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An Economy of a Dog Chasing It’s Tail

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Every school kid knows the paradox of the chicken and the egg. Which came first? There is no answer, just as there is no answer to the paradox of our economy except to say that it is a dog chasing its tail.

By Michael Caporale

 

Let’s take for example Trump’s notion that he can return diminishing manufacturing to the United States all while improving wages for labor simply by imposing a 5% tariff on imports. Nice trick. Let’s take a quick look at an historical overview.

Here’s how it works. Go back a few years. The United States leads the world in the manufacturing of automobiles. Detroit is the capital of auto production. Union labor supports middle class families with a good standard of living by keeping wages at a fair value and providing good benefits—healthcare and retirement. Cheap imports form Asian countries come in, providing stiff competition to American automakers who ignore that the Asians are making a more innovative product with better features like increased mileage. Rather than moving quickly to design automobiles that are more competitive, they move to reduce costs by lowering wages.

Simultaneously, Reagan institutes Union busting as policy. The automakers begin producing parts overseas and move their existing plants to competing states that will support higher profits with non-union, minimum wages while granting them tax reduction incentives. Workers in Detroit become unemployed and those workers in the scavenger states cannot support their families with the goods they need and desire at minimum wage.

Enter Chinese goods and the rise of Walmart and the creation of dollar stores. Now workers can afford those Nike knockoffs and their kids will not be ostracized at school. They fill up their shopping cart with dollar goods of low nutritional value like hot dogs, snacks and burritos while sliding into obesity, heart attacks and diabetes. The cost of health care, once provided under contract, is born directly by the worker who cannot afford insurance and so the burden is distributed to American taxpayers who find themselves subsidizing the manufacturer. Meanwhile Detroit goes into bankruptcy and civic services reduced as the city goes into decline and disrepair. Low cost foreign goods flood our market because workers cannot afford American made goods. Nor do they have a retirement plan and once again that cost is born by the taxpayer, another subsidy to the manufacturers. This is an indirect cost hidden from view but it is really corporate welfare not welfare.

So, let’s say Trump imposes a tariff. The cost of imports goes up and is on par with our locally produced goods. Workers can now afford neither, so wages must go up. When wages go up, the cost of American manufacturing goes up and retail prices rise again, putting them beyond the reach of the very workers who just got a raise. Now imports are cheaper once again and workers turn to buying the imports because that’s all they can afford. So what happens next? Tariffs go up again and we start the whole process over? This is just a dog chasing its tail.

The problem is much deeper than wages as a percentage of the cost of goods manufactured. Let’s face it, not in our lifetime will American wages be on par with third world countries. Nor is our standard of living that of third world countries. The problem is not us, it’s the guys at the top. The disproportionate compensation afforded executives is widening the gap between the 1% and the 99% of us who serve them. It makes cheap goods necessary for us in the 99% to keep a modicum of our standard of living, at the cost of our dignity.

And so we vote for change. We elect a billionaire who surrounds himself with billionaires whose policies are poised to encourage discrimination, manipulate the economy, savage our environment, end our healthcare, cut our benefits, trade with our enemies, and cap our wages, all to line their pockets through policy while negotiating conflict of interest deals that, while quasi-legal, are by any standard unethical. Yes, Trump is filling his cabinet with the best dealmakers.

And whose to stop them? We are otherwise entrenched in our beliefs and remain as entertained as the dog chasing it’s tail.

 


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