Thursday, September 22, 2016

A Concise Discussion of the Role of Our Government in the Economic Distress of Americans

This is an attempt to be as concise as possible about an issue that is very complex.

Probably if you are interested in the history of globalization in economic thought and for some reason could care about what I think on the topic, you should read the more lengthy discourse which can be located here.

For those of you who want the Cliff notes version, read on.

Many people in this country are aware of serious economic distress among some of our citizens, even though the nature of that distress, and the number of people affected, is controversial.

Many of my friends have trouble believing that our politicians and government would knowingly take actions that would damage the economic well being of many Americans, but they should not be so surprised. "The greatest good for the greatest number" is used to justify many policies that are sure to be bad for some people even if they are, hopefully, good for others.

Ultimately, understanding the structural issues of the economy that has been put in place over the last 20 plus years is going to take more time than most people are willing to devote to the topic. Ultimately if you are going to understand the situation, you are going to have to read a lot more than just this post which can at best point you in what is hopefully the right direction..

As I studied the history and theory behind Globalization, several questions presented themselves. If, as it appeared, that these policies resulted in the economic distress of millions of Americans, to what extent did the US Government pursue these policies knowing full well that this was going to destroy the economic well being of millions of Americans?  The second question, presuming that they did know this was going to be one of the likely results, to what extent did the government put in place policies and programs to help these Americans find new ways to make a living and ease the transition? Finally, whatever the answers to the first two questions may be, to what extent would our government expect Americans to benefit from these policies, and who would they benefit?

Each of the following statements could have pages, even volumes, of discussion to support them.

1. The issues around the economic policies that go under the name of “globalization” or “free trade” are not new, but have been discussed and debated since the 19th century by some of the most important economists in the history of political economy, including Ricardo, Hume, and Marx.  It is in fact one of the central issues of political economy of that century.

2. In other words, although the extent of the impact of “globalization” is larger because of new technologies, there is excellent and relevant theoretical work and empirical case studies on the topic and the debate goes back a long way.  Therefore, there is no possible excuse of ignorance.  These policies are alleged to have certain important positive economic effects, but they are also very well known for having certain negative effects as well. 

3. “If all the economists in the world were laid end to end, they would still not reach a conclusion”. (Attributed to G. B. Shaw).

4. Although the positive impact of globalization on the world economy is very much debatable, what is not debated are the likely negative, local results. These results include, using my own terminology, first order and second order effects. A first order effect is when an industry goes overseas and people lose employment. A second order effect is when a community suffers because of the lost income of its citizens and the impact on the local businesses, on the lost tax income, and on the social implications of unemployment and its effect on the unemployed and their families.

5. To use one case study, an industry which had spent $500 million a year to get certain services done locally, finds that by spending $450 million overseas, they can get the same work done and save $50 million. This is seen as good because the company has made $50 million more profit, all else being equal. But the community as a whole now has much more unemployment, and the local community no longer has that $500 million circulating.

6. Therefore, whether or not the company is more profitable, it is very arguable that our society as a whole is certainly not better off. But whether you agree with this or not, it is hard to disagree that these policies were as certain as one can be in economics to cause hardship for those who are to be unemployed and the communities they live in. Although one might not be able to predict exactly which industries and communities will be hit the hardest, one can certainly predict that many will be and in fact you may be able to predict very well which ones and to what extent with a little study.

7. But if the company is more profitable, don't we all benefit? No, because in this country, most of the wealth is owned by few of the people. We have all heard different numbers, but for the sake of discussion I am going to use a more moderate estimate, and say that 75% of the wealth is owned by 10% of the population. Therefore, any benefit of this policy will go to the 10% or so that already owns the wealth, and none of the benefit will accrue to the local community, or people, workers, etc.

8, So the first question is answered. The US Government supported and enabled a structural transformation to the economy which was known to (extremely likely to) economically disadvantage workers and their communities in our country. Maybe not all workers and communities, but certainly many of them.

9. The situation is made worse by other government policies as well. I will mention three. The first is that the H2B visa program is famous throughout the world as being used by companies to help them take work from local communities and outsource/offshore the work to other countries. The second is that the US Government has failed to use its power to counteract various subsidies put in place by other countries to benefit certain industries at the expense of the American industry and its workers. The third is that the US Government deliberately and explicitly does not measure real unemployment in this country and disingenuously therefore discusses unemployment in terms that they know understate the real situation.

10. Finally, given that the US Government knew the likely effect of their policies, what steps have they taken to retrain the worker into new industries, and to support them and their families while they go through this wrenching dislocation. The answer to that is also clear and unambiguous, we have done nothing to support these people. Not one thing.

Therefore, did the US Government pursue economic policies that were as certain as one can be about such things to cause great economic hardship to working Americans? Yes. Did they do anything to help ameliorate or compensate those workers for the hardship they experienced and are still experiencing? No. And one more question, were the beneficiaries of these policies guaranteed to be people who were already wealthy? Yes.

There is another side to this story, which has to do with the economic theory of growth in a globalized economy. By no means is this theory universally accepted, but even if it was it says nothing about the people whose livelihoods were destroyed by these policies, and this negative impact of the policies are extremely well understood and predictable.

A proper post on this topic should contain at least one page of references to supporting documentation, and maybe that will be added later.


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