Sure my "independent " blog has Barack Obama propaganda littered throughout it, but that does not mean I formulate my opinion on party lines. My social values are quite "liberal" (in the sense that Americans use the word) and are in tune with most Democratic policies. But my views on economics and finance tend to side with the Republicans (which, ironically, are classically liberal).
During this presidential race the Democrats have played the populist card by bashing free trade and blaming globalization for the ills of the working class. They blame speculators for the high price of oil and immigrants for loss of jobs. This was John Edwards platform in his brief stint and it soon became Hillary Clinton's trump card in the blue collar rust belt states. Demonizing globalization and open borders is a dangerous game for the Democrats to play. Protectionist measures will only accelerate the spiral we are in. This is one path I hope Senator Obama does not pursue.
If we start redacting free trade agreements and impose import tariffs on consumer goods, the greatest suffering will come from the middle class and very poor. Things we take for granted (mainly 90% of the shit at WalMart) will only get more expensive for the average consumer. Sure, you or I may not consistently shop there, but the majority of Americans do. And if we impose import tariffs on foreign goods, then everything in WalMart that is made in China becomes as expensive as the stuff made in the US. Now, you may argue that this is a good thing because it keeps American goods competitive. Sure, it might. But it takes away something fundamental - choice.
The advantage of having a diverse and open economy is that it leaves us with choices. Some people want the cheaper foreign good because, in all honesty, it may perform as effectively as the domestic brand. By taking away that choice, we force everyone to pay higher prices and create a homogeneous market. This will invariably lead to a decrease in quality of domestically made goods as American companies seek to widen profit margins because the government protects them from competition. Basically, the market will be flooded with expensive low quality goods and middle America will bear the brunt. Isn't this exactly what the Democrats are trying to protect against?
Here is a real life example of why globalized trade benefits the blue collar worker. Although high paying labor jobs have been more difficult to find and therefore wage earnings have dipped, the overall price of goods in the market have either remained the same or become cheaper. Think about everything that can be outsourced ie. shoes, electronics, toys, anything. These consumer goods have gained in quality and have become cheaper at the same time over this period of globalization. Cars, flat screen televisions, clothes, are all cheaper than they were 10 years ago. Even if you take into consideration the 3% annual rate of inflation, the prices of consumer goods have remained equivalent numerically to their 1998 cost. DVDs in 1998 cost $20. Now the price is actually lower and the worth of the dollar has decreased. So the real cost of the DVD is actually lower than its numerical price.
And consider this: the price of services that cannot be outsources have gone up tremendously in the United States. Can anybody say college tuition and movie tickets? Movie tickets on average cost about $3-4 dollars more now than they did in the 90s. That is due to the fact that we don't outsource movie making. The same with college tuition. There is virtually no global competition when it comes to a post secondary education. Nobody is going to send their kids abroad for a cheaper education. However, I can get a Benz now for around $30k, which was unthinkable back in the early to mid 90s.
Now lets look at an industry, probably one of the very few global industries, that still suffer from tariffs and government subsidies: food. Food prices have risen dramatically over the past 2 years. There are variety of causes such as an increase in demand from developing nations and various environmental factors, such as an unusually long Australian drought. But one of the biggest reasons food is getting more expensive is because countries are becoming more protectionist. Of course this is only natural because national governments have a duty to provide for their citizens first. Export tariffs keep food in the country for domestic consumption and curb supply internationally, therefore driving up costs. However, I'm not looking to solve the world food problem, but only pointing out that the high price of food can be attributed to protectionism.
Here's an example. If India is the world's largest exporter of rice and puts trade restrictions on its farmers, then less rice will enter the global market. This automatically increases the price of rice because supply has been cut off. In an atmosphere of high demand, this will only make the impact of the restrictions more dramatic. Now other nations who depend on Indian rice exports have to restrict exports on their foodstuffs in order to maintain domestic stocks. So a positive feedback loop has started where less food enters the market and prices skyrocket because other nations who can't find food on the open market restrict their exports.
Now, a lot of people have had reservations about foreign investment in the United States. They cry about China buying a US natural gas company, or Mercedes buying Chrysler. But in a global economy we will have to buy or be bought to survive. InBev's purchase of Anheuser Bush is one in a natural course of events in a globalized world. InBev decided that they needed a bigger distribution outlet in North America and made the decision to purchase AB. However, this is not a one way deal. AB will also have InBev's distribution in Europe and South America. This means that Budweiser can increase its market share globally and increase profits for AB, which will still be based in America. At the same time, we can get InBev's products in North America for less. And InBev will most likely consider brewing their most popular products in the United States to cut costs, contributing to the creation of local jobs (which is even more realistic now because of high transportation costs).
Some may argue that the consumer is duped because the quality of the beer will get worse a la Mercedes Benz after the merger with Chrysler. However, economics doesn't deal with the highest quality for the lowest amount of people. Sound economics yeilds the highest quality for the highest amount of people. After Benz merged with Chrysler, there were reports that the overall quality of the Mercedes brand vehicle declined. It probably did. But what was more important, to the consumer and Mercedes, was that an entirely untapped market was now able to purchase their product. The American middle class could spend their money buying "superior German engineering". And for the rich who wanted to spend $100k on a Benz, they could get the higher end models. But what was important was that more people were enjoying Mercedes vehicles at a lower cost. It provided a quality vehicle to the American people and wider profit margins to Dialmer Chrysler.
In the end the United States will be the crossroads for the global economy, that much will never change. But what must change is how we look at the world and how we operate within it. We have to accept that fact that globalization has put is at the pinnacle of the world economy and is doing the same for other nations around the world who embrace its principles. If we yield to the demands of populists and protectionists, then not only will the world lose its biggest consumer market, but those who the populists and protectionists seek to protect will be the first to feel the wrath of asinine economic policy.
During this presidential race the Democrats have played the populist card by bashing free trade and blaming globalization for the ills of the working class. They blame speculators for the high price of oil and immigrants for loss of jobs. This was John Edwards platform in his brief stint and it soon became Hillary Clinton's trump card in the blue collar rust belt states. Demonizing globalization and open borders is a dangerous game for the Democrats to play. Protectionist measures will only accelerate the spiral we are in. This is one path I hope Senator Obama does not pursue.
If we start redacting free trade agreements and impose import tariffs on consumer goods, the greatest suffering will come from the middle class and very poor. Things we take for granted (mainly 90% of the shit at WalMart) will only get more expensive for the average consumer. Sure, you or I may not consistently shop there, but the majority of Americans do. And if we impose import tariffs on foreign goods, then everything in WalMart that is made in China becomes as expensive as the stuff made in the US. Now, you may argue that this is a good thing because it keeps American goods competitive. Sure, it might. But it takes away something fundamental - choice.
The advantage of having a diverse and open economy is that it leaves us with choices. Some people want the cheaper foreign good because, in all honesty, it may perform as effectively as the domestic brand. By taking away that choice, we force everyone to pay higher prices and create a homogeneous market. This will invariably lead to a decrease in quality of domestically made goods as American companies seek to widen profit margins because the government protects them from competition. Basically, the market will be flooded with expensive low quality goods and middle America will bear the brunt. Isn't this exactly what the Democrats are trying to protect against?
Here is a real life example of why globalized trade benefits the blue collar worker. Although high paying labor jobs have been more difficult to find and therefore wage earnings have dipped, the overall price of goods in the market have either remained the same or become cheaper. Think about everything that can be outsourced ie. shoes, electronics, toys, anything. These consumer goods have gained in quality and have become cheaper at the same time over this period of globalization. Cars, flat screen televisions, clothes, are all cheaper than they were 10 years ago. Even if you take into consideration the 3% annual rate of inflation, the prices of consumer goods have remained equivalent numerically to their 1998 cost. DVDs in 1998 cost $20. Now the price is actually lower and the worth of the dollar has decreased. So the real cost of the DVD is actually lower than its numerical price.
And consider this: the price of services that cannot be outsources have gone up tremendously in the United States. Can anybody say college tuition and movie tickets? Movie tickets on average cost about $3-4 dollars more now than they did in the 90s. That is due to the fact that we don't outsource movie making. The same with college tuition. There is virtually no global competition when it comes to a post secondary education. Nobody is going to send their kids abroad for a cheaper education. However, I can get a Benz now for around $30k, which was unthinkable back in the early to mid 90s.
Now lets look at an industry, probably one of the very few global industries, that still suffer from tariffs and government subsidies: food. Food prices have risen dramatically over the past 2 years. There are variety of causes such as an increase in demand from developing nations and various environmental factors, such as an unusually long Australian drought. But one of the biggest reasons food is getting more expensive is because countries are becoming more protectionist. Of course this is only natural because national governments have a duty to provide for their citizens first. Export tariffs keep food in the country for domestic consumption and curb supply internationally, therefore driving up costs. However, I'm not looking to solve the world food problem, but only pointing out that the high price of food can be attributed to protectionism.
Here's an example. If India is the world's largest exporter of rice and puts trade restrictions on its farmers, then less rice will enter the global market. This automatically increases the price of rice because supply has been cut off. In an atmosphere of high demand, this will only make the impact of the restrictions more dramatic. Now other nations who depend on Indian rice exports have to restrict exports on their foodstuffs in order to maintain domestic stocks. So a positive feedback loop has started where less food enters the market and prices skyrocket because other nations who can't find food on the open market restrict their exports.
Now, a lot of people have had reservations about foreign investment in the United States. They cry about China buying a US natural gas company, or Mercedes buying Chrysler. But in a global economy we will have to buy or be bought to survive. InBev's purchase of Anheuser Bush is one in a natural course of events in a globalized world. InBev decided that they needed a bigger distribution outlet in North America and made the decision to purchase AB. However, this is not a one way deal. AB will also have InBev's distribution in Europe and South America. This means that Budweiser can increase its market share globally and increase profits for AB, which will still be based in America. At the same time, we can get InBev's products in North America for less. And InBev will most likely consider brewing their most popular products in the United States to cut costs, contributing to the creation of local jobs (which is even more realistic now because of high transportation costs).
Some may argue that the consumer is duped because the quality of the beer will get worse a la Mercedes Benz after the merger with Chrysler. However, economics doesn't deal with the highest quality for the lowest amount of people. Sound economics yeilds the highest quality for the highest amount of people. After Benz merged with Chrysler, there were reports that the overall quality of the Mercedes brand vehicle declined. It probably did. But what was more important, to the consumer and Mercedes, was that an entirely untapped market was now able to purchase their product. The American middle class could spend their money buying "superior German engineering". And for the rich who wanted to spend $100k on a Benz, they could get the higher end models. But what was important was that more people were enjoying Mercedes vehicles at a lower cost. It provided a quality vehicle to the American people and wider profit margins to Dialmer Chrysler.
In the end the United States will be the crossroads for the global economy, that much will never change. But what must change is how we look at the world and how we operate within it. We have to accept that fact that globalization has put is at the pinnacle of the world economy and is doing the same for other nations around the world who embrace its principles. If we yield to the demands of populists and protectionists, then not only will the world lose its biggest consumer market, but those who the populists and protectionists seek to protect will be the first to feel the wrath of asinine economic policy.
