How to Solve the Trade Deficit – Part IV

This is part of my special on How to Solve the Trade Deficit. You can read Part I, Part II, or Part III if you missed them.

The Increased Competition for Jobs Is Domestic, As Well

You mention that standards of living have fallen, despite gains in things like iPods with 25,000 songs and the ability to connect instantly through the Internet.  The thing is: In many respects, it isn’t true – standards of living haven’t fallen – unless you fit one specific demographic, which we’ll talk about in a minute.

I pointed out a few months ago:

• Research that showed Americans alive today have more free time that any group of humans that have ever lived in history (you can read about it here).  What do they do with that free time?  Watch television.  No, literally, the research showed that people used all of those extra hours to sit on the couch in front of the TV.
• Teen pregnancy and abortion rates are collapsing, which is promising for future poverty rates because having a child before the age of 25 is more likely to result in lifetime poverty.
• We live longer than any civilization in history.
• We have better pain management than any humans who have ever lived.
• We can cure more diseases than any humans who have ever lived.
• We can travel anywhere on the planet in under 20 hours.
• We consider full-home air conditioning and heat a basic human right when, only 90 years ago, the richest men on the planet suffered the heat just like the poorest worker.

Plus, you must consider that 50 years ago, blacks, Jews, gays, women, and anyone over 55 weren’t viable competitors in the work force because they were either paid a fraction of their white, male protestant counterparts, fired, or not even considered for positions.  Unless you happened to fit into that one lucky genetic “lottery ticket” you were screwed.

Now, we are increasingly a meritocracy.  In today’s workforce, you are far more likely to have your ideas compete with a much wider range of people.  This is good for the civilization.

To put it bluntly: When you say things are getting worse from a standard of living perspective than they were several decades ago, the unspoken fact is that this is only true if you are a straight, white, male, protestant, high school graduate who wants to make a living without years of specialized training.

It is, in other words, only getting worse for those who were trained by society for generations to feel “entitled” to a job just by virtue of who they were, not what they knew.  This is why you see so many older, white working class folks miserable and angry, screaming things like “I Want My Country Back!” or “Take My Country Back!”

For everyone else, standards of living are exponentially better than they were back in the so-called “golden years” but people’s expectations are higher.  That is where the unhappiness originates.  Even our “horrific” “unthinkable” unemployment of 10% would be the envy of most of the world, not just now but throughout all of history!  But we consider it unacceptable because we have high expectations.  We are the proverbial rich, spoiled brats who have no idea how good we have it.  It is unfortunate, unpleasant but true.  Somewhere along the line, we forgot just how blessed we are.

In other words, we stopped thinking of America as the land of opportunity where we had a shot at becoming successful and started thinking of it as a land of entitlement where we have a right to live how we want.

Competition for Jobs Is the Real Culprit, Not Just the Trade Deficit

Women are closer than ever to earnings parity with men.  African Americans now sit in board rooms across the country.  Nobody on Wall Street cares if you are Jewish any more.  And, with the exception of the military, the United States government doesn’t fire people for being gay.  That means more men and women are competing for jobs in the work force, which results in more meritocracy and competition for high paying jobs.

On a net civilization basis, we all benefit because the better quality people at work for us the better the chance we have at competing globally.  After all, think about this: China has so many people that the top 20% of students, those who are smarter than 4 out of 5 of their peers, outnumber the entire United States population.

But make no mistake: The day of the “good ole boy” who wants to get married at 18, get a job at the factory, and raise his kids on a paycheck is over.  It is never returning.  I think a lot of the psychology of movements like the Tea Party, which have a good goal (lower government spending) is rooted in the desire to see the days return when people could feel secure.  But I’ve told you that job security is, and always was, an illusion.  It is never coming back; those who survive in the future economic world will have to be entrepreneurial, even if they are employees.  That is the new standard.  You must be your own business.

There are members of my own family who are younger than I am who still haven’t figured this out and they are going to end up broke, miserable and bitter by their mid-thirties.  They have low reading comprehension, dress like they walked out of the inner city, and think it’s cute to wear their pants halfway off their ass.  Forty years ago, they would have still gotten the job at the factory over a well-dressed, punctual, intelligent and hard working woman or African American man.  Today, that isn’t the case.  And, as much as I love them as family, I have to say this is a positive improvement for our culture and civilization.

Let’s recap: Now, a working class white man has to compete not just with his peers for “good jobs” but with people who are:

• Female
• African American
• Hispanic
• Gay
• Lesbian
• Jewish
• Muslim
• Hindu
• Transgender
• Non-American

Thus, the plight of the working class is not just a story of the trade deficit alone but an unraveling of the entitlement privileged system that gave them first shot at jobs and opportunities at the expense of everyone else in the world.  Those days are over.  Gone.  They are never returning.  Nah nah nah nah, nah nah nah nah, hey, hey … Goodbye.

How Do We Fix the Situation?

The question, then, remains: How do we fix the trade deficit?  I already told you: Oil and automobiles does it.  Add in the tax incentives for manufacturing and I think you’re there.  But let’s discuss some of the options that people seem fond of throwing up whenever solving the trade deficit is discussed:

Trade Tariffs: If we throw up huge trade tariffs, we already know that other countries will retaliate, our exports will drop off a cliff, and the price of everything will rise because tariffs are a transfer tax from the general population to specific employees in specific industries.  Trade tariffs are a form of targeted welfare. As a nation, if we put a tariff on foreign steel, we are indirectly saying that we believe steel workers should be entitled to a certain wage even if the free market disagrees so we are going to tax everyone else in the form of higher prices to support this belief.  I told you earlier tariffs are a transfer tax (welfare) from knowledge workers to manual workers.

Increased Entitlement Benefits: Drucker said that socialistic tax rates might very well become reality to avoid a French Revolution style disaster but it would cause significant problems for society for several reasons:

• If a man feels like he has no value and is living off the system, his despondency may grow to hopelessness, violence, suicide or disengagement from helping build the civilization
• Those who are still gainfully employed as knowledge workers are going to grow resentful and spiteful of those who accept the government benefits because they will find it insulting they had to go to school for so many years, at such great cost, only to turn around and give part of their paycheck to people they perceive as lazy.
• People like me would join in the “capital flight” and invest our money in other countries, perhaps even moving outside of the United States.  If we can’t do what we love and earn a good return, we aren’t going to stick around just to get badmouthed and beat up all the time.

An Import / Export Credit System: This is what Buffett proposed, although Munger didn’t like it.  I believe the import / export credit system suffers from the same drawbacks of trade tariffs, in my opinion, because if the Japanese make a better car for a lower price, limiting the availability of that product to consumers is indirectly a tax forcing them to buy an inferior product at a higher price simply for the sake of supporting their neighbors.

It is a form of welfare transfer, something not “earned” by providing a service or product people want to buy freely.  I want America to win but only if it makes products people want.  If the Japanese are beating us because they have better goods, better service, and better technology, it irks my sense of fairness to punish them and consumers by forcing everyone to buy from someone who happens to be American but makes inferior goods.

I buy French perfumes because Creed is one of the best products in the world.  But when it comes to pianos, I adore Steinway & Sons, which has a factory in Queens, New York (with my second favorite brand being Bosendorfer from Vienna, Austria).  My car of choice is a Jaguar.  Aaron’s car of choice is a Lexus.  We both contributed to the trade deficit in that regard.  But the reality is, none of the other makes and models we looked at when making our car decisions came close to the quality and price that we received for those two automobiles.  The idea that I must buy a Ford because Americans make it really offends my sense of fair play.  A Cadillac is nice but a Lexus is better.

How about the domestic car companies stop complaining about that fact and create a product I want to buy more than a Lexus?

(Oh, and please don’t get me started on those idiots who have bumper stickers like: “Take my American flag off your foreign car.”  What they are really saying is, “I know we didn’t make a product you want to buy.  I know it doesn’t compete in quality or price with other companies such as Toyota or Mercedes.  But, damn it, I feel entitled to force you to buy what I sell and you are a crappy person for disagreeing with me because I know how you should spend your money better than you do.”)

I believe in meritocracy and that the best products and services should win.  That means that even though I want America to win, I don’t think she has a right to win if we don’t do what is necessary to secure the victory.

Continue to How to Solve the Trade Deficit – Part V …

Related posts:

1. How to Solve the Trade Deficit – A Five-Part Essay on the American Trade Imbalance
2. How to Solve the Trade Deficit – Part I
3. How to Solve the Trade Deficit – Part II
4. How to Solve the Trade Deficit – Part V
5. How to Solve the Trade Deficit – Part III
6. A Reader Question About the Trade Deficit
7. Free Trade Isn’t Always Fair Trade
8. My Thoughts on New Jersey Governor Chris Christie on Solving the New Jersey Budget Deficit