by Art Isgur
April 2010, VIEW Issue 25: In the first installment of this series we learned that budget deficits are neither good nor bad in themselves. Deficits are just borrowed money. A deficit may be ‘bad’ if most of the money is used to lower taxes on those people that already have more money to use than they can possibly spend. The very same deficit is ‘good’ if the money is put into productive use, encouraging greater consumer spending and lowering production costs, etc.
To help America come back from the grips of this Great Recession we face daunting challenges. Today we will deal with two of those challenges: One foreign and one domestic.
Foreign First the foreign challenge. This can be framed in one noun: CHINA. We may loose jobs to Thailand and Vietnam, but those nations seem to play the trade game according to internationally accepted rules. China is in another league and so they play the game according to a different set of rules. To them the old chard, ‘Heads I win, tails you loose ,” is not only the basic rule, it is their only rule.
In the past twelve months or so, China’s share of our trade deficit has jumped from below 70 percent to a bit over 80 percent, in one year! China exports to the USA a bit more than $330 billion of goods but purchases less than $90 billion of American products.
How do they do this? Let’s set the record straight. Low labor costs are not a major reason. China bends the rules...right to the breaking point. They demand that domestic and foreign companies use only Chinese-made goods if those goods are available in China. China determines where factories will be built. The central government in Beijing determines all the financing for ALL new factories. Taxes are often circumvented by paying a much smaller bribe to a Communist official. They have, to say the least, lax environmental regulations.
But MOST of all, the Chinese manipulate the value of their currency (the yuan or renminbi). Their currency manipulation alone amounts to a colossal subsidy of 25 percent to their exports. Currency manipulation, according to World Trade Organization (WTO) rules is illegal.
About 90 percent of China’s control of manufactured goods, vis-a-vis the U.S., is due to the above subsidies to their domestic and foreign owned manufactures. Congress must challenge directly, China’s illegal subsidies, especially their currency manipulations. They should create an International Trade Commission (ITC) to check, each year, the value the Chinese have stolen. The ITC would then recommend to Congress a value added tax, plus 50 percent to the loss.
Congress must vote ‘No’ within thirty calendar days or the value added tax goes into effect. The Chinese Government will yell, bellow, and huff, but they will either change and play the trade game like everyone else or they will lose market share. Either way, America wins. Jobs will not be sent to China but will stay right here in the USA. Just think, creating American jobs for Americans. Sort of brings a tear to your eye, doesn’t it?
Domestic Our domestic challenge can also be summarized in one word: JOBS. A former British Prime Minister, David L. George, stated our problem almost a century ago, ‘...you can’t cross a chasm in two small jumps.’ With unemployment around 10 percent and another 7 percent in underemployment, with 15 million Americans looking for work, bold action, not baby steps, must be taken. Why is Washington dithering with ‘baby steps’?
A close look at our unemployment may well provide a glimpse at the lethargy we find in the nations’ capitol. Those persons earning at least $150,000 a year had an unemployment rate of only 3 percent. Those earning between $35,000-$149,999 a year had an unemployment rate of about 9 percent. The bottom 10 percent of the income ladder had a startling unemployment rate of 31 percent. These figures are from a study by Northeastern University’s Center for Labor Studies.
New York Times op-ed writer Bob Herbert recently wrote that these sort of statistics are, ‘...unmistakable signs of societal instability. This is dangerous stuff.’ He is so correct. The $15 billion jobs bill that Congress passed, late in February 2010, is too little, too late. We need to pour dollars, big bucks, into state and local governments. If they continue to lay off employees some 900,000 could be effected according to the Center for Budget and Policy Priorities.
The Economic Policy Institute (EPI) believes that Washington could save about 1.5 million jobs with a healthy aid program to state and local governments. Will this be expensive? You bet, but not nearly as expensive as long-term unemployment and the destruction of our middle class.
What should we do? First, let us create public service jobs, as long as they do not compete with the private sector. EPI estimates that $120 billion over three years could create three million jobs. If Congress renews various tax incentives some 45,000 jobs could be created in 2010 in green industries. Rebuild part of our infrastructure by spending $148 billion and directly creating 2.6 million jobs.
The Chinese will open almost 700 miles of track for bullet trains starting in 2012. The U.S. will have one 84 mile track by 2014. The public supports the government helping to grow the economy; even the state government of Mississippi is in favor of such a stimulus program. Where will these dollars come from?
Read next month’s ‘VIEW’ and you will be amongst questions and answers.
– Arthur L. Isgur, Ojai
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Related Article: 2010: Economic Recovery? Pt. I Coming Back - Incentivized Tax Cuts