What Has Caused Our Economic Crisis?

economiccrisis2

Six key general policy failures have contributed to the collapse of our economy:

1. One-way free trade (NAFTA, CAFTA, WTO, GATT)

Our “free trade” policies have allowed other countries to use unfair tactics to put our industries out of business. Theoretically these nations are committed to opening their markets to our goods – but they are not foolish enough to allow that to happen in an uncontrolled way.

2. Failure to Shield Our Key Industries from Foreign Takeovers

Virtually all of our industry is available for sale to the highest bidder, even if that bidder resides in a country like China with a long history of cheating us in commercial competition. We have made almost no effort to restrain other countries from purchasing or bankrupting our industries.

3. Insourcing

Insourcing refers to the production of goods and services in the United States by foreign corporations. For decades our state governments have sent trade missions to other countries and developed massive incentive packages to compete with other states in luring foreign industry. With tax breaks, training assistance, and other goodies that we don’t extend to our own companies, we invite predatory foreign competition to destroy our own domestic industries. Insourcing provides very few jobs in relation to output and most of those jobs are low-skill, low-productivity jobs in final assembly. We don’t even get any benefit from these companies’ profits because the bookkeeping is rigged to minimize the amount of paid taxes on such profits.

4. Offshore Outsourcing

Our markets are structured to make it almost impossible for any manager or entrepreneur, no matter how patriotic, to resist the trend to cut American industrial jobs and ship the work abroad. Although our corporations have laid-off Millions of American workers in recent years as part of their outsourcing policy, we should not be too harsh in criticizing them. The real blame lies elsewhere – with corrupt politicians, ivory-tower economists, smug and superficial media commentators, bought-and-paid-for think-tank analysts, and of course, unscrupulous foreign trade lobbyists. Individual American corporations must do what they can to survive. Once their competitors start moving jobs offshore they have little choice but to follow suit. These days the jobs they feel forced to send offshore include many key occupations in engineering, research and design. Very often we lose not just jobs but vital proprietary know-how. In fact in many cases foreign governments insist that in return for getting the benefit of cheap local labor, American companies should transfer key technologies.

5. Massive debts

This country is running massive debts with foreign creditors. Cheap foreign credit has made it far too easy for us to overextend ourselves. These loans have virtually eliminated any current feeling of discomfort for most consumers.

6. Loss of leverage

The combined effect of all of our policy failures is a downward spiral. Foreign credit is like an addictive drug and we have become dangerously dependent. We have lost the leverage to talk back to foreign interests. We must tamely submit when they make unreasonable demands and just pretend not to notice when they fail to honor their promises. Even worse most of us are in the dark about the scale of what is happening. This is in part because our media are increasingly engaged in self-censorship for fear of offending powerful foreign advertisers.

How We Will Be Impacted

When we have no more assets to sell, our dollar will be consigned to the ashcan of history. The resulting collapse in our foreign purchasing power will lead to massive inflation, declining real wages, and a shrinking tax base. This will in turn lead to fewer social services, increased poverty, rising social strife and major national security concerns.

Other nations clearly don’t want the dollar to implode any time soon. In fact we know from their currency market behavior that they are working hard to prop the dollar up. They seem to be choosing a “slow-death” approach whereby we become accustomed to ever higher levels of dependence on foreign producers and lenders.

Key Solutions

Drastic action is needed to restore our economic and financial independence and we must begin immediately to rebuild our industries. The first essential is that our government should ensure that it is once again profitable to produce most goods and services in American factories employing American workers.

We must establish policies that prevent other countries from doing to us what they would never let us do to them. Specifically, we must halt the sale of key assets to foreigners. We must also close up opportunities foreign corporations to compete unfairly against our home industries. We should move immediately to curb our out-of-control spending on unnecessary programs and initiatives that are being financed by foreign debt. We should institute policies to cut back our consumption, and particularly consumption of imported products. We should look to the way other nations have established industrial superiority over us and try to copy their best policies. We should not allow individuals and companies to profit by selling out America.

No plan to revive our economic and industrial self-sufficiency will be pain-free. Because our industrial decline has already gone so far – it has been proceeding rapidly for more than 30 years already – restoring our industry to world-leading standards of competitiveness will require serious restrictions on trade and investment flows. Despite indisputable evidence that current policies have proved grossly inadequate or even counterproductive in the past, our opinion leaders remain committed to a business-as-usual strategy that is doomed to failure.

The impetus for new policies must come directly from the broad American public. Without direct and immediate action, there will soon be little left to save.

1. Protection

Our industries, assets, resources, and companies need to be protected from foreigners seeking to gain control of key industrial processes and technologies. This would include preventing the sale of strategic US domestic companies to foreign companies and eliminating offshore outsourcing except in extreme circumstances.

2. Fair Trade

Our trade treaties should protect our country from predatory foreign countries seeking to weaken or destroy American industry. To that end, tariffs should be erected where needed and where practical. Experience has shown that it is futile to expect other countries to adopt our policies on, for instance, fair and free competition. What we can do is control the impact of their policies on our economy. The most obvious tool we have is tariffs on their exports. No doubt our tariffs would set off retaliation abroad. We would also have to accept that demand for US debt would decrease. But in the long run, these negatives would be much more than offset by positive effects as American entrepreneurs and industrial executives enjoyed a massive incentive to renew our industrial base.

3. Domestic Industry Competitiveness

In addition to establishing protection for our industry and country, we should properly align our companies with the national interest by changing the incentive system within which they operate. The tax structure should be changed to encourage industrial revival, particularly in industries which have been worst hit by unfair foreign competition. One simple but highly effective measure would be to shorten the depreciation schedules on capital investment and research spending. Meanwhile capital gains taxes should be increased to discourage short-term thinking and reduce the incentive for entrepreneurs to cash out.

 

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