibling.  

I was in the middle of a rant on taxes, when she let me have it in mid-sentence. 

“Many of us are hypocrites to some degree.”  I said.  Some of us are hypocrites deliberately, some of us selectively, and some through willful ignorance. 

“Interesting times we live in.”

Cold silence on the other end of the phone, from my sister, the CPA.

“It’s not that I resent paying taxes… but I do resent paying at twice the rate of the wealthy. A flat tax is inherently progressive.” 

Especially, compared to today’s codes, where the wealthy game the system and often pay no taxes at all.

My sister:  “There’ll never be a flat tax.  You are talking about millions of accountants and tax attorneys losing their jobs.” 

“And I really resent,” I cut in, “that I have to buy $79 worth of software, plus added charges, to file on line.”  Not even Bach and a Cabernet induced-coma, with additional supplements, will smooth out the unmitigated misery of four horrific hours on line, grinding out another annual filing.

What a way to spend a spring weekend.

And so it goes.  Tax reform, after all, even that proposed by the GOP, is D.O.A.  The rich thrive on political malaise, chaos, obstruction, and our apathy, courtesy of their Party, the GOP.  Check out Washington, and the ever growing separation between the haves and the have-nots, or as NASA scientists recently put it, between the “wolves and the rabbits!”

My sister, by the way, is awesome.  My sister is the living, breathing proof that males are the weaker sex.   Probably not an accolade she’d embrace, but the truth all the same.

One of the fun things about putting out this blog, year after year, is you get to go back and look at what you wrote.  Does it hold up?  Does it stand the test of time?  What did I get right and what did I get wrong?  While my record is mixed, I do occasionally get a few things right.

Take my piece from September of 2010, A Nation of Whiners!

In this piece, J.M.H., among other things, took former Texas Senator Phil Gramm to task for calling the U.S. a nation of “whiners.”  The Senator said Americans were “whiners” for not recognizing that the economic malaise perpetrated and visited upon the nation, by the very financial deregulation U.S. Senator Gramm sponsored and passed in the late ‘90s, was just a fiction or a mental defect created in the collective public’s mind.  Mr. Gramm, also a former economic campaign advisor to presidential candidate McCain, called the Great Recession a “mental recession.” The Great Recession, six years running, is "mental?"

This same piece, A Nation of Whiners, also took on “free trade” dogma.  I wrote: “While Republican orthodoxy demands strict adherence to 'free trade' dogma, most educated Americans know that there is no such thing as ‘free trade,’ just as we all know there is no Santa Claus.  In short, ‘free trade’ is nothing more than some form of arbitrage, whether it be labor, regulatory, or avoidance of tax, which often benefits some multi-nationals at U.S. (citizen) expense.”

Now anyone who took Macro Econ 101 had free trade rammed down their throats as a fundamental law or fact.  Notably, both Fresh and Saltwater schools of economic thought were in agreement on free trade.  The theory went that by nations specializing in a particular good or service, they could sell more of that good or service globally, than just domestically, and so on and so forth around the globe.  Moreover, if a nation wasn’t particularly strong at a particular good or service, it should willing surrender that product or service, and jobs, to another nation that did specialize in that particular good or service.  All in the interest of free trade, global economic harmony, and the consumer. 

The theory held that displaced workers, who had their jobs shipped overseas, would flow into the sectors of the economy that America was strongest at.  For instance, displaced manufacturing workers in Ohio and Pennsylvania would go to work on Wall Street.  Also, American consumers would benefit from cheaply produced goods, exported onto U.S. shores.  However, if you are among the increasing ranks of the “displaced,” or underemployed, it’s hard to gather up the funds for food, let alone an iPad.

As a result of this quaint "free trade" theory, the U.S. exported millions of jobs offshore, and exported its tax base and fiscal health with those jobs.  The ranks of the unemployed grew, and globalization, which is a fancy work for “free trade,” caused more Americans to file for unemployment benefits, further damaging the Federal government’s budget.  Therefore, free trade/globalization is a key contributor to ever mushrooming Federal debt.

It’s by no accident that at the same time laissez faire economics and free trade dogma hit its zenith in America… the disparity between the “wolfs and rabbits, ” the haves and the have-nots, has grown astronomically.  It’s also by no accident that the Obama administration wants congress to fast track free trade agreements, which it would like to negotiate behind closed doors for American and foreign oligarchs, and away from the prying eyes of the congress and U.S. citizens.  Ironically, President Obama, back in the day, campaigned against free trade agreements.  Theoretically, free trade is also politically beneficial to the Democratic Party, since it creates wards of the state.

But I digress, because the main point of this piece is that the belief that I first wrote about in 2010, that free trade is little more than arbitrage, for the enrichment of, well, the rich, and at the expense of a nation of “whiners” (per Senator Gramm) and her workers … appears to be gathering momentum.

None other than renowned economist, Joseph Stiglitz, and a former free trader at that, has now come out against free trade.  In his piece, On the Wrong Side of Globalization, he wrote:

“Trade agreements’ new boosters euphemistically claim that they are simply after regulatory harmonization, a clean-sounding phrase that implies an innocent plan to promote efficiency. One could, of course, get regulatory harmonization by strengthening regulations to the highest standards everywhere. But when corporations call for harmonization, what they really mean is a race to the bottom.”

Now, if you read my blog and curse it, you’ve likely already concluded that I’m some liberal/libertarian flake, who should be dismissed out of hand.

But would you be so quick to dismiss, say another liberal, President Ronald Reagan?  Yes, President Reagan, who despite many rhetorical flourishes in favor of free trade, was actually said to be, by none other than the arch-conservative CATO Institute, one of the 20th century’s greatest protectionist presidents.

Of course, that’s really the difference between today’s GOP and yester-year’s GOP…. And the primary reason I abandoned the Party.  President Reagan, who had his own severe stagnation and recession to deal with in the early ‘80s, knew that in order for the nation to get back on its feet, he had to deploy protectionist measures to protect jobs, American labor, business, and the economy.  In deploying protectionist policy, surely President Reagan angered the wealthy (like the arch-conservative CATO Institute, then founded and run by the billionaire Koch Bros.) 

Mr. Reagan certainly paid lip service to free trade, but his second term and top line growth for American business depended upon a rational balance of protectionist policy, which protected the American worker, who after all, is the driver of aggregate U.S. consumption.

Then Treasury Secretary Baker, said:  Reagan “ has granted more import relief to U.S. industry than any of his predecessors in more than half a century.”  We'll never hear Obama's Treasury Secretary say that.

Today, the laissez faire crowd and the advocates of free trade, that have hi-jacked both political parties, know that they are doing unmitigated damage to the American people, workers, businesses, and the federal budget by backing free trade agreements (a rigged tax code is also endorsed by this same crowd), all in the name of making the rich richer, because they believe that’s a good thing.  Our politicians in catering to the elite with free trade agreements are serving their true master, American and global oligarchs.  Clearly, the interests of the rich and powerful have diverged from the interests of the majority of Americans, but that has always been the case.  Yester-year's GOP often struck the right balance between the republic’s interests and the plutocracy’s interests.  President Reagan's position on free trade and protectionism being a case in point.  

Then again, President Reagan did start out as a Democrat, and once represented the Screen Actors guild... I guess that would make him a parlor-pink, by today's oligarchy standards.

If we compare the two economies, both President Reagan and Obama inherited a really lousy situation.  However, Reagan had higher tax rates than Obama for much of his two terms in office, and Reagan engaged in protectionism (which the Robber Barrons will tell you are both "no- nos"and impediments to growth).  By comparison, President Obama has lower tax rates and has embraced free trade (which should make him a darling of the oligarchs). Both Presidents had monetary doves at the Fed, in the form of Messrs. Greenspan and Bernanke.  And yet, President Reagan's economic recovery was stronger than President Obama's.  Why?  

Thanks to protectionism, President Reagan was able to protect and preserve the middle-class.  The middle-class, thanks to three decades and more of laissez faire economics and free trade, has all been but gutted by the time President Obama entered office.  In brief, during President Obama's time in office, there has been no middle class recovery.  The missing ingredient for President Obama, existed for President Reagan.  Under both recoveries, however, the rich have grown richer, despite higher tax rates under President Reagan.

Unfortunately, some Americans through willful, or benign ignorance, turn a blind eye (I call it the “ostrich syndrome”); and either deliberately eschew politics, or duck their heads in the sand and hope, pray, and pretend things will get better, or have simply resigned themselves to the fact that things will only grow worse. 

“I can’t control these outcomes, so I must accept them,” so goes the familiar refrain.  To which I respond, “Yes, but what about your children and the future your apathy is bequeathing them.” 

The American pubic can control democracy and economic and political outcomes, by staying educated and exercising their enfranchised right.  I know this to be true, because why else would the rich pour hundreds of millions into political campaigns, attempting to overthrow the democratic process?  If I believed democracy didn't work in the long haul, I’d stop writing this blog tomorrow.  Nor is it “cynicism” to write on the problems of the nation, and attempt to point out the often obvious solutions; in fact, for some, it’s a patriotic responsibility.

Democracy comes at a price for its citizens, that means remaining actively engaged, knowledgeable, and insisting that your interests are represented.  It’s a small price to pay, remaining educated and informed, relative to all those men and women who have laid down their lives to fight for and protect this country.  Handing the car keys over to a band of pirates, cutthroats and plutocrats is a recipe for a nation in decline, and we are witnessing that decline.  If you believe staying actively engaged in our democracy is difficult and requires too much thought and time, in short - if you want to abdicate responsibility, than do nothing more and watch the plutocracy take hold and the economy continue to stagnate and grow worse.

And this has already happened.  Have you looked at the Federal budget lately?  It looks like private equity’s Carlyle Group has taken over the Federal government: we are leveraged to the hilt and gone bust.

In a democracy, liberal politicians, like President Reagan, knew that their true master was the republic and its citizens, and their duty and obligations were to same.   However, in a post- Citizen’s United world, in a post- McCutcheon world, money is worshiped, oligarchs are catered to by both political parties, and the people, the republic, and our economy suffer for it.

Continue on this path and we no longer live in a democracy, but rather are ruled and governed by a plutocracy.  The U.S. is in danger of becoming the very thing our founding fathers fled, a corrupt and crony Europe, ruled by monarchs.  We can give SCOTUS, the GOP stacked court, credit for that. 

The wolves would do well to remember, however, as pointed out by the aforementioned NASA scientist, that when society and the rabbit population collapses, the predators tend to die out with it.

P.S.

All of which brings up that famous Wall Street maxim:  Bears make money.  Bulls make money, but Pigs… well, they get slaughtered.

Would it really harm Apple’s margins if they manufactured iPhones in the U.S.?  The answer is an unmitigated “no,” but greed and the laissez faire ethos prevents that from happening.  And I would add, stockholders (like CalPERS) have been harmed, not in every instance but frequently and often, by business actions initiated by management and multi-nationals, in the name of “stockholder interests.”  Then again, I suppose in today's high frequency trading world... holding onto a stock for the long term, based upon sound business fundamentals and a management sponsored long term outlook, is considered passe and strange.

One can read Nation of Whiners - and an anthology of my early work, and do your democratic duty, by purchasing: Playbook, on Amazon.com.

Copyright JM Hamilton Publishing 2014