The Giant Sucking Sound and the Rise of Employnomics

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By C. Fernando Lumba

In 1992, during the campaign for the presidency of the United States, Independent party candidate Ross Perot warned the country about the “giant sucking sound” that Americans would soon hear if the North American Free Trade agreement became law. That agreement would promote the creation of millions of jobs in Mexico and Canada in return for American companies’ free access to the Canadian and Mexican markets.

Perot argued that the net result would be the loss of millions of American manufacturing jobs while the U.S. would benefit little from NAFTA (North American Free Trade Agreement).

Ross Perot, as most of us know, has been vindicated. Millions of American jobs have been lost to Mexico and Canada, while the gains made by the U.S. to compensate have been minimal.

Since the 1990s, we Americans have been hearing that Giant Sucking Sound.

Turns out NAFTA would prove to be a relatively minor headache. The major headache for America would prove to be our relationship with China.

Why do we have a lopsided, nearly one-way trade with China? And for that matter with a few other developing countries?

(Our trade deficit was at 540 billion dollars in 2012, much of that deficit attributable to our trade with China.)

Something must obviously be done. We cannot let our country lose year after year millions of American jobs and expect in the end to remain a powerful, prosperous country.

But, unless we Americans act, and act now, we cannot prevent the fall of the American economy.

Why have we been unable to do something about the loss of jobs and industry? (23,000 American manufacturing facilities closed each day in 2010, a lot of them because the manufacturing was being transferred to China.)

The March of Knowledge

In the old days, doctors believed that the cure for many ailments was to bleed the patient. A lot of people bled to death in the process, so doctors eventually stopped that treatment method. Eventually scientists discovered antibiotics and the medical equipment we take for granted today, and the world has become a safer and healthier place.

Our increasing knowledge of the universe, of our environment, the discovery of DNA, the mapping of the human genome, the development of artificial intelligence have all made our lives better and more fulfilling.

In one area, however, we have made no progress at all since the Great Depression. Outside of Keynesian economics, we have not made any progress at all in the field of economics. What we believe today is essentially what people believed during the time of Adam Smith (Wealth of Nations).

For some people, the belief in free markets is a religion.  This despite the fact that if you look around, only a handful of markets, the U.S. market included, are essentially free.

We continue to believe in laissesz-fairish classical economics when the evidence is overwhelming that the old economic theories are no longer applicable.

Consider the principle of comparative advantage. Distinguished economists – all PhD’s, some Nobel laureates – and our politicians, including President Obama, believe that the principle of comparative advantage is applicable in the globalized world economy.

This principle holds that the world economy is most efficient when companies manufacture in industries where they have an advantage either in expertise, labor costs, transportation costs, etc. The products that would tend to be manufactured and marketed would be the best products and cost the least.

In the global economy, however, the principle of comparative advantage does not work.

Countries such as China, Bangladesh, Indonesia, Uganda, etc. have a huge insurmountable advantage in labor costs. The U.S. advantage in technology and innovation is supposed to be an effective offset against other countries’ labor costs advantage, but the American technology and innovation advantage is a mirage because technology can easily be stolen or transferred outright.

The result is that China and other countries have a near-absolute advantage over the U.S. and other industrialized countries.

Granted, within the borders of the United States, the principle of comparative advantage works. If manufacturing can be done more efficiently in Alabama than in California, the factory can be moved to Alabama, with no loss to the economy. California’s loss is Alabama’s gain, therefore there is near-zero effect on the American economy. Also, the Californians who lose their jobs can easily move to Alabama and follow their relocated jobs. California unemployment does not significantly rise as a result of the move from California to Alabama and whatever employment California loses is balanced by the employment Alabama gains.

But, when manufacturing is moved from California to China, there is a huge loss to the American economy. The employees who lose their jobs in California are not able to move to China because there is virtually no freedom of movement between the countries.

Unemployed Californians remain unemployed for years because all around them factories are closing shop and manufacturing is being off-shored to China. The ultimate result is that Californians are unable to buy the usual products that they buy, so aggregate demand suffers, world trade suffers, and the world economy goes into recession.

A lot of people think the 2008-2009 was only the result of the mortgage loans crisis.  That was indeed an important factor, but the long-term cause was the huge drop-off in aggregate demand as a result of people losing their jobs as factories closed or moved to China and other countries. To-date, the world has not fully recovered from that recession.

Employnomics, the new Economics

Just as doctors have found new ways to cure diseases, we Americans must find new ways to cure what ails our economy.

I am proposing the adoption of Employnomics. Employnomics is the field of economics that considers employment stability as one of the most important factors – if not the most important – that economists, world leaders and business planners must consider.

Traditionally, economists look at savings rates, interest rates, consumer confidence indexes, the stock market, labor costs, communication costs, transportation costs, investments, innovation, etc. as the important considerations when making business, economic and plant relocation decisions.

What I am proposing is that economists and business planners must also ask the question, “What will be the effect on employment stability of my decision to move my manufacturing facility from the U.S. to China, or the U.S. to Bangladesh, Brazil, India, Taiwan, Indonesia, Mexico, etc.?

Employment stability must be a very important consideration because we know that if the U.S.economy collapses, the world will be plunged into a great economic depression from which it will take a long, long time to recover. That’s because the European economy is already hanging by its fingernails. The double-whammy of an American collapse would assure that the world economy goes into a prolonged tailspin.

It is therefore in the interest of the whole world, including China’s, to make sure that the American economy does not lose any more jobs to the gods of globalization. It is in the interest of the whole world to see the U.S. gain back some of the jobs it has lost.

Those lost jobs are mainly manufacturing jobs and that is the reason we here at The American Consumer are fighting to bring manufacturing back to America.

We are not asking to bring back all manufacturing jobs lost to China and others. We are demanding that about half of the lost jobs be brought back to the U.S. The balance of all future U.S. progress will come from innovation and from the accelerated transformation of American society into state-of-the-technology.

Let’s have those flying cars, those buses that double as submarines, those robots that act as our valets, those bullet trains that travel in excess of 350 miles per hour. Let’s make those futuristic gadgets everywhere – in the U.S., in Indonesia, in the Philippines, in South Korea, Singapore, Mexico, Brazil and China.

Let’s spread manufacturing around. The beauty of Employnomics is that it mandates the preservation and creation of jobs everywhere. It rejects the notion that China, India, Brazil, Taiwan and others can do all the manufacturing while the rest of the world, including the U.S., is transformed into shopkeepers and mall operators.

Let’s stop the Wal-martization of America and go back to making things again. But this time, America must lead in the encouragement of economic nationalism everywhere, not just in the U.S. and Europe. Other countries must follow America’s lead in insisting that 51% of all manufactured products sold in their countries are made locally and not imported from China and other developing countries – or from Europe and the United States.

The result will be a worldwide boom like the world has never, ever seen. China will still probably emerge as the number one economy in the world, but it will not be at the expense of the U.S. and other countries.

It will be in partnership with the rest of the world.

(The author, C. Fernando Lumba, encourages everyone to make comments that tend to advance a discussion of the issues.  Readers with specific and perhaps personal questions may email the author at lumbacesar@gmail.com.  The author will attempt to reply to all emails received.)