Andrew Hagen

The Christian Science Monitor has a story on the hurricane’s effect on the economy, currently growing at a 3.3% annual rate. (*)

The macroeconomic challenges are many. Rising energy prices will have an inflationary effect, even as fuel shortages may disrupt supply chains causing shortages, especially in consumer goods. With the federal budget deficit and trade deficit being nearly out of control, the Fed probably can’t lower interest rates much if at all.

President Bush should take the initiative to use this event as a catalyst to bolster efforts to free America from our dependence on foreign oil.

Price caps should not even be considered. A large profit margin in the oil drilling and pumping business helps everyone in the long-run, because it will attract investment capital to develop more energy resources for the country.

The risk is unfortunately very real of the US economy slowing or even slipping into a recession.

The Economist analyzes the data and finds we are in the middle of the largest housing bubble ever obseved. (*) This will lead to economic decline, even in the US, they say.

In his recent testimony to the Joint Economic Committee, however, Fed chairman Alan Greenspan said:

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications. Nationwide banking and widespread securitization of mortgages make it less likely that financial intermediation would be impaired than was the case in prior episodes of regional house price corrections. Moreover, a substantial rise in bankruptcies would require a quite-significant overall reduction in the national housing price level because the vast majority of homeowners have built up substantial equity in their homes despite large home equity withdrawals in recent years financed by the mortgage market.

(† PDF p. 7) I believe Greenspan has the better argument as it concerns the US, and that the likely outcome for the US will be a reduction in home prices in certain markets (notably Miami), and a slower increase in the value of housing nationwide in the near future.

The Wal-Mart controversy is sketched, and a suggestion for activists is given.

Wal-Mart opponents plan to form a coalition of groups, from labor unions to environmentalists, to more effectively fight against what it sees as the abuse of power by one of the nation’s largest corporations. (* permalink) (†)

Wal-Mart maintains a public relations web site at walmartfacts.com. (‡)

The critique of Wal-Mart centers on low wages for its employees and aggressive non-labor cost cutting that puts pressure on vendor and supplier companies to cut their employees’ wages as well. That runs counter to Henry Ford’s conception of paying his workers enough to buy Model T’s.

William Anderson of the Mises Institute undermines the Ford analogy, however, by arguing that Ford intended the high wage payments not to be humanitarian but to increase the efficiency of his plants. (§)

Taking a different approach, former Labor Secretary Robert Reich has suggeted that the real problem with Wal-Mart may be that it is just too big. Wal-Mart is so big that it distorts the democratic political process of the country, Reich fears. (**) That falls flat, however, in the face of Wal-Mart’s dreaded clout having little noticeable effect nationally.

Instead, Wal-Mart’s clout is most powerful in certain neighborhoods and communities. Wal-Mart’s power within a number of certain small communities is such that it reminds one of company towns. (††)

During the industrial revolution in America, in the late 19th and early 20th centuries, company towns, such as those operated by the Pullman company, preyed upon the helpless by charging exorbitant prices, exploiting labor, and generally abusing their power. (‡‡)

Wal-Mart does not operate any company town that I know of, but its market power in certain local areas tends toward the monopolistic.

Wal-Mart opponents cannot rely merely on old models of activism. They must use their brains to address the reality of Wal-Mart, a powerful company with a powerful new business model that has many unfortunate side effects, many or all of which are avoidable. We need new thinking.

Conservative Joe Scarborough and liberal Paul Krugman agree. The Bush plan to privatize Social Security will end up costing far more taxpayer dollars than the current system. (*)

For years now payroll taxes (the FICA deductions on paystubs) have mostly gone to pay Social Security, and partially gone to finance the federal budget deficit. That will change. As baby boomers retire, payroll taxes will completely go to Social Security. Then, for a temporary period of time, a relatively small number of other taxpayer dollars will go to pay for the rest of Social Security. It will be a payback to American workers for all those years of payroll taxes financing the budget deficit.

There appears to be no Social Security crisis, and hence no need for privatization.

Daniel Gross sees welfare capitalism in full collapse, along with its remarkable set of private sector benefits, from pensions to private health insurance. In exchange, he says, we will have more government-run social safety nets. (*)

Bigger government would be the result if Kerry can beat Bush, and then if the Democrats can somehow climb out of their hole and become the majority party again.

More likely, however, is the continued ascension of the Republican Party and in particular George W Bush’s vision of the “ownership society” as a replacement for FDR’s New Deal. Kerry can only delay the inevitable. The Democrats simply do not have a viable 21st century political-economic strategy to update the now dated New Deal.

What is clear is that the New Deal is old and on the way out. What remains to be seen is the result of this “ownership society.” Will it preserve and even enrich the middle class, or will it polarize the country into haves and have-nots and nasty Dickensian outcomes?

It all ties into the slow death of the nation-state, as described by commentators like Philip Bobbitt.

Capitalism is a dynamic system. With technological growth, globalization, and other changes, energetic capitalism is reshaping the whole world before our eyes. Who can ride the tiger? Who can tame the beast? Time will tell.

Progressives need to deal with the swiftly changing reality. There are many opportunities in the new landscape to change the world for the better, but they are not the same opportunities as previous generations enjoyed. They are different in nature.

Could shortwave radio including the BBC, ham radio, CB radio, some police and law enforcement radio, and other radio communications suddenly stop working in the United States?

Yes, says the Amateur Radio Relay League, a ninety-year old organization of radio enthusiasts. (*)

They cite the proposal before the FCC to allow Broadband over Power Line (BPL) technology. Electrical power lines would act as gigantic transmitters and receivers. This could jeopardize radio communications that are critical to securing the homeland and providing emergency services. FEMA has warned that its operations would be impaired with BPL. (†)

Considering that a number of informed people have stated very serious concerns on these very important matters, and that the FCC is proceeding apace to implement the BPL plan, it would appear advisable to Congress to hold hearings on BPL before the FCC acts.

It would be better to slow down BPL for a short while to get the facts as opposed to bearing the risk of the great harm that informed people say would occur with BPL.

In a comment to reporters, the chairman of the White House Council of Economic Advisors, N Gregory Mankiw said:

Outsourcing is a growing phenomenon, but it’s something that we should realize is probably a plus for the economy in the long run.

(*) They said that the mechanization of agriculture was good because it would lead to new industrial jobs. When the deindustrialization of America became a reality, they said it was good because it would lead to new information technology (IT) jobs. Now that the information technology jobs are being outsourced to India and other countries where replacement workers will earn a small fraction of the wages and salaries earned by Americans for doing the same job, they say it’s good. Yet, they have no plan. What jobs will replace the lost IT jobs?

If a new wave of job growth does take hold, Americans who get those jobs will find themselves replaceable by any person in the world willing to take a lower wage or salary under George W Bush’s immigration plan. Any poor person from anywhere in the world could get a US visa and green card if he agreed to take a job in America even if the rate of pay is below the market rate. There would be no limit to the number of job-replacing immigrants. Say you earned $20 an hour. If your employer posted an ad on a web site and someone from the far side of the world responded, he could get on a plane, come to America, and take your job for $10 an hour or less. Your choice would be unemployment or accepting a pay cut to a fraction of what you used to make. That is Bushonomics in a nutshell.

Who cares how fast the economy grows if the rich live off the fatted calf while the bottom 90% are reduced to penury?

The wreckage of the Bush economy has only begun.

Update: 15 February 2004. In terms of economics, the massive wave of white collar outsourcing is wreaking havoc in the labor market. Max Sawicky gives his informed take. (†)

The web log Boomer Deathwatch takes a conservative and cynical look at the Baby Boom generation. (*) (†) There are serious questions about whether supporting Baby Boomers into their senior years at present benefit levels will cost too much for younger generations. (‡) These concerns feed a sense of cynicism, outrage, and exploitation among us under 40. The demand for generational equity is just, but the castigation of Baby Boomers as a class of entirely bad people goes too far.

Nathan Newman is covering labor issues all week, and is celebrating Labor Day with a list of labor-related stories. (*)

Have a happy Labor Day.

The nettlesome Paul Krugman points out that President Bush’s proposed $726 billion tax cut, which Bush claims would create 1.4 million jobs, would cost the government $500,000 per job, each of which would pay an American worker an average of $40,000. (*)

It would be cheaper to just hire people into a public works program, or just send people checks for doing nothing. So where would the rest of the tax cut go? As Bush prepares to cut education, assistance to the poor, and infrastructure to pay for the tax cuts, the rich prepare to line their pocketbooks, laughing all the way to the bank.

Update: 23 April 2003. Donald Luskin says Paul Krugman is wrong, wrong, wrong. (†) He is joined by Just One Minute (‡) and Lynxx Pherrett, in comments. There are two complaints.

Initially, they say, the $726 billion tax cut is spread over several years, while the 1.4 million new jobs figure, from the White House’s Council of Economic Advisors (CEA), is only through 2004. Luskin notes that if you assume that job growth after 2004 as a result of the plan is 500,000 per year, the plan looks much better. Nevertheless, in the CEA report, they estimate that after 2004, annual job growth as a result of the plan will be less than 200,000, though they do not account for the full effect of the tax cut. (§ PDF)

On average over end-2002 to end-2007, job creation as a result of the package would be 140,000 higher than otherwise. This indicates that the proposal would bring forward a good deal of the job creation that would otherwise have occurred in 2005 and beyond (and add some as well). As noted above, the statistical model used for the projections does not include any supplyside effects under which lower tax rates would be expected to boost labor supply and further improve job creation. Corporate income tax relief would likewise be expected to lead to positive supply-side effects through improved allocation of capital across the economy and thus higher growth and job creation—again, however, this is not reflected in the numerical projections.

(** previously cited) The CEA estimates that about the tax cut will increase GDP growth by 0.2% per year through 2007, and will create only about 170,000 new jobs per year through 2007. As Luskin notes, the tax cut is front loaded. Most of the benefit in jobs will occur early on. As time passes, the effect will wear off significantly. Because this report does not and perhaps cannot account for long-term changes in the ability of the economy to grow, it is not complete. Nevertheless, it remains striking that Bush is willing to settle for only 1.4 million new jobs from now until 2007, and at such a steep price. President Clinton helped create no fewer than 20 million new jobs in his term in office. I hope that whatever plan is enacted does create at least 1.4 million new jobs, as that will offset the 1.4 million jobs lost since President Bush’s last tax cut. (††)

Luskin also cites his friend Reuven Brenner who believes that Krugman’s comparison is inapt as it compares a flow (new jobs) with a stock (tax cut). (‡‡) Of course, though, the tax cut will be permanent, and thus, like a job, will be a flow, and not a stock. To be completely accurate, both Krugman and the CEA should be using present values.

In all, Krugman’s estimations are crude, but so are the CEA’s. I wonder if we couldn’t get a similar boost to jobs with a tax cut of a mere $350 billion or smaller.

President Bush’s recent manuevers may be preparing the way for radical tax overhaul in what would be his second term. Items on the agenda include eliminating all tax on investment (*), and replacing the income tax with a national sales tax, or consumption tax. (†) (‡)

This year’s Economic Report of the President unflinchingly advances these radical proposals. (§ PDF) For political reasons, however, President Bush will not send actual proposals to Congress until his second term.

The gauntlet is thrown down. Now we liberals and left-of-center folks will have to either fight that much harder against President Bush in 2004 or hone our intellectual case for the battle over tax that will likely occur at some point in the future.

President Bush’s large tax cut plan receives a heavy blow today from an important op-ed in the New York Times jointly written by a number of widely respected old establishment hands, all members of the Concord Coalition. (*) The statement calls for no new tax cuts. Republicans Pete Peterson and Warren Rudman join Democrats Bob Kerrey, Robert Rubin, and Paul Volcker in the piece. The Concord Coalition has a great deal of intellectual clout. (†) This piece will spark debate. If it draws in figures like Alan Greenspan to its side, the Bush tax cut could be buried.

The Concord analysis does not paint a pretty picture. Under realistic economic assumptions, federal debt as a percentage of GDP will climb from 33% in 2001 to 50% in 2013 under a Bush tax cut. The end result is that under the cut it may become economically and financially impossible to continue Social Security or Medicare for much longer past that point without drastic, even draconian, outlay reductions.

I’m looking for a good, current analysis of the balance of payments problem. As the trade deficit continues to expand, larger federal deficits could exacerbate the situation into a financial crisis.

I’ve been supportive of further tax cuts for the purpose of sparking domestic economic growth. After this, I’m going back to neutral until I can find more information.

Even as our troops are in battle risking their necks for our country, the Republican Party is pushing a tax cut for the rich on the floor of the United States Senate. Senator John Kyl of Arizona is trying to push an amendment through to speed up the repeal of the estate tax. (*) It’s too bad that the Republican Party can’t just step back for a while and take a breath. Apparently they were tempted to do this now because of a procedural matter that allows them to bypass any filibuster, and because the news media will be preoccupied. This amendment should be defeated, and not just because of the cynical time at which it is offered. Serious reform of the estate tax is a good idea, but outright repeal is the wrong policy. Speeding up the repeal is a bad idea.

Call your Senators. (†) I just called mine.

Update: 25 March 2003: We lost that vote, but five senators changed their votes to the right policy. (‡) We are making progress in the fight to keep the estate tax. It is necessary to keep the estate tax, after all appropriate reform, to preserve the middle class in its dominant position in our society.

Fast Company has an insightful article about the difficult and important art of pricing in modern US business. (*) Computer models are persuading some large retailers to, typically, discount earlier and more often. Sales volume increases, profit per item decreases, and net profit increases.

It’s worth speculating about macroeconomic effects if computer price modeling were to become common. In that more rational pricing pushes goods more efficiently through the economy, the effect could be heightened resistance to economic problems indicative of inefficiency, including inflation and deflation.

Note: Originally published 19 March 2001. Updated 25 March 2001. Thanks to pen-l subscribers for critical commentary. Updated 12 December 2003 to remove the political commentary that appeared at the end.

When the US economy grew with less vigor in the fourth quarter of 2000, could Europe be starting to flex its muscles? Now, with the central bank of the US set to lower interest rates, a steady rise of the Euro against the dollar is possible. A fear of a fall off in the value of the dollar; a reduced US government surplus or potentially even a deficit; and a reduction in interest rates paid to lenders; all reduce the incentive to invest in the US economy. The overall economic outlook for the United States is thus poor.

U. S Gross Domestic Product increased 4.2% in 1999. In the four quarters of 2000, US real GDP increased at annual rates of 4.8% (1Q); 5.6% (2Q); 2.2% (3Q); and 1.1% (4Q). Growth slackened as the year progressed. Overall, real GDP grew 5.0% in 2000. BEA. The fourth quarter numbers are preliminary estimates.

The accumulated national debt now stands at $5.7 trillion. Treasury. Japanese investors alone hold about $350 billion in US treasuries, and $150 billion in other direct investment in the US (FDI). NYT. (Thanks to L. P. for the link.)

Lower expected returns would prompt some of these investors to liquidate and re-invest elsewhere, quite likely in other countries. Far beyond the fraction of US economic space these investments occupy, the effect of a sell-off would be felt in the US in the downward trend of the value of similar investments. For this reason and reasons analogous to it, the US central bank authority, the Federal Reserve’s Open Market Committee, does not have the room to maneuver that a monetarist response would require. If “the Fed,” as it is affectionately called, lowers interest rates too much, the value of the dollar will decline in relation to the euro and other world currencies. Japanese and other investors would have an incentive to take their money out of the US and put it into other countries. Thus, it is unlikely that they can budge interest rates down much more than they have already done. The Open Market Committee’s next move is set for tomorrow, March 20.

If a monetary policy won’t work, will a fiscal policy cut it? The Bush tax cut, a fiscal stimulus plan, is unlikely to have much effect because it will go in large measure to those taxpayers who already have relatively high incomes, and thus relatively high discretionary incomes. They will be free to invest the money rather than spend it. They will also use some of it to buy imports that will not help economic growth immediately. Investments can result in economic growth eventually, but only with time. Taxpayers with lower incomes and lower discretionary incomes would spend the money they receive much faster, resulting in a boost to consumption spending, and directly translating to an increase in GDP. If any tax reduction package is passed, it will have to be weighted heavily in the favor of the rich to win the President’s signature, however.

The US economy will clearly grow slowly in the first quarter of 2001, or actually decline. Reduced income tax receipts will follow, resulting in a lower budget surplus, or possibly a deficit. In a similar vein, some states are already reporting dramatically lower sales tax receipts. NPR, 19 March 2001.

Another impediment to a positive effect from tax cuts would be the need to phase in the cuts over time. Without front loading, no impact at all would be felt until 2002. President Bush advocates front loading (changing the withholding rates after the legislation is signed into law), but even then the plan’s largest impact will take place years from now, especially of that part of Bush’s tax plan which abolishes the so-called “death tax,” or estate tax, which applies only to the estates of dead people with a net worth greater than $675,000.

Reduced profit prospects in the US should steer capital to the other major capitalist economies: Japan and Europe. Japan, however, is in the midst of a long recession. If money was pouring out of the US, much of it should be going to Europe. The new European Union currency, the euro, should naturally benefit from this.

The euro is not going anywhere, however. One euro (€) is currently worth
0.897845 US dollar. See a web site for an up-to-date conversion. This represents a three-month low spot for the euro. Euro-zone consumer prices rose an unexpectedly high 2.6% annual rate in February 2001, uncomfortably high above the European Central Bank’s target of 2%. FT. The UK pound was not significantly better off against the US dollar than the euro over this period. Useful Java based graphs are available at The Economist. The €/$ ratio may increase, however, if American fortunes continue to decline, and European fortunes improve. If US interest rates decrease, the value of the dollar may decline in relation to the euro, and that could staunch the outflow of capital in the current account deficit, but it will not really help the situation, because the import-dependent American economy would have to spend more to buy badly needed imported goods and services.

The American outlook is particularly grim due to the export and import picture. The current account deficit (commonly known as the “trade deficit”) of the US grew spectacularly from $331.5 billion in 1999 to $435.4 billion in
2000. BEA. That much money flowed out of the US last year. Increases in the price of petroleum exports accounted for much of this.

It doesn’t help that OPEC nations are determined to raise the price of oil in order to protect their profits from the expected fall off in demand for their product. Yahoo. The reduction in world oil demand is a result of failing economic fortunes in Asia and the United States. The Bush tax cut plan would only exacerbate the current account deficit, albeit in non-spectacular manner, from the increased number of luxury imported goods that tax cut beneficiaries would buy. If only the European economies would now begin to take up the slack left by the American economy’s sluggishness, the world economy would continue to prosper. It does not look like Europe has the capability to be the world’s economic leader, however.

The economies of China and India, or even Russia, can draw upon natural resources and large populations, but none appear ready to grow as the then-lionized newly industrialized countries did in the 80s and 90s. Each of the three is too mired in corruption to attract much Western capital. Efforts at combating corruption are underway in both Russia and India, however.

Is OPEC to blame? The increases in 1999 and 2000 of fossil fuel prices has surely hurt the US economy, but not to the extent done by the 1970s oil price inflation.

Note: This was originally published on 1 February 2000.

There may be trouble in the economy. Most pressing are the unsustainably high levels of private debt and the trade deficit. Of lesser threat are public debt and inflation.

Although public debt has remained approximately equal to national income (GDP) for several years now, the trend is downward. Responsible for the end of the era of budget deficits is the burgeoning period of economic growth. Without a significant hike in the tax rate, tax revenues are nevertheless far above their previous level due to increases in wages, salaries, and profits. More governmental revenue and restrained government spending has resulted in the beginning of an era of budget surpluses. GDP grew 4.3% in 1999, including 5.8% over the last three months. Inflation remains largely curbed, with consumer prices rising 2.7% in 1999, and producer prices 3.0%. Unfortunately producer prices rose 4.5% over the last three months, possibly indicating more inflation ahead.

In my view, however, inflation is not a real danger. The unemployment rate remains steady at 4.1%, dropping only slightly from 4.3% last year. This leaves millions of workers looking for work. Controversy arises when right-wingers argue that approximately that many workers are likely transitioning between jobs, and on the other hand left-wingers argue that the unemployment rate undercounts the number of workers actually without jobs. While those on the right-wing argue that more economic growth cannot take place without bidding wars for scarce employees, the economy continues to boom with only slight inflation and a steady, if a slow reduction in unemployment. The only bidding wars going on are in very selective job categories, such as software developers. The unemployment rate undercounts by skipping those who aren’t seeking a job, and the underemployed. The ranks of the underemployed include those part-time workers who would prefer a full-time job, or simply more hours. If the full amount of unemployment were counted, the rate would be 2 or three times higher than it it today. There is quite a bit of slack left to take up in the labor market before inflation sets in.

Inflation might be limited further by surplus inventories. A number of companies, McDonald’s for example, took the Y2k precaution of stocking up on inventories of basic goods and supplies. Since few problems arose at the onset of the new year, such companies will need to draw down their inventories, reducing future purchases until their inventories are again at comfortable levels. It seems likely that the corresponding reduced demand for producer goods will maintain enough supply to stem any further rise in producer prices.

The Federal Reserve Board’s Open Market Committee, presided over by Alan Greenspan, will probably announce a relatively large increase of 0.5% in short-term interest rates to fight the threat of inflation. The greatest effect will be to soothe the inflation fears of investors, however. With inflation nearly stalled, the action does not seem appropriate outside the necessity of fulfilling public expectations.

A far larger problem than public debt is private debt. Private debt as a percentage of GDP has steadily risen, from 80% in 1960 to 132% today. This relatively high level of private debt has accrued due to low interest rates and continual economic growth. Should the economy begin to stall, however, this debt burden would significantly worsen the situation in households with high debt levels, and for employees of companies that can’t pay borrowers back.

A common theme in the news is a bemoaning of easy credit for consumers, and a moralized enjoinder to audience members to not immerse themselves in debt. Nevertheless, total household debt increased from 85% of total household income in 1992 to 103% in 1999. Historically, this is a high level. With low interest rates, consumers are spending more freely with credit cards and taking on more mortgage debt than they can easily pay back. It likely will not remain that high for long without fairly serious consequences.

The truly overbearing problem is not credit cards and mortgages, however, but the relation between stock market prices and the ability of consumers and businesses to service their debt burdens. One of the lessons supposedly drawn from the stock market crash of 1929 was that allowing speculators to borrow in order to increase their leverage in an equity was fraught with risk. Regulators seem to have forgotten the lesson. Over the last two months alone, as the major stock market indices have risen, margin debt has increased by 25%. Should share prices fall by a significant percentage, borrowers on the margin who lost their bets will be called to pay more into the house to keep playing. Should this scenario take place, would they have the money?

Additionally, many corporations are dependent upon a healthy share price to do such things as pay employees bonuses and merge or acquire other companies. For example, many Internet companies pay their employees miserly wages, relatively speaking, but make up the difference in stock options. With the late boom in the IPO market, many talented people have taken such jobs with an eye toward hitting it big when the IPO takes place. Many of these have been successful. Additionally, companies like AOL are able to buy others, like Time-Warner for $166 billion in an all-stock transaction. Non-financial corporations have bought back large chunks of their own shares despite borrowing above and beyond this level. Should a crimp in their cash flow take place, companies may halt their buybacks, further depressing share prices.

The biggest worry for the US economy is the trade deficit, however. Currently the trade deficit, or current account deficit stands at 4% of GDP. Translated, that means that 4% of national income is going to other countries. Another way of looking at it is that foreigners are holding a larger and larger chunk of debt in America. This has in part is a side-effect of the economic boom. With the American economy doing well, inherently and in comparison to others, an investment in American securities is wise. Looked at in still another way, this is another symptom of the US debt burden, both public and private. The American economy is awash in debt, not in investment. The savings rate is not nearly so high as it is in other countries, especially Japan. Thus, there will be less investment by Americans in foreign countries, and less profits coming home as a result of it. America is a victim of its own success. If it weren’t for the tremendous value American investments return to foreign savers, the trade deficit would disappear. But then, other problems would arise.

The recent news is that the euro (€) has fallen below the “psychologically important waterline of $ 1 / € 1. The European economies remain as a whole sluggish. The German economy in particular is an underachiever, with double-digit unemployment accompanying a meager 1.2% growth in GDP in 1999. The slow-growth situation in Europe has led investors to shun the euro, despite its heralded role of challenger to the dollar. Before we Americans start cheering, however, we’d best consider ways to weaken the dollar. The result would be more exports and a lowering of the trade deficit. The trouble with the trade deficit is that it makes debt harder to service. Foreign investors want what’s coming to them. If the American economy can’t generate enough export income to pay the piper, they will gladly take their part of national income. And should the economy tank, the low domestic savings rate will mean a continued American reliance on foreign investment. The only way to continue to entice it would be to raise interest rates. That’s just what you want to avoid when your economic cycle goes bust.

Let me strongly suggest that I am not a doomsayer. I am simply encouraging the private sector to follow the lead of the public sector and balance their budgets. I’m also suggesting that we attempt to increase exports wherever possible. It is a controversial political stance, but it is also a reality. The US is trading with China. President Clinton said it best in the State of the Union address. Our markets are already open to Chinese producers. The trouble is that their markets are not open to US producers. China already has one of the world’s largest economies. China is an extremely lucrative export market. One projection even shows that they will be a net importer of food within a few years. Opening more trade with China will enrich both countries. As for the moral qualms, I don’t see how trading with them will do any harm at this point. The Chinese are rapidly transforming their economy into the capitalist mode of production. It’s unlikely, in my view, that a rush of American goods will threaten that. The larger political question is if free trade doesn’t naturally bring about democracy (and no evidence indicates it ever does), do we wish to trade with them or isolate them. I say trade with them now or have to deal with them on a less peaceful basis in the future. Whatever that might be, peace and trade are vastly preferable.

Credit where it is due. Much of my figures and analysis come from the Economist, 22 January 2000. I recommend the Economist as a magazine worth reading. One probably needs to read between the lines, or simply be aware, however, to catch their political slant on things, well-justified or not. On the whole, though, it’s an excellent publication in an era where typos, quizzes, glossy photos, and bright color contrasts fill the popular news journals.