Why Keynesian solutions don't solve much anymore

Besides the existential problems caused when folks stop making things, there is another problem—if you don't make something for yourself, you must get someone else to make it for you.  This principle scales—it applies to individuals as well as nations.  When you get to the national level, deciding to stop manufacturing shows up as a trade deficit.

So what happens here in the land of de-industrialization?  We basically stopped taking about trade deficits.  Makes sense in an idiotic sort of way—if the Predators on Wall Street were going to get away with the shameless plunder of our industrial base, the best thing to do is not notice it.

It's The Trade Deficit!

by Dave Johnson | November 10, 2011 

A huge part of the reason we can't get out of this unemployment slump is the trade deficit. We don't buy American and neither do our "trade partners." We buy from them, they sell to us -- that's not "trade." Stimulus means we buy from them. Cutting taxes means the extra cash buys from them. Nothing we try brings jobs here because we don't buy enough here that's made here and they don't either. If we want to fix employment we have to fix trade. 

The current unemployment crisis results, at least in large part, from the trade deficit. This has been masked by bubbles like the tech bubble and the housing bubble. Economist Paul Krugman explains, in a blog post, The Return Of Secular Stagnation,

But then the question is, why do we find it so hard to achieve full employment even with saving somewhat low by historical standards. And the answer seems clear: it’s the trade deficit. America in the 70s and 80s could have high savings, not hugely strong investment, but still have full employment because trade deficits weren’t as large compared with the economy as they are now. 

And this in turn means that the savings glut possibly making the natural real rate negative is actually originating abroad, not at home. 

Krugman is taking issue with the economist argument that we have a problem of too much savings without investment, using a chart showing savings declining. (Note that the inflection point is right as Reagan's policies start to hit.) He explains how this demonstrates that the problem is really our trade deficit. 

Easier to understand: We have to fix trade if we are going to fix the economy.  more

Unfortunately, the biggest single component of our trade deficit is oil.  So long as we don't fix this problem, we will never fix the trade problem.  To get an understanding of how likely THIS is, take this recent interview of the guy who many consider our last sane President.  Notice when Clinton explains the trade deficit at the 3:24 mark, he just brushes off the component tied energy imports.  That pretty much describes our national policy.



And we are not going to fix trade until we organize our Producers to make world-class goods.  That is a LOT harder than it looks.

And it gets even harder when we allow Predators to feast off the Producers.

Here we see Bill Black at an Occupy LA teach-in.  He is especially accurate at the 1:57 mark where he explains what a lie it is for banksters to call themselves Producers. I have about 15 years of research that backs up THAT sentence.