Blind Faith In The Status Quo

Many people believe that this condition is sustainable or reversible without intervention. People argue that information-rich services in consulting, financial services, law, and healthcare will take up the slack. Services of this sort do not export well, they employ only the most highly educated people, and they cannot leverage capital investment to increase productivity. We are deluding ourselves into thinking that manufacturing is an obsolete sector of the economy. It is a cornerstone without which we have no competitive advantage in the global economy.

Others think that we are a country of innovators and we can compete in any industry at any time, regardless of how much of a head start we have allowed other countries. Witness the automotive industry, the electronics industry, the aerospace industry, the robotics industry, the machine tool industry, the semiconductor industry, the medical equipment industry, and the steel industry as blatant instances where our best minds were originators and leaders in their respective fields and yet were not able to stem the rising tide of competition from efficient, precise, and agile foreign subsidized innovation and ultra-competitive pricing. We are no more innovative, disciplined, creative, or privileged than any other society in the world. Fewer American engineers and scientists are being trained each year while top minds from leading institutions like MIT, Harvard, and Stanford are seeking fortune in financial services, law, and consulting as opposed to management of our industrial base, for reasons of sheer lack of competitive opportunity. Our future leaders are becoming expert only at exporting title to our assets to the highest bidder.

Economists that have examined the trade deficit issue are polarized. Though any classical economics textbook shows that imbalances of trade are unquestioningly unsustainable, economists today disagree over what will need to happen to correct the situation. They also disagree over what will happen to our standard of living in the process. A congressional budget office study commissioned by the senate finance committee on March 2000 determined that there is nothing to worry about with regard to the trade deficit Ð that it will most likely resolve itself and any attempt to control the resolution would be at best ineffective and at worst inflammatory. Though they correctly identify the reversionary trend of trade imbalances, they considered the US trade deficit in a vacuum apart from its broader context of US industry and economy. The key omission from their model is the realization that through the past 30 years of trade deficits, the massive amounts of foreign direct investment, the building up of foreign owned factors of production, and a wholesale abandonment of our industrial infrastructure, the US may have sustained irreparable systemic damage to its economy. In other words, the country that emerges after the 30 years of trade imbalances could quite possibly be just a shadow of its former self in terms of ability to compete with the global community. It is at least incredibly naive to think that 30 years of a trade deficit will have no impact on a country's economic fortunes going forward. To use a simplistic corporate analogy, according to the budget office's findings, for the resolution of the trade imbalance, the US will need to declare bankruptcy.

Many view government intervention as the root of every significant depression in this country's history. Though mismanagement of our money supply, inappropriate lending and reserve requirements, and miscues on interest rate manipulation may have been partly to blame for past malaise, there have not been any significant economic depressions caused by tariffs. Specifically, though tariffs are sometimes blamed for the Great Depression of the 1920's, in reality, major new tariffs came after the depression had long since begun and was an attempt to bring the country back from the brink. The success or failure of tariffs in the case of the Great Depression as in any case depends on numerous complex factors. To say that tariffs and protectionism is an ineffective policy measure is without a doubt throwing the baby out with the bath water. As illustrated elsewhere in this work, tariffs have been a most integral linchpin of the development of this country since its very inception.

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