The Obama Administration’s 2010 Trade Agenda, unveiled March 1, is a radical departure from traditional American economic policy and values. It abandons not just the 65 years of trade liberalization on which American and world economic prosperity has been built since the end of World War II, but attempts to turn the economic clock back to the 17th Century and the mercantilist theories that predate Adam Smith.
Mercantilists viewed the world’s economic production in static terms. Mercantile theory exalted exports and a positive trade balance. Prosperity was defined by the acquisition of wealth in the form of bullion. Think Ebenezer Scrooge hoarding his pile of coins. Better yet, think China and its two trillion dollars of reserves built from trade surpluses. Bizarrely, this seems to be the model embraced by the Obama Administration.
We first heard Obama’s mercantilist approach in the State of the Union address. He called for greater exports, a “doubling” over five years. He proposed a National Export Initiative “to help farmers and small businesses increase their exports.” That’s policy code for export subsidies. He called for greater enforcement of trade agreements. That’s policy code for protectionism. He even identified China as a country for the U.S. to emulate in revamping our economy. No matter that Chinese incomes are only about one-tenth of average incomes in the United States. No matter that the Chinese who produce the goods we enjoy can’t buy them for themselves because of their government’s desire to build a massive trade surplus.
The logic of export promotion actually requires the reduction of consumption at home. Reducing the ability of Americans to buy and consume goods and services may seem like an odd policy platform for a democratically-elected leader like Mr. Obama, but this is what he explicitly endorses in his 2010 Trade Agenda, which calls on the United States “to slow the rate of consumption growth.”
The 2010 Trade Agenda is a recipe for economic failure and stagnation. Much of the focus is on enforcing rules to restrict other countries’ access to the U.S. market. It’s a begger-thy-neighbor approach in which we would sell more to other countries while restricting their ability to sell to us. Such a model is unsustainable internationally: not every country can run a trade surplus. Even worse, it would destroy America’s own economic dynamism. An export promotion strategy may bring quick benefits to a particular firm or business sector, but the price is paid by American taxpayers, consumers, and the businesses and sectors that don’t enjoy government protection or subsidies. For the U.S. economy as a whole, the result is lower productivity, fewer jobs, and slower growth.
One of the most basic lessons of economics, indeed the foundational lesson of economics, is that specialization and voluntary trade produce benefits for all parties to the exchange. It doesn’t matter whether you’re buying or selling. President Obama seems to have missed that lesson.
Trade policy needs to be about promoting freer trade, both exports and imports. Americans benefit from selling their produce abroad, but they also benefit by buying goods produced abroad. Even on the job front, millions of Americans are employed in transportation and retail activities that involve bringing imported goods to American consumers. An export-focused trade policy such as proposed by the President in the 2010 Trade Agenda, puts their jobs at risk in the service of politically connected special interests.
The 2010 Trade Agenda may be written as if it is championing America against other countries. In reality, it is championing some Americans (those who want government help in the form of tariffs, quotas, or subsidies) against other Americans (those who would like to purchase the best products at the cheapest prices no matter where they are made). In other words, it is politics as usual in a government controlled economy, picking winners and losers based on political influence rather than entrepreneurial ability or effort. That has not traditionally been the American way.
America came into being as a nation at about the same time as western civilization developed its modern understanding of the ways of creating the wealth of nations. Indeed, the American experiment has been one of economic activity blossoming in an environment that guaranteed maximum and expanding liberty for individuals to pursue whatever activity they desired, buying and selling freely, maximizing gains from trade in a continental American free market.
In the 20th Century, the American model took hold throughout the world, to the benefit of all humankind. That model is being challenged in the 21st Century, and the challenge, surprisingly, is coming in the United States itself. Whether we hold true to our founding principles of individualism and economic liberty, or acquiesce to the lure of collectivism and state control, will define what it means to be an American in the decades ahead. The President’s Trade Agenda is a step in the wrong direction.
The President’s FY2011 budget request calls for significant increases in education spending and, as promised, the Department of Education is exempt from Obama’s so-called spending freeze.
At a briefing today at the Department of Education, words such as “historic” and “bold” were used to describe the President’s budget. Secretary Duncan stated that the FY2011 budget represents “one of the largest increases” in education spending, which the president “sees as the key to our economic future”.
But is more spending on education the key to economic prosperity? For that matter, is it even the key to raising academic achievement?
Since 1985, inflation-adjusted federal spending on K-12 education has increased 138 percent. Yet, indicators of educational improvement such as increases in academic achievement and graduation rates have remained flat.
Despite the evidence that more spending is not the answer to increasing academic achievement, Assistant Secretary for Planning, Evaluation and Policy Development Carmel Martin noted during the briefing that discretionary funding for the Department of Education will increase 10 percent under the president’s proposed budget, raising total discretionary spending to $50.7 billion.
Included in this “historic” spending increase is $3 billion for ESEA programs, $173 billion in college loans and grants, and $9.3 billion for a new preschool program created in the Student Aid and Fiscal Responsibility Act (SAFRA), which has passed the House and is awaiting action in the Senate.
The budget increase also includes a $1 billion reserve fund for the Department of Education, contingent upon successful reauthorization of the Elementary and Secondary Education Act (ESEA). But those of us who’ve taught in the classroom know that you don’t give students extra credit for simply doing their assignments. That’s why the administration’s proposed $1 billion incentive for Congress to complete a reauthorization of the Elementary and Secondary Education Act is puzzling. After all, it’s Congress’s job to complete legislative assignments such as ESEA, which has been due for reauthorization since 2008. It’s also a little strange for the White House to be proposing an extra $1 billion as an incentive, since the Congress holds the power of the purse and could choose to increase funding for ESEA itself.
Perhaps the president feels that this is the increase that will finally solve the problems facing American education. When it’s all said and done, the president’s Fy2011 budget for the Department of Education tops $77 billion. This includes $50 billion in discretionary spending, $1 billion for successful ESEA reauthorization, and $35 billion for Pell grants, which became mandatory in 2010. The budget increase comes on top of last year’s $100 billion infusion of “stimulus” cash into the Department of Education’s coffer. Unfortunately, the sacred cow of education spending has been spared of the spending freeze.
Rather than calling for “historic” increases in federal spending or gimmicks like this $1 billion ESEA reauthorization incentive, Congress and the administration should focus on streamlining and reforming federal education programs in 2010 to better serve students and taxpayers.