Ross Perot called NAFTA a "giant sucking sound", saying that jobs would rush south of the border. They didn't they rushed to Canada which is close to Detroit and has lower cost health care, the taxes paid to Canada are less than the insurance premiums to American insurance companies, and housing prices are lower, allowing people to have the same standard of living at lower wages north of the border. On net, NAFTA has created jobs in the United States.
What has this produced? A giant hissing sound as the US equities bubble deflates. Short term this is a problem. Long term, it is an opportunity.
Free Trade is a high wire act - the government opens up markets, and then buffers the people dislocated. Not just on humanitarian grounds, but for the cold economic reason that people who fall out of the working system often never get back into it. According to one career guru "leaving the work force is like dying, you can't take it with you and you aren't coming back." Bush doesn't do nuance. Hence, instead of a free trade economy, America has gotten a protectionist one. All of our growth has been in housing (can't import houses), military and homeland security (we don't import aircraft carriers) and health care (we don't fly to dublin for a check up, funny that).
We don't have Free Trade under Reagan-Bush, but Greed Trade - we pillage developing economies, and then ship the money to the states that produce oil and cheap labor.
For almost 25 years the US has decided not to deal with the energy problem. This may or may not have been a good decision - the cost of dealing with it in 1981 was going to be much higher than dealing with it now. Fuel cells, solar electro-voltaics, wind turbines - and the digital world that drastically reduces transportation costs and spreads organizational reach - were all in their infancy. Carter, if he had been a better tactician, might have gotten reëlected, but we will never know.
The price for this was that we had to drag the petro-dollars that went out of the US back in the form of investment. We also couldn't get the Saudis to buy consumer goods - instead they poured their money into creating Wahabism - a religious code that tells its followers the west is evil. Think of it as religious mercantilism - tell people not to import because Allah says so. If you want to know why the "Red Pole" of America is hyper fundamentalist, think about it in economic terms.
So we had to sell them paper - US Treasuries and US equities. Problem, that also means that their rich will race ahead of our rich. Effective control of US industry would pass to foreigners. So we had to slash taxes on our rich, so they could keep up with the Prince Faisals of this world. This is the huge distoring effect of the petro-dollar - everything has to throw off as much after-tax cash as an oil well. Which meant there was no money left for wage increases. Real standard of livings crawled up by the slow march of the population, as opposed to the population plus technology.
This is the American Thermidor cycle - the US runs a paper for oil economy. The US President effectively became the minister of oil, and as long as gas and money stayed cheap, he stayed president.
The problem is, with the crash of 2000-2002, this came to an end. We cannot borrow enough money to soak up all the dollars we are sending abroad any more. The right wingers call this "a global savings glut". Bad foreigners for not being debt slave consumer junkies watching Britney Spears videos on a wide screen TV while driving their SUV. Bad. Bad. Bad. How dare they work - and save. The reality is the reverse - there is a lack of investment supply. As oil gets rarer, it gets more profitable. Which means everything else has to as well.
This is the ultimate revenge of the Clinton Administration on Bush - in a free trade world with free capital movement, countries that run low interest rate policies for too long, hemmorage money. Even before then it was clear that it was going to come to an end. Most people didn't see how Reaganomics was dying, but a few groups of people did. Bush took the free trade to get cheap wages - Republicans love wage slavery, why own people when you can rent them for pennies a day? - but it also meant that the economy had to be a metropolitan high growth economy. The Republicans hate cities: social liberty, pluralism, tolerence, diversity, oportunity, fluidity - all those Enlightenment, Romantic and Modern virtues that get in the way of running a good old fashioned theocracy.
The Republicans wanted to pour money into real estate and other things built by white guys in pick up trucks. The Bushconomy has been good to the pick up truck crowd. But the problem is, you can't export most of the things they build. Bush and company allowed this because they thought they had a solution to the petro-dollars problem. Take the oil.
This is what Iraq is about - not just the oil, but having a wedge in the middle east that the US can force to buy imports, and employ the henchmen of the governing class.
Look back on how Britain treated the US colonies. They didn't just take the lumber they needed for ships - though they did do that - they also forced the colonies to take only silver pennies - thus allowing Britain to pile up silver that was accessible to taxation, without as much inflation - and to buy only British goods from British monopolies. The Tea Tax didn't increase the price of Tea - it was designed to drive American merchants out of business. As early as the 1740's Britain was banning US manufacturing in metals and finished goods. One reason that the US developed a gun industry is that it was one of the few industries that the crown would admit that we had a local need for, that they didn't want to supply. They also shipped various members of the British Aristocarcy to be governors, and granted lands to noble families. Check out the flag of Maryland - realize that Baltimore is named for Lord Baltimore.
Iraq was to be the same colonial deal - not just source of raw materials, but a dumping ground for currency, goods and semi-useless members of the governing class, and a way of keeping employed the military leadership class.
With an Iraq that is "Americanized" - it becomes just another developing nation - forced to sell resources to the US just to keep its population happy. Iraq's oil reserves keeping only 4 million people in affluence can buy or sell as it pleases. Keep 20 million people in affluence, and it has to sell at any price. Iraq an Americanized country buys televisions, Hummers and anything else we want to sell them - oil drilling equipment, American weapons, American concrete (yeah, they are buying American concrete).
There is a problem with this "solution". It was completely insane. Nuts. Totally bonkers. Iraq wasn't a good target for colonization. Colonies mean that you convert or kill the local populace. This small detail of history escaped our "brilliant" neocons. Forgetting that turning America into a set of colonies took a century and a half of wars with the natives and other interested parties (we call them "The French and Indian Wars") - they bounced in expecting the locals to throw flowers. You can't buy flowers on the wages we pay the locals, so it is no surprise they throw rocks instead.
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The hissing sound you hear then, is the outside world deciding that they don't want to buy a used war from Bush. It is going to be slow - unwinding big positions is. It has lead many people to believe there will be a collapse of the US dollar. This isn't going to happen. Instead what is going to happen is there is going to be a relentless rise of other currencies. There is a difference here, and an important one. Dollars aren't going to be sold, they just aren't going to be bought. There isn't going to be a "boom thump", instead, the US is going to experience a 15 year long headwind to its equities and securities markets. We are already feeling it - the stock market still hasn't beaten its pre crash heights, and even the Dow is just set to recross its 1999 peak.
This all sounds dismal right? Paying back a generation's borrow and squander means less profit, lower wages, all those bad things. Well. No.
You see all that foreign investment came at a cost - namely, Murphy's Golden Rule - He who has the gold makes the rules. The US wanted to put an end to Saddam in 1991. The Saudis would not hear of it, and they paid for the war. Businesses that have to keep foreign investors happy aren't going to make big gambles on America's future. Citibank has large blocks held by Saudis - d you think they would loan money to say, non petroleum sources of energy. One reason that Britain is leading the charge for non-carbon energy is - they still own their own bloody country.
This unwinding of the Reagan-Greenspan bubble is, in otherwords, a chance for America to dry out, and get its future back. Yes the cost is going to be a less posh retirement for alot of people. Yes the cost is going to be a stock market that returns at 8% rather than 11%. Yes the cost is going to be a weaker dollar for a long time, and the rise of China. (How do you feel about dollar Yuan parity?)
But it will also mean that, on the other side, if America shifts its priorities to saving and away from inflating as the way to prepare for the future, that we will own our own future again. A lot of people here talk about "energy independence" Waste of time, build a sustainable, scaleable and accessible system, and energy will no longer be a drag on our economy - we will sell more than enough energy technology and capital to pay for any energy we need to import. What is important is financial independence. Get back to the good old Benjamin Franklin self-reliance of "a penny saved is a penny earned".
Bush, by breaking Reaganomics beyond repair has done us a favor - by sending money trundling to other places, he has started a process which, if managed, can be used to, over the course of a generation, manage the change in the world economy. There might still be a catastrophic meltdown - in fact, if the US electorate doesn't wake up soon, it will be unavoidable - and there is still going to be a giant wrenching motion when we have to face the lowered expectations. This will show up as a pension crisis - because the government backs pensions. This is the cost of bad policy - the government has to bail out the results.
But what we have a chance for is to be free of the great weight that Nixon and Reagan dumped on our shoulders. We will be free to walk out of a long dark era, grovelling away as the living worked for the dead. Free to go out, into the sunshine and swing our shoulders again, and determine how we are going to invest in our own future. With that independence, all the other important kinds will follow.