When asked why he persisted in robbing banks even after being caught in the act and jailed on several occasions, iconic bank robber Willy Sutton explained that "that's where the money is."
After listening to the Iowa Republican debate and reading of President Obama's meetings with key corporate executives last week, I am beginning to think we should try resurrecting Willy and get him to run for president. On the one hand, every commentary I read, says the main issue facing the country and the candidates is jobs. On the other hand, no one is talking about the most important element of the job problem -- international trade.
On Thursday last week, the Commerce Department released the June trade statistics which showed that the U.S. trade deficit had risen by $3.7 billion since May to $53.1 billion for the month. For trade in goods the deficit was $67.6 billion and that was partly balanced by a $14.5 billion surplus in trade in services.
On an annual basis these numbers indicate that the U.S. trade deficit for the year will be in the neighborhood of $650 billion. It is a rule of thumb that every billion dollars of trade deficit costs the economy about 15,000 jobs. So the conclusion here must be that the trade deficit is costing the United States nearly 10 million jobs. Of course, a variety of objections can be made, so for the sake of argument, let's suppose that each billion dollars of trade deficit only costs 10,000 jobs. That still leaves a loss of 6.5 million jobs attributable to the trade deficit. Thus, balancing trade would cut U.S. unemployment by anywhere from a half to two thirds or from 9 percent to between 3 to 4.5 percent.
I guess that anyone who could make that happen would have a pretty fair chance of becoming president in 2012. Yet, no one in Iowa or Washington or South Carolina, where Texas Governor Rick Perry announced his candidacy over the weekend, had a word to say about trade, trade deficits, or trade related jobs. In Iowa, all the declared Republican candidates talked about the need to reduce U.S. debt and to cut Washington down to size, but there was not one suggestion for cutting the trade deficit.
About a year ago, I, along with three others, met with President Obama to discuss U.S. relations with China and especially the U.S. trade deficit with China. In the course of the discussion, the president asked why America can't build high speed trains and advanced batteries and many other products currently being made not only in China, but also in Germany, Japan, Korea, Singapore, France, and other developed countries. I told him then that the global economy is currently structured to overvalue the dollar, to subsidize the offshoring of the production of tradable goods and the provision of tradable services, and to induce, and even compel U.S.-based manufacturers to move production and R&D. I added that until that structured is dramatically changed it will be impossible to rebalance U.S. trade and to significantly reduce the level of unemploymeht.
In the meantime, the well known consulting firm Booz Allen and Hamilton has done work indicating that about 90 percent of industrial production to supply the U.S. market can be done competitively from a U.S. manufacturing base. This would seem to provide the answer to the president's questions regarding why such a large number of key items cannot be made in America. Apparently they can be or could be if the proper policy environment were created. And, of course, such production would dramatically increase jobs not just in the direct manufacturing industries themselves, but also in secondary and tertiary supply industries.
Yet, last week, the president met with eight CEOs such as the heads of Xerox and American Express to ask what he could do that would give them confidence to invest in the United States. But these are precisely the wrong people with whom to consult and the question is precisely the wrong question. They are the wrong people because they have benefited enormously from offshoring and from the distortions built into the global system. Their interest is not the same as that of the United States but rather that of their shareholders and, in some cases, of the authoritarian governments of the countries to which they have moved much of the production capacity. The question is wrong because rather than trying to bribe them the president should, a la The Godfather, be making them "offers they can't refuse."
In South Carolina, Governor Perry emphasized that he would make Washington disappear from the lives of the people in his audience. That did not strike me as the comment of a person using all his power to find jobs.
But think about it for just a moment. There will be no more significant fiscal stimulus for the economy. The emphasis is all on debt reduction, cutting expenditures, and retrenching. Not only will the federal government be cutting back, but the state and municipal governments are already slashing and burning. All of this will result in further job reduction, less consumer spending, and declining stimulus which in turn will lead to reluctance on the part of business to invest. In these circumstances, the only possible source of jobs is a reduction of the trade deficit.
He or she who wakes up to this fact first is likely to be the next president.