David Stockman’s third in a series on Donald Trump. This is an excellent analysis of the consequences of free trade and free money. From Stockman at davidstockmanscontracorner.com:
Donald Trump’s patented phrase “we aren’t winning anymore” lies beneath the tidal wave of anti-establishment sentiment propelling his campaign and, to some considerable degree, that of Bernie Sanders, too.
As we demonstrated in Part 1, what’s winning is Washington, Wall Street and the bicoastal elites. The latter prosper from finance, the LA and SF branches of entertainment ( movies/TV and social media, respectively) and the great rackets of the Imperial City—including the military/industrial/surveillance complex, the health and education cartels, the plaintiffs and patent bar, the tax loophole farmers and the endless lesser K-Street racketeers.
But most of America’s vast flyover zone has been left behind. Thus, the bottom 90% of families have no more real net worth today than they had 30 years ago and earn lower real household incomes and wages than they did 25 years ago.
Needless to say, the lack of good jobs lies at the bottom of the wealth and income drought on main street, and this week’s April jobs report provided still another reminder.
During the last three months goods-producing jobs have been shrinking again, even as the next recession knocks on the door. These manufacturing, construction and energy/mining jobs are the highest paying in the US economy and average about $56,000 per year in cash wages. Yet it appears that the 30 year pattern shown in the graph below——lower lows and lower highs with each business cycle—-is playing out once again.
So even as the broadest measure of the stock market—-the Wilshire 5000—–stands at 11X its 1989 level, there are actually 22% fewer goods producing jobs in the US than there were way back then.
This begs the question, therefore, as to the rationale for the Jobs Deal we referenced in Part 1, and why Donald Trump should embrace a massive swap of the existing corporate and payroll taxes for new levies on consumption and imports.
The short answer is that Greenspan made a giant policy mistake 25 years ago that has left main street households buried in debt and stranded with a simultaneous plague of stagnant real incomes and uncompetitively high nominal wages. It happened because at the time that Mr. Deng launched China’s great mercantilist export machine during the early 1990s, Alan Greenspan was more interested in being the toast of Washington than he was in adhering to his lifelong convictions about the requisites of sound money.
Indeed, he apparently checked his gold standard monetary princples in the cloak room when he entered the Eccles Building in August 1987. Not only did he never reclaim the check, but, instead, embraced the self-serving institutional anti-deflationism of the central bank.
This drastic betrayal and error resulted in a lethal cocktail of free trade and what amounted to free money. It resulted in the hollowing out of the American economy because it prevented American capitalism from adjusting to the tsunami of cheap manufactures coming out of China and its east Asian supply chain.
To continue reading: Trumped! Why It Happened And What Comes Next, Part 3 (The Jobs Deal)
