So much for the $700 billion bailout of Wall Street. Stocks are tanking across the world. Clearly, once the bailout passed, investors took a good look at the real economy and dove for the mattresses. We’re headed into a great reckoning. And at the heart of that, as argued in our new op-ad in the New York Times, is this country’s unsustainable global economic strategy.
What we’re seeing, as Joseph Stiglitz has argued, is the failure of an economic model, an implosion of free market fundamentalism – the notion “that markets are self-correcting, allocate resources efficiently and serve the public interest well,” and governments should just get out of the way.
We’ve gone down this path for 30 years. Abroad, global corporations and banks essentially wrote the constitution of the new global economy, protecting property rights but not workers, consumers or the environment. Banks and currencies were deregulated without protection against destabilizing speculation.
At home, President Reagan launched the war on unions and the rollback of government and regulation. The minimum wage was frozen for a decade. Undocumented workers were exploited to undermine wages and standards. Companies used globalization as a club against workers. Pensions and health care benefits were cut. Over the last eight years, productivity and profits rose, but wages lost ground. We lost one in five manufacturing jobs. Now some 15 million service jobs are at risk of being offshored.
Yet the global economy depended on American consumers as the buyers of last resort. Sustaining a low-wage, high-consumption economy is no mean trick. The gulf was bridged by growing debt built on successive asset bubbles. Household debt soared to unprecedented levels as Americans loaded up on credit cards and cashed out their homes. And the U.S. is now the world’s largest debtor, having added over $4.4 trillion in foreign debt since 2001. We must borrow or sell off assets with $2 billion a day simply to cover our trade deficits. We now run a high-tech trade deficit with China. Mexico exports 50 percent more cars to the U.S. than the U.S. exports to the rest of the world.
What can’t go on indefinitely, won’t. And with the bursting of the housing bubble, the reckoning is here.
Clearly we need to change course. We need a national economic strategy for a global economy, a strategy for the nation, not for the multinationals that have very different interests. First, we need to work with other nations to rewrite the global rules, protecting the rights of workers to organize, creating the global environmental accords vital to dealing with global warming, raising consumer protection standards, and most important, regulating banking and currency speculation, with far greater transparency.
At home, we have to decide if America will remain a center of innovative manufacturing. A central initiative should be a concerted drive for energy independence, investing in conservation, renewable energy and the next generation of energy-efficient technologies. By doing this, we would be putting people to work while capturing the lead in the green markets of the future. This will dramatically reduce the half of our trade deficits that come from oil.
We need to create the basis for a high-income economy by empowering workers to organize and developing a public social contract to replace the private one shredded by corporations, with national health care, a national pension system, mandated paid vacations and sick leave.
Then we’ll need to make the investments vital to competing as a high-wage economy – in education and lifelong learning, in research and development, in the most efficient infrastructure.
Finally, we have to shed the fantasy that the U.S. and mercantilist nations like China are playing by the same set of rules. Clearly we have to bring our trade with China into balance. Dealing with our leading creditor won’t be easy. But we will have to either force an adjustment of the currencies, manage our trade, or slap on import surcharges or regulatory hurdles to counter their strategic trade practices.
This will cost significant sums. In the short term, as we seek to get out of the recession and get the global economy, we’ll be able to borrow the money. In the longer run, we’ll need to return to a progressive tax system that will finance the needed public investment.
What’s clear now is we deserve a serious public debate about what’s gone wrong – and about what our strategy should be going forward. Enough about Bill Ayers or Palin’s husband's flirtation with Alaskan separatism. We deserve a debate worthy of a great nation in trouble.