Ramesh Ponnuru remarks at how public support for free trade has fallen since the 1990s, and that even politicians who nominally support open trade rarely do so full-throatedly:
Instead they make mercantilist arguments for free trade, in which we must regrettably open our markets to foreign imports as the price for getting other countries to do the same for our exports. In debates over trade agreements, both sides typically accept the notion that imports are bad and exports are good. The question becomes whether the agreement will do more to boost imports or exports.
Ramesh concludes: “Falling support for trade has many causes, but the failure of almost anyone in politics to make the real and unequivocal argument for it has almost certainly been one.”
One cause among many, I think, has got to be the rising cost of health care.
A RAND Corporation analysis of the burden of health care costs on typical families between 1999 and 2009 noted this:
Although family income grew throughout the decade, the financial benefits that the family might have realized were largely consumed by health care cost growth, leaving them with only $95 more per month than in 1999. Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month — more than $5,000 per year — to spend on other priorities.
This trend is lost on no one and lamented by everyone, but its connection to other issues, like trade, might be less so.
Here’s what I think is happening: What you might call the Clinton-Rubin-Greenspan Bargain didn’t pan out as advertised. A cocktail of deficit reduction and tight money would keep inflation in check. Liberalized global trade would make consumer goods cheaper, and check inflation further still. Sure, the process of de-industrialization would mean a steady erosion of the kind of stable, high-paying jobs that middle-class Americans had become accustomed to. But even comparatively lousy-paying service jobs (not to mention homes that seemed like they’d increase in value in perpetuity) might still increase standards of living because a strong dollar could buy more goods that it could under a protectionist high-inflation regime.
Enter the spike in health care costs.
Whatever material gains that workers realized under the Clinton-Rubin-Greenspan bargain have been outstripped by the burden of paying for health care. In this light, the benefits of free trade — and indeed low inflation — don’t seem like, well, a fair trade.
The old hands of the Clinton administration would no doubt respond by saying they didn’t get their way on health care reform, which might have preempted the subsequent years of inflation. But that’s another argument. We are where we are — and it seems clear that, in addition to driving our long-term debt and entitlement problems, the cost of health care is at least partially to blame for angst over trade.
The Department of Energy can guarantee loans with taxpayer money, but they can’t guarantee a company with Obama administration connections won’t come along with a fat check and snap those contracts right up.
The wires are reporting major layoffs at First Solar, one of the largest recipients of green-tech investment. From Reuters:
First Solar Inc said it would cut production of its thin-film solar panels and slash 2,000 jobs, or about 30 percent of its workforce, as the largest U.S. solar maker speeds up its cost-cutting efforts.
Solar makers, particularly in China, have rushed to build new manufacturing capacity in recent years as demand for the renewable energy systems grew. But that expansion left the industry struggling with nearly twice as much output capacity as customer demand, creating a glut of inventory that sent prices for panels down by more than half over the last year.
Like others in the industry, First Solar had been operating its plants at reduced rates. Tuesday’s moves appeared to make it the first in the industry to permanently shut down a production site, amid signs the industry is set to undergo a shakeout of the weaker players.
The company is shuttering their German plant too. That’s more drastic of a move than one might expect from SEC filings, but not all that surprising given that much of the company’s trouble stems from European nations pulling back their green energy investments.
How does a company receiving billions of dollars in in federal loans go from posting a net income of $664 million in 2010 to a net loss of $39.5 million in 2011? This story needs a little unpacking because it fits both partisan narratives so well. Most conservatives will say the cutbacks demonstrate the futility of investing in renewables, Democrats will say it shows how the industry would fail in the absence of a fiscal lifeline.
But there are other issues at work here. The stock price has been sinking steadily since mid-2011, partially a result of the clean tech bubble bursting though the $215 million “manufacturing excursion” (read: screw-up) probably didn’t help. Investor Guide also points out that they’re being outcompeted by companies making cheaper, more efficient solar panels (kind of like Solyndra was).
It deserves a closer look because First Solar was one of the largest recipients of Department of Energy financing, having had two loans approved for $1.46 billion on September 29, 2011 and $646 million for a pair of California solar farms named Desert Sunlight and Antelope Valley. They nearly got a third loan of $1.93 billion for a project named Topaz Solar, were it not for an imprudent disclosure of insider information that scuttled the deal. Fortunately, the great philanthropist Warren Buffett took the project off First Solar’s hands anyway. Also, it’s the same company that received $455 million in loan guarantees from the Ex-Im Bank subsidizing the sale of solar panels…to itself.
Like so many other DoE loans, the circumstances of these two were dodgy. The day after they were approved the Desert Sunlight project was sold to NextEra Energy, one the largest renewable energy firm in the country whose CEO Lewis Hay III sits on the President’s Council for Jobs and Competitiveness. Exelon, the company where David Axelrod was once a consultant that Rahm Emmanuel helped found in 1999, bought Antelope Valley and has begun to draw on the loan.
Also, Sherry Barrat, a director at NextEra, is also Vice Chairman of Northern Trust, the company that once owned the Obamas’ house.
Beyond that, the loans were arranged through the Financial Institutions Partnership Program, which allowed investment banks to get in on the action. Goldman Sachs submitted the Desert Sunlight proposal with Citigroup as the co-arranger. Nor were the participating banks limited to U.S.-based institutions in need of an extra hand after the financial crisis, the lead lender for NextEra’s Genesis Solar project was Credit Suisse.
In the Greek city of Volos a new currency has emerged. With the Greek economy struggling, unemployment up, and austerity kicking in, some Greeks seem to be turning towards social entrepreneurship as a way to manage and help contain the economic downturn. The new currency, TEM, is based on a barter system, the oldest economic means of exchange. While these sorts of initiatives will not solve Greece’s financial worries, it is an encouraging sign that even in a country with a bloated state addicted to spending grass root social entrepreneurship can thrive. Read More…
Whenever I become depressed over the current state of this country’s election campaigns I know I can always count on Russia to remind me how worse it could be.
Today the Prime Minister of Russia, Vladimir Putin, gave a speech to a stadium in Moscow as he bid for re-election as President, a post he held from 2000 to 2008. Standing below a banner proclaiming “Defend the Country” in front of a crowd of tens of thousands, Putin pledged to win the “battle for Russia,” while emphasizing Russia’s independence and appealing to the crowd’s patriotism.
The speech comes not long after large scale protests against corruption and fraud in December’s elections took place in Moscow’s Red Square. With public signs of dissent growing, it makes sense for Putin to put on a publicity stunt like today’s rally.
Putin is of the old guard, a politician molded by the Soviet political machine and the KGB. He understand the importance of Russian patriotism and a “strong man” image in Russian politics. Yet even among crowds of “supporters” there is evidence of fakery and deception, with some of the participants at today’s rally saying that they had been forced to attend by their employer, paid to attend, or that they thought it was going to be a folk festival, not a political rally. With people like this in the second-biggest rally for Putin thus far, it is easy to see why the opposition are so angry. How is it possible for Putin to have the support he claims when he cannot bring legitimate supporters to a rally in Moscow? Read More…
European foreign ministers have approved an oil embargo against Iran. The sanctions ban any new oil contracts with Iran, while existing contracts will be honored until July 1st. While this might seem like a good way to way to stall Iran’s nuclear ambitions, it will only serve to unite the Iranian people and worsen the already fragile diplomatic relations the west has with Iran.
The European Union currently buys a significant amount of oil from Iran, about 20% of total exports. Iran’s economy is already suffering, with rising house and food prices. In order to avoid a worsening economic situation, the Iranians will have to find other buyers for 20% of their oil exports. China, Japan, and India are already major buyers of Iranian oil, and it is possible that exports to these countries could increase. If this does happen some of Europe’s major economic competitors will be benefiting from the sanctions while the negative effect on Iran’s economy will be minimized. This is the best outcome. Read More…
There has been more bad news out of Europe today. On top of the downgrades of several eurozone countries and the EFSF bailout fund, Germany today announced that it has lowered its growth forecasts for 2012 from 1% to 0.7%. Throughout the euro crisis Germany has been central to the bailouts of struggling countries, contributing a huge amount to the recently downgraded EFSF. Economic recovery in Europe is not possible without an economically stable and strong Germany. While this would be very worrying in isolation, the World Bank today announced that it has cut global economic growth forecast from 3.6% for both 2012 and 2013, to 2.5% in 2012 and 3.1% in 2013. While there is some hope of a more relaxed monetary policy for Europe in the future, this is only because of China’s slow economic growth, something that should not be welcomed in the long term.
While there are serious economic concerns in Europe the continent is also facing domestic political upheaval. The unelected Greek government is failing to implement needed austerity measures, Italy’s technocratic government is making too few changes too late, and the patience of the German people is being tried. There is only so long that Germans will put up with contributing to the clean up of their neighbor’s mess, and we could soon see domestic German politics reflect this growing attitude.
While the continual downgrade of European countries and the slowing growth of China are out of the responsibility or remit of any American politician, the GOP should take note. The sovereign debt crisis in Europe is our future if serious measures are not taken to adapt an aggressive and serious fiscal policy that tackles spending and government growth. Unfortunately the only candidate who understands the severity of the situation and is advocating such measures is alienated by the GOP because of his pro-peace, pro-trade and pro-diplomacy foreign policy.
Dow Jones reports that a federal bankruptcy judge gave the go-ahead for Hostess to begin tapping a $75 million loan to keep the company above water while during bankruptcy proceedings.
Some attribute Hostess’ troubles to healthier eating habits among Americans, the USA Today article on their filing states:
Hostess has enough cash to keep stores stocked with its Ding Dongs, Ho Hos and other snacks for now. But longer term, the 87-year-old company has a bigger problem: health-conscious Americans favor yogurt and energy bars over the dessert cakes and white bread they devoured 30 years ago.
Last year, 36% of Americans ate white bread in their homes, down from 54% in 2000, according to NPD Group. Meanwhile, about 54% ate wheat bread, up from 43% in 2000.
That explanation sparked some discussion from Reason’s Nick Gillespie, who writes:
I’m not sure I’m buying that argument in its totality, but there’s no question that sliced white bread, especially Wonder Bread, went from being the staff of life for upward-striving post-War middle-classers to being a cultural touchstone for all that was bad and wrong with America. Whether we’re buying less of the stuff – or feel less in need of the myriad ways it supposedly enriches our bodies – I don’t know. But there seems less a role for white bread in a world where even the Olive Garden is pushing rustic loaves of yeast and flour.
Big Government’s Dana Loesch was skeptical, observing that the USA Today article buried facts about Hostess’ union problems and rising ingredient costs deep in the article.
It’s not difficult to sell creme-filled heaven snacks and America isn’t exactly eating healthier. If anything, America is eating leaner because the price of everything has increased eleventy-fold because the cost of energy is passed to us, the consumers.
…Hostess, a privately held company based in Irving, Texas, has outstanding debts of more than $860 million and owes over $50 million to vendors, an economic situation that sources attribute to rising prices for sugar, flour and other ingredients and higher labor costs which the company’s approximately $2.5 billion in annual sales have not been able to cover.
Additionally, Hostess employees are unionized while most of its competitors aren’t. As a result, Hostess has high pension and medical benefit costs.
While the broader trend Gillespie observes is certainly true – Trader Joe’s anyone? – it’s also true that during recessions, people adjust their purchasing habits. The stock price of McDonalds, for instance, has doubled since late 2007. Based on today’s report, it appears Loesch is right. If an agreement with the unions isn’t reached in 75 days, the terms of the loan state that Hostess could begin selling off its assets.
Also, apparently during the earlier negotiations the international parent union was representing the local chapters, which they aren’t authorized to do:
In perhaps the hearing’s most dramatic moment, Hostess President and Chief Executive Brian Driscoll took the witness stand and told a lawyer for the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, or BCTGM, that he was unaware that during recent labor negotiations, the international parent union wasn’t actually authorized to negotiate on behalf of the local unions.
“Who were you negotiating for?” Driscoll asked the union’s lawyer, Bredhoff & Kaiser PLLC’s Jeffrey Freund.
“I’m asking the questions,” Freund responded.
“I would like my $900,000 back,” Driscoll said, referring to the amount of money Hostess has paid to its professionals negotiating with the unions. While Driscoll’s response elicited laughter from nearly everyone in the courtroom but himself, the back-and-forth is a clear precursor to a tough fight between Hostess and the union both in and out of the courtroom.
It’s hard out there for a snack food company, and these hamfisted union negotiations certainly don’t help. Hostess is more or less the last independent publicly-traded purveyor of snack foods with names most people have heard of. Almost all of the brands that filled the school lunchboxes of American children for decades have experienced major upheavals in the last quarter-century. The venerable Keebler (est. 1853) is in the hands of Kellogg as of 2001. Nabisco has been passed around like an, erm, Ho Ho since its merger with RJ Reynolds in 1985, and will presumably be a part of the snack-food company resulting from Kraft Foods’ planned split.
For a company like Hostess with a less diversified line of products, it’s a lot harder compensate for the cost of something like this, too.
These are discouraging times, but once in a blue moon a bit of hope appears. I am pleased to report on the bit of hope delivered in March of 2011 by Michael Spence, a Nobel prize-winning economist, assisted by Sandile Hlatshwayo, a researcher at New York University. The two economists have taken a careful empirical look at jobs offshoring and concluded that it has ruined the income and employment prospects for most Americans.
To add to the amazement, their research report, “The Evolving Structure of the American Economy and the Employment Challenge,” was published by the very establishment Council on Foreign Relations.
For a decade I have warned that US corporations, pressed by Wall Street and large retailers such as Wal-Mart, to move offshore their production for US consumer markets, were simultaneously moving offshore US GDP, US tax base, US consumer income, and irreplaceable career opportunities for American citizens.
Among the serious consequences of off-shoring are the dismantling of the ladders of upward mobility that made the US an “opportunity society,” an extraordinary worsening of the income distribution, and large trade and federal budget deficits that cannot be closed by normal means. These deficits now threaten the US dollar’s role as world reserve currency. Read More…
Last year, Barack Obama committed his administration to doubling U.S. exports in half a decade.
The good news: He is on the way. U.S. exports of goods and services grew in 2010 by 16.6 percent.
Bad news: U.S. imports, starting from a higher base, surged by 19.7 percent.
Result: The U.S. trade deficit in 2010 worsened by 33 percent, rising from $375 billion to $498 billion, the largest percentage increase in a decade. If Obama keeps this up, he may prove as big a disaster for U.S. manufacturing as his predecessor, although these are big shoes to fill.
As he has each February for years, Charles W. McMillion of MBG Information Services has compiled the stats on the industrial decline of his country under our free trade presidents. Here are but a few numbers for the decade from December 2000, the month before George W. Bush took the oath, to December 2010, the end of Obama’s second year.
In that decade, America ran a total of $6.1 trillion in trade deficits, more than our entire economic growth. To finance those 10 years of deficits, America had to borrow $1.553 billion every day.
And we wonder why China owns America.
In 2010, our trade deficit in manufactures alone rose 27 percent to $416 billion, far exceeding our trade deficit in crude oil. A decade of such deficits in manufactures has devastated the industrial states. Read More…
George W. Bush must have been the despair of the history department of every school his daddy managed to get him into.
Consider his latest excursion into the history of the republic, at Southern Methodist, where the Great Man’s papers are to be housed.
“What’s interesting about our country, if you study history, is that there are some ‘isms’ that occasionally pop up. One is isolationism and its evil twin protectionism and its evil triplet nativism. So if you study the ’20s, for example, there was an American-first policy that said, ‘Who cares what happens in Europe?’ … And there was an immigration policy that I think during this period argued we had too many Jews and too many Italians, therefore we should have no immigrants. And my point is that we’ve been through this kind of period of isolationism, protectionism and nativism. I’m a little concerned that we may be going through the same period. I hope that these ‘isms’ pass.”
Where to begin?
First, “America First” was the antiwar movement begun in 1940 and backed by the young John F. Kennedy and his brother Joe, Gerald Ford and ex-president Herbert Hoover. It had nothing to do with the 1920s.
In the Harding-Coolidge decade, America was deeply interested in “what happens in Europe.” It began with Hoover rushing U.S. food aid to the defeated nations of World War I and even to the USSR, for which Lenin personally thanked the Americans. Read More…