Awesome article I found online today:
http://www.foxnews.com/opinion/2010/04/29/john-stossel-free-trade-american-companies-general-motors-ipod-mike-huckabee/
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Why Everyone Wins With Free Trade
By John Stossel
- FOXNews.com
When free trade is unmolested, the world is richer and has more choices.
Trade is win-win. Two people trade only because each values what he gets more than what he gives up. That's why in a store both customer and clerk say, "Thank you."
At the international level, trade is also win-win because it allows countries to specialize in what they do well and trade the extra for things they don't make as well. When free trade is unmolested, the world is richer and has more choices.
But I keep hearing about unfair trade. I'm told that trade allows American companies to exploit people in poor countries and makes Americans jobless.
Tom Palmer of the Atlas Economic Research Institute, one of my guests on my Fox Business News show tomorrow night, says those are myths.
Do we exploit people in Third World countries?
"The evidence does not show that," Palmer said. "Multinational companies pay a wage premium. They pay more than local companies pay ... because they want to attract good workers. Look at the Shanghai factory of General Motors. They pay three times what Chinese-owned factories (pay)."
Yet House Speaker Nancy Pelosi says that liberalizing trade with Central America would exploit workers.
"People want to work at those factories. They line up. They compete. Are they competing to get exploited? They're competing for higher-wage jobs. I think that those people know their interests better than Nancy Pelosi does."
Sen. Byron Dorgan called free trade "a race to the bottom. This says to American workers if you can't compete against 30-cents-an-hour labor in some other country, you lose your job."
"Again, evidence doesn't support that," said Palmer. "Look at the iPod. It says, 'Manufactured in China.' But if you look in the back, it says, 'Designed in California.' Most of the value is added by American workers." My colleague at Fox News, former Arkansas Gov. Mike Huckabee, said, "In a country we can only be free if we can feed ourselves, fuel ourselves and fight for ourselves. When we start outsourcing everything, that's a road to being enslaved."
"I hope that Gov. Huckabee thought about that when he was governor of Arkansas, and made sure there was no jobs outsourced to Virginia
or Texas," Palmer replied. "He should have protected the people of Arkansas, right?"
But that's different. We can count on Pennsylvania in a time of war. I don't know that I can count on China.
"If you're trading with them, it makes war much less likely," Palmer said. "We're not going to go to war with Canada. It's our biggest trading partner -- $600 billion a year going across the U.S.-Canada border in trade along the longest non-militarized border in the world. Five thousand miles, counting Alaska. That is trade creating peace."
As the French economist Frederic Bastiat put it, "When goods don't cross borders, soldiers will."
Palmer offered another way to think about trade: as a machine -- "a machine that allows Florida farmers to turn oranges into (phones). They can't grow cell phones on their trees in Florida. They grow oranges really well. What they can do is take those oranges and trade them for cell phones."
And when people do this worldwide, they get richer. "Just like the case of you buying some coffee at the Starbucks. You could have made your own coffee. But your time might have been better spent doing something else. So you outsourced your coffee production. You made yourself better off. And that young lady who sold you the coffee made herself better off."
Palmer points out that China was once the most advanced society in the world. It had developed the clock, printing, the compass and more. Not coincidentally, while it was advancing technology and science, it was a major world trader.
"And it crumbled because they destroyed their trade. They made it illegal to trade with foreigners. And they turned inward. That set in process a stagnation that only now is being undone. We shouldn't do that to our country."
We're different, aren't we? We know how to make everything we need. "There's always opportunities for new progress. ... Remember watching "Star Trek" as a kid and they had that weird communicator? Everybody has one now. ... (T)rade made that possible."
John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at www.johnstossel.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.
Friday, April 30, 2010
Wednesday, April 28, 2010
Financial reform? Not exactly.
I was sent a link to this opinion piece and although I disagree with his quick blurp on the solution to the problem (mostly because it's an incompletely described idea), I think the article does show merit. Enjoy!
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This article was written by David Frum. David Frum writes a weekly column for CNN.com. A special assistant to President Bush in 2001-02, he is the author of six books, including "Comeback: Conservatism That Can Win Again" and is the editor of FrumForum.
----
Washington (CNN) -- Financial reform? Not exactly. The bill before Congress does nothing to address the fundamental background causes of the crash of 2008.
Wall Street may have been the instrument of the crash. But the crash was made elsewhere: in Washington's failed policies for middle-class families -- and in China's distorted rush for economic growth.
The story is not a simple one. But I hope you will pay attention to the details. If you don't, you may find that the pocket that has been picked is your own.
As you've heard, the crash begins with the huge excess load of debt built up in the last two decades by American households. Why did Americans borrow so much? Some like to tell a story of irresponsibility: We borrowed too much because we were self-involved yuppies who just could not deny ourselves the latest flat-screen doodad for our McMansions.
Maybe that describes some people. But many millions of middle-class families plunged into debt for a very practical reason. Their incomes were not keeping pace with the cost of crucial items of the middle-class lifestyle: housing, medical care, college tuition. At the same time as housing, medical care and tuition were jumping in cost, the cost of borrowing was dropping to historic lows.
Adjusted for inflation, the typical American family earned less in 2007 than that family had earned in 2000. Meanwhile, everyday necessities such as energy were becoming more expensive: By 2007, the typical American family paid more for energy than it did for clothes and entertainment combined.
As everyday bills piled up, families borrowed to pay extraordinary bills. Mom needs nursing care? Junior got admitted to Chapel Hill? The roof needs refixing? No worries -- just cash out with a cheap refinance deal.
In the 1950s, the total debt of all American households amounted to less than one-third the nation's gross domestic product. In 1980, household debt amounted to less than one-half. As recently as 1990, it was still under 60 percent. In 2000, it was under 70 percent. On the eve of the 2008 crash, total household debt had bulged to 96 percent of gross domestic product.
All this borrowing might look like the road to ruin. And in fact it was the road to ruin. But that's not how it looked at the time. At the time, it looked like a bargain. Between 1980 and 2008, the household debt load doubled as a share of the economy. Yet the interest cost to carry that debt rose much more modestly. In 1980, the average American family devoted about 13 percent of its disposable income to debt service; by 2008, the average family was spending about 17 percent of its disposable income to service debt.
Why was debt so cheap?
This takes us to another fundamental cause of the crisis: the growth of China.
Maybe you've heard that we bought a lot of goods from China and now we are deeply in debt to China. That's true obviously -- but the cause and effect are upside down.
China lent us a lot of money so that we would keep buying Chinese goods.
Export booms do not usually last very long. The exporting country accumulates more and more of the importing country's currency. Eventually the exporting country decides it wants to use some of that currency. It exchanges the importing country's currency for its domestic currency -- and that has the effect of making its exports more expensive. The boom bumps up against its own natural limits.
That did not happen with China. Desperately eager to create more and more jobs to employ the tens of millions of peasants flowing into China's huge cities, China not only accumulated dollars by the hundreds of billions -- it held them. Then it went into the foreign currency market to buy still more billions of dollars, sometimes $1 billion a day.
All that dollar buying prevented China's currency from going up in value, which would have increased the price of China's exports -- and that kept China's factories turning.
What do you "buy" when you buy "dollars"? There are only so many Benjamins in the world, nowhere near enough. Buying "dollars" means buying dollar-denominated debt, and far and away the biggest source of U.S. dollar debt is U.S. mortgage debt.
With China so eager to buy, U.S. bankers went to work to create mortgage paper to sell. It didn't have to be good-quality paper -- the Chinese didn't really care about that. Did you get a great deal on your refi in 2005? Thank the Central Bank of China.
American homeowners borrowed because they could not earn enough. China loaned to keep its factories turning. Money flowed in a frenzied torrent across the Pacific. And somebody had to make it all happen: Wall Street. It created the debt instruments China wanted to buy and packaged the mortgages that Main Street felt pressured to sell. With trillions of dollars changing hands, even a small percentage fee could pay a lot of people a lot of billions in fees.
No doubt some of those fee-takers did abusive things. But the whole dynamic was abusive and dangerous. And so-called financial reform is a petty distraction from that larger, more important, and more urgent dynamic: raising American incomes so Americans borrow less, and redirecting Chinese trade to the home market so that the Chinese lend less. Until we achieve those two things, any recovery will only invite the next disaster.
The opinions expressed in this commentary are solely those of David Frum.
----
This article was written by David Frum. David Frum writes a weekly column for CNN.com. A special assistant to President Bush in 2001-02, he is the author of six books, including "Comeback: Conservatism That Can Win Again" and is the editor of FrumForum.
----
Washington (CNN) -- Financial reform? Not exactly. The bill before Congress does nothing to address the fundamental background causes of the crash of 2008.
Wall Street may have been the instrument of the crash. But the crash was made elsewhere: in Washington's failed policies for middle-class families -- and in China's distorted rush for economic growth.
The story is not a simple one. But I hope you will pay attention to the details. If you don't, you may find that the pocket that has been picked is your own.
As you've heard, the crash begins with the huge excess load of debt built up in the last two decades by American households. Why did Americans borrow so much? Some like to tell a story of irresponsibility: We borrowed too much because we were self-involved yuppies who just could not deny ourselves the latest flat-screen doodad for our McMansions.
Maybe that describes some people. But many millions of middle-class families plunged into debt for a very practical reason. Their incomes were not keeping pace with the cost of crucial items of the middle-class lifestyle: housing, medical care, college tuition. At the same time as housing, medical care and tuition were jumping in cost, the cost of borrowing was dropping to historic lows.
Adjusted for inflation, the typical American family earned less in 2007 than that family had earned in 2000. Meanwhile, everyday necessities such as energy were becoming more expensive: By 2007, the typical American family paid more for energy than it did for clothes and entertainment combined.
As everyday bills piled up, families borrowed to pay extraordinary bills. Mom needs nursing care? Junior got admitted to Chapel Hill? The roof needs refixing? No worries -- just cash out with a cheap refinance deal.
In the 1950s, the total debt of all American households amounted to less than one-third the nation's gross domestic product. In 1980, household debt amounted to less than one-half. As recently as 1990, it was still under 60 percent. In 2000, it was under 70 percent. On the eve of the 2008 crash, total household debt had bulged to 96 percent of gross domestic product.
All this borrowing might look like the road to ruin. And in fact it was the road to ruin. But that's not how it looked at the time. At the time, it looked like a bargain. Between 1980 and 2008, the household debt load doubled as a share of the economy. Yet the interest cost to carry that debt rose much more modestly. In 1980, the average American family devoted about 13 percent of its disposable income to debt service; by 2008, the average family was spending about 17 percent of its disposable income to service debt.
Why was debt so cheap?
This takes us to another fundamental cause of the crisis: the growth of China.
Maybe you've heard that we bought a lot of goods from China and now we are deeply in debt to China. That's true obviously -- but the cause and effect are upside down.
China lent us a lot of money so that we would keep buying Chinese goods.
Export booms do not usually last very long. The exporting country accumulates more and more of the importing country's currency. Eventually the exporting country decides it wants to use some of that currency. It exchanges the importing country's currency for its domestic currency -- and that has the effect of making its exports more expensive. The boom bumps up against its own natural limits.
That did not happen with China. Desperately eager to create more and more jobs to employ the tens of millions of peasants flowing into China's huge cities, China not only accumulated dollars by the hundreds of billions -- it held them. Then it went into the foreign currency market to buy still more billions of dollars, sometimes $1 billion a day.
All that dollar buying prevented China's currency from going up in value, which would have increased the price of China's exports -- and that kept China's factories turning.
What do you "buy" when you buy "dollars"? There are only so many Benjamins in the world, nowhere near enough. Buying "dollars" means buying dollar-denominated debt, and far and away the biggest source of U.S. dollar debt is U.S. mortgage debt.
With China so eager to buy, U.S. bankers went to work to create mortgage paper to sell. It didn't have to be good-quality paper -- the Chinese didn't really care about that. Did you get a great deal on your refi in 2005? Thank the Central Bank of China.
American homeowners borrowed because they could not earn enough. China loaned to keep its factories turning. Money flowed in a frenzied torrent across the Pacific. And somebody had to make it all happen: Wall Street. It created the debt instruments China wanted to buy and packaged the mortgages that Main Street felt pressured to sell. With trillions of dollars changing hands, even a small percentage fee could pay a lot of people a lot of billions in fees.
No doubt some of those fee-takers did abusive things. But the whole dynamic was abusive and dangerous. And so-called financial reform is a petty distraction from that larger, more important, and more urgent dynamic: raising American incomes so Americans borrow less, and redirecting Chinese trade to the home market so that the Chinese lend less. Until we achieve those two things, any recovery will only invite the next disaster.
The opinions expressed in this commentary are solely those of David Frum.
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