During the 2016 presidential election Donald Trump repeatedly emphasized the impact of U.S. trade policy on unemployment. The effectiveness of this message to the workers of America was quite revealing. It speaks volumes about the decades of failure by both Democrats and Republicans to understand our currency and its appropriate use via fiscal policy – a failure not only to optimally benefit the public, but more specifically, to counter the damaging effects of trade on local communities. It should be a wake-up call.
Congress has abdicated one of its primary duties, and the results are seen in community after struggling community across our great country.
Politicians from both parties would do well to acknowledge that the impacts of liberalized trade policies are real and painful for those affected and that these constituents have not been served well by their representatives. It is essential that we hold Congress accountable to consider the real alternatives for maintaining domestic jobs for those displaced, and that starts and ends with fiscal policy. Lambasting trading partners, complaining about currency manipulations, and fearmongering over the so-called “national debt” is both misguided and nonsensical.
But why should I care?
- Millions of our friends, family members, and neighbors have lost hope that they can participate in a meaningful way in this economy. After months or even years of trying, many have lost job skills and have even given up trying to find a job.
- A host of social problems accompany this kind of decline, and it is a great tragedy that we have left these people and communities behind. This is bad for all of us.
- When one hurts we all hurt – and I mean this in very tangible ways: joblessness is linked to increased crime, mental illness, poverty, family breakdown, abuse, and so much more.
Breaking the Link Between Trade and Unemployment
Trade deficits are no excuse to allow persistent unemployment. And reducing unemployment is the wrong reason to change trade relationships.
For the simple reason that under our floating currency regime, trade deficits are essentially an invitation – even a mandate – to our currency-issuing government to increase its net contribution of currency to replace that being saved by our trading partners. We call this a deficit, wrongly attributing a moral judgement to an accounting measure for net currency flows. Remember that when it comes to currency accounting, a deficit for someone is a surplus for someone else. If the rest of the world wants to have a surplus of our currency, then our domestic economy will naturally have a deficit unless the issuer of the currency compensates, providing the means for our domestic economy to also have a surplus – which we almost always need.
The chart below illustrates this point, drawing attention to a recent period where our government tried to take more currency from the economy than it added, facilitated by excessive private debt, but leading quickly to a major financial crisis.
Chart provided by Stephanie Kelton and Scott Fullwiler
It’s time Congress got smart about its currency and demonstrated some leadership in how it conducts fiscal policy, especially in response to our significant trade deficits and the systemic unemployment we’ve tolerated for far too long.
Of course, the logical place for such fiscal investments should be directly into the communities where domestic industry is being displaced by trade policies, with a goal of direct job creation for the unemployed.
Trade is an undeniable positive, but as with any market system, it must be kept in balance and be made to serve the needs of individuals and communities. The win-lose race to the bottom between nations to attract private capital is always going to result in unnecessary and untenable human suffering, and should be kept in check. When we recognize that corporations are not the sole source of employment, we can take a more careful approach to trade – one where communities win, workers win, businesses win, and our trade partners win.
So how can we keep people employed when we have trade deficits?
If Congress is going to pass trade agreements that result in factory closures and offshoring, then Congress should simultaneously provide direct investment that will maintain a decent job for all affected. If they want credit for the one, then they should take responsibility for the other.
What we do in response to trade we can also do for displaced workers in declining industries such as coal mining.
- Education and skill re-development is one thing, but at the end of the day people need a job. And we can afford to guarantee them one.
Trumping trade-induced unemployment is really quite straightforward.
Congress should use the “fiscal space” provided by trade deficits and domestic savings to invest in our nation and our people, and get every able body working and earning a good living again. We can safely do this without inflation concerns up to the point we reach full capacity of our economy.
A Constructive Use of Fiscal Policy
An obvious place to start is to upgrade America. The American Society of Civil Engineers gives our nation’s infrastructure a D+ rating and estimates $3.6 trillion of investments are needed by 2020. Much of our basic infrastructure is dated and unsafe. We should be ashamed that we’ve allowed drinking water systems to become dangerously unhealthy or sewage systems to become antiquated for lack of capital. Why don’t we provide federal grants to counties, cities, and towns across the nation to get their grades back up to A+?
Is there any reason the USA should fall behind in world-class regional and urban transportation systems, or high-speed Internet for all? Is there a need for more rural medical centers or education and training facilities? Is there environmental remediation on hold due to lack of funding? There are many such projects needed in many of the towns and communities currently in decline because of globalization.
But we should do more than this.
A New National Promise
If Congress is truly concerned about unemployment created by trade, in addition to direct investment in our nation it should take on as a priority the implementation of a national Job Guarantee program that ensures everyone who wants to work has a job at a reasonable wage. In the face of globalization, automation, and with so much work to be done to rebuild and improve our local communities, such a policy will do far more to address the systemic unemployment in our nation than convincing some manufacturing plants to remain in the country.
Geoff Coventry is a founding member and owner of Tradewind Energy, Inc. Prior to this position, Geoff was a co-founder and vice president of NetSales, Inc. Additional postings by Geoff can be found on his blog "It's The People's Money."