Economic Update – The Sky is NOT Falling

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Your humble sleep-deprived author is back to offer a counterpoint yet again to some of the ongoing analysis we see in lefty blergsville.

Two points continue to appear on the radar:

1) Our trade policies suck. Too many left-leaning financial types have bought into the myth that ‘Free Trade is Both Inevitable and Good’.
2) The lower value for the US Dollar is not the end of the world. At least not for those of us who live and work here.

Updates on both below the fold…

Trade Update

In a new post over on AlterNet, Todd Tucker summarizes two new studies by economist Josh Bivens of the Economic Policy Institute (EPI).

To quote:

The papers expose what has been hidden in plain view: our trade policy is putting substantial downward pressure of all U.S. workers, yet policymakers are trying to push more NAFTA-style trade policy to Peru and beyond despite mounting evidence that it is bad for Americans.

With the main finding being:

The most important negative impact of our trade policy is not the displacement of concentrated groups of workers in manufacturing, but rather the holding down of wages of 70 percent of the population – including those workers whose jobs have not been and/or cannot be offshored. This analysis takes into account the impact of savings from cheaper imported products, and is a NET effect.

As they say, have a look at the whole thing.

The downward pressure on US wages continues to be one of the main reasons why our corporate overlords love these ‘Free Trade’ deals. We should support efforts to review these policies.

Dollar Update

The argument raised by your humble author has been that the weakening US Dollar will actually have a larger impact on those countries that (over)rely on trading with the US than it will on the average US worker.

Here is an article in Canada’s Star buttressing this argument.

An excerpt:

And yet for some inexplicable reason, Bank of Canada governor David Dodge appears to be a lot more concerned with the 2.5 per cent increase in consumer prices over the past year than he is with the 21 per cent hit on our manufacturing sector and its shrinking workforce.

Dodge’s narrow perspective makes absolutely no sense, and neither does his reluctance to cut Canadian interest rates and take some of the steam out of the job-destroying dollar.

How many more manufacturing workers have to lose their jobs, how many more factories have to close or relocate to China before the Bank of Canada recognizes that it must bring the (Canadian) dollar down?

The weak US Dollar will hurt foreign countries who export into the US more than it will hurt US residents in the short run. In the long run, we run the risk of inflation hurting the economy. But the balancing factor will be US manufacturing will have some breathing room to fight back.

Humbly offered in the spirit of balancing viewpoints.

Actually, the two issues are linked in that our huge trade deficits contribute to the weakness in the dollar. The greenback weakness is only a symptom, however. Sure, if you want to make some extra dough in the short term betting against the US Dollar, have at it. At some unknown point, it will bottom out for this cycle. And then what?

Revisiting our trade policies is the real political issue.

It is not an insurmountable problem. Many of our politicians have some good ideas on how to tackle it. We should support them when they commit to making changes to our imbalanced trade policies.

Cheers.

2 comments

  1. for the sleep-deprived.

    • pfiore8 on October 30, 2007 at 10:20 pm

    i’m not poly sci major, much less an economist

    but i’ve been writing for a long time that it’s NOT the global trade, but lack of parity among the world’s workers that contributes pressure to american workers. not only that but nafta like agreements disable sovereignity of nations and makes profit the only right insured…

    d’oh to Josh if he’s just realizing that now

    even, ughhhh, Tom Friedman gets that much.

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