Now playing: Economic theater for the gullible
The United States seem to be swimming in economic initiatives that are going to go nowhere. But are we really surprised? After all, as in the case of U.S. efforts with regard to Afghanistan, Iraq, Iran, and Israel and the Palestinians, we also seem to be swimming in foreign-policy initiatives that are very unlikely to ...
The United States seem to be swimming in economic initiatives that are going to go nowhere. But are we really surprised? After all, as in the case of U.S. efforts with regard to Afghanistan, Iraq, Iran, and Israel and the Palestinians, we also seem to be swimming in foreign-policy initiatives that are very unlikely to produce much (positive) change to the status quo.
But seriously, if the United States is going to devote our efforts to empty symbolism and hollow gestures, couldn’t we focus on some that were leavened by a little nobility, creativity or boldness? If we are going to float proposals that are doomed to failure or ineffectiveness, couldn’t we float better proposals?
Let’s take the four big economic initiatives making headlines this week.
The Korea-U.S. Free Trade Agreement
We were greeted this morning with the unsurprising news that the efforts by U.S. Trade Representative Ron Kirk and his Korean counterparts to hammer out a new and improved version of the Korea-U.S. Free Trade deal had foundered on beef and automobile issues. I lead with this news because it is one of those rare proposals that actually have the opportunity to fail twice — in addition to this week’s setback, it could also fail in the negotiating phase. That’s not very likely (the White House promises a deal "within weeks"). But even if the deal is reached, the likelihood that a free trade deal is going to make it through the U.S. Congress any time soon seems slim.
While conventional wisdom has it that Republicans are warmer to free trade than Democrats, the reality is that centrists are warmer to trade. The real opposition lies in the growing right and left wings in each party. A story in today’s New York Times highlighted a Pew poll that 44 percent of Americans feel free trade deals have been bad for the country, while only 35 percent feel they have been beneficial. While some deals are viewed more favorably, others — like deals with China or Korea, countries viewed with more unease — are not. The article also notes that, "Republicans and Republican-leaning independents who were aligned with the Tea Party movement had a particularly negative view of the impact of free trade agreements." In the last election cycle something like 4 out of 10 voters identified themselves with the Tea Party or Tea Party candidates — a group that now has 110 members of Congress.
With the Blue Dogs slaughtered in the last election, the power in Democratic caucus has also shifted solidly to the left; between that fact and the growing importance of unions as 2012 nears, the idea that a trade deal might get approved anytime soon should provoke some skepticism.
Global Trade Imbalances at the G-20
Joining the free trade deal on this week’s economic cannon fodder hit parade is the agreement being hammered out among G-20 nations regarding cooperation in reducing global trade imbalances. When, and if, a final deal is struck, it is — according to the U.S. Treasury Department — likely to resemble the non-agreement agreement concluded a few weeks ago among the G-20 finance ministers. No solid metrics. No enforcement mechanisms. Just a plaintive, "Can’t we all get along here?" from the Rodney Kings managing the world’s finances.
In the end, gestures of cooperation will be followed by countries acting in their narrow self-interests, followed by more expressions of indignation and calls for better cooperation.
Speaking of statements of indignation, a chorus of disapproval has rained down on U.S. Fed Chairman Ben Bernanke since his introduction of dubious economic initiative number three on our list, the QE2. Given the reaction to the initiative and its likely failure, compounded by its unintended consequences, Bernanke probably should have picked a different ocean liner after which to name his effort. With it being burned in the court of public opinion and going up in smoke in terms of results, the "Andrea Doria" would seem to be a fair comparison. Given the icy reception and that it could well accelerate a race to the bottom among world currencies, the best choice might have been to call it "Titanic."
U.S. Debt Commission Recommendations
And speaking of unsuccessful trial voyages, how ‘bout those recommendations from the U.S. debt commission? As with the Titanic, they also were doomed by their initial leaks. Within literally minutes of hearing that they included cuts to social security, ending the mortgage interest deduction for many Americans during a devastated housing market, and cuts in corporate tax rates, Democratic leucocytes in the body politic converged on this alien intruder and began to kill it. Even as President Barack Obama very sensibly urged from Korea that people give the commission time to release their detailed recommendations and then actually read and consider them, Democratic members of Congress were swearing blood oaths to defeat the proposal.
Personally, I think it is a welcome development that serious people are trying in a serious fashion to reduce the U.S. deficit. This effort shows a modicum of creativity and courage which, in Washington today, counts for something. Would it be better if they started bolder with the real revenue initiatives we need — including a value-added tax and a substantial gas or carbon tax — plus a sweeping simplification of the U.S. tax code? Of course. But that’s my point: The failure of good ideas may be more lamentable than the failure of bad ones… but that’s a pretty lousy reason not to offer them.
If we are going to advance trade deals that have a slim chance of success, why not also advance the Colombia trade agreement that is long-overdue? It’s a deal that rewards another valued friend for social and economic progress, and is likely to strengthen U.S. interests in a region of the world where we could use all the friends we can get. I had the pleasure of attending a small dinner for Colombia’s former President Alvaro Uribe, and his frustration at having addressed every criticism of the deal put forth — winning ILO approval for labor practices, virtually eliminating human rights issues created by the country’s civil conflict — while actively supporting the United States was palpable. This is a deal that would actually grant the United States greater market access and would be one of very few tangible initiatives in Latin America. It should be getting at least the same attention as the KORUS agreement.
As for dealing with the unfair competitive practices of other nations, we need to wake up and recognize that the world has embraced activist competition and industrial policies; the rest of the world is down on the field playing the game, and the United States is sitting up in the stands complaining about the score. It’s not that we shouldn’t be addressing currency imbalances head on… it’s that we should be doing so much more to attract investment, get our companies to start spending the cash on which they are sitting here at home, to increase competitiveness through strengthening infrastructure, etc.
Of course, better still than promoting middling policies that will fail or even good ones that will fail would be promoting good policies that will actually work. But I suspect we’re still a couple of really substantially crises away from getting anywhere like that at this point.