More economics (a lot more)

The mayor of Detroit wrote a stirring article for CNN about how free trade is to blame for the current economic crisis.

http://www.cnn.com/2009/POLITICS/02/09/am.bernero.trade.reform/index.html?eref=rss_topstories

Free trade has become a punching bag for people who want to blame someone for the recession we are in and why people are losing their jobs. Here are a few choice quotes from the article that I want to explore.

"...the unholy alliance between Washington and Wall Street has sold out the American worker and exported our standard of living."

This statement makes no sense to me. Unholy alliance? Are Wall Street and Washington having meetings in underground lairs where they plot the demise of the average American?

Exported our standard of living? I have no joke or snarky comment. What the hell does this mean?

He goes on to say...

Driven by the insatiable greed of Wall Street profiteers and accelerated by the false promise of free trade, our manufacturing base has been chased out of this country and along with it the livelihood of millions of hard-working Americans."


First off, why do people even form companies? This is not the first time Wall Street has been called our for "greed." Do you people form companies and go to work every day for any reason other than to make money? Do people go to work instead of the beach every day because its fun? Does getting a job on Wall Street turn you into a soulless subhuman who lives for other people's misery?

People who work on wall street are men and women with kids and mortgages too and they probably worry about losing their job once and a while too. But Bernero is attacking the CEOs and "fat cats" of wall street.

Bernero is playing off the fact that wall street is a target for lower and middle class Americans who see newspaper headlines of 20 million dollar bonuses, chartered jets, and luxury yachts for the CEOs as proof that the economic system that allows some families to squeeze into one bedroom apartments as broken.

I'll be the first to say, if there was a way to efficiently and fairly redistribute wealth, I would be for it. It sucks seeing people go hungry or without heat in the middle of a Detroit winter.

Let’s look at why corporations offer these kinds of compensation packages. Here I'll turn to major league baseball to provide the analogy. Why does Alex Rodriguez make more money than David Eckstein? Easy, because one is a better player. People who run companies (like baseball teams) know exactly how much skill is worth to their company and are willing to pay an employee more if he brings more value back to the company.

Why does Alex Rodriguez make more money than I do? The answer is simply he has a marketable skill that I don't have (or have very little of). Not everyone has the skill and acumen to run a huge company. The shareholders of these companies that need to hire someone to manage thousands of people and billions of dollars worth of assets and want to hire the very best managers and CEOs that they can. And if the difference between a good CEO versus a bad CEO can be the difference between a successful company and bankruptcy, a 20 million dollar bonus is bargain to pay to acquire the smartest person they can. And if a good CEO can be the difference between life and death for a company, why is it so outrageous to reward the person with compensation equal to the value that they brought to the company?

Now, your next logical question to my argument is, “But these companies failed and need corporate bailouts, they don’t deserve the massive compensation they’re receiving.” And America has a couple logical choices for how to deal with this issue for the companies they are bailing out. One is, if America becomes the primary owner of a company, they can fire the old CEO and bring in a new one and pay him whatever Obama wants. But we’re back at the dilemma I brought up earlier, if you are a talented CEO and could work anywhere you want, are you going to work for a bailed out company that has a restriction on executive pay or are you going to take your services to the highest bidder? Executive pay caps are not a good idea if you think that a talented head of the company is very important. So if the government is going to force the old CEO out and force the company to hire a new one with strict earning limits they’re going to have to prepare to hire someone who is inexperienced and will be willing to work for smaller earnings.


Bernero continues,
“With all due respect, the free traders need to ask themselves a more fundamental question: how will Americans buy those goods when they don't even have a paycheck that covers their mortgage, much less the college tuition for their children.”

My first question to Bernero is, “If all these kids are going to go to college and aren’t interested in working blue collar jobs, why are you so concerned that these jobs are going away?” I just graduated from college and I will be the first to tell you that I wanted a white collar job. If I had been offered an assembly line job for a car manufacturer, I would have turned it down.”

The next major point Bernero makes is, “those who continue to espouse free trade ominously warn that protectionism is the wrong path for our nation; that challenging the holy doctrine of free trade invites a global trade war. Yet we already face rampant protectionism across the globe. Pursuing a free trade agenda in a protectionist world is tantamount to unilateral disarmament. Our trading partners routinely employ taxes, tariffs and subsidies that underwrite their exports and restrict American products from entering their home markets. They use currency manipulation to reduce the relative cost of their goods here in the USA.”

Here are the list of countries that America trades with most. And not shockingly, America does more business with countries that have free trade agreements. So the plan in this economy is to buy and sell fewer goods with the rest of the world?

Top 10 Countries for U.S. Exports (2005)
1. Canada ... US$211.9 billion (up 31.7% from 2002)
2. Mexico ... $120.4 billion (up 23.5%)
3. Japan ... $55.5 billion (up 7.8%)
4. China ... $41.9 billion (up 89.6%)
5. United Kingdom ...$38.6 billion (up 16.3%)
6. Germany ... $34.2 billion (up 28.6%)
7. South Korea ... $27.8 billion (up 23%)
8. Netherlands ... $26.5 billion (up 44.8%)
9. France ... $22.4 billion (up 17.9%)
10. Taiwan ... $22.1 billion (up 20.1%)

The top 4 trade partners for American exports - Canada, Mexico, Japan and China - consumed over 47% of U.S. exports in 2005.

Top 10 Countries U.S. Imports From (2005)
1. Canada ... US$290.4 billion (up 38.9% from 2002)
2. China ... $243.5 billion (up 94.5%)
3. Mexico ... $170.1 billion (up 26.4%)
4. Japan ... $138 billion (up 13.7%)
5. Germany ...$84.8 billion (up 35.7%)
6. United Kingdom ... $51 billion (up 25.3%)
7. South Korea ... $43.8 billion (up 23%)
8. Taiwan ... $34.8 billion (up 8.4%)
9. Venezuela ... $34 billion (up 125.2%)
10. France ... $33.8 billion (up 19.9%)

This list makes his point about it being a protectionist world a flat out lie. We have NAFTA (North American Free Trade Agreement) which guarantees free trade with Mexico and Canada, America’s 2 biggest trading partners. America has negotiated free trade agreements (or near free trade agreements) with (I believe) everyone on these lists (although I couldn’t find any articles saying one way or the other about all of them and I didn’t want to spend the time looking for them).

Bernero comes off very much as someone who hasn’t bothered to concern himself with finding out why the economy is in trouble. This looks like a campaign speech to me. Yes, wall street made some mistakes. Yes, these car companies made some mistakes, but the economy fluctuates naturally and does so with predictable regularity. Yes, this recession is worse than most, but this is what happens every single time and we're acting like its our first recession ever.

My real question is, why are we in a such a huge rush to bail out companies that frankly don’t make a very good product? My family bought 2 cars in the 90’s. A Chevy Suburban in 1995 and a Toyota Camry in 1996. We sold the Chevy after it stopped running yet again to a friend who like to tinker with cars in 2002 with barely 100,000 miles on it but well over 10,000 in repair bills. Its 2009 and I still drive the Camry we bought in 1996 and the biggest problem I’ve ever had with it is I pulled off the door handle and the trunk lever. It has 130,000 miles on it and still purrs like a kitten. I will never buy an American car unless the reputation for quality improves drastically. Yes, I realize the American car company employs a lot of hard working, decent, insert positive adjective here, Americans. But if the company makes a crappy product, it deserves to go out of business. American car companies have been losing there market share of the car market in America for years now. They weren't good healthy companies that were just knocked on their ass by this recession in the last year, they have been losing customers for decades now. The patriotism of buying an American car does not make up for it when you're going bankrupt paying repair bills.

And although Bernero says manufacturing can’t survive in America without protection, car makers like Toyota and Nissan are building factories in America because more people want their product. GM and Ford are building factories overseas complain that they can't compete so they build their factories overseas.

My point is, yes it sucks that people are losing their jobs and can’t pay their mortgage. But natural capitalism is the best system we have. If America wants to continue to be a manufacturer, its going to have to have even better quality than the factories that use cheap labor because the products are going to cost more. The best strategy for America is to churn out the best and brightest minds and instead of exporting products made of iron and steel, export the fruits of our knowledge by becoming a leader in green technology the next product market that is primed for explosion, while continuing to be a leader in pharmaceuticals and the services sector.

If you made it all the way to the bottom, I thank you. I had rebuttals to other points in the article but at this point, I'm tired. I'll try to cut back on the econ posts and get back the bread and butter of this blog, complaining about the people who hate gay people.