How to Rebalance the Economy and Create Jobs At Home

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Summary:
Since 1990 American has run a cumulative deficit on our traded goods account of $ 9 trillion dollars. Much of this money was re-circulated fueling the increasingly larger budget deficits and the over consumption of American consumers.

American economists and politicians have been blinded by the promise of the advantages of free trade while ignoring the obvious costs to American security and prosperity of our increasing dependence on foreign suppliers for everything from food products to finished manufactures. Even our defense sector, below the level of our prime contractors, has been hollowed out by the outsourcing of production to distant sources of
supply.

Analysis

Since 1990 American has run a cumulative deficit on our traded goods account of $ 9 trillion dollars. Much of this money was re-circulated fueling the increasingly larger budget deficits and the over consumption of American consumers. American economists and politicians have been blinded by the promise of the advantages of free trade while ignoring the obvious costs to American security and prosperity of our increasing dependence on foreign suppliers for everything from food products to finished manufactures. Even our defense sector, below the level of our prime contractors, has been hollowed out by the outsourcing of production to distant sources of supply.

Since the 1980’s when the American deficit on its foreign trade accounts swung from positive to negative and the post-World War II supremacy of American manufacturing ended, the deficit on our traded goods account has led to the loss of employment in American factories. It has been growing each year since then – in good years and in bad ones too – until 2009 when the long-term effects of reducing employment opportunities and the stagnation in real incomes of millions of American workers finally gave way to a wholesale retreat from over consumption with the resulting damage to both employment and American prosperity.

Over this long period the economy shifted from being balanced with a strong manufacturing sector to an economy that was oriented towards services. To support our addition, the retail sector increased adding jobs to meet the demand for everyday low prices made possible by increasing share of imports; we had technology and information management boomlets that offered a false sense of security in the 1990’s without recognizing that laying off a $ 20 an hour worker and hiring one for $ 7.50 were hardly equivalent and insufficient to keep demand for their services growing. To pay for our over consumption – the imbalance on traded goods increased from 1% of GDP in 1990 to a high of 7% by 2006-07—and consumer debt rose to new heights to support this over consumption. We relied upon a growing financial sector using houses and open credit limits as piggy banks.

David Blond runs a quantitatively oriented economic consulting firm with some of the largest and most interrelated models of global trade, production, and employment. He was formerly Senior Economist at the Pentagon during the Carter and Reagan years.

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.

Contributed by a Member of the GLG Legal, Economic & Regulatory Affairs Councils

Analysis by: GLG Expert Contributor
Analysis of: No Jobs, No Recovery
Published at: www.nytimes.com

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