Democratic Capitalism USA Archives - Democratic Capitalism

Gun crimes and the 2nd Amendment

Gun crimes will continue as long as the 2nd amendment to the US Constitution stands.

I am guessing that the right to bear arms in the USA is designed to allow guns to be used to defend the nation against foreign enemies and insurrection. Yet when the southern states tried to leave the Union, a civil war followed. Was the war legal? There would be different views on this, but we do know that the consequences of that war that continue to be felt today and the issues meant to be sorted out continue to be unresolved.

War rarely solves anything, and civil wars are generally very brutal. It is generally better to let the disaffected group, or groups, to leave and to solve their own problems. When it comes to slavery, wouldn’t it have been better for the slave-states to decide for themselves to eliminate slavery? The UK managed it. Even the government of South Africa eventually ended its apartheid regime. While problems in that country continue to be experienced, they will eventually be solved, but as it currently stands, the problems in the USA will continue for generation after generation.

Gun crimes

Some Federal legislators and the President want laws to remove guns from the people, or at least army-style assault weapons. Will this solve the problem of gun crimes when a decision imposed from the outside will be resisted at the State Level?

It would be much better if states imposed their own laws to outlaw assault weapons. Texas would be a good place to start. Yes, these laws could be struck down by the Supreme Court. Yet such an action would promote something like a nuclear reaction, leading to the end of the 2nd Amendment. The horror of the latest massacre in Ulvalde would motivate voters throughout the nation to act.

Gun crimes are local, not national. Local (i.e. State based) laws should end them. The responsibility of the Federal government in this situation is to support the States by making the movement of guns that are illegal in one state to that state, even if they come from a state when they are still legal.

This action could start today, in Texas!

Trump’s ideal healthcare model

Donald Trump campaigned on getting rid of Obama’s insurance healthcare model, and replacing it with a healthcare scheme that “everyone would love.”

An ideal healthcare model cannot be based on insurance. The problem with such a scheme is that there is no upper limit to the cost of an insurance based scheme. So, in the USA, healthcare is running at 17% of GDP.

The problem with an insurance-based healthcare scheme is that there is no direct connection between the cost of the service provided and the payment for the service. Insurance companies may try to limit their payments, but are clearly failing to do an adequate job.

Healthcare Funding

Healthcare funding is inherently difficult. Everyone wants the best healthcare that can be provided, but not everyone can pay the price. In fact, no country can actually pay for every healthcare need or demand of its people. A rational approach to rationing healthcare spending is required. This should target to meet, at least, fundable critical needs from a general pool.

Doctors are the key

There are many doctors who have entered the health profession primarily to serve the public, not to make $1 million dollars a year in fees.

Such doctors would be prepared to provide services to patients on a government-set fee for service. Those doctors who accept this arrangement would be legally blocked from charging their clients anything in addition to the government-set fee.

The fee should be set to provide a generous return to the doctor, taking into account a proper return for the years of study, expertise and work involved. Where there is a shortage of available GPs and specialists, an increased fee will be provided while this shortage exists.

A scheme like this would provide for a government funded fee for service for GPs and supported in-hospital medical procedures. Such a scheme is likely to be much cheaper to the US economy than the current insurance-based scheme.

This scheme could be funded by a fixed Federal levy on gross personal income and “net business turnover” (turnover less wages cost) in the USA. It should be set prudently at a high enough level to meet the cost. If this levy was reasonably set at less than 17% it would represent a net saving to the US economy. Based on this funding model, healthcare cost is likely to be less than 10% of personal income and net business turnover.

State-funded hospital care

State-funding of hospital functions on a fixed fee for service arrangement is a viable method that has been used elsewhere.

Non-profit hospitals could opt to be state-funded, and new state-owned hospitals could be commenced. Those hospitals that accepted this arrangement would be legally blocked from charging their clients anything in addition to the government-set fee for the nominated procedures.

This scheme should also be funded out of the Federal levy.

Medicaid Healthcare Funding

No further Medicaid funding would be required, and any other Federal subsidies for medical care would end.

Private Healthcare Insurance

For those who prefer to be privately insured, and to use current fee-for-service arrangements, this can be accommodated within this system.

In this case, the insurer would be required to make a claim for a percentage of the fixed fee (say 80%) from the Federal government, based on the same fee-for-service scheme, for supported services, used by doctors and hospitals .

Fake News – What is happening?

In his recent Press Conference, Donald Trump implied that mainstream Media were continuously pumping out “Fake News.” Was this a fair assessment or not?

There is an general assumption that mainstream Media have a code of conduct that results in news being presented in an objective manner. That is what media outlets operating in this space think that they are doing. Therefore they are gob-smacked that the President would say that they are pumping out “Fake News.” Their surprise is understandable, given the assumptions they are making about their own behavior.

Defining “Fake News”

Among an audience of journalists, “Fake News” would imply that a story is fabricated. On this standard, it is unlikely that mainstream media is pumping out “Fake News.”

Despite this, a large part of the wider audience can see that the presentation of news about Donald Trump is biased against him, even if the media are too blind to see it. In fact, this is not a matter of “Fake News” per se, but rather a matter of selection of the material, and the way questions are framed.

We are all aware of “Fake News” element of a question like, “When will you stop beating your wife,” implying that the person asked is actually beating his wife, even if it has not yet been established as a fact. While mainstream media are probably not asking questions as blatant as that, there is an ever-present danger, with a hostile media, that questions are designed to demonstrate that the person asked has committed some offense, yet without giving the interviewee a chance to address the implied substance of the question. If that were done, it certainly could be classified as “Fake News.”

Fake Reporting

It is more likely that Donald Trump is facing a different phenomenon, namely “Fake Reporting.”

“Fake Reporting” can be defined as reporting that purports to be objective, but is not. It is when reporters become partisan players, and not objective observers.

While many in the media think, “Surely everyone knows that the media play a vital role in the running of a democracy.”

If mainstream media want to be considered to play “a vital role in the running of a democracy,” they have to be more than partisan players: they have to be objective. Also, if they are really going to be constructive players they should give some thought to the end result of their forays into political agitation. It is expected that politicians will think about the long-term consequences of what they say – that is why some of Donald Trump’s pronouncements provoked such a reaction: he didn’t do this as he was expected to do. Yet now the media’s reckless behavior is considered to be normal and doesn’t provoke any self-examination at all.

An objective media is not supposed to act as a second opposition party, running a defacto counter-government line on every question. What is needed is balanced consideration of both sides of every question. Instead, what is delivered is something that can be described as “Fake Reporting.”

Every media outlet is entitled to deliver news in whatever way they consider serves their own objectives. This has always been the case, with papers that have served a Communist ideology on the one hand, and magazines that have particularly served a Capitalist ideology of the other hand. Also other papers have done well by publishing material that have served the reading needs of less educated readers. All that is OK, with no reason for this situation to be changed. However, most educated readers will turn to the mainstream media to get their news, and they trust that it will be objective.

So it is particularly offensive for media outlets that think that they are being objective to have departed so far from their own charter, yet keep up the charade that they have not changed. Elsewhere I have listed one fairly mild example of such behavior: I am sure that there are many worse cases. We even have been able to observe an invited journalist shouting out in a partisan way as the President was leaving his press conference.

I know for a fact that there is a continual stream of non-objective commentary on the Australian government funded “our ABC” on Donald Trump, which I find particularly offensive. (Make me a king for a day and I would cut their funding, immediately.) If reporters want to be partisan, let them at least not be government funded, and certainly do not claim to be objective.

Selection of Material

The brouhaha over the Russian scandal is a case of “Fake Reporting” partly due to the selection of material, and partly due to the way the material is handled.

Here is a summary of the situation as I see it from Australia:

John Podesta, the chairman of Hillary Clinton’s campaign, revealed his email password to a Russian hacker, either through his negligence or through incompetence in the DNC administration (if they failed to detect a phishing email – not hard to detect).
The Russians, who could see no hope for an improved relationship with USA via Hillary Clinton, released the content of the emails to the press, which the press duly reported, thus damaging Clinton’s prospects, as Russia hoped.
John Podesta’s emails were interpreted to show that Hillary Clinton belonged to liberal elite, and did not have great concern for her nominal base, the working men and women of the USA. This turned voters against her.
Donald Trump was very pleased to have this negative information about Hillary Clinton circulating and, at a rally, encouraged the Russians to keep doing it. This was one of many cases of Donald Trump’s stepping outside of the established norms of public behavior. Even though voters recognized that this was not a normal response (and many didn’t like it), they voted for him anyway, and he won the electoral college.
Then, in this interregnum before inauguration, Trump’s National Security Adviser designate talked to the Russian ambassador about future relationships with the Trump administration. Some claim that this is not permitted under the US constitution, even though this interpretation would be particularly unworkable. It also is based upon a clause in the constitution that has never been prosecuted and therefore has never been subjected to judicial review. (In addition, taken to this extreme, an incoming President would be particularly hamstrung.)

What is achieved by pursuing this matter endlessly? Hillary Clinton lost because she failed to convince sufficient voters in sufficient states that she should be elected president.

Unless I have missed something, the whole “Russian thing” is a storm in a teacup. It is case of “Fake Reporting;” partisan reporting pretending to be objective.

Fake News or Fake Reporting – who cares?

The “positive” outcome that the mainstream media seem to want is the impeachment of Donald Trump, and the consequential restoration of the former ascendancy of the liberal elite. The latter will not happen: it has had its day. If the former does happen, heaven help the USA. Surely a democratically elected president should not be impeached because he offends the liberal elite. Does anyone really think that such action will heal the divisions in the USA? Rather, the divisions in the USA will be healed by restoring the jobs and wages of ordinary workers, which is Donald Trump’s agenda.

Liberal Elite – A Song of Despair

The liberal elite were happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

They peered out of their ivory tower from time to time and monitored the headline statistics, everything was fine.

The liberal elite were unaware of the working poor. The Washington Ivy League graduates and the London privately educated just don’t mix with these sort of people.

They want an inclusive society, but don’t really want to include themselves in it, they are the liberal elite; sure of their values and relevance; dismissive of those without their degrees and high-flying jobs.

The working poor don’t even show up in the unemployment statistics. The other statistics show all the rewards going to the 1%, and rising exponentially within the 1%.

Suddenly they ask, “BrExit and Trump, how did that happen?” It was out of the blue.

The liberal elite were unaware of the problems that were developing outside their ivory towers.

While the working poor don’t show up in the statistics, but, surprise, surprise, they do vote.

The Conservatives found the working poor after BrExit, together with a new truly conservative leader, who wants the country to work for everyone.

Trump has appealed to those abandoned by the liberal elite. Surprise, surprise, he now runs the country.

He even fights back against selective reporting in the press that is designed to bring him down. The press say, “Surely he can’t now be punching back – it’s our place to punch him. The rules say that he should only defend himself from our blows!”

The liberal elite now peer out of their ivory tower, and feel the pain of their new irrelevance.

Still unaware of the working poor, they say, “BrExit and Trump, how did that happen?”

The liberal elite are not happy in their little worlds, the London metropolitan crowd and the Washington Beltway crowd.

Adapted from Sound of Suburbs

Media Bias – The Challengers don’t like to be Challenged

Media bias reflects the fact that most of the major media organizations have their own agenda. It starts with unrestrained free trade and ends in the hope that everyone will benefit. Donald Trump has pricked their balloon, and they don’t like it. In fact, they are highly embarrassed that their complicity in the current economic malaise is being exposed by an “outsider.”

Media Bias – A Western Pattern

I listen to PBS, France24 & the Australian ABC. Also I read the (UK) Financial Times, the Australian Fairfax press and the Australian. All except for the later, which has a reasonably 2-sided presentation, treat Donald Trump as a punching bag (especially the government funded national broadcaster, “our ABC”). None of them like it when Donald Trump punches back. I say, it is about time that the media is held accountable for their biased reporting.

Media bias is obvious to any objective observer. As an historian, I know that history is a matter of selection – what will be included – what will be excluded. We know what the media are including. Today I listened to the NewsHour “debate” between Mark Shields and David Brooks. As today’s show demonstrates, the two contributors and the host were keen to highlight anything that puts Donald Trump in a bad light. Here are just a few examples:

“Not enough positions with confirmable candidates have been confirmed.” That is not Donald Trump’s fault. It reflects more directly on the action of Democratic Senators, not a failure on Donald Trump’s part. If the Democrats are holding up appointments (for good or spurious reasons), the delay cannot be put solely at Donald Trump’s feet, but that is what the 2 debaters and the host did today.
The disgraceful situation where leading figures in the intelligent community are openly passing on confidential information to press was not criticized once in this discussion. These leakers should be prosecuted as Obama tried to do with Snowden, and has done with Manning. Yet this was not mentioned as a caveat to the discussion on the “Russian situation.”
The implication that Trump is a boy in a man’s job, which came from Mark Shields, will be shown to be a nonsense. It is just out of the current Media Bias play-book. Rather than Donald Trump not being up to the job, he is willing to address the ridiculous situation when US workers on $7.50 and hour or more have to compete for their jobs with Mexican workers on $15 day, whereas neither the Democrats or the pre-Trump Republicans even thought this was an issue that could be addressed.
Trump was willing to bell the cat on the impossible situation in the West Bank, which cannot be solved via a 2-state solution (since that region has been permanently cantonized by settlements for over 20 years), despite official UN approval of this ridiculous approach. Diplomacy has failed the world here and also in Syria, with the attempt to replace a stable government with one that is likely to be led by Saudi-influenced Sunni radicals.

Where is the discussion of the breath of fresh air that Donald Trump has brought to such matters? Nowhere to be seen on PBS, France24, Aust ABC, Aust Fairfax or in the Financial Times. Apart from resistance to his necessary and economically compelling agenda, we just have complaints about Donald Trump pushing back against a constant media onslaught. Certainly the media do not want anything like a level playing field and are not willing to even think about the possibility of Media Bias from their own organizations.

End Media Bias for your own good

My advice to the so-called Main Stream Media, is “Grow up.” Learn from the election result. Donald Trump won the electoral college by a thumping majority. Surprise, surprise: the liberal elites lost the election. Their mutual love-in, led by Barack Obama and for which Hillary Clinton was their default candidate, which has seen ordinary working people lose their jobs while others earn an extraordinary rate of pay, has been dispatched by democratic forces.

In addition, we can say that the expectation of Mark Shields that Trump will lose electoral support is a dream. The US economy has already turned the corner, and that has been just on the anticipation that Trump will put his plans into operation. Just be aware that when the numbers on the economy come in at the end of this year, the media will change their clothes, because if they do not, they will be all out of job and new media will take the place of the current media.

Steven Keen on Democracy and Capitalism

The radical Australian economist, Steven Keen, has somewhat surprisingly “come out” as an opponent of Free Trade, at least as currently practiced.

In an breakthrough interview published in The Epoch Times, Steven Keen explains how Donald Trump could revive American manufacturing. This article is tellingly entitled, “Why Free Trade Doesn’t Work for the Workers.”

Steven Keen argues Ricardo’s (1820) theory is flawed

Keen pointed out that the argument by classical economist David Ricardo (1772–1823) about wine and clothes involved the workers in one industry losing their jobs. Ricardo assumed, as do modern neoclassical economists, that workers in the losing industry can get a job in the winning industry. So it’s assuming full employment, everybody who wants a job gets a job, which is not the real world. And they also assume you can move resources from one industry into another. Certainly, workers can be retrained. While it takes time, it can be done.

Drawing an example from China, Keen noted that China now produces more of everything, and that it is not possible is turning a weaving machine into a steel furnace. And that’s why you have the rust-belt. In the case of China and the United States, the steel plants in the United States won’t become weaving machines; they just turn into rust. So what you have is absolute destruction of physical resources in one country. Or they ship the capital to the place where the low wage workers are, like China or Mexico, and what you get is a class redistribution of income. The workers in the developed country lose, the capitalists in that country gain.

Steven Keen argues that Free Trade gives Capitalists a “Free Kick”

Keen observes that in this scenario, capitalists in the developed country still own the machinery and employ people but in a different country and at lower wages. Then they sell the products back into the American markets at the same prices but at lower costs. So they gain, and the working class has to finance their consumption with increased levels of debt because they don’t have the income anymore. The workers in the developing country also gain, so it’s also a wealth transfer from the developed to the developing country.

Why BrExit “won” & why Trump won

Steven Keen comments that in a democracy you get to the point where the workers have lost so much because of globalization, they get sick and tired of hearing the fairy tale that they won’t suffer and that it’s all for their own good. And they look at their decayed streets and factories and dismal jobs and lower share of income, and they say: “You know what, I’m going to vote against this.” And that’s what we are seeing globally now with Trump and Brexit, this revolt against globalization and financialization. The absolute losers of all of this are the working class of the first world. The winners are the multinational corporations.

Welfare vs Work

In an interesting and perceptive comment on human nature, Steven Keen says that humans get their sense of self-worth by contributing to a community. If you are human and you are being paid for staying alive, you are not particularly happy about it, your sense of self-worth is pretty low. But if you have a job and can contribute to a community, that’s where your sense of self-worth is going to come from. All this welfare is replacing work which is the case in the rust-belt areas makes people angry and resentful. Their self-worth is challenged and they are not going to be happy with the establishment.

He believes that is why Trump has such an appeal, and they don’t care about him being politically incorrect. They like the fact he is like a human hand grenade. They threw the human hand grenade into Washington.

Automation

Getting closer to a nuanced view on automation than most commentators, Steven Keen begins by arguing that part of the motivation for American businesses to move production offshore was cheap labor. But with better and better robots, you can have machines you can retrain for different assembly processes. And you have 3-D printing turning up, which has become mainstream. So it means you can produce onshore without cheap labor. But it also means you can produce without labor at all.

Although he does not define what “a well-functioning human society” would look like, he thinks that in such a society producing without any labor at all would not be a problem. He believes that the problem in a neoclassical capitalist system is that the workers lose out because their only source of income is wages. If there is no need for wages anymore, you don’t have an income anymore.

My Response

Steven Keen’s analysis of the modern economic dilemma is first class, however he does not offer anything substantive in the way of a solution.

A declared opponent of “neoclassical economics,” Steven Keen is quite happy to make comments like, “In a neoclassical capitalist system [in this scenario] the workers lose out because their only source of income is wages.” However, when he goes on to say, “If there is no need for wages anymore, you don’t have an income anymore,” but “in a well-functioning human society, that wouldn’t be a problem.” In this he is contracting his own point that welfare-dependency is a self-defeating solution to current economic problems.

From the full text of this interview, we know that he is still an opponent of tariffs as a way of achieving balance within an economy, and still hankers after the socialist ideal of a world without artificial borders.

In this area, this site is closer to Donald Trump on the need for tariffs supporting national objectives. Nationalism is deeply rooted in human psychology (beginning with a mother’s care for her child). This cannot be claimed for internationalist objectives of Ricardo’s Free Trade ideology or Marxist ideology. While Keen sees the future as being “post capitalist,” I see the future being in capitalism being brought (again) under the control of national parliamentary democracy, thus reflecting the needs and interests of the people.

I am confident that Steven Keen would agree with me in the proposition that an objective of the political system should be to deliver a result that is in the interests of ordinary people (the top 1%ers are quite able to look after themselves). I am not so sure he would agree with me in seeing a nationalist capitalist system as the basis of that model. Time will tell on that point.

I promote Democratic Capitalism because I believe it will serve the majority of people quite well. Indeed, the current trend is in support of the principles of Democratic Capitalism. As evidence for this, I can cite Theresa May in the UK (“Democracy that works for everyone”), and Donald Trump in the USA (“Make America great again”).

Global Trade Reform

President Trump has created a catalyst for global trade reform. The USA could use this opportunity to implement reform via WTO that will work for both developed and developing nations.

The Problem with Global Trade

Even though the push towards globalization has done much to reduce poverty in those nations able to exploit the changes for the benefits of their own citizens, it has presented three easily identifiable problems;

Zero tariffs do absolutely nothing to remove the first-mover-advantage of Western nations. Without tariff protections, developing nations are severely limited in their ability to develop diverse economies. Each nation should seek a diversified economy, despite the benefits of specialization. Providing a diversified economy is the only way in which a nation can utilize all the skills of all their people.
Western nations are unable to provide sufficient work for ordinary workers in the face of very low wages that are being offered in developing nations. A skilled worker in the USA on $15 an hour cannot compete with a skilled worker in Mexico on $15 a day. It will never work out well for the ordinary workers of the West, who actually represent the majority of voters. (Elites: watch out, your day of reckoning has come!)
Globalization has failed to deliver the real equalization of incomes between developed and developing nations that has been promised by its advocates. The pressure to keep wages down in developing nations is maintained by global corporations. They are only too willing to move operations from one country to another in search of the lowest possible cost of labor. Of course, they are only operating in the way the situation requires. If it is to be changed, it will have to be changed by changing the situation, not by requiring corporations to act in ways that conflict with their own charters.

Implementing Global Trade Reform

Having defined the problem with global trade, reform of its operation becomes self evident. Here is a simple two-part fix, which Donald Trump could initiate and virtually force the whole world to adopt.

The WTO rules to be changed so that any nation can introduce and maintain a high level of tariff in order to offset an identified first-mover-advantage. It is suggested that a tariff of 25% would be a good starting point for a discussion on this aspect.
The WTO rules to be changed so that any nation can implement a country-by-country tariff on goods coming from another country, where the minimum wage (actual or official) is less than 50% of the minimum wage of the importing country.

Only item 2 of this program for global trade reform really applies to the USA, and pending a WTO agreement, Donald Trump could implement that aspect immediately.

In regard to NAFTA, Mexico could be encouraged to raise the minimum wage in all factories exporting to the USA to 50% of the USA minimum wage.

Under these arrangements for global trade reform, the pressure to move work from nation to nation in the search for the lowest possible wage levels would come to an end. It would also end the waste of national resources that comes from starting a factory in one country and moving it to another.

Global trade reform along these lines would see the incentive for nations (like Bangladesh) to be the work-house of the West coming to an end. Indeed, the wages of ordinary workers throughout the world would be increased.

Super-low prices will end

Yes, it is true that the prices of some very low-priced, but valuable goods, like clothing, would increase significantly over time. This would reflect the fact that the workers of the world were not continuing to be impoverished in order to meet the needs of the developed world.

For those who do not like that prospect. Suck it up! It is coming!

Elite Capitalism – It is NOT the Future

Elite Capitalism has been running the world’s governments for 30 years, but it has failed to deliver for ordinary voters.

Elite Capitalism and Free Trade

The ideology of Free Trade is built on the premise that each nation should concentrate of those things upon which it has comparative advantage. It is a static theory, which has not changed much in over 200 years. Nor have the advocates been willing to learn from the downsides of the theory that have been experienced over the last 200 years.

The ideology of Free Trade began with the theory that, in 1820 and forever afterwards, Portugal should continue to concentrate on wine, and the UK should continue to concentrate on textiles. It is theory that is based on a static world, and actually one in which entrenched poverty should be endured forevermore. And so it has happened.

Free Trade is also built on the premise that getting goods 20% cheaper is worth whatever disruption is caused by open trade borders, even to the extent that it can cause 10% more unemployment than before. Given the loss of social cohesion of such a policy, it should never have been accepted.

Even though it was not the intention of the original theorists, Free Trade has led to intolerable levels of inequality within nations, and between nations. This is because Free Trade puts too much power in the hands of global corporations, since they are able to move operations to the cheapest place in the world, and to wherever government regulations and taxation are the weakest.

Phony arguments of Elite Capitalism – Trade

In Australia, we have a government that was elected on a mix of the ideologies of Democratic Capitalism and Elite Capitalism. In simple terms, the Nationals support the principles of Democratic Capitalism (the economy must serve the interests of the voters), and the Liberal Prime Minister, Malcolm Turnbull believes the nation is best served by following a model of Elite Capitalism.

Turnbull approach has some appeal, since it can lead to a higher overall national GDP. Yet in defending his theory, it is appalling that he has decided to follow the UK example of “Project Fear” (in opposing BrExit). In the last Weekend Australian he made the claim that “Protectionism leads to Poverty.” This is an absurd claim that has no foundation in history or theory.

Of course, there are sufficient examples from history to show “Isolationism leads to Poverty!” If that were Turnbull’s position, there would be no problem in accepting it, but that was not what he claimed. Turnbull is ideologically committed to Free Trade. He proves to everyone that he does not have a rational argument in favour of unrestrained Free Trade, since he resorted to this pathetic argument in its favour. Don’t stand in the way of an ideologue when he (or she) is in full flight!

Rather than being hurt by protectionism, Australia’s egalitarian society was built on protectionism: it cannot be said that it led Australia into poverty. Australia had unemployment running at around 2% until the Labor government, blinded by ideology, decided to revalue the currency upwards and reduce tariffs over-night. Since then, unemployment has reverted to world’s average of about 5%, and global capitalists have had a freer hand to control Australia’s economic life.

The world-ranking US economy was built on protectionism in the 19th century. If the Free Traders had won the argument in the middle of that century, the US would have remained an economic backwater, mostly growing cotton and other agricultural products, and the UK’s industrial base would have kept on growing and growing. Is that what Free Traders want for the developing nations of the world? Fortunately for China (and to a lesser extent India), it thumbs its noses at the Free Trade rhetoric of the West, while taking advantage of the ideological blindness of its trading partners.

Phony arguments of Elite Capitalism – TPP

The most objectionable part of the TPP is entrenching the power of global corporations via ISDS clauses. These clauses allow global corporations to sue national governments if those national governments pass laws to reduce their ability to make a profit (even at the expense of the interests of ordinary voters). These clauses are the greatest threat to national democracy in the modern world.

Even if the TPP becomes enforceable, it will be a Pyrrhic victory for Elite Capitalism. This attempt to use the rule of law to enhance the interests of corporations over voters will not be tolerated by ordinary voters. In Australia, the first sign of difficulties to come can be seen in the attempt of Philip Morris to use the ISDS clauses of a Free Trade agreement between Australia and Hong Kong to overthrow Australia’s plain-paper cigarette packaging legislation. It was the first sign of problems to come. Success would not have led to the abandonment of the rule of law in international trade, but it would have sown the seeds of that outcome.

TPP is designed to entrench the power of Elite Capitalism forever, putting ISDS clauses into law, so they cannot be overthrown by future governments. It is the enemy of Democratic Capitalism. If the current Australian government cannot see that, they are inviting other parties to take up the ground of democracy that they are abandoning. Already the Liberals are losing ground with the electorate, and it is only the complete unacceptability of the ALP opposition that is keeping the Liberals within reach of re-election to government.

Phony Arguments of Elite Capitalism – Angela Merkel

Angela Merkel has said the economic and political problems can best be solved via global solutions. She opposes Donald Trump’s proposition that nation states should solve their own problems. In this, Merkel is wrong: most problems are local, and are best solved with local solutions. Donald Trump is right.

20 years of the Euro has shown that, even in Europe, region-wide solutions don’t work. Portugal, Spain and Greece are still struggling, while Germany is going very well. It is not surprising that Donald Trump correctly says that the EU gives Germany hegemony (at least in economic matters). At least we can agree with Merkel’s response, namely that the EU can look after itself (implying that it doesn’t need Trump’s gratuitous advice). Exactly, the EU problems don’t need a global solution, they need a EU solution. It is a pity that Merkel won’t consider the obvious solution – abandoning the Euro.

Most developing nations have a dominant agricultural sector. One thing is certain from a study of economic history – global trade in agriculture has mostly led to impoverishment of the agricultural sectors of less developed nations. It has led to the over-development of single crop economies (the so-called banana republics, etc.), which has made those nations vulnerable to global price movements. Yet the agricultural sector is something that national governments could enhance, as has been done in Australia for about 100 years, starting with government funded and run storage and pricing schemes. Now, in Australia, these are often run by individual farmers, who store crops on their own farms. Such is the nature of dynamic local solutions, designed to solve local problems.

Elite Capitalism is the problem – not the solution

It is time we recognized that Elite Capitalism is the source of the world’s problem with increasing inequality. It is inevitable it will lose its hegemony. It is also ironic: Donald Trump is the only one willing to call out, “The Emperor has no clothes!”

Protectionism – A Rational Economic Framework

A rational re-adoption of protectionism is the key to returning economic strength to every nation and to the world as a whole.

Radical Protectionism

In an ideal world, every country would impose a 20% tariff on all imported goods and services, across the board. This would require no policy decision making on individual industries, and every sector would share in the same level of protection from cheap imports. This would allow every nation to develop new industries, with at least a modicum of protection, to help them get started. This would be the help that developing nations to succeed in the face of hot competition from the developed nations, who are presently living off the “wealth” of their first-mover-advantage. Such an approach would certainly not lead to a trade war.

However, this idea is far too radical for most politicians and economists, and would require a Trump-like revolution to bring it about.

Rational Protectionism

Rational protectionism would be much easier to sell, being targeted at the difficult spots in each economy, leaving the current arrangements in place for all other sectors.

In the USA, Donald Trump’s proposal to put a higher tariff on US companies re-importing goods into the USA is a case in point. His proposal impacts on companies that have moved their plants off US soil to utilize low labor costs elsewhere.

Actually it is a more reasonable way to protect US intellectual property, rather than trying to bully other nations via a TPP. Ideas that are developed in the USA, using all the resources and experience of the USA, in a way actually “belong to the USA”. Thus there is a rationality to imposing the kind of tariff that Donald Trump has proposed. It could be extended to cover any products made in foreign countries, and imported into the USA, which substantially incorporate expertise developed in the USA, whether patented or not.

The concept would also make sense in Australia, which has developed many great ideas, but for which the market here is too small to properly exploit. The Cochlear implants are an obvious case in point.

Another rational use of tariffs in Australia would include horticultural products. Here we have a natural advantage in our developed agricultural methods, but this is offset by an actual disadvantage in labor in Australia being much more expensive per hour than elsewhere. Since Australia has a emotional and rational attachment to producing its own food, it would be a good first case for the doctrine of “rational protectionism” to be adopted.

A similar case applies to the foreign outsourcing of labor services. The current outsourcing framework is far from rational. In Australia, we have payroll tax (also crazy) and a superannuation levy (rational), but suppliers of outsourced labor in India do not have to face such cost hurdles. Also India’s labor cost per hour is a simple fraction of Australia’s cost per hour. Unless something is done, more and more jobs will be outsourced to foreign countries, leaving even high skilled Australians with no jobs that they can fill.

Conclusion

Protectionism is not a “danger” to the world, but if adopted rationally it will restore economic health to every nation, and actually help to build up developing nations.

A Trade War? Pull the other one!

Imposing a moderate level of tariffs, even on ALL goods entering a country, will not result in a trade war.

Trade War – a Phony argument

I recently heard a respected (and paid) Australian economic commentator saying that if Donald Trump continues with his “Protectionism” agenda it could bring about a trade war, such as the world had in the 1930s.

Surely we should be beyond such childish commentary on trade policy. The world had quite high levels of tariffs in the 1950s. There was no trade war. They continued in the 1960s. Still no talk of a trade war, with the same applying the 1970s. There is no reason that a moderate and well applied tariff regime should lead to a trade war in the 21st century. It is more likely that not invoking protectionism will lead to an increasing level of discontent.

Tariffs

Since the 1980s tariffs have been progressively coming down, with significant benefits in regard to lower prices being available for many goods. At the same time, jobs in the industrial sector have also declined from two causes. The first is that competitive pressure has made business much more concerned about costs, leading to efficiency improvement, mostly via more automation. Union leaders also realized that pushing for relatively outrageous wage and conditions was impacting on their members’ future prospects, so they led a movement to change their members’ expectations. The second reason is that jobs were exported as the replacement goods were imported. Not every part of this was a bad outcome.

Tariffs can be considered to have been previously introduced to offset an inherent competitive advantage in the exporting nation. This still continues to be the case. Yet now we realize that tariffs are not a one-way street to success. If they are set too high, this can embed business inefficiency, lead to noncompetitive wage rates, and unnecessarily result in paying higher prices for all goods and services.

Contrary to current economic thinking, tariffs are not a “curse word.” Indeed, the clear rationale for tariffs in the 21st century is to attempt to achieve a rational trade-off between lower prices and “full employment.”

A truly rational trade policy would set a moderate level of tariffs for those sectors of the economy that the government of the nation decides it wants to keep and is in danger of losing. Such a policy would not create a trade war, especially since no nation in the post-Trump world will be able to resist its compelling logic.

Not a Trade War – A Healthier World Economy

Who really thinks that a sick West helps the East? We all know that China’s exports are declining. Why is that? It is simply because the EU is not buying as many goods from China. This is because the EU is being run by ideologues who have no idea about the benefits of ensuring that all parts of the European economy are running on full-steam.

I suggest that EU economists, and those elsewhere, like the Australian economic commentator mentioned above, read George Cooper’s book, Fixing Economics (2016), to gain an understanding of the importance of a wide-spread of a nation’s wealth as a means of increasing national prosperity.

Who really can argue that impoverishing farmers in Mexico, via NAFTA, is in the long-term interests of that nation? Is Mexico a happier and more cohesive society after NAFTA? I doubt it. Reforming NAFTA is very much in Mexico’s interests, just as it is in the interests of the workers in the industrial cities of America.

We can also look at Australia as a case in point. Sure, we are still ideologically committed to Free Trade (a world-leader in this phony ideology in fact), yet those who really understand the economy, like the former Reserve Bank governor, knew that the $A had to fall in order to improve Australia’s competitiveness after the resources boom. This much vaunted period of prosperity was actually disastrous for Australia manufacturing industry, with much viable manufacturing being lost (probably forever). “Fortunately” the Australian terms of trade took a catastrophic fall, thus saving us (as far as can be done) from our own folly. Tariffs were an impossible concept for us, but a falling $A did not offend the ideologues running economic policy here.

Maintain cohesion in the nation should be a government’s #1 aim in peace time. Policies that achieve this are in everyone’s long-term interests, even if the “winners” have to take 10% off their spoils from economic success.

Go Donald Trump!