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Key Issues
• The main issue is not that of the
United States
• Losing in the Global Economy
• Offshore Manufacturing Jobs
• United States conforming trade to
benefit the world
“…the underlying disorders in the global system are
covered up by the United States.”
– For about 50 years the US has served as the
broad-shouldered leader that has also lead as
the buyer of last resort.
• America is the only major economy that is willing
year after year to absorb gross surpluses from
other nations.
– Japanese cars
– Electronic goods
• In doing so, America serves as a safety valve for
the global marketplace, reducing conflicts, and
keeping the global economy afloat.
But this cannot go on forever
• With declining wages and the loss of highincome employment in the US, the
nation’s broad capacity for mass
consumption is being slowly eroded.
• Sooner or later the US will be tapped out –
no longer able to afford its role as the
buyer of last resort.
History really does repeat itself
• The role of Buyer of Last Resort was on
Britain during the 1920’s.
• During the time of crisis and downfall the
US loaned Britain lots of money to try to
keep them upright.
• The economy began to crumble and the
role shifted to the US in later years.
Japan is feeding the fire
• Currently, Japan is propping up the US by
loaning lots of money so that the US can
continue its role.
• Sound familiar? That’s right… the same
happened to Britain, and it is inevitable
that it will happen to the US, says Greider.
Best and Worst Cases
Best
– It is the unexpressed hope of statesmen that the shifts
of power will evolve gradually, without provoking a
bloody breakdown.
Worst
– If an abrupt halt comes to the purchasing of surpluses
and many nations are compelled to produce much
less, a worldwide implosion of market will be triggered,
that is, global depression.
Positive? In the long-run, yes.
• Superpowers will not be destroyed, but will be
put on a more level plane.
• This event could renew American society in
confrontation of the inequalities of the world and
the wastefulness in the American material life.
• Americans may be lead to discover more about
themselves and their country.
But, it is not just America’s problem
• America’s problem is really a principal symptom
of the global system’s much larger disorder:
creating more supply than new demand and the
expanding productive capacity completely
overruns the available consumer market!
– Which is why America has plays the role of the buyer
of last resort.
• If America taps out of their role, the world’s
producers will find themselves looking frantically
for buyers.
WWCD – What
Would Clinton Do?
• Greider discusses Clinton and delves into the old order
that he optimistically inherited:
• Free trade and liberalized markets for business and finance
• Active promotion of American multinationals and globalized
production
• A tolerant stewardship of the world trading system
• A vast military infrastructure committed to ensuring world order for
others
• NAFTA, GATT, and the WTO were improved and
empowered to fulfill the unfinished work of Clinton’s
Republican predecessors.
• This was Clinton’s central weakness of his presidency
because the old order was no longer working to the
benefit of most Americans.
A little extra bling bling…
• Clinton offered an attractive rationale to
support his new GATT agreement
• To add $1700 in income to the average US family’s
income over the next few years.
• To create hundreds of thousands of high-wage jobs
• To have the biggest global tax cut in history
• To fulfill the country’s two responsibilities:
– To lead and remain engaged in the world
– To try to help the people of the United States to get ahead
Lottery winnings
• However, most American families did not get the
$1700 increase, and, in fact, most incomes were
stagnant or shrinking.
• There was an uneven distribution of money, mainly skewed
toward the rich.
• The statistic, in order to understand better, would
be like asking people to assume that if their
next-door neighbor wins the lottery, everyone on
the block would get richer.
“I did not have sexual
relations… oh wait, wrong
speech?”
• In July 1995, when all looked grim and thousands of white-collar
jobs were being made redundant, Clinton spoke to a conference of
community leaders.
• “We lowered the deficit…”
• “We increased investment in education, in technology, in research and
development…”
• “We expanded trade frontiers…”
• “We have seven million more jobs…”
• “We have a record number of millionaires…”
• “We have an all-time high stock market…”
• “We have more new businesses than ever before…”
• “… And most people are still working harder for lower pay than they were
making the day I was sworn in as President.”
• An honest speech, but that still didn’t solve the globalization problem.
Support our troops… and our
lifestyle!
• It was actually US military
procurement that spurred
the American lifestyle to be
adopted by other countries.
– South Korea, Taiwan,
Thailand, and even Japan
had US troops stationed
within their country for
defense purposes.
– Influences came from these
troops and also the
multinational companies that
saw a golden opportunity to
market products and
services to emerging
markets.
A crumbling empire
• Despite their good deeds, empires do not last forever.
• America is currently in a weakening economic position
and does not have much longer at the top.
• Many sectors, such as domestic-goods-producing and
housing sectors, have suffered due to the weak economy.
• Imports and exports have dropped as well as consumer
spending.
• Values, within politics and business have shifted, thus,
making the market a different and new place to do
business.
• How much longer do we have? Only time will tell.
Losing in the Global Economy
 Reversal of Fortunes pg. 202
 “Unites States went from holding a net
surplus of foreign assets equal to 30
percent of its own economic output in
1970 to a debtor position by 1994 of -8.5
percent.”
 Economic Professor Wynne Godley of
Bard’s College Levy Economics Institute
Losing in the Global Economy
(continued)
 Deteriorating Situation pg. 203
 “Given the immutable laws of credit and
compounding interest, America’s debt
position was going to rapidly deteriorate
further as interest payments mounted on
an outstanding debt…”
 Estimated that debt position would double in 5-6 yrs.
(approx. by 2000)
 By 2005: 30 %
 By 2010: 40%
Losing in the Global Economy
(continued)
 Market of Last Resort pg. 206
 “We are the market of last resort. You get
excess capacity and you can’t sell it anyplace
else? Sell it to the Americans. We are also the
market that props up development. If you are
China or Indonesia, Thailand or Korea, you
achieve rapid economic growth by supplying
the Americans. You run a trade surplus with
the U.S. and that’s how you can earn the capital
to finance the rapid growth.”
 Clyde Prestowitz of the Economic Strategy
Institute
Losing in the Global Economy
(continued)
 “Mopping Up Excess Production” pg. 206
 United States has been the largest buyer
of excess production in the world
 World Vehicle Exports (1993)
 US: 23%, Germany: 8% & Japan: <1%
 Other industries (1993)




Office machine & Telecom: 23%
Steel exports: 10%
Heavy machinery: 18%
Chemicals: 9%
Losing in the Global Economy
(continued)
 Systematic Problems pg. 209
 “…if the United States stopped buying the
world’s surpluses, that would not correct the
global system’s underlying problem, but simply
make it visible and inescapable. As exporting
nations suddenly scrambled for buyers, cutting
production and prices and erecting trade
barriers, the shrinking marketplace could
trigger a collapse of commerce.”
Off-Shore Manufacturing Jobs
• “If enterprise prospered, the
benefits flowed widely, if not
uniformly, throughout society.”
– The Theory
• More business – more jobs
• $1 Billion of exports – 20,000 jobs
– The Problem
• Cheaper labor
• Labor contracts
p. 210
Off-Shore Manufacturing Jobs
• “..the United States was losing it’s
hegemony: it was targeting free trade and
export growth, while the rest of the world
targeted industrial base.” p. 212
– Boeing
– Auto-makers
– AT&T
American - Made
• U.S. Export –Import Bank
–
–
–
–
–
Subsidized financing for export deals
Created in 1934 to promote employment
100% American-made
1987 – 15% foreign content, some up to 50%
Defining nationality
Exports - Imports
• “In the global perspective, the very idea of
national “exports” and “imports” was
regarded as antiquated.” p. 214
– 40% of global trade - intrafirm
– 11% of Japan’s GNP was from American and
European countries
– Does the trade deficit matter?
U.S. Employment
U.S. employment changes over the past decade
600000
500000
56.17%
400000
300000
50%
61.73%
66.67%
200000
100000
IB
M
g
Bo
ei
n
G
M
G
E
0
Job Training
• “If Americans cannot make steel or cars or
aircraft, let them be computer engineers.” p.
217
– Replace factory jobs with “good, new jobs” p. 217
– Microsoft employs less than Bethlehem Steel
Leading the World
• Political Burdens
• Reordering domestic economic priorities and
• restoring greater equity among citizens
• Tasks
• Must bring unbalanced trade to a halt
• US must defend its industries, not its companies.
• Re-examine tax codes and subsidies
Examples
•
•
•
•
•
Malaysia and Motorola
Germany and GM
China and Boeing
Wawasan 20/20
“The only justification for taking such an
extreme step is the consequences of doing
nothing” p. 220
Christopher Whalen
– “We are headed for an implosion. If you keep
lowering and lowering wages in advanced countries,
then who’s going to buy all this stuff? You look
around and all that you can see is surplus labor and
surplus goods. What we don’t have is enough
incomes…If this keeps up, we’re going to face a lack
of demand that is worse than the 1930’s”
Fair Tariffs
• Elliot Janeway once said to tarriff products that
are imported that exceed 25% of the goods in
the country.
• WTO
• Japan Capitalism Ideology
– Export more goods than you import.
– Will have an effect on more than the United States
One day. It could backfire on Japan and the effects
could be felt in Europe.
Trade and Supply
• Godley
• It is a well kept secret that the theory of international tradethe entire story about the benefits every country can gain by
exchanging goods with other countries-depends upon the
assumptions:
– A) that trade between countries is balanced and
– B) that trade does not alter the level of employment or
unemployment” p.222
• Greider has two solutions to Excess Supply
• “Negative…Shutting down production.”(p.222)
• “Positive…to bolster worldwide demand.”(p.222)
Conclusion
• “The problem is not addressed: it would require
governments to confront the free-running
industrial revolution and try to moderate its
course. No nation, including the United States,
yet has the will to stake out such a provocative
position. In the midst of the storm, governments,
like people and enterprises, hunker down and
hope that it passes.”(p.223)
Questions
• When and how will the United States go about
placing tariffs?
• How will the transition be when the United
States can’t be the buyer of last resort?
• How important is the trade deficit given that
companies are now multinational?
Notes
1. National Archives
2. Wall Street Journal
3. Washington Post
4. New York Times
5. Rolling Stone Magazine
6. Japan Times
7. Bank of England
8. Jerome Levy Economic Institute
9. Economic Policy Institute
10. The Economics of Chaos: On Revitalizing the American Economy
11. CNN.com