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Wednesday, September 08, 2010

Amazingly, The Truth In WaPo

Seriously. Don't miss Pearlstein's column.

He left out the drag on production involved in certain excesses in our environmental regulation scheme and the energy situation, but the rest is quite solid. It's the trade deficit, stupid. That's the structural problem.

"It's the trade deficit, stupid. That's the structural problem."

Yes! You want scary though?

The trade deficit is a drop in the bucket compared to the cumulative trade deficit. We keep sending dollars out each day and they keep accumulating somewhere that isn't here. The grand total is far more disturbing than the individual pieces.

Home Equity vs. The Trade Deficit
And let us not forget what theFed was saying 11 years ago.

The U.S. Trade Deficit and the “New Economy”

Pardon my language, but this "New Economy" kind of sucks.

The Internet is good though. I love how it remembers what was said and when. It offers plenty of snarking opportunities.
Too bad he studiously avoids the #1 reason for the trade deficit: Punitive taxes on domestic fixed investment, concurrent with low or no import duties.

I concur with the latter for foreign policy reasons (I prefer business competition to open warfare), but it requires that we do something about the former.
For all their talk about the importance of "good middle-class jobs," liberal policies have been systematically hostile to manufacturing for a long time: regulatory policy, tax policy, energy policy, the encouragement of excess litigation, and the crippling of the public schools. (The CEO of a Baltimore manufacturing company recently talked about the difficulty of finding employees who know what the word "radius" means.) But over and above any individual policies is the encouragement of cultural attitudes which are hostile to manufacturing---see my post faux manufacturing nostalgia for more on this.
Our environmental rules and regs have discouraged producing things here in the U.S. Things like our own oil and gas. A big chunk of the trade deficit goes for that. Yes, we can never eliminate oil imports, but by drilling in ANWR, off Santa Barbara, and off all our coasts; we could put a big dent in it while providing good jobs.

We need to build 100 nuclear power plants over the next 15-20 years. More construction and more jobs right here. And cheap, secure electricity for the future.

We need to produce our own cement,lumber, iron, steel, and more. But the enviro-whackos continually fight against those things.

We could build more boats here in the Puget Sound area but the enviromental regs are too restrictive.

The government here in Washington State has managed to drive a big share of Boeing's manufacturing to other states or overseas. Crazy!

With greedy government and know nothing enviro-whackos standing in the way, things will not get better.
I was prepared to disagree (it is the WaPo after all), but he nailed it. It's the monetary policy -- the overvalued dollar! He hit it out of the park.

Yes, taxes and regulation are certainly contributing but the overvalued dollar has been destroying American industry since it created the Rust Belt 3 decades ago.
Pearlstein thinks fiddling with the spending dial is pointless. But he claims that fiddling with the balance-of-trade dial is the answer. It strikes me as macro hubris to think in those terms.

All he’s saying is that the way to create jobs is to produce more. The column is a lot of words wrapped around a tautology.

If, as he says, it doesn’t matter which side of the border the new output is consumed on, then why does the trade deficit matter?

What happens if we buy only domestic energy? Half or two-thirds of the trade deficit goes away. But that’s not going to lead to millions of new careers in energy production.

The problem is not the reading on any macro dial. People have to learn how to create value for each other. All the impediments to creating such value are the product of people fiddling with those economic dials. You can’t outsmart the economy.
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