PDA

View Full Version : When will downwardly mobile Americans rebel?



World Traveler
04-26-08, 12:13 PM
In the last Gilded Age, late 1800's, Mid-West farmers organized Populist Co-operatives, factory workers and miners organized unions and strikes, Muckrakers published books, and there were nationally famous leaders like William Jennings Bryan who articulated and fought for their viewpoint.

Fascinating article posted below attempts to answer the questions of why downwardly-mobile average American hasn't rebelled yet and if/when they might..

If I had written it, I would have more explicitly talked about a conscious effort by business/ wealthy elite pulling the strings in the background to focus election campaigns on "family" and social values so as to exclude talk of economic inequality. Also the alliance of the business elite with conservative religious elements within in the Republican Party - an alliance that has always favored the corporate elite, who've gotten most of what they wanted over the last 30 years while the conservative religion folks who supplied the voters have gotten very little in the way of concrete legislation to remake society acc to their values.

I'd also have talked more about the ability of the business/ corporate elite to control the parameters of the discussion by getting rid of laws that limited media consolidation, so now 5 media companies control most of the information that the average Americans see and hear. And using phony populists like Ann Coulter and Bill O'Reilly to cleverly define the cause of people's anger and frustration and channel it into directions that do not threaten the U.S.'s business/ Wall Street elite and their ability to make huge sums of money.

Still, it's a very good article. A few exerpts:

"Certainly, Mark Twain would feel right at home today...Crony capitalism, inequality, extravagance, Social Darwinian self-justification, blame-the-victim callousness, free-market hypocrisy: thus it was, thus it is again! ."

"....by every measure, the country has now exceeded the extremes of inequality achieved during the first Gilded Age; nor are our elites any more embarrassed by their Mammon-worship than were members of the "leisure class" excoriated a century ago by that take-no-prisoners social critic of American capitalism Thorstein Veblen. "

"Perhaps the answer is simple and basic: The first Gilded Age rested on industrialization; the second on de-industrialization. In our time, a new system of dis-accumulation looted American industry, liquidating its assets to reward speculation in "fictitious capital." ...the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. De-industrialization has laid the industrial working class and the labor movement low, killing it twice over...Dis-accumulation transformed the working class into a disaggregated pool of contingent labor..."

"Decline, dispossession, and marginalization: a grim scenario. Yet the new political economy of finance-based dis-accumulation also announced itself as the second coming of democratic capitalism. And in the realm of the collective imaginary, if not in reality, it convinced millions. "

"Our corporate elite are much more adept than their Gilded Age predecessors were at playing the democracy game...Beginning in the 1970s, our age's business elite became acutely politically-minded and impressively well-organized...They've gone so far as to craft strategic alliances with elements of what their nineteenth century predecessors would have termed the hoi polloi [the masses]. Calls to dismantle the federal bureaucracy now carry a certain populist panache, while huffing and puffing about family values has -- so far -- proven a cheap date for a gilded elite that otherwise generally couldn't care less. "

"Shareholder democracy" and the "ownership society" are admittedly more public relations slogans than anything tangible. Nonetheless, you can't ignore the fact that, during the second Gilded Age, half of all American families became investors in the stock market..."

"However, the wheel turns. The capitalism of the Second Gilded Age now faces a systemic crisis...Old-fashioned poverty is making a comeback...anger and resentment over insecurity, downward mobility... and the ill-gotten gains of our Gilded Age mercenaries and their political enablers already rippled the political waters during the mid-term elections of 2006. This primary season has witnessed a discernable leftward shift..."

"Legitimacy is a precious possession; once lost it's not easily retrieved. Today, the myth of the "ownership society" confronts the reality of the "foreclosure society." The great silence of the second Gilded Age may give way to the great noise of the first."

http://www.tomdispatch.com/post/174922/steve_fraser_the (http://www.tomdispatch.com/post/174922/steve_fraser_the)

Jeff
04-26-08, 08:35 PM
I say it gets ugly and that's great. I had this to say in December (http://jefflikestorant.blogspot.com/2007/12/revolution-will-be-on-youtube.html).

FRED
04-27-08, 12:55 PM
In the last Gilded Age, late 1800's, Mid-West farmers organized Populist Co-operatives, factory workers and miners organized unions and strikes, Muckrakers published books, and there were nationally famous leaders like William Jennings Bryan who articulated and fought for their viewpoint.

Fascinating article posted below attempts to answer the questions of why downwardly-mobile average American hasn't rebelled yet and if/when they might..

If I had written it, I would have more explicitly talked about a conscious effort by business/ wealthy elite pulling the strings in the background to focus election campaigns on "family" and social values so as to exclude talk of economic inequality. Also the alliance of the business elite with conservative religious elements within in the Republican Party - an alliance that has always favored the corporate elite, who've gotten most of what they wanted over the last 30 years while the conservative religion folks who supplied the voters have gotten very little in the way of concrete legislation to remake society acc to their values.

I'd also have talked more about the ability of the business/ corporate elite to control the parameters of the discussion by getting rid of laws that limited media consolidation, so now 5 media companies control most of the information that the average Americans see and hear. And using phony populists like Ann Coulter and Bill O'Reilly to cleverly define the cause of people's anger and frustration and channel it into directions that do not threaten the U.S.'s business/ Wall Street elite and their ability to make huge sums of money.

Still, it's a very good article. A few exerpts:

"Certainly, Mark Twain would feel right at home today...Crony capitalism, inequality, extravagance, Social Darwinian self-justification, blame-the-victim callousness, free-market hypocrisy: thus it was, thus it is again! ."

"....by every measure, the country has now exceeded the extremes of inequality achieved during the first Gilded Age; nor are our elites any more embarrassed by their Mammon-worship than were members of the "leisure class" excoriated a century ago by that take-no-prisoners social critic of American capitalism Thorstein Veblen. "

"Perhaps the answer is simple and basic: The first Gilded Age rested on industrialization; the second on de-industrialization. In our time, a new system of dis-accumulation looted American industry, liquidating its assets to reward speculation in "fictitious capital." ...the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. De-industrialization has laid the industrial working class and the labor movement low, killing it twice over...Dis-accumulation transformed the working class into a disaggregated pool of contingent labor..."

"Decline, dispossession, and marginalization: a grim scenario. Yet the new political economy of finance-based dis-accumulation also announced itself as the second coming of democratic capitalism. And in the realm of the collective imaginary, if not in reality, it convinced millions. "

"Our corporate elite are much more adept than their Gilded Age predecessors were at playing the democracy game...Beginning in the 1970s, our age's business elite became acutely politically-minded and impressively well-organized...They've gone so far as to craft strategic alliances with elements of what their nineteenth century predecessors would have termed the hoi polloi [the masses]. Calls to dismantle the federal bureaucracy now carry a certain populist panache, while huffing and puffing about family values has -- so far -- proven a cheap date for a gilded elite that otherwise generally couldn't care less. "

"Shareholder democracy" and the "ownership society" are admittedly more public relations slogans than anything tangible. Nonetheless, you can't ignore the fact that, during the second Gilded Age, half of all American families became investors in the stock market..."

"However, the wheel turns. The capitalism of the Second Gilded Age now faces a systemic crisis...Old-fashioned poverty is making a comeback...anger and resentment over insecurity, downward mobility... and the ill-gotten gains of our Gilded Age mercenaries and their political enablers already rippled the political waters during the mid-term elections of 2006. This primary season has witnessed a discernable leftward shift..."

"Legitimacy is a precious possession; once lost it's not easily retrieved. Today, the myth of the "ownership society" confronts the reality of the "foreclosure society." The great silence of the second Gilded Age may give way to the great noise of the first."

http://www.tomdispatch.com/post/174922/steve_fraser_the (http://www.tomdispatch.com/post/174922/steve_fraser_the)


Very good piece, thanks for posting. Reads like a cross between The Big Bet (http://www.itulip.com/forums/showthread.php?p=4486#post4486) and The Next Bubble (http://www.harpers.org/archive/2008/02/0081908).

GRG55
04-27-08, 03:11 PM
Very good piece, thanks for posting. Reads like a cross between The Big Bet (http://www.itulip.com/forums/showthread.php?p=4486#post4486) and The Next Bubble (http://www.harpers.org/archive/2008/02/0081908).

The difficulty I have with this piece is that the "dis-accumulation" is characterized as a uniform, across the board "looting of American industry".

It's never been an all-or-nothing, binary outcome situation. At the very beginning of this FIRE economy cycle there was a considerable amount of aging US industry that was outmoded and uncompetitive, much like UK industry at the outbreak of WWII. At the same time most of the resource sector was labouring under gross excess capacity after nearly a decade of mis-allocation (over allocation?) of capital. A constructive rejuvenation of these sectors, instigated by a more disciplined capital allocation mindset, was badly needed in order to remain competitive with the emerging economies and manufacturing plants in Japan and later Taiwan, Singapore, etc.

It would be difficult to argue that the standard-of-living of most Americans, not just the bankers, is not materially higher today than it was 30 years ago (although I will concede that one could argue about the more difficult to measure "quality-of-life" issue). However, like almost any human activity, what is beneficial when done in moderation is lethal when taken to excess.

World Traveler
04-27-08, 07:12 PM
I think, generally speaking, the iTulip community is more affluent than the average American. Unlikely to be in the bottom 60% of the iTilup chart that shows income and net worth of Americans by quintile. So we probably don't see see the world with the same eyes as the bottom 60%.

The bottom 60% of the income and net worth chart is where the most of the stress is today. Where people have been supplementing stagnant incomes with home equity extractions, taking out adjustable rate mortgages, and generally trying to maintain a middle class life style by putting Mom out to work and relying on debt. Debt that has been subtly and not-so-subtly encouraged by Wall Street and the banks (Cut to commerical: "Reward yourself by using your credit card", "Make your dome equity work for you", etc., etc.)

The average American may have more electronic doo-dads than 50 years ago, but they are also much more subject to lay-offs, factory closures, offshoring of jobs (professional and non-professional), and other types of income disruption. And with each new year, trends in income disruption and income deterioration seem to accelerate, rather than decrease. Elizabeth Warren of Harvard University has done a good body of work pinpointing the details.

The bottom 60% of American did not make the decisions to close and offshore American factories rather than modernize them. The top 5% of the income distribution, who have done quite well in last 30 years, made those decisions.

Until now, the situtation has been a win-win for the FIRE economy and Wall Street. Interest paid on debt is more money for the bankers. Layoffs and offshoring cause stocks to go up. Increasing income disparity means the top 5% has more investable income.

We appear to be in a Minsky moment, where the s**t is hitting the fan. Credit crises, falling dollar, scarcer oil. We know how the Wall Street, the banks, and corporate leadership is likely to react, just by looking at their actions over past 20 years.

The open question is how the underclass will react. It's a work in progress and the final outcome is not clear yet. Will they just continue to "take it"? Will they vent their frustrations at the polls? in the streets? by organizing themselves and trying to wrest more power? The jury is out...

FRED
04-27-08, 07:20 PM
The difficulty I have with this piece is that the "dis-accumulation" is characterized as a uniform, across the board "looting of American industry".

It's never been an all-or-nothing, binary outcome situation. At the very beginning of this FIRE economy cycle there was a considerable amount of aging US industry that was outmoded and uncompetitive, much like UK industry at the outbreak of WWII. At the same time most of the resource sector was labouring under gross excess capacity after nearly a decade of mis-allocation (over allocation?) of capital. A constructive rejuvenation of these sectors, instigated by a more disciplined capital allocation mindset, was badly needed in order to remain competitive with the emerging economies and manufacturing plants in Japan and later Taiwan, Singapore, etc.

It would be difficult to argue that the standard-of-living of most Americans, not just the bankers, is not materially higher today than it was 30 years ago (although I will concede that one could argue about the more difficult to measure "quality-of-life" issue). However, like almost any human activity, what is beneficial when done in moderation is lethal when taken to excess.

EJ writes in:

The New New Deal is a proposition to preserve what is uniquely beneficial about the American system of innovation and financing, which has produced very real benefits, while finance takes a back seat versus acting as the driver of the economy to make room for the re-industrialization of the US economy.

GRG55
04-28-08, 12:29 AM
I think, generally speaking, the iTulip community is more affluent than the average American. Unlikely to be in the bottom 60% of the iTilup chart that shows income and net worth of Americans by quintile. So we probably don't see see the world with the same eyes as the bottom 60%.

The bottom 60% of the income and net worth chart is where the most of the stress is today. Where people have been supplementing stagnant incomes with home equity extractions, taking out adjustable rate mortgages, and generally trying to maintain a middle class life style by putting Mom out to work and relying on debt. Debt that has been subtly and not-so-subtly encouraged by Wall Street and the banks (Cut to commerical: "Reward yourself by using your credit card", "Make your dome equity work for you", etc., etc.)

The average American may have more electronic doo-dads than 50 years ago, but they are also much more subject to lay-offs, factory closures, offshoring of jobs (professional and non-professional), and other types of income disruption. And with each new year, trends in income disruption and income deterioration seem to accelerate, rather than decrease. Elizabeth Warren of Harvard University has done a good body of work pinpointing the details.

The bottom 60% of American did not make the decisions to close and offshore American factories rather than modernize them. The top 5% of the income distribution, who have done quite well in last 30 years, made those decisions.

Until now, the situtation has been a win-win for the FIRE economy and Wall Street. Interest paid on debt is more money for the bankers. Layoffs and offshoring cause stocks to go up. Increasing income disparity means the top 5% has more investable income.

We appear to be in a Minsky moment, where the s**t is hitting the fan. Credit crises, falling dollar, scarcer oil. We know how the Wall Street, the banks, and corporate leadership is likely to react, just by looking at their actions over past 20 years.

The open question is how the underclass will react. It's a work in progress and the final outcome is not clear yet. Will they just continue to "take it"? Will they vent their frustrations at the polls? in the streets? by organizing themselves and trying to wrest more power? The jury is out...

I don't disagree that right now, today, things look pretty severe for a great many people in the USA. That's what I meant by the lethality of excess. It's always been a difficult situation for the poor, more recent victims are increasingly the middle-class. As you say the jury is out as to how far and wide the lethality of this latest excess will extend. Politicians, bankers, former Fed chiefs, who knows who will be dethroned next.

However, casting a glance back 30 years puts us in the closing stages of the Carter Administration, at the end of a decade of multiple deep recessions and shallow recoveries, runaway inflation, high unemployment, months away from the Iranian revolution, US hostages & the second oil crisis of the 1970's. I used to make regular summer road trips and winter ski trips into the NW USA back then (that was the last time the Cdn $ was near par), and I recall it was a time when Americans were dealing with declining living standards as inflation ate away their paycheques (COLA-clause or not), and feared the loss of their nation's economic dominance, much like today. It was a time of elevated uncertainty and national angst, and led to the election of another Republican Administration despite the fact that Watergate and the Nixon impeachment were still fresh in voter's minds.

As the '80s and '90s unfolded I think most Americans did feel their standard of living improved. But that's all changed this decade...

Contemptuous
04-28-08, 01:07 AM
I... The average American may have more electronic doo-dads than 50 years ago, but they are also much more subject to lay-offs, factory closures, offshoring of jobs ... The bottom 60% of American did not make the decisions to close and offshore American factories rather than modernize them. The top 5% of the income distribution, who have done quite well in last 30 years, made those decisions. ...

World Traveler - this assertion's finer points seem in fact incorrect, and that may throw for a loop a good part of what the entire theory espouses - it was not the top 5% of Americans who made this outsourcing decision - it was the emerging low cost factory floor in Asia which "made the decision" for everyone. Hence my doubt about the full validity of the core thesis, which ascribes the economic decline to the machinations of the top 5% in this country - the "deciders", in all their ominous pre-eminence.

The Asian factory floor has in fact had that top 5% of the American economic establishment in tow all along, as international economic currents would not have to strain much to establish. America invented the notion of global free trade and is now patently skewered by it. Claiming we might instead have had leaders who showed us how to "out compete" that Asian factory floor is dubious, because they undercut our cost of labor by 80%. As soon as this capability emerged, the US was "out of business" overnight against such odds, as are a good number of other countries in manufacturing actually.

I distrust the "inevitability" with which this article seems to "wend it's way" back to the machinations of the top 5% of the US economic establishment, in a search for the "final source" of present economic ailments. Not because I am remotely an apologist for that 5%. The top 5% have actively and opportunistically abetted the move, but they were overwhelmingly likely not the prime mover of the migration of manufacturing and industry eastwards that has debilitated this country (and tellingly, some others as well). That event was patently inevitable in the context of a massive segment of the world industrialising.

Making a villain out of "big oil" for the current energy predicament comes to mind as a fine parallel with some curiously similar (potentially class derived and populist) strains as this thesis. The questions are profound, but the conclusion? I'll pass, insofar as merely glancing around the world evidences that this theory does not dig down to the "broadest and deepest basis", which has nothing to do with class issues whatsoever (at least on a national, US level) - but everything to do with the brutality of globalisation.

Finster
04-28-08, 02:56 PM
World Traveler - this assertion's finer points seem in fact incorrect, and that may throw for a loop a good part of what the entire theory espouses - it was not the top 5% of Americans who made this outsourcing decision - it was the emerging low cost factory floor in Asia which "made the decision" for everyone. Hence my doubt about the full validity of the core thesis, which ascribes the economic decline to the machinations of the top 5% in this country - the "deciders", in all their ominous pre-eminence.

The Asian factory floor has in fact had that top 5% of the American economic establishment in tow all along, as international economic currents would not have to strain much to establish. America invented the notion of global free trade and is now patently skewered by it. Claiming we might instead have had leaders who showed us how to "out compete" that Asian factory floor is dubious, because they undercut our cost of labor by 80%. As soon as this capability emerged, the US was "out of business" overnight against such odds, as are a good number of other countries in manufacturing actually.

I distrust the "inevitability" with which this article seems to "wend it's way" back to the machinations of the top 5% of the US economic establishment, in a search for the "final source" of present economic ailments. Not because I am remotely an apologist for that 5%. The top 5% have actively and opportunistically abetted the move, but they were overwhelmingly likely not the prime mover of the migration of manufacturing and industry eastwards that has debilitated this country (and tellingly, some others as well). That event was patently inevitable in the context of a massive segment of the world industrialising.

Making a villain out of "big oil" for the current energy predicament comes to mind as a fine parallel with some curiously similar (potentially class derived and populist) strains as this thesis. The questions are profound, but the conclusion? I'll pass, insofar as merely glancing around the world evidences that this theory does not dig down to the "broadest and deepest basis", which has nothing to do with class issues whatsoever (at least on a national, US level) - but everything to do with the brutality of globalisation.

Itís even worse than that, Lukester. The US governmentís globalization policy, rather than leveling the playing field between the US worker and the foreign worker, has actually tilted it sharply away from the US worker.

Decades ago, before the globalization and free trade kick took root here, a US consumer who hired his neighbor across the street to make something for him payed a large embedded tax in the form of the income tax. If he hired someone overseas to do the same, he payed a large embedded tax in the form of duties and tariffs. This roughly put the US worker and his foreign counterpart on an even keel. When the free trade movement took hold, they got busy stripping away the taxes on the imported foreign goods, but forgot about those on the domestic ones. Pretty much the same goes for the regulatory burden. The result is that the US governmentís tax policy as a whole puts the American worker really behind the eight ball as compared to his foreign counterpart.

The Outback Oracle
04-28-08, 07:21 PM
G'day Lukester et al

I dip my toe into this debate in esteemed company with some alacrity.
Surely the outcome would have been different if the top 5%, which includes pretty well all Government politicians and officials, had adopted a more responsible attitude to balancing both the internal and external economies. The idea that deficits (either internal or external) don't matter and borrowing whatever colossal, heretofor unimaginable, amounts of money surely is a fundamental cause of the decline of industry within our economies.
Had we not all borrowed these fantastic amounts of money, more goods WOULD NECESSARILY have to be manufactured within our borders. I am fully aware of the labour cost argument, but all decisions have marginal effects. Less borrowing would have meant, at least in the short and medium term, a different (much lower) value for the dollar. So, some industries would have still gone the way of the dinosaur but others would have survived and possibly even prospered. The necessary adjustment to the new world would have been slower and more manageable with less dislocation and with more efficiency. As it is we have just taken a wrecking ball to our societies in the interests of Bankers lawyers et al. As you dutifully point out in other posts, we have not yet seen the level of destruction that might be headed our way.

phirang
04-28-08, 08:19 PM
americans will rebel when their tv's no longer work.

Nervous Drake
04-28-08, 10:48 PM
What's interesting to me is that people in debt just accept it as a fact of life. Many people enjoy their lives more even with an overhang of debt.

This, to me, is key to a rebellion. When that debt no longer guarantees a better life, and is merely a guarantee that you will live (ie you can still get food and live in some shelter), then perhaps people will wake up and realize that they were deliberately placed in such a situation by our overlords (bankers, government, corporations).

What if that never happens? Well, probably no rebellion.

necron99
04-29-08, 01:48 AM
One thing I find very interesting about the article, is that the author uses the exact phrase from iTulip -- the "FIRE" Economy...

For a quarter-century, the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector.
Does Dr. Michael Hudson or iTulip (http://itulip.com/forums/showpost.php?p=6738&postcount=1) get any royalties off of the use of the phrase? Oh, well, it's a catchy phrase that does a good job of explaining things to the layman (in my opinion), so I'm glad to see it catching on.

Speaking of iTulip phrases, did anyone else catch this article about the so-called "Plunge Protection Team" ?

http://www.truthout.org/docs_2006/042508C.shtml


Consider that the President's Working Group on Financial Markets - nicknamed "the Plunge Protection Team" by The Washington Post in 1997 quietly observed its 20th birthday on Mar. 18. "Quietly," in fact, is an understatement. "Semi-secretly" would be more like it. The Working Group, or PPT, is much-pondered but reclusive group that has declined to submit to the federal Freedom of Information Act or to testify in detail before Congress about its activities. This is true even though its current chief, Treasury Secretary Henry M. Paulson Jr. - Federal Reserve Board Chairman Ben Bernanke is another prominent member - made no secret of revving up its operations after he took took over at Treasury in 2006.
The curious reader will wonder: Just what does the PPT do?
Right now, Congress ought to able to pursue this basic question: Is the PPT a kind of committee for the extra-legal coordination, manipulation and subsidization of financial institutions and markets? Has it been stepping in when free-market forces have become too perilous to profits and asset values - in financial crisis years like 1998, 2001 and 2007. Has Washington decided to protect the financial sector more than any other element of the U.S. economy?
Over the last decade or so, the Treasury Dept. and the Fed have both developed something of a scofflaw attitude toward strict interpretation of federal statutes and regulations. For example, both winked in the late 1990s, as federal regulators allowed Citibank to merge with Travelers Insurance, despite contrary law still on the books. Both winked in more recent years, as major banks set up huge multi-billion-dollar structured investment vehicles, or SIVs, to do on an off-the-books basis what they were not allowed under banking law. Now we have the federally funded J.P Morgan Chase takeover of Bear Stearns. The PPT may well have had a quiet role in some of these actions.

Slimprofits
04-29-08, 03:08 AM
PPT isn't an "Itulip phrase". The phrase debuted in public in a Washington Post headline.

Finster
04-29-08, 08:07 AM
PPT isn't an "Itulip phrase". The phrase debuted in public in a Washington Post headline.

I think he was referring to "FIRE economy" ...

sadsack
04-29-08, 08:29 AM
Itís even worse than that, Lukester. The US governmentís globalization policy, rather than leveling the playing field between the US worker and the foreign worker, has actually tilted it sharply away from the US worker.

Decades ago, before the globalization and free trade kick took root here, a US consumer who hired his neighbor across the street to make something for him payed a large embedded tax in the form of the income tax. If he hired someone overseas to do the same, he payed a large embedded tax in the form of duties and tariffs. This roughly put the US worker and his foreign counterpart on an even keel. When the free trade movement took hold, they got busy stripping away the taxes on the imported foreign goods, but forgot about those on the domestic ones. Pretty much the same goes for the regulatory burden. The result is that the US governmentís tax policy as a whole puts the American worker really behind the eight ball as compared to his foreign counterpart.

It's even worse than this when one considers the double-bitch slap that domestic producers have to take when exporting to countries using a VAT regime.

Under GATT/WTO, countries with VAT "reimburse" their producers for the VAT they have already paid on a product, if that product is for export to a country that does not have a VAT. Most industrialized countries have a 10-15% VAT, but the US has no VAT, so this amounts to a 15% subsidy on products exported to the US.

Now, goods imported to a VAT country have VAT applied if the VAT in the exporting country is lower than that of the importing country. Since the US has no VAT, this amounts to a 10-15% tariff on American exports to VAT countries.

Wow, try producing goods domestically for export in the face of a 20-30% automatic pricing disadvantage. . .

Finster
04-29-08, 10:12 AM
It's even worse than this when one considers the double-bitch slap that domestic producers have to take when exporting to countries using a VAT regime.

Under GATT/WTO, countries with VAT "reimburse" their producers for the VAT they have already paid on a product, if that product is for export to a country that does not have a VAT. Most industrialized countries have a 10-15% VAT, but the US has no VAT, so this amounts to a 15% subsidy on products exported to the US.

Now, goods imported to a VAT country have VAT applied if the VAT in the exporting country is lower than that of the importing country. Since the US has no VAT, this amounts to a 10-15% tariff on American exports to VAT countries.

Wow, try producing goods domestically for export in the face of a 20-30% automatic pricing disadvantage. . .

Excellent point, Sadsack. One could raise the objection to my above argument that other countries impose taxes of their own. But they may also be doing things to offset (or even more than offset) their impact on trade. They may be tax-related, they may be currency-related, maybe regulatorily-related, whatever. But to deal with them directly puts the US in the position of having to hector other countries about their own internal policies, not exactly something that endears the US to them. Not to mention marginally effective at best. Far better to tend to our own imbalanced policies first. Either restore import taxes to the point of balance or scrap the whole mess in favor of an across-the-board consumption tax, which would at least equalize the burden between domestic and foreign producers.

WDCRob
04-29-08, 10:28 AM
Itís even worse than that, Lukester. The US governmentís globalization policy, rather than leveling the playing field between the US worker and the foreign worker, has actually tilted it sharply away from the US worker.

Decades ago, before the globalization and free trade kick took root here, a US consumer who hired his neighbor across the street to make something for him payed a large embedded tax in the form of the income tax. If he hired someone overseas to do the same, he payed a large embedded tax in the form of duties and tariffs. This roughly put the US worker and his foreign counterpart on an even keel. When the free trade movement took hold, they got busy stripping away the taxes on the imported foreign goods, but forgot about those on the domestic ones. Pretty much the same goes for the regulatory burden. The result is that the US governmentís tax policy as a whole puts the American worker really behind the eight ball as compared to his foreign counterpart.

Wouldn't this tilt only be relevant in terms of the gap between domestic taxes here vs domestic taxes "over there?" If domestic workers are paying a 30% tax, but foreign workers are paying the same percentage tax in their home country wouldn't it net out?

Finster
04-29-08, 11:08 AM
Wouldn't this tilt only be relevant in terms of the gap between domestic taxes here vs domestic taxes "over there?" If domestic workers are paying a 30% tax, but foreign workers are paying the same percentage tax in their home country wouldn't it net out?

Just addressed that in the last post ...