Monday, May 4, 2015

Replace the TPP with a $100 trillion world trade program

The TPP has brought the issue of "free trade agreements" to the fore again, so I think it is time we looked honestly at what has happened to the three North American countries in the grand-daddy FTA, the North American Free Trade Agreement (NAFTA). Let's look at the Big Picture of what has happened since NAFTA came into effect on January 1, 1994:

USA. In the 21 years since, the United States has devolved from a representative democratic republic with the most stable middle class and well paid working class in the world, into a plutocratic oligarchy, with the worst income inequality and the worst measures of social welfare of any western industrialized country, and a middle class that now lives a precarious existence, and a working class segments of which are now recording declines in life expectancies.

CANADA. Since NAFTA came into effect, Canada has regressed to a national economy dominated by an industry in resource extraction (oil and gas) - the traditional condition of colonial status. Certain circles in the USA now refer to Canada as "Texas of the north." Other reviews of the "success" of NAFTA in Canada have cited increased exports of beef, agricultural, wood and paper products, and mineral and mining products - all raw materials in which colonials typically specialize. The only advanced industrial sector to show growth has been automobile manufacturing - and this sector was already well established in Windsor, Ontario, immediately across the St. Clair River from Detroit.

MEXICO. Since the "blessing" of NAFTA, Mexico has fallen victim to the anarchy of ruthless, murderous illicit drug and criminal cartels. Ironically, one of the original arguments used by proponents of NAFTA was that increased trade would lead to more opportunities in the real economy for Mexican citizens, making it more difficult for drug cartels to operate in Mexico.

It is also interesting to recall that another argument of NAFTA proponents was that the opportunities of open trade would result in reducing the number of illegal immigrants to the USA. The reality has been exactly the opposite: the number of illegal immigrants living in the United States has more than doubled since the implementation of NAFTA. Someone making minimum wage in Mexico today can buy 38 percent fewer consumer goods than the day before NAFTA went into effect. A study by the Center for Economic and Policy Research in February 2014 noted:
From 1960-1980, Mexican real GDP per person almost doubled, growing by 98.7 percent. By comparison, in the past 20 years it has grown by just 18.6 percent.  Mexico’s per capita GDP growth of just 18.6 percent over the past 20 years is about half of the rate of growth achieved by the rest of Latin America. If NAFTA had been successful in restoring Mexico’s pre-1980 growth rate – when developmentalist economic policies were the norm – Mexico today would be a relatively high income country, with income per person significantly higher than that of Portugal or Greece.  It is unlikely that immigration reform would be a major political issue in the United States, since relatively few Mexicans would seek to cross the border.

Manuel Perez-Rocha, an associate fellow at the Institute for Policy Studies in Washington, D.C., and a Mexican national, said in a review of NAFTA in January 2014,
During NAFTA, Mexico has had the slowest rate of economic growth than [with] any other previous economic strategy since the 1930s. From 1994 to 2013, Mexico’s gross domestic product per capita has grown at a paltry rate of 0.89 percent per year.” Additionally, “During NAFTA, Mexico’s economy grew much slower than almost every Latin American country. So to say that NAFTA has benefited the Mexican economy is also a myth. It has boosted trade and investment, but this has not translated into meaningful growth that generates jobs.  
In a perverse way, the most interesting review of the effects of NAFTA was that by the Council on Foreign Relations in February 2014. The CFR damns NAFTA with its faint praise, admitting at the outset that the treaty "has fallen short of generating the jobs and the deeper regional economic integration its advocates promised decades ago." Rather than saying "It has worked" on its own, the CFR uses a quote from "experts" at the very biased Peterson Institute for International Economics. The most positive statement CFR makes about the effects of NAFTA is that "Companies in the three countries, especially U.S. auto manufacturers but also North American makers of electronics, machinery, and appliances, have benefitted from spreading production lines across each country to reduce costs and become more globally competitive, a tactic that would be more difficult without the tariff reductions of NAFTA." And this is exactly the point made by critics of NAFTA and other trade agreements: they serve the interests of only large international corporations, almost always at the expense of the citizens of host countries.  

Last week, Ian Welsh reposted Free Trade Is Elites Betraying Their Own Populations, from Novermber 2013, explaining why all free trade always, ALWAYS, results in a race to the bottom.
One standard argument made for free trade is that it produces cheaper consumer goods, and that makes people in a country better off, even if jobs are being off-shored. This  is only marginally true. Most of the reduced cost of foreign goods is taken as profits, not passed on to consumers. The loss of jobs means that some people lose outright and completely: those who can’t find jobs or can only find low-paying service jobs. But even those who keep their jobs are disadvantaged if trade means the labor market is not tight, because if the labor market is not tight, labor has no pricing power and gets almost no raises (this is why there have been no significant median wage raises since the mid-70s or so.)

The renunciation of tariffs and trade controls is a form of betrayal by in-country elites who have capital to deploy outside the country against everyone else in the country. If a foreign country has lower wages, worse environmental standards, horribly unsafe or coerced labor conditions, this is a comparative advantage.
From a more historical perspective, the fundamental problem with the idea of free trade is that it was never conceived or implemented as a means to the end of nation building. Rather, the doctrinal basis of free trade were created as a justification for the pillaging, plundering, and outright murder committed by oligarchs: the slave trade, and the opium trade and Opium War of the British East India Company. Free trade was never intended as a justification for sovereign nation states seeking to develop their own economies in their own interests by steering their own course in human affairs in defiance of the international masters of trade and finance. Rather, the doctrine of free trade has always been the excuse used by oligarchs to suppress, subvert, and squash any independently minded program of actual national economic development.

This fundamental problem is the exact same as the problem with classical economics and its concept of the invisible hand: unregulated free trade, like unregulated free markets, do not operate to the benefit of a society, unless that society imposes direction and will on those trading or market activities. Like markets, imports must be subject to the overview and governance of a national political authority to ensure the protection and promotion of the General Welfare. This necessarily involves repudiating the classical economic, neo-liberal idea of organizing political and social affairs to conform with the dictates of the marketplace.

It is disheartening that Americans in particular don't understand this, because the foundational documents of the USA economy are unambiguous in their repudiation of free trade. The first major legislation passed by the First Congress were The Tariff and Tonnage Acts of July 4, and July 20, 1789. This legislation was drafted by Treasury Secretary Alexander Hamilton, and, indeed, are known as "the Hamilton tariff."  Less than a year and a half later, in his Report on Manufactures, Hamilton included pointed rebuttals of Adam Smith's arguments in favor of free trade. (The 1964 edition of The Reports of Alexander Hamilton, by Jacob E. Cooke, is especially useful. In his footnotes, Cooke identifies the specific section of Smith's Wealth of Nations which Hamilton is attacking.) In the last part of the Report, Hamilton reviewed the domestic situation of specific goods and commodities, and whether and how duties and tariffs would promote domestic supply. While he called for no changes in existing tariffs on several common items such as lead manufactures, Hamilton asked for decreases in tariffs on specific raw materials and goods required by American producers. He recommended that the tariffs on sulfur (needed for gunpowder), copper, silk, and scientific books be entirely eliminated and allowed to be imported duty free.

One of the most worn-out arguments used by advocates of NAFTA, WTO, TPP, and other "free trade" agreements, is that opponents are provincial isolationists opposed to all trade. The modern, interconnected world simplythe advocates argue,  cannot survive without trade. Well, I believe that the world needs a $100 trillion program to stop and even reverse climate change. And I think such a program is exactly what a new system of international trade should be focused on. I further think that implementing such a $100 trillion program will result in world trade volumes that may very well be multiples of what they are now. I am not against trade - what I am against is the current global regime of trade which locks in advantages for large international companies, and which often make it difficult, if not impossible, for nations to actually achieve national development of an integrated national economy, not just an export sector.

Someday, probably in about six years - after Americans give Republicans one last chance in the White House to totally wreck the economy - we will hopefully hear an American President deliver a speech along the following lines: 

My fellow Americans:

Effective immediately, your government of these United States is serving notice that it is withdrawing from the World Trade Organization, the Trans-Pacific Partnership, the North American Free Trade Agreement, and from all other so called free trade agreements of the past two decades.

In the place of these destructive trade agreements, which history shows have only served to enrich the wealthy and perpetuate in power the privileged, we are beginning negotiations with any and all countries who wish to join us in a $100 trillion program to stop and even reverse climate change.
This $100 trillion program is designed to switch the world economy from its dependence on burning fossil fuels, to totally sustainable renewable energies, within the next 15 years. This program requires the manufacture and building of:
  • 3.8 million 5-Mega-Watt wind turbines;
  • 49,000 300-Mega-Watt concentrated solar plants;
  • 40,000 300-Mega-Watt solar power plants;
  • 1.7 billion 3-kilo-Watt rooftop photvoltaic (PV) systems;
  • 5,350 100-Mega-Watt geothermal power plants;
  • 270 new 1,300-Mega-Watt  hydroelectric power plants;
  • 720,000 0.75-Mega-Watt  wave devices; and
  • 490,000 1-Mega-Watt tidal turbines.
This program will also retrofit every building in the world to achieve the highest energy standards and the lowest carbon foot print. I am proposing a goal of rebuilding or replacing every structure on our planet within the next 25 years.

This $100 trillion program will also create and extend urban mass transit systems around the world, and bind the various continents of the world together with high speed rail. I wish to emphasize that this is not a program for the United States alone. It is a program in which any and every country can participate. This program is such huge, so massive, so unprecedented in the size and scope of human ambition and endeavor, that I am confident it will initiate a new age of global prosperity much greater than that involved in rebuilding Europe and Japan after World War Two.

For example, I have proposed to the President of Mexico that the United States fund one third of a $125 billion program to quadruple the size, capacity, and reach of the urban rail system in Mexico City. The Greater Mexico City population is 21.2 million people, some three million more than the total urban center of New York City. This one project will give Mexico City a density of urban rail service and routes that approximates that found in Paris and Tokyo. I propose that one third of the program funding will come from Mexico, and one third by other donor countries.

Here at home we will begin building similarly dense urban rail systems in every city and metropolitan area of over one million people. This means a complete rebuilding of the transport infrastructure in cities such as Miami, Phoenix, Dallas, and Houston. In Chicago, Boston, and Philadelphia, already existing urban rail systems will be nearly tripled in size, reach, and capacity. In New York City, the system will almost double. The construction and expansion of American urban rail systems will cost $3.2 trillion over the next fifteen years.

Scientists and technologists assure me we are at the very beginning of a new, unprecedented era in human affairs, with the technological means already in hand to provide a life of decency and dignity to every living human being. It is a new era of abundance, in which humanity once and for all can break the shackles of poverty and deprivation, hunger and illness.

One of the brightest examples of this new era is electricity. Today, in sub-Saharan Africa, 70 percent of people live with no access to electricity – yet one square kilometer of land is blessed by the sun with the energy equivalent of 1.5 million barrels of oil every single day. Deploy enough photovoltaics, and the countries of this area of Africa can not only be self-sufficient, but they can have a huge surplus of energy they can export to Europe and neighboring African countries. University of Michigan physicist Stephen Rand discovered a way of creating magnetic fields one hundred million times stronger than what the known, accepted “laws” of physics had previously predicted was possible. The result of this research will hopefully be a way of making photovoltaics without semiconductors, reducing the cost of solar energy by not one, but several orders of magnitude. Special attention will be paid to the nations of Africa, to make them not just self-sufficient in solar-powered electricity, but reliable suppliers to Europe as well.

This $100 trillion program is actually well within our capability: the entire world economy produces $71 trillion in goods and services each year (of which the U.S. economy produces around $16 trillion). $100 trillion over 15 years is just under $7 trillion a year. That’s just a ten percent increase in world output, right now.

We have the technology. But do we have the will? The greatest obstacle we face in building this bright new future, is political. It is manifested in the question: But, where will the money come from? $100 trillion may sound like a lot of money. But it really isn't. It is about how much is traded in just three weeks in US financial markets: stocks, bonds, futures, options, and other derivatives. I have prepared legislation for Congress that will place a one half of one percent tax on all these transactions. The initial calculation is that at the present level of trading, one half of one percent will provide over $1 trillion in new revenue. However, as this tax is intended to cripple speculation and arbitrage in the financial markets, it is expected that actual revenue will be about $200 billion per year.
To prevent financial speculators and traders from simply moving their activity to another country without such a financial transactions tax, in the new negotiations to replace the present system of the World Trade Organization and free trade agreement, one of the first and the highest priority will be to have all participating nations adopt such a tax, and such countervailing tariffs and duties against all transactions conducted by their citizens in countries without such a tax.

Since the release of the special report by my Treasury Secretary last month, detailing the role played by tax lawyers in assisting and directing the global flows of money tied to organized crime, terrorists, and tax cheats, there has been a general public revulsion against these lawyers. Last night, I had U.S. Marshals bring into protective custody 48 of the leading tax lawyers in America. They are at this time under the protection of military police at Fort Bragg, North Carolina. We are making every effort to ensure their safety and comfort. I have also extended to them an offer to join my administration in developing, implementing and enforcing this new tax on all financial market transactions.

I am proposing other taxes as well. I am submitting to Congress proposed legislation that will lower corporate income taxes, while requiring all corporations to report as income to the IRS exactly the same amount of income they report to their managers and shareholders. No longer will corporations be burdened by having to keep two sets of books: one for the IRS, and one for owners and managers.
And as part of our withdrawal from the WTO and other trade agreements, I have directed the Secretary of Commerce to immediately begin to assess the environmental, worker safety, and consumer protection standards of all countries that do business with US companies. We will no longer allow companies to evade the cost of ensuring a clean environment and a safe workplace by seeking the "cheapest" labor cost around the globe. I believe that new tariffs based in these assessments will bring nearly $1 trillion in new government revenue, but this figure is likely to decline as governments around the world upgrade their environmental, worker safety, and consumer protection standards to be able to fully participate in the new $100 trillion program to build a new world economy based on sustainable energy.

I have also proposed a 90 day tax holiday for U.S. corporations holding profits in overseas tax havens such as Bermuda, the Cayman Islands, and Switzerland. During this 90 days, those profits held overseas will be treated as normal profits. However, after 90 days, those profits will be taxed at 100 percent, and will be seized. The National Security Agency has already gained access to the corporate bank accounts of over 200 of our largest companies, as well as the personal accounts of their executives, and the Director of the National Security Agency has assured me that it will be able to eventually track and identify the corporate and personal bank accounts of any individuals and any companies that try to defy the rule of law.

In addition, I have instructed the Joint Chiefs of Staff to prepare plans for the landing of U.S. troops in certain tax havens, to facilitate the arrival and work of special tax agents of the IRS, and the seizure of financial assets anyone may try to hide from us. Last week, the Chiefs reviewed for me a plan for the Cayman Islands, which show that a single brigade of the 82nd Airborne Division will suffice to seize control of that British colony if their authorities refuse to cooperate by allowing in and facilitating our special tax agents and other investigators.

Since so much of these secret funds are directly tied to terrorism and the illegal narcotics trade, I have instructed the Attorney General and the Secretary of the Treasury to quickly identify anybody who attempts these efforts to impose the rule of law - whether they be a lawyer, or a corporate executive - and designate them as a financial terrorist. The names and all known information of these financial terrorists will be promptly forwarded to U.S. Special Forces Command for the rapid apprehension and detention of these terrorists.
Finally, I have requested the Secretary of the Treasury to immediately prepare legislation to return the power of creating and allocating new money from the Federal Reserve System, to the U.S. Congress, where such power rightfully belongs under Article One, Section Eight of our Constitution. It makes no sense to become to borrow government portion of the $100 trillion program, since it is within the sovereign power of government to simply create money - exactly the same way as private banks create money. This is the way modern society has always created the funds it needs to sustain economic activity. Now, there are critics who will scream that if we just create money willy-nilly out of thin air, we will become Zimbabwe, with runaway inflation?  Note carefully my answer: we are not going to create money will-nilly—we will only create money to pay for things that make society richer. And this the $100 trillion program to stop and reverse climate change will do.

These are, to be sure, drastic and severe measures. But given the severity of the climate crisis, which threatens the very existence of humanity, I have asked the leaders of Congress to fast track all the necessary enabling legislation.
I want to emphasize that this is not solely a U.S. government program. Every nation of the world is invited to participate. And it is not solely government spending. Most of the financing will actually come from private companies and investors.

There will be many critics. They will be loud, disruptive, and unremitting in their argument that these measures will lead us to catastrophe. I reply to them: we are already at the brink of catastrophe. All the major insurance companies of the world have begun to demand from many of their clients risk assessment of damage resulting from climate change. The insurance companies have created ClimateWise, and the Munich Climate Insurance Initiative to coordinate the industry's response to severe weather damage caused by climate change. Even you who deny the problem of climate change have noticed how much more severe and unusual the weather has become. Can you honestly look your children and grandchildren in the eyes and guarantee them, GUARANTEE them, that climate change does not threaten their futures the least little bit? Do you want a better future for your children and grandchildren, or not? If you disagree so vehemently with our program, then it is your duty to propose an alternative. A blind faith in the working of the market is no solution, only a complete abdication of our solemn responsibility to our fellow citizens, and our posterity. Put up, or shut up.  
 The role of government, as put into action by our first Secretary of the Treasury, Alexander Hamilton, is to create a system of penalties and rewards that direct private economic action in directions which promote the general welfare. Only in this way - by grasping once again the nation building ideas of Alexander Hamilton and the president he served, George Washington, will we be able to build a future for which our children and our children's children will not curse us, but thank us.

1 comment:

  1. Fantastic piece, Tony! You will definitely be interested in a new campaign, the Climate Mobilization, calling for an emergency, WWII-scale mobilization to save civilization from climate change, starting now. You can sign the Pledge to Mobilize here: