Reposted from the blog of Michele Nash Hoff, author of Can American Manufacturing Be Saved? Why We Should and How We Can
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“Lame Duck” Congress Should Pass These Two Important Bills
Can American Manufacturing Be Saved? | November 12, 2012
While the focus of the “Lame Duck” Congress will be to keep us from falling off the cliff of financial ruin from reaching the debt ceiling and sequestration, there are two bills passed by one body of Congress but not the other that should be passed. Both of these bills would be beneficial to America’s manufacturing industry.
The first bill addresses a topic many Americans supported during the latter part of Governor Mitt Romney’s campaign for president ? he “took a hard line in his campaign, promising to cite China for its currency peg on day one of his presidency. National polling makes clear that the American people overwhelmingly support such action on China’s brazen violations of world trade law, including its currency undervaluation.”
The Currency Exchange Rate Oversight Reform Act of 2011 (S. 1619) is an international trade bill that would establish US duties on imports from countries with undervalued currencies. The bill was approved by the Senate on October 11, 2011 by a vote of 63-35, but H.R.639, the Currency Reform for Fair Trade Act, has not been brought up for a vote yet in the House of Representatives even though it has strong bipartisan, majority support with 234 lawmakers, including 65 Republicans, as cosponsors. U.S. Rep. Sander Levin, D-MI and ranking member on Ways and Means, introduced the legislation. The bill remains in the Ways and Means Subcommittee on Trade.
Speaker of the House John Boehner (R-OH) has continued to block a vote on the bill despite overwhelming support. Speaker Boehner has said in statements that the United States should not dictate currency policy for another country and that he will oppose attempts to bring this bill to the floor for vote. It is clear that Speaker Boehner is single-handedly thwarting the majority will of both Congress and the American people. It is hard to understand why Boehner would stand in the way of such modest legislation to address China’s mercantilism.
On the Senate website, Sen. Sherrod Brown (D-OH) said, “China’s currency manipulation has already cost 3 million American jobs–2 million of which came from our manufacturing sector. The bill that passed [Oct. 11] could create 1.6 million American jobs.”
In 2010, the House passed a similar bill, H.R.2378, the Currency Reform for Fair Trade Act, by a strong, bipartisan vote of 348-79, including 99 Republicans, but the Senate failed to pass their version of the bill.
The problem of Chinese currency manipulation has actually gotten worse in the past year since the Senate bill passed. The New York Times’ KeithBradsher “reports that Beijing has actually depreciated its currency more of late. The Yuan fell nearly 1 percent against the dollar last month, and Bradsher says this is the “largest drop since Beijing officials unpegged the currency from the dollar in July 2005. The fact that Beijing can adjust its currency so precisely is proof yet again that it deliberately manipulates the Yuan to gain an export advantage.”
We cannot continue to run up a massive trade deficit with China. The U.S. trade deficit in goods and services increased from $500 billion in 2010 to $558 billion in 2011, an increase of $58 billion (11.6 percent). The massive sales of Chinese exports to the U.S. is fueled by China’s deliberatelyundervalued currency. By pegging its currency to the dollar at an artificially low rate, Beijing is making sure that its exports are exceedingly cheap in the U.S. Conversely, U.S. exports are more expensive due to this preferential currency rate.
How would this bill help? The bill calls for the Treasury Department to identify countries whose currencies are undervalued, and then instruct the Commerce Department to impose duties on imports from those aforementioned countries. Key points of the Currency Exchange Rate Oversight Reform Act of 2011 include:
* Improves the oversight of the currency exchange rate by the Treasury.
* Clarifies the countervailing duty law to address currency under-evaluation.
* States that Commerce may not refuse to investigate a subsidy allegation. This clarification is supported by the WTO’s Appellate Body and is a key element in the previous Brown-Snowe currency bill and in HR 2378, which passed in September 2010.
* Triggers a series of consequences, including: Immediate: “consider designation of a country’s currency as a ‘priority’ currency when determining whether to grant the country ‘market economy’ status for purpose of U.S. antidumping law.”
After 90 days: “forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement,” and “forbid Overseas Private Investment Corporation financing or insurance for projects in the designated country.”
After 360 days and failure to adopt appropriate policies: “The administration must require the U.S. Trade Representative to request dispute settlement consultations in the World Trade
Organization with the government responsible for the currency,” and “require the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.”
The bill also stipulates that “countries that fail to fix their currencies would be subject to higher anti-dumping duties and other penalties, such as a procurement ban, not receiving financing from the Overseas Private Investment Corporation, and U.S. opposition to multilateral bank financing for the targeted countries.”
Passage of this bill would be an obvious step forward to provide a level playing field for America’s manufacturers and their workers.
The other important bill, “The American Manufacturing Competitiveness Act” (HR-5865), co-sponsored by Illinois Reps. Dan Lipinski (D) and Adam Kinzinger (R), passed the House on September 12, 2012 by a vote of 339-77.
“H.R. 5865 establishes the American Manufacturing Competitiveness Board within the Department of Commerce to advise the President on issues affecting manufacturing in the United States. The board would be required to perform a comprehensive analysis of the nation’s manufacturing sector and, using results from the analysis, develop a strategy to improve the competitiveness of domestic manufacturing efforts. Results from the analysis and strategy would be available to the President to comply with the bill’s requirement to publish a strategy in 2014 and again in 2018 to promote growth in the nation’s manufacturing sector.”
The board would consist of 15 members: five from the public sector appointed by the President, including two governors from different parties; and 10 people from the private sector appointed by the House and the Senate, with the Majority appointing three and the Minority appointing two from each chamber.
In preparing the analysis, the board would be required to study, among other things:
- The current environment for manufacturing, including government policies—at the international, federal, state, tribal, and local levels—that affect the sector;
- Forecasts, both short- and long-term, for domestic and international trends in manufacturing;
- Actions by federal agencies that affect manufacturing; and
- Factors that affect the growth and stability of the sector such as workforce skills;
- Trade, energy, and monetary policies; research and development; and protections for intellectual property.
Using results from the analysis, the board would be required to develop a strategy to improve the competitiveness of the nation’s manufacturing sector. The bill would require the strategy to include recommendations to eliminate or consolidate government programs, improve interaction between the government and the manufacturing sector, and amend any regulations that put the industry at a competitive disadvantage in international markets.
The final report also would be required to include a plan to implement the strategy, including an estimate of the cost to implement it as well as recommendations for ways to cover those costs.
In April 2011, The Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” that made a strong case for such a strategy. Authors Stephen Ezell and Robert Atkinson present information on five key reasons why manufacturing is important to the U.S. economy:
1. It will be extremely difficult for the United States to balance its trade account without a healthy manufacturing sector.
2. Manufacturing is a key driver of overall job growth and an important source of middle-class jobs for individuals at many skill levels.
3. Manufacturing is vital to U.S. national security.
4. Manufacturing is the principal source of R&D and innovation activity.
5. The manufacturing and services sectors are inseparable and complementary.
The authors also present three primary reasons on why the United States needs a manufacturing strategy:
1. Other countries have strategies to support their manufacturers and by lacking similar strategies we are therefore forcing our manufacturers to compete at a disadvantage.
2. Systemic market failures mean that absent manufacturing policies, U.S. manufacturing will underperform in terms of innovation, productivity, job growth, and trade performance.
3. If a country loses complex, high-value-added manufacturing sectors, it is unlikely to get them back, even if the dollar were to decline dramatically.
While not perfect, this bill would be a good start in developing a national manufacturing strategy. Contact your senator or representative to urge them to vote on these bills.
One more time — currency manipulation is NOT the problem. The problem is that China can manufacture anything we can manufacture at one-third to one-tenth the cost bacause their labor is dirt cheap. Remember, the other elements of cost - material and overhead - are also comprised mostly of labor, (or salaries) which are dirt cheap in China.
We are spinning our wheels, wasting precious time, talking about currency manipulation. Even if we could force the Chinese to play fair with their currency - which we can’t - it wouldn’t make a damn bit of difference. A 40% currency differential is completely overshadowed by a labor differential that is as much as two orders of magnitude, (fifty cents an hour vs. fifty bucks an hour.)
And, by all means, lets waste more precious time and money on a special commission to “investigate” the facts and present our President with a privileged glimpse of the bleedin’ obvious. Does anyone really think he doesn’t know that China taking our manufacturing jobs is killing our economy and our middle class? I would love to see some evidence that he gives a rat’s rear end. He has had almost four years to “focus like a laser” on jobs, as he promised. So far, he has done exactly jack squat.
Bruce you are right it’s not currency manipulation but inflation under an unsound monetary system that has distorted the US structure of production. Oil went from $30 a barrel in 2003 before the start of the Iraqi war to over $100 a barrel where it is today. If you look at the chart in the linked below article; during the 2000 to 2010 period the US lost millions of manufacturing jobs while the Yuan appreciated by almost 20%. Interest rates from 2000 to 2010 were kept artificially low to induce increased consumption and to fund wars. The US had extremely low savings rates from 2000 to the present which then means investment in manufacturing is also low.
Sound money is the protector of manufacturing. One only has to look at Germany which had a very slow growing money supply before the financial crisis that helped keep real wages high and real interest rates stable. Stable real interest rates help keep stable savings which leads to stable investment. This helps explain why Germany with high real wages and a higher valued exchange rate as compared to the Dollar and Yuan was able to remain competitive in manufacturing.
If money was still anchored by gold, it would have regulated the structure of production between the US and it’s trading partners. The US would never have been able to import more than it exports from China unless the US acquired or mined more gold. If the US couldn’t mine more gold then it would have had to manufacture whatever it couldn’t import. The same would have applied to China. And if countries under a fractional reserve gold standard were found to be devaluing their currency to export their unemployment, then it would have forced countries that were running trade deficits to raise interest rates and tariffs to increase savings and reduce consumption to bring the trade deficit back into balance.
Chart of Manufacturing Decline
http://www.tradereform.org/2012/10/is-this-why-romney-wont-talk-to-sensata-workers-whose-jobs-are-being-shipped-to-china/
Bruce: With all respect, check your numbers. Even if China’s wages were not escalating and their productivity far below American standards, how big is the labor cost component of most manufactured goods? Think of steel, aluminum, auto parts, chemicals, wind turbines — the cost of materials is essentially a world price and labor constitutes a minor part of total cost. The issue in China is subsidies, not labor costs. The undervalued currency has one of those subsidies for a long time, and it’s the one we refuse to act on.
China Watcher the world unsound monetary system allows China to create money out of thin air to redistribute wealth to their export sector at the expense of other sectors. Only inflation under a fiat monetary system could distort prices in a country’ structure of production and cause it to be cheaper to pay and have a factory stripped down and shipped overseas, pay to train foreign workers as replacements, pay to find and create a whole new supply chain overseas, re-export the product back to the US and pay all the adminstrative costs of having a global supply chain like accounting costs, etc.
What leads to the emergence of rusbelts like what has occurred in the US is not an overvalued currency by itself but an overvalued currency coupled with inflationary policies directed to consumption. If the US had an overvalued currency with a high savings rate then the US would have been more like Germany which still has a stable manufacturing sector. When interest rates are kept artificially low it encourages consumption at the expense of stable investment and price inflation which eventually causes a squeeze on profit margins.
Agreed, China Watcher. Even a cursory study of this issue will reveal their extreme protectionism.
China Watcher,
Please provide any evidence you might have that:
1. China’s wages are escalating significantly.
2. China’s productivity is below American standards.
3. The cost of labor constitutes a minor part of total cost.
Probably posted my response twice, but it still doesn’t appear.
Okay here it is again, this time broken into 2 smaller parts….
No sense in arguing “which” factor in China’s governance is giving them the edge. The focus should be on American manufacturing, and US policy should be to pragmatically and continuously adjusted to achieve a rejuvenation of our economy: balanced trade, robust domestic manufacturing, and full employment.
Another way of putting it: the triggers for action in the above bill are all reactive and foreign: what China or any other “designated country” does in their currency or other policies. But why should the fate of the American people have to be contingent upon anything China does? It is their sovereign right to manage their trade, currency, commerce and society as they decide through their own domestic political process. It is high time the USA also exercise our own sovereign rights to manage our own trade and commerce for the good of our own people. The triggers for American policy action should be the health of the American economy and the conditions facing the American people. That is called national sovereignty and good government.
Absolutely, Will
I will refer to this article:
http://www.gregautry.us/archives/1002
Will,
You say: “But why should the fate of the American people have to be contingent upon anything China does?”
Bingo! You are absolutely right. Our government has assumed a fetal position with regard to China. As long as they are blaming “currency manipulation,” we are helpless. China is simply playing the game to their benefit, which is their prerogative.
I believe that our government sees the number of people on welfare growing and recognizes the advantages of that. More people dependent on government means bigger government. That means more power for the Nomenklatura in Washington.
[3rd attempt at part 2, why is it so hard to post here? removing my link to supporting article and trying yet AGAIN....]
Instead CPA or at least the author of this article advocates deepening US reliance on WTO mechanisms to manage our economy. BIG MISTAKE. Look at the Currency Oversight bill. According to this article, it would “forbid federal procurement of goods and services from the designated country unless that country is a member of the WTO Government Procurement Agreement,” and “forbid Overseas Private Investment Corporation financing or insurance for projects in the designated country.”
The problem is this bill burrows the US trade policy deeper into the WTO, requiring trade partners be members of the WTO, and mandating US appeals to the WTO to resolve currency disputes. Membership in the WTO more and more is a surrender of national sovereignty in the sense that national regulation of commerce environment and labor are all subject to WTO condemnation and sanctions.
Our agenda as advocates of trade reform, as part of a plan to rebuild American prosperity, should be to get the USA OUT of the WTO, or to significantly amend our membership agreement so our sovereignty is restored. American policy triggers should be indexes of American economic health, such as employment levels, industrial capacity, and balanced trade.
Stop blaming China for the ruinous policies of Washington DC. The US govt is run by twin parties bought by the wealthy, which is why policy is made on behalf of the 1% who have staked their future to the profits of global corporations rather than the prosperity of the American people. Fiddling with WTO intricacies is irrelevant and even harmful because it wastes more time as our industries and future are more destroyed by offshoring.
Will, agreed, parts one and two with a qualification; a lot of foreign money has been flowing into the US buying influence for 100 years.
The site will only allow one link per post, or it goes to the Admin for approval. You may be experiencing this?
“It is hard to understand why Boehner would stand in the way of such modest legislation to address China’s mercantilism”
The answer to the above; $$$$$ puppet.
Will,
You say: “Fiddling with WTO intricacies is irrelevant and even harmful because it wastes more time as our industries and future are more destroyed by offshoring.”
Again, I agree with you. Our government is simply pretending to be concerned about our loss of jobs and they are pretending to be doing something about it.
Joe since the US gov’t is really interested in being the worlds policeman it won’t address foreign trade practices because that’s what it uses as leverage. Access to the US market and technology transfers are very powerful tools to leverage.
When it comes to Libertarians and tariffs, the libertarians are correct about the outcome of tariffs if it occurs under a sound monetary system. If the monetary system is not sound then fiat money hurts the manufacturing sector and other countries may use fiat money as an economic weapon. Under fiat money tariffs may be needed because it would allow for capital adjustments to occur like reduced demand for imports and for the protection of industries that would have been economically sound under a sound monetary system.
Yes a lot of libertarians are against tariffs, but what I see they don’t make clear sometimes is that they are describing the effects of tariffs on consumers under a sound monetary system. Under a fiat monetary system, the dynamics may be different where tariffs could be beneficial as well as also harmful. Because libertarians see an unsound monetary system as the main problem, they seem to rally against tariffs in all cases because they see it more like a bandaid rather than a real fix.
It’s important to note that when the US had sounder money and imposed tariffs in the 1800s, it was done to protect Northeastern manufacturers and very importantly to increase revenues for the gov’t. Before the income tax, the gov’t raised most of its revenues through tariffs. When tariffs were applied in this period of sounder money there was a lot of tension between the agricultural and manufacturing sector because all tariffs did were to hurt some sectors at the expense of others. It did work to increase gov’t revenues however.
Hi Mo I think you are dead right with this one:
“…since the US gov’t is really interested in being the worlds policeman it won’t address foreign trade practices because that’s what it uses as leverage. Access to the US market and technology transfers are very powerful tools to leverage.”
Clyde Prestowitz makes the same argument in his book “The Betrayal of American prosperity.” He says that opening our markets and transfering technology and accepting protectionism against our goods all became our policy after WW2 because as the only power standing we had no economic rivals and we had a Cold War geopolitical alliance to build, not to mention the human value in helping revive war-destroyed countries. Prestowitz says that Cold War internationalism was the end of our 160 years of the American System where mercantilist and protectionist policies and other state-industry cooperation had been the successful norm, so successful it had beat Britain by consciously using the American System as direct contrast to Britain’s free trade ideological mania.
Prestowitz says it made sense in 1950 to change the policy but now the world has changed and it is time to re-evaluate that policy. I read in Prestowitz a sophisticated combination of worldly awareness and experience in international trade and diplomacy combined with a reformer’s zeal for pointing out the dangers and disasters our policies are bringing to our nation, particularly free market ideology and the free trade policies, but also the imperial overstretch of 700+ US military bases on foreign soil, naval fleets patrolling distant seas, and multiple simultaneous wars, all of which he says are on borrowed money possible only so long as our creditors in the trade deficits are willing to buy bonds and treat the dollar as the international currency….which he says is already coming apart and will only continue to deepen as other currencies replace the dollar in international trade and as rich countries lose faith in the value of the dollar. When the dollar is no longer accepted in deficit trading, we will have serious issues to deal with because our competitiveness has so deteriorated in the past 3 decades.
Anyway, Mo, to return to your point about Washington throwing away our industries and economic sovereignty in the name of being the world’s policeman, not only are you right but it is an unsustainable undermining of our economy and power and even sovereignty itself. It has come to the point where our regulation of economy environment and labor are subject to WTO sanctions, but also that China and other creditors contribute to the pressures shaping our own currency policies. I don’t see the foreigners as pernicious here, they are only acting out of self-interest, but I do see a pernicious US Congress and 2-party system that becomes a tool to the Big Money at home and abroad.
In fact, there is something of a puppet state emerging in Washington, in the words of Paul Craig Roberts, and I think he is again onto something important and widely ignored:
http://www.paulcraigroberts.org/2012/11/19/puppet-state-america-paul-craig-roberts/
Dr Roberts article mainly refers to Washington’s puppetry to the Israel lobby and Netanyahu’s Israeli settler base, but I see the concept has a broader validity to some degree, particularly regarding the value of the dollar.
Prestowitz describes how China and other creditors with $Trillions of dollar reserves want Washington to maintain a high dollar value (and those other countries’ central banks “intervene” in the currency markets to keep the dollar high v. their own currencies by buying dollars to keep them priced high). That rings a bell with me after reading Dean Baker’s book “End of Loser Liberalism” wherein he argues the overvalued dollar costs us more jobs and upwards wealth skewing than 10 NAFTA’s, because it is universal rather than bilateral I think. Anyway Baker argues the high dollar could be lowered by Fed and Treasury action if Washington really wanted to create millions of jobs by boosting exports and cutting imports….Baker argues the high dollar is a matter of pride for international-traveling Congress and staffers and all their circle of associates of similar jet set lifestyle that personally benefit from high dollar and that feel the US prestige through it. A broader upper-class benefit of high dollar values is the cheaper prices for goods while those college-educated classes are not subject to the same international labor competition as the industrial workers are….part of what Baker describes as the skewing of wealth upwards at the price of higher unemployment and stagnant wages for the lower classes. That class bias from jet setting and low prices is only part of the motive for high dollar, says Baker, more comes from the special interest of the financial services industry that gains international prowess from a strong dollar, and we see how privileged and subsidized Wall Street has been in the $Trillions of QE and TARP bailouts while millions of Americans lost their homes and jobs and savings with no bailouts and now are targeted to have Social Security follow their careers and savings into oblivion.
I recount all this to show there is some domestic class war behind the high dollar and free trade policies, some ideological and policy hangovers from the Cold War, and some puppet state fealty to our creditors abroad holding $Trillions who don’t want the value to drop. These factors all combine to screw the majority of Americans through offshored jobs and stagnant wages and high unemployment and growing poverty….none of it felt at the top, where the plan seems to be to continue driving 90 mph down a dead-end street.
Will globalization is not free trade but the global trade of US money created out of thin air. That is why central banks have hundreds of billions and trillions of US dollar assets. Yes there has been some reduction of trade barriers but a lot of countries are still protectionist. The theory of free trade discussed by the classical economists assumed a monetary system that had some gold backing. How can you have free trade with fiat money when central banks can create money at will to subsidize special interests? Without any commodity backing to money, exchange rates can stay irrational more than a country can stay solvent.
What’s important to note about the dollar is that even though it maybe overvalued against some currencies it still by itself should not lead to the total hollowing out of the economy. Only an overvalued currency coupled with policies to inflate to induce increased consumption and fund things like war could cause the complete hollowing out or capital consumption of the economy.
For instance look at Germany, it has a higer valued exchange rate as compared to the dollar and yuan, high real wages, and stable real interest rates. Stable real interest rates lead to stable savings that lead to stable investment which leads to stable manufacturing. In the US case, an overvalued dollar yes may price out some exports but policies to inflate to consume and fund wars lead to higher commodity prices that increase costs for industries that are more domestically oriented. Look at the period from 2003 to 2010 which was a period of low real interst rates, low savings and high commodity price inflation and you will see the total number of manufacturing jobs dropped enormously. Then compare it to the period of 1990 to 2000 which shows total manufacturing employment to be as a whole relatively stable because there was more savings.
To also note, even if the dollar wasn’t overvalued, a low savings rate with policies to inflate to consume would still cause the same problems if not even worse. When looking at the dollar as compared to the Yen and German Mark since the 1970s, the dollar has depreciated enormously but trade deficits have not gone away but have gotten worse because when a country inflates their currency faster than a trade partner, it leads to trade deficits.
Hi Joe, 100 years of foreign money in US politics….I’m sure you could show it, but how explanatory is it? Like the Israeli lobby, accused of exercising undue influence on our Mideast policy. Probably true, but that is still the fault of the American people who accept a political system that allows such influence. Same would be said about any other foreign influence on American policy…to me, the responsibility will always be with our own leaders and system and people, it is ours to fix, if only we could take responsibility for it.
Hey Joe I have a related question/idea for you and anyone else here interested in taking it up. I agree with your “$$$$$$ puppet” explanation of Boehner’s (and the pols in general) political action, but despite my leftist past I wish to think new and non-ideologically, pragmatically seeking a revived national prosperity. That means instead of class war we need to find a common patriotism, rooted in appreciating a common fate as a nation, a new patriotism to replace the destructive partisanship and culture wars and identity politics with something to unite our people around common constructive purpose. This means bringing to the table leaders and advocates from all social classes, maybe a good leader could inspire enough confidence and trust and hope to allow our people to put down the factionalism and civil wars and work together. Imagine a Patriotism Oath such as “As an American worker I I will do my best to see that the company and industry I work in thrives and succeeds, as an American consumer I will buy American-made products, as an American investor I will invest in American jobs, as an American executive I will run my company to make things in America and source my inputs from America. As an American elected official I will do my best to promote American economic health especially robust industries world-class infrastructure and education and full employment and balanced trade.”
That exceptional President could then say “I don’t care what your party or past politics are so long as you take the Patriotism Oath and orient around our common national future, we will work together to rebuild a prosperous America for ALL our people. Then that revival program would be an Industrial Policy that guides all our trade regulation and public investment policies around the goals of a rebuilt prosperity democratically built and enjoyed. It would mean MORE corporate welfare in ways that compete with incentives other countries offer to land factories and labs, but it would also use tariffs and other trade controls to compel/incentivize ONshoring jobs and strengthened Social Security and National Health and full employment policy, all to democratize the prosperity and bind the country together with a common stake in our country’s future.
Do you think there can ever be a revival of patriotism and social solidarity to replace the atomization and self-interest (justified by free market ideology) now driving the dismantling of our economy?
Will,
“Do you think there can ever be a revival of patriotism and social solidarity to replace the atomization and self-interest (justified by free market ideology) now driving the dismantling of our economy?”
Yes I do. Washington, Lincoln, Mckinley, TR, Huey Long, JFK, RFK, Reagan to a lesser extent [but stil a import tariff guy], Perot, Buddy Roemer. All American System advocates. I am sure you will notice a common thread to these men, either murdered, attempted murder, villified or excluded from participating. Security will have to be tight, for an ideological American to become President again.
On Lincoln’s first day, he had to sneak into Washington, to avoid being killed.
We tried your idea, it was the policy for a long time, why we were great:
“Henry C. Carey, a leading American economist and adviser to Abraham Lincoln, in his book Harmony of Interests, displays two additional points of this American School economic philosophy that distinguishes it from the systems of Adam Smith or Karl Marx:
Government support for the development of science and public education through a public ‘common’ school system and investments in creative research through grants and subsidies.
Rejection of class struggle, in favor of the “Harmony of Interests” between: owners and workers, farmer and manufacturers, the wealthy class and the working class.[17]
In a passage from his book, The Harmony of Interests, Carey wrote concerning the difference between the American System and British System of economics:
Henry’s book: http://quod.lib.umich.edu/m/moa/ajb8869.0001.001/19?page=root;size=100;view=image;q1=American+System”
Folks forget that the loyalty oath was largely done away with by the ACLU in the 60s. The Supreme Court Jesters. Reinstating it would be another great idea.
Will, it has come to my attention that the local school system, where I learned of Hamiltonian Economics and the American System, apparently no longer includes any reference to the Founders vision, just teaching Socialism, Communism and free trade Capitalism. I have a meeting with the Superintendent and the High School history teacher Monday. We will be reviewing the current US History and Civics text books.
Thanks, Joe Brooks
Will, I have reason to feel a little more optimistic. I am a member of several Facebook groups, including this one.
About a year go I was invited to join a discussion group revolving around the economic issues we face. At first the young folks involved felt I was bit extremist and reactionary, but as the 2012 election unfolded and Buddy Roemer was excluded, and the easily predictable silly debates and war mongering ensued, these young men reached very similar conclusions. I will have to say they were a bit surprised by my age. No matter, what is important is the young are figuring out what my generation allowed to get away thru sloth, drugs and ignorance.
We have all agreed to share our information, thoughts and posts, collectively. [!! did that come from my keyboard? Must be possessed] Let’s say in the interests of the general Welfare.
From the great young American Aaron Steinhaus, I will post his remarks individually to conform to the sites one URL rule. I hope this works satisfactorily.
From The American School of Economics Facebook page:
An important question to be asked of Austrian School of Economics supporters and Free Traders who oft quote their principles.
Why does the Austrian School of Economics despise the Founding Fathers of our nation so much?
I have been studying the writings of Austrian School members , and self-proclaimed Libertarians and I have found that they really don’t seem to like our nation’s Founding Fathers, or for that matter our nation and the Constitution which created it.
They argue that Ben Franklin was wholly ignorant of basic economics.
http://mises.org/daily/2251
They support the Anti-Federalist, those who opposed the Constitution, over the Federalists who supported its ratification, further and claim the Federalist party, composed of George Washington and John Adams were corrupt.
http://mises.org/daily/2335
They further argue that our nation’s First President George Washington “Crushed the Spirit of Liberty”
http://mises.org/daily/2885
They argue that Alexander Hamilton was an incompetent and corrupt bankster who was also “The Founding Father of Crony Capitalism.”
http://mises.org/daily/3167
http://mises.org/daily/3164
They argue that John Adams was corrupt and a destroyer of liberty and praise the efforts of Thomas Jefferson and James Madison to oppose the tyranny his administration wrought.
http://mises.org/freemarket_detail.aspx?control=68&sortorder=title
Then they declare Jefferson to be “one of the most disappointing” presidents in history. [Jefferson became a supporter of inport tariffs and a national manufacturing plan after the British burned the capitol to the ground, later in his life. JB]
http://mises.org/daily/4473/
And further that James Madison, the second man they once praised was an Imperialist Mercantilist?
http://mises.org/journals/jls/15_3/15_3_3.pdf
So I was wondering is there any of our nation’s Founding Fathers that the supporters of the Austrian School of Economics approves of? I am running out of options.
Thanks for reply, Joe, The Libertarians I used to know were very reverent about Thomas Jefferson, and always claimed their minimalist govt philosophy was rooted in the original intent of the Founding Fathers as codified in the Constitution.
Because the world changes so much in terms of technology and increasing economic and social complexity (more specialized division of labor, larger enterprises and state powers, the move from family farms to nuclear family dispersed geographically and economically, etc), there are limits to original intent arguments for me anyway. Even as I seek to avoid the class conflict version of resolving our countries economic crisis, I also see that tens of millions are becoming more desperate and more destitute. My house is filling up with my homeless friends, we all seek work every day, more and more marginalized and bereft of hope. So although I don’t see a future in communist revolution, I also don’t see a future in the free trade fiscal cliff system of no future jobs or social security. That is an explosive or dismal future because I don’t think my family and friends are particularly undeserving of success, we are the statistics of a crumbling economy that if not fixed spells frightful future in our country.
And so I am hoping we can revive and UPDATE that American System of Hamilton Clay Carey TR FDR and, ok, up to Reagan…but truly update it in recognition of becoming a mature capitalist society where the frontier and family farm subsistence no longer offer individual economic protection from the huge forces of corporation and government. And thus my updated American System would add full employment and strengthened Social Security and National Health Insurance.
This is not nanny statism because the main engines of wealth creation will always be in private sector manufacturing. It is just that leaving every aspect of society to naked market forces is very unstable and unfair and is likely to always head for social crisis due to inhumanity of bean-counting and profit as organizing principle of all human activity.
Pragmatism above all else, avoid ideology because it blinds us to the realities and possibilities of the moment. I’ll drop “collective” if you’ll add “general welfare” to the lexicon. I see you already did. But I do think there needs to be a material basis for the new patriotism and common purpose and identity our country needs. The institutions of SS and Nat Health would go a long way in giving everyone a feeling of belonging and a stake in our country. Having federal policies promoting manufacturing and balanced trade and world class infrastructure and education systems as paths to general prosperity would go a long way in restoring public confidence in ability of govt to do something constructive.
“The Libertarians I used to know were very reverent about Thomas Jefferson, and always claimed their minimalist govt philosophy was rooted in the original intent of the Founding Fathers as codified in the Constitution”
Will, of course they do. But, upon even a cursory inspection, this position is revealed as pure nonsense.
“And so I am hoping we can revive and UPDATE that American System of Hamilton Clay Carey TR FDR and, ok, up to Reagan…but truly update it in recognition of becoming a mature capitalist society where the frontier and family farm subsistence no longer offer individual economic protection from the huge forces of corporation and government.”
I absolutely agree, Will. However, 20 years of study have revealed to me that this is not really as complex as it seems. Protectionism works, period. All we need do is look at the economies and strategies of Germany and Japan, they were taught these principles by us particularly after WW2, so they would not become murderous military automatons, again.
Even Red China admits they have learned from Henry Carey and List. Unfortunately they did not take one of the most important aspects of the American System to heart, that is people are not beasts. I point out the Civil War.
Odd that Henry Carey and List were probably the most widely recognized Economists in the world from around 1830 to 1900 and now 99.9% of Americans have never heard of them.
Very interesting article I just came across. Most of the facts cited I have researched years ago and believe to be accurate. You may have noticed that I came to a similar conclusion previously, without quite as much detail.
http://integraonline.com/~bonville//Constitution/EconomicHeritage.html
Joe considering how Washington got the US into NAFTA, CAFTA, WTO, and the artificially structured trade relationship with China one can see why Libertarians were always wary of giving too much power to the federal government. As the economy has become more centrallly planned with US inclusion in NAFTA, WTO, etc. real wages have stagnated and the economy has only got worse.
Mo, I agree with them on that issue, for certain.
Mo, that is a big reason why I would like to see a return the Founder’s American System. Across the board tariffs as policy is a lot less planned government. Then the free market within our borders sets prices, thru legitimate competition. Of course the government has to “watch dog” price fixing and collusion. Nothing is perfect. These regulations control the actions of people, not the market.
I realize just being an American citizen does not stamp anyone with honesty, integrity and scruples. But, the Local, State and Federal governments used to take these issues somewhat seriously.
Joe under the current unsound monetary system I understand the need for tariffs to protect industries that would be economically sound if it weren’t for foreign subsidies and artifically low interest rates that stimulate consumption and fund wars at the expense of savings. But do you favor tariffs also on unique goods like fruits for example we don’t grow or some piece of machinery we might not manufacture or some raw materials we don’t have to mine?
On a side note, if it weren’t for taxpayers subsidizing security of importing goods like today with the US Navy protecting world shipping lanes, there would probably naturally arise in the free market duties on imported goods to pay for things like scanning and securing the incoming goods. So in a sense they would be similar to tariffs.
Most excellent point regarding the Navy, Mo. Back in Reagan’s time there was a lot of discussion about charging NATO members and other countries for this protection, to finance the world’s policeman, us.
Sounds like the Mob. However, that could go a long way toward mitigating military expenses.
I would prefer that we not be the self appointed policeman of the world, while ignoring our own borders in several different ways.
I favor very low tariffs on food items we do not have domestically. These tariffs should be high enough to finance the proper inspection of these foodstuffs. We currently are so broke, that these inspections are grossly inadequate. Virtually every other developed nation charges the importer for these inspections, sometimes exorbitantly, to further protect domestic production of everything. A well known tactic of Japan and Germany.
Will, here is the reason for the Libertarians hypocrisy regarding Jefferson. He wised up.
1816 January 9. (Jefferson to Benjamin Austin). “You tell me I am quoted by those who wish to continue our dependence on England for manufactures. There was a time when I might have been so quoted with more candor, but within the thirty years which have since elapsed, how are circumstances changed! We were then in peace. Our independent place among nations was acknowledged…We have experienced what we did not then believe, that there exists both profligacy and power enough to exclude us from the field of interchange with other nations: that to be independent for the comforts of life we must fabricate them ourselves. We must now place the manufacturer by the side of the agriculturist…He, therefore, who is now against domestic manufacture, must be for reducing us either to dependence on that foreign nation, or to be clothed in skins, and to live like wild beasts in dens and caverns. I am not one of these; experience has taught me that manufactures are now as necessary to our independence as to our comfort…
http://www.monticello.org/site/jefferson/quotations-manufacturing
Mo I have a hard time believing that “sound money” would automatically solve or manage all our economic problems. I assume you mean gold. That seems to me a highly ideological commitment to the invisible hand guiding all human activity to greater productivity through individual gain, and I think there end up being many things very valuable to people and the long term prosperity and quality of society that will not be properly valued in the market, just as people are not the simple homo economicus beast of self-interest. But by opening that we get diverted from a discussion of what to me is more important: outcomes, in human terms, pragmatically aimed at.
Those human terms would include full employment and living wages, eradication of poverty, world class infrastructure and education, world-leading industries at the cutting edge of technology and innovation, favorable health and mortality rates, environmental and other quality of life measures not all accounted for or managed by the market for long-term social/national good. Instead of asking a million questions about “how would gold standard money solve THIS or that problem..?” I think money supply and interest rates could be policy levers on the pragmatic menu of making successful Industrial Policy rather than as they are used now, to pull wealth towards the top. After all, the Gilded Age of gold money had no real concept of a public sector or regulation in the interests of workers, consumers or the environment. Markets will never solve all our problems, and they veer into periodic crises that require the intervention of good government serving its people. I think the market can be central to wealth-creation but should not be allowed to dictate every aspect of society, which would be an ideological position in the face of multiple problems that we can’t address because “markets must be free.”
Mo, you might like a Dean Baker’s “End of Loser Liberalism” which argues that the federal government through the Fed and Treasury technocrats are serving the wealthiest by policies emphasizing low inflation over full employment and by keeping the Dollar value high in international exchange. He says these policies have caused as much offshoring as 10 NAFTA’s, and have been part of a larger use of govt to skew wealth upwards. His proposed solutions are all framed as MORE free markets rather than the mostly ignored govt hand in redistributing wealth from the poor to the rich. His solutions include MORE free trade, this time for the college-educated jobs that were not the immediate victims of the first wave of FTAs by conscious design, and he also proposes ending govt-supported monopolies by replacing patents and copyrights with publicly-funded research and creative work vouchers. Baker’s book doesn’t sit well with me overall but his argument about the importance of currency values in affecting the balance of trade as well as geographic deployment of capital do strike me as important points to appreciate when looking for solutions. Somehow I do not trust gold or any invisible hand to automatically manage our trade, our distribution of opportunity and wealth, our environment and education and retirement and health systems.