OT:OT:OT A sobering look at what the xxx xxxxs have brought us.



http://www.nytimes.com/2005/07/18/opinion/18greider.html?ex=1121832000&en=727aaeea30f4bb18&ei=5070

July 18, 2005

America's Truth Deficit

By WILLIAM GREIDER

Washington

DURING the cold war, as the Soviet economic system

slowly unraveled, internal reform was impossible

because highly placed officials who recognized the

systemic disorders could not talk about them honestly.

The United States is now in an equivalent predicament.

Its weakening position in the global trading system is

obvious and ominous, yet leaders in politics,

business, finance and the news media are not willing

to discuss candidly what is happening and why.

Instead, they recycle the usual bromides about the

benefits of free trade and assurances that everything

will work out for the best.

Much like Soviet leaders, the American establishment

is enthralled by utopian convictions - the market

orthodoxy of free trade globalization. The United

States is heading for yet another record trade deficit

in 2005, possibly 25 percent larger than last year's.

Our economy's international debt position -

accumulated from many years of tolerating larger and

larger trade deficits - began compounding ferociously

in the last five years. Our net foreign indebtedness

is now more than 25 percent of gross domestic product

and at the current pace will reach 50 percent in four

or five years .

For years, elite opinion dismissed the buildup of

foreign indebtedness as a trivial issue. Now that it

is too large to deny, they concede the trend is

"unsustainable." That's an economist's euphemism which

means: things cannot go on like this, not without ugly

consequences for American living standards. But why

alarm the public? The authorities assure us timely

policy adjustments will fix the matter.

Reporters and editors typically take cues from the

same influential sources and learned experts in

business, finance and government. If the news media

decided to cast these facts as the story of the

world's only superpower losing ground in global

competition and becoming financially dependent on

strategic rivals like China, the public would take

greater notice. But governing elites would regard such

clarity as inflammatory. America's awesome trade

problem is instead portrayed as something else - an

esoteric technical dispute about currency values, the

dollar versus the Chinese yuan. The context is

guaranteed to baffle and benumb citizens.

The possibility that the United States can no longer

afford globalization, at least not as it now

functions, is what opinion leaders do not wish to

discuss. A few brave dissenters have stated the matter

plainly and called for significant policy shifts to

stop the hemorrhaging. Warren Buffett, the legendary

investor, says the United States is destined to become

not an "ownership society," but a "sharecropper

society." But his analysis, and others like it, are

brushed aside.

An authentic debate might start by asking heretical

questions: Why is the United States one of the few

advanced economies that suffers from perennial trade

deficits? Why do new trade agreements, despite

official promises, always leave the United States with

a deeper deficit hole, with another wave of jobs

moving overseas? How do the authorities explain the

30-year stagnation of working-class wages that is

peculiar to America? Are we supposed to believe that

everyone else is simply more competitive or slyly

breaking the rules? In the last three decades,

American policymakers have succeeded in closing the

trade gap with only one event - a recession.

The American predicament is shaped by operating

dynamics grounded in the global system, singularly

embraced by Washington because Washington originated

most of them. At the outset, these practices were both

virtuous and self-interested for the United States -

encouraging industrialization in poor countries,

binding cold war allies together with trade and

investment, furthering the global advance of American

business and finance. With its wide-open market,

America played - and still plays - buyer of last

resort for world exports. Its leading companies and

banks gained access to developing new markets, often

by sharing jobs, production and technology with

others. American policymakers also got to run the

world.

The utopian expectations behind this arrangement

turned out to be wrong, judging by empirical evidence

rather than theory. But why wrong? American political

debate is enveloped by the ideology of free trade, but

"free trade" does not actually describe the global

economic system. A more accurate description would be

"managed trade" - a dense web of bargaining and

deal-making among governments and multinational

corporations, all with self-interested objectives that

the marketplace doesn't determine or deliver. Every

sovereign nation, the United States included, uses its

vast arsenal of policies to pursue its national

interest.

But on the crucial question of how policy makers

define "national interest," Washington stands alone.

Western Europe, whatever its problems, manages

economic policy to maintain modest trade surpluses.

Japan manages to insure far larger surpluses in

recessions (its export income subsidizes inefficient

domestic employers). China strives to acquire a

larger, more advanced industrial base at the expense

of worker incomes and bank profits. Germany and Japan,

despite vast differences, both manage to keep advanced

manufacturing sectors anchored at home and to defend

domestic wage levels and social guarantees. When they

do disperse production and jobs overseas, as they

must, they do so strategically.

By contrast, Washington defines "national interest"

primarily in terms of advancing the global reach of

our multinational enterprises. Elites are persuaded by

the reigning orthodoxy that subsidiary domestic

interests will ultimately benefit too. The distinctive

power of America's globalized companies is reflected

in trade patterns. Nearly half of American exports and

imports are not traded in open markets - the price

auction idealized by neoclassical economics - but

within the companies themselves, moving materials and

components back and forth among their far-flung

factories. A trade deficit does not show on the

company's balance ***, only on the nation's. In

recent years, much of the trade deficit has reflected

the value-added production and jobs that companies

moved elsewhere.

The United States is thus especially vulnerable to the

downward pressures on working-class wages that exist

on both ends of the global system. American producers

are generally free - and even encouraged by Washington

- to shift production to low-wage locations. Companies

regularly use this cost-cutting technique as a

competitive weapon without regard to the domestic

consequences. The practice works for companies and

investors, but not so well for a nation.

INDEED, the cumulative effects of retarding labor

incomes worldwide repeatedly threatens stagnation or

worse for the entire system. Workers, to put it

crudely, cannot buy what the world can make. Too much

capital leads to the speculative "bubbles" that bounce

around the world, visiting financial crisis on rich

and poor alike.

At a different moment in history, American leadership

might have stepped up to these disorders and led the

way to solutions. If globalization is to continue

without encountering more crisis and random

destruction, governments must together shift the

balance of power so labor incomes can rise in step

with rising productivity and profits. If the United

States is to avert its own reckoning, it must take

decisive action to draw firm limits on its exposure to

trade deficits, that is, resign its position as the

open-armed buyer of last resort. In effect, Washington

would also reform its own national interest

imperatives so that they more closely resemble what

other nations already embrace. Ultimately, American

remedial action may protect the global system from its

own crisis - the moment when trading partners discover

they have just lost their best customer.

But to describe plausible remedies is to explain why

none are likely. The webs of mutual interests

connecting government, corporate boardrooms and Wall

Street are too deeply woven, as are habits of thought

among policy makers and politicians. So I do not

expect anything fundamental will be altered in time.

We are going to find out if the dissenters are right.

William Greider, the national affairs columnist of The

Nation, is the author of "One World, Ready or Not."




--
Quaecomque sunt vera ----


.