The Trouble with “Economic Centrists”

An Op Ed by Darrell Delamaide in MarketWatch discusses the good the bad and the ugly of Bill Clinton’s influence on the Obama administration.

The Good: The bailout program pulled the country back from the brink of economic collapse, and healthcare reform finally addressed the single most cause of federal budget deficits. The auto industry bailout preserved an important economic sector.

The Bad: The bailout program preserved jobs and bonuses for bank CEOs but did little to keep other people from losing their jobs or from being foreclosed out of their homes. He writes: “The timid actions of the Obama administration did not match the bold talk of the presidential candidate, and people are understandably disappointed and frustrated.”

The Ugly: Delamaide remarks that, despite Bill Clinton’s a virtuoso political performance at the Democratic Convention in support of Barack Obama, his economic legacy is problematic:

Obama’s reliance on Clinton’s tired economic ideas and advisers is the main reason it has taken him too long to get the economy back on its feet…And let’s not forget that Clinton and these same advisers, with their focus on deregulation and cult of Wall Street prowess, bear a large part of the responsibility for the financial crisis that led us to the brink of economic collapse in the first place.

The article reminds us of these Clinton/Obama economic policies:

  • Clinton’s Treasury secretaries Robert Rubin and Larry Summers pandered to Wall Street, giving them “the carte blanche they sought to build huge financial conglomerates and place unlimited bets with depositors’ cash.”
  • Clinton advisers Gene Sperling and Erskine Bowles and Clinton Budget Director Jack Lew “enshrined the notion of a balanced budget as a top priority for the federal government — a fallacious ideal that has unnecessarily retarded the economic recovery and put Democrats on the defensive against a hypocritical Republican attack on government spending.”
  • Obama installed Summers and then Sperling as his chief economic advisers, made Lew his budget director and then chief of staff, and appointed Bowles as co-chairman with Alan Simpson of a useless commission on fiscal responsibility.

The results, according to Delamaide:

  • An economic stimulus that was far too small.
  • A financial reform bill that was far too weak.
  • A sluggish recovery that has been too ineffective in reducing unemployment.
  • A “rogue banking industry that continues to pursue profit recklessly with relative impunity as it careens toward a new crisis.”

A Nonpartisan Assesses the Damage of Centrism

As a nonpartisan political independent who weighs economic issues on their merits, I didn’t vote for Bill Clinton or George H.W. Bush because there was a nearly viable third party candidate in H. Ross Perot. Why? It’s not that I dislike the man. He’s as American as football. Two thirds of Americans have a favorable opinion of the 42nd president, the highest approval rating of any president, including Ronald Reagan and John F Kennedy.

But when it comes to economic facts, Clinton’s legacy, then as now, was to a large extent a continuation of the deleterious policies of Presidents Reagan and George H.W. Bush, which G.W. Bush then put into overdrive. An article by , author of ‘America, Welcome to the Poorhouse’ titled “Bill Clinton’s True Legacy: Outsourcer-in-Chief” tells a great deal:

Progressives who justifiably condemn the repeal of the Glass-Steagall law that resulted in deregulating banks have Clinton to blame. According to the findings of the Financial Crisis Inquiry Committee, “The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called ‘a key turning point’ in the march towards the financial crisis.”

But the only thing worse than being a taxpayer forced to bail out reckless banks is losing your job because it’s been outsourced or offshored. As Richard McCormack pointed out in the American Prospect, in the beginning of this century American companies stopped making the products Americans continued to buy, from clothing to computers. Manufacturers never emerged from the 2001 recession, which coincided with China’s entry into the World Trade Organization. Between 2001 and 2009 the U.S. lost 42,400 factories and manufacturing employment dropped to 11.7 million, a loss of 32 percent of all manufacturing jobs. The last time fewer than 12 million people worked in the manufacturing sector was in 1941. Clinton had the gall to accuse those who opposed China’s entry into the WTO of “aligning themselves with the Chinese army and hard-liners in Beijing who do not want accession for China.” Clinton claimed that the agreement that he championed “creates a win-win result for both countries,” arguing that exports to China “now support hundreds of thousands of American jobs” and “these figures can grow substantially.” The facts contradict these assertions. Imports of computers and electronic parts accounted for almost half of the $178 billion increase in the U.S. trade deficit with China between 2001 and 2007 and the loss of 2.3 million jobs, according to the Economic Policy Institute.

Clinton then went on to enact NAFTA, or the North America Free Trade Act, which as American Prospect editor Robert Kuttner has observed, “was less about trade and more about making it easier for U.S. based multinationals and banks to take over Mexican companies.” As is the case too often on Capitol Hill, the revolving door between government jobs and the banking industry compromises too many decisions. As Jeff Faux observed in his must-read book,The Global Class War, it’s no surprise that Robert Rubin, Clinton’s Treasury Secretary, had the gall to sell Americans on NAFTA, given that after leaving Treasury Rubin took a job as chairman of Citigroup’s executive committee, where one of his roles was buying Mexican bank Banamex for $12.5 billion in 2001. Not only did Average Joe NOT gain from NAFTA — according to the Economic Policy Institute as of 2010 U.S. trade deficits with Mexico totaling $97.2 billion had displaced 682,000 U.S jobs. But “Average Jose” didn’t make out well, either; NAFTA is very likely the driver behind the surge of Mexican immigrants to the U.S. As Faux observes, between 1993 and 2002 two million Mexican farmers were forced to abandon their land as a result of increased imports of food from the U.S. Mexican wages have also shrunk; while they were about 23% of U.S. wages in the mid 1970s by 2002 they shrank to 12% of them.

Proposals to solve the problem of outsourcing include President Obama’s proposal to cut taxes for manufacturers that produce goods in the U.S., doubling a tax deduction for makers of high tech goods and expanding worker training programs. White notes that he has tried tariffs as well, siding with a complaint brought by the United Steelworkers against China’s cheap tires that resulted in a tariff on Chinese tires. Oddly, U.S. tire manufacturers opposed the complaint, since most of them have factories in China!

The Clintonian China Legacy: 2.1 Million Manufacturing Jobs

, author of  ‘Can American Manufacturing be Saved? Why We Should and How We Can,’ highlights in her recent article an August 23rd, 2012 Economic Policy Institute’s briefing paper by Robert Scott  titled “The China Toll: Growing U.S. trade deficit with China cost more than 2.7 million jobs between 2001 and 2011, with job losses in every state.” According to Scott,

Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9%) were in manufacturing. These lost manufacturing jobs account for more than half of all U.S. manufacturing jobs lost or displaced between 2001 and 2011.The growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. When you take into account the multiplier effect of manufacturing jobs creating 3-4 other jobs, this explains why we have had a virtually jobless recovery since the end of the recession and why the unemployment rate has stayed so high for so long.
Currency Manipulation: A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar. Instead, China has tightly pegged its currency to the U.S. dollar at a rate that encourages a large bilateral trade surplus with the United States. The Ryan-Murphy Currency Reform for Fair Trade Act (H.R. 2378) was approved by the House of Representatives on September 29, 2010,  but it did not pass the Senate. Last year, the Senate passed a similar bill, the Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619), authored by Sen. Sherrod Brown (D-Ohio), but a similar measure introduced in the House by Rep. Sander Levin (D-Michigan) with strong bi-partisan support from 234 cosponsors is being held up by the House leadership. Scott writes, “These bills would revise the Tariff Act of 1930 to include a ‘countervailable subsidy’ that would allow tariffs to be imposed on some imports from countries with a ‘fundamentally undervalued currency.'”

Other Unfair Policies: Scott identifies several other Chinese government policies that also illegally encourage exports. The EPI paper states, “as a result, China’s $398.5 billion of exports to the United States in 2011 were more than four times greater than U.S. exports to China, which totaled only $96.9 billion… making the China trade relationship the United States’ most imbalanced by far”:

  • Suppression of labor rights, lowering manufacturing wages of Chinese workers by 47% to 86%.
  • Massive direct export subsidies provided to many key industries.
  • Strict non-tariff barriers to imports

FDI and Outsourcing: Scott believes that another crucial factor is foreign direct investment (FDI) and outsourcing:

FDI has played a key role in the growth of China’s manufacturing sector. China is the largest recipient of FDI of all developing countries… Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 52.4% of China’s exports and 84.1% of its trade surplus in 2011…Outsourcing — through foreign direct investment in factories that make goods for export to the United States — has played a key role in the shift of manufacturing production and jobs from the United States to China since it entered the WTO in 2001. Foreign invested enterprises were responsible for the vast majority of China’s global trade surplus in 2011.This includes investments by American corporations in their plants in China.

 Stagnant Chinese Domestic Market: The U.S. hoped to benefit from increased exports to a growing consumer market in China that has failed to materialize, and probably never will given China’s current economic contraction. Instead, “the most rapidly growing exports to China are bulk commodities such as grains, scrap, and chemicals; intermediate products such as semiconductors; and producer durables such as aircraft and non-electrical machinery… ”

The paper provides a detailed analysis of trade and job loss by industry to show “the employment impacts of the growing U.S. trade deficit with China using an input-output model that estimates the direct and indirect labor requirements of producing output in a given domestic industry. The model includes 195 U.S. industries, 77 of which are in the manufacturing sector… ”

The Imbalance Hits Key U.S. Growth Industries Hard: The trade deficit in the computer and electronic products industry grew the most, and 1,064,800 jobs were displaced, 38.8% of the 2001-2011 total, hitting the U.S. tech market hard, especially in districts in California, Texas, Oregon, Massachusetts, Colorado and Minnesota. According to Scott,

The composition of imports from China is changing in fundamental ways, with serious implications for certain kinds of high-skill, high-wage jobs once thought to be the hallmark of the U.S. economy. China is moving rapidly “upscale,” from low-tech, low-skilled, labor-intensive industries such as apparel, footwear, and basic electronics to more capital- and skills-intensive sectors such as computers, electrical machinery, and motor vehicle parts. It has also developed a rapidly growing trade surplus in high-technology products.

The growing U.S. trade deficit with China has displaced millions of jobs in the United States and contributed heavily to the crisis in U.S. manufacturing employment. Scott notes that the increase in foreign direct investment in China and the absence of a growing market for U.S. consumer goods in China caused the U.S. trade deficit with China to rise 72% from $84.1 billion in 2001 to $301.6 billion in 2011.

While President Clinton didn’t engineer the policies that caused these problems, he tried pretty hard to be a centrist – in other words, he caved to the economic interests of what Republicans today ironically call the “job creators”

Let’s not even try to imagine how a Romney administration would have dealt with the crisis in 2009. His notions of letting the auto industry go bankrupt and letting the foreclosure crisis “run its course” would almost certainly have ushered in a full-fledged economic depression…The vision of the future promoted by him and his running mate, Congressman Paul Ryan, of a return to the Darwinian world of primitive capitalism that must give voters pause.When Romney waxes nostalgic about the America of opportunity he remembers, he is presumably referring to the Eisenhower years of his youth — a time of peace and prosperity built on the social infrastructure of the New Deal and the economic stimulus first of the war and then retooling after the war. But Romney and Ryan are not promoting a return to the America of Eisenhower. Their America is more like that of Herbert Hoover or the 19th-century presidents who stood on the sidelines as an un-cushioned cycle of boom and bust brought fabulous riches to a few and grinding poverty to the working class. Society in the 21st century will no longer tolerate this type of economy, nor could America compete in a global economy under the libertarian, Randian view of capitalism championed by the extremists who currently dictate Republican economic policy.

The most credible analyses seem to show that the choice the electorate faces is between driving headlong off the economic cliff under Republican extremism or meandering more slowly in the same direction under Democratic centrism.

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