An unsustainable path

Recent columns in the Washington Post and the New York Times point to something that has been discussed on this blog for some time, including the pre-meltdown period. And that is the just about insane economic ideas that have pushed us to the brink of disaster. Both Eugene Robinson of the Post and Bob Herbert of the Times have pointed to the Bernard Madoff $50 billion dollar ponzi scheme as something representative of the financial systems we have employed as individuals, and as a country. They are really not exaggerating, and may be understating the case.

We have seen huge trade deficits with the rest of the world, not to finance a buildup in the industrial capacity of the United States, but to finance consumption. And that consumption, fueled with borrowed money, came with the symptom of de-industrializing America, as official U.S. government policy focused on providing the cheapest possible consumer goods to the country and worshipping at the altar of free trade. The Chinese and the Japanese have industrial policies that provide jobs. We have no policy and no jobs, but we can get you the best price in the world on a flat screen. And we provide the market that drives industrial growth everywhere else in the world. What is wrong with this picture? We have been assured that the iron laws of math do not apply to us, that trade deficits that have wiped out other countries and destroyed their currencies do not apply to us. Think again.

The Robinson column talks about how we all became caught up in real estate valuation that never made any sense, all in the hope that prices would endlessly escalate.

Which makes me wonder how many of us had our eyes open when housing prices were soaring in Ponzi-like leaps — by 10 percent or more a year, in some parts of the country — while middle-class incomes were largely stagnant. How many of us stopped to ask just who was supposed to be able to pay $1 million for a standard suburban split-level, even if it had an upgraded kitchen with a Sub-Zero fridge?

The whole subprime mortgage industry was based on the idea that housing prices would always rise. Given that assumption, it was perfectly rational for first-time homebuyers to sign up for adjustable-rate mortgages that they couldn’t really afford. From the moment they signed the loan papers, they would be building equity — through appreciation — that soon would make it easy, and lucrative, to refinance or sell.

In other words: Get in, get their return and get out before the whole thing fell apart.

Herbert is a little tougher but unfortunately right on the mark.

Look around you. We have behaved in ways that were incredibly, astonishingly and embarrassingly stupid for much too long. We’ve wrecked the economy and mortgaged the future of generations yet unborn. We don’t even know if we’ll have an automobile industry in the coming years. It’s time to stop the self-destruction.

The slogan? “Invest in the U.S.” By that I mean we should stop squandering the nation’s wealth on unnecessary warfare overseas and mindless consumption here at home and start making sensible investments in the well-being of the American people and the long-term health of the economy.

The mind-boggling stupidity that we’ve indulged in was hammered home by a comment almost casually delivered by, of all people, Bernie Madoff, the mild-mannered creator of what appears to have been a nuclear-powered Ponzi scheme. Madoff summed up his activities with devastating simplicity. He is said to have told the F.B.I. that he “paid investors with money that wasn’t there.”

As has been pointed out repeatedly by conservative columnist Pat Buchanan free trade, as practiced by the rest of the world, is destroying our economy and our way of life. What has the rest of the world done as the financial meltdown occurs? From Buchanan:

“Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products, from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.”

India has levied a 20 percent duty on soybeans to cut imports and protect her farmers. The United States has just filed charges with the World Trade Organization against China for “unfair support of its export industry — including the award of cash grants, rebates and preferential loans to exporters.”

That is free trade? I would rather go it alone and let the rest of the world wonder where they are going to sell their TV sets and playstations. Buchanan hits the history part of free trade right on the money as well, pointing to the real history that has sucked jobs out of this country and left us as the world’s largest debtor nation.

But in 1946, Japan produced almost no steel, no TVs and no cars. Instead of buying them from America, Tokyo subsidized its own steel, TV and auto industries for decades, and protected their market. Now, as Sony did to Philco and Dumont, Toyota, Honda and Nissan are taking down Ford, GM and Chrysler. Were the Japanese foolish to subsidize their industries and protect their market? Were we wise to let our TV industry be taken down, and watch our auto and steel industries driven to death’s door?

To 1970, Boeing, Lockheed and McDonnell Douglas produced almost all of the world’s jetliners. But rather than rely in perpetuity on Americans for passenger planes, Britain, France, Germany and Spain subsidized a socialist cartel, Airbus, that did not make a profit for 25 years and sold its planes for less than it cost to build them.

That trampled all over free-trade theory, but it did kill Lockheed and McDonnell Douglas and almost killed Boeing.

I guess that countries that employed an actual industrial policy designed to create manufacturing jobs are now ahead of the curve. And those that promote consumption and borrowing have a steep hill to climb. Herbert closes his column with a call to change our priorities and start believing that even here in the United States two plus two must equal four.

And, finally, we need to start living within our means and get past the nauseating idea that the essence of our culture and the be-all and end-all of the American economy is the limitless consumption of trashy consumer goods.

It’s time to stop being stupid.

This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

9 Responses to An unsustainable path

  1. Jules Gordon says:

    Your Honor,
    Are you saying democracy is a failure?

    Jules

    Like

  2. Jim says:

    Mayor,

    Thanks for further adding to my paranoid fears that this country is but a heartbeat away from martial law and further social class division…

    http://www.elpasotimes.com/ci_11326744

    Like

  3. Jules Gordon says:

    Jim,
    This is just a domestic Democratic Progressive plot to make Obama President for life.

    Are you saying we are becoming a Latin American State?

    Happy New Year.

    Jules

    Like

  4. Jim says:

    Jules,
    Strange how that works – and here I was thinking it was more a residual effect of the misadministration leaving us on 1/20/09.

    Like

  5. Jules Gordon says:

    Jim,
    You’ll see elements of the Clinton and Bush administrations along with the Us congress going back some.

    Keep one thing in mind consumers and producers drive product prices down. Eventually, companies can’t compete and must move or shut down.

    Jules.

    Like

  6. Fred Mertz says:

    Mr. Speaker:

    Tell me this: to a conservative mind, is the availability of cheapest goods the only valid measurement that should be applied?

    -FM

    Like

  7. Jules Gordon says:

    Fred,

    The ultimate purpose of corporation is to earn profits which pays dividends to the people who took risks by investing in the company.

    Sorry to burst your bubble, but profits are what for profit companies are about. It takes constant effort to stay profitable.

    If you started a company and found you could not make sales because your costs and prices were too high, what would you do. Remember you pay your mortgage from profits being an owner.

    Jules

    Like

  8. Jules Gordon says:

    Fred,

    Your entry deserves one more comment.

    The price is what a product sells for. American consumers price compare before purchase. Yes, Fred, price is a major consideration in a purchase.

    How do you make a purchase decision?

    Jules

    Like

  9. Fred Mertz says:

    Mr. Speaker:

    My bubble is wholly in tact, thanks much!

    You’ve not answered the question I posed: let me try it another way.

    To a conservative mind, should the economic system of the US have availability of cheapest consumer goods as its primary goal? Why, or why not?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s