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Economic Nationalism is Not the Answer

By       Message Seymour Patterson       (Page 1 of 1 pages)     Permalink

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Economic nationalism is on the rise. The democratic and republican primaries offer some indications of this trend. Thousands of Americans came out to hear what Donald Trump and Bernie Sanders had to say to them about the state of the U.S. economy and what needs to be done to veer course. Americans appear to be fed up with what the two parties have to offer. Deference to Wall Street and bankers upsets voters. Of course, flat wages and growing income inequality add to voters' angst. That's why the responses to the rhetoric of Trump and Sanders have been so overwhelming. Although these two men have tapped into something, the fault line between them could not be wider. Trump wants to put America first by broadly bringing jobs back and rejecting international trade agreements--TPP and withdrawing from WTO. That is commendable, but Mr. Trump appears to conflate free trade and the gains there from with trade agreements that enable US companies to produce offshore and sell their output in the lucrative US market.

Free trade enables efficient use of scarce resources and benefits consumers in the form of more varied and cheaper goods--i.e lower relative prices of foreign goods. In this scenario, goods cross borders from where they are cheaper to produce to where they are more expensive. In the US market, these goods are overwhelmingly Asian goods--Chinese and Japanese, and German capital goods. Trade in goods based on comparative advantage is not a problem. When comparative advantage is reached through tariff reduction (or elimination), some US labor adjustments will have to take place. On the other hand, when US capital migrates to where the good is produced in a foreign country, it leads to unemployment in the US.

For his part, Bernie Sanders is concerned with wealth and income distribution. He rails against the notion that the top 1 percent has as much wealth as the bottom 90 percent of the wealth and 99 percent of new income goes to the top 1 percent. He is worried about poverty, unemployment, education, and health care. (See NPR).

Sander's and Trump's platforms intersect with jobs. Both would like to bring jobs back to the US and both are against TPP as they perceive it as a continuation of international trade agreements that have worked against US workers.

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Trump is new to politics, but Sanders has been in politics for 35 years. Sanders has been railing against the same ills facing the country all along, finally getting some traction in the Democratic primaries for the 2016 presidential campaign. He lost to Hillary Clinton. But he set in motion forces that he sees himself seem unable to control--moving the Democratic platform more to the left.

Donald Trump is a businessman and is new to politics. The real estate mogul is bombastic in style when promising to do things--a wall between the US and Mexico--that he might be unable to deliver if elected. While Sanders was obscure before his campaigned message catapulted him into the consciousness of the American people, Trump is well known for his business accomplishments in this country and around the world. Trump Tower is probably well known worldwide. Ironically, lots of products that bear Trump's name are made abroad in places like China, Turkey, India, Mexico, etc. I wonder does he plan to bring jobs back to the US. Or, as he promises, prevent US goods produced abroad access to the US market.

After a bruising Republican primary, Trump won the Republican nomination and will face democrat Hillary Clinton in the general election. Trump trounced established political figures like Senator Ted Cruz, Governor Jeb Bush, Senator Marco Rubio, Governor John Kasich and twelve other candidates. On the democratic side, Bernie Sanders is among the five candidates that bowed to Hillary Clinton, who was for TPP and voted for the war in Iraq.

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Americans seem to be at a place where they prefer an outsider with a populist message Trump--real estate tycoon; or an insider Sanders--a self-proclaimed Democratic socialist. Donald Trump conveys a message of doom and gloom. He wants to make America great. His message seems to resonate with voters who believe the economy is headed in the wrong direction. They don't want business as usual--flat wages, mushrooming debt, crime and violence. Never mind that crime is down, the deficit is down, some states are raising the minimum wage, and the jobless rate is under 5 percent. Some Americans believe Sen. Sander's socialist ideas or Trump's business acumen would serve them better. Trump says his business experience is what is needed to put the nation on the right path. Implicit in his position is that government is a business and as such is amenable business management. However, government is not a business. It is not about maximizing profits. US government is different from business at many levels, but primarily, it is to "promote the general welfare" as written in the preamble of the Constitution.

The Federal government is the sum of state governments. State governments around the country focus laser like on budget balancing strategies as mandated by their constitutions. Budget concerns often lead to bad behavior--laying off of public workers such as teachers, firefighters, and prison workers. The motivation of this austerity is about balancing their budgets. And to promote economic growth these states prefer to cut taxes on the wealthy. The strategy does always work well for the states. Examples abound: Kansas City's austerity experiment has produced a yawning budget deficit and rising unemployment. New Jersey wants to cut pensions, which is a contract on deferred income. Wisconsin's new budget would cut education by $250 million and eliminate the "living wage". But anti-austerity policies appear to do better for the economy and the budget. Example: Minnesota raised taxes and government spending. Minnesota has a budget surplus and unemployment is under 4 percent.

A person running for president of the United States says wages are too high, is willing to default on our financial obligations, and wants to cut taxes in ways that would benefit the rich. At the risk of being accused of making a fallacy of composition argument with respect to what is good (bad) for the state is also good (bad) for the federal gone. That is not altogether true. The federal government can print money, negotiate international treaties. States can do neither. That said, I would maintain that evidence indicates austerity has not worked in countries that have tried it--Greece, of course, comes to mind.

American is a great, assertions to the contrary.

 

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
 

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