President Bush is going to start pushing for the passage of the Central American Free Trade Agreement, commonly referred to as CAFTA. I predict that most Democrats and liberals will oppose CAFTA, but they shouldn't.
In this case, Bush and the Republicans are right, and the Democrats and liberals who oppose CAFTA are wrong. Free trade is always a good idea and always benefits all countries involved. This hasn't been a matter of argument in economics for 200 years. Every student of Economics 101 knows this.
The United States has benefitted from every free trade agreement we have entered into, and we will benefit from this one. All this nonsense about jobs going to Mexico because of NAFTA? Pure bullshit. The statistics clearly show that the economy gained more jobs from increased trade with Mexico than were lost because of jobs going to Mexico.
Look, in a dynamic economy like ours, millions of jobs are created and millions of jobs are lost every year. This is a necessary part of reallocating labor resources to their most efficient use. It is ridiculous to just focus on the jobs that are lost.
The problem isn't with free trade, the problem is with some fundamental imbalances in the economy, which have been exacerbated by the wrong-headed economic policies of the Bush Administration. The economy has been growing at an annual rate of over 3% for some time now. Corporate profits have been increasing nicely. The problem is that the prosperity is not being shared. Income inequality is increasing. The Ginni Coefficient, which measures the degree of income inequality, has been increasing to the point that the USA is now more like a third world country than a developed country. Even though productivity has been increasing at a healthy rate, real wages haven't even been keeping up with inflation. The rich are getting richer and the poor are getting poorer, while the middle class is taking it up the ass.
At the same time, we are running a huge trade deficit, which is causing about $700 billion a year to leave the country. This money is being recycled into financing Bush's huge budget deficit and into investments in the stock market and real estate. If this trend continues, foreigners will eventually own and control most of this country and we will be their tenants and wage slaves, while the government will be so deeply in hock to them that foreigners will be dictating American foreign and domestic policy.
I don't claim to have all the solutions to these problems, but it is clear that everything Bush is doing is making things worse. His tax policy has shifted the tax burden from the rich to the poor and middle class by reducing the capital gains tax, the dividend tax, and the estate tax. Shift the tax burden back to the rich where it belongs. This will help reduce income inequality.
Raise taxes enough to run a budget surplus and pay off the national debt. This will reduce the amount of money consumers have to spend, which will help reduce the current account deficit. The major cause of the large trade deficit is that the dollar is overvalued relative to other currencies. That makes imported goods seem cheap, while our exported goods seem expensive. The markets will eventually correct this, as they have been doing, by steadily devaluing the dollar. This devaluation has been going on for some time, yet our trade deficit still keeps expanding, because the dollar is still overvalued. The root cause of the currency being overvalued is the large budget deficit. I don't understand completely why this is, but I think it has to do with the government spending money it doesn't have, which increases the number of dollars in circulation, which makes each of those dollars less valuable. Or maybe it is because consumers have more dollars than they would have if the budget were balanced, so, once again, there would be more dollars in circulation. Like I said, I am not sure why a budget deficit causes a trade deficit, but I have read reputable economists who have asserted this, without explaining why. If someone can offer a precise explanation of this phenomenon, I would be grateful.
The fact that the GDP and productivity have been increasing nicely, while real wages have been falling, is the result of labor not having any bargaining power, so the large corporations can just pump up their income statements and balance sheets, without sharing the wealth with their employees. At their peak several decades ago, labor unions controlled about 36% of the private sector labor force. Now that percentage is down to 9%. Unions are the only realistic way that workers can effectively bargain with their employers to get their fair share of the wealth they are creating. The government should pursue a variety of policies to strengthen labor unions. Give unionized corporations tax breaks. Give government contracts only to unionized corporations. Hell, I would even be in favor of passing a law which made it illegal to employ anyone who is not represented by a union.
Increasing the minimum wage is another way to decrease income inequality and increase real wages. Whenever a minimum wage increase is voted on, as it was recently in Nevada and Florida, the voters overwhelmingly approve. But nothing happens. Why? Don't we live in a democracy? Why don't our elected representatives in Washington do what the people clearly want them to do? Because both the Republicans and the Democrats are controlled by greedy corporations who don't want to give up anything. In all fairness, the Democrats do want to increase the minimum wage, but many of them have proven themselves to be corporate whores by supporting bankruptcy reform and making it more difficult for consumers to sue corporations.
Like I said, I don't have all the answers, but my suggestions would clearly improve the situation. Reform the tax code to shift the tax burden from the poor to the rich. Increase taxes enough to run a budget surplus and pay off the national debt. Take various measures to strengthen unions and increase union membership. Increase the minimum wage.
But please, don't blame free trade for our problems. Don't complain about outsourcing and the relocation of manufacturing jobs to other countries. The reality is that any job that can be done at a desk with a telephone and a computer can now be done more cheaply in India and China. Our free trade with the rest of the world is enriching this country, and it will continue to do so. The problem is that the policies that are now in place are creating and maintaining a very small class of the rich and the super rich, while consigning most of us to the fate of being wage slaves, peons, and tenants of foreign landlords. All we have to do is figure out a set of policies which will spread the wealth around so the middle class will prosper and grow, while the poor are lifted out of poverty. The rich will still have enough money left to buy their mansions and luxury cars.
William Coleman