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Would 8 Million New Jobs Help?

America Can Be Prosperous Again!

Part Three: Balanced Trade --Would 8 Million New Jobs Help?

This article is the last in a 3-part series.

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By Will Wilkin for Balanced Trade Associates.

The first 2 parts in this series were dark: Part One ("Economic Problems") described how Free Trade policies led to the loss of American manufacturing, resulting in stagnation of wages and high levels of long-term unemployment; Part Two ("Political Causes of American Decline") described the political and economic interests that brought about Free Trade, ending the protectionist trade policies we had for 180 years previously.  Part Two also described how our political system has become dysfunctional and divisive, offering only culture war as our historic decline continues without serious economic strategies to reverse it.

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This third and final article in the series is much brighter. That's because underneath all these problems and finger-pointing, we have a common national identity and a common national interest around which we can unite and use as the guiding force to fix our country.

Getting to the Root

The reason the public debt and government budget deficits have grown out of hand is that over the past few decades America's manufacturing has been off-shored or outsourced.  The loss in jobs, GDP, tax base and wages have taken their toll not just on tens of millions of households but also the public purse.

The ideological commitment to Free Trade, pursued by the Presidents and Congressional majorities of both parties, and lobbied for by the executives of globalized corporations benefitting from this offshoring, is the underlying cause of this exporting of our jobs and manufacturing capabilities.

That export of our jobs and GDP and tax base is the root of America's economic problems.  That is the source of our fiscal crises at the local, state and federal levels.  That is the cause of the mass unemployment, stagnation of wages, and spreading poverty.

Setting the Right Goals

How to unify America around real solutions?  How do we get the liberals and conservatives to unlock their horns and find a way to work together as Americans?  We need to step back as a nation and set the right goals.

Our goals should not include any ideological prejudice for big or small government per se, but rather smart government that pragmatically makes policies to promote the development of private sector employment and prosperity.

Ending our trade deficits is the place to start.  That would replace over $715 Billion of imports with US-made goods, with virtual zero increase in spending.  That is because the American market is already demanding that much consumption, but it is not being supplied by our own workers.  Imagine if it were!

We can end our trade deficits by replacing the Free Trade policy with a Balanced Trade policy that limits our imports to the amount of our exports.  This would effectively require the globalized corporations to invest, produce and employ in the USA if they want to sell their products in the USA.

How To Do It

Congress can legislate we reduce our imports by 10% each year for 3 years, which would bring our trade into balance, ie, our imports would be virtually equal to our exports.  From then on, our imports would be limited to the same value as our exports.  This could be accomplished through an Import Certificate (IC) system, whereby ICs are required licenses for imports, and issued in quantities that bring our trade into balance.

Balanced Trade Associates, led by former Assistant Secretary of Commerce Ken Davis, has drafted model legislation to do just that: the Balanced Trade Restoration Act of 2014.  Our bill, if passed by Congress, would divert America's trade deficits (averaging over $715 Billion annually for the last 10 years) into that much increased demand for US-made goods.  This would directly create over 6 million new US manufacturing jobs within 3 years, plus more than 2 million additional US jobs in other sectors through the multiplier-effect manufacturing has.

Where do those numbers come from?  The US goods trade deficit has averaged 4.934% of our GDP over past 10 years.  The Economic Policy Institute estimates that every 1% rise in GDP = 0.9% rise in employment (the other 0.1% goes to rising hours and productivity gains).  Their methodology is detailed in the “Method memo on estimating the jobs impact of various policy changes” by Josh Bivens, published by the Economic Policy Institute on November 8, 2011.  And so, taking the Bureau of Labor Statistics count of 138.25 million total US non-farm jobs in April 2014 and multiplying it by 4.934% and multiplying that by 0.9 shows 6,139,129 new US jobs, which would be overwhelmingly in manufacturing to replace the imported goods manufactured elsewhere.  Then, using the manufacturing multiplier effect of 1.35 used by the Bureau of Economic Analysis, (cited in “U.S Manufacturing In Context”), those 6 million new US manufacturing jobs would bring over 2 million additional multiplier jobs in supporting sectors.

These 8 million new US jobs would drastically reduce unemployment, bid up the price of labor (raising the minimum wage and reducing inequality), and reduce the need for social safety net.  All this would be done while re-shoring the tax base by bringing manufacturing and the other sectors it supports, back to America.  This combination would make the fiscal crises at federal, state and local levels easy to solve.  Ending the trade deficits would also cut off the accumulation of literally trillions of dollars overseas that are coming back not for our exports but rather to buy out our assets like companies and even mineral rights.

Unity and Optimism Instead of Culture War

This is not a Democratic or Republican issue, not a conservative or liberal issue. It concerns all Americans as our common national interest.  Imagine a new politics where citizens shared mutual respect and mutual goals!

A Balanced Trade policy would appeal to populists because it will benefit the working people the most by creating many millions of new jobs and thus bidding up the price of labor.  But the fiscal conservatives should also like it because it will decrease the need for unemployment insurance while increasing the tax base, making government budgets easy to balance.  The market ideologues should like that our growth comes from a bigger private sector and production, not redistribution through social programs.

Thus a Balanced Trade policy would be based on patriotism, uniting our people around a common national interest and making our economic and fiscal problems easier to solve.  It can bridge the corrosive ideological and partisan divide and bring the necessary common ground and the common purpose and optimism all missing in our politics today. 

First Things First

Of course balancing our trade is not the only thing that should be done to increase prosperity and employment in the USA.  But it would be the biggest single step, and it would have to come first.  So think of Balanced Trade as Phase One of a Growth Plan for America.

There is a long list of other initiatives that, taken together, would comprise a Phase Two of a Growth Plan for America.  That would be an Industrial Policy that defines a national economic strategy for long-term growth.  It would require some consideration of what other countries have done successfully to build economic growth, rising employment and rising living standards.  But most of all it would require a sober look at our problems in infrastructure, education, taxes and regulation, all of which form our country's industrial ecosystem.  Done right, America has vast human and institutional strengths that would be fully employed.

Describing all that requires another article series.  And actually shaping a national Industrial Policy would require a collaboration of leadership from many sectors of society, united around the patriotic goal of rebuilding American prosperity.

But for now, think of reviving American prosperity as a two-stage process.  Phase One was described in this series: ending our trade deficits by replacing the Free Trade policy with a Balanced Trade policy.  Phase Two will be forging a larger national economic strategy, something that first requires we rejuvenate our manufacturing and employment by diverting our trade deficits into new demand for US-made goods.

Taken together, a Balanced Trade policy and a larger national economic strategy would put our people back to work and rebuild American manufacturing capacity.  It would also reverse the deepening inequality that is a social and political problem, it would solve our fiscal crises and strengthen Social Security for our aging population --but it would do all this by restoring private sector manufacturing as the base of our new prosperity.  In that brave new country we can build, where we manufacture what we consume, business would not be seen as villains but as wealth-builders, spending power would no longer be divorced from productive labor, and wealth no longer divorced from productive investment.

In other words, a Balanced Trade policy is the first and necessary step towards healing and unifying our country.  It will change history by reversing our decline and defusing the social and ideological and partisan divides that are now deepening as our economy is hollowed out through Free Trade offshoring and outsourcing.

Email the author at: willwilkin@balancedtrade.us

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