(deep breath...)I have mixed opinions about the Patrick Buchanan article.
He's right in that, for years
"Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels".However, I don't agree with his opinion that globalization is to blame. He wrote:
Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.
But this generation decided that was yesterday’s bromide and we must march bravely forward into a Global Economy, where we all depend on one another. American companies morphed into 'global companies' and moved plants and factories to Mexico, Asia, China and India, and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers
It seems that Buchanan doesn't understand how globalization works. Those American jobs would have been lost to Mexico, China and India anyway, regardless whether American companies "went global". Globalization is nothing more than Adam Smith's idea for producers to specialize in their respective areas of competitive advantage, written large on a global scale. Even as the United States began selling off the industries that it is no longer competitive in, it began to develop new competencies in areas that other countries cannot (yet) match. For example, advanced computing and entertainment.
The trade deficit that Mr Buchanan complains about is, at heart, caused by two factors.
First, the difficulty of converting laid-off baby-boomer workers into other jobs once their industry went bust. I blame this on unionism, especially in the car industry. It's simple: American cars simply aren't as competitve in global markets as Japanese or European cars, that's why less are being sold. Greater innovation was required, but that could mean more dismissals, the unions stepped in and prevented it.
Second, the trade deficit, like almost every other deficit in the United States, has been funded by easy credit, the same factor that caused the sub-prime mess we're witnessing today. The simple fact is that Americans have grown used to spending beyond their means. The consumption had to go somewhere, and in this case, it was on imported goods.
The idea that the United States must isolate itself from the world to retain its clout is dangerously wrong today, both for itself and for the world economy. The flow of goods and services has gone massively global since the 90s, and this trend is not going to turn back.
The most fundamental fix for any country that "suffers" under globalization is to address its economic productivity, through education and infrastructure development. Then, it has to ensure relatively free movement of labor (including foreign labor) to whichever industry needs it most. It has to allow competition at home, and through that competition each company becomes sharper, leaner and more innovative. And when critical mass has finally been achieved, the industry as a whole is ready to take on the world.
No, I don't see any solutions in Mr Buchanan's suggestions. I see more danger instead.
A better model for the United States would probably be
Japan.
First, a reminder of how bad things looked in 2002. At that point it seemed almost inevitable that one of the huge Japanese banks would find itself insolvent. It became clear that they had a severe problem with bad debt — money that they had lent to companies and individuals who could not repay it.
During a property market boom, the banks were happy to lend to builders and developers, especially those who were putting money into offices and shops in big cities like Tokyo. Then property prices tumbled and the developers could not repay their loans. Banks were losing money in loans to people who could not repay them and whose collateral, the value of their property, was less than the value of those loans.
The Japanese authorities agonised over what to do. They slashed interest rates to zero. They pumped money into the financial system, just as America has. But in the end, they took the expensive and painful decision to use tax payers' money to help the banks write off the bad loans.
At least US$100bn dollars went on the programmer. The Bank of Japan lent money to institutions at special rates and also bought some of their shares. The money came with an important proviso; the Bank of Japan wanted full disclosure of how serious the problem was and a promise from the banks not to let it happen again.
The article aboive doesn't go further into examining how Japanese banks "would not let it happen again". I'll assume that it involves greater fiscal discipline. It's certainly true that, for now, Asian banks including Japan's have been barely affected by Wall Street's meltdown. That's mainly because the exposure has been very minimal. Asian banks, in general, have always been very conservative compared to American and European banks.
During the boom years, Asian banks were criticized for not making better use of their shareholders' money. Well, look who has the last laugh now.
