The American Protectionist Society

For anyone that didn't see the discussion between Pat Buchanan and Dennis Kneale on CNBC this morning, let me fill you in. Buchanan correctly pointed out that from the formation of the United States until recently the United States became a world economic powerhouse under protectionist policies. Kneale, attempting to defend free trade tried to claim that the United States boom was built on "free trade", and when challenged by Buchanan could not name a single trade agreement from that period of time. Instead, he went to the knee-jerk (and falacious) argument that the Smoot Hawley tariff caused the depression. But Buchanan, being the only person in the discussion that has read a history book, pointed out that the market crash was way in the rear view mirror before Smoot came along. Even worse, Kneale had it completely wrong when he attempted to claim that the United States has had trade deficits for the last 50 years, which is also provably wrong.

Here is the video

The facts surrounding this discussion are that the United States became a world superpower with an average 40% protective tariff. Since moving away from tariff based funding of government and Hamiltonian (American) protectionism, we have seen periods of massive unemployment, real wage destruction, the elimination of entire industries, budget deficits, trade deficits, and massive foreign ownership of American real estate, businesses, and government debt.

What is so interesting here is that this discussion is another example of the DOGMA of free trade ideology. The folks advocating free trade approach it as a religion. They have no need to have recourse to facts, reason, or history.

Buchanan does a good job of pointing out that the religious free traders on CNBC (like Larry Kudlow) concern themselves with non-sequitor financial statistics that can be twisted to imply economic growth is far greater than it actually is while ignoring the facts.

It should be noted that China is growing at an all time record and the United States is struggling to avoid all out credit market collapse. If protectionism doesn't work, why is it that the United States grew under protectionism, is failing under free trade, and now China is in a period of explosive growth while they protect their market (using a combination of currency manipulation and protective tariffs).

Posted by kanzei at 10:03 AM | Permalink | Comments (0) | TrackBacks (0)

President Bush, in his presentation after signing the new free trade agreement with Peru (which makes permanent the provisions of the Andean Trade Preference Act, among other things) said that this deal is important for two reasons, both of which are nothing more than free trade (internationalist) doublespeak.

First, the deal is important because it will give manufacturers in the United States the ability to export to Peru. Let's analyze this idea for a moment. If exporting to the rest of the world is the goal of free trade agreements, free trade has failed miserably. While nominal exports have certainly increased, marginal exports have decreased dramatically. We are importing more than we are exporting year after year in our increasingly open market system, and the number has been growing, last year reaching a $750 billion trade deficit. One definition of insanity is that an insane person continues to do the same thing (in this case, expanding free trade), while expecting different results. So if exports are thought to grow the economy (although economic science teaches that the purpose of exports are to clear overproduction, and that overproduction is by definition malinvestment) then our open markets are growing the economies of other nations, like Peru and China (a nation which maintains an 11% GDP growth, for example). Further, why would we expect exports to Peru to grow any time in the near future? The per capita GDP in Peru is about $6,600. What can we export to Peruvians that they will be able to afford? Clearly the intention is to maximize corporate profits by pirating labor (labor arbitrage; use of labor OUTSIDE the economic system at a lower cost and sell your products INSIDE the economic system of the United States). Further, we know that the intention of these agreements is political, which Bush admits.

The second major reason for free trade agreements, according to President Bush's speech is to spread democracy and create increased international cooperation. This is really a thinly veiled announcement that free trade does exactly what Frederic Bastiat said it would do; over time create an "ecunmenical, indissoluble, union of the peoples of the world"; a one world market which leads to a one world government. Truly, when the Articles of Confederation were done away with and a single market created in the 13 colonies under the Constitution, an indissoluble union of the peoples of the colonies was formed. As the boundaries of free trade are the boundaries of the division of labor (one of the four requirements for a market economic system), whenever the United States enters into a free trade agreement we enter into a process of creating a shared market and a shared system. The influence on our political process of foreign ownership of U.S. corporations, non profit entities, securities, and debt instruments creates domestic institutions with international / multinational goals and agendas. This leads to frustrating political consequences, such as a Senate intent on passing amnesty, expanding guest worker programs, and maintaining as little border security as possible. Let us not forget that a Senate candidate, having a huge geographic area and large electorate to campaign to, is the most dependent on campaign funds, much of which comes from PACs and large donors to the political parties (in other words, corporate money). One member of the Senate, Max Baucus seems to agree, saying that the deal will create a blueprint for "how our trade agreements can export our products and fundamental values." Too bad we import so much more than we export; I wonder if Senator Baucus would like us to import the values of Communists in China, and an authoritarian dictatorship from Columbia (an agreement with whom will be discussed soon).

Why would we also assume that if free trade with Peru, for example, will allow us to influence their political process to a more open and democratic system, that it will not also allow them to influence our political process to a more socialistic command economy? Is this not exactly what we see happening? Is this process not expanding and accelerating?

Wayne Bereman
The American Protectionist Society
www.americanprotectionist.com

Posted by kanzei at 01:05 PM | Permalink | Comments (0) | TrackBacks (0)

A middle eastern Sovereign Wealth Fund (specifically from Abu Dhabi) has invested $7.5 billion in Citigroup, taking a 4.9% stake in the company, which is now 10% owned by middle eastern interests. This is nothing new, but this time it's making bigger than normal news, and we'd like to comment on it briefly here.

If the "global economy" is working so well, how is it possible that Americans are losing control of American business itself? Readers of this blog remember that we predicted this long ago: there were two possible results from this credit crisis on Wall Street. We have bank failures and depression, or we sell our banks to foreigners.

Globalization has one goal at its core: a world system of interdependence. The United States was formed with exactly the opposite goal: an independent nation. Return to economic science for a moment. There are only a few things that foreign holders of U.S. dollars can do with them. They can "re-invest" them in the United States or they can hold them (which is worthless as they can only be spent here). The "re-investment" of those dollars results in the following: foreigners owning U.S. companies, U.S. real estate, or U.S. debt (usually federal budget debt; the amount of foreign controlled U.S. dollars has been a catalyst for budget deficits for years).

So we ask the question: as foreigners take a larger and larger piece of the United States and United States Corporate interests, what will be the political result for the United States? When Citigroup next donates to a non-profit cause with political goals, is it likely that they will choose a nationalist cause, or an internationalist one? When executives at Citigroup speak out or donate personally to political candidates and causes, is it likely they would support U.S. causes, or internationalist causes? This is how it happens. Increased foreign ownership of important and influential American assets creates interdependence and a skewed political process.

Sometimes members will email us, frustrated that our "leaders" (particularly in the Senate, where campaign cash is the most important ingredient of success) are reluctant to support our national interests; instead preferring free trade, open borders, international government, and corporate interests. This is why, and this is how it happens. No sober political observer today would attempt to deny the vast influence of money and corporations in our political process. And when those corporations are multi-national in their production process (although often not in their retail sales), and owned by various international investors; what cause will they champion?

The key to reclaiming our independent United States, indeed the ONLY way to reclaim it, is to return to what built it: a protected national free market economic system designed to achieve the goals of the declaration of independence. We should be peaceful in our nature, humble in our foreign policy, neutral in foreign conflicts, self sufficient in our economic system (with ALL industries thriving, including energy and manufacturing), trading with all (on a level playing field, with a tariff to fund government and protect our SYSTEM), and independent and strong.

Under protectionism the United States became the most powerful nation in the history of the world, with wage rates and standards of living that towered over the rest of the world. We were once the world's largest creditor nation, and our currency was sought as the most safe and secure investment that anyone could make. Now our dollar is on an extended decline; its status as the world's reserve currency in doubt. We are now the world's largest debtor nation (in fact, we achieved that status under Reagan's tenure). Our current rade deficit is at a nightmarish level over $700 billion per year. Our elected officials have been compromised by foreign interests and agendas. Our market economy is unprotected from the influence of foreign dictators, communists, fascists, and the like. Our borders are equally unguarded and many of our own politicians are seeking to advance the cause of amnesty for illegals.

The solution is available to us, and NOW is the time to implement it; we need tariff protection.

Posted by kanzei at 11:54 AM | Permalink | Comments (1) | TrackBacks (0)

The level of Orwellian doublespeak coming from the White House and Federal Reserve these days is staggering. They are completely unwilling to question free trade (for internationalist political reasons - free trade is the engine driving worldwide interdependence and feeding global oligarchs and banks). Yet at the same time they are forced to address the weakness in our economic condition that free trade has caused.

Free trade in its current form is basically a shared global division of labor, one of the four components of a global free market economy. Prior to the 1970's the United States had a more or less fully formed free market economy that was protected from foreign interference. Now it has been decided that we should be the catalyst for a global system whereby wage rates and standards of living are equalized world wide (which obviously requires the destruction of the tremendous wage rate and standard of living advantage that the United States had). In a free market corporations tend to locate production where labor is the least expensive. In this way, over time, within a free market economic system wage rates and standards of living will tend to equalize. Even the free traders cannot refute this; it's their great economists, such as Von Mises that presented the reasoning that proves these sorts of free market operations. But now we have decided, through free trade, to join in a division of labor with the Chinese, Mexico, Canada, much of Europe, and other areas with more to come. Thus, corporations now tend to locate their production in those areas where wage rates and standards of living are the lowest; which will tend to stagnate the United States and exploit developing nations. Corporations sell their products in the United States consumer market and reap windfall profits. (check out the corporate profits graph produced by the Council of Economic Advisors if you have any doubt). Then check out the 11% GDP growth in China, for example.

Soon we will be releasing research showing the tremendous real wage losses the United States has endured.

So the question is: what is the doublespeak? Well, all the time claiming that free trade has increased (nominal) exports (they never SAY nominal; but that's what they mean), the free traders then ignore the growing trade deficit and claim that we need a strong dollar. Hank Paulson, the Secretary of the Treasury, said today that "... I believe our economy will continue to grow and our long-term economic strength will be reflected in our currency markets." If the dollar will be increasing and that will be the reflection of our economic strength, will he then admit that we have been extremely weak since NAFTA and normalized trade with China came about? We sincerely doubt he would be so honest.

Posted by kanzei at 11:40 AM | Permalink | Comments (0) | TrackBacks (0)

One of the goals of NAFTA (the North American Free Trade Agreement) was to create a common market and lay the foundation for a shared North American Union, a plan that is in the works (and being called the SPP: Security and Prosperity Partnership).

But one of the hurdles to a rapid breakdown of United States sovereignty is financial: the dollar was worth way more than the other two currencies (the Canadian dollar and the Mexican Peso). No more. Today the Canadian Dollar has caught up, and NAFTA has achieved a major goal: currency parity between the United States and Canada.

Here at The American Protectionist Society, we often like to call upon the work of some of the great free market economists to explain these sorts of events. The free trade internationalists like to use these same sources to promote free trade, but we've discovered that few have truly studied and understand what great economic theorists like Adam Smith and Ludwig Von Mises actually said (because they have accepted Riccardo's comparative advantage without questioning it, and have thus accepted free trade without questioning it. If they were intellectually honest, instead of reasoning from the conclusion of free trade they would see what we know to be true). Von Mises, for example, very clearly explained that in a market system, which includes a shared division of labor (which is what a "free trade zone" actually is; a division of labor), there will eventually be equalized wage rates and standards of living. Within this zone, currencies that are permitted to float will eventually equalize as well. As the United States endures the long process of reduced wage rates and standards of living, growth in Mexico and Canada accelerate. This is the short, fundamental economic explanation for the equalization of currency values.

Note of course that our trade deals with China would also result in the same, but that the Chinese are making the problem even worse by not allowing the increase in value of their currency. This just accelerates the damage even more. And although the Bush's and Paulson's of the world recognize at least THIS reality; they are completely unwilling to call for trade protection; NOT because they truly believe protection would harm the nation (they know better than that!), but because they support international interdependence as a POLITICAL goal (which benefits multi-national corporations and will eventually create a world government at the behest of these oligarchs).

Posted by kanzei at 09:04 AM | Permalink | Comments (0) | TrackBacks (0)

Not long ago on this blog we warned about the potential for stagflation (inflation without growth) and alerted readers that the credit crunch created a "lesser of two evils" choice for the internationalists at the Fed. They could choose to do nothing and watch a run on the banks take place amid the credit crunch, or they could drastically inflate the economy with cash. Neither "solution" addresses the fundamental problem in the economy, and neither solution stops the credit crunch.

So the Fed made their decision, they lowered the discount rate a few weeks back, bought mortgage securities on short term contracts to prevent a panic, and yesterday they cut the federal funds target rate by 50 basis points. Some Wall Street analysts are today arguing that the Fed is in panic mode. We think they might be, but for a different reason than most.

As I write this, the dollar is at an all time low compared the Euro. Oil is at $82 a barrel and going higher. Gold is at a 25 year high. Job growth is a thing of the past. The availability of credit is at an all time low. Our current account and trade deficits are at alarming highs. Our federal budget deficit is near its high and still at appalling levels. And Wall Street thinks that the Chinese can single handedly destroy our economic system by dumping the enormous stockpiles of dollars and dollar denominated assets they hold as a result of our tremendous trade imbalance. And worst of all, real wages (wages as a percentage of GDP) has been falling for 35 years. Finally, our infrastructure is crumbling, social security is in crisis mode, and our health care system is falling apart. Things are great in our free trade economy.

The Fed knows all of this. But because of their strident internationalist / free trade philosophy, they can't or won't come out and call for a tariff to create an incentive for capital investment in the United States. Instead, they prefer capital investment in China, with China's "investment in America" being the purchase of our ballooning federal budget deficit, stocks, real estate, and corporate bonds. The big lie is that a trade imbalance creates foreign investment; it creates foreign ownership of debt. When we sustain huge trade imbalances, we create are effectively using a credit card to finance consumption of products whose production benefits a foreign nation's system. By creating a shared division of labor with communists, socialists, and other undesirables around the world, we have allowed a giant "institutional interference" which destroys and distorts the American free market, and with it destroys jobs, credit, and lives.

The Fed, although they will not admit all this, certainly know that our trade imbalance must be addressed. But because of the *political control that multi-national corporations have in DC; they can't say it. In fact, many at the Fed are probably philosophical free trade internationalists that desire a world system and want to destroy American sovereignty anyway (a la the European Union and the coming North American Union, already in the works).

If free trade is supposed to create efficiencies, the efficiencies are only realized by the outsourcers of the jobs, and they are reflected in their stock prices (the reason the Dow is so high; cheaper labor and lower corporate taxes which created higher margins and fueled corporate profits; but in no way does a higher Dow help an unskilled laborer whose job was just outsourced, who cannot get a mortgage, and who has no money to invest in stock to realize trading gains or dividends). If free trade increases exports (and it does), the gains are only *nominal gains, and history has shown that the increase in imports always outpaces any increases in exports. All we become is more interdependent, but there is no economic gain for Americans.

We maintain that there is one and only one solution to this problem. We return to the roots of free market economics and enact those policies that will encourage domestic capital investment for domestic consumption (according to Von Mises; THE driver of increased wages and standards of living). We remember that Smith taught us all that domestic production for domestic consumption employs twice the amount of labor that domestic consumption of foreign production employs. In short; we return to a tariff based, protected free market economy, free of foreign entanglements and institutional foreign interference. We peacefully trade on a level playing field and slowly rebuild what was built under 160 years of protectionism. It's time to WAKE UP and smell the coffee. Free trade has failed to produce the promised economic gains; and in fact has resulted only in political change which is destroying our independence.

Posted by kanzei at 07:50 AM | Permalink | Comments (0) | TrackBacks (0)

Journalist Amanda Carpenter over at townhall.com friday exposed a little reported tidbit of information that further exposes the incredible disconnect between the United States Senate and the American people. In the Senate version of the recently passed foreign aid bill, the Senate voted 53 to 41 to repeal the "Mexico City Policy", a Reagan era policy that prevented taxpayers from funding abortions.

It's bad enough that our Senate is focusing its time on foreign aid with all of the problems facing our country. They want to solve the world's problems before addressing our own. But it's very clear that even those Americans that support abortion 'rights' as a form of birth control do not probably want to pay for it with tax dollars, and they almost certainly don't want to pay for it for foreigners.

It also illustrates the painfully lacking political savy of Senate Democrats, who may now be giving President Bush an opportunity to veto the bill and regain support from some of the millions of Republicans that have abandoned him because of his refusal to protect our borders, his free trade ideology, and his support of the massive amnesty bill.

Posted by kanzei at 12:28 PM | Permalink | Comments (1) | TrackBacks (0)

Free trade advocates, like the President, Fed Chief and Treasury Secretary, always argue that free trade, which they admit is based on the theory of comparative advantage, is beneficial to both trading partners. They also argue that personal freedom is expanded by free trade.

But here are a few of the dozens of questions that they never answer (and cannot answer honestly and maintain their position).

You should use these fun little questions when you run into a smug free trader full of libertarian and anarchist rhetoric. Believe me, they won't have a clue what to say.

1. If by dismantling trade protections of industries that you deem to be undesirable because of a perceived comparative disadvantage, how can you maintain that you support personal freedom?

The truth is, when the President and Congress decide to stop protecting the textile industry, for example, they are choosing it for elimination. Now the freedom of Americans to choose to work in textiles is gone, because we are going to consume only foreign made textiles (based on comparative advantage theory, countries should specialize in certain industries and eliminate others, based on internal efficiency rankings - not efficiency rankings compared to other countries. In other words, every nation has a comparative disadvantage by definition)

2. How can you, a free trader, claim to support free markets when you adversely select certain industries to protect and others to eliminate? Shouldn't you protect or not protect all industries the same way and let the free market decide which firms will survive?

A true "free trader" wants a shared division of labor with the entire world, and would answer this question with the systematic tear down of all trade restrictions. But these same people, if they are honest and consistent, will also tell you that they do not believe in borders, nationalism, or in many cases any kind of government. The free trade philosophy encompasses eliminating all protections of a nation, not just economic.

In the case of these modern day "free traders" you see them choosing to outsource manufacturing by eliminating tariffs on manufactured products, but keeping other tariffs in place to slow down the dramatic pain that outsourcing brings about. They talk about a "gradual shift" to a "service economy". They are replacing highly productive manufacturing jobs with waiters, government, health care and legal. Even financial services appear to be excluded from their definition of a "service economy", as thousands of financial jobs are flying overseas.

3. If a nation is at a comparative disadvantage in a given industry, how can they possibly regain an advantage later, after the industry is nearly or completely outsourced?

Consider that for a minute. Once we decide to abandon trade protection of the auto industry, for example, we see a gradual destruction of the domestic auto makers. Once they are gone, how can we come back to that market? The auto industry will be gone, or so small that it will be tremendously inefficient. There will be fewer automakers globally, and they will have massive advantages through built up capital investments. In fact, free trade policy eventually leads to monopoly; one firm producing the world's supply of a given product.

4. How can free trade result in anything other than interdependency, if we are to completely outsource entire industries based on comparative advantage?

If we stop making cars, tanks, bombs, guns, and other relatively inefficient products, are we not dependent upon other nations for our national defense? If we stop producing food, are we not dependent upon other nations for our survival as human beings? These are dramatic illustrations, but they are the reality of the flawed theory of comparative advantage, upon which our trade policy is built.

5. How can protectionism result in anything but independence, if we are to protect all industries from unfair foreign interference, and maintain our absolute advantages in all industries?

With protected trade, there could never be a time that we would not have the ability to produce everything we need to survive. It was under these conditions that the United States became the most free, most independent, and most powerful nation in the history of the world. Why would we want to change all that, even if it DID mean cheaper imports (which it does not)?

6. What is the definition of a free market economic system?

This is a favorite of mine. I've had PhD's that answer this wrongly or evasively. The most complete definition of the free market economic system comes from free market economist Ludwig Von Mises of the Austrian School, and all truly learned free traders will agree that he is their hero. So we will utilize his definition. If they answer anything other than this, call them on it.

1. A single division of labor, and the subsequent free exchanges within (hence their free trade theory. but note that where the tariffs are not, the division of labor is; in other words, the tariff defines the physical boundaries of the free market. in other words, a protected free market economy is still a free market economy, it just isn't part of a single global system)

2. A single coersive government to adjudicate disputes and ensure orderly market operations (hence the multi-national government organizations and the desire to tear down nationalism. re: the European Union and the push now for a North American Union)

3. private property; aka the private ownership of the means of production.

4. absence of institutional interferences, usually government interferences. (there are many of these in the U.S., but there used to be far less. the free trade crowd has been less successful in dismantling government interference in the market place than they have been in establishing free trade agreements. but note that to eliminate governmental interference you must have single government. When the Chinese subsidize an industry and dump that product in the U.S. an institutional interference is created. The tariff protects the market from the interference, but without a tariff or other restriction on trade, there is a destruction of free market operations. where are the free market folks on this issue?! they should be up in arms, but their true agenda betrays them, as they do not want to do anything that would cause the United States to protect its market system and redefine the division of labor as it was initially defined; by the borders of this country)

Posted by kanzei at 01:36 PM | Permalink | Comments (0) | TrackBacks (0)

Mattell announced today a third round of recalls of Chinese made toys, again containing lead paint. It appears that Mattell has no idea how the toys they sell are made by the pirated labor they utilize in China. Every time they announce a recall they reassure investors and consumers that they closely monitor production and that safety is their priority. And now as they actually do the due diligence that they should have been doing all along, they discover that there are more dangerous products than they thought.

Lead poisoning is very serious. It can lead to insanity. It creates developmental problems and retardation. It is a known cause of attention deficit disorder. At high enough levels, lead poisoning leads to seisures, coma and death. It is rarely diagnosed because symptoms do not appear until it is too late.

Assuming for a moment that these toys are cheaper for consumers (when in fact they are only cheaper for the producer), would it be worth it to import rather than produce our toys domestically? Is the perceived savings of a few lousy dollars worth poisoning our children?

For the Chinese producer, it's all about money and jobs. They aren't selling these toys to their countrymen, they are produced 100% for export. When they cut corners and use cheaper poisonous paint, they are not poisoning their countrymen, only some nameless, faceless Americans thousands of miles away, who they probably hate and resent in the first place!

It's time for Americans to do with their consumer dollars what the government will not do; protect our kids. This Christmas, we should buy only American made toys where we have far more assurance that we are getting a safe product. In fact, going a step further, we should refuse to buy toys, even if made here, if the company selling the toys imports other products. The consumer can slow down this disaster by giving corporations a reason to produce their products here, and to produce safe products.

If the government will not take away the incentive to use pirated foreign labor by simply taxing the imports, perhaps the consumer can still have some say in the matter.

Posted by kanzei at 08:32 AM | Permalink | Comments (0) | TrackBacks (0)

Let's examine some Bush Administration policies side by side and see if we can make some sense of his goals.

1. Bush's Presidency and candidacy included plans to expand homeownership, especially in minority communities. This is the administration signaling and encouraging the subprime lending business.

2. Bush's open borders policy is to expand illegal immigration by rewarding it with amnesty, and to expand guest workers to increase the labor supply, depressing wages in lower income communities, especially for minorities.

3. Bush's foreign policy is to spend billions in a war in Iraq, creating the largest budget deficits in history.

4. Bush's economic policy is to outsource labor by expanding free trade agreements, reducing the number of jobs available to unskilled labor and reducing wages, replacing these jobs with "a transition to a service economy" (translation: retail cashiers and waiters).

5. Bush's policy is further to devalue the dollar (making imports from these foreign free trade partners more expensive).

So what happened? Subprime borrowers who have lost their jobs to foreign competition are defaulting on their loans. Investment banks, concerned with rising delinquency rates stopped funding the warehouse lines of subprime lenders causing failures at dozens, including New Century and OwnIt. Hedge funds that were deeply invested in mortgage securities started to fail and Wall Street panicked. Stocks dropped and the wealthy investors that elected President Bush started to feel the pain. All those corporate tax cuts and record high corporate profits were not enough to keep these folks happy. The Dow must continue upward as well.

Bush's response? The taxpayer will bail it out. Bush is announcing today plans for FHA, backed by taxpayers, to give grants and reduce underwriting guidelines. In effect, the Federal Government will become the nation's subprime lender!

It's all part of this fictitious economy that Bush and his free trade buddies have been touting. They actually seem to believe that they can reduce wages and outsource the jobs of millions of middle class consumers, and yet their consumption will not slow down, and they will not default on their home loans.

In fact, it's not just subprime that is hurting, it's the entire mortgage finance business. Countrywide has signaled that their A paper (conforming) loans are seeing increasing defaults as well.

The Bush administration's policies are completely counterituitive and are resulting in more government intervention in the market, and more socialism. This is not a free market Presidency in any way.

Never did Bush propose improving the job market for unskilled or lower wage classes. Never has he promoted any meaningful protection of labor (which also protects the entire economy, including consumers) by promoting fair trade. Instead, he'll just expand government and put a band aid on the problem.

Posted by kanzei at 08:27 AM | Permalink | Comments (0) | TrackBacks (0)