Wednesday, October 26, 2011

Macro Economics and The Blame Game


Despite the constant blame game going on between Dems and Republicans, when one looks at the facts, America has been in economic decline for more than fifteen years.  The decline actually began with the erosian of America's manufacturing base. 

When one looks back at developments over the last thirty years we see that the first crack in our manufacturing armor occurred in the early 1980's when Japan began to clean our clock in auto manufacturing.  While Detroit was building 20 feet long gas guzzlers Toyota and Honda began turning our stylish and fuel efficient cars for the America market.  After one looks at the built in costs of overly generous unionized wages and Cadillac health care programs in Detroit it doesn't take a genius to figure out that Japan, and later the Koreans, would win the war.

Our manufacturing decline was offset by the explosive rise of our technology prowess in the mid 90's as Microsoft and Intel and Cisco and IBM began providing products and services that provided a healthy economic base.

Then came the North American Free Trade Agreement (NAFTA).  Signed into law by President Clinton, NAFTA opened up trade opportunties.  Unfortunately, the trade opportunities were for Asia and Mexico.  The U.S., with our built in labor rules and manufacturing costs, could not compete with "dollar a day" Mexican workers and Chinese prison manufacturing labor.  Tens of thousands of American businesses collapsed, to include American clothing factories and any number of small and large tooling and manufacturing concerns. 

Since NAFTA the American economy has been in a tailspin.  We have tried mightily to offset losses in manufacturing by boosting the service sector of our economy.  However, in the last few years, even the service sector businesses are migrating to countries with more favorable corporate tax structures and cheap labor.  When you call the 800 number of an American business these days you are more than likely will be talking to a customer service representative in Mexico or India. 

Another factor in our economic decline has been our big corporations complete loss of civic and community responsibility and the emphasis on the "bottom line" over love of country.  Despite all of Obama's faults, he is right on in pointing this out.  While he rightly points out that we must reward U.S. companies who employ Americans, his liberal policies are achieving the opposite actions; he is driving more U.S. companies out of the U.S. due to crippling federal mandates with everything from labor union favoritism to the effects of Obamacare on operating costs.

If we are to reverse this long term trend in our economic decline it is essential that we eliminate corporate tax loopholes while lowering corporate tax rates.   We must then defeat Obamacare and back off of big government's interference in labor relations.  As Obama proposes, we need to reward companies who employ Americans and punish those who don't.  Finally, we must either work to tweak NAFTA, and all other future trade agreements, to make them more equitable, or we must begin to impose a tariff on all foreign made products.  This is not a new and novel idea.   For more than a century of our history foreign trade tariffs were the primary source of government revenues.    We cannot hope to compete with Mexico or Korea or India or Chinese prison labor under the current trade regulations.

America has a plethora of problems to work through, to include our massive federal debt, the fraud waste and abuse in entitlements and meeting our current and future energy needs, but our macro economic model has been askew for three decades and must be reformed if America is to ever again prosper in today's economic climate.

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